UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 
(Mark One)
 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2021
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: 001-39743

KINNATE BIOPHARMA INC.
(Exact name of registrant as specified in its charter)


Delaware
 
82-4566526
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
3611 Valley Centre Drive, Suite 175
San Diego, CA
 
92130
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (858) 299-4699



Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on
Which Registered
Common Stock, par value $0.0001 per share
 
KNTE
 
The Nasdaq Global Select 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 August 10, 2021, the Registrant had 43,676,005 shares of common stock, $0.0001 par value per share, outstanding.
 


TABLE OF CONTENTS

   
Page
PART I—FINANCIAL INFORMATION
 
   
Item 1.
1
     
 
1
     
 
2
     
 
3
     
 
4
     
 
5
     
Item 2.
16
     
Item 3.
27
     
Item 4.
28
     
PART II—OTHER INFORMATION
 
   
Item 1.
30
     
Item 1A.
30
     
Item 2.
107
     
Item 3.
107
     
Item 4.
108
     
Item 5.
108
     
Item 6.
108
     
 

Special 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 on Form 10‑Q, including statements regarding our future results of operations and financial position, business strategy, development plans, planned preclinical studies and clinical trials, future results of clinical trials, expected research and development costs, regulatory strategy, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. In some cases, investors can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10‑Q include, but are not limited to, statements about:
 

the ability of our preclinical studies and ongoing and planned future clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results;
 

the timing, progress and results of preclinical studies and ongoing and planned future clinical trials for our current product candidates and other product candidates we may develop, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the studies or trials will become available, and our research and development programs;
 

the timing, scope and likelihood of regulatory filings and approvals, including timing of INDs and final FDA approval of our current product candidates and any other future product candidates;
 

the timing, scope or likelihood of foreign regulatory filings and approvals;
 

our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical studies;
 

our manufacturing, commercialization, and marketing capabilities and strategy;
 

our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;
 

the need to hire additional personnel and our ability to attract and retain such personnel;
 

the size of the market opportunity for our product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting;
 

our expectations regarding the approval and use of our product candidates in combination with other drugs;
 

our competitive position and the success of competing therapies that are or may become available;
 

our estimates of the number of patients that we will enroll in our clinical trials;


the beneficial characteristics, and the potential safety, efficacy and therapeutic effects of our product candidates;
 

our ability to obtain and maintain regulatory approval of our product candidates;
 

our plans relating to the further development of our product candidates, including additional indications we may pursue;
 

existing regulations and regulatory developments in the United States, Europe and other jurisdictions;
 

our expectations regarding the impact of the COVID‑19 pandemic on our business;
 

our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our current product candidates and other product candidates we may develop, including the extensions of existing patent terms where available, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;
 

our continued reliance on third parties to conduct additional preclinical studies and ongoing and planned future clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;
 

our ability to obtain, and negotiate favorable terms of, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize our product candidates;
 

the pricing and reimbursement of our current product candidates and other product candidates we may develop, if approved;
 

the rate and degree of market acceptance and clinical utility of our current product candidates and other product candidates we may develop;
 

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
 

our financial performance;
 

the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements;
 

the impact of laws and regulations;
 

our expectations regarding the period during which we will remain an emerging growth company under the JOBS Act; and
 

our anticipated use of our existing resources.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10‑Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10‑Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, investors 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. 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 or otherwise.
 
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10‑Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
 
PART I—FINANCIAL INFORMATION
 
Item 1.
Financial Statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
 
   
June 30, 2021
   
December 31, 2020
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
132,991
   
$
365,462
 
Cash at consolidated joint venture
    35,011       -  
Short-term investments
   
87,017
     
31,398
 
Prepaid expenses and other current assets
   
3,761
     
3,343
 
Total current assets
   
258,780
     
400,203
 
Property and equipment, net
   
286
     
368
 
Long-term investments
   
145,136
     
-
 
Restricted cash
    371       -  
Other non-current assets
    90       -  
Total assets
 
$
404,663
   
$
400,571
 
                 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
1,334
   
$
3,940
 
Accrued expenses
   
6,989
     
3,364
 
Total current liabilities
   
8,323
     
7,304
 
Commitments and contingencies (See Note 12)
           
Redeemable noncontrolling interests     35,000       -  
Stockholders’ equity:
     
