SEC Filing - Metacrine, Inc.

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mtcr-10q_20200930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended 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: 001-39512

Metacrine, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	47-2297384
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3985 Sorrento Valley Blvd., Suite C San Diego, California	92121
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (858) 369-7800

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

MTCR

The Nasdaq Global Market

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

The number of outstanding shares of the registrant’s common stock on November 9, 2020 was 25,956,300.

Metacrine, Inc.

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	68
Item 4.	Mine Safety Disclosures	68
Item 5.	Other Information	68
Item 6.	Exhibits	68

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Metacrine, Inc.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par value and share amounts)

	September 30,			December 31,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	98,281		$	15,668
Short-term investments		10,958			39,983
Prepaid expenses and other current assets		1,663			1,692
Total current assets		110,902			57,343
Property and equipment, net		690			735
Operating lease right-of-use asset		1,740			2,203
Total assets	$	113,332		$	60,281
Liabilities, Convertible Preferred Stock, and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	655		$	239
Accrued liabilities		2,725			3,549
Current portion of operating lease liability		722			600
Total current liabilities		4,102			4,388
Unvested stock liability		34			109
Warrant liability		-			184
Operating lease liability, net of current portion		1,199			1,748
Long-term debt, net of debt discount		9,309			9,099
Other long-term liabilities		525			525
Commitments and contingencies (Note 3)
Convertible preferred stock, $0.0001 par value; authorized shares – 10,000,000 and 85,683,310 at September 30, 2020 and December 31, 2019, respectively; issued and outstanding shares – none and 85,093,688 at September 30, 2020 and December 31, 2019, respectively; Liquidation preference – none and $123,100 at September 30, 2020 and December 31, 2019, respectively.		-			122,465
Stockholders’ equity (deficit):
Common stock, $0.0001 par value; authorized shares – 200,000,000 and 111,098,749 at September 30, 2020 and December 31, 2019, respectively; issued shares – 25,957,408 and 2,682,397 at September 30, 2020 and December 31, 2019, respectively; outstanding shares – 25,909,488 and 2,484,848 at September 30, 2020 and December 31, 2019, respectively.		3			-
Additional paid-in-capital		208,076			5,164
Accumulated other comprehensive income		14			41
Accumulated deficit		(109,930	)		(83,442	)
Total stockholders’ equity (deficit)		98,163			(78,237	)
Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)	$	113,332		$	60,281

See accompanying notes to the unaudited condensed consolidated financial statements.

Metacrine, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Operating expenses:
Research and development	$	6,217		$	7,647		$	19,973		$	19,497
General and administrative		2,693			1,069			6,087			3,057
Total operating expenses		8,910			8,716			26,060			22,554
Loss from operations		(8,910	)		(8,716	)		(26,060	)		(22,554	)
Other income (expense):
Interest income		82			344			445			1,111
Interest expense		(258	)		(93	)		(765	)		(93	)
Change in fair value of warrant liability		45			-			(75	)		-
Other income (expense)		(13	)		-			(33	)		-
Total other income (expense)		(144	)		251			(428	)		1,018
Net loss	$	(9,054	)	$	(8,465	)	$	(26,488	)	$	(21,536	)
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities, net		(65	)		-			(27	)		115
Comprehensive loss	$	(9,119	)	$	(8,465	)	$	(26,515	)	$	(21,421	)
Net loss per share, basic and diluted	$	(1.41	)	$	(3.51	)	$	(6.89	)	$	(9.17	)
Weighted average shares of common stock outstanding, basic and diluted		6,436,546			2,409,227			3,845,793			2,349,635

See accompanying notes to the unaudited condensed consolidated financial statements.

Metacrine, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

	Nine Months Ended
	September 30,
	2020			2019
Operating activities:
Net loss	$	(26,488	)	$	(21,536	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		217			187
Stock-based compensation		3,151			1,442
Non-cash interest expense		210			23
Accretion of discounts on investments, net		(91	)		(579	)
Amortization of right-of-use asset		463			432
Change in fair value of warrant liability		75			-
Changes in operating assets and liabilities
Prepaid expenses and other current assets		29			89
Accounts payable and accrued liabilities		(1,260	)		1,646
Lease liability		(427	)		(374	)
Net cash used in operating activities		(24,121	)		(18,670	)
Investing activities:
Purchases of property and equipment		(172	)		(56	)
Purchases of short-term investments		(7,944	)		(48,827	)
Sale and maturities of short-term investments		37,033			60,225
Net cash provided by investing activities		28,917			11,342
Financing activities:
Proceeds from issuance of common stock from initial public offering, net of issuance costs		77,750			-
Proceeds from exercise of common stock options		69			30
Repurchase of unvested common stock		(2	)		(1	)
Proceeds from issuance of long-term debt, net of issuance cost		-			9,717
Net cash provided by financing activities		77,817			9,746
Net increase in cash and cash equivalents		82,613			2,418
Cash and cash equivalents at beginning of period		15,668			15,965
Cash and cash equivalents at end of period	$	98,281		$	18,383
Supplemental disclosure of cash flow information:
Cash paid for interest	$	554		$	-
Supplemental non-cash investing and financing activities:
Conversion of convertible preferred stock to common stock	$	122,465		$	-
Conversion of convertible preferred stock warrant to common stock warrant	$	259		$	-
Issuance costs in accounts payable and accrued liabilities	$	852		$	-
Initial fair value of warrant liability	$	-		$	184
Vesting of common stock	$	73		$	75

