grtx-10q_20190930.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, 2019

or

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

For the transition period from _______ to _______

Commission File Number: 001-39114

 

Galera Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

46-1454898

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2 W Liberty Blvd #100

Malvern, Pennsylvania 

19355

(Address of principal executive offices)

(Zip Code)

 

(610) 725-1500

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

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,

$0.001 par value per share

GRTX

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, 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 December 9, 2019, the registrant had 24,807,789 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets

3

 

Consolidated Statements of Operations

4

 

Consolidated Statements of Comprehensive Loss

5

 

Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit

6

 

Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Interim Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

73

Item 3.

Defaults Upon Senior Securities

73

Item 4.

Mine Safety Disclosures

73

Item 5.

Other Information

74

Item 6.

Exhibits

75

Signatures

76

 

 

 

i


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our plans to develop and commercialize our product candidates, the timing of our ongoing or planned clinical trials, the timing of and our ability to obtain and maintain regulatory approvals, the clinical utility of our product candidates, our commercialization, marketing and manufacturing capabilities and strategy, our expectations about the willingness of healthcare professionals to use our product candidates, the sufficiency of our cash, cash equivalents and short-term investments, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.

The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

 

 

ii


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GALERA THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE AND PER-SHARE AMOUNTS)

(unaudited)

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,719

 

 

$

14,811

 

Short-term investments

 

 

52,226

 

 

 

66,706

 

Tax incentive receivable

 

 

 

 

 

870

 

Prepaid expenses and other current assets

 

 

4,197

 

 

 

1,465

 

Total current assets

 

 

72,142

 

 

 

83,852

 

Property and equipment, net

 

 

970

 

 

 

568

 

Acquired intangible asset

 

 

2,258

 

 

 

2,258

 

Goodwill

 

 

881

 

 

 

881

 

Deferred offering costs

 

 

2,103

 

 

 

 

Right-of-use lease asset

 

 

876

 

 

 

 

Other assets

 

 

528

 

 

 

497

 

Total assets

 

$

79,758

 

 

$

88,056

 

Liabilities, redeemable convertible preferred stock and stockholders’ deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,218

 

 

$

3,867

 

Accrued expenses

 

 

3,574

 

 

 

2,577

 

Lease liability

 

 

291

 

 

 

 

Total current liabilities

 

 

9,083

 

 

 

6,444

 

Royalty purchase liability

 

 

42,313

 

 

 

20,220

 

Deferred rent

 

 

 

 

 

12

 

Lease liability, net of current portion

 

 

604

 

 

 

 

Deferred tax liability

 

 

298

 

 

 

298

 

Total liabilities

 

 

52,298

 

 

 

26,974

 

Redeemable convertible preferred stock, $0.001 par value: 96,385,795 shares authorized,

   issued and outstanding at September 30, 2019 and December 31, 2018, respectively

   (liquidation value of $174,746 at September 30, 2019)

 

 

172,080

 

 

 

165,902

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value: 10,000,000 shares authorized; no shares issued and

   outstanding.

 

 

 

 

 

 

Common stock, $0.001 par value: 200,000,000 shares authorized; 300,597 shares

   issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 

 

 

 

Accumulated other comprehensive income

 

 

55

 

 

 

3

 

Accumulated deficit

 

 

(144,675

)

 

 

(104,823

)

Total stockholders’ deficit

 

 

(144,620

)

 

 

(104,820

)

Total liabilities, redeemable convertible preferred stock and stockholders’ deficit

 

$

79,758

 

 

$

88,056

 

 

See accompanying notes to unaudited interim consolidated financial statements.