         
Preferred stock, $0.0001 par value; 200,000,000 shares authorized at June 30, 2021 and December 31, 2020; 0 shares outstanding at June 30, 2021 and December 31, 2020
   
-
     
-
 
Common stock, $0.0001 par value; 1,000,000,000 shares authorized at June 30, 2021 and December 31, 2020; 43,622,745 and 43,477,439 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
   
4
     
4
 
Additional paid-in capital
   
453,641
     
446,601
 
Accumulated other comprehensive loss
   
(74
)
   
(9
)
Accumulated deficit
   
(92,231
)
   
(53,329
)
Total stockholders’ equity
   
361,340
     
393,267
 
Total liabilities and equity
 
$
404,663
   
$
400,571
 

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except par value and share amounts)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Operating expenses:
                       
Research and development
 
$
16,242
   
$
5,579
   
$
28,908
   
$
8,777
 
General and administrative (includes related party amount of $92 for the three and six months ended June 30, 2020)
   
5,327
     
2,047
     
10,142
     
3,002
 
Total operating expenses
   
21,569
     
7,626
     
39,050
     
11,779
 
Loss from operations
   
(21,569
)
   
(7,626
)
   
(39,050
)
   
(11,779
)
Other income:
                               
Interest income
   
672
     
12
     
1,075
     
224
 
Other expense, net
   
(548
)
   
-
     
(927
)
   
-
 
Total other income, net
   
124
     
12
     
148
     
224
 
Net loss
   
(21,445
)
   
(7,614
)
   
(38,902
)
   
(11,555
)
Net loss attributable to redeemable noncontrolling interests
   
-
   
-
     
-
   
-
 
Net loss attributable to Kinnate
 
$
(21,445
)
 
$
(7,614
)
 
$
(38,902
)
 
$
(11,555
)
                                 
Weighted-average shares outstanding, basic and diluted
   
43,535,887
     
3,705,857
     
43,506,825
     
3,689,152
 
Net loss per share, basic and diluted
 
$
(0.49
)
 
$
(2.05
)
 
$
(0.89
)
 
$
(3.13
)
                                 
Comprehensive loss:
                               
Net loss
 
$
(21,445
)
 
$
(7,614
)
 
$
(38,902
)
 
$
(11,555
)
Other comprehensive (loss) income:
                               
Unrealized loss on investments
   
(34
)
   
-
     
(65
)
   
-
 
Total comprehensive loss
   
(21,479
)
   
(7,614
)
   
(38,967
)
   
(11,555
)
Comprehensive loss attributable to noncontrolling interests
   
-
   
-
     
-
   
-
 
Comprehensive loss attributable to Kinnate
 
$
(21,479
)
 
$
(7,614
)
 
$
(38,967
)
 
$
(11,555
)
 
See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY
(Unaudited)
(in thousands, except share amounts)

   
Series A
Convertible
Preferred Stock
   
Series B
Convertible
Preferred Stock
   
Common Stock
   
Additional
Paid-in
   
Accumulated
Other
Comprehensive
   
Accumulated
   
Total
Stockholders’
   
Redeemable
Noncontrolling
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Loss
   
Deficit
   
(Deficit) Equity
   
Interests
 

                                                                 
Balance at December 31, 2020     -
    $ -       -
    $ -       43,477,439
    $ 4     $ 446,601     $ (9 )   $ (53,329 )   $ 393,267     $ -  
Stock-based compensation expense
    -
      -
      -
      -
      -
      -
      2,793
      -
      -
      2,793
      -
 
Net loss
    -
      -
      -
      -
      -
      -
      -
      -
      (17,457 )     (17,457 )     -  
Other comprehensive loss
    -
      -
      -
      -
      -
      -
      -
      (31 )     -
      (31 )     -  
Balance at March 31, 2021     -     $ -       -     $ -       43,477,439     $ 4     $ 449,394     $ (40 )   $ (70,786 )   $ 378,572     $ -  
Stock-based compensation expense     -       -       -       -       -       -       3,760       -       -       3,760       -  
Exercise of stock options
    -       -       -       -       116,147       -       139       -       -       139       -  
Shares issued under employee stock purchase plan
    -       -       -       -       29,159       -       495       -       -       495       -  
Issuance of Series A preferred stock to redeemable noncontrolling interest owners (NCI)
    -       -       -       -       -       -       -       -       -       -       35,000  
Issuance costs for Series A preferred stock to redeemable NCI
    -       -       -       -       -       -       (147 )     -       -       (147 )     -  
Net loss
    -       -       -       -       -       -       -       -       (21,445 )     (21,445 )     -  
Other comprehensive loss
    -       -       -       -       -       -       -       (34 )     -       (34 )     -  
Balance at June 30, 2021     -     $ -       -     $ -       43,622,745     $ 4     $ 453,641     $ (74 )   $ (92,231 )   $ 361,340     $ 35,000  
                                                                                         