See accompanying notes to the unaudited condensed consolidated financial statements.

Metacrine, Inc.

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

For the Nine Months Ended September 30, 2020 and 2019

(In thousands, except share amounts)

	Convertible Preferred Stock						Common Stock
	Shares			Amount			Shares		Amount		Additional paid-in capital		Accumulated other comprehensive income			Accumulated deficit			Total stockholders' equity (deficit)
Balance at December 31, 2019		85,093,688		$	122,465			2,484,848	$	—	$	5,164	$	41		$	(83,442	)	$	(78,237	)
Issuance of common stock from initial public offering, net of issuance costs		—			—			6,540,000		1		76,897		—			—			76,898
Conversion of preferred stock to common stock from completion of initial public offering		(85,093,688	)		(122,465	)		16,685,014		2		122,463		—			—			122,465
Conversion of convertible preferred stock warrant to common stock warrant		—			—			—		—		259		—			—			259
Stock-based compensation		—			—			—		—		3,151		—			—			3,151
Exercise of stock options		—			—			54,266		—		69		—			—			69
Vesting of early exercised stock options		—			—			145,360		—		73		—			—			73
Unrealized gain/(loss) on investment securities		—			—			—		—		—		(27	)		—			(27	)
Net loss		—			—			—		—		—		—			(26,488	)		(26,488	)
Balance at September 30, 2020		—		$	—			25,909,488	$	3	$	208,076	$	14		$	(109,930	)	$	98,163

	Convertible Preferred Stock				Common Stock
	Shares		Amount		Shares		Amount		Additional paid-in capital		Accumulated other comprehensive income			Accumulated deficit			Total stockholders' equity (deficit)
Balance at December 31, 2018		85,093,688	$	122,465		2,249,749	$	—	$	3,097	$	(53	)	$	(54,509	)	$	(51,465	)
Stock-based compensation		—		—		—		—		1,442		—			—			1,442
Exercise of stock options		—		—		22,344		—		30		—			—			30
Vesting of early exercised stock options		—		—		161,548		—		75		—			—			75
Unrealized gain/(loss) on investment securities		—		—		—		—		—		115			—			115
Net loss		—		—		—		—		—		—			(21,536	)		(21,536	)
Balance at September 30, 2019		85,093,688	$	122,465		2,433,641	$	—	$	4,644	$	62		$	(76,045	)	$	(71,339	)

See accompanying notes to the unaudited condensed consolidated financial statements.

Metacrine, Inc.

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

For the Three Months Ended September 30, 2020 and 2019

(In thousands, except share amounts)

	Convertible Preferred Stock						Common Stock
	Shares			Amount			Shares		Amount		Additional paid-in capital		Accumulated other comprehensive income			Accumulated deficit			Total stockholders' equity (deficit)
Balance at June 30, 2020		85,093,688		$	122,465			2,600,373	$	—	$	6,584	$	79		$	(100,876	)	$	(94,213	)
Issuance of common stock from initial public offering, net of issuance costs		—			—			6,540,000		1		76,897		—			—			76,898
Conversion of preferred stock to common stock from completion of initial public offering		(85,093,688	)		(122,465	)		16,685,014		2		122,463		—			—			122,465
Conversion of convertible preferred stock warrant to common stock warrant		—			—			—		—		259		—			—			259
Stock-based compensation		—			—			—		—		1,791		—			—			1,791
Exercise of stock options		—			—			35,882		—		58		—			—			58
Vesting of early exercised stock options		—			—			48,219		—		24		—			—			24
Unrealized gain/(loss) on investment securities		—			—			—		—		—		(65	)		—			(65	)
Net loss		—			—			—		—		—		—			(9,054	)		(9,054	)
Balance at September 30, 2020		—		$	—			25,909,488	$	3	$	208,076	$	14		$	(109,930	)	$	98,163

