scyx-10q_20200930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

☐	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 001-36365

SCYNEXIS, Inc.

(Exact name of registrant as specified in its charter)

Delaware		56-2181648
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 Evertrust Plaza, 13^th Floor Jersey City, New Jersey		07302-6548
(Address of principal executive offices)		(Zip Code)

(201)-884-5485

(Registrant’s telephone number, including area code)

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

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	SCYX	Nasdaq Global Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

Emerging growth company	☐

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

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

As of November 1, 2020, there were 10,940,119 shares of the registrant’s Common Stock outstanding.

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SCYNEXIS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS

		Page

PART I FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020, and December 31, 2019	1
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	3
	Notes to the Condensed Consolidated Financial Statements (unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

PART II OTHER INFORMATION		29

Item 1A.	Risk Factors	29
Item 6.	Exhibits	30

Signatures		31

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PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements.

SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	September 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	29,494		$	41,920
Short-term investments		—			6,494
Prepaid expenses and other current assets		2,762			3,988
Restricted cash		55			—
Total current assets		32,311			52,402
Other assets		573			812
Deferred offering costs		277			70
Restricted cash		218			273
Property and equipment, net		326			405
Operating lease right-of-use asset (See Note 7)		3,047			3,191
Total assets	$	36,752		$	57,153
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,254		$	7,177
Accrued expenses		3,004			3,801
Operating lease liability, current portion (See Note 7)		47			36
Total current liabilities		8,305			11,014
Warrant liabilities		2,282			18,396
Convertible debt and derivative liabilities (See Note 6)		13,275			11,522
Operating lease liability (See Note 7)		3,332			3,326
Total liabilities		27,194			44,258
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, authorized 5,000,000 shares as of September 30, 2020 and December 31, 2019; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 10,798,119 and 9,741,372 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		10			10
Additional paid-in capital		293,450			284,313
Accumulated deficit		(283,902	)		(271,428	)
Total stockholders’ equity		9,558			12,895
Total liabilities and stockholders’ equity	$	36,752		$	57,153

The accompanying notes are an integral part of the financial statements.

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SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenue	$	—		$	—		$	—		$	121
Operating expenses:
Research and development		8,030			9,276			26,364			27,434
Selling, general and administrative		3,481			2,480			9,448			7,501
Total operating expenses		11,511			11,756			35,812			34,935
Loss from operations		(11,511	)		(11,756	)		(35,812	)		(34,814	)
Other (income) expense:
Loss on extinguishment of debt		—			—			806			1,045
Amortization of debt issuance costs and discount		311			306			910			879
Interest income		(5	)		(170	)		(188	)		(680	)
Interest expense		330			203			859			774
Other income		—			—			(386	)		—
Other expense		20			—			602			—
Warrant liabilities fair value adjustment		(7,786	)		(1,830	)		(16,114	)		2,643
Derivative liabilities fair value adjustment		(5,290	)		(2,324	)		(6,683	)		(223	)
Total other (income) expense		(12,420	)		(3,815	)		(20,194	)		4,438
Income (loss) before taxes		909			(7,941	)		(15,618	)		(39,252	)
Income tax benefit		—			—			(3,144	)		—
Net income (loss)	$	909		$	(7,941	)	$	(12,474	)	$	(39,252	)
Net income (loss) per share attributable to common stockholders – basic
Net income (loss) per share – basic	$	0.09		$	(1.43	)	$	(1.23	)	$	(7.44	)
Net loss per share attributable to common stockholders – diluted
Net loss per share – diluted	$	(0.28	)	$	(1.45	)	$	(1.37	)	$	(7.44	)
Weighted average common shares outstanding – basic and diluted
Basic		10,627,618			5,569,739			10,129,098			5,278,757
Diluted		13,389,014			6,707,939			11,220,802			5,278,757

The accompanying notes are an integral part of the financial statements.