Balance at December 31, 2019
   
7,762,727
   
$
18,942
     
9,705,182
   
$
74,204
     
3,665,020
   
$
-
   
$
82
   
$
-
   
$
(17,568
)
 
$
(17,486
)
 
$
-
 
Issuance costs for Series B convertible preferred stock
   
-
     
-
     
-
     
(16
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Stock-based compensation expense
   
-
     
-
     
-
     
-
     
-
     
-
     
128
     
-
     
-
     
128
     
-
 
Exercise of stock options
   
-
     
-
     
-
     
-
     
7,593
     
-
     
3
     
-
     
-
     
3
     
-
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(3,941
)
   
(3,941
)
   
-
 
Balance at March 31, 2020
   
7,762,727
   
$
18,942
     
9,705,182
   
$
74,188
     
3,672,613
   
$
-
   
$
213
   
$
-
   
$
(21,509
)
 
$
(21,296
)
 
$
-
 
Stock-based compensation expense
   
-
     
-
     
-
     
-
     
-
     
-
     
410
     
-
     
-
     
410
     
-
 
Exercise of stock options
   
-
     
-
     
-
     
-
     
101,167
     
-
     
18
     
-
     
-
     
18
     
-
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(7,614
)
   
(7,614
)
   
-
 
Balance at June 30, 2020
   
7,762,727
   
$
18,942
     
9,705,182
   
$
74,188
     
3,773,780
   
$
-
   
$
641
   
$
-
   
$
(29,123
)
 
$
(28,482
)
 
$
-
 

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
   
Six Months Ended June 30,
 
   
2021
   
2020
 
Cash flows from operating activities:
           
Consolidated net loss
 
$
(38,902
)
 
$
(11,555
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Stock-based compensation expense
   
6,553
     
538
 
Depreciation
   
59
     
36
 
Amortization/accretion of investments
   
820
     
-
 
Loss on disposal of property and equipment
   
58
     
-
 
Changes in operating assets and liabilities:
               
Related party receivables, net
   
-
     
973
 
Prepaid expenses and other assets
   
(508
)
   
(122
)
Accounts payable and accrued expenses
   
1,019
     
1,747
 
Net cash used in operating activities
   
(30,901
)
   
(8,383
)
Cash flows from investing activities:
               
Purchases of short-term and long-term investments
   
(201,640
)
   
-
 
Purchases of property and equipment
   
(35
)
   
(133
)
Net cash used in investing activities
   
(201,675
)
   
(133
)
Cash flows from financing activities:
               
Issuance costs for Series B convertible preferred stock
   
-
     
(16
)
Contributions from redeemable noncontrolling interest owners, net
    34,853       -  
Proceeds upon stock option exercises
   
139
     
21
 
Proceeds from issuance of common stock under employee stock purchase plan     495       -  
Net cash provided by financing activities
   
35,487
     
5
 
Net decrease in cash, cash equivalents and restricted cash
   
(197,089
)
   
(8,511
)
Cash, cash equivalents and restricted cash at the beginning of the period
   
365,462
     
76,453
 
Cash, cash equivalents and restricted cash at the end of the year
 
$
168,373
   
$
67,942
 

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

Organization and Nature of Operations


Kinnate Biopharma Inc. (Kinnate or the Company) was incorporated in the State of Delaware in January 2018 and is headquartered in San Diego, California. The Company is a biopharmaceutical company focused on the discovery and development of small molecule kinase inhibitors for difficult-to-treat, genomically defined cancers.


Since its inception, the Company has devoted substantially all of its resources to research and development activities, business planning, establishing and maintaining its intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. It has incurred losses and negative cash flows from operations since commencement of its operations. The Company had an accumulated deficit of $92.2 million and had cash and cash equivalents and short-term and long-term investments totaling $365.1 million as of June 30, 2021. From its inception through June 30, 2021, the Company has financed its operations primarily through issuances of common stock, including in the Company’s initial public offering (IPO), and private placements of convertible preferred stock.


