UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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 |
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Accelerated filer |
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☒ |
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Smaller reporting company |
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Emerging growth company |
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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
As of August 5, 2024, the registrant had
Table of Contents
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Page |
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PART I. |
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Item 1. |
1 |
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1 |
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2 |
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Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) |
3 |
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4 |
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5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
Item 3. |
25 |
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Item 4. |
25 |
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PART II. |
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Item 1. |
26 |
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Item 1A. |
26 |
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Item 2. |
27 |
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Item 3. |
27 |
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Item 4. |
27 |
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Item 5. |
27 |
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Item 6. |
28 |
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29 |
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i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CG ONCOLOGY, INC.
Condensed Balance Sheets
(In thousands, except share and per share amounts)
(unaudited)
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June 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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(unaudited) |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Prepaid expenses and other current assets |
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Accounts receivable - other |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other assets |
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Deferred offering costs |
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— |
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Total assets |
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$ |
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$ |
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Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit) |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Success fee liability, current portion |
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— |
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Operating lease liabilities, current portion |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Success fee liability, non-current |
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— |
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Operating lease liabilities, net of current portion |
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Total liabilities |
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(Note 5) |
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Redeemable convertible preferred stock: |
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Series A-1 redeemable convertible preferred stock, $ |
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— |
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Series B redeemable convertible preferred stock, $ |
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— |
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Series C redeemable convertible preferred stock, $ |
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— |
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Series D redeemable convertible preferred stock, $ |
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— |
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Series E redeemable convertible preferred stock, $ |
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— |
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Series F redeemable convertible preferred stock, $ |
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— |
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Stockholders’ equity (deficit): |
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Common stock, $ |
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— |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
) |
Total stockholders' equity (deficit) |
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( |
) |
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Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
1
CG ONCOLOGY, INC.
Condensed Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
(unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenues |
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Research and collaboration revenue |
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$ |
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$ |
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$ |
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$ |
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Operating expenses |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
) |
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( |
) |
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( |
) |
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( |
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Other income (expense), net: |
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Interest income, net |
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Other (expense) income, net |
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( |
) |
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( |
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( |
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Total other income (expense), net |
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Net loss and comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Cumulative redeemable convertible preferred stock dividends |
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( |
) |
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( |
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Net loss attributable to common stockholders |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Net loss per share, basic and diluted |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
Weighted average shares of common stock outstanding, basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
2
CG ONCOLOGY, INC.
Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands, except share amounts)
(unaudited)
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Series A-1 |
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Series B |
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Series C |
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Series D |
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Series E |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity (Deficit) |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
$ |
( |
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Issuance of common |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
$ |
( |
) |
||||||||||||||
Issuance of common |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
||
Balance as of June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
$ |
( |
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Series A-1 |
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Series B |
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Series C |
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Series D |
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Series E |
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Series F |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity (Deficit) |
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Balance as of December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
$ |
( |
) |
||||||||||||||
Conversion of redeemable convertible preferred stock |
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( |
) |
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( |
) |
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( |
) |
|
( |
) |
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( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
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( |
) |
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( |
) |
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— |
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||||
Issuance of common |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||||
Issuance of common |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||
Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|
— |
|
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( |
) |
|
( |
) |
Balance as of March 31, 2024 |
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
|
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
||||
Issuance of common |
|
— |
|
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— |
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— |
|
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|||
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||
Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|
— |
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|
— |
|
|
( |
) |
|
( |
) |
Balance as of June 30, 2024 |
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
— |
|
$ |
— |
|
|
|
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
CG ONCOLOGY, INC.
