10-Q
--12-310001761918Q1Apr. 30, 2022Apr. 30, 2022May 31, 2024May 31, 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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 March 31, 2022

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: 001-40602

 

ERASCA, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

83-1217027

(State or other jurisdiction of

incorporation or organization)

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

3115 Merryfield Row, Suite 300

San Diego, CA

92121

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (858) 465-6511

 

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, $0.0001 par value per share

 

ERAS

 

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, 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 May 5, 2022, the registrant had 121,857,705 shares of common stock outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended March 31, 2022 and 2021

3

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

Signatures

35

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Erasca, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and par value amounts)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

 

$

333,347

 

 

$

360,487

 

Short-term marketable securities

 

 

59,186

 

 

 

53,988

 

Prepaid expenses and other current assets

 

 

10,841

 

 

 

5,542

 

Total current assets

 

 

403,374

 

 

 

420,017

 

Long-term marketable securities

 

 

29,224

 

 

 

44,770

 

Property and equipment, net

 

 

20,405

 

 

 

15,954

 

Operating lease assets

 

 

16,932

 

 

 

17,356

 

Restricted cash

 

 

408

 

 

 

408

 

Other assets

 

 

5,126

 

 

 

2,910

 

Total assets

 

$

475,469

 

 

$

501,415

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,712

 

 

$

4,677

 

Accrued expenses and other current liabilities

 

 

16,665

 

 

 

21,419

 

Operating lease liabilities

 

 

14

 

 

 

285

 

Total current liabilities

 

 

21,391

 

 

 

26,381

 

Operating lease liabilities, net of current portion

 

 

29,416

 

 

 

18,506

 

Total liabilities

 

 

50,807

 

 

 

44,887

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 80,000,000 shares authorized as of March 31, 2022 and December 31, 2021; no shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.0001 par value; 800,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 121,732,846 and 121,382,547 shares issued at March 31, 2022 and December 31, 2021, respectively; 119,875,630 and 119,102,505 shares outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

12

 

 

 

12

 

Additional paid-in capital

 

 

700,225

 

 

 

694,844

 

Accumulated other comprehensive loss

 

 

(951

)

 

 

(162

)

Accumulated deficit

 

 

(274,624

)

 

 

(238,166

)

Total stockholders' equity

 

 

424,662

 

 

 

456,528

 

Total liabilities and stockholders' equity

 

$

475,469

 

 

$

501,415

 

 

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

 

1


 

Erasca, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

Research and development

 

$

27,429

 

 

$

12,245

 

In-process research and development

 

 

2,000

 

 

 

3,680

 

General and administrative

 

 

7,076

 

 

 

3,682

 

Total operating expenses

 

 

36,505

 

 

 

19,607

 

Loss from operations

 

 

(36,505

)

 

 

(19,607

)

Other income (expense)

 

 

 

 

 

 

Interest income

 

 

114

 

 

 

30

 

Other expense

 

 

(67

)

 

 

(55

)

Change in fair value of preferred stock purchase right liability

 

 

 

 

 

1,615

 

Total other income (expense), net

 

 

47

 

 

 

1,590

 

Net loss

 

$

(36,458

)

 

$

(18,017

)

Net loss per share, basic and diluted

 

$

(0.31

)

 

$

(0.81

)

Weighted-average shares of common stock used in computing net loss per share, basic and diluted

 

 

119,491,433

 

 

 

22,233,422

 

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized loss on marketable securities, net

 

 

(789

)

 

 

(1

)

Comprehensive loss

 

$

(37,247

)

 

$

(18,018

)

 

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

 

2


 

Erasca, Inc.

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

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

 

 

$

 

 

 

121,382,547

 

 

$

12

 

 

$

694,844

 

 

$

(162

)

 

$

(238,166

)

 

$

456,528

 

Exercise of stock options

 

 

 

 

 

 

 

 

357,244

 

 

 

 

 

 

460

 

 

 

 

 

 

 

 

 

460

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

479

 

 

 

 

 

 

 

 

 

479

 

Repurchases of early exercised stock options and restricted stock

 

 

 

 

 

 

 

 

(6,945

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,442

 

 

 

 

 

 

 

 

 

4,442

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,458

)

 

 

(36,458

)

Unrealized loss on marketable securities, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(789

)

 

 

 

 

 

(789

)

Balance at March 31, 2022

 

 

 

 

$

 

 

 

121,732,846

 

 

$

12

 