In May 2021, the Company announced the closing of a Series A preferred stock financing of a China joint venture to enable the potential development and commercialization of certain targeted oncology product candidates across Greater China. Contributions from noncontrolling interest members totaled $35.0 million before issuance costs of $0.2 million. As of June 30, 2021, the Company held a 54.9% equity interest in the joint venture.



As the Company continues to pursue its business plan, it expects to finance its operations through the sale of equity, debt financings or other capital resources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. However, there can be no assurance that any additional financing or strategic transactions will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it may need to delay, reduce or eliminate its product development or future commercialization efforts, which could have a material adverse effect on the Company’s business, results of operations or financial condition. The accompanying financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date this Quarterly Report on Form 10-Q is filed with the U.S. Securities and Exchange Commission (SEC).

Basis of Presentation


The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements.


The accompanying unaudited interim consolidated financial statements include all known adjustments which, in the opinion of management, are necessary for a fair presentation of the results as required by GAAP. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. The Condensed Consolidated Balance Sheet at December 31, 2020 has been derived from the audited financial statements at that date, but does not include all information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC.


The condensed consolidated financial statements include the accounts of the Company’s variable interest entity (VIE), the China joint venture, for which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
 

The Company evaluates its ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether the Company is the primary beneficiary of the VIE. In determining whether the Company is the primary beneficiary of a VIE and therefore required to consolidate the VIE, the Company applies a qualitative approach that determines whether the Company has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. As of June 30, 2021, the Company held a 54.9% equity interest in the China joint venture. Based on the Company’s assessment, the Company concluded that the China joint venture is a variable interest entity and the Company is the primary beneficiary.
 

The Company will continuously assess whether it is the primary beneficiary of a VIE, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of such VIE. During the periods presented, the Company has not provided any other financial or other support to the Company’s VIE that it was not contractually required to provide.


Operating results presented in these unaudited condensed consolidated financial statements are not necessarily indicative of future results, particularly in light of the COVID-19 pandemic and its impact on domestic and global economies. To limit the spread of the novel coronavirus that causes COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. Between March 2020 and June 2021, the Company’s employees worked almost exclusively from home. Since June 2021, the Company’s employees have been working in a hybrid model both in the Company’s offices and also from home. Although some of the governmental orders and guidelines have terminated or are now less restrictive than when originally implemented, the Company continues to monitor and assess the spread of COVID-19 and may need to further adjust its working model from time to time. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change, based, in part, on the length and severity of any additional restrictions and other limitations that may be imposed on the Company’s business. As a result, research and development expenses and general and administrative expenses may vary significantly if there is an increased impact from the COVID-19 pandemic on the costs and timing associated with the conduct of the clinical activities and other related business activities.

Initial Public Offering


On December 3, 2020, the Company completed the IPO selling 13,800,000 shares of common stock, which included the full exercise by the underwriters of their option to purchase up to 1,800,000 additional shares, at a price of $20.00 per share resulting in gross proceeds of $276.0 million. After deducting underwriting discounts and commissions and other offering expenses related to the IPO of $22.7 million, the net proceeds to the Company from the transaction were $253.3 million. In connection with the IPO, all shares of convertible preferred stock outstanding at the time of the IPO converted into 25,778,437 shares of common stock.


On November 25, 2020, the Company filed a certificate of amendment to its amended and restated certificate of incorporation effecting a 1-for-1.23453 reverse stock split of its issued and outstanding common stock and convertible preferred stock. The par value of the authorized stock was not adjusted as a result of the reverse stock split. Other than the par value, all share and per share data shown in the accompanying financial statements and related notes have been retroactively revised to reflect the reverse stock split.

2. Summary of Significant Accounting Policies
 
Redeemable Noncontrolling Interests


The shares third parties own in the China joint venture represent an interest in the equity the Company does not control. The redeemable noncontrolling interests attributable to other owners has been classified in temporary equity on the Condensed Consolidated Balance Sheets as the preferred stock is redeemable by the noncontrolling interests.


Since the preferred stock held at the China joint venture does not represent a residual equity interest, net losses of the China joint venture are not allocated to the preferred shares. As a result, the balance of the preferred stock classified as a redeemable noncontrolling interest equals its carrying value.
 
Use of Estimates


The preparation of 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 at the date of the financial statements and the reported amounts of expenses during the reporting period. Accounting estimates and management judgments reflected in the financial statements include: normal recurring accruals, including the accrual of research and development expenses; valuation of deferred tax assets; and stock-based compensation. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions. Although the impact of the COVID-19 pandemic to the Company’s business and operating results presents additional uncertainty, the Company continues to use the best information available to update its critical accounting estimates.

  
Net Loss Per Share
 

Basic net loss per common share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the Company’s outstanding convertible preferred stock and common stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the convertible preferred stock is considered a participating security. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.


 

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share amounts):
 
    Three Months Ended June 30,    
Six Months Ended June 30,
 
    2021
    2020
   
2021
   
2020
 
Numerator
                       
Net loss attributable to Kinnate
  $ (21,445 )   $ (7,614 )  
$
(38,902
)
 
$
(11,555
)
Denominator
                               
Weighted-average shares outstanding used in computing net loss per share, basic and diluted
    43,535,887
      3,705,857
     
43,506,825
     
3,689,152
 
Net loss per share, basic and diluted
  $ (0.49 )   $ (2.05 )  
$
(0.89
)
 
$
(3.13
)


The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:
 
    Three Months Ended June 30,    
Six Months Ended June 30,
 
    2021
    2020    
2021
   
2020
 
Options to purchase common stock
    7,954,147       4,302,633
     
7,954,147
     
4,302,633
 
Convertible preferred stock
    -
      17,467,909
     
-
     
17,467,909
 
Total
    7,954,147
      21,770,542
     
7,954,147
     
21,770,542
 

Recently Issued Accounting Standards
   

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-02, Leases (Topic 842) (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. ASC 842 provides a lessee with an option to not account for leases with a term of 12 month or less as leases in the scope of the new standard. ASC 842 supersedes the previous leases standard, ASC 840 Leases. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. As amended by ASU No. 2020-05, for all other entities, this ASU is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU No. 2016-02 is effective for the Company for the year ended December 31, 2022, and all interim periods within. In July 2018, the FASB issued supplemental adoption guidance and clarification to ASC 842 within ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. ASU No. 2018-11 provides another transition method in addition to the existing modified retrospective transition method by allowing entities to initially apply the new leasing standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. The Company is currently evaluating the impact the adoption of these ASUs will have on financial statements and related disclosures.


In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (ASC 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in ASU No. 2016-13 added Topic 326, Financial Instruments—Credit Losses, made several consequential amendments to the Codification. ASU No. 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The guidance is effective for public business entities for annual periods beginning after December 15, 2019, including interim periods within those years. For all other entities, the standard is effective for annual periods beginning after December 15, 2022 and interim periods, therein. Early adoption is permitted. Since the Company has elected to use the extended transition period under the JOBS Act available to emerging growth companies (EGCs), the ASU is effective for the Company for fiscal years beginning after December 15, 2022. The Company does not expect the adoption to have a material impact on its financial statements.
   

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (ASU No. 2019-12). Among other items, the amendments in ASU No. 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU No. 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU No. 2019-12 removes this exception and provides that, in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods. Early adoption is permitted. For EGCs, the standard is effective for fiscal years beginning after December 15, 2021. The Company does not expect the ASU to have a material impact on its financial statements and related disclosures.

3. Cash, cash equivalents and restricted cash


The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

   
June 30, 2021
   
December 31, 2020
 
Cash and cash equivalents
 
$
132,991
   
$
365,462
 
Cash at consolidated joint venture     35,011
      -
 
Restricted cash, non-current
   
371
     
-
 
Total cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows
 
$
168,373
   
$
365,462
 

The cash at the consolidated joint venture represents cash held at the China joint venture and the use of such cash is limited to the operations of the China joint venture (see Note 11). The restricted cash balance relates to the Company’s office lease in San Diego, California (see Note 12).



