fulc-10q_20190630.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 June 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: 001-38978

 

FULCRUM THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-4839948

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

26 Landsdowne Street
Cambridge, Massachusetts 

02139

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (617) 651-8851

 

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 $0.001 per share

 

FULC

 

Nasdaq Global Market

 

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

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

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

 

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 23, 2019, the registrant had 23,340,419 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words "anticipate," "believe," "continue" "could," "estimate," "expect," "intend," "may," "might," “outlook,” "plan," "potential," "predict," "project," "should," "target," "would," and the negative version of these words and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the “Risk Factors” section and include, among other things:

 

 

our ongoing Phase 1, Phase 2b, and Phase 2 open label clinical trials of losmapimod;

 

our investigational new drug application, or IND, enabling studies and planned Phase 1 clinical trial of FTX-6058 (formerly FTX-HbF);

 

the initiation, timing, progress and results of our drug target discovery screening programs;

 

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;

 

our plans to develop and, if approved, subsequently commercialize losmapimod and any other product candidates, including in combination with other drugs and therapies;

 

the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for losmapimod and other product candidates;

 

our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash and cash equivalents;

 

the potential advantages of our product candidates;

 

the rate and degree of market acceptance and clinical utility of our products;

 

our estimates regarding the potential market opportunity for our product candidates;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

our intellectual property position;

 

our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

 

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

 

the impact of government laws and regulations;

 

our competitive position;

 

developments relating to our competitors and our industry;

 

our ability to maintain and establish collaborations or obtain additional funding; and

 

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the "Risk Factors" section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

i


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

1

 

Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019 and 2018

2

 

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit for the three and six months ended June 30, 2019 and 2018

3

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

4

 

Notes to Consolidated Financial Statements

5

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

Item 6.

Exhibits

68

Signatures

69

 

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Fulcrum Therapeutics, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,628

 

 

$

72,797

 

Prepaid expenses and other current assets

 

 

1,738

 

 

 

1,298

 

Total current assets

 

 

51,366

 

 

 

74,095

 

Property and equipment, net

 

 

10,005

 

 

 

10,546

 

Restricted cash

 

 

1,092

 

 

 

1,092

 

Deferred offering costs

 

 

2,064

 

 

 

 

Other assets

 

 

624

 

 

 

38

 

Total assets

 

$

65,151

 

 

$

85,771

 

Liabilities, convertible preferred stock, and stockholders’ deficit

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,081

 

 

$

1,263

 

Accrued expenses and other current liabilities

 

 

2,793

 

 

 

2,497

 

Deferred lease incentive, current portion

 

 

469

 

 

 

469

 

Total current liabilities

 

 

6,343

 

 

 

4,229

 

Deferred rent, excluding current portion

 

 

1,496

 

 

 

1,402

 

Deferred lease incentive, excluding current portion

 

 

3,756

 

 

 

3,990

 

Other liabilities, excluding current portion

 

 

101

 

 

 

150

 

Total liabilities

 

 

11,696

 

 

 

9,771

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value; 60,000,000 shares authorized,

   issued and outstanding as of June 30, 2019 and December 31, 2018 (liquidation

   preference of $69,567 as of June 30, 2019)

 

 

59,909

 

 

 

59,909

 

Series B convertible preferred stock, $0.001 par value; 52,500,000 and 40,000,000

   shares authorized, issued and outstanding as of June 30, 2019 and December 31, 2018,

   respectively (liquidation preference of $111,214 as of June 30, 2019)

 

 

105,227

 

 

 

79,761

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 147,500,000 and 135,000,000 shares authorized

   as of June 30, 2019 and December 31, 2018, respectively; 2,768,596 and

   2,791,764 shares issued as of June 30, 2019 and December 31, 2018, respectively;

   1,870,286 and 1,587,953 shares outstanding as of June 30, 2019 and December 31,

   2018, respectively

 

 

2

 

 

 

2

 

Treasury stock, at cost; 1,432 and 67,024 shares as of June 30, 2019 and December 31,

   2018, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

6,453

 

 

 

4,452

 

Accumulated deficit

 

 

(118,136

)

 

 

(68,124

)

Total stockholders’ deficit

 

 

(111,681

)

 

 

(63,670

)

Total liabilities, convertible preferred stock, and stockholders’ deficit

 

