0001564590-21-043713 | 10-Q | XBRL Viewer

Print Document View Excel Document

Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Jun. 30, 2021	Aug. 06, 2021
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2021
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Entity Registrant Name	Metacrine, Inc.
Entity Central Index Key	0001634379
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock Shares Outstanding		26,525,627
Security12b Title	Common Stock, par value $0.0001 per share
Trading Symbol	MTCR
Security Exchange Name	NASDAQ
Entity File Number	001-39512
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	47-2297384
Entity Address, Address Line One	3985 Sorrento Valley Blvd.
Entity Address, Address Line Two	Suite C
Entity Address, City or Town	San Diego
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92121
City Area Code	858
Local Phone Number	369-7800
Document Quarterly Report	true
Document Transition Report	false

Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 17,147	$ 24,393
Short-term investments	57,666	71,783
Prepaid expenses and other current assets	4,841	5,847
Total current assets	79,654	102,023
Property and equipment, net	488	634
Operating lease right-of-use asset	1,248	1,579
Total assets	81,390	104,236
Current liabilities:
Accounts payable	261	334
Accrued liabilities	6,449	2,951
Current portion of operating lease liability	782	741
Total current liabilities	7,492	4,026
Operating lease liability, net of current portion	605	1,007
Long-term debt, net of debt discount	9,498	9,372
Other long-term liabilities	536	552
Commitments and contingencies (Note 3)
Stockholders’ equity:
Preferred stock, $0.0001 par value; authorized shares - 10,000,000 at June 30, 2021 and December 31, 2020, respectively; issued and outstanding shares - none at June 30, 2021 and December 31, 2020, respectively.
Common stock, $0.0001 par value; authorized shares – 200,000,000 at June 30, 2021 and December 31, 2020, respectively; issued shares – 26,521,080 and 26,005,934 at June 30, 2021 and December 31, 2020, respectively; outstanding shares – 26,505,924 and 25,969,442 at June 30, 2021 and December 31, 2020, respectively.	3	3
Additional paid-in-capital	214,348	210,021
Accumulated other comprehensive income	7	1
Accumulated deficit	(151,099)	(120,746)
Total stockholders’ equity	63,259	89,279
Total liabilities and stockholders’ equity	$ 81,390	$ 104,236

Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2021	Dec. 31, 2020
Statement Of Financial Position [Abstract]
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, authorized shares	10,000,000	10,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, authorized shares	200,000,000	200,000,000
Common stock, issued shares	26,521,080	26,005,934
Common stock, outstanding shares	26,505,924	25,969,442

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Operating expenses:
Research and development	$ 11,368	$ 7,395	$ 22,225	$ 13,756
General and administrative	3,992	1,793	7,688	3,394
Total operating expenses	15,360	9,188	29,913	17,150
Loss from operations	(15,360)	(9,188)	(29,913)	(17,150)
Other income (expense):
Interest income	27	134	63	363
Interest expense	(247)	(254)	(491)	(507)
Other expense	(5)	(14)	(12)	(140)
Total other income (expense)	(225)	(134)	(440)	(284)
Net loss	(15,585)	(9,322)	(30,353)	(17,434)
Other comprehensive loss:
Unrealized gain on available-for-sale securities, net	8	106	6	38
Comprehensive loss	$ (15,577)	$ (9,216)	$ (30,347)	$ (17,396)
Net loss per share, basic and diluted	$ (0.59)	$ (3.64)	$ (1.16)	$ (6.87)
Weighted average shares of common stock outstanding, basic and diluted	26,369,636	2,563,043	26,189,664	2,536,817