3


 

GALERA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

(unaudited)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

11,040

 

 

$

4,162

 

 

$

29,057

 

 

$

11,551

 

General and administrative

 

 

1,816

 

 

 

1,245

 

 

 

5,466

 

 

 

3,846

 

Loss from operations

 

 

(12,856

)

 

 

(5,407

)

 

 

(34,523

)

 

 

(15,397

)

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

426

 

 

 

117

 

 

 

1,397

 

 

 

170

 

Interest expense

 

 

(918

)

 

 

 

 

 

(2,094

)

 

 

 

Foreign currency loss

 

 

(3

)

 

 

(11

)

 

 

(38

)

 

 

(27

)

Loss before income tax benefit

 

 

(13,351

)

 

 

(5,301

)

 

 

(35,258

)

 

 

(15,254

)

Income tax benefit

 

 

 

 

 

52

 

 

 

 

 

 

141

 

Net loss

 

 

(13,351

)

 

 

(5,249

)

 

 

(35,258

)

 

 

(15,113

)

Accretion of redeemable convertible preferred stock to redemption

   value

 

 

(2,108

)

 

 

(1,468

)

 

 

(6,178

)

 

 

(3,879

)

Net loss attributable to common stockholders

 

$

(15,459

)

 

$

(6,717

)

 

$

(41,436

)

 

$

(18,992

)

Net loss per share of common stock, basic and diluted

 

$

(51.43

)

 

$

(22.35

)

 

$

(137.85

)

 

$

(63.18

)

Weighted-average shares of common stock outstanding, basic and

   diluted

 

 

300,597

 

 

 

300,597

 

 

 

300,597

 

 

 

300,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited interim consolidated financial statements.

4


 

GALERA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

(unaudited)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(13,351

)

 

$

(5,249

)

 

$

(35,258

)

 

$

(15,113

)

Unrealized gain on short-term investments

 

 

(26

)

 

 

 

 

 

52

 

 

 

3

 

Comprehensive loss

 

$

(13,377

)

 

$

(5,249

)

 

$

(35,206

)

 

$

(15,110

)

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited interim consolidated financial statements.

5


 

GALERA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ DEFICIT

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

(unaudited)

 

 

 

Redeemable convertible

preferred stock

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

other

comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

(loss) income

 

 

Deficit

 

 

Deficit

 

Balance at January 1, 2018

 

 

64,689,359

 

 

$

90,148

 

 

 

 

300,597

 

 

$

 

 

$

 

 

$

(3

)

 

$

(76,102

)

 

$

(76,105

)

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

208

 

 

 

 

 

 

 

 

 

208

 

Accretion of redeemable

   convertible preferred stock

   to redemption value

 

 

 

 

 

1,205

 

 

 

 

 

 

 

 

 

 

(208

)

 

 

 

 

 

(997

)

 

 

(1,205

)

Unrealized gain on short-term

   investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,533

)

 

 

(5,533

)

Balance at March 31, 2018

 

 

64,689,359

 

 

 

91,353

 

 

 

 

300,597

 

 

 

 

 

 

 

 

 

 

 

 

(82,632

)

 

 

(82,632

)

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

226

 

 

 

 

 

 

 

 

 

226

 

Accretion of redeemable

   convertible preferred stock

   to redemption value

 

 

 

 

 

1,206

 

 

 

 

 

 

 

 

 

 

(226

)

 

 

 

 

 

(980

)

 

 

(1,206

)

Unrealized gain on short-term

   investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,331

)

 

 

(4,331

)

Balance at June 30, 2018

 

 

64,689,359

 

 

 

92,559

 

 

 

 

300,597

 

 

 

 

 

 

 

 

 

 

 

 

(87,943

)

 

 

(87,943

)

Sale of Series C redeemable

   convertible preferred stock,

   net of issuance costs

 

 

31,696,436

 

 

 

69,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

220

 

 

 

 

 

 

 

 

 

220

 

Accretion of redeemable

   convertible preferred stock

   to redemption value

 

 

 

 

 

1,468

 

 

 

 

 

 

 

 

 

 

(220

)

 

 

 

 

 

(1,248

)

 

 

(1,468

)

Unrealized gain on short-term

   investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,249

)

 

 

(5,249

)

Balance at September 30, 2018

 

 

96,385,795

 

 

$

163,877

 

 

 

 

300,597

 

 

$

 

 

$

 

 

$

 

 

$

(94,440

)

 

$

(94,440

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible

preferred stock

 

 

 

Common stock

 

 

Additional

paid-in

 

 

Accumulated

other

comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

income

 

 

Deficit

 

 

Deficit

 

Balance at January 1, 2019

 

 

96,385,795

 

 

$

165,902

 

 

 

 

300,597

 

 

$

 

 

$

 

 

$

3

 

 

$

(104,823

)

 

$

(104,820

)

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

499

 

 

 

 

 

 

 

 

 

499

 

Accretion of redeemable

   convertible preferred stock

   to redemption value

 

 

 

 

 

2,011

 

 

 

 

 

 

 

 

 

 

(499

)

 

 

 

 

 

(1,512

)

 

 

(2,011

)

Unrealized gain on short-term

   investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,901

)

 

 

(9,901

)

Balance at March 31, 2019

 

 

96,385,795

 

 

 

167,913

 

 

 

 

300,597

 

 

 

 

 

 

 

 

 

13

 

 

 

(116,236

)

 

 

(116,223

)

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

565

 

 

 

 

 

 

 

 

 

565

 

Accretion of redeemable

   convertible preferred stock

   to redemption value

 

 

 

 

 

2,060

 

 

 

 

 

 

 

 

 

 

(565

)

 

 

 

 

 

(1,495

)

 

 

(2,060

)

Unrealized gain on short-term

   investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68

 

 

 

 

 

 

68

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,006

)

 

 

(12,006

)

Balance at June 30, 2019

 

 

96,385,795

 

 

 

169,973

 

 

 

 

300,597

 

 

 

 

 

 

 

 

 

81

 

 

 

(129,737

)

 

 

(129,656

)

Share-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

520

 

 

 

 

 

 

 

 

 

520

 

Accretion of redeemable

   convertible preferred stock

   to redemption value

 

 

 

 

 

2,107

 

 

 

 

 

 

 

 

 

 

(520

)

 

 

 

 

 

(1,587

)

 

 

(2,107

)

Unrealized gain on short-term

   investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

(26

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,351

)

 

 

(13,351

)

Balance at September 30, 2019

 

 

96,385,795

 

 

$

172,080

 

 

 

 

300,597

 

 

$

 

 

$

 

 

$

55

 

 

$

(144,675

)

 

$

(144,620

)

 

See accompanying notes to unaudited interim consolidated financial statements.

6


 

GALERA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(unaudited)

 

 

 

Nine months ended

September 30,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(35,258

)

 

$

(15,113

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

188

 

 

 

86

 

Noncash interest expense

 

 

2,094

 

 

 

 

Share-based compensation expense

 

 

1,584

 

 

 

654

 

Reserve for tax incentive receivable

 

 

241

 

 

 

 

Deferred tax liability

 

 

 

 

 

(141

)

Deferred rent

 

 

7

 

 

 

(1

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Tax incentive receivable

 

 

629

 

 

 

(149

)

Prepaid expenses and other current assets

 

 

(2,732

)

 

 

(168

)

Other assets

 

 

(31

)

 

 

(255

)

Accounts payable

 

 

1,131

 

 

 

(308

)

Accrued expense

 

 

762

 

 

 

(153

)

Cash used in operating activities

 

 

(31,385

)

 

 

(15,548

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(63,468

)

 

 

(16,406

)

Proceeds from sales of short-term investments

 

 

78,000

 

 

 

9,000

 

Purchase of property and equipment

 

 

(567

)

 

 

(48

)

Cash provided by (used in) investing activities

 

 

13,965

 

 

 

(7,454

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from royalty purchase agreement

 

 

20,000

 

 

 

 

Proceeds from the sale of Series C redeemable convertible preferred stock, net of

     issuance costs

 

 

 

 

 

69,850

 

Payment of deferred offering costs

 

 

(1,672

)

 

 

 

Cash provided by financing activities

 

 

18,328

 

 

 

69,850

 

Net increase in cash and cash equivalents

 

 

908

 

 

 

46,848

 

Cash and cash equivalents at beginning of period

 

 

14,811

 

 

 

6,169

 

Cash and cash equivalents at end of period

 

$

15,719

 

 

$

53,017

 

Supplemental schedule of non-cash financing activities:

 

 

 

 

 

 

 

 

Accretion of redeemable convertible preferred stock to redemption value

 

$

6,178

 

 

$

3,879

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

431

 

 

$

 

Purchase of property and equipment included in accounts payable and accrued expenses

 

$

24

 

 

$

268

 

Initial recognition of operating lease right-of-use asset and operating lease liability

 

$

1,084

 

 

$

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited interim consolidated financial statements.