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SCYNEXIS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(12,474	)	$	(39,252	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		82			85
Stock-based compensation expense		1,220			1,387
Accretion of investments discount		—			(61	)
Amortization of debt issuance costs and discount		910			879
Change in fair value of warrant liabilities		(16,114	)		2,643
Change in fair value of derivative liabilities		(6,683	)		(223	)
Noncash operating lease expense for right-of-use asset		144			127
Loss on extinguishment of debt		806			1,045
Noncash consideration associated with common stock purchase agreement		602			—
Changes in operating assets and liabilities:
Prepaid expenses, other assets, deferred costs, and other		1,482			6,485
Accounts payable, accrued expenses, and other		(2,757	)		2,345
Deferred revenue		—			(121	)
Net cash used in operating activities		(32,782	)		(24,661	)
Cash flows from investing activities:
Maturities of investments		20,713			54,700
Purchases of property and equipment		(4	)		—
Purchases of investments		(14,235	)		(38,504	)
Net cash provided by investing activities		6,474			16,196
Cash flows from financing activities:
Proceeds from common stock issued		4,702			10,069
Payments of offering costs and underwriting discounts and commissions		(279	)		(302	)
Proceeds from common stock issuance under employee stock purchase plan		28			49
Repurchase of shares to satisfy tax withholdings		(75	)		—
Proceeds from senior convertible notes		10,000			16,000
Payments of senior convertible notes issuance costs		(494	)		(1,253	)
Payment of loan payable expected to be refinanced		—			(15,973	)
Net cash provided by financing activities		13,882			8,590
Net (decrease) increase in cash, cash equivalents, and restricted cash		(12,426	)		125
Cash, cash equivalents, and restricted cash at beginning of period		42,193			11,767
Cash, cash equivalents, and restricted cash at end of period	$	29,767		$	11,892
Supplemental cash flow information:
Cash paid for interest	$	840		$	850
Cash received for interest	$	186		$	736
Noncash financing and investing activities:
Operating lease liabilities arising from obtaining right-of-use assets	$	—		$	3,365
Deferred offering costs reclassified to additional-paid-in capital	$	1		$	6
Common stock issued for settlement of senior convertible notes	$	2,784		$	2,984
Deferred offering and issuance costs included in accounts payable and accrued expenses	$	54		$	—
Common stock issued for Commitment Shares	$	602		$	—

The accompanying notes are an integral part of the financial statements.

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SCYNEXIS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	Description of Business and Basis of Preparation

Organization

SCYNEXIS, Inc. (“SCYNEXIS” or the “Company”) is a Delaware corporation formed on November 4, 1999. SCYNEXIS is a biotechnology company, headquartered in Jersey City, New Jersey, pioneering innovative medicines to potentially help millions of patients worldwide in need of new options to overcome and prevent difficult-to-treat and drug resistant infections. The Company is developing its lead product candidate, ibrexafungerp, as a broad-spectrum, intravenous (IV)/oral agent in late stage development for multiple indications, including the treatment of vulvovaginal candidiasis (VVC), also known as vaginal yeast infection, for which the Company filed a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) in October 2020. Additionally, the Company is developing ibrexafungerp for life-threatening invasive fungal infections in hospitalized patients.

The Company has incurred significant losses and negative cash flows from operations since its initial public offering in May 2014 and expects to continue to incur losses and negative cash flows for the foreseeable future. As a result, the Company had an accumulated deficit of $283.9 million at September 30, 2020 and limited capital resources to fund ongoing operations. These capital resources primarily comprised cash and cash equivalents of $29.5 million at September 30, 2020. The Company believes its existing cash and cash equivalents may not be sufficient to enable it to meet its obligations and fund operations over the next twelve months without generating positive cash flows by raising additional capital from outside sources. While the Company plans to continue to pursue its plan to launch products and generate positive cash flows from operations, as well as pursue sources of additional capital from outside sources, the Company's liquidity could be materially affected over this period by, among other things: (1) its ability to raise additional capital through equity offerings, debt financings, or other non-dilutive third-party funding; (2) costs associated with new or existing strategic alliances, or licensing and collaboration arrangements; (3) negative regulatory events or unanticipated costs related to its development of ibrexafungerp; or (4) any other unanticipated material negative events or costs. These financial conditions raise substantial doubt about the Company’s ability to continue as a going concern. If the Company is unable to meet its obligations when they become due, the Company may have to delay expenditures, reduce the scope of its research and development programs, or make significant changes to its operating plan.

As noted in Note 8, the Company entered into a Common Stock Purchase Agreement with Aspire Capital, pursuant to which the Company has the right to sell to Aspire Capital from time to time in its sole discretion up to $20.0 million in shares of the Company’s common stock through October 2022. The number of shares issued would be determined based on the closing price of the Company’s common stock as of the date the Company elects to issue shares to Aspire Capital, however, the total number of shares the Company may issue to Aspire Capital under this agreement may not exceed 1,956,547 shares of the Company’s common stock (which is equal to approximately 19.99% of the Company’s total common stock outstanding on the date of the Common Stock Purchase Agreement) without obtaining shareholder approval prior to such issuances.

The accompanying unaudited interim condensed consolidated financial information has been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying unaudited interim condensed consolidated financial information does not include any adjustments that might result from the outcome of this uncertainty.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Intercompany balances and transactions are eliminated in consolidation.