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Operating activities:
Net loss	$ (30,353)	$ (17,434)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	154	140
Stock-based compensation	3,106	1,360
Non-cash interest expense	126	141
Amortization (accretion) of premiums/discounts on investments, net	263	(80)
Amortization of right-of-use asset	331	306
Change in fair value of warrant liability		120
Changes in operating assets and liabilities
Prepaid expenses and other current assets	1,006	(398)
Accounts payable and accrued liabilities	3,425	64
Lease liability	(361)	(275)
Net cash used in operating activities	(22,303)	(16,056)
Investing activities:
Purchases of property and equipment	(8)	(165)
Purchases of short-term investments	(34,681)	(7,944)
Sales and maturities of short-term investments	48,541	25,890
Net cash provided by investing activities	13,852	17,781
Financing activities:
Proceeds from exercise of common stock options	1,059	11
Repurchase of unvested common stock	(1)	(2)
Proceeds from issuance of common stock from employee stock purchase plan	147
Payment of initial public offering costs		(272)
Net cash provided by (used in) financing activities	1,205	(263)
Net (decrease) increase in cash and cash equivalents	(7,246)	1,462
Cash and cash equivalents at beginning of period	24,393	15,668
Cash and cash equivalents at end of period	17,147	17,130
Supplemental disclosure of cash flow information:
Cash paid for interest	367	369
Supplemental non-cash investing and financing activities:
Unpaid initial public offering costs		299
Vesting of common stock	$ 15	$ 49

Unaudited Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) - USD ($) $ in Thousands	Total	Convertible Preferred Stock	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit
Temporary equity, Balance at Dec. 31, 2019		$ 122,465
Temporary equity, Balance, shares at Dec. 31, 2019		85,093,688
Balance at Dec. 31, 2019	$ (78,237)			$ 5,164	$ 41	$ (83,442)
Balance, shares at Dec. 31, 2019			2,484,848
Stock-based compensation	1,360			1,360
Exercise of stock options	11			11
Exercise of stock options, shares			18,384
Vesting of early exercised stock options	49			49
Vesting of early exercised stock options, shares			97,141
Unrealized gain on investment securities	38				38
Net loss	(17,434)					(17,434)
Temporary equity, Balance at Jun. 30, 2020		$ 122,465
Temporary equity, Balance, shares at Jun. 30, 2020		85,093,688
Balance at Jun. 30, 2020	(94,213)			6,584	79	(100,876)
Balance, shares at Jun. 30, 2020			2,600,373
Temporary equity, Balance at Mar. 31, 2020		$ 122,465
Temporary equity, Balance, shares at Mar. 31, 2020		85,093,688
Balance at Mar. 31, 2020	(85,887)			5,694	(27)	(91,554)
Balance, shares at Mar. 31, 2020			2,534,569
Stock-based compensation	857			857
Exercise of stock options	8			8
Exercise of stock options, shares			17,429
Vesting of early exercised stock options	25			25
Vesting of early exercised stock options, shares			48,375
Unrealized gain on investment securities	106				106
Net loss	(9,322)					(9,322)
Temporary equity, Balance at Jun. 30, 2020		$ 122,465
Temporary equity, Balance, shares at Jun. 30, 2020		85,093,688
Balance at Jun. 30, 2020	(94,213)			6,584	79	(100,876)
Balance, shares at Jun. 30, 2020			2,600,373
Balance at Dec. 31, 2020	$ 89,279		$ 3	210,021	1	(120,746)
Balance, shares at Dec. 31, 2020	25,969,442		25,969,442
Stock-based compensation	$ 3,106			3,106
Exercise of stock options	$ 1,059			1,059
Exercise of stock options, shares	466,811		466,811
Vesting of early exercised stock options	$ 15			15
Vesting of early exercised stock options, shares			21,336
Issuance of common stock from employee stock purchase plan	147			147
Issuance of common stock from employee stock purchase plan, shares			48,335
Unrealized gain on investment securities	6				6
Net loss	(30,353)					(30,353)
Balance at Jun. 30, 2021	$ 63,259		$ 3	214,348	7	(151,099)
Balance, shares at Jun. 30, 2021	26,505,924		26,505,924
Balance at Mar. 31, 2021	$ 76,660		$ 3	212,172	(1)	(135,514)
Balance, shares at Mar. 31, 2021			26,209,327
Stock-based compensation	1,586			1,586
Exercise of stock options	436			436
Exercise of stock options, shares			238,133
Vesting of early exercised stock options	7			7
Vesting of early exercised stock options, shares			10,129
Issuance of common stock from employee stock purchase plan	147			147
Issuance of common stock from employee stock purchase plan, shares			48,335
Unrealized gain on investment securities	8				8
Net loss	(15,585)					(15,585)
Balance at Jun. 30, 2021	$ 63,259		$ 3	$ 214,348	$ 7	$ (151,099)
Balance, shares at Jun. 30, 2021	26,505,924		26,505,924