 

$

700,225

 

 

$

(951

)

 

$

(274,624

)

 

$

424,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Deficit

 

Balance at December 31, 2020

 

 

69,584,682

 

 

$

221,405

 

 

 

25,189,673

 

 

$

3

 

 

$

1,413

 

 

$

2

 

 

$

(115,402

)

 

$

(113,984

)

Issuance of Series B-2 convertible preferred stock for cash, net of $95 in issuance costs

 

 

15,931,772

 

 

 

119,393

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in connection with asset acquisition

 

 

 

 

 

 

 

 

500,000

 

 

 

 

 

 

1,680

 

 

 

 

 

 

 

 

 

1,680

 

Exercise of stock options

 

 

 

 

 

 

 

 

439,610

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

94

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

174

 

 

 

 

 

 

 

 

 

174

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

795

 

 

 

 

 

 

 

 

 

795

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,017

)

 

 

(18,017

)

Unrealized loss on marketable securities, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance at March 31, 2021

 

 

85,516,454

 

 

$

340,798

 

 

 

26,129,283

 

 

$

3

 

 

$

4,156

 

 

$

1

 

 

$

(133,419

)

 

$

(129,259

)

 

 

 

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

 

3


 

Erasca, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(36,458

)

 

$

(18,017

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

403

 

 

 

149

 

Stock-based compensation expense

 

 

4,442

 

 

 

795

 

In-process research and development expenses

 

 

2,000

 

 

 

3,680

 

Amortization on marketable securities, net

 

 

17

 

 

 

13

 

Change in fair value of preferred stock purchase right liability

 

 

 

 

 

(1,615

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

      Prepaid expenses and other current and long-term assets

 

 

(5,515

)

 

 

(1,158

)

      Accounts payable

 

 

1,898

 

 

 

175

 

      Accrued expenses and other current liabilities

 

 

(3,656

)

 

 

353

 

      Operating lease assets and liabilities, net

 

 

11,063

 

 

 

(41

)

Net cash used in operating activities

 

 

(25,806

)

 

 

(15,666

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of marketable securities

 

 

(9,758

)

 

 

(21,990

)

Maturities of marketable securities

 

 

19,300

 

 

 

27,950

 

In-process research and development

 

 

(2,000

)

 

 

(6,000

)

Payment made for investment in equity securities

 

 

(2,000

)

 

 

 

Purchases of property and equipment

 

 

(7,336

)

 

 

(122

)

Net cash used in investing activities

 

 

(1,794

)

 

 

(162

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from the issuance of convertible preferred stock, net of issuance costs

 

 

 

 

 

119,393

 

Proceeds from the exercise of stock options, net of repurchases

 

 

460

 

 

 

1,144

 

Net cash provided by financing activities

 

 

460

 

 

 

120,537

 

 

 

 

 

 

 

 

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

 

 

(27,140

)

 

 

104,709

 

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

 

 

360,895

 

 

 

65,688

 

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

 

$

333,755

 

 

$

170,397

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

Issuance of common stock in connection with asset acquisition

 

$

 

 

$

1,680

 

Amounts accrued for purchases of property and equipment

 

$

1,324

 

 

$

 

Vesting of early exercised options

 

$

479

 

 

$

174

 

Amounts accrued for deferred offering costs

 

$

 

 

$

183

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash operating activities:

 

 

 

 

 

 

Tenant improvement allowance included in operating lease liabilities

 

$

6,483

 

 

$

 

 

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

 

4


 

Erasca, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Organization and basis of presentation

 

Organization and nature of operations

 

Erasca, Inc. (Erasca or the Company) is a clinical-stage precision oncology company singularly focused on discovering, developing, and commercializing therapies for RAS/MAPK pathway-driven cancers. The Company has assembled a wholly-owned or controlled RAS/MAPK pathway-focused pipeline including 11 disclosed modality-agnostic programs aligned with its three therapeutic strategies of: (i) targeting key upstream and downstream signaling nodes in the RAS/MAPK pathway; (ii) targeting RAS directly; and (iii) targeting escape routes that emerge in response to treatment. The Company was incorporated under the laws of the State of Delaware on July 2, 2018, as Erasca, Inc., and is headquartered in San Diego, California. In September 2020, the Company established a wholly-owned Australian subsidiary, Erasca Australia Pty Ltd (Erasca Australia), in order to conduct clinical activities in Australia for its development candidates. In November 2020, the Company entered into an agreement and plan of merger with Asana BioSciences, LLC (Asana) and ASN Product Development, Inc. (ASN) (the Asana Merger Agreement), pursuant to which ASN became the Company's wholly-owned subsidiary. In March 2021, the Company established a wholly-owned subsidiary, Erasca Ventures, LLC (Erasca Ventures), to make equity investments in early-stage biotechnology companies that are aligned with the Company’s mission and strategy.