Shelf Registration Filings

On September 11, 2020, the Company filed a shelf registration statement on Form S-3 (File No. 333-248751) with the Securities and Exchange Commission (“SEC”), which was declared effective on October 1, 2020 (the “October 2020 Shelf Registration”). The October 2020 Shelf Registration contains two prospectuses:

•

a base prospectus which covers the offering, issuance and sale of such indeterminate number of shares of common stock and preferred stock, such indeterminate principal amount of debt securities, and such indeterminate number of warrants to purchase common stock, preferred stock and/or debt securities, which together shall have an aggregate initial offering price not to exceed $200.0 million; and

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•

a prospectus covering the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $50.0 million of the Company’s common stock that may be issued and sold under a Controlled Equity Offering^SM Sales Agreement with Cantor Fitzgerald & Co. (“Cantor”) and/or Controlled Equity Offering^SM Sales Agreement with Ladenburg Thalmann & Co. Inc. (such agreements, the “Sales Agreements”).

The common stock that may be offered, issued and sold by the Company under the Sales Agreements is included in the $200.0 million of securities that may be offered, issued and sold by the Company under the base prospectus. Upon termination of the Sales Agreements, any portion of the $50.0 million included in the Sales Agreements prospectus that is not sold pursuant to the Sales Agreements will be available for sale in other offerings pursuant to the base prospectus and a corresponding prospectus supplement, and if no shares are sold under the Sales Agreements, the full $200.0 million of securities may be sold in other offerings pursuant to the base prospectus. As of September 30, 2020, $200.0 million of the securities registered under the base prospectus are available to be offered, issued and sold by the Company.

As of September 30, 2020, approximately $322.8 million of the securities registered under the Company’s effective shelf registrations, which include the October 2020 Shelf Registration and the Form S-3 shelf registration filed by the Company in August 2018 (effective September 14, 2018), are available to be offered, issued and sold by the Company.

December 2019 Public Offering

On December 12, 2019, the Company completed a public offering (the "December 2019 Public Offering") of its common stock and warrants. The Company sold an aggregate of 3,888,888 shares of the Company’s common stock and warrants to purchase up to an aggregate of 3,888,888 shares of the Company’s common stock at a public offering price of $9.00 per share and accompanying warrant. Net proceeds from the December 2019 Public Offering were $32.5 million, after deducting the underwriting discount and offering expenses. In addition, the Company granted to the underwriters an option to purchase up to 583,333 additional shares of common stock and/or warrants to purchase up to an aggregate of an additional 583,333 shares of common stock, in each case at the public offering price, less underwriting discounts and commissions. The underwriters exercised their option to purchase 583,333 warrants in December 2019. The option to purchase up to 583,333 additional shares of common stock was not exercised by the underwriters and the option expired in January 2020. See Note 8 for further details.

April 2020 Note Purchase Agreement

In April 2020, the Company entered into a Senior Convertible Note Purchase Agreement (“April 2020 Note Purchase Agreement”) with Puissance Life Science Opportunities Fund VI (“Puissance”). Pursuant to the April 2020 Note Purchase Agreement, on April 9, 2020, the Company issued and sold to Puissance $10.0 million aggregate principal amount of its 6.0% Senior Convertible Notes due 2026 (“April 2020 Notes”). See Note 5 for details.

Common Stock Purchase Agreement

On April 10, 2020, the Company entered into a Common Stock Purchase Agreement (the “Common Stock Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”), pursuant to which the Company has the right to sell to Aspire Capital from time to time in its sole discretion up to $20.0 million in shares of the Company’s common stock over the next 30 months, subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement. See Note 8 for details.

New Jersey Technology Business Tax Certificate Transfer (NOL) Program

The New Jersey Technology Business Tax Certificate Transfer (NOL) program, administered by the New Jersey Economic Development Authority, enables approved biotechnology companies to sell their unused net operating losses (“NOLs”) and research and development tax credits to unaffiliated, profitable corporate taxpayers in the State of New Jersey up to a maximum lifetime benefit of $15.0 million per business. For the nine months ended September 30, 2020, the Company recognized a $3.1 million income tax benefit for the sale of a portion of the Company’s unused New Jersey NOLs and research and development credits. As of September 30, 2020, the Company has received approximately $9.9 million under the program.