Organization and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization and Summary of Significant Accounting Policies

Note 1. Organization and Summary of Significant Accounting Policies

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 and Basis of Presentation

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. Intercompany accounts and transactions have been eliminated in consolidation.

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable regulations of the U.S. Securities and Exchange Commission (“SEC”). The Company’s unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed on March 18, 2021. Certain amounts in the unaudited condensed consolidated financial statements have been reclassified to conform to their current year presentation.

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.

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.

Liquidity and Capital Resources

From its inception through June 30, 2021, 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 $151.1 million and $120.7 million as of June 30, 2021 and December 31, 2020, 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, collaborations, and other similar arrangements. The Company’s ability to raise additional capital may be adversely impacted by potential worsening of economic conditions in the United States and worldwide resulting from the COVID-19 pandemic. If the disruption persists and deepens, the Company could experience an inability to access additional capital. As of June 30, 2021, the Company had available cash, cash equivalents, and short-term investments of $74.8 million and working capital of $72.2 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 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 and the disclosure of contingent assets and liabilities. Significant estimates in the Company’s unaudited condensed consolidated financial statements include 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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts, money market funds, and

commercial paper. The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents are valued at cost, which approximates fair value.

Short-Term Investments

Short-term investments primarily consist of commercial paper, corporate debt securities, and U.S. government and agency bonds. The Company has classified these investments as available-for-sale securities, as the sale of such investments may be required prior to maturity to implement management strategies, and therefore has classified all short-term investments with maturity dates beyond three months at the date of purchase as current assets in the accompanying unaudited condensed consolidated balance sheets. Any premium or discount arising at purchase is amortized and/or accreted to interest income as an adjustment to yield using the straight-line method over the life of the instrument. Short-term investments are reported at their estimated fair value. The Company reviews its short-term investments in unrealized loss positions at each reporting date to assess whether the decline in their fair value is due to credit-related factors. The credit portion of unrealized losses and any subsequent improvements are recorded in other income (expense) through an allowance account. Unrealized gains and losses that are not credit-related are included in other comprehensive (income) loss as a component of stockholders’ equity until realized. Realized gains and losses are determined using the specific identification method and are included in other income (expense).

Fair Value Measurement

The Company accounts for certain assets and liabilities at their fair value. The Company uses the following fair value hierarchy to indicate the extent to which the inputs used to determine fair value are observable in the market:

•

Level 1: Inputs are based on quoted prices for identical assets in active markets.

•

Level 2: Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Property and Equipment, Net

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful life of the related assets (generally three to five years). Leasehold improvements are stated at cost and amortized on a straight-line basis over the lesser of the remaining lease term or the estimated useful life of the leasehold improvements. Repairs and maintenance costs are charged to expense as incurred.

Leases

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. Lease terms are determined at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. For its long-term operating leases, the Company recognizes a lease liability and a right-of-use (“ROU”) asset on its unaudited condensed consolidated balance sheets and recognizes lease expense on a straight-line basis over the lease term. The lease liability is determined as the present value of future lease payments using the discount rate implicit in the lease or, if the implicit rate is not readily determinable, an estimate of the Company’s incremental borrowing rate. The ROU asset is based on the lease liability, adjusted for any prepaid or deferred rent. The Company aggregates all lease and non-lease components for each class of underlying assets into a single lease component and variable charges for common area maintenance and other variable costs are recognized as expense as incurred. The Company has elected to not recognize a lease liability or ROU asset in connection with short-term operating leases and recognizes lease expense for short-term operating leases on a straight-line basis over the lease term. The Company does not have any financing leases.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value would be assessed using discounted cash flows or other appropriate measures of fair value. The Company did not recognize any impairment losses during the six months ended June 30, 2021 and 2020.