	Convertible Preferred Stock				Common Stock
	Shares		Amount		Shares		Amount		Additional paid-in capital		Accumulated other comprehensive income		Accumulated deficit			Total stockholders' equity (deficit)
Balance at June 30, 2019		85,093,688	$	122,465		2,383,729	$	—	$	4,134	$	62	$	(67,580	)	$	(63,384	)
Stock-based compensation		—		—		—		—		484		—		—			484
Vesting of early exercised stock options		—		—		49,912		—		26		—		—			26
Net loss		—		—		—		—		—		—		(8,465	)		(8,465	)
Balance at September 30, 2019		85,093,688	$	122,465		2,433,641	$	—	$	4,644	$	62	$	(76,045	)	$	(71,339	)

See accompanying notes to the unaudited condensed consolidated financial statements.

Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

Organization

Metacrine, Inc. (the “Company”) was incorporated in the state of Delaware on September 17, 2014 and is based in San Diego, California. The Company is a clinical-stage biopharmaceutical company focused on building an innovative pipeline of differentiated drugs to treat liver and gastrointestinal diseases.

Principles of Consolidation

In May 2019, the Company established a wholly-owned Australian subsidiary, Metacrine, Pty Ltd, in order to conduct various clinical activities for its product candidates. The unaudited condensed consolidated financial statements include the accounts of the Company and Metacrine, Pty Ltd. The functional currency of both the Company and Metacrine, Pty Ltd is the U.S. dollar. Assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income (expense) in the unaudited condensed consolidated statements of operations and comprehensive loss. All intercompany accounts and transactions have been eliminated in consolidation.

Initial Public Offering

On September 18, 2020, the Company closed its initial public offering (“IPO”) of 6,540,000 shares of common stock at a public offering price of $13.00 per share. The Company raised $76.9 million in net proceeds from the IPO after deducting underwriters’ discounts and commissions of $6.0 million and issuance costs of $2.2 million. The net proceeds from the Company’s IPO included $0.9 million in unpaid issuance costs classified in accounts payable and accrued liabilities as of September 30, 2020.

Upon closing of the Company’s IPO, all of the Company’s outstanding preferred stock were automatically converted into 16,685,014 shares of common stock.

Reverse Stock Split

On September 8, 2020, the Company effected a 1-for-5.1 reverse stock split of its common stock. The par value and the authorized shares of the common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the Series Preferred conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The unaudited condensed consolidated financial statements and accompanying notes give retroactive effect to the reverse stock split for all periods presented.

Liquidity and Capital Resources

From its inception through September 30, 2020, the Company has devoted substantially all its efforts to organizing and staffing, business planning, raising capital, researching, discovering and developing its pipeline in FXR and other drug targets, and general and administrative support for these operations and has funded its operations primarily with the net proceeds from the issuance of convertible preferred stock, common stock, and long-term debt. The Company has incurred net losses and negative cash flows from operations since inception and had an accumulated deficit of $109.9 million and $83.4 million as of September 30, 2020 and December 31, 2019, respectively. Management expects the Company will incur substantial operating losses for the foreseeable future in order to complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. The Company will need to raise additional capital through a combination of equity offerings, debt financings, additional borrowings under the Company’s existing loan agreement, collaborations, and other similar arrangements. The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. The Company’s ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the pandemic. If the disruption persists and deepens, the Company could experience an inability to access additional capital. As of September 30, 2020, the Company had available cash, cash equivalents, and short-term investments of $109.2 million and working capital of $106.8 million to fund future operations. Management has prepared cash flow forecasts which indicate that, based on the Company’s current cash resources available and working capital, the Company will have sufficient resources to fund its operations for at least one year after the date the financial statements are issued.

Use of Estimates

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the Company’s unaudited condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, and expenses

Metacrine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

and the disclosure of contingent assets and liabilities. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to accruals for research and development expenses and stock-based compensation. These estimates and assumptions are based on current facts, historical experience, and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Fair Value Measurement

The following tables summarize the Company’s financial instruments measured at fair value on a recurring basis:

			Fair Value Measurements At Reporting Date Using
	Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2020
Assets:
Commercial paper	$	3,249	$	—	$	3,249	$	—
Corporate debt securities		4,707		—		4,707		—
Asset backed securities		3,002		—		3,002		—
Total assets measured at fair value	$	10,958	$	—	$	10,958	$	—
As of December 31, 2019
Assets:
Commercial paper	$	9,694	$	—	$	9,694	$	—
Corporate debt securities		24,781		—		24,781		—
Asset backed securities		5,508		—		5,508		—
Total assets measured at fair value	$	39,983	$	—	$	39,983	$	—
Liabilities: