Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial Data” and the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in “Part I, Item 1A. Risk Factors” and in other parts of this Annual Report on Form 10-K.
A discussion of our financial performance for the year ended December 31, 2020 as compared to the year ended December 31, 2019 appears below under the captions “Results of Operations” and “Liquidity and Capital Resources.” A discussion of our financial performance for the year ended December 31, 2019 compared to the year ended December 31, 2018 can be found in our Registration Statement filed on Form S-1/A, in the “Management Discussion And Analysis Of Financial Condition And Results Of Operations” section, under the same captions, filed with the SEC on September 24, 2020, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at ir.pmvpharma.com/financial-information/sec-filings. These website addresses are intended to be inactive, textual references only. None of the materials on, or accessible through, these websites are part of this report or are incorporated by reference herein.
Overview
We are a precision oncology company pioneering the discovery and development of small molecule, tumor-agnostic therapies targeting p53 mutations. p53 is a well-defined tumor suppressor protein known as the “guardian of the genome,” and normal, or wild-type, p53 has the ability to eliminate cancer cells. However, mutant p53 proteins can be misfolded and lose their wild-type tumor suppressing function. These p53 mutations are found in approximately half of all cancers. The field of p53 biology was established by our co-founder Dr. Arnold Levine when he discovered the p53 protein in 1979. We have leveraged more than four decades of research experience and developed unique insights into p53 to create a precision oncology platform designed to generate selective, small molecule, tumor-agnostic therapies that structurally correct specific mutant p53 proteins to restore their wild-type function. We are deploying our precision oncology platform to target the top ten most frequent, or hotspot, p53 mutations that are collectively associated with approximately 10-15% of all cancers.
Since our formation in March 2013, we have devoted substantially all of our time and efforts to performing research and development activities and raising capital. We are not profitable and have incurred losses in each year since our inception. Our net losses were $34.4 million, $25.4 million, and $17.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. As of December 31, 2020, we had an accumulated deficit of $109.9 million. We do not currently have any product candidates approved for sale, and we continue to incur significant research and development and general administrative expenses related to our operations. We initiated a Phase 1/2 clinical trial in October 2020 for our lead product candidate, PC14586. In October 2020, we were granted FDA Fast Track Designation of PC14586 for the treatment of patients with locally advanced or metastatic solid tumors that have a p53 Y220C mutation. We dosed our first patient in this clinical trial in the fourth quarter of 2020. We expect that our operating expenses will increase significantly as we advance our product candidates through preclinical and clinical development, seek regulatory approval and prepare for and, if approved, proceed to commercialization; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. Furthermore, we have incurred and will continue to incur additional costs associated with operating as a public company that we did not experience as a private company. We expect to continue to incur significant losses for the foreseeable future.
Prior to our initial public offering, or IPO, we funded our operations primarily from the issuance and sale of convertible preferred stock. As of December 31, 2020, we had $361.4 million in cash and cash equivalents. We believe that our existing capital resources will be sufficient to fund our planned operations at least through 2023.
Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing.
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Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.
We plan to continue to use third-party service providers, including clinical research organizations, or CROs, and contract manufacturing organization, or CMOs, to carry out our preclinical and clinical development and to manufacture and supply the materials to be used during the development and commercialization of our product candidates. We do not currently have a sales force.
Components of Results of Operations
Revenue
To date, we have not generated any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, or license agreements with third parties, we may generate revenue in the future from product sales. However, there can be no assurance as to when we will generate such revenue, if at all.
Operating Expenses
Research and Development Expenses
Our research and development expenses consist primarily of costs incurred to conduct research, such as the discovery and development of our product candidates as well as the development of future product candidates. Research and development expenses include personnel costs, including stock-based compensation expense, third-party contractor services, laboratory materials and supplies, and depreciation and maintenance of research equipment. We expense research and development costs as they are incurred.
As we are at a very early stage of development, we do not allocate our costs by product candidate or development program, as a significant amount of research and development expenses include compensation costs, materials, supplies, depreciation on and maintenance of research equipment, and the cost of services provided by outside contractors, which are not tracked by product candidate or development program. In particular, with respect to internal costs, several of our departments support multiple product candidate research and development programs, and therefore the costs cannot be allocated to a particular product candidate or development program. Substantially all of our research and development costs are associated with our lead product candidate, PC14586. We initiated a Phase 1/2 clinical trial in October 2020 for our lead product candidate, PC14586. In October 2020, we were granted FDA Fast Track Designation of PC14586 for the treatment of patients with locally advanced or metastatic solid tumors that have a p53 Y220C mutation. We dosed our first patient in this clinical trial in the fourth quarter of 2020.
We expect our research and development expenses to increase substantially in absolute dollars in the future as we advance our product candidates into and through clinical trials and pursue regulatory approval of our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors including: the safety and efficacy of our product candidates, early clinical data, investment in our clinical program, the ability of any future collaborators to successfully develop our licensed product candidates, competition, manufacturing capability, and commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects.
General and Administrative Expenses
General and administrative expenses include personnel costs, expenses for outside professional services and other allocated expenses. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation. Outside professional services consist of legal, accounting and audit services and other consulting fees. Allocated
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expenses consist of rent expense related to our office and research and development facility. We expect to incur additional expenses as a public company, including expenses related to compliance with the rules and regulations of the SEC, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities and other administrative and professional services. We expect to increase our headcount significantly to support our operations as a public company. We also expect to increase our general and administrative expenses as we advance our product candidates through preclinical research and development, manufacturing, clinical development and commercialization.
Interest Income, Net
Interest income, net primarily consists of interest income from our interest-bearing cash, cash equivalents and short-term marketable securities and interest costs related to amortization of premiums and discounts on short-term marketable securities.