 

7


 

GALERA THERAPEUTICS, INC.

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.

Organization and description of business

Galera Therapeutics, Inc. was incorporated as a Delaware corporation on November 19, 2012 (inception) and together with its subsidiaries, (the Company, or Galera) is a clinical stage biopharmaceutical company focused on developing and commercializing a pipeline of novel, proprietary therapeutics that have the potential to transform radiotherapy in cancer. The Company’s lead product candidate, GC4419, is a potent and highly selective small molecule dismutase mimetic being developed for the reduction of severe oral mucositis (SOM). In February 2018, the U.S. Food and Drug Administration (FDA) granted Breakthrough Therapy Designation to GC4419 for the reduction of the duration, incidence and severity of SOM induced by radiotherapy with or without systemic therapy. The Company is currently evaluating GC4419 in a Phase 3 registrational trial. In addition to developing GC4419 for the reduction of normal tissue toxicity from radiotherapy, the Company is developing its dismutase mimetics to increase the anti-cancer efficacy of higher daily doses of radiotherapy, including stereotactic body radiation therapy (SBRT). The Company’s second dismutase mimetic product candidate, GC4711, is being developed to increase the anti-cancer efficacy of SBRT and has successfully completed a Phase 1 trial of intravenous GC4711 in healthy volunteers. The Company plans to leverage its observations from the GC4419 SBRT pilot Phase 1b/2a trial in locally advanced pancreatic cancer (LAPC) to prepare a GC4711 SBRT combination Phase 1b/2a trial in non-small cell lung cancer (NSCLC).

Reverse Stock Split

The Company effected a one-for-5.056564 reverse stock split of its common stock on October 25, 2019. The reverse stock split combined each approximately five shares of the Company’s issued and outstanding common stock into one share of common stock and correspondingly adjusted the conversion price of its redeemable convertible preferred stock. No fractional shares were issued in connection with the reverse stock split. Any fractional share resulting from the reverse stock split was rounded down to the nearest whole share, and in lieu of any fractional shares, the Company will pay in cash to the holders of such fractional shares an amount equal to the fair value, as determined by the board of directors, of such fractional shares. All common stock, per share and related information presented in the unaudited interim consolidated financial statements and accompanying notes have been retroactively adjusted to reflect the reverse stock split.

Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception and has an accumulated deficit of $144.7 million as of September 30, 2019. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its product candidates currently in development.

On November 12, 2019, the Company completed an initial public offering (IPO) of its common stock, which resulted in the issuance and sale of 5,000,000 shares of its common stock at a public offering price of $12.00 per share, generating net proceeds of $53.1 million after deducting underwriting discounts and other offering costs. On December 9, 2019, in connection with the partial exercise of the over-allotment option granted to the underwriters of the Company's IPO, 445,690 additional shares of common stock were sold at the IPO price of $12.00 per share, generating net proceeds of approximately $5.0 million after deducting underwriting discounts and other offering costs. Upon the closing of the IPO, all outstanding shares of the Company’s Series A, Series B and Series C redeemable convertible preferred stock were automatically converted into 19,061,502 shares of the Company’s common stock. In addition, upon the closing of the IPO, the Company’s amended and restated certificate of incorporation authorized the Company to issue up to 200,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of preferred stock, $0.001 par value per share, all of which shares of preferred stock will be undesignated.

2.

Basis of presentation and significant accounting policies

The summary of significant accounting policies disclosed in the Company’s annual consolidated financial statements for the years ended December 31, 2018 and 2017 included in the Company’s final prospectus dated November 6, 2019 and filed with the Securities and Exchange Commission (SEC) on November 8, 2019 pursuant to Rule 424(b)(4) have not materially changed, except as set forth below.