4. Property and Equipment, Net


Property and equipment, net consisted of the following (in thousands):

   
June 30, 2021
   
December 31, 2020
 
Furniture and fixtures
 
$
4
   
$
72
 
Computers and equipment
   
294
     
275
 
Computer software
   
104
     
104
 
Property and equipment
   
402
     
451
 
Less accumulated depreciation
   
(116
)
   
(83
)
Property and equipment, net
 
$
286
   
$
368
 

5. Accrued Expenses


Accrued expenses consisted of the following (in thousands):

   
June 30, 2021
   
December 31, 2020
 
Accrued research and development
 
$
5,066
   
$
1,580
 
Accrued compensation
   
1,556
     
1,388
 
Accrued legal fees
   
228
     
288
 
Other accruals
   
139
     
108
 
Total
 
$
6,989
   
$
3,364
 

6. Investments


The Company has invested its excess cash in marketable securities as of June 30, 2021 and December 31, 2020. The following is a summary by significant investment category (in thousands):

   
June 30, 2021
 
   
Maturity
in Years
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Estimated
Fair Value
 
Corporate debt securities
 
less than 1
   
$
41,667
   
$
5
   
$
(1
)
 
$
41,671
 
Commercial paper
 
less than 1
     
30,089
     
-
     
-
     
30,089
 
U.S. Treasury securities
  less than 1       15,255       2       -       15,257  
Short-term investments
       
$
87,011
   
$
7
   
$
(1
)
 
$
87,017
 
                                       
                                       
Corporate debt securities
   
1 - 2
   
$
16,531
   
$
-
   
$
(16
)
 
$
16,515
 
U.S. Treasury securities
   
1 - 2
     
105,833
     
5
     
(59
)
   
105,779
 
Asset-backed securities
   
1 - 2
     
22,852
     
3
     
(13
)
   
22,842
 
Long-term investments
         
$
145,216
   
$
8
   
$
(88
)
 
$
145,136
 

     
December 31, 2020

     
Maturity
in Years
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Estimated
Fair Value
Corporate debt securities
   
less than 1
    $ 20,327     $ -     $ (9 )   $ 20,318
Commercial paper
   
less than 1
      11,080
      -
      -
      11,080
Short-term investments
          $ 31,407     $ -     $ (9 )   $ 31,398


At June 30, 2021 and December 31, 2020, the Company did not have any securities in material unrealized loss positions. Further, the Company generally does not intend to sell any investments prior to recovery of their amortized cost basis for any investment in an unrealized loss position. As such, the Company has classified these losses as temporary in nature.


The Company has determined that there were no material declines in fair value of its investments due to credit-related factors as of June 30, 2021 and December 31, 2020.

7. Fair Value Measurements


The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 Level 1: Observable inputs such as quoted prices in active markets;

 Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.


The carrying amounts of the Company’s prepaid expenses and other current assets, accounts payable and accrued expenses are generally considered to be representative of their fair value because of the short-term nature of these instruments. The Company’s investments, which may include money market funds and available-for-sale investment securities consisting of high-quality, marketable debt instruments of corporations and the U.S. Government are measured at fair value in accordance with the fair value hierarchy.


The following tables present the hierarchy for assets measured at fair value on a recurring basis (in thousands):

   
Fair Value Measurements at June 30, 2021
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Money market funds
 
$
131,988
   
$
-
   
$
-
   
$
131,988
 
Corporate debt securities
   
-
     
58,186
     
-
     
58,186
 
Commercial paper
   
-
     
30,089
     
-
     
30,089
 
U.S. Treasury securities
   
-
     
121,036
     
-
     
121,036
 
Asset-backed securities
   
-
     
22,842
     
-
     
22,842
 
Total cash equivalents and investments
 
$
131,988
   
$
232,153
   
$
-
   
$
364,141
 

   
Fair Value Measurements at December 31, 2020
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Money market funds
 
$
364,461
   
$
-
   
$
-
   
$
364,461
 
Corporate debt securities
   
-
     
20,318
     
-
     
20,318
 
Commercial paper
   
-
     
11,080
     
-
     
11,080
 
Total cash equivalents and investments
 
$
364,461
   
$
31,398
   
$
-
   
$
395,859
 


Money market funds are classified as cash and cash equivalents in the Company’s balance sheets at June 30, 2021 and December 31, 2020.

8. Stockholders’ Equity


Under its Amended and Restated Articles of Incorporation dated December 7, 2020, the Company had a total of 1,200,000,000 shares of capital stock authorized for issuance, consisting of 1,000,000,000 shares of common stock, par value of $0.0001 per share, and 200,000,000 shares of preferred stock, par value of $0.0001 per share.