 

Since inception, the Company has devoted substantially all of its efforts and resources to organizing and staffing the Company, business planning, raising capital, identifying, acquiring and in-licensing the Company’s product candidates, establishing its intellectual property portfolio, conducting research, preclinical studies, and clinical trials, establishing arrangements with third parties for the manufacture of its product candidates and related raw materials, and providing general and administrative support for these operations. As of March 31, 2022, the Company had $392.5 million in cash, cash equivalents, and short-term marketable securities, and $29.2 million in long-term marketable securities. As of March 31, 2022, the Company had an accumulated deficit of $274.6 million. The Company has incurred significant operating losses and negative cash flows from operations. From its inception through March 31, 2022, the Company’s financial support has primarily been provided from the sale of its convertible preferred stock and the sale of its common stock in its initial public offering (IPO).

 

As the Company continues its expansion, it expects to use its cash, cash equivalents, and short-term marketable securities to fund research and development, working capital, and other general corporate purposes. The Company does not expect to generate any revenues from product sales unless and until the Company successfully completes development and obtains regulatory approval for any of its product candidates, which will not be for at least the next several years, if ever. Accordingly, until such time as the Company can generate significant revenue from sales of its product candidates, if ever, the Company expects to finance its cash needs through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses or other similar arrangements. However, the Company may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms, if at all. The Company’s failure to raise capital or enter into such other arrangements when needed would have a negative impact on the Company’s financial condition and could force the Company to delay, limit, reduce or terminate its research and development programs or other operations, or grant rights to develop and market product candidates that the Company would otherwise prefer to develop and market itself. The Company believes its cash, cash equivalents, and short-term marketable securities as of March 31, 2022 will be sufficient for the Company to fund operations for at least one year from the issuance date of these condensed consolidated financial statements.

Initial public offering

 

On July 20, 2021, the Company completed its IPO in which the Company issued and sold 21,562,500 shares of its common stock, including the exercise in full by the underwriters of their option to purchase 2,812,500 shares of common stock, at a price to the public of $16.00 per share. Proceeds from the IPO, net of underwriting discounts and commissions of $24.2 million and offering costs of $3.8 million, were $317.0 million. In connection with the completion of the IPO, all outstanding shares of convertible preferred stock were converted into 71,263,685 shares of common stock.

 

5


 

Reverse stock split

 

On July 9, 2021, the Company effected a one-for-1.2 reverse stock split of its issued and outstanding shares of common stock (the Reverse Stock Split). The par value and the number of authorized shares of the convertible preferred stock and common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock and the conversion prices and ratio of the convertible preferred stock have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles (US GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. Any reference in these notes to applicable guidance is meant to refer to US GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) promulgated by the Financial Accounting Standards Board (FASB). The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Erasca Australia, ASN, and Erasca Ventures. All intercompany balances and transactions have been eliminated.

 

Note 2. Summary of significant accounting policies

 

Use of estimates

 

The preparation of the Company’s condensed consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities, expenses, and the disclosure of contingent assets and liabilities in the condensed consolidated financial statements and accompanying notes. Accounting estimates and management judgments reflected in the condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses, fair value of common stock, preferred stock and freestanding instruments, stock-based compensation expense, and the incremental borrowing rate for determining the operating lease asset and liability. Management evaluates its estimates on an ongoing basis. Although estimates are based on the Company’s historical experience, knowledge of current events, and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Unaudited interim financial information

 

The accompanying condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 and 2021, the condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2022 and 2021 and the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 are unaudited. The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s condensed consolidated financial position as of March 31, 2022 and the condensed consolidated results of its operations and cash flows for the three months ended March 31, 2022 and 2021. The condensed consolidated financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are unaudited. The condensed consolidated results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 24, 2022.

 

6


 

Concentration of credit risk and off-balance sheet risk

 

Financial instruments which potentially subject the Company to significant concentration of credit risk consist of cash and cash equivalents and marketable securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. The Company’s investment policy includes guidelines for the quality of the related institutions and financial instruments and defines allowable investments that the Company may invest in, which the Company believes minimizes the exposure to concentration of credit risk.