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
The following table summarizes our results of operations (in thousands):
Year Ended
December 31,
Statement of operations data: 2020 2019 Change
Operating expenses:
Other income (expense):
Provision for income taxes 6 8 (2 )
Research and Development Expenses
The following table summarizes our research and development expenses incurred during the periods indicated (in thousands):
Year Ended
December 31,
Statement of operations data: 2020 2019 Change
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Research and development expenses were $23.9 million for the year ended December 31, 2020, compared to $20.8 million for the year ended December 31, 2019. The increase of $3.2 million was primarily due to the following:
General and Administrative Expenses
General and administrative expenses were $11.0 million for the year ended December 31, 2020, compared to $5.9 million for the year ended December 31, 2019. The increase of $5.1 million was primarily due to the following:
Interest Income, Net
Interest income, net was $0.7 million for the year ended December 31, 2020, compared to $1.3 million for the year ended December 31, 2019. The decrease of $0.6 million is driven by decreased income from cash investments in marketable securities and U.S treasuries.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue from any product sales or any other sources, and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. As of December 31, 2020, we have cash and cash equivalents of $361.4 million and an accumulated deficit of $109.9 million. Prior to our initial public offering, or IPO, we financed our operations primarily through issuances of our convertible preferred stock. In 2019, we sold an aggregate of 5,469,606 shares of our Series C convertible preferred stock to accredited investors, generating gross proceeds of $61.9 million. In July 2020, we sold an aggregate of 5,321,864 shares of our Series D convertible preferred stock to accredited investors, generating gross proceeds of $70.0 million.
On September 25, 2020, we completed our IPO pursuant to which we issued and sold 13,529,750 shares of our common stock, including the exercise in full by the underwriters of their option to purchase up to 1,764,750 additional shares of common stock, at a public offering price of $18.00 per share. The gross proceeds from the IPO were approximately $243.5 million and the net proceeds were approximately $223.2 million, after deducting underwriting discounts and commissions and other offering expenses.
Plan of Operation and Future Funding Requirements
We use our capital resources primarily to fund operating expenses, primarily research and development expenditures. We plan to increase our research and development expenses for the foreseeable future as we continue the preclinical development and move into clinical development of our product candidates. At this time, due to the
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inherently unpredictable nature of preclinical and clinical development and given the early stage of our product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current product candidates or any future productcandidates, if at all. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Due to our significant research and development expenditures, we have generated substantial operating losses in each period since inception. We have incurred an accumulated deficit of $109.9 million through December 31, 2020. We expect to incur substantial additional losses in the future as we expand our research and development activities. Based on our research and development plans, we expect that our cash balances as of December 31, 2020 will be sufficient to fund our operations at least through 2023. We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect.
The timing and amount of our operating expenditures will depend largely on:
• the timing and progress of preclinical and clinical development activities;
• the number and scope of preclinical and clinical programs we decide to pursue;
• the cost and timing of regulatory approvals; and
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into collaboration arrangements or selectively partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. If we raise additional funds through governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition, results of operations and prospects.
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Cash Flows
The following table summarizes our cash flows for the period indicated (in thousands):
Year Ended
December 31,
Operating Activities
Net cash used in operating activities for the year ended December 31, 2020, was $32.7 million, which consisted primarily of net loss of $34.4 million increased by non-cash charges of $2.5 million and decreased by a net change of $0.9 million in our net operating assets. The non-cash charges primarily consisted of stock-based compensation of $1.9 million and depreciation of $0.3 million. The change in our net operating assets and liabilities was primarily due to an increase in current assets, accompanied by a decrease in outstanding payables, and an increase in accrued compensation and accrued liabilities in 2020.
Net cash used in operating activities for the year ended December 31, 2019, was $22.1 million, which consisted primarily of net loss of $25.4 million decreased by non-cash charges of $1.4 million and by a net change of $1.9 million in our net operating assets. The non-cash charges primarily consisted of stock-based compensation of $0.9 million and depreciation and amortization expense of $0.5 million. The change in our net operating assets and liabilities was primarily due to an increase in outstanding payables in 2019.
Investing Activities
Our investing activities provided $28.0 million of cash during the year ended December 31, 2020, which consisted primarily of maturities of marketable securities of $42.6 million, partially offset by purchases of marketable securities of $14.5 million and purchases of property and equipment of $0.1 million.
Our investing activities provided $3.2 million of cash during the year ended December 31, 2019, which consisted primarily of maturities of marketable securities of $46.8 million, partially offset by purchases of marketable securities of $43.5 million and purchases of property and equipment of $0.1 million.
Financing Activities
Our financing activities provided $293.0 million of cash during the year ended December 31, 2020, which consisted primarily of gross IPO proceeds of $243.5 million and Series D Preferred Stock issuance of $70.0 million, offset by equity issuance costs of $20.6 million.
Our financing activities provided $61.8 million of cash during the year ended December 31, 2019, which consisted primarily of proceeds from the issuance of our Series C convertible preferred stock of $61.9 million, and proceeds from the exercise of stock options of $0.1 million, partially offset by payments of equity issuance costs of $0.2 million.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
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Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2020 (in thousands):
Less than 1 to 3 3 to 5 More than
1 year years years 5 years Total
Operating lease obligations: $ 479 $ 256 $ — $ — $ 735
We enter into contracts in the normal course of business with CROs and other vendors to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.
In January 2021, we signed a lease for 50,581 square feet of office and laboratory space at One Research Way in Princeton, New Jersey. That lease term extends through 2032, has a five-year extension option, and is intended to replace our two existing facilities. Payments under this lease will total $19.6 million through May 2032.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.
We believe that the accounting policies described below involve a high degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of our operations.
Research and Development Costs, Accrued Research and Development Costs and Related Prepaid Expenses
Research and development costs are expensed as incurred. Research and development expenses consist principally of personnel costs, including salaries, stock-based compensation and benefits for employees, third-party license fees and other operational costs related to our research and development activities, including allocated facility-related expenses and external costs of outside vendors, and other direct and indirect costs. Non -refundable research and development advance payments are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or services are performed.