 

65,151

 

 

$

85,771

 

 

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

1


 

Fulcrum Therapeutics, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

10,860

 

 

$

5,788

 

 

$

45,489

 

 

$

11,361

 

General and administrative

 

 

2,634

 

 

 

2,061

 

 

 

5,232

 

 

 

3,798

 

Total operating expenses

 

$

13,494

 

 

$

7,849

 

 

$

50,721

 

 

$

15,159

 

Loss from operations

 

 

(13,494

)

 

 

(7,849

)

 

 

(50,721

)

 

 

(15,159

)

Other income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

317

 

 

 

(5

)

 

 

694

 

 

 

(5

)

Other income

 

 

8

 

 

 

8

 

 

 

15

 

 

 

378

 

Net loss and comprehensive loss

 

$

(13,169

)

 

$

(7,846

)

 

$

(50,012

)

 

$

(14,786

)

Cumulative convertible preferred stock dividends

 

 

(3,291

)

 

 

(1,050

)

 

 

(6,332

)

 

 

(1,878

)

Net loss attributable to common stockholders

 

$

(16,460

)

 

$

(8,896

)

 

$

(56,344

)

 

$

(16,664

)

Net loss per share attributable to common stockholders, basic and

   diluted

 

$

(9.21

)

 

$

(7.50

)

 

$

(32.85

)

 

$

(15.14

)

Weighted average number of common shares used in net loss per

   share attributable to common stockholders, basic and diluted

 

 

1,787

 

 

 

1,186

 

 

 

1,715

 

 

 

1,101

 

 

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

 

 

 

2


 

Fulcrum Therapeutics, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

(In thousands, except share amounts)

(Unaudited)

 

 

 

Series A Convertible

Preferred Stock

 

 

Series B Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

(Deficit)

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2017

 

 

34,666,666

 

 

$

34,587

 

 

 

 

 

$

 

 

 

 

972,266

 

 

$

1

 

 

 

8,036

 

 

$

 

 

$

2,270

 

 

$

(35,536

)

 

$

(33,265

)

Issuance of Series A convertible

   preferred stock at $1.00 per share,

   net of issuance costs of $7

 

 

12,666,667

 

 

 

12,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

125,123

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Repurchase of unvested restricted

   stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,599

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of treasury shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,635

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

429

 

 

 

 

 

 

429

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,940

)

 

 

(6,940

)

Balance at March 31, 2018

 

 

47,333,333

 

 

$

47,246

 

 

 

 

 

$

 

 

 

 

1,097,389

 

 

$

1

 

 

 

 

 

$

 

 

$

2,703

 

 

$

(42,476

)

 

$

(39,772

)

Issuance of Series A convertible

   preferred stock at $1.00 per share,

   net of issuance costs of $5

 

 

12,666,667

 

 

 

12,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

187,421

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

462

 

 

 

 

 

 

462

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,846

)

 

 

(7,846

)

Balance at June 30, 2018

 

 

60,000,000

 

 

$

59,909

 

 

 

 

 

$

 

 

 

 

1,284,810

 

 

$

1

 

 

 

 

 

$

 

 

$

3,173

 

 

$

(50,322

)

 

$

(47,148

)

Balance at December 31, 2018

 

 

60,000,000

 

 

$

59,909

 

 

 

40,000,000

 

 

$

79,761

 

 

 

 

1,587,953

 

 

$

2

 

 

 

67,024

 

 

$

 

 

$

4,452

 

 

$

(68,124

)

 

$

(63,670

)

Issuance of Series B convertible

   preferred stock in connection

   with asset acquisition, net of

   issuance costs of $34

 

 

 

 

 

 

 

 

12,500,000

 

 

 

25,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134,013

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Repurchase of unvested restricted

   stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43,922

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of treasury shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(110,946

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

821

 

 

 

 

 

 

821

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,843

)

 

 

(36,843

)

Balance at March 31, 2019

 

 

60,000,000

 

 

$

59,909

 

 

 

52,500,000

 

 

$

105,227

 

 

 

 

1,721,966

 

 

$

2

 

 

 

 

 

$

 

 

$

5,278

 

 

$

(104,967

)

 

$

(99,687

)

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

148,320

 

 

 

 

 

 