Condensed Statements of Cash Flows
(In thousands)
(unaudited)
|
|
Six Months Ended June 30, |
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|
2024 |
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2023 |
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Operating Activities |
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Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of loan fees |
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— |
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Final payment amortization |
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— |
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Success fee amortization |
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— |
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Stock-based compensation expense |
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Accretion of discount on short-term investments |
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( |
) |
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( |
) |
Non-cash lease expense |
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( |
) |
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|
Changes in operating assets and liabilities: |
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|
||
Prepaid expenses and other current assets |
|
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( |
) |
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( |
) |
Accounts receivable - other |
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( |
) |
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— |
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Other assets |
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( |
) |
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— |
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Accounts payable |
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||
Accrued expenses and other current liabilities |
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( |
) |
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Net cash used in operating activities |
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( |
) |
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( |
) |
Investing Activities |
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||
Proceeds from sales and maturities of short-term investments |
|
|
|
|
|
|
||
Purchases of short-term investments |
|
|
( |
) |
|
|
( |
) |
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
Financing Activities |
|
|
|
|
|
|
||
Proceeds from initial public offering, net of issuance costs |
|
|
|
|
|
— |
|
|
Payments of success fee or long-term debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from exercise of common stock options |
|
|
|
|
|
|
||
Deferred offering costs |
|
|
( |
) |
|
|
— |
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
— |
|
|
$ |
|
|
Cash paid for taxes |
|
$ |
— |
|
|
$ |
— |
|
Supplemental Schedule of Non-cash Investing and Financing Activities: |
|
|
|
|
|
|
||
Reclassification of |
|
$ |
|
|
$ |
— |
|
|
Reclassification of deferred offering costs |
|
$ |
|
|
$ |
— |
|
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
CG ONCOLOGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
1. Description of Business and Basis of Presentation
Description of Business
CG Oncology, Inc. (the Company) is a late-stage clinical biopharmaceutical company focused on developing and commercializing its product candidate, cretostimogene grenadenorepvec, for patients with bladder cancer. The Company is at a clinical stage and does not project to generate significant revenues if and until the U.S. Food and Drug Administration (FDA) approves its product candidate, cretostimogene, and the Company is able to commercialize this product candidate.
The shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the agreements governing such securities. In addition, the conversion ratios for each series of the Company’s redeemable convertible preferred stock, which automatically converted into shares of common stock upon the closing of the offering, were proportionally adjusted. Stockholders entitled to fractional shares as a result of the reverse stock split received a cash payment in lieu of receiving fractional shares.
On January 29, 2024, the Company completed the closing of its initial public offering (IPO) of
Basis of Presentation
The accompanying unaudited condensed financial statements as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2023 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report). In the opinion of management, the interim financial statements reflect all adjustments, which include only normal and recurring adjustments, considered necessary for a fair statement of the interim periods.
Liquidity and Management’s Plans
As of June 30, 2024, the Company had approximately $
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are disclosed in the audited financial statements appearing in its 2023 Annual Report.
5
CG ONCOLOGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
Deferred Offering Costs
The Company capitalizes as deferred offering costs all direct and incremental legal, professional, accounting and other third-party fees incurred in connection with the Company’s IPO. Upon the completion of the IPO in January 2024, the total deferred offering costs were reclassified to additional paid-in capital on the condensed balance sheets.
Classification of Redeemable Convertible Preferred Stock
Classification of the Company’s Series A-1, B, C, D, E and F redeemable convertible preferred stock as of December 31, 2023 was being treated as mezzanine equity and not as part of stockholders’ equity (deficit) because the holders of such shares had liquidation rights in the event of a deemed liquidation that, in certain situations, were not solely within the control of the Company and would have required the redemption of the then-outstanding redeemable convertible preferred stock. In addition, all of the Company’s redeemable convertible preferred stock was redeemable with the passage of time on or after July 28, 2028, by class and if requested by a requisite majority of each class. As a result of the Company’s IPO, the Company’s redeemable convertible preferred stock converted into common stock concurrently with the IPO.
Recently Issued Accounting Standards
Accounting standards not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s condensed financial statements.
