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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, 2022
 
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: 001-35867
 
CHIMERIX, INC.
(Exact Name of Registrant as Specified in Its Charter)  
Delaware 33-0903395
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
  
2505 Meridian Parkway, Suite 100
  
Durham, North Carolina
 27713
(Address of Principal Executive Offices) (Zip Code)
 
(919) 806-1074
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCMRXThe 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 x 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 x   No o

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  o
 
Accelerated filer o
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. o



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No x
 
As of October 28, 2022, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 88,045,127.


CHIMERIX, INC.
 
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022
 
INDEX
  
 Page
 
 

Unless otherwise mentioned or unless the context indicates otherwise, as used in this prospectus, the terms “Chimerix,” “the Company,” “we,” “us” and “our” refer to Chimerix, Inc., a Delaware corporation. We have obtained a registered trademark for Chimerix® and TEMBEXA® in the United States. All other trademarks or trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.


2


PART I - FINANCIAL INFORMATION
 
ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS
 
CHIMERIX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited) 
 September 30, 2022December 31, 2021
ASSETS  
Current assets:  
Cash and cash equivalents$274,261 $15,397 
Short-term investments, available-for-sale10,369 72,970 
Accounts receivable468 — 
Inventories— 2,760 
Prepaid expenses and other current assets6,022 4,678 
Total current assets291,120 95,805 
Long-term investments— 2,022 
Property and equipment, net of accumulated depreciation252 253 
Operating lease right-of-use assets2,078 2,404 
Other long-term assets430 56 
Total assets$293,880 $100,540 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$3,282 $2,788 
Accrued liabilities14,428 13,108 
Note payable— 14,000 
Total current liabilities17,710 29,896 
Loan fees250 — 
Lease-related obligations1,968 2,392 
Total liabilities19,928 32,288 
Stockholders’ equity:  
Preferred stock, $0.001 par value, 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; no shares issued and outstanding as of September 30, 2022 and December 31, 2021
— — 
Common stock, $0.001 par value, 200,000,000 shares authorized at September 30, 2022 and December 31, 2021; 88,045,127 and 86,884,266 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
88 87 
Additional paid-in capital966,370 953,782 
Accumulated other comprehensive loss, net(37)(21)
Accumulated deficit(692,469)(885,596)
Total stockholders’ equity273,952 68,252 
Total liabilities and stockholders’ equity$293,880 $100,540 
 
The accompanying notes are an integral part of the consolidated financial statements.



3


CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share data)
(unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenues:
Procurement revenue$31,971 $— $31,971 $— 
Contract and grant revenue503 105 503 $1,928 
Licensing revenue81 2 536 5 
Total revenues32,555 107 33,010 1,933 
Cost of goods sold333 — 447 — 
Gross profit32,222 107 32,563 1,933 
Operating expenses:    
Research and development15,263 13,820 52,350 39,480 
General and administrative5,313 4,887 16,785 13,431 
Acquired in-process research and development— — — 82,890 
Total operating expenses20,576 18,707 69,135 135,801 
Income (loss) from operations11,646 (18,600)(36,572)(133,868)
Other income (loss):
Interest income and other, net199 40 182 130 
Gain on sale of business, net229,670 — 229,670 — 
Income (loss) before income taxes241,515 (18,560)193,280 (133,738)
Income tax expense153 — 153 — 
Net income (loss)241,362 (18,560)193,127 (133,738)
Other comprehensive income (loss):    
Unrealized gain (loss) on debt investments, net31 11 (16)— 
Comprehensive income (loss)$241,393 $(18,549)$193,111 $(133,738)
Per share information:    
Net income (loss), basic $2.75 $(0.21)$2.21 $(1.59)
Net income (loss), diluted$2.75 $(0.21)$2.17 $(1.59)
Weighted-average shares outstanding, basic 87,634,888 86,335,357 87,388,624 84,277,555 
Weighted-average shares outstanding, diluted87,814,330 86,335,357 89,070,831 84,277,555 
  
The accompanying notes are an integral part of the consolidated financial statements.