 

 

 

 

 

 

225

 

 

 

 

 

 

225

 

Repurchase of unvested restricted

   stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,451

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of treasury shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,019

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

950

 

 

 

 

 

 

950

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,169

)

 

 

(13,169

)

Balance at June 30, 2019

 

 

60,000,000

 

 

$

59,909

 

 

 

52,500,000

 

 

$

105,227

 

 

 

 

1,870,286

 

 

$

2

 

 

 

1,432

 

 

$

 

 

$

6,453

 

 

$

(118,136

)

 

$

(111,681

)

 

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

 

 

3


 

Fulcrum Therapeutics, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(50,012

)

 

$

(14,786

)

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

1,018

 

 

 

377

 

Stock-based compensation expense

 

 

1,771

 

 

 

891

 

In-process research and development expenses

 

 

25,591

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(828

)

 

 

(30

)

Other assets

 

 

(586

)

 

 

38

 

Accounts payable

 

 

451

 

 

 

503

 

Accrued expenses and other liabilities

 

 

399

 

 

 

16

 

Deferred rent and deferred lease incentive

 

 

225

 

 

 

952

 

Net cash used in operating activities

 

$

(21,971

)

 

$

(12,039

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(531

)

 

 

(4,589

)

Transaction costs associated with asset acquisition

 

 

(91

)

 

 

 

Net cash used in investing activities

 

 

(622

)

 

 

(4,589

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of Series A convertible preferred stock, net of issuance costs

 

 

 

 

 

25,322

 

Issuance costs associated with issuance of Series B convertible preferred stock

 

 

(34

)

 

 

 

Payment of initial public offering costs

 

 

(739

)

 

 

 

Principal payments on capital lease obligations

 

 

(21

)

 

 

(49

)

Proceeds from issuance of common stock

 

 

218

 

 

 

17

 

Net cash (used in) provided by financing activities

 

 

(576

)

 

 

25,290

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(23,169

)

 

 

8,662

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

73,889

 

 

 

407

 

Cash, cash equivalents, and restricted cash, end of period

 

$

50,720

 

 

$

9,069

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

4

 

 

$

5

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Acquisition of in process research and development through issuance of stock

 

$

25,500

 

 

$

 

Property and equipment purchases unpaid at end of period

 

$

120

 

 

$

3,626

 

Deferred offering costs unpaid at end of period

 

$

1,325

 

 

$

 

 

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of each of the periods shown above:

 

 

 

June 30,

2019

 

 

June 30,

2018

 

Cash and cash equivalents

 

$

49,628

 

 

$

7,977

 

Restricted cash

 

 

1,092

 

 

 

1,092

 

Total cash, cash equivalents, and restricted cash

 

$

50,720

 

 

$

9,069

 

 

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

4


 

Fulcrum Therapeutics, Inc.

Notes to Consolidated Financial Statements

1. Nature of the Business and Basis of Presentation

Fulcrum Therapeutics, Inc. (the “Company” or “Fulcrum”) was incorporated in Delaware on August 18, 2015. The Company is focused on improving the lives of patients with genetically defined diseases in areas of high unmet medical need, with an initial focus on rare diseases.

The Company is subject to a number of risks similar to other companies in the biotechnology industry, including, but not limited to, risks of failure of preclinical studies and clinical trials, dependence on key personnel, protection of proprietary technology, reliance on third party organizations, risks of obtaining regulatory approval for any product candidate that it may develop, development by competitors of technological innovations, compliance with government regulations, and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The accompanying consolidated financial statements and footnotes to the financial statements have been prepared on the same basis as the most recently audited annual financial statements and, in the opinion of management, reflect all normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2019 and the results of its operations and its cash flows for the three and six months ended June 30, 2019 and 2018. The results for the three and six months ended June 30, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 included in the Company’s final prospectus for its initial public offering (“IPO”) filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission (the “SEC”) on July 18, 2019.

Liquidity

The Company has incurred recurring losses and negative cash flows from operations since inception and has primarily funded its operations with proceeds from the issuance of convertible notes and convertible preferred stock, and most recently, with proceeds from the IPO completed in July 2019 (Note 14). As of June 30, 2019, the Company had an accumulated deficit of $118.1 million. The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to expand its research and development efforts.

