| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Description 9 Meters Biopharma, Inc. (the “Company”) is a clinical-stage company pioneering novel treatments for people with rare digestive diseases, gastrointestinal conditions with unmet needs, and debilitating disorders in which the biology of the gut is a contributing factor. The Company’s pipeline includes drug candidate vurolenatide, a proprietary long-acting GLP-1 agonist for the orphan-designated disease short bowel syndrome (“SBS”), and a pipeline of early-stage candidates including NM-136, a novel humanized monoclonal antibody antagonist glucose-dependent insulinotropic polypeptide (“GIP”) for the treatment of obesity. Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the balance sheets, operating results, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023 or any other future period. Certain information and footnote disclosure normally included in the annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the SEC’s rules and regulations for interim reporting. The Company’s financial position, results of operations and cash flows are presented in U.S. Dollars. These financial statements and related notes should be read in conjunction with the audited financial statements and related notes thereto for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 28, 2023, as amended on April 28, 2023. On October 17, 2022, the Company effected a 1-for-20 reverse stock split (the “Reverse Stock Split”). The Reverse Stock Split did not change the number of authorized shares of capital stock or cause an adjustment to the par value of the Company’s capital stock. The Company has retroactively restated the unaudited condensed consolidated financial statements to reflect the effect of the reverse stock split made effective on October 17, 2022. Additionally, pursuant to their terms, a proportionate adjustment was made to the per share exercise price and number of shares issuable and outstanding to the Company’s stock options and warrants. The number of shares authorized for issuance pursuant to the Company’s equity incentive plans have been adjusted proportionately to reflect the reverse stock split. The Company retroactively restated such adjustment in the notes to the unaudited condensed consolidated financial statements for the three months ended March 31, 2022. Except as noted below under the section entitled “Recently Issued Accounting Standards—Accounting Pronouncements Adopted,” there have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023, as compared to the significant accounting policies disclosed in Note 1 of the Company’s financial statements for the years ended December 31, 2022 and 2021 included in the Company’s Annual Report on Form 10-K, as amended. However, the following accounting policies are the most critical in fully understanding the Company’s financial condition and results of operations. Basis of Consolidation The accompanying consolidated financial statements reflect the operations of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Shelf Registration Filing On October 2, 2020, the Company filed a shelf registration statement that was declared effective on October 9, 2020 (the “Shelf Registration Statement”). Pursuant to the Shelf Registration Statement, the Company may from time to time offer, issue and sell in one or more offerings of various types of securities up to an aggregate dollar amount of $200 million. On July 22, 2020, the Company filed a prospectus supplement and associated sales agreement (the “Sales Agreement”) related to an “at-the-market” offering pursuant to which the Company may sell, from time to time, common stock with an aggregate offering price of up to $40 million through Truist Securities, Inc., previously SunTrust Robinson Humphrey (“Truist”), as sales agent, for general corporate purposes (the “2020 ATM”). In October 2020, the Company entered into an amendment to the Sales Agreement to reflect the termination of the prior registration statement and effectiveness of the Shelf Registration Statement. During the three months ended March 31, 2023 and 2022, the Company did not sell any shares under the Sales Agreement. Due to the SEC’s “baby shelf rules,” which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period, the Company is currently only able to issue a limited number of shares under its Shelf Registration Statement, including the 2020 ATM, which aggregate to no more than one-third of its public float. Business Risks The Company faces risks, including those associated with biopharmaceutical companies whose products are in various stages of development. These risks include, among others, risks related to the inability of the Company to obtain sufficient additional capital to continue to advance these product candidates and its preclinical programs, including in light of current stock market conditions; risks related to the Company’s ability to successfully implement its strategic plans; risks related to leveraging the Company by borrowing money under the debt facility and compliance with its terms; uncertainties associated with the clinical development and regulatory approval of product candidates, including reliance on blinded data; uncertainties in obtaining successful clinical results for product candidates and unexpected costs that may result therefrom, including the Company’s reliance on its lead product candidate; risks related to the failure to realize any value from product candidates and preclinical programs being developed in light of inherent risks and difficulties involved in successfully bringing product candidates to market; intellectual property risks; delays in enrollment and timing of clinical trials; uncertainties regarding the effect of the reverse stock split and our continued listing on Nasdaq; reliance on collaborators; reliance on research and development partners; risks related to cybersecurity and data privacy; risks related to the COVID-19 pandemic, and risks associated with acquiring and developing additional compounds. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Areas of the financial statements where estimates may have the most significant effect include fair value measurements, accrued expenses, share-based compensation, and management’s assessment of the Company’s ability to continue as a going concern. The Company considered the impact of the COVID-19 pandemic on its estimates and assumptions, and concluded there was not a material impact to its condensed consolidated financial statements as of and for the three months ended March 31, 2023. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could differ from these estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash equivalents are stated at cost and consist primarily of money market account and commercial paper. Restricted Cash The terms of the convertible note further described in Note 4—Debt require the Company to maintain a minimum liquidity balance of $500,000. The restricted amount is maintained in a reserve account with the Company’s financial banking institution, and funds are periodically released from restriction as the balance of outstanding principal decreases. As of March 31, 2023, there was approximately $0.5 million classified as restricted cash under the convertible note. Additionally, under the terms of the lease agreement further described in Note 8—Commitments and Contingencies, we are required to maintain a letter of credit as security for performance of lease obligations over the life of the lease. Accordingly, as of March 31, 2023, there was approximately $0.2 million classified as restricted cash under the letter of credit. If certain conditions are met, including the passage of time, the amount will be reduced to a minimum of $23,600, or the equivalent of approximately one month’s rent. Accrued Expenses The Company incurs periodic expenses such as research and development, licensing fees, salaries and benefits, and professional fees. The Company is required to estimate its expenses resulting from obligations under contracts with clinical research organizations, vendors and consulting agreements that have been incurred by the Company prior to being invoiced. This process involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice monthly in arrears for services performed or when contractual milestones are met. The Company estimates accrued expenses as of each balance sheet date based on facts and circumstances known at that time. Accrued expenses consisted of the following: March 31, December 31, Accrued compensation and benefits $ 1,570,885 $ 427,196 Accrued clinical expenses 4,086,503 3,833,282 Other accrued expenses 100,287 119,295 Total $ 5,757,675 $ 4,379,773 Derivative Liability The Company accounts for derivative instruments in accordance with Accounting Standards Codification (“ASC”) 815, Derivative and Hedging, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the condensed consolidated balance sheet at fair value. The Company’s derivative financial instruments consists of embedded features in the Company’s convertible note. The embedded derivatives include provisions that provide the noteholder with certain conversion and put rights at various conversion or redemption values as well as certain call options for the Company. See Note 4—Debt for further details. Warrants The Company accounts for warrants in accordance with ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging, to determine whether the warrants should be classified as equity or liabilities. Warrants classified as equity are recorded at relative fair value as of the date of issuance as a component of additional-paid-in capital on the Company’s condensed consolidated balance sheet. Warrants that are classified as liabilities are recorded at fair value on the date of issuance and are subsequently re-measured to fair value at each balance sheet date until the warrant liabilities are exercised or settled. Changes in the fair value of warrant liabilities are recognized as a non-cash component of other income and expense in the accompanying condensed consolidated statements of operations and comprehensive loss. All of the Company’s outstanding warrants are classified as equity. See Note 6—Stockholder’s Equity (Deficit) for additional discussion regarding the Company’s warrants. Research and Development Research and development expenses consist of costs incurred to further the Company’s research and development activities and include salaries and related employee benefits, manufacturing of pharmaceutical active ingredients and drug products, costs associated with clinical trials, nonclinical activities, regulatory activities, research-related overhead expenses and fees paid to expert consultants, external service providers and contract research organizations which conduct certain research and development activities on behalf of the Company. Costs incurred in the research and development of products are charged to research and development expense as incurred. Costs for preclinical studies and clinical trial activities are recognized based on an evaluation of the vendors’ progress towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided by vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed. The Company determines accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of trials, or the services completed. The estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time. Although the Company does not expect its estimates to be materially different from amounts incurred, the Company’s estimates and assumptions for clinical trial costs could differ significantly from actual costs incurred, which could result in increases or decreases in research and development expenses in future periods when actual results are known. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the goods have been received or when the activity is performed, rather than when payment is made. Concentration of Manufacturing Risk The Company relies on a small number of third-party contract manufacturing organizations (“CMOs”) for the manufacturing of drug product candidates for the Company’s research and development activities, including supply of clinical trial drug supply. Significant delays or interruption in the supply of materials necessary to manufacture the Company’s product candidates could adversely affect the Company’s research and development activities. One CMO accounted for outstanding accounts payable of approximately $0.6 million and $2.7 million as of March 31, 2023 and December 31, 2022, respectively. Share-Based Compensation The Company recognizes share-based compensation expense for grants of stock options based on the grant-date fair value of those awards using the Black-Scholes option-pricing model. Share-based compensation expense is generally recognized on a straight-line basis over the requisite service period for awards with time-based vesting. For awards with performance conditions, compensation cost is recognized from the time achievement of the performance criteria is probable over the expected term. Share-based compensation expense includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Under the Black-Scholes option-pricing model, fair value is calculated based on assumptions with respect to: • Expected dividend yield. 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 the Company’s common stock. • Expected stock-price volatility. Due to limited trading history as a public company, the expected volatility is derived from the average historical volatilities of publicly traded companies within the Company’s industry that the Company considers to be comparable to the Company’s business over a period approximately equal to the expected term. In evaluating comparable companies, the Company considers factors such as industry, stage of life cycle, financial leverage, size and risk profile. • Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term. • Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. Due to limited history of stock option exercises, the Company estimates the expected term of employee stock options with service conditions based on the simplified method, which calculates the expected term as the average of the time-to-vesting and the contractual life of the options. Pursuant to Accounting Standards Update (“ASU”) 2018-07, the Company has elected to use the contractual life of the option as the expected term for non-employee options. The expected term for performance options is the longer of the explicit or implicit service period. Periodically, the Company’s Board of Directors (the “Board”) may approve the grant of restricted stock units (“RSUs”) pursuant to the Company’s stock incentive plans which represent the right to receive shares of the Company’s common stock based on terms of the agreement. The fair value of RSUs is recognized as share-based compensation expense generally on a straight-line basis over the service period, net of estimated forfeitures. The grant date fair value of an RSU represents the closing price of the Company’s common stock on the date of grant. Fair Value of Financial Instruments Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial instruments recorded in the accompanying condensed consolidated balance sheets are categorized based on the inputs to valuation techniques as follows: • Level 1 - defined as observable inputs based on unadjusted quoted prices for identical instruments in active markets; • Level 2 - defined as inputs other than Level 1 that are either directly or indirectly observable in the marketplace for identical or similar instruments in markets that are not active; and • Level 3 - defined as unobservable inputs in which little or no market data exists where valuations are derived from techniques in which one or more significant inputs are unobservable. The fair value of the embedded derivatives issued in connection with the convertible note, further described in Note 4—Debt, were determined by using a Monte Carlo simulation technique (“MCS”) to value the embedded derivatives associated with each note. As part of the MCS valuation, a discounted cash flow (“DCF”) model was used to value the debt on a stand-alone basis and determine the discount rate to utilize in both the DCF and MCS models. The significant estimates used in the DCF model include the time to maturity of the convertible debt and calculated discount rate, which includes an estimate of the Company’s specific risk premium. The MCS methodology calculates the theoretical value of an option based on certain parameters, including: (i) the threshold of exercising the option, (ii) the price of the underlying security, (iii) the time to expiration, or expected term, (iv) the expected volatility of the underlying security, (v) the risk-free rate, (vi) the number of paths, (vii) an estimated probability of subsequent financing as defined in the 2022 Convertible Note (which is no longer a requirement upon amendment of the note on January 12, 2023), and (viii) an estimated probability of an event of default. These valuation techniques involve management’s estimates and judgment based on unobservable inputs and are classified in Level 3. The fair value estimates may not be indicative of the amounts that would be realized in a market exchange. Additionally, there may be inherent uncertainties or changes in the underlying assumptions used, which could significantly affect the current or future