 
4


CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
(unaudited) 
Common Stock
SharesAmountAdditional
Paid-in Capital		Accumulated Other
Comprehensive
Gain (Loss)		Accumulated
Deficit		Total 
Stockholders’
Equity (Deficit)
Balance, December 31, 202186,884,266 $87 $953,782 $(21)$(885,596)$68,252 
Share-based compensation— — 3,708 — — 3,708 
Exercise of stock options34,406 — 102 — — 102 
Employee stock purchase plan purchases383,981 — 555 — — 555 
RSU stock issuance133,527 — — — — — 
Comprehensive loss:
Unrealized loss on investments, net— — — (52)— (52)
Net loss— — — — (24,767)(24,767)
Total comprehensive loss(24,819)
Balance, March 31, 202287,436,180 $87 $958,147 $(73)$(910,363)$47,798 
Share-based compensation— — 3,593 — — 3,593 
Comprehensive loss:
Unrealized gain on investments, net— — — 5 — 5 
Net loss— — — (23,468)(23,468)
Total comprehensive loss(23,463)
Balance, June 30, 202287,436,180 $87 $961,740 $(68)$(933,831)$27,928 
Share-based compensation— — 3,819 — — 3,819 
Exercise of stock options236,673 1 506 — — 507 
Employee stock purchase plan purchases151,274 — 305 — — 305 
RSU stock issuance221,000 — — — — — 
Comprehensive income (loss):
Unrealized gain on investments, net— — — 31 — 31 
Net income— — — — 241,362 241,362 
Total comprehensive income241,393 
Balance, September 30, 202288,045,127 $88 $966,370 $(37)$(692,469)$273,952 

5


Common Stock
SharesAmountAdditional
Paid-in Capital		Accumulated Other
Comprehensive
Gain (Loss)		Accumulated
Deficit		Total 
Stockholders’
Equity (Deficit)
Balance, December 31, 202062,816,039 $63 $785,673 $— $(712,360)$73,376 
Share-based compensation— — 2,584 — — 2,584 
Exercise of stock options710,132 1 3,529 — — 3,530 
Employee stock purchase plan purchases259,837 — 330 — — 330 
RSU stock issuance168,752 — — — — — 
Issuance of common stock related to asset acquisition8,723,769 9 43,436 — — 43,445 
Issuance of common stock, net of issuance costs of $7.2 million
13,529,750 13 107,829 — — 107,842 
Comprehensive loss:
Unrealized loss on investments, net— — — (43)— (43)
Net loss— — — — (97,415)(97,415)
Total comprehensive loss(97,458)
Balance, March 31, 202186,208,279 $86 $943,381 $(43)$(809,775)$133,649 
Share-based compensation— — 3,112 — — 3,112 
Exercise of stock options41,465 — 119 — — 119 
Comprehensive loss:
Unrealized gain on investments, net— — — 32 — 32 
Net loss— — — — (17,763)(17,763)
Total comprehensive loss(17,731)
Balance, June 30, 202186,249,744 $86 $946,612 $(11)$(827,538)$119,149 
Share-based compensation— — 3,431 — — 3,431 
Exercise of stock options74,588 — 130 — — 130 
Employee stock purchase plan purchases283,094 1 424 — — 425 
RSU stock issuance241,000 — — — — — 
Comprehensive loss:
Unrealized loss on investments, net— — — 11 — 11 
Net loss— — — — (18,560)(18,560)
Total comprehensive loss(18,549)
Balance, September 30, 202186,848,426 $87 $950,597 $— $(846,098)$104,586 

6


CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) 
 Nine Months Ended September 30,
 20222021
Cash flows from operating activities:  
Net income (loss)$193,127 $(133,738)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
  
Depreciation of property and equipment73 143 
Amortization of debt issuance costs166 — 
Amortization of discount/premium on investments83 648 
Share-based compensation 11,120 9,127 
Fair value of common stock issued related to asset acquisition— 43,445 
Note payable related to asset acquisition— 14,000 
Gain on sale of TEMBEXA(229,670)— 
Gain on sale of investments(1)(2)
Lease-related amortization28 314 
Changes in operating assets and liabilities:  
Accounts receivable(468)288 
Inventories(2,467)(1,595)
Prepaid expenses and other assets(1,687)(2,005)
Accounts payable, accrued liabilities and deferred revenue2,817 3,468 
Net cash used in operating activities(26,879)(65,907)
Cash flows from investing activities:  
Purchases of property and equipment(72)(193)
Purchases of short-term investments(11,310)(105,355)
Purchases of long-term investments— (9,594)
Proceeds from sales of short-term investments7,699 2,007 
Proceeds from maturities of short-term investments68,135 45,850 
Proceeds from sale of TEMBEXA233,984 — 
Net cash provided by (used in) investing activities298,436 (67,285)
Cash flows from financing activities:  
Proceeds from exercise of stock options608 3,780 
Proceeds from employee stock purchase plan860 754 
Proceeds from issuance of common stock, net of commissions— 107,843 
Payments of debt issuance costs(161)— 
Payment of note payable related to asset acquisition(14,000)— 
Net cash (used in) provided by financing activities(12,693)112,377 
Net increase (decrease) in cash and cash equivalents258,864 (20,815)
Cash and cash equivalents:
Beginning of period15,397 46,989 
End of period$274,261 $26,174 
 
The accompanying notes are an integral part of the consolidated financial statements. 
 
7


CHIMERIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Note 1. The Business and Summary of Significant Accounting Policies
 
Description of Business

Chimerix is a biopharmaceutical company whose mission it is to develop medicines that meaningfully improve and extend the lives of patients facing deadly diseases.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2021. In the opinion of the Company’s management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of its financial position, operating results and cash flows for the periods presented have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full year, for any other interim period or for any future year. 

Reclassifications

Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net income or stockholders' equity (deficit).

Fair Value of Financial Instruments

The carrying amounts of certain financial instruments, including accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term nature of such instruments.
 
For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data are based primarily upon estimates and are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, fair value measurements cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the calculated current or future fair values. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
 
The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The determination of where an asset or liability falls in the hierarchy requires significant judgment. These levels are:
 
•Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
•Level 2 — Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and models for which all significant inputs are observable, either directly or indirectly.
•Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

At September 30, 2022 and December 31, 2021, the Company had cash equivalents including money market funds and short-term investments, including U.S. Treasury securities, whose value is based on quoted market prices. At December 31, 2021, the
8


Company had long-term investments, including U.S. Treasury securities, whose value is based on quoted market prices. Accordingly, these securities are classified as Level 1.
 
At September 30, 2022, the Company had cash equivalents including commercial paper and short-term investments including commercial paper and corporate bonds and at December 31, 2021, the Company had short-term investments including U.S. Treasury securities, commercial paper and corporate bonds. As quoted prices are not available for these securities, they are valued using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Accordingly, these securities are classified as Level 2.
 
There was no material re-measurement to fair value of financial assets and liabilities that are not measured at fair value on a recurring basis. For additional information regarding the Company's investments, please refer to Note 2, “Investments.”
 
Below are tables that present information about certain assets measured at fair value on a recurring basis (in thousands):
 
Fair Value Measurements
September 30, 2022
 TotalQuoted Prices in
Active Markets
for Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable Inputs
(Level 3)
Cash equivalents
     Money market funds$247,976 $247,976 $— $— 
Commercial paper16,631 — 16,631 — 
          Total cash equivalents264,607 247,976 16,631 — 
Short-term investments
     U.S. treasury securities1,989 1,989 — — 
     Commercial paper7,038 — 7,038 — 
     Corporate bonds1,342 — 1,342 — 
          Total short-term investments10,369 1,989 8,380 — 
               Total assets$274,976 $249,965 $25,011 $— 
Fair Value Measurements
December 31, 2021
 TotalQuoted Prices in
Active Markets
for Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable Inputs
(Level 3)
Cash equivalents
     Money market funds$11,841 $11,841 $— $— 
          Total cash equivalents11,841 11,841 — — 
Short-term investments
     U.S. treasury securities7,517 2,523 4,994 — 
     Commercial paper34,887 — 34,887 — 
     Corporate bonds30,566 — 30,566 — 
          Total short-term investments72,970 2,523 70,447 — 
Long-term investments
     U.S. treasury securities2,022 2,022 — — 
          Total long-term investments2,022 2,022 — — 
               Total assets$86,833 $16,386 $70,447 $— 
  
9


Inventories

The Company considers regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval are not capitalized as inventory but are expensed as research and development costs. The Company begins capitalization of these inventory related costs once regulatory approval is obtained. The Company primarily uses actual costs to determine its cost basis for inventories.

On May 15, 2022, we entered into an Asset Purchase Agreement (the Asset Purchase Agreement) with an affiliate of Emergent BioSolutions Inc. (Emergent) for the sale of our exclusive worldwide rights to brincidofovir, including TEMBEXA® and specified related assets (the Asset Sale). On September 26, 2022, we closed the Asset Sale with Emergent.

Prior to the sale of TEMBEXA to an affiliate of Emergent, the Company’s inventory consisted of TEMBEXA, which was being manufactured for the treatment of smallpox for potential delivery to the Strategic National Stockpile (SNS) for the U.S. government and to other government agencies. TEMBEXA was approved by the FDA on June 4, 2021, at which time the Company began to capitalize inventory costs associated with TEMBEXA. Prior to FDA approval of TEMBEXA, all costs related to the manufacturing of TEMBEXA were charged to research and development expense in the period incurred as there was no alternative future use.

The Company valued its inventories at the lower of cost or estimated net realizable value. The Company determined the cost of its inventories, which included amounts related to materials, manufacturing costs, shipping and handling costs on a first-in, first-out (FIFO) basis. Work-in-process included all inventory costs prior to packaging and labelling, including raw material, active product ingredient, and drug product. Finished goods included packaged and labelled products. Title to all inventory was transferred to Emergent upon the close of the Asset Sale (as defined below).

Employee Retention Credit

Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed by the United States Congress and signed by the President, the Company is eligible for a refundable employee retention credit subject to certain criteria. The Company recognized a $2.0 million employee retention credit during the three and nine months ended September 30, 2022 related to labor costs recognized during 2020 and 2021, which is recorded in prepaid expenses and other current assets. For the three and nine months ended September 30, 2022, $1.5 million is recorded as a reduction to research and development expenses and $0.5 million is recorded as a reduction to general and administrative expenses. The Company has filed for refunds of the employee retention credits and as of the date of this Quarterly Report on Form 10-Q, it has not received any refunds and cannot reasonably estimate when it will receive any or all of the refunds.

Deferred Loan Costs

On January 31, 2022 (the Effective Date), the Company entered into a Loan and Security Agreement (the Loan Agreement), by and between the Company, as borrower, and Silicon Valley Bank, as the lender (the Lender). The Loan Agreement provides for a four-year secured revolving loan facility (the Credit Facility) in an aggregate principal amount of up to $50.0 million. Proceeds from the Credit Facility may be used for working capital and general corporate purposes. The Company has no obligation to draw down any amount under the Credit Facility, and has not drawn down any amount as of September 30, 2022.

Borrowings under the Credit Facility accrue interest at a floating per annum rate of the greater of (i) 1.50% above the Prime Rate (as defined below) and (ii) 4.75%. Prime Rate is defined as the rate of interest per annum published in The Wall Street Journal or any successor publication thereto as the “prime rate”. If such rate of interest from The Wall Street Journal becomes unavailable, the “Prime Rate” shall mean the rate of interest per annum announced by the Lender as its prime rate in effect. In each case, in the event such prime rate is less than zero, such rate shall be deemed to be zero for purposes of the Loan Agreement. The Company must also pay an unused line fee equal to 0.25% per annum on the unused portion of the Credit Facility, payable quarterly in arrears. Upon the termination of the Loan Agreement for any reason prior to the Maturity Date, the Company will be required to pay to the Lender an early termination fee of $0.5 million. The Loan Agreement also requires the Company to pay the Lender a non-refundable commitment fee of $0.5 million, payable in four equal installments beginning on the Effective Date and each anniversary of the Effective Date thereafter until January 31, 2025. As of September 30, 2022, the Company has recorded current deferred loan costs of $0.1 million in prepaid expenses and other current assets and non-current deferred loan costs of $0.3 million in other long-term assets on the Consolidated Balance Sheets. As of September 30, 2022, the Company has recorded a current loan fee liability of $0.2 million in accrued liabilities and a non-current loan fee liability of $0.3 million in loan fees on the Consolidated Balance Sheets.

In September 2022, in connection with the Asset Sale, Silicon Valley Bank and the Company agreed to suspend the availability
10


of future advances under the Loan Agreement until such time the parties mutually agree to amend the Loan Agreement to, among other things, adjust the borrowing base and reset the covenants.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
September 30, 2022December 31, 2021
Accrued research and development expenses$6,642 $4,642 
Accrued compensation4,791 5,491 
Other accrued liabilities2,995 2,975 
Total accrued liabilities$14,428 $13,108 

Revenue Recognition

Policy

The Company’s revenues generally consist of (i) procurement revenue - revenue related to sales of TEMBEXA prior to the Asset Sale (ii) contract and grant revenue - revenue generated under federal and private foundation grants and contracts, and (iii) collaboration and licensing revenue - revenue related to non-refundable upfront fees, royalties and milestone payments earned under license agreements. Revenue is recognized in accordance with the criteria outlined in Accounting Standards Codification (ASC) 606 issued by the Financial Accounting Standards Board (FASB). Following this accounting pronouncement, a five-step approach is applied for recognizing revenue, including (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

TEMBEXA Procurement Agreements

In June 2022, the Company entered into the Supply Agreement and the PHAC Contract (as defined in Note 6 below), pursuant to which the Company was responsible for supplying TEMBEXA (brincidofovir) treatment courses for use outside of the United States. There are no material performance obligations outside of delivery in the agreements, therefore revenue related to these procurement agreements was recognized when the delivery performance obligation was satisfied. Revenue was recognized based on price per treatment course as outlined in the agreements. For the three and nine months ended September 30, 2022, the Company recognized $32.0 million of procurement revenue related to these agreements.

Biomedical Advanced Research and Development Authority (BARDA)

In August 2022, the Company entered into the BARDA Agreement (as defined in Note 6 below), to deliver up to 1.7 million treatment courses of tablets and suspension formulations of TEMBEXA to the U.S. Government. On September 26, 2022, the Company sold TEMBEXA to Emergent in the Asset Sale.

In February 2011, the Company entered into a contract with BARDA for the advanced development of TEMBEXA as a medical countermeasure in the event of a smallpox release. Under the contract, the Company received $72.5 million in expense reimbursement and $4.6 million in fees over the performance of one base segment and four option segments. Exercise of each option segment was solely at the discretion of BARDA. The Company assessed the services in accordance with the authoritative guidance and concluded that there was a potential of five separate contracts (one base segment and four option segments) within this agreement, each of which had a single performance obligation. All option segments (one through four) were exercised, as well as the base segment. The transaction price for each segment, based on the transaction price as defined in each segment contract, was allocated to the single performance obligation for each contract. The transaction price was recognized over time by measuring the progress toward complete satisfaction of the performance obligation. For reimbursable expenses, this occurred as qualifying research activities were conducted based on invoices from company vendors. For the fixed fee, the progress toward complete satisfaction was estimated based on the costs incurred to date relative to the total estimated costs per the terms of each contract. The Company typically invoiced BARDA monthly as costs were incurred. Any amounts received in advance of performance were recorded as deferred revenue until earned. The base segment and first option segment were completed prior to adoption of ASC 606. The second and third option segments were completed on August 20, 2020. The fourth option segment was completed on September 1, 2021 and the contract has expired in accordance with its terms.