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
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We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We measure all stock options and other stock-based awards granted to our employees, directors, consultants and other non-employee service providers based on the fair value on the date of the grant. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is typically the vesting term. Compensation expense related to awards to employees with performance-based vesting conditions is recognized based on grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the performance condition is probable. Non-employee option awards are measured at the earlier of the commitment date for performance by the counterparty or the date when the performance is complete, and compensation expense is recognized in the same manner as if we had paid cash for goods or services.
We classify stock-based compensation expense in our statement of operations in the same way the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.
We use the Black-Scholes option pricing model to estimate the fair value of stock options on the date of grant. Using the Black-Scholes option pricing model requires management to make significant assumptions and judgments. We determined these assumptions for the Black-Scholes option-pricing model as discussed below.
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As of December 31, 2020, the total compensation cost related to nonvested service-based awards not yet recognized is $4,602. The weighted-average period over which the nonvested awards is expected to be recognized is 2.9 years. The aggregate intrinsic value of options outstanding as of December 31, 2020 was $238.8 million, of which $154.1 million related to vested options and $84.7 million related to unvested options.
Common Stock Valuations
The fair value of the shares of common stock underlying our stock-based awards prior to our IPO was determined by our board of directors with input from management and contemporaneous third-party valuations. We believe that our board of directors had the relevant experience and expertise to determine the fair value of our common stock prior to our IPO. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held CompanyEquity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous andsubjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:
• lack of marketability of our common stock;
• our actual operating and financial performance;
• current business conditions and projections;
• hiring of key personnel and the experience of our management;
• the history of the company;
• our stage of development;
• the market performance of comparable publicly traded companies; and
• the U.S. and global capital market conditions.
In valuing our common stock, our board of directors determined the equity value of our business using the hybrid method with input from management and contemporaneous third-party valuations. The hybrid method is based upon the probability-weighted value across two scenarios, being (i) successfully consummating an initial public offering and (ii) alternative scenarios in which an initial public offering is not consummated. The hybrid method can be a useful alternative to explicitly modeling all probability-weighted expected return scenarios in situations when the company has transparency into one or more near term exits but is unsure about what will occur if current plans do not materialize. In the first scenario, the potential exit date, the probability exit value and the likelihood of interim financings were considered. In the second scenario, which was assigned the residual probability, the potential exit date, the equity volatility, the assumed interest rate, the dividend yield and equity inflection points at which the allocation of proceeds changes were considered. The valuation method considers the total number of shares authorized and outstanding, as well as recent issuances of both preferred and common stock.
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Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding the time to the liquidation event and volatility. Changes in these estimates and assumptions or the relationships between these assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of common stock.
Following our IPO, the fair value of each share of underlying common stock will be based on the closing price of our common stock as reported by Nasdaq on the date of grant. Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2 of the notes to our audited financial statements for the year ended December 31, 2020 included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2020.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or Jobs Act, enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we completed our initial public offering, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
Under the Jobs Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use the extended transition period to enable us to comply with new or revised accounting standards and, therefore, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to continue to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
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Item7A.Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rate risks.
We had cash and cash equivalents of $361.4 million as of December 31, 2020, which consists of interest-bearing U.S. treasury securities and money market funds. Our exposure due to changes in interest rates is not material due to the nature and amount of our money-market funds and short-term marketable securities.
We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we may contract with foreign vendors that are located outside the United States in the future. This may subject us to fluctuations in foreign currency exchange rates in the future.
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Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements
Report of Independent Registered Public Accounting Firm 121
Notes to Financial Statements 126
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of PMV Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of PMV Pharmaceuticals, Inc. (the Company) as of December 31, 2020 and 2019, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ (deficit) equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2017.
Philadelphia, Pennsylvania
March 3, 2021
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PMV Pharmaceuticals, Inc.
Balance Sheets
(in thousands, except share and per share amounts)
Assets
Current assets
Short-term marketable securities — 28,208
Prepaid expenses and other current assets 3,339 607
Property and equipment, net 569 739
Liabilities, Convertible Preferred Stock, and Stockholders’ Equity (Deficit)
Current liabilities
Other liabilities — 51
Commitments and contingencies (see Note 6) — —
Stockholders’ equity (deficit):
Accumulated other comprehensive loss — (3 )
The accompanying notes are an integral part of these financial statements.
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PMV Pharmaceuticals, Inc.
Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Year Ended
Operating Expenses:
Other income:
Other (expense) income (143 ) (8 ) 16
Provision for income taxes 6 8 3
Unrealized gains on marketable securities, net of tax 3 10 52
Net loss per share—basic and diluted $ (2.40 ) $ (8.35 ) $ (5.82 )
The accompanying notes are an integral part of these financial statements.
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PMV Pharmaceuticals, Inc.
Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity
(in thousands except share amounts)
Shares Amount Shares Amount
Stock-based compensation expense — — — — 1,079 — — 1,079
Unrealized gain on available for sale investments — — — — — 52 — 52
Stock-based compensation expense — — — — 908 — — 908
Unrealized gain on available for sale investments — — — — — 10 — 10
Exercise of stock options — — 4,070 — 6 — — 6
Stock-based compensation expense — — — — 1,933 — — 1,933
Unrealized gain on available for sale investments — — — — — 3 — 3
The accompanying notes are an integral part of these financial statements.
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PMV Pharmaceuticals, Inc.
Statements of Cash Flows
(in thousands)
Year Ended
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of premiums on marketable securities 152 62 319
Changes in operating assets and liabilities:
Prepaid expenses and other assets (2,732 ) (275 ) (17 )
Cash flows from investing activities:
Acquisition of property and equipment (148 ) (109 ) (452 )
Cash flows from financing activities:
Proceeds from issuance of common shares, net of issuance costs 223,176 — —
Proceeds from exercise of stock options 6 100 —
Net cash provided by financing activities 292,972 61,805 —
Cash and cash equivalents
Supplemental disclosures of noncash financing activities
Conversion of convertible preferred stock to common stock $ 238,723 $ — $ —
Conversion of warrant liability to common stock $ 194 $ — $ —
Supplemental disclosures of cash flow information
Cash paid for income tax $ 6 $ 8 $ —
The accompanying notes are an integral part of these financial statements.