Research and Development Costs

All costs of research and development are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation, external research and development costs incurred under agreements with contract research organizations, investigative sites, and consultants to conduct our preclinical, toxicology and clinical studies, laboratory supplies, costs related to compliance with regulatory requirements, costs related to manufacturing the Company’s product candidates for clinical trials and preclinical studies, facilities, depreciation, and other allocated expenses. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the related goods are delivered or services performed.

The Company has entered into various research and development contracts with clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying unaudited condensed consolidated balance sheets as prepaid expenses and other current assets. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.

Patent Costs

Costs related to filing and pursuing patent applications are recorded as general and administrative expenses and expensed as incurred since recoverability of such expenditures is uncertain.

Stock-Based Compensation

The Company recognizes stock-based compensation expense related to stock options, restricted stock units, and shares granted under the Company’s 2020 Employee Stock Purchase Plan (the “ESPP”). Stock-based compensation expense represents the cost of the grant date fair value of the applicable awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company estimates the fair value of stock option grants and shares purchased under the ESPP using the Black-Scholes option pricing model. Stock-based compensation expense related to restricted stock units is determined based upon the fair market value of the Company’s stock on the grant date. Stock-based compensation expense is adjusted to reflect forfeitures as they occur.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The only component of other comprehensive loss is unrealized gains (losses) on available-for-sale securities. Comprehensive gains (losses) have been reflected in the unaudited condensed consolidated statements of operations and comprehensive loss and as a separate component in the unaudited condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for all periods presented.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company and its chief operating decision-maker view the Company’s operations and manages its business in one operating segment.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses, to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance will become effective for the Company beginning January 1, 2023, with early adoption permitted. The Company early adopted ASU No. 2016-13 during the first quarter of 2021. The standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU No. 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also improves consistent application by clarifying and amending existing guidance. The Company adopted ASU No. 2019-12 during the first quarter of 2021. The standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of convertible preferred stock, preferred and common stock warrants, unvested common stock subject to repurchase, and options outstanding under the Company’s stock option plan.

Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

	June 30,
	2021		2020
Common stock options		3,447,174		3,206,308
Unvested restricted stock units		567,350		—
Unvested common stock		12,461		96,139
Common stock warrant		23,122		—
Preferred stock warrant		—		23,122
Convertible preferred stock		—		16,685,014
Total		4,050,107		20,010,583

Balance Sheet Details

6 Months Ended

Jun. 30, 2021

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Details

Note 2. Balance Sheet Details

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

	June 30,		December 31,
	2021		2020
Prepaid research and development	$	3,748	$	4,473
Prepaid expenses		730		610
Other current assets		282		570
Interest receivable		81		194
Total prepaid expenses and other current assets	$	4,841	$	5,847

Property and equipment consist of the following (in thousands):

	June 30,			December 31,
	2021			2020
Laboratory equipment	$	1,112		$	1,104
Computer equipment and software		215			215
Furniture and fixtures		178			178
Leasehold improvements		146			146
Property and equipment, gross		1,651			1,643
Less accumulated depreciation and amortization		(1,163	)		(1,009	)
Property and equipment, net	$	488		$	634

Depreciation expense was $0.1 million for the three months ended June 30, 2021 and 2020, and $0.2 million and $0.1 million for the six months ended June 30, 2021 and 2020, respectively.