11


Grant Revenue

Grant revenue under cost-plus-fixed-fee grants from the federal government and private foundations is recognized as allowable costs are incurred and fees are earned. At September 30, 2022, the Company has a deferred revenue balance of $0.2 million related to these grants. For the three and nine months ended September 30, 2022, the Company recognized $0.5 million of grant revenue and for the three and nine months ended September 30, 2021, the Company recognized $18,000 and $0.4 million of grant revenue related to these grants, respectively.
 
Research and Development Prepaids and Accruals

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

The Company’s objective is to reflect the appropriate research and development expenses in its financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of its research and development efforts. The Company determines prepaid and accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of communication of clinical trials, or other services completed. The Company adjusts its rate of research and development expense recognition if actual results differ from its estimates. The Company makes estimates of its prepaid and accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. Through September 30, 2022, there had been no material adjustments to the Company’s prior period estimates of prepaid and accruals for research and development expenses. The Company’s research and development prepaids and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.
 
Basic and Diluted Net Income (Loss) Per Share of Common Stock 

Basic net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period, excluding the dilutive effects of non-vested restricted stock, stock options, and employee stock purchase plan purchase rights. Diluted net income (loss) per share of common stock is computed by dividing net income (loss) by the sum of the weighted-average number of shares of common stock outstanding during the period plus the potential dilutive effects of non-vested restricted stock, stock options, and employee stock purchase plan purchase rights outstanding during the period calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive. For the three and nine months ended September 30, 2022, the diluted per-share computations reflect the number of additional common stock outstanding that would have been outstanding if the potentially dilutive common stock had been issued. Because the impact of these items is anti-dilutive during the periods of net loss, there was no difference between basic and diluted loss per share of common stock for the three and nine months ended September 30, 2021.

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, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In addition to estimates discussed in other sections of this Quarterly Report on Form 10-Q, the most significant estimates in the Company’s consolidated financial statements relate to the valuation of stock options and the valuation allowance for deferred tax assets resulting from net operating losses. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Segments

The Company operates in only one segment, pharmaceuticals.

12


Impact of Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach on expected losses to estimate credit losses on certain financial instruments, including trade receivables and available-for-sale debt securities. The new guidance was originally due to become effective for the Company beginning in the first quarter of 2020, however the FASB in November 2019 issued ASU 2019-10 which moved the effective date for smaller reporting companies to the first quarter of 2023. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements.

Note 2. Investments
 
The following tables summarize the Company’s debt investments (in thousands):
 September 30, 2022
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$1,347 $— $(5)$1,342 
U.S. treasury securities2,008 — (19)1,989 
Commercial paper7,049 — (11)7,038 
Total investments$10,404 $— $(35)$10,369 
 December 31, 2021
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$30,571 $2 $(7)$30,566 
Commercial paper34,890 2 (5)34,887 
U.S. treasury securities9,552 — (13)9,539 
Total investments$75,013 $4 $(25)$74,992 
 
13


The following tables summarize the Company’s debt investments with unrealized losses, aggregated by investment type and the length of time that individual investments have been in a continuous unrealized loss position (in thousands, except number of securities):

September 30, 2022
Less than 12 MonthsGreater than 12 MonthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Corporate bonds$1,342 $(5)$— $— $1,342 $(5)
Commercial paper4,807 (11)— — 4,807 (11)
U.S. treasury securities1,989 (19)— — 1,989 (19)
Total$8,138 $(35)$— $— $8,138 $(35)
Number of securities with unrealized losses5 — 5 
December 31, 2021
Less than 12 MonthsGreater than 12 MonthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Corporate bonds$28,362 $(7)$— $— $28,362 $(7)
Commercial paper8,991 (5)— — 8,991 (5)
U.S. treasury securities$9,539 $(13)$— $— $9,539 $(13)
Total$46,892 $(25)$— $— $46,892 $(25)
Number of securities with unrealized losses18 — 18 