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
1. Formation and Business of the Company
Organization
PMV Pharmaceuticals, Inc. (the “Company”) was incorporated in the state of Delaware in March 2013. Since inception, the Company has devoted substantially all of its time and efforts to performing research and development activities and raising capital. The Company is a precision oncology company pioneering the discovery and development of small molecule, tumor-agnostic therapies targeting p53 mutations. The Company’s headquarters are located in Cranbury, New Jersey.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, technical risks associated with the successful research, development and manufacturing of product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Current and future programs will require significant 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 and infrastructure. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
On September 25, 2020, the Company completed an initial public offering (the “IPO”) of 13,529,750 shares of common stock, at a public offering price of $18.00 per share including the exercise in full by the underwriters of their option to purchase up to 1,764,750 additional shares of commons stock, for aggregate gross proceeds of $243,536 and its shares started trading on The Nasdaq Global Select Market under the ticker symbol “PMVP.” The Company received $223,176 in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by the Company. In connection with the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock outstanding at the time of the IPO automatically converted into 28,188,110 shares of common stock. On September 18, 2020, the Company amended its certificate of incorporation to effect a 5.2651-for-1 reverse stock split of its issued and outstanding common and convertible preferred stock. The accompanying financial statements and related notes give retroactive effect to the reverse stock split for all periods presented.
The Company has incurred net losses and negative cash flows from operations. During the year ended December 31, 2020, the Company incurred a net loss of $34,440 and used $32,739 of cash for operations. At December 31, 2020, the Company had accumulated deficit of $109,880. Cash and cash equivalents at December 31, 2020 were $361,422. Management expects to incur substantial additional operating losses for the next several years and may need to obtain additional debt or equity financings in order to complete development of its products, obtain regulatory approvals, launch and commercialize its products and continue research and development programs. The Company believes it has adequate cash and financial resources to operate for at least the next twelve months from the date of issuance of these financial statements.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“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 Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying financial statements
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in the biotechnology industry.
Use of Estimates
The preparation of financial statements in conformity with 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 reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the fair values of common stock, convertible preferred stock and stock-based compensation. Actual results could differ materially from those estimates.
Reverse Stock Split
In September 2020, the Company’s board of directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 5.2651-for-1 reverse stock split of the Company’s common stock and convertible preferred stock, which was effected on September 24, 2020. The par value of the common stock and convertible preferred stock were not adjusted as a result of the reverse stock split. Accordingly, all common stock, convertible preferred stock, stock options, and related per share amounts in these financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split.
Fair Value of Financial Instruments
The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
Cash, Cash Equivalents and Marketable Securities
Management considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
The Company’s marketable debt securities have been classified and accounted for as available-for-sale at December 31, 2019. The Company had no marketable debt securities at December 31, 2020. The Company classifies its marketable debt securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable debt securities with maturities of 12 months or less are classified as short-term and marketable debt securities with maturities greater than 12 months are classified as long-term. The Company’s marketable debt securities are carried at fair value, with unrealized gains and losses, net of taxes, reported as a component of accumulated other comprehensive loss in stockholders’ equity. Premiums and discounts on marketable debt securities are amortized into earnings over the life of the security, which is recorded in Interest income, net. For the years ending December 31, 2020, 2019, and 2018, the Company recorded $152, $62, and $319 of amortization, respectively.
Property and Equipment
Property and equipment are recorded at cost net of accumulated depreciation. Property and equipment are depreciated using the straight‐line method over the estimated useful lives of the assets, generally five years, except for leasehold improvements, which are amortized over the remaining term of the lease.
Upon retirement or sale of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Repairs and maintenance costs are charged to operations as incurred.
Impairment of Long-Lived Assets
Long-lived assets, which are comprised of property and equipment to be held and used are tested for recoverability whenever events or changes in the business environment indicate that the carrying amount of the assets may not be fully recoverable. Factors considered by the Company when deciding when to perform an impairment review include significant underperformance of the business against expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows resulting from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows resulting from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its current fair value. To date, the Company has not recorded any impairment losses on long-lived assets.
Comprehensive Income/Loss
The Company recorded $3, $10, and $52 in other comprehensive income related to unrealized gains on marketable securities, net of tax for the years ended December 31, 2020, 2019, and 2018, respectively. The Company presents comprehensive income in a single statement within its financial statements.
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including compensation costs, which includes allocated stock-based compensation, salary payroll taxes, employee benefits; materials; supplies; depreciation on and maintenance of research equipment; the cost of services provided by outside contractors; and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. Costs for certain research and development activities are recognized based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as a prepaid expenses or as accrued research and development expenses. All costs associated with research and development are expensed as incurred.
Convertible Preferred Stock
The Company’s convertible preferred stock is classified outside of stockholders’ deficit because the shares contain deemed liquidation rights that are a contingent redemption feature not solely within the control of the Company. The Company’s policy is not to accrete the carrying value and related issuance costs of the convertible preferred stock to its redemption value until it is probable that the security will become redeemable. The convertible preferred stock converted to common stock in connection with the Company’s Initial Public Offering (“IPO”) on September 25, 2020.
Derivative Liabilities
The Company may issue certain financial instruments with embedded features which may be accounted for as separate derivative assets or liabilities, dependent on their specific contractual terms or other conditions. These derivative assets or liabilities are required to be measured at fair value at issuance and remeasured at the end of each reporting period. To determine the fair value of these instruments the Company uses a discounted cash flow analysis, as these instruments are not quoted on an active market. Increases or decreases in fair value from initial measurement and each reporting period are recorded in the statement of operations and comprehensive loss as change in fair value of derivative liabilities.
Stock‐Based Compensation
The Company’s share-based compensation program allows for grants of stock options and restricted stock awards. Grants are awarded to employees and non-employees, including directors.