Basis of presentation and consolidation

The accompanying unaudited interim consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information. Any reference in these notes to applicable

8


 

guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB).

In the opinion of management, the accompanying interim consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of September 30, 2019 and its results of operations for the three and nine months ended September 30, 2019 and 2018, and statement of changes in redeemable convertible preferred stock and stockholder’s deficit and cash flows for the nine months ended September 30, 2019 and 2018. Operating results for the three and nine months ended September 30, 2019, respectively, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, or for any future period. The interim consolidated financial statements, presented herein, do not contain the required disclosures under U.S. GAAP for annual financial statements. Therefore, these interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2018, included in the Company’s final prospectus for its IPO dated as of November 6, 2019 and filed with the SEC on November 8, 2019 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.

Use of estimates

The preparation of unaudited interim consolidated financial statements in conformity with U.S. GAAP requires management 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 unaudited interim consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary. Significant areas that require management’s estimates include the fair value of common stock, share-based compensation assumptions, and accrued clinical trial expense.

Fair value of financial instruments

Management believes that the carrying amounts of the Company’s financial instruments, including accounts payable and accrued expenses, approximate fair value due to the short-term nature of those instruments. Short-term investments are recorded at their estimated fair value. The royalty purchase liability is accounted for as debt and interest is accreted over the expected repayment period which approximates fair value.

Short-term investments

Short-term investments consist of debt securities with a maturity of greater than three months when acquired. The Company classifies its short-term investments at the time of purchase as available-for-sale securities. Available-for-sale securities are carried at fair value. Unrealized gains and losses on available-for-sale securities are reported in accumulated other comprehensive income (loss), a component of stockholders’ deficit, until realized. Short-term investments at September 30, 2019 and December 31, 2018 consisted of U.S. Treasury obligations with fair values of $52.2 million and $66.7 million, respectively, and unrealized gains of $52,000 and $3,000 during the nine months ended September 30, 2019 and 2018, respectively.  

Tax incentive receivable

The Company’s wholly owned subsidiary, Galera Therapeutics Australia Pty Ltd (Galera Australia), is eligible to participate in an Australian research and development tax incentive program under which the Company may receive a cash refund from the Australian Taxation Office for a percentage of the research and development costs expended by Galera Australia in Australia. The cash refund is available to companies with an annual aggregate revenue of less than $20.0 million (Australian) during the reimbursable period. The Company’s estimate of the amount of cash refund it expects to receive is included in tax incentive receivable in the accompanying consolidated balance sheets and such amounts are recorded as reduction of research and development expense in the statements of operations.

Since November 2018, the Company has received $40.0 million in proceeds from its royalty purchase agreement (Note 6). Proceeds from the royalty purchase agreement are recognized as revenue for income tax reporting purposes in the United States. While the Company believes proceeds from its royalty purchase agreement do not represent recurring revenue streams, the Company has recorded a reserve against the tax incentive receivable in its entirety, recognizing that the Australian tax authorities might take a different position. As of September 30, 2019, the Company had a tax incentive receivable and corresponding reserve of $0.6 million. The Company has requested a private ruling from the Australian Taxation Office regarding its eligibility to participate in the research

9


 

and development program. Should such eligibility be confirmed, the related tax credit would result in a reduction to the Company’s future research and development expenses.

Property and equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives ranging from three to five years. Leasehold improvements are amortized over the shorter of their economic lives or the remaining lease term. The costs of maintenance and repairs are expensed as incurred. Improvements and betterments that add new functionality or extend the useful life of the asset are capitalized.

Impairment of long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that 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 estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized for the amount by which the carrying value of the asset exceeds the estimated fair value of the asset. As of September 30, 2019, the Company believes that no revision of the remaining useful lives or write-down of long-lived assets is required.