The Company periodically reviews available-for-sale debt investments for other-than-temporary declines in fair value below the cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its cost basis. At September 30, 2022, the Company did not intend to sell, and was not more likely than not to be required to sell, the available-for-sale debt investments in an unrealized loss position before recovery of the cost basis of the securities, which may be at maturity. There were no such declines in value for the three and nine months ended September 30, 2022 and 2021. Unrealized gains and losses on debt investments are recorded to unrealized (loss) gain on debt investments, net in the Consolidated Statements of Operations and Comprehensive Income (Loss). Realized gains and losses on debt investments are recorded based on specific identification to interest income and other, net in the Consolidated Statements of Operations and Comprehensive Income (Loss). The Company recognizes interest income on an accrual basis in interest income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The following table summarizes the scheduled maturity for the Company's debt investments at September 30, 2022 (in thousands):
Maturing in one year or less$10,369 
     Total debt investments$10,369 
 
Note 3. Commitments and Contingencies
 
Leases

The Company leases its facilities under long-term operating leases that expire at various dates through 2026. The Company generally has options to renew lease terms on its facilities, which may be exercised at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at the Company’s discretion. The Company evaluates renewal and termination options at the lease commencement date to determine if it is reasonably certain to exercise the option and has concluded on all operating leases that it is not reasonably certain that any options will be exercised. The weighted-average remaining lease term for the Company’s operating leases as of September 30, 2022 was 3.84 years.

14


Expense related to leases is recorded on a straight-line basis over the lease term. Lease expense under operating leases, including common area maintenance fees, totaled approximately $0.2 million and $0.2 million, respectively, for the three months ended September 30, 2022 and 2021 and $0.5 million and $0.5 million for the nine months ended September 30, 2022 and 2021.

The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate based on the information available at commencement date. As of September 30, 2022, the operating lease liabilities reflect a weighted-average discount rate of 7.89%.

The following table sets forth the operating lease right-of-use assets and liabilities as of September 30, 2022 (in thousands):
Assets
Operating lease right-of-use assets $2,078 
Liabilities
Operating lease short-term liabilities (recorded within Accrued liabilities)$557 
Operating lease long-term liabilities (recorded within Lease-related obligations)1,968 
     Total operating lease liabilities$2,525 

Operating lease payments over the remainder of the lease terms are as follows (in thousands):
Years Ending December 31,As of September 30, 2022
2022180 
2023736 
2024759 
2025781 
2026467 
Total future minimum rental payments$2,923 
     Less amount of lease payments representing interest398 
Total present value of lease payments$2,525 

As of December 31, 2021, operating lease payments over the remainder of the lease terms were as follows (in thousands):
Years Ending December 31,As of December 31, 2021
2022637 
2023736 
2024759 
2025781 
2026467 
Total future minimum rental payments$3,380 
     Less amount of lease payments representing interest556 
Total present value of lease payments$2,824 

For the three months ended September 30, 2022 and 2021, the Company made lease payments of approximately $0.2 million and $0.1 million, respectively, and for the nine months ended September 30, 2022 and 2021, the Company made lease payments of approximately $0.5 million and $0.3 million, respectively.

Sublease

The Company subleased 3,537 square feet of its office space under a non-cancelable operating lease that expired in February 2021. For the three and nine months ended September 30, 2021, the Company recognized approximately $0 and $12,000 of income in Interest income and other, net on the Consolidated Statement of Operations and Comprehensive Loss. As this lease has terminated, there are no future minimum rentals payments to be received.

Significance of Revenue Source

The Company was the recipient of federal research contract funds from BARDA, the primary source of the Company’s prior
15


year contract and grant revenue. Periodic audits are required in connection with the Company’s receipt of such funds and certain costs may be questioned as appropriate by BARDA. Accordingly, at September 30, 2022 and December 31, 2021, the Company had recorded a provision for potential refundable amounts of $52,000.
 
Note 4. Equity Transactions and Share-based Compensation

Common Stock

On January 20, 2021, the Company entered into an underwriting agreement (the Underwriting Agreement) with Jefferies LLC and Cowen and Company, LLC, as representatives of the several underwriters named therein (collectively, the Underwriters), relating to the issuance and sale of 11,765,000 shares (the Shares) of the Company’s common stock, par value $0.001 per share (the Common S