The Company accounts for stock-based employee compensation arrangements in accordance with provisions of ASC 718, Compensation – Stock Compensation (“ASC 718”). ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing or equity valuation model that is applied in a manner consistent with the fair value measurement objectives of ASC 718, is based on established principles of financial theory and reflects all of the substantive terms and conditions of the award. The Company uses the Black-Scholes option-pricing model (“Black-Scholes”) to value stock option grants to employees, non-employees and directors. The fair value of the Company’s common stock is used to determine the fair value of restricted stock awards and stock options.
The Company’s stock-based compensation awards are subject to either service or performance-based vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is typically the vesting term. Compensation expense related to awards to employees with
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
performance-based vesting conditions is recognized based on grant date fair value over the requisite service period using the accelerated attribution method to the extent achievement of the of performance condition is probable.
The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends. Due to the lack of a public market for the Company’s common stock and lack of company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus. The historical volatility is calculated based on a period of time commensurate with expected term assumption. The Company uses the simplified method to calculate the expected term for options granted to employees whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the options due to its lack of sufficient historical data. The risk-free interest rate is based on U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock. The Company recognizes forfeitures as they occur.
Prior to the Company’s IPO, due to the absence of an active market for the Company’s common stock, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. In determining the exercise prices for options granted, the Company considered the estimated fair value of the common stock as of the measurement date. Prior to the Initial Public Offering, the estimated fair value of the common stock was determined at each grant date based upon a variety of factors, including the illiquid nature of the common stock, arm’s-length sales of the Company’s capital stock (including convertible preferred stock), the effect of the rights and preferences of the preferred shareholders, and the prospects of aliquidity event. Among other factors are the Company’s financial position and historical financial performance, the status of technological developments within the Company’s research, the composition and ability of the current research and management team, an evaluation or benchmark of the Company’s competition, and the current business climate in the marketplace. Significant changes to the key assumptions underlying the factors used could result in different fair values of common stock at each valuation date.
Segment Reporting
Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the Company’s Chief Operating Decision Maker to make decisions with respect to resource allocation and assessment of performance. To date, the Company has viewed its operations and manages its business as one operating segment.
Net Loss per Common Share
Basic net loss per share is computed using the “two-class” method which includes the weighted average number of shares of common stock outstanding during the period and other securities that participate in dividends (a participating security). The Company’s convertible preferred stock are participating securities as defined by ASC 260-10, Earnings per Share. During the periods where the Company incurs net losses, the Company allocates no loss to participating securities because these securities have no contractual obligation to share in the losses of the Company. Under the two-class method, basic net loss per share applicable to common stockholders is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed similar to basic net loss per share except that the denominator is increased to include the number of additional shares for the potential dilutive effects of a warrant,
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
convertible preferred stock and stock options outstanding during the period calculated in accordance with the treasury stock method, or the two-class method, whichever is more dilutive. The Company allocates net earnings on a pari passu (equal) basis to both common and preferred stockholders. Net losses are not allocated to preferred stockholders as they do not have an obligation to share in the Company’s net losses. For all periods presented, basic and diluted net loss per share are the same, as any additional share equivalents would be anti-dilutive.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes ("ASC 740"), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Under ASC 740, the liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and law that will be in effect when the differences are expected to reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company evaluates annually the realizability of the deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. In 2020 and 2019, the Company has recorded a full valuation allowance for the deferred tax assets based on the historical loss and the uncertainty regarding the ability to project future taxable income. In future periods if the Company is able to generate income, the Company may reduce or eliminate the valuation allowance.
The Company accounts for uncertain tax positions in accordance with ASC 740. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax provision that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a "more likely than not" threshold. In accordance with this accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”) requiring lessees to recognize operating and financing lease liabilities on the balance sheet, as well as corresponding right-of-use assets. The new lease standard also makes some changes to lessor accounting and aligns key aspects of the lessor accounting model with the revenue recognition standard. In addition, disclosures will be required to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In June 2020, the FASB also issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which requires nonpublic entities to adopt the provisions of ASU 2016-02 for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022.
Upon its IPO, the Company qualified as an emerging growth company (“EGC”). Qualifying as an EGC allows the Company to employ extended transition provisions by using nonpublic business entity adoption dates for new or revised accounting standards, so long as the issuer maintains its status as an EGC. The Company expects to adopt this standard for the annual period ending December 31, 2021, with the provisions of the new standard reflected in quarterly periods of that annual period. The Company is currently evaluating the impact of this accounting standard update on its financial statements.
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. The pronouncement is effective for the Company in the annual period beginning after December 15, 2019, and early adoption is permitted. The Company adopted this guidance,using the modified retrospective method, on January 1, 2020, and the adoption did not have a material impact on its financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). This standard modifies disclosure requirements related to fair value measurement and is effective for all entities for fiscal years beginning after December 15, 2019. Early adoption is permitted. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. The standard also allows for early adoption of any removed or modified disclosures upon issuance while delaying adoption of the additional disclosures until their effective date. The Company adopted this guidance, using the retrospective method, on January 1, 2020, and the adoption did not have a material impact on its financial statements.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents and marketable securities. Cash and cash equivalents are held in accounts at two financial institutions. At times, such deposits may be in excess of insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company’s marketable debt securities are carried at fair value with unrealized gains and losses. Any investments with unrealized losses are considered to be temporarily impaired.
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, rapid technological change, uncertainty of market acceptance of the product, competition from substitute products and larger companies, protection of proprietary technology, strategic relationships and dependence on key individuals.
Products developed by the Company require clearances from the U.S. Food and Drug Administration or other international regulatory agencies prior to commercial sales. There can be no assurance the Company’s future products will receive the necessary clearances. If the Company was denied clearance, clearance was delayed or it was unable to maintain clearance, it could have a materially adverse impact on the Company.
In January 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a “Public Health Emergency of International Concern,” which continues to spread throughout the world and has adversely impacted global commercial activity and contributed to significant declines and volatility in financial markets. The COVID-19 outbreak and government responses are creating disruption in global supply chains and adversely impacting many industries. The outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown. The Company continues to monitor the impact of the COVID-19 outbreak closely. The extent to which the COVID-19 outbreak will impact its operations or financial results is uncertain.