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The guidance includes the requirements that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, the title and position of the chief operating decision maker, and an explanation of how the chief operating decision maker uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The guidance also requires that a public entity that has a reportable segment provide all the disclosures required by the guidance and all existing segment disclosures in Accounting Standards Codification (ASC) 280, Segment Reporting. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in the guidance retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the impact that this guidance may have on its financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance includes the requirement that public business entities, on an annual basis, disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). It also requires that all entities disclose, on an annual basis, the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received) and requires that all entities disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal (national), state, and foreign. Lastly, the guidance eliminates the requirement for all entities to disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months or make a statement that an estimate of the range cannot be made. The guidance is effective for the Company for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The guidance should be applied on a prospective basis. Retrospective application is permitted. The Company is currently evaluating the impact that this guidance may have on its financial statements.
6
CG ONCOLOGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
3. Fair Value Measurements
The following tables present the financial instruments carried at fair value on a recurring basis as of June 30, 2024 and December 31, 2023, respectively, in accordance with the ASC 820, Fair Value Measurement (ASC 820) hierarchy (in thousands):
|
|
Fair Value Measurements at June 30, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Marketable securities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Fair Value Measurements at December 31, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Marketable securities |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Success fee liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
The Company’s cash equivalents represent deposits in a short-term U.S. Treasury money market fund quoted in an active market and were classified as a Level 1 fair value measurement. Marketable securities represent fixed income securities (U.S. treasury bills) with
The success fee liability associated with the Loan and Security Agreement (the Loan Agreement) the Company entered into in January 2021 was classified as a Level 3 fair value measurement, due to the use of unobservable inputs. On March 5, 2024, the Company paid $
There were
4. Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities as of June 30, 2024 and as of December 31, 2023 were as follows (in thousands):
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
External research and development expenses |
|
$ |
|
|
$ |
|
||
Personnel-related expenses |
|
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
|
||
Deferred offering costs |
|
|
— |
|
|
|
|
|
Other |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
5. Commitments and Contingencies
Operating Leases
7
CG ONCOLOGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
The components of lease expense as of June 30, 2024 and 2023 were as follows (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other information |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash paid for amounts included in the measurement of lease liabilities, included in operating cash flows |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Weighted-average remaining lease term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average discount rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Maturities of lease liabilities as of June 30, 2024 were as follows (in thousands):
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total lease payment |
|
|
|
|
Less: amount representing imputed interest |
|
|
( |
) |
Total future minimum lease obligations |
|
$ |
|
Legal Proceedings
A liability for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources is recorded in the condensed financial statements if it is determined that it is probable that a loss has been incurred, and that the amount (or range) of the loss can be reasonably estimated.
On March 4, 2024, a complaint was filed against the Company in the Superior Court of the State of Delaware by ANI Pharmaceuticals, Inc. seeking a declaratory judgment that an assignment and technology transfer agreement between the Company and ANI, dated November 15, 2010, obligates the Company to pay ANI a royalty on certain "net sales" of cretostimogene. The Company disputes the allegations raised in the case and is vigorously defending the matter.
Indemnification
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with officers and members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. As of June 30, 2024, the Company had not experienced any losses related to these indemnification obligations, and
8
CG ONCOLOGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
6. License and Collaboration Agreements
Lepu Biotech Co., Ltd.
In March 2019, the Company entered into a development and license agreement with Lepu for cretostimogene (the Lepu License Agreement). Under the terms of the Lepu License Agreement, the Company granted to Lepu an exclusive license to develop, manufacture and commercialize cretostimogene and/or DDM to treat and/or prevent cancer in mainland China, including Hong Kong and Macau (the Lepu Territory). The Company is obligated to use commercially reasonable efforts to supply Lepu with its requirements of cretostimogene and DDM for its development activities at Lepu’s cost and to periodically provide Lepu with manufacturing documentation and, at Lepu’s cost, reasonably requested assistance related to the manufacture of clinical and, if applicable, commercial supplies of cretostimogene and DDM. The Company determined that control of the license was transferred to Lepu on March 2019 upon execution of the contract.