Cash, cash equivalents and restricted cash

 

Cash and cash equivalents include cash in readily available checking and savings accounts, money market funds, and corporate debt securities. The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents.

 

The Company had deposited cash of $408,000 as of March 31, 2022 and December 31, 2021 to secure a letter of credit in connection with the lease of the Company’s facilities (see Note 11). The Company has classified the restricted cash as a noncurrent asset on its condensed consolidated balance sheets.

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (in thousands):

 

 

March 31,

 

 

2022

 

 

2021

 

Cash and cash equivalents

$

333,347

 

 

$

169,989

 

Restricted cash

 

408

 

 

 

408

 

Total cash, cash equivalents and restricted cash

$

333,755

 

 

$

170,397

 

Marketable securities and investments

 

The Company classifies all marketable securities as available-for-sale, as the sale of such securities may be required prior to maturity. Management determines the appropriate classification of its marketable securities at the time of purchase. Marketable securities with original maturities beyond three months at the date of purchase and which mature at, or less than 12 months from, the balance sheet date are classified as short-term marketable securities. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported as accumulated other comprehensive income (loss) until realized. The amortized cost of available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. The Company regularly reviews all its marketable securities for declines in fair value. The review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. If the decline in fair value is due to credit-related factors, a loss is recognized in net income, whereas if the decline in fair value is not due to credit-related factors, the loss is recorded in other comprehensive income (loss). Realized gains and losses on available-for-sale securities are included in other income or expense. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income.

 

7


 

 

Through its wholly-owned subsidiary, Erasca Ventures, the Company has also invested in equity securities of a company whose securities are not publicly traded and whose fair value is not readily available. This investment is recorded using cost minus impairment, plus or minus changes in its estimated fair value resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Investments in equity securities without readily determinable fair values are assessed for potential impairment on a quarterly basis based on qualitative factors. This investment is included in other assets in the Company's condensed consolidated balance sheets.

Fair value measurements

 

Certain assets and liabilities are carried at fair value under US GAAP. 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. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2—Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability

 

Level 3—Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Recently adopted accounting pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11. The standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and it establishes additional disclosure requirements related to credit risks. For available-for-sale debt securities with expected credit losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This guidance was originally effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption was permitted. In November 2019, the FASB subsequently issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, whereby the effective date of this standard for smaller reporting companies was deferred to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is still permitted. The Company adopted ASU 2016-13, and related updates, on a modified retrospective basis on January 1, 2022, and the adoption had an immaterial impact on its condensed consolidated financial statements and related disclosures.

 

In August 2020, the FASB issued ASU 2020-06, Debt: Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (ASU 2020-06), which simplifies the accounting for convertible instruments and contracts in an entity’s own equity. This guidance is effective for the Company in its annual reporting period beginning after December 15, 2023, including interim periods within that reporting period, with early adoption permitted only as of annual reporting periods beginning after December 15, 2020. The Company adopted ASU 2020-06 on a modified retrospective basis on January 1, 2022, and the adoption had no impact on its condensed consolidated financial statements and related disclosures.

 

8


 

 

In January 2020, the FASB issued ASU 2020-01, Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (ASU 2020-01), which clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, ASU 2020-01 states that for the purpose of applying paragraph 815-10-15-141(a), an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. The Company adopted the provisions of ASU 2020-01 prospectively as of January 1, 2022, and the adoption had no impact on its condensed consolidated financial statements and related disclosures.

Recently issued accounting pronouncements not yet adopted

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act) and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company can adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company.

 

Note 3. Fair value measurements

 

The following tables summarize the Company’s financial assets measured at fair value on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):

 

 

 

 

 

 

Fair value measurements as of March 31, 2022 using

 

 

 

 

 

 

Quoted prices in

 

 

Significant

 

 

Significant

 

 

 

 

 

 

active markets

 

 

other

 

 

unobservable

 

 

 

March 31,

 

 

for identical

 

 

observable

 

 

inputs

 

 

 

2022

 

 

assets (level 1)

 

 

inputs (level 2)

 

 

(level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

327,872

 

 

$

327,872

 

 

$

 

 

$

 

Corporate debt securities(1)

 

 

1,450

 

 

 

 

 

 

1,450

 

 

 

 

US treasury securities(2)

 

 

33,822

 

 

 

33,822