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
3. Financial Instruments and Fair Value Measurements
The Company’s financial instruments consist of money market funds, U.S. government debt securities and corporate debt securities. The following tables show the Company’s cash equivalents and available-for-sale securities’ carrying amounts and fair values at December 31, 2020 and 2019:
Assets
Assets
Liabilities
Total liabilities $ 51 $ 51 $ – $ – $ 51
Cash Equivalents – Cash equivalents of $360.0 million as of December 31, 2020 consisted of money market funds of $240.0 million and corporate debt securities of $120.0 million. Cash equivalents of $71.3 million as of December 31, 2019 consisted of money market funds of $1.7 million and corporate debt securities of $69.6 million. Money market funds are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets, whereas corporate securities are classified within level 2 of the fair value hierarchy because they are valued using inputs other than quoted prices that are observable for the asset or liability either directly or indirectly.
Marketable Securities – Marketable securities of $28.2 million as of December 31, 2019 consisted of corporate debt securities classified within level 2 of the fair value hierarchy because they are valued using inputs other than quoted prices that are observable for the asset or liability either directly or indirectly. There were no marketable securities as of December 31, 2020.
Warrant Liability – The fair value of the warrants to purchase common stock is based on significant inputs not observable in the market, which represents a level 3 measurement within the fair value hierarchy. The warrants to purchase common stock were exercised on September 24, 2020 and the fair value of the liability was reclassified to additional paid-in capital. Warrant liability consisted of the following:
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
Warrant
Liability
Changes in fair value 8
Changes in fair value 143
Reclassification to additional paid-in capital upon exercise (194 )
Balance at December 31, 2020 $ –
4. Property and Equipment, Net
December 31,
Computers 8 8
Furniture & fixtures 9 9
Leasehold improvements 73 67
Assets not placed in service 51 –
Less: Accumulated depreciation (1,561 ) (1,243 )
Property and equipment, net $ 569 $ 739
Depreciation expense for the years ended December 31, 2020, 2019, and 2018 was $318, $388, and $338, respectively.
5. Accrued Expenses
Accrued expenses consists of the following:
December 31,
Accrued research and development costs 1,595 –
Other accrued liabilities 99 39
6. Commitments and Contingencies
The Company leases office and laboratory space in Cranbury, New Jersey; South Brunswick, New Jersey; and Lexington, Massachusetts. At December 31, 2020, the minimum lease payments under these leases are as follows:
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
Thereafter –
Total future minimum lease payments $ 735
Rent expense recorded during the years ended December 31, 2020, 2019, and 2018 was $561, $580, and $479, respectively.
In January 2021, we signed a lease for 50,581 square feet of office and laboratory space at One Research Way in Princeton, New Jersey. That lease term extends through 2032, has a five-year extension option, and is intended to replace our two existing facilities. Payments under this lease will total $19.6 million through May 2032.
At December 31, 2020, there were no purchase commitments with third-party suppliers.
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when future expenditures are probable and such expenditures can be reasonably estimated.
7. Convertible Preferred Stock
As of December 31, 2019, the Company’s Certificate of Incorporation, as amended and restated, authorized the Company to issue up to 22,883,426 shares of convertible preferred stock with a par value of $0.00001 per share. 1,657,903 shares were designated as Series Seed convertible preferred stock (Series Seed Preferred), 8,076,985 shares were designated as Series A convertible preferred stock (Series A Preferred), 7,672,560 shares were designated as Series B convertible preferred stock (Series B Preferred) and 5,475,978 shares were designated as Series C convertible preferred stock (Series C Preferred). At December 31, 2019, the Company had an aggregate of 22,866,246 shares of Series Seed Preferred, Series A Preferred, Series B Preferred and Series C Preferred (collectively, “Preferred Stock”) issued and outstanding. All share amounts presented are reverse-split adjusted.
As of December 31, 2019, the Preferred Stock consisted of the following (in thousands except for share data):
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
In July 2020, the Company issued 5,321,864 shares of Series D Preferred Stock at a price of $13.1533 per share, resulting in gross proceeds of $70,000. In connection with the IPO on September 25, 2020, all of the Company’s convertible preferred stock, including Series D Preferred Stock, outstanding at the time of the IPO automatically converted into an aggregate of 28,188,110 shares of common stock.
The holders of Preferred Stock have the rights, preferences, privileges and restrictions as set forth below:
Dividends:
The holders of Preferred Stock are entitled to receive non-cumulative dividends prior to and in preference to any declaration of payment of dividends on common stock, when and if declared by the Board of Directors. Any additional dividends will be paid ratably to holders of common and Preferred Stock, with the holders of Preferred Stock participating on an as-if converted basis. No dividends have been declared or paid as of December 31, 2019.
Voting Rights:
The holders of each share of Preferred Stock are entitled to voting rights equal to the number of shares of common stock into which the shares could be converted. As long as any shares of Preferred Stock remain outstanding, the holders of Preferred Stock, voting together as a class, shall be entitled to elect four members of the Company’s Board of Directors. The holders of common stock, voting together as a single class, shall be entitled to elect two members of the Company’s Board of Directors. Remaining members of the Company’s Board of Directors will be elected by the holders of a majority of the shares of Preferred Stock and common stock, voting together as a single class.
Liquidation Rights:
In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Preferred Stock have liquidation preferences, before any distribution or payment is made to holders of any common stock, in an amount per share equal to the original issue price of $1.8517 for Series Seed Preferred, $3.7266 for Series A Preferred, $9.6093 for Series B Preferred and $11.3121 for Series C Preferred, as adjusted for stock splits, stock dividends, combinations, recapitalizations and the like, plus any declared but unpaid dividends. If the assets and funds to be distributed among the holders of Preferred Stock are insufficient to permit the payment to such holders, then the entire assets and funds of the Company legally available for distribution will be distributed ratably among the holders of Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.