Accrued liabilities consist of the following (in thousands):

	June 30,		December 31,
	2021		2020
Accrued research and development	$	4,637	$	676
Accrued compensation		1,194		1,671
Other accrued liabilities		618		604
Total accrued liabilities	$	6,449	$	2,951

Commitment and Contingencies

6 Months Ended

Jun. 30, 2021

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 3. Commitments and Contingencies

Operating Leases

The Company entered into a five-year noncancelable operating lease in June 2017 for its corporate headquarters in San Diego, California under an agreement that commenced in March 2018. Under the terms of the agreement, there is no option to extend the lease and the Company is subject to additional charges for common area maintenance and other costs. Monthly rental payments due under the lease commenced in March 2018 and escalate throughout the lease term.

Information related to the Company’s operating lease is as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Operating lease expense (including variable costs of $96 and $59 during the three months ended June 30, 2021 and 2020, respectively, and $184, and $141 during the six months ended June 30, 2021 and 2020, respectively)	$	294	$	257	$	579	$	536
Cash paid for amounts included in the measurement of lease liabilities	$	216	$	184	$	425	$	364

As of June 30, 2021 and December 31, 2020, the remaining lease term of the Company’s operating lease was 21 months and 27 months, respectively. As of June 30, 2021 and December 31, 2020, the discount rate on the Company’s operating lease was 8.0%.

Future minimum noncancelable operating lease payments and information related to the lease liability are as follows (in thousands):

	June 30, 2021
Remaining during 2021	$	431
2022		876
2023		183
Total lease payments		1,490
Imputed interest		(103	)
Lease liability		1,387
Less current portion of lease liability		782
Lease liability, net of current portion	$	605

License Agreement with the Salk Institute

In November 2016, the Company and The Salk Institute for Biological Studies (“The Salk”) entered into the Amended and Restated Exclusive FXR License Agreement, which was amended in February 2017 and July 2018, pursuant to which The Salk granted the Company an exclusive, worldwide license to certain FXR related intellectual property to make, use, offer for sale, import, export, and distribute products covered by such intellectual property (“FXR Licensed Products”) and a non-exclusive, worldwide license to use certain technical information to research, develop, test, make, use, offer for sale, import, export and distribute FXR Licensed Products. The Company is required to use commercially reasonable efforts to achieve certain diligence milestones with respect to the FXR Licensed Products, including with respect to developing, producing and selling FXR Licensed Products. The Company is also required to pay The Salk up to $6.5 million in milestone payments upon the completion of certain clinical and regulatory milestones, certain of which payments the Company may defer under certain circumstances. The Company is also obligated to pay The Salk a low single-digit percentage royalty on net sales, with a minimum annual royalty payment due beginning with the first commercial sale of each FXR Licensed Product. The applicable minimum annual royalty payment amount depends on the number of years that have elapsed since the first commercial sale of an FXR Licensed Product and is in the hundreds-of-thousands-of-dollars range. In addition, if the Company chooses to sublicense the FXR Licensed Product to any third parties, the Company must pay to The Salk a low single-digit percentage of all sublicensing revenue. In addition, in the event of a change of control, the Company is required to pay The Salk a low single-digit percentage of any payments and consideration that it receives in consideration of the change of control. The Company has accrued $0.4 million in milestone payments based upon the achievement of certain regulatory milestones as of June 30, 2021.

Contingencies

In the event the Company becomes subject to claims or suits arising in the ordinary course of business, the Company would accrue a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

Long-Term Debt

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Long-Term Debt

Note 4. Long-Term Debt

Long-term debt consists of the following (in thousands):

	June 30, 2021			December 31, 2020
Long-term debt	$	10,000		$	10,000
Unamortized debt discount		(502	)		(628	)
Long-term debt, net of debt discount	$	9,498		$	9,372

On August 27, 2019, the Company entered into a Loan and Security Agreement (the “Loan Agreement”, and all amounts borrowed thereunder the “Term Loan”) with a lender (the “Lender”). The Company borrowed $10.0 million under the Term Loan at the inception of the Loan Agreement. The remaining borrowings available under the Loan Agreement have expired.