Lepu paid to the Company a one-time upfront payment of $
The Company assessed the Lepu License Agreement in accordance with ASC 606, Revenue Recognition (ASC 606) and determined that the performance obligation is comprised solely of the license grant to Lepu. The Company determined the transaction price was $
Future milestone payments are fully contingent as the risk of significant revenue reversal will only be resolved depending on future regulatory approval and sales level outcomes. The Company will re-evaluate the likelihood of achieving future milestones at the end of each reporting period.
The sales-based royalty fee is considered variable consideration and will be recognized as revenue as such sales occur. The sales-based royalty fee qualifies for the royalty constraint exception and does not require an estimate of the future transaction price.
The Company recorded
Kissei Pharmaceutical Co., Ltd.
In March 2020, and amended as of September 2022, the Company entered into a license and collaboration agreement with Kissei (the Kissei License Agreement). Under the terms of the Kissei License Agreement, the Company granted to Kissei an exclusive license to certain intellectual property rights in Bangladesh, Bhutan, Brunei, Cambodia, India, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, Nepal, Pakistan, Palau, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam (the Kissei Territory), for Kissei to develop and commercialize, but not manufacture, cretostimogene in combination with DDM (the Licensed Product) for all uses in oncology indications for which marketing approval is being sought. Under the Kissei Agreement, the Company and Kissei agree to use commercially reasonable efforts to collaborate on clinical development activities in the Kissei Territory and each party is responsible for conducting the applicable activities pursuant to an agreed development plan. Kissei is responsible for the costs of developing the Licensed Product in the Kissei Territory, and the Company is responsible for the costs of developing the Licensed Product outside the Kissei Territory (Global Development), provided that Kissei is responsible for a low-double digit percentage and the Company is responsible for a high-double digit percentage of the cost of development activities that cannot be attributed solely to the Kissei Territory or outside the Kissei Territory. The Company is obligated to supply and Kissei will exclusively purchase its clinical and commercial requirements of Licensed Product from the Company. Kissei is responsible for commercializing the Licensed Product in the Kissei Territory and is obligated to use commercially reasonable efforts to seek regulatory approval for and commercialize at least one Licensed Product in a specified indication. Until a certain period of time has passed after the first regulatory approval of the Licensed Product, the Company is prohibited from commercializing certain competing products worldwide and Kissei is prohibited from researching, developing or commercializing certain competing products worldwide.
9
CG ONCOLOGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
Under the terms of the Kissei License Agreement, the Company received a $
The Kissei Agreement will expire on a Licensed Product-by-Licensed Product and country-by-country basis when there is no remaining royalty or milestone payment obligation due to a party with respect to such Licensed Product in such country. Following expiration of the Kissei Agreement in its entirety, the licenses the Company granted to Kissei will become non-exclusive, fully-paid royalty-free and irrevocable and Kissei will have the right to negotiate directly with the Company's product suppliers for the direct supply of Licensed Product to Kissei. The Kissei Agreement may be terminated either by Kissei or by the Company in the event of an uncured material breach by the other party or in the event the other party becomes subject to specified bankruptcy, insolvency or similar circumstances. In addition, the Company have the right to terminate the Kissei Agreement in the event that Kissei commences a legal action challenging the validity, enforceability or scope of any licensed patents under the Kissei Agreement. Kissei may terminate the Kissei Agreement at will upon specified written notice. Additionally, Kissei may terminate the Kissei Agreement for the Company's willful and malicious misconduct that results in substantial and irreparable harm to the commercial value of the Licensed Products in the Kissei Territory and upon any such termination, the licenses the Company granted to Kissei will become royalty-free and fully paid-up and Kissei will have the right to negotiate directly with the Company's contract manufacturing organizations for the supply of Licensed Product. Upon termination of the Kissei Agreement for any other reason all rights and licenses granted to Kissei to develop and commercialize the product under the Kissei Agreement will terminate, subject to certain rights to sell existing inventory of Licensed Products by Kissei and its sublicensees. Upon termination of the Kissei Agreement for Kissei’s breach, any sublicenses granted by Kissei may, upon the Company’s discretion, continue.