Upon completion of the payment of the full liquidation preference of Preferred Stock, the remaining assets of the Company, if any, shall be distributed with equal priority and ratably to the holders of common stock and Preferred Stock, with the Preferred Stock being treated as if the Preferred Stock had been converted to shares of common stock at the then applicable conversion rate. Notwithstanding the foregoing, the aggregate distributions made with respect to any shares of Preferred Stock may not exceed the greater of (i) an amount equal to two times the original issue price plus any declared but unpaid dividends on such share or (ii) the amount the holder would have received if all shares of the Preferred Stock were deemed to have been converted into common stock as of immediately prior to such liquidation, dissolution or winding up of the Company.
Conversion:
Each share of Preferred Stock is convertible into shares of common stock, at the option of the holder, at any time after date of issuance. Each share of Preferred Stock automatically converts to the number of shares of common
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
stock determined in accordance with the conversion rate upon the earlier of (i) written consent of two-thirds of the then outstanding shares of Preferred Stock, voting together as a single class, and written consent of the majority of the then outstanding shares of Series C Preferred or (ii) the closing of a public offering, in which the gross cash proceeds are at least $40,000 and the initial offering price to the public is at least $11.3121 per share (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations, reorganizations, reclassifications or the like). At December 31, 2019, the conversion price for each share of Series Seed Preferred, Series A Preferred, Series B Preferred and Series C Preferred is $1.8517, $3.7266, $9.6093 and $11.3121, respectively.
Redemption:
The Preferred Stock is not currently redeemable. Upon certain change in control events that are outside of the Company’s control, including liquidation, sale or transfer of control of the Company, the Preferred Stock is contingently redeemable.
8. Common Stock
The Company is authorized to issue up to 1,000,000,000 shares of common stock with a par value of $0.00001 per share, and 5,000,000 shares of preferred stock with a par value of $0.00001 per share. At December 31, 2020 and 2019, there were 44,777,818 and 3,046,200 shares of common stock issued and outstanding, respectively.
As of December 31, 2020, no dividends on common stock had been declared by the Company.
At December 31, 2020 and 2019, the Company had reserved shares of common stock for issuance as follows:
December 31,
Convertible preferred stock outstanding – 22,866,246
Warrants issued and outstanding – 10,800
Shares available for employee stock purchase plan 400,752 –
9. Stock Plan
2020 Equity Incentive Plan
The 2020 Equity Incentive Plan (the “2020 Plan”) was approved by the board of directors on September 24, 2020. The 2020 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, directors and consultants. The number of shares initially reserved for issuance under the 2020 Plan is 4,406,374, which shall be cumulatively increased on January 1, 2021 and each January 1 thereafter by 5% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31. As of December 31, 2020, there were 4,372,183 shares available for issuance under the Plan.
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
2020 Employee Stock Purchase Plan
The 2020 Employee Stock Purchase Plan (the “2020 ESPP”) was approved by the board of directors on September 24, 2020. A total of 400,752 shares of common stock were initially reserved for issuance under this plan, which shall be increased on January 1, 2021 to the lesser of (i) 801,504 shares of common stock, (ii) 1% of the outstanding shares of common stock on the last day of the immediately preceding Fiscal Year, or (iii) an amount determined by the Administrator no later than the last day of the immediately preceding Fiscal Year. The 2020 ESPP allows employees to purchase shares of Company common stock at a 15% discount using payroll deductions. Offering periods last six months each, and employees are entitled to purchase shares at the end of the offering period based on the discount as applied to the lower of the price at the beginning of the period or the end of the period. No shares were issued under the 2020 ESPP in 2020.
2013 Equity Incentive Plan
In 2014, the Company adopted the 2013 Stock Plan (the “Plan”). On September 24, 2020, this plan was replaced by the 2020 Plan, and future issuances of incentive instruments will be governed by that plan.
Options Outstanding
Weighted- Average
Weighted Remaining Aggregate
Shares Number Average Contractual Intrinsic
Available of Exercise Life Value
for Grant Options Price (in years) (in 000s)
Shares reserved for issuance 949,650 -
Shares reserved for issuance 4,406,374 -
The weighted average grant date fair value of stock options granted during the year ended December 31, 2020 and 2019 was $3.34 and $2.30, respectively.
The aggregate intrinsic value of options vested and exercisable as of December 31, 2020 and 2019 is calculated based on the difference between the exercise price and the fair value of our common stock. The intrinsic value of options exercised in 2020 and 2019 was $245 and $20, respectively.
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
At December 31, 2020, the total compensation cost related to nonvested service-based awards not yet recognized is $4,602. The weighted-average period over which the nonvested awards is expected to be recognized is 2.9 years.
During the year ended December 31, 2018, the Company granted 119,012 stock options at a grant-date fair value of $2.58 per share to an executive that begins vesting only upon the attainment of certain liquidity events. With the completion of the IPO on September 25, 2020, the performance condition was satisfied. The compensation cost associated with this award of $305 will be recognized ratably over the four-year vesting period commencing on September 25, 2020.
During the year ended December 31, 2020, the Company granted 45,332 stock options at a grant-date fair value of $4.22 per share to a board member that vested upon the attainment of certain liquidity events. With the completion of the IPO on September 25, 2020, the performance condition was satisfied. The compensation cost associated with this award of $113 was recognized in the year ended December 31, 2020.