Reverse Stock Split

On July 16, 2020, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (the “Amendment”), which became effective on Friday, July 17, 2020, (a) implementing a 1-for-10 reverse stock split of the Company’s common stock and (b) decreasing the number of authorized shares of the Company’s common stock from 250,000,000 shares to 100,000,000 shares. On the effective date of July 17, 2020, the number of the Company’s issued and outstanding shares of common stock was decreased from 105,083,291 to 10,508,302 and the par value per common share remained unchanged. No fractional shares were issued as a result of the reverse stock split. Stockholders who would otherwise have been entitled to receive a fractional share received a cash payment in lieu thereof. All share and per share amounts presented in these unaudited condensed consolidated financial statements have been retroactively adjusted for the reverse stock split and certain items in the prior period financial statements have been revised to conform to the current presentation.

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The reverse stock split affected all shares of the Company’s common stock outstanding immediately prior to the effective time of the reverse stock split, as well as the number of shares of common stock available for issuance under the Company’s equity incentive plans. In addition, the reverse stock split effected a reduction in the number of shares of common stock issuable upon the conversion of outstanding convertible notes or upon the exercise of stock options or warrants outstanding.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying unaudited condensed consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”), as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification” or “ASC”) for interim financial information. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, and cash flows. The results of operations for the three and nine months ended September 30, 2020, are not necessarily indicative of the results for the full year or the results for any future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes set forth in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 11, 2020.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include: determination of the fair value of stock-based compensation grants; the estimate of services and effort expended by third-party research and development service providers used to recognize research and development expense; and the estimates and assumptions utilized in measuring the fair values of the warrant and derivative liabilities each reporting period.

2.	Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements and notes follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2019, except as described below.

Basic and Diluted Net Income (Loss) per Share of Common Stock

The Company calculates net income (loss) per common share in accordance with ASC 260, Earnings Per Share. Basic net income (loss) per common share for the three and nine months ended September 30, 2020 and 2019 was determined by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share for the three and nine months ended September 30, 2020 and 2019 was determined as follows (in thousands, except share and per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net income (loss)	$	909		$	(7,941	)	$	(12,474	)	$	(39,252	)
Dilutive effect of convertible debt		(4,649	)		(1,815	)		(2,917	)		—
Net loss allocated to common shares	$	(3,740	)	$	(9,756	)	$	(15,391	)	$	(39,252	)

Weighted average common shares outstanding – basic		10,627,618			5,569,739			10,129,098			5,278,757
Dilutive effect of stock options and restricted stock units		1,058			—			—			—
Dilutive effect of convertible debt		2,760,338			1,138,200			1,091,704			—
Weighted average common shares outstanding – diluted		13,389,014			6,707,939			11,220,802			5,278,757

Net loss per share – diluted	$	(0.28	)	$	(1.45	)	$	(1.37	)	$	(7.44	)

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The following potentially dilutive shares of common stock have not been included in the computation of diluted net loss per share for the three and nine months ended September 30, 2020 and 2019, as the result would be anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Warrants to purchase common stock associated with Solar loan agreement		12,243		12,243		12,243		12,243
Warrants to purchase common stock associated with June 2016 public offering		421,867		421,867		421,867		421,867
Warrants to purchase common stock associated with March 2018 public offering – Series 2		798,810		798,810		798,810		798,810
Outstanding stock options		808,855		518,870		817,855		518,870
Outstanding restricted stock units		80,137		96,762		80,137		96,762
Common stock associated with March 2019 Notes		—		—		1,138,200		1,138,200
Warrants to purchase common stock associated with December 2019 Public Offering		4,472,205		—		4,472,205		—
Total		6,594,117		1,848,552		7,741,317		2,986,752

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), which revised the effective dates for ASU 2016-13 for public business entities that meet the SEC definition of a smaller reporting company to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. As a smaller reporting company, the Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity: Accounting for Convertible Instruments and Contracts in and Entity’s Own Equity (“ASU 2020-06”). The amendments in ASU 2020-06 reduce the number of accounting models for convertible debt instruments and revises certain guidance relating to the derivative scope exception and earnings per share. The amendments in ASU 2020-06 are effective for public business entities that meet the definition of a SEC filer and a smaller reporting company for fiscal years beginning after December 15, 2023, and interim periods within those years. As a smaller reporting company, the Company is currently evaluating the impact ASU 2020-06 will have on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in ASU 2018-13, Fair Value Measurement. ASU 2018-13 eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 during the nine months ended September 30, 2020 and as a result, included the required additional disclosures for its Level 3 fair value measurements in its unaudited condensed consolidated financial statements (see Note 10). The Company did not identify any other material impacts of ASU 2018-13 on its unaudited condensed consolidated financial statements.