9. Equity Incentive Plans and Stock-Based Compensation
 
2020 Equity Incentive Plan
  

In December 2020, the Company adopted the 2020 Equity Incentive Plan (2020 Plan), which replaced the 2018 Equity Incentive Plan (2018 Plan). The 2020 Plan allows the Company to issue options for shares of its common stock up to a total of 5,218,000 shares (Option Pool), subject to appropriate adjustments for stock splits, combinations and other similar events for issuance pursuant to awards made under the 2020 Plan. As of June 30, 2021, 3,814,851 shares of common stock remained available for future grants under the 2020 Plan.
    

The options that are granted under the 2020 and 2018 Plans are exercisable at various dates as determined upon grant and terminate within 10 years of the date of grant, unless the optionee owns 10% or more of the common shares at which point the expiration period is 5 years, or upon the employee’s termination (whereupon the terminated employee has thirty days after termination to exercise vested options from the date of termination). The vesting period generally occurs over two to four years unless there is a specific performance vesting trigger at which time those shares will vest when the performance trigger is probable to occur.
   

Stock option activity, is as follows:

   
Options
   
Weighted-
Average
Exercise Price
   
Weighted-
Average
Remaining
Contractual
Term (in years)
   
Aggregate
Intrinsic
Value
(in thousands)
 
Outstanding at January 1, 2021
   
6,265,409
   
$
4.12
     
9.3
   
$
223,454
 
Granted
   
1,957,351
     
30.60
                 
Exercised
   
(116,147
)
   
1.20
                 
Forfeited
   
(152,466
)
   
3.38
                 
Outstanding at June 30, 2021
   
7,954,147
   
$
10.69
     
8.8
   
$
114,503
 
Exercisable at June 30, 2021
   
1,507,667
   
$
4.47
     
7.2
   
$
29,307
 


All exercisable options are vested and all outstanding options are vested or expected to vest. Total intrinsic value of options exercised during the six months ended June 30, 2021 and 2020 was $2.7 million and $0.3 million, respectively.
 
2020 Employee Stock Purchase Plan
  

The 2020 Employee Stock Purchase Plan (ESPP) permits eligible employees who elect to participate in an offering under the ESPP to have up to 15% of their eligible earnings withheld, subject to certain limitations, to purchase shares of common stock pursuant to the ESPP. The price of common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of the common stock at the commencement date of each offering period or the relevant date of purchase. Each offering period is six months, with new offering periods commencing every six months on or about the dates of May 15 and November 15 of each year. A total of 435,000 shares of common stock were initially reserved for issuance under the ESPP. As of June 30, 2021, 405,841 shares of common stock remained available for future grants under the ESPP.
  
Stock-Based Compensation Expense
 

The Company estimated the fair value of stock options using the Black-Scholes valuation model. The Company accounts for any forfeitures of options when they occur. Previously recognized compensation expense for an award is reversed in the period that the award is forfeited. The fair value of stock options was estimated using the following assumptions:

   
Six Months Ended June 30,
 
   
2021
   
2020
 
             
Expected term (in years)
 
5 - 6
   
6 - 7
 
Expected volatility
 
86% - 89%

 
88% - 89%

Risk-free interest rate
 
0.68% - 1.17%

 
0.63% - 1.66%

Expected dividend
 
0%

 
0%



 

The weighted-average grant-date fair value of options granted was $22.24 and $1.95 for the six months ended June 30, 2021 and 2020, respectively.
   

The assumptions used for the six months ended June 30, 2021 and the resulting estimates of weighted-average fair value per share for stock purchased under the ESPP were as follows:

    
Six Months Ended
June 30, 2021
 
       
Expected term (in years)
 
0.41 - 0.50
 
Expected volatility
 
51% -68%
 
Risk-free interest rate
 
0.03% - 0.09%
 
Expected dividend
 
0%
 


Stock-based compensation expense related to the Company’s stock options and ESPP totaled the following (in thousands):
   

 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Research and development
 
$
1,914
   
$
207
   
$
3,190
   
$
325
 
General and administrative
   
1,846
     
203
     
3,363
     
213
 
Total stock-based compensation
 
$
3,760
   
$
410
   
$
6,553
   
$
538
 


As of June 30, 2021, there was approximately $54.0 million of total unrecognized stock-based compensation expense related to nonvested stock-based compensation arrangements, which is expected to be recognized over a weighted-average period of approximately 2.97 years.
  


As of June 30, 2021, there was approximately $0.1 million of total unrecognized stock-based compensation expense related to the ESPP.

10. Related Party Transactions
 
a) Series A Preferred Stock Financing of China Joint Venture