The Company estimated the fair value of stock options using the Black-Scholes options valuation model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions:
Year Ended December 31,
Dividend yield 0% 0% 0%
The weighted average assumptions used to estimate the fair value of stock options granted and stock purchase rights under the ESPP are as follows:
Risk-free interest rate 0.11%
Expected life (in years) 0.65
Dividend yield 0%
Expected volatility 76%
Total Stock-Based Compensation
Stock-based compensation expense recorded under ASC 718 (and under ASC 718 and ASC 505 in 2019 and 2018, prior to the adoption of ASU 2018-07) related to options granted was allocated to research and development and general and administrative expense as follows:
For the Years Ended December 31,
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
10. Income Taxes
The provision for income taxes consisted of current state taxes of $6, $8, and $3 for the years ended December 31, 2020, 2019, and 2018, respectively. The effective tax rate for the Company for the years ended December 31, 2020, 2019, and 2018 was zero percent, respectively. A reconciliation of income tax computed at the statutory federal income tax rate to the provision for income taxes included in the accompanying statements of operations for the Company is as follows:
For the Years Ended
Income tax provision at statutory rate 21 % 21 % 21 %
State income taxes, net of federal benefit 8 % 7 % 8 %
Tax credits 2 % 1 % 1 %
Other (1 )% 0 % (1 )%
Change in valuation allowance (30 )% (29 )% (29 )%
Effective income tax rate 0 % 0 % 0 %
For the years ended December 31, 2020, 2019, and 2018, the Company’s effective tax rate is below the federal statutory income tax rate of 21% primarily due to state income taxes, net of federal benefit and the Company’s position to establish a full valuation allowance on its deferred tax assets.
The tax effect of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets and liabilities are presented below:
As of December 31,
Deferred tax assets:
Research and development credits 2,414 1,497
Deferred tax assets recognized 45 61
Deferred tax liabilities:
Fixed assets and depreciation (45 ) (61 )
Total deferred tax liabilities (45 ) (61 )
Net deferred tax assets $ - $ -
The Company has recorded a valuation allowance for its deferred tax assets that it does not believe will be realizable at a more likely than not level based on analysis of all available sources of taxable income.
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
At December 31, 2020 and 2019, the Company had net operating loss carryforwards of $97,665 and $66,352, respectively. At December 31, 2020, the Company had state net operating loss carryforwards for New Jersey, California and Massachusetts of approximately $92,805, $4,912, and $950 respectively. At December 31, 2019, the Company had state net operating loss carryforwards for New Jersey, California and Massachusetts of approximately $61,503, $4,912 and $901, respectively. The federal and state net operating loss carryforwards expire beginning in the year 2033. The Company also has federal and state research and development credit carryforward of approximately $3,470 and $2,169, respectively, at December 31, 2020 and 2019. The federal credits will begin to expire in 2034 if not utilized. The California state credits carryforward indefinitely and the New Jersey state credits expire starting in 2022. The above net operating losses and research and development credits are subject to Sections 382 and 383 of the Internal Revenue Code. In the event of a change in ownership as defined by these code sections, the usage of the net operating losses and research and development credits may be limited.
The Company accrues interest and penalties related to unrecognized tax benefits in the Provision for income taxes line item in the statements of operations and comprehensive loss. As of December 31, 2020 and 2019, the Company had not accrued any interest or penalties related to uncertain tax positions.
If the ending balance of $877 and $543 of unrecognized tax benefits as of December 31, 2020 and 2019, respectively, were recognized, none of the recognition would affect the income tax rate. The following table summarized the activity related to the Company’s unrecognized tax benefits:
For the Years Ended
Unrecognized tax benefits, beginning of year $ 543 $ 415
Increases (decreases) related to prior year tax positions 5 (31 )
Increases related to current year tax positions 329 159
Unrecognized tax benefits, end of year $ 877 $ 543
The Company does not anticipate any material change in its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business.
The Company files U.S. federal and state income tax returns with varying statutes of limitations. The Company’s tax years 2013 to 2020 will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss credits.
11. Net Loss per Share
The following outstanding potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share for the periods presented due to their antidilutive effect:
For the Years Ended December 31,
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PMV Pharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2020 and 2019
(in thousands except share and per share amounts)
For the Years Ended December 31,
Net loss per share - basic and diluted $ (2.40 ) $ (8.35 ) $ (5.82 )
12. Related Parties
The Company has consulting agreements with two members of the Board of Directors. Consulting fees paid in the year ended December 31, 2020, 2019, and 2018 were $112. There were no amounts owed under the consulting agreement at December 31, 2020 or 2019.
An investor provided financing consulting services to the Company. Fees paid to the investor in the year ended December 31, 2020 were $65.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2020, the Company conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Annual Report on Form 10-K.
Management’s Report on Internal Control Over Financial Reporting
Our management is also responsible for establishing and maintaining for us adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control—Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.
Changes in Internal Control Over Financial Reporting
An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any changes in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting during the fourth quarter of the year ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item will be included under the captions “Directors and Corporate Governance,” “Director Compensation” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement for the annual meeting of stockholders to be held in June 2021 to be filed with the SEC on or before April 23, 2021, or the Proxy Statement, and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item will be included under the captions “Executive Compensation,” “Director Compensation,” “Equity Compensation Plan Information,” and “Directors and Corporate Governance” in the Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item will be included under the captions “Beneficial Ownership of Shares of Common Stock” and “Equity Compensation Plan Information” in the Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be included under the captions “Certain Relationships and Related Transactions” and “Directors and Corporate Governance” in the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this item will be included under the captions “Item 2 – Ratification of Independent Registered Public Accounting Firm” in the Proxy Statement and is incorporated herein by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
EXHIBIT INDEX
Exhibit Number Description Form File No. Number Filing Date
4.1* Description of Securities of the Registrant
145
23.1* Consent of Independent Registered Public Accounting Firm.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
146
* Filed herewith.
+ Indicated management contract or compensatory plan.
Item 16. Form 10-K Summary
The Company has elected not to include summary information.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
PMV PHARMACEUTICALS, INC.
By: /s/ David H. Mack
David H. Mack, Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David H. Mack, Ph.D. and Winston Kung, jointly and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Arnold Levine Arnold Levine, Ph.D. Director March 3, 2021
/s/ Thilo Schroeder Thilo Schroeder, Ph.D. Director March 3, 2021
/s/ Laurie Stelzer Laurie Stelzer Director March 3, 2021
/s/ Peter Thompson Peter Thompson, M.D. Director March 3, 2021
148