fair value estimates. Generally, a significant increase (decrease) in the probability of an event of default would have resulted in a significantly higher (lower) fair value measurement. Changes in other inputs such as expected term and price of the underlying common stock will have a directionally similar impact as the event of default probability on fair value measurement. The table below summarizes the valuation inputs into the MCS model for the derivative liability associated with the convertible note on the date of issuance, July 15, 2022, the date of amendment, January 12, 2023, and the end of the period, March 31,2023. July 15, December 31, January 12, March 31, Discount rate 24.0 % 20.1 % 20.1 % 23.9 % Expected stock price volatility 102.5 % 100.0 % 100.0 % 102.0 % Risk-free interest rate 3.1 % 4.2 % 4.2 % 3.9 % Expected term 3.0 years 2.5 years 2.5 years 0.5 years Price of the underlying common stock $ 4.87 $ 1.26 $ 2.42 $ 1.39 The following table summarizes the fair value hierarchy of financial liabilities measured at fair value as of March 31, 2023. March 31, 2023 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Derivative liability $ — $ — $ (454,000) $ (454,000) Total liabilities at fair value — — (454,000) (454,000) The following table summarizes the fair value hierarchy of financial assets and liabilities measured at fair value as of December 31, 2022 and January 12, 2023 upon the amendment to the convertible note further discussed in Note 4—Debt. December 31, 2022 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Derivative liability $ — $ — $ (1,585,000) $ (1,585,000) Commercial paper — 6,965,646 — 6,965,646 Total liabilities at fair value — 6,965,646 (1,585,000) 5,380,646 The following table summarizes the changes in fair value of the derivative liability classified in Level 3. Gains and losses reported in this table include changes in fair value that are attributable to unobservable inputs. March 31, Beginning balance as of December 31, 2022 $ 1,585,000 Extinguishment of derivative liability (1,209,642) Change in fair value of derivative liability 78,642 Ending balance as of March 31, 2023 $ 454,000 The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to the fair value liabilities still held at the end of the period $ (78,642) The cumulative unrealized loss relating to the change in fair value of the derivative liability of approximately $0.1 million for the three months ended March 31, 2023 is included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. ASC 820, Fair Value Measurement and Disclosures requires all entities to disclose the fair value of financial instruments, both assets and liabilities, for which it is practicable to estimate fair value. As of March 31, 2023 and December 31, 2022, the recorded values of cash and cash equivalents, restricted cash, accounts payable, accrued expenses, and convertible notes payable approximated their fair values due to the short-term nature of the instruments. Deferred Offering Costs Deferred offering costs consist principally of legal, accounting and underwriters’ fees related to offerings or the Company’s Shelf Registration Statement. Offering costs incurred prior to an offering are initially capitalized and then subsequently reclassified to additional paid-in capital upon completion of the offering. If the equity offering is not completed, any costs deferred will be expensed immediately upon termination of the offering. Patent Costs Costs associated with the submission of patent applications are expensed as incurred given the uncertainty of the future economic benefits of the patents. Patent and patent related legal and administrative costs included in general and administrative expenses were approximately $107,000 and $181,000 for the three months ended March 31, 2023 and 2022, respectively. Net Loss Per Share The Company calculates net loss per share as a measurement of the Company’s performance while giving effect to all potentially dilutive shares that were outstanding during the reporting period. Shares of the Company’s common stock underlying the Pre-Funded Warrants are included in the calculation of basic and diluted earnings per share. Because the Company had a net loss for all periods presented, the inclusion of common stock options or other similar instruments would be anti-dilutive. Therefore, the weighted average shares outstanding used to calculate both basic and diluted net loss per share are the same. For the three months ended March 31, 2023 and 2022, 14.8 million and 2.7 million shares, respectively, underlying potentially dilutive warrants and stock options issued and outstanding, and shares of common stock expected to be issued under our convertible note have been excluded from the computation of diluted weighted-average shares outstanding because the effect would be anti-dilutive. The potentially dilutive securities consisted of the following: March 31, 2023 2022 Options outstanding under the 2015 Stock Incentive Plan 110,201 265,067 Options outstanding under the 2012 Omnibus Incentive Plan, as amended 1,109,580 1,195,922 Options outstanding under the 2022 Stock Incentive Plan 36,880 — Options outstanding under the Option Grant Agreements granted to RDD Employees 49,295 49,295 Warrants outstanding at an exercise price of $50.80 112 112 Warrants outstanding at an exercise price of $63.60 5,702 5,702 Warrants outstanding at an exercise price of $11.7880 1,146,397 1,146,397 Pre-Funded Warrants outstanding at an exercise price of $0.0001 1,825,000 — Common Warrants outstanding at an exercise price of $1.35 6,250,000 — Placement Agent Warrants outstanding at an exercise price of $2.00 187,500 — Shares issuable upon conversion of convertible debt (Note 4) 3,794,634 — Restricted stock units subject to vest 246,657 — Total 14,761,958 2,662,495 Segments |