Goodwill and acquired intangible asset

In November 2012, the Company completed a Series A redeemable convertible preferred stock (Series A) financing with venture capital investors and simultaneously acquired Galera Therapeutics, LLC (LLC), a limited liability company incorporated in Missouri in 2009. LLC was renamed Galera Labs, LLC in January 2013 and operates as a wholly-owned subsidiary of the Company. The Company applied the purchase method of accounting under which the consideration given to the LLC members and noteholders was allocated to the fair value of the net assets assumed from the LLC at the date of the acquisition. The sole intangible asset acquired represented the fair value of in-process research and development (IPR&D) which has been recorded on the accompanying consolidated balance sheet as an indefinite life intangible asset. A deferred tax liability was recorded for the difference between the fair value of the acquired IPR&D and its tax basis of zero which was recognized as goodwill in applying the purchase method of accounting.

Intangible assets related to IPR&D are considered indefinite-lived intangible assets and, along with goodwill, are not amortized, but are assessed for impairment annually or more frequently if impairment indicators exist. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives. If the associated research and development effort related to IPR&D is abandoned, the related assets will be written-off and the Company will record a noncash impairment loss on its consolidated statements of operations. For the nine months ended September 30, 2019 and 2018, the Company determined that there was no impairment to goodwill or IPR&D.

Leases

At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term including any options to extend the lease that the Company is reasonably certain to exercise. The Company calculates the present value of lease payments using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. At the lease commencement date, the Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. The Company may enter into leases with an initial term of 12 months or less (Short-Term Leases). For Short-Term Leases, the Company records the rent expense on a straight-line basis and does not record the leases on the interim unaudited balance sheet. The Company had no Short-Term Leases as of September 30, 2019 or December 31, 2018.

After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement, and (ii) the right-of-use lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.

10


 

Research and development expenses

Research and development costs are expensed as incurred and consist primarily of funds paid to third parties for the provision of services for product candidate development, clinical and preclinical development and related supply and manufacturing costs, and regulatory compliance costs. The Company accrues and expenses preclinical studies and clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the term of the individual trial and patient enrollment rates in accordance with agreements with clinical research organizations and clinical trial sites. The Company determines the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including the Company’s clinical development plan.

Management makes estimates of the Company’s accrued expenses as of each balance sheet date in the Company’s consolidated financial statements based on facts and circumstances known to the Company at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.

Share-based compensation

The Company measures share-based awards at their grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the awards.

Estimating the fair value of share-based awards requires the input of subjective assumptions, including the estimated fair value of the Company’s common stock, and, for stock options, the expected life of the options and stock price volatility. The Company accounts for forfeitures of stock option awards as they occur. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in estimating the fair value of share-based awards represent management’s estimate and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, share-based compensation expense could be materially different for future awards.

The expected life of the stock options is estimated using the “simplified method,” as the Company has no historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is the midpoint between the vesting period and the contractual term of the option. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of option grants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected life of the option.

Income taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on its income tax return if such a position is more likely than not to be sustained.

Accretion of redeemable convertible preferred stock

The Company’s redeemable convertible preferred stock is classified as temporary equity in the accompanying consolidated balance sheets. The carrying values of the redeemable convertible preferred stock are being accreted to their respective redemption values by accruing dividends and issuance costs, using the effective interest method, from the date of issuance to the earliest date the holders can demand redemption. The redemption value is accreted through a charge to additional paid-in-capital, if available, or to accumulated deficit.

11


 

Net loss per share

Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as redeemable convertible preferred stock and stock options, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Stock options

 

 

3,099,089

 

 

 

2,071,616

 

Redeemable convertible preferred stock

 

 

19,061,502

 

 

 

19,061,502

 

 

 

 

22,160,591

 

 

 

21,133,118

 

 

Amounts in the above table reflect the common stock equivalents for the redeemable convertible preferred stock.

Recent accounting pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability on the balance sheet. Additionally, certain qualitative and quantitative disclosures will be required in the financial statements. The Company adopted ASU 2016-02 on January 1, 2019 (Note 7) using the modified retrospective transition approach and elected to apply the package of practical expedients.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230), which provides specific guidance related to eight cash flow classification issues with the objective of reducing the existing diversity in practice for certain cash receipts and cash payments. The Company adopted this ASU on January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which removes and modifies some existing disclosure requirements and adds others. This ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

3.

Fair value measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

 

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

 

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.