The Term Loan bears interest at a floating annual rate equal to the greater of (i) the prime rate used by the Lender plus 2% (5.25% at June 30, 2021 and December 31, 2020), and (ii) 7.25%. The monthly payments are interest-only until September 1, 2022. Subsequent to the interest-only period, the Term Loan will be payable in equal monthly installments of principal plus accrued and unpaid interest, through the maturity date of September 1, 2023 (“Maturity Date”). In addition, the Company is obligated to pay a final payment fee of 5.25% of the original principal amount of the Term Loan on the Maturity Date. As of June 30, 2021 and December 31, 2020, the final payment fee of $0.5 million has been recorded as a long-term liability. The Company may elect to prepay all, but not less than all, of the Term Loan prior to the Maturity Date, subject to a prepayment fee of up to 3.0% of the then outstanding principal balance. After repayment, no Term Loan amounts may be borrowed again.

The Company’s obligations under the Loan Agreement are secured by a security interest in substantially all of its assets, other than its intellectual property. The Loan Agreement includes customary affirmative and negative covenants and also includes standard events of default, including an event of default based on the occurrence of a material adverse event, and a default under any agreement with a third party resulting in a right of such third party to accelerate the maturity of any debt in excess of $0.3 million. The negative covenants include, among others, restrictions on the Company transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying cash dividends or making other distributions, making investments, creating liens, selling assets and making any payment on subordinated debt, in each case subject to certain exceptions. Upon the occurrence and continuance of an event of default, the Lender may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. As of June 30, 2021 and December 31, 2020, the Company was in compliance with all applicable covenants under the Loan Agreement.

In connection with the Loan Agreement, the Company issued the Lender a warrant (the “Lender Warrant”) to purchase shares of the Company’s Series C convertible preferred stock at an exercise price of $10.812 per share and expiring on August 27, 2029. The number of Series C convertible preferred shares issuable upon exercise of the warrant is an amount equal to (i) 2.5% of the aggregate Term Loan funded under the Loan Agreement divided by (ii) $10.812. Upon the funding of the Term Loan, the Lender Warrant was initially exercisable for 117,924 shares of Series C convertible preferred stock. The Lender Warrant was automatically converted into a warrant to purchase 23,122 shares of common stock upon completion of the Company’s IPO.

The initial $0.2 million fair value of the Lender Warrant, $0.5 million final payment fee, and $0.3 million of debt issuance costs were recorded as a debt discount and are being amortized to interest expense using the effective interest method over the term of the Term Loan. For the three months ended June 30, 2021 and 2020, the Company recognized $0.2 million and $0.3 million of interest expense, including $65 thousand and $71 thousand of debt discount amortization, respectively, in connection with the Loan Agreement. For each of the six months ended June 30, 2021 and 2020, the Company recognized $0.5 million of interest expense, including $0.1 million of debt discount amortization. As of June 30, 2021 and December 31, 2020, the Company had an outstanding Term Loan of $10.0 million and accrued interest of $0.1 million, respectively.

Future minimum principal and interest payments under the Term Loan, including the final payment fee, as of June 30, 2021 are as follows (in thousands):

	June 30, 2021
Remaining in 2021	$	371
2022		4,438
2023		6,949
Total principal and interest payments		11,758
Less interest and final payment fee		(1,758	)
Long-term debt	$	10,000

Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

Note 5. Fair Value of Financial Instruments

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 June 30, 2021
Assets:
Commercial paper	$	33,882	$	—	$	33,882	$	—
Corporate debt securities		6,682		—		6,682		—
U.S. government and agency securities		17,102		—		17,102		—
Total assets measured at fair value	$	57,666	$	—	$	57,666	$	—
As of December 31, 2020
Assets:
Commercial paper	$	27,136	$	—	$	27,136	$	—
Corporate debt securities		26,506		—		26,506		—
U.S. government and agency securities		18,141		—		18,141		—
Total assets measured at fair value	$	71,783	$	—	$	71,783	$	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Short-Term Investments

6 Months Ended

Jun. 30, 2021

Cash Cash Equivalents And Short Term Investments [Abstract]

Short-Term Investments

Note 6. Short-Term Investments

The following tables summarize short-term investments (in thousands):