The Company evaluated the Kissei Agreement to determine whether it is a collaborative arrangement in the scope of ASC 808, Collaborative Arrangements (ASC 808). The Company concluded the Kissei Agreement is a collaborative agreement under ASC 808, as the Kissei Agreement involves a joint operating activity, each party is an active participant in the activities related to the Kissei Agreement, and both parties are exposed to significant risks and rewards dependent upon the commercial success of the activities related to the Kissei Agreement.
The Company determined the Kissei Agreement contained two material components: (i) an exclusive license granted to Kissei to certain intellectual property rights in the Kissei Territory, for Kissei to develop and commercialize, but not manufacture, the Licensed Product for all uses in oncology; and (ii) the parties’ participation in the Global Development of the Licensed Product. The Company used the criteria specified in ASC 606 to determine which of the components of the Kissei Agreement are performance obligations with a customer and concluded Kissei is the Company’s customer for the license and related activities in the Kissei Territory under ASC 606. The Global Development activities under the agreement does not present a transaction with a customer and the payments received by the Company for Global Development activities, including manufacturing, will be accounted for as a reduction of related expenses.
10
CG ONCOLOGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
The Company evaluated the Kissei Territory specific license and related activities under ASC 606, as these transactions are considered transactions with a customer, and identified two material promises at the outset of the Kissei License Agreement, which consists of the following: (1) the exclusive license and (2) the manufacturing activities related to development and commercial supply of the Licensed Product in the Kissei Territory. The Company further evaluated the material promise associated with manufacturing activities related to development and commercial supply of the Licensed Products in the Kissei Territory. Given Kissei is not obligated to purchase any minimum amount or quantities of the development and commercial supply from the Company, the Company concluded, for the purpose of ASC 606, the provision of manufacturing activities related to development and commercial supply of the Licensed Product in the Kissei Territory was an option but not a performance obligation of the Company at the inception of the Kissei Agreement and will be accounted for if and when exercised. The Company also concluded there is no separate material right in connection with the development and commercial supply of the licensed product, as the expected pricing was not issued at a significant and incremental discount. Therefore, the manufacturing activities were excluded as performance obligation at the outset of the arrangement.
The Company evaluated the license under ASC 606 and concluded the license is a functional intellectual property license. The Company determined Kissei benefited from the license at the time of grant and, therefore, the related performance obligation was satisfied at a point in time. Additionally, the Company is entitled to development and regulatory milestones as well as sales milestones and royalties from Kissei upon future sales of the Licensed Product in the Kissei Territory. Future milestone payments are fully contingent as the risk of significant reversal will only be resolved depending on future development milestones, regulatory approval and sales level outcomes. The Company re-evaluates the likelihood of achieving future milestones at the end of each reporting period. The royalties are considered variable consideration and will be recognized as revenue as such sales occur. The sales-based royalties qualify for the royalty constrain exception and do not require an estimate of the future transaction price.
The Company recorded $
7. Common Stock
The Company is authorized to issue up to
Voting, dividend and liquidation rights of the holders of the common stock are subject to and qualified by the rights, powers and preferences of the holders of the preferred stock.
Voting
Each holder of outstanding shares of common stock shall be entitled to one vote in respect of each share. The holders of outstanding shares of common stock, voting together as a single class, shall be entitled to elect one director. The number of authorized shares of common stock may be increased or decreased by the affirmative vote of a majority of the outstanding shares of common stock and preferred stock voting together as a single class.
Dividends
The holders of common stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the board of directors may determine in its sole discretion.
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company or deemed liquidation event of the Company, all of the remaining assets of the Company available for distribution to the stockholders shall be distributed among the holders of the common stock, pro rata based on the number of shares held by each such holder.
11
CG ONCOLOGY, INC.
Notes to Condensed Financial Statements
(Unaudited)
Reserved Shares
As of June 30, 2024, the Company reserved the following shares of common stock for issuance:
|
|
June 30, |
|
|
|
|
2024 |
|
|
Stock options outstanding |
|
|
|
|
Reserved for future stock option issuances |
|
|
|
|
Reserved for future ESPP issuances |
|
|
||