3.	Short-term Investments

The following table summarizes the held-to-maturity securities held at December 31, 2019 (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
As of December 31, 2019
U.S. government securities	$	1,996	$	15	$	(14	)	$	1,997
Commercial paper		998		—		—			998
Overnight repurchase agreement		3,500		—		—			3,500
Total short-term investments	$	6,494	$	15	$	(14	)	$	6,495

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All held-to-maturity short-term investments at December 31, 2019 will mature in less than one year. The gross unrealized gains and losses for the Company’s commercial paper and overnight repurchase agreement are not significant. The Company carries short-term investments at amortized cost. The fair value of the short-term investments is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.

4.	Prepaid Expenses and Other Current Assets

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

	September 30, 2020		December 31, 2019
Prepaid research and development services	$	1,656	$	3,043
Prepaid insurance		610		252
Other prepaid expenses		54		19
Other current assets		442		674
Total prepaid expenses and other current assets	$	2,762	$	3,988

5.	Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	September 30, 2020		December 31, 2019
Accrued research and development expenses	$	915	$	1,296
Accrued employee bonus compensation		1,152		1,798
Other accrued expenses		937		707
Total accrued expenses	$	3,004	$	3,801

6.	Borrowings

April 2020 Note Purchase Agreement

On April 9, 2020, the Company entered into the April 2020 Note Purchase Agreement with Puissance and issued and sold to Puissance $10.0 million aggregate principal amount of its April 2020 Notes, resulting in net proceeds of approximately $9.5 million after deducting $0.5 million for an advisory fee and other issuance costs The April 2020 Notes were issued and sold for cash at a purchase price equal to 100% of their principal amount, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), due to the April 2020 Notes being issued to one financially sophisticated investor.

The April 2020 Notes will bear interest at a rate of 6.0% per annum, payable semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2020. The April 2020 Notes will mature on April 15, 2026, unless earlier converted, redeemed or repurchased. The April 2020 Notes constitute general, senior unsecured obligations of the Company.

As of September 30, 2020, the Company’s April 2020 Notes consists of the convertible debt balance of $1.5 million, presented net of the unamortized debt issuance costs allocated to the convertible debt of $0.1 million, and the bifurcated embedded conversion option derivative liability of $2.0 million. In connection with the Company’s issuance of its April 2020 Notes, the Company bifurcated the embedded conversion option, inclusive of the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a long-term derivative liability in the Company’s balance sheet in accordance with ASC 815, Derivatives and Hedging, at its initial fair value of $8.1 million as the interest make-whole provision is settled in shares of common stock. Debt issuance costs of $0.4 million initially allocated to the derivative liability were written off upon issuance of the April 2020 Notes and were recognized in the gain on the fair value adjustment for the derivative liability for the nine months ended September 30, 2020. For the three and nine months ended September 30, 2020, the Company recognized gains of $3.2 million and $4.5 million, respectively, on the fair value adjustment for the derivative liability and recognized $0.1 million in amortization of debt issuance costs and discount for each of the three and nine months ended September 30, 2020, related to the April 2020 Notes.

In June 2020, Puissance converted $2.0 million of the April 2020 Notes for 316,461 shares of common stock. Upon conversion of the $2.0 million of the April 2020 Notes, the Company recognized a $0.8 million extinguishment loss which represents the difference between the total net carrying amount of the convertible debt and derivative liability of $2.0 million and the fair value of the consideration issued of $2.8 million.

The Company estimated the fair value of the convertible debt and derivative liability for the April 2020 Notes using a binomial lattice valuation model and Level 3 inputs. At September 30, 2020, the fair value of the April 2020 Notes is $7.1 million.

The holders of the April 2020 Notes may convert their April 2020 Notes at their option at any time prior to the close of business on the business day immediately preceding April 15, 2026 into shares of the Company’s common stock. The initial conversion rate is 111.1108 shares of common stock per $1,000 principal amount of the April 2020 Notes, which is equivalent

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to an initial conversion price of approximately $9.00 per share, and is subject to adjustment in certain events described in the April 2020 Note Purchase Agreement. Holders who convert may also be entitled to receive, under certain circumstances, an “interest make-whole payment” (as defined in the April 2020 Note Purchase Agreement) payable in shares of common stock. In addition, following certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its April 2020 Notes in connection with such a corporate event. Unless the Company seeks and receives stockholder approval, the number of shares that the Company may deliver in connection with a conversion of the April 2020 Notes, including those delivered in connection with an “interest make-whole payment” or a “make-whole fundamental change” (each as defined in the April 2020 Note Purchase Agreement), will not exceed a cap of 1,938,600 shares of common stock.

On or after April 15, 2023, the Company has the right, at its election, to redeem all or any portion of the April 2020 Notes not previously converted if the last reported sale price per share of common stock exceeds 130% of the conversion price on each of at least 20 trading days (whether or not consecutive) during the 30