	As of June 30, 2021
			Unrealized
	Amortized Cost		Gains		Losses			Estimated Fair Value
Commercial paper	$	33,877	$	5	$	—		$	33,882
Corporate debt securities		6,683		—		(1	)		6,682
U.S. government and agency securities		17,099		3		—			17,102
Total short-term investments	$	57,659	$	8	$	(1	)	$	57,666

	As of December 31, 2020
			Unrealized
	Amortized Cost		Gains		Losses			Estimated Fair Value
Commercial paper	$	27,136	$	—	$	—		$	27,136
Corporate debt securities		26,510		—		(4	)		26,506
U.S. government and agency securities		18,136		5		—			18,141
Total short-term investments	$	71,782	$	5	$	(4	)	$	71,783

The following table summarizes the maturities of the Company’s short-term investments at June 30, 2021:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	55,363	$	55,369
Due after one year through two years		2,296		2,297
Total short-term investments	$	57,659	$	57,666

Stockholders' Equity

6 Months Ended

Jun. 30, 2021

Equity [Abstract]

Stockholders' Equity

Note 7. Stockholders’ Equity

Equity Incentive Plan

In January 2015, the Company adopted the Metacrine, Inc. 2015 Equity Incentive Plan (as amended, the “2015 Plan”), which provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, and stock appreciation rights to its employees, members of its board of directors, and consultants. In August 2020, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (the “2020 Plan”), which is the successor and continuation of the 2015 Plan. No additional awards may be granted under the 2015 Plan and all outstanding awards under the 2015 Plan remain subject to the terms of the 2015 Plan. As of June 30, 2021, there were 2,593,615 shares authorized and available for issuance under the 2020 Plan.

Recipients of incentive stock options are eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2015 and 2020 Plans (or collectively, the “Equity Plans”) is ten years and, in general, the options issued under the Equity Plans vest over a four-year period from the vesting commencement date. The 2015 Plan allows for early exercise of stock options, which may be subject to repurchase by the Company at the lower of (i) the fair market value at the repurchase date or (ii) the original exercise price. The early exercise of stock options is not permitted under the 2020 Plan.

A summary of the Company’s unvested shares and unvested stock liability is as follows (in thousands, except share amounts):

	Number of Unvested Shares			Unvested Stock Liability
Balance at December 31, 2020		36,492		$	27
Vested shares		(21,336	)		(15	)
Repurchased shares		(2,695	)		(1	)
Balance at June 30, 2021		12,461		$	11

Stock Options

A summary of the Company’s stock option activity is as follows (in thousands, except share and per share amounts):

	Number of Outstanding Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value
Balance at December 31, 2020		3,136,076		$	5.23		7.95	$	8,963
Granted		984,055		$	8.91
Exercised		(466,811	)	$	2.27
Cancelled		(206,146	)	$	6.53
Balance at June 30, 2021		3,447,174		$	6.60		8.57	$	947
Vested and expected to vest at June 30, 2021		3,447,174		$	6.60		8.57	$	947
Exercisable at June 30, 2021		1,020,384		$	4.09		7.43	$	758

The weighted average grant date fair value per share of stock option grants for the six months ended June 30, 2021 and 2020 was $6.52 and $8.52, respectively. The total intrinsic value of stock options exercised during the six months ended June 30, 2021 and 2020 was $1.7 million and $0.2 million, respectively.

The assumptions used in the Black-Scholes option pricing model to determine the fair value of stock option grants were as follows:

	Six Months Ended June 30,
	2021			2020
Risk-free interest rate	0.6% - 1.1%			0.4% – 0.7%
Expected volatility	87.9% - 89.5%			82.4% – 94.8%
Expected term (in years)	5.5 – 6.07			5.8 – 10.0
Expected dividend yield		0	%		0	%

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the expected term of the awards.

Expected volatility. Since the Company recently completed its IPO and does not have sufficient trading history for its common stock, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Expected term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, for employees, which is an average of the contractual term of the option and its vesting period. The expected term for nonemployee options is equal to the contractual term.

Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends and, therefore, used an expected dividend yield of zero.

Restricted Stock Units

A summary of the Company’s restricted stock units activity is as follows (in thousands, except share and per share amounts):

	Number of Outstanding Awards			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Balance at December 31, 2020		-		$	-
Granted		579,150		$	4.09
Released		-		$	-
Cancelled		(11,800	)	$	4.09
Balance at June 30, 2021		567,350		$	4.09	$	2,156
Vested and expected to vest at June 30, 2021		567,350		$	4.09	$	2,156

In June 2021, the Company granted 359,100 restricted stock units to certain executives and employees that vest in full upon the achievement of a specified development milestone related to the Company’s FXR program. The Company assesses the probability the development milestone will be achieved on a quarterly basis and recognizes stock-based compensation cost ratably over the requisite service period. The Company determined that achievement of the milestone was probable as of June 30, 2021.

No restricted stock units vested during the three and six months ended June 30, 2021 and 2020.

Employee Stock Purchase Plan

In September 2020, the Company’s Board of Directors and stockholders adopted and approved the 2020 Employee Stock Purchase Plan (the “ESPP”). The ESPP permits eligible employees, who elect to participate in an offering under the ESPP, to contribute up to 15% of their eligible gross compensation towards the purchase of shares of common stock. Eligible employees can purchase up to 20,000 shares of common stock on a given purchase date. The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the commencement date of each offering period or the relevant purchase date, whichever is lower. Offerings under the ESPP are approximately two years in duration and consist of four purchase periods that are approximately six months in duration. The ESPP is considered a compensatory plan as defined by the authoritative guidance for stock-based compensation. As of June 30, 2021, there were 616,724 shares of common stock available for future issuance under the ESPP.

Stock-Based Compensation Expense

Stock-based compensation expense recognized for all equity awards has been reported in the unaudited condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
General and administrative	$	1,310	$	212	$	2,336	$	497
Research and development		276		645		770		863
Total stock-based compensation	$	1,586	$	857	$	3,106	$	1,360

As of June 30, 2021, the total unrecognized stock-based compensation expense relating to outstanding stock options and restricted stock units was $18.7 million, which is expected to be recognized over a weighted average period of 2.4 years.

Common Stock Reserved For Future Issuance

Common stock reserved for future issuance consists of the following:

	June 30,		December 31,
	2021		2020
Common stock options outstanding		3,447,174		3,136,076
Restricted stock units outstanding		567,350		—
Shares available for issuance under equity incentive plans		2,593,615		2,907,742
Shares available for issuance under the ESPP		616,724		405,000
Common stock warrant		23,122		23,122
Total		7,247,985		6,471,940

401 (k) Plan

6 Months Ended

Jun. 30, 2021

Compensation And Retirement Disclosure [Abstract]

401 (k) Plan

Note 8. 401(k) Plan

The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. The Company, at its discretion, may make certain matching contributions to the 401(k) plan. As of June 30, 2021, no contributions to the 401(k) plan have been made by the Company.

Organization and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Principles of Consolidation and Basis of Presentation

Initial Public Offering

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.

Liquidity and Capital Resources

Use of Estimates

Cash and Cash Equivalents

commercial paper. The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents are valued at cost, which approximates fair value.

Short-Term Investments

Fair Value Measurement

•

Level 1: Inputs are based on quoted prices for identical assets in active markets.

•

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Concentration of Credit Risk

Property and Equipment, Net

Leases

Impairment of Long-Lived Assets

Research and Development Costs

Patent Costs

Costs related to filing and pursuing patent applications are recorded as general and administrative expenses and expensed as incurred since recoverability of such expenditures is uncertain.

Stock-Based Compensation

Income Taxes

Comprehensive Loss

Segment Reporting

Recent Accounting Pronouncements

Net Loss Per Share

Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

	June 30,
	2021		2020
Common stock options		3,447,174		3,206,308
Unvested restricted stock units		567,350