The Company believes that its cash and cash equivalents as of June 30, 2019, together with the net proceeds from the IPO of the Company’s common stock completed in July 2019, will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q. The Company will need additional funding to support its planned operating activities. If the Company is unable to obtain additional funding, it would be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion, or commercialization efforts, which could adversely affect its business prospects.

5


 

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Fulcrum Therapeutics Securities Corp., which is a Massachusetts subsidiary created to buy, sell, and hold securities. All intercompany transactions and balances have been eliminated.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the accompanying consolidated financial statements are described in the Company’s audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s final prospectus for its IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on July 18, 2019. There have been no material changes in the Company’s significant accounting policies during the three months ended June 30, 2019.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amount of expenses during the reported periods. Estimates inherent in the preparation of these consolidated financial statements include, but are not limited to, estimates related to accrued expenses, stock-based compensation expense, the fair value of the common stock (for periods prior to the completion of the IPO of the Company’s common stock) and convertible preferred stock, and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Actual results could differ from those estimates or assumptions.

Deferred Issuance Costs

The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity issuances as deferred issuance costs until such equity issuances are consummated. After consummation of the equity issuance, these costs are recorded as a reduction in the capitalized amount associated with the equity issuance. Should the planned financing be abandoned, the deferred issuance costs will be expensed immediately as a charge to operating expenses in the consolidated statement of operations and comprehensive loss.

Research and Development Expenses

Research and development expenses include costs directly attributable to the conduct of research and development programs, including personnel-related expenses such as salaries, payroll taxes, benefits, and stock-based compensation expense, manufacturing and external costs related to outside vendors engaged to conduct both preclinical studies and clinical trials, laboratory supplies, depreciation on and maintenance of research equipment, and the allocable portions of facility costs, such as rent, utilities, repairs and maintenance, depreciation, and general support services. Expenditures relating to research and development are expensed in the period incurred. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Research and development expenses also include in-process research and development (“IPR&D”) expenses, which relate to IPR&D acquired as part of an asset acquisition for which there is no alternative future use. Research and development with no alternative future use is expensed as incurred.

Off-Balance Sheet Risk and Concentrations of Credit Risk

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and restricted cash. The Company’s cash, cash equivalents, and restricted cash are deposited in accounts at large financial institutions. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash, cash equivalents and restricted cash are held. The Company maintains its cash equivalents in money market funds that invest in U.S. Treasury securities.

6


 

Recent Accounting Pronouncements—To Be Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as amended by various subsequently issued ASUs. The standard requires lessees to recognize an operating lease with a term greater than one year on their balance sheets as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. Lessees are required to classify leases as either finance or operating leases. If the lease is effectively a financed-purchase by the lessee, it is classified as a financing lease, otherwise it is classified as an operating lease. 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. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), which permits entities to continue applying legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented in the year that the entity adopts the new leasing standard. The new standard will be effective for the Company on January 1, 2020. The Company will apply the transition method permitted by ASU 2018-11. The Company is currently evaluating the effect that adoption of the standard is expected to have on the Company’s consolidated financial statements and related disclosures. The Company expects to take advantage of certain available expedients by electing the transition package of practical expedients permitted within ASU 2016-02, which allows the Company to not reassess previous accounting conclusions around whether arrangements are, or contain, leases, the classification of leases, and the treatment of initial direct costs. The Company also expects to make an accounting policy election to exclude leases with an initial term of twelve months or less from the balance sheet.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The new standard will be effective for the Company on January 1, 2021. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial position and results of operations.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). Part I of the standard applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II of the standard replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. The new standard will be effective for the Company on January 1, 2020. The Company is currently evaluating the impact that the adoption of ASU 2017-11 may have on its consolidated financial statements.

3. Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

 

Fair Value Measurements at

June 30, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

49,628

 

 

$

49,628

 

 

$

 

 

$

 

Total

 

$

49,628

 

 

$

49,628

 

 

$

 

 

$

 

 

 

 

Fair Value Measurements at

December 31, 2018

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

72,797

 

 

$

72,797

 

 

$

 

 

$

 

Total

 

$

72,797

 

 

$

72,797

 

 

$

 

 

$

 

 

There have been no transfers between fair value levels during the three or six months ended June 30, 2019 or 2018.