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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from _________ to _________
Commission File Number:
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of April 30, 2023, there were
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Magenta Therapeutics, Inc.
INDEX
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PART I – FINANCIAL INFORMATION |
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7 |
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7 |
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Consolidated Statements of Operations and Comprehensive Loss |
8 |
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10 |
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11 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
30 |
30 |
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PART II – OTHER INFORMATION |
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31 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
35 |
36 |
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37 |
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FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Magenta Therapeutics, Inc., or the Company, contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any express or implied statements that do not relate to historical or current facts or matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “seeks,” “endeavor,” “potential,” “continue” or the negative of these terms or other comparable terminology. Forward-looking statements appear in a number of places in this Quarterly Report on Form 10-Q and include, but are not limited to, statements about:
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Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, and involve known and unknown risks, uncertainties and other factors, including without limitation, risks, uncertainties and assumptions regarding our plans and expectations regarding our strategic alternative review process and the timing and success of such process regarding a potential transaction, our ability to close and realize the anticipated benefits of the Merger and our ability to manage the risks of the Merger, our ability to resume, conduct or successfully complete clinical trials, and our financial position, that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You are urged to carefully review the disclosures we make concerning these risks and other factors that may affect our business and operating results under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and in this Quarterly Report on Form 10-Q, as well as our other filings with the Securities and Exchange Commission, or the SEC. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. We do not intend, and undertake no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.
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RISK FACTOR SUMMARY
Our business involves significant risks. Below is a summary of the material risks that our business faces, which makes an investment in our securities speculative and risky. Those risks are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. These risks are more fully described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and in this Quarterly Report on Form 10-Q, as well as our other filings with the SEC. Before making investment decisions regarding our securities, you should carefully consider these risks. The occurrence of any of the events or developments described below could have a material adverse effect on our business, results of operations, financial condition, prospects and stock price. In such event, the market price of our securities could decline, and you could lose all or part of your investment. Further, there are additional risks not described below that are either not currently known to us or that we currently deem immaterial, and these additional risks could also materially impair our business, operations or market price of our securities.
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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Magenta Therapeutics, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
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March 31, 2023 |
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December 31, 2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Prepaid expenses and other current assets |
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Assets held for sale |
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Restricted cash |
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Total current assets |
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Restricted cash |
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Operating lease, right-of-use asset |
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Property and equipment, net |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease liability, current portion |
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Total current liabilities |
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Operating lease liability, net of current portion |
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Total liabilities |
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(Note 10) |
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Stockholders’ Equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
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Magenta Therapeutics, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
(Unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Operating expenses: |
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Research and development |
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$ |
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$ |
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General and administrative |
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Restructuring and other charges |
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Total operating expenses |
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Loss from operations |
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Interest and other income, net |
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Net loss |
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Net loss per share, basic and diluted |
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$ |
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Weighted average common shares outstanding, basic and diluted |
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Comprehensive loss: |
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Net loss |
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$ |
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Other comprehensive gain (loss): |
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Unrealized gains (losses) on marketable securities |
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Total other comprehensive gain (loss) |
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Total comprehensive loss |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
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Magenta Therapeutics, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
(Unaudited)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Three Months Ended March 31, 2023 |
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Balances at December 31, 2022 |
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$ |
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$ |
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Vesting of restricted stock |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Unrealized gains on marketable securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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Balances at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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Three Months Ended March 31, 2022 |
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Balances at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Unrealized losses on marketable securities |
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— |
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— |
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— |
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( |
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— |
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Net loss |
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— |
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— |
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— |
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Balances at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
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Magenta Therapeutics, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Three months ended March 31, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization expense |
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Loss on disposal of property and equipment |
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Impairment of assets held for sale |
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Noncash lease expense |
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Loss on lease termination |
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Net amortization (accretion) of premiums (discounts) on marketable securities |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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Operating lease liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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Proceeds from sale of property and equipment |
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Purchases of marketable securities |
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Maturities of marketable securities |
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Net cash provided by (used in) investing activities |
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Cash flows from financing activities: |
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Net cash provided by financing activities |
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Net decrease in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash activities: |
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Decrease in right-of-use asset and operating lease |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
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Magenta Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Nature of the Business and Basis of Presentation
Magenta Therapeutics, Inc. (the “Company”) is a biotechnology company previously focused on improving stem cell transplantation. The Company was incorporated under the laws of the State of
In February 2023, after a review of the Company’s business, programs, resources and capabilities, including anticipated costs and timelines, the Company announced the decision to halt further development of its programs and to conduct a comprehensive review of strategic alternatives. The Company also announced a corporate restructuring that resulted in a reduction in its workforce by
As part of the strategic review process, the Company explored potential strategic alternatives that included, without limitation, an acquisition, merger, business combination or other transactions. The Company has and is continuing to explore strategic alternatives related to its product candidates and related assets, including, without limitation, licensing transactions and asset sales.
In April 2023, the Company sold certain assets, including intellectual property, related to its product candidates MGTA-117, MGTA-45 and MGTA-145 (see Note 13).
On May 2, 2023, following a comprehensive review of strategic alternatives, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Dianthus Therapeutics, Inc. (“Dianthus”) pursuant to which a wholly-owned subsidiary of the Company will merge with and into Dianthus, with Dianthus surviving as a wholly-owned subsidiary of the Company (the “Merger”). In connection with the Merger, the Company will distribute to the Company’s pre-Merger common stockholders contingent value rights (“CVRs”), representing the contractual right to receive payments from the post-closing combined company upon receipt of certain proceeds, if any, derived from consideration paid as a result of the disposition of the Company’s pre-Merger legacy assets, net of any indemnity obligations, transaction costs and certain other expenses, during the period that is three years after the closing of the Merger. The Merger was unanimously approved by Company’s board of directors, and the Company’s board of directors resolved to recommend approval of the Merger Agreement to the Company’s stockholders. The closing of the Merger is subject to approval by the Company’s and Dianthus’ stockholders, as well as other customary closing conditions. If the Merger is completed, the business of Dianthus will continue as the business of the combined company (see Note 13).
The Company’s future operations are highly dependent on the success of the Merger and there can be no assurances that the Merger will be successfully consummated. In the event that the Company does not complete the Merger, the Company may explore strategic alternatives, including, without limitation, another strategic transaction and/or pursue a dissolution and liquidation of the Company.
In January 2023, the Company received a written notice from the staff of Nasdaq’s Listing Qualifications Department, notifying the Company that, for the 30 consecutive business day period between December 15, 2022 through January 30, 2023, the bid price for its common stock had closed below the $
In addition, the Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, our ability to successfully complete clinical trials, obtain marketing approvals, manufacture a commercial-scale medicine or arrange for a third party to do so on our behalf, conduct sales and marketing activities necessary for successful commercialization of product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, the continuing impact of the coronavirus (“COVID-19”) pandemic and the ability to secure additional capital to fund operations. The development of any product candidates may 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 and extensive compliance-reporting capabilities. Even if the Company resumed development efforts and were successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
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Magenta Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The Company has incurred recurring losses since inception, including net losses of $
The Company expects to continue to incur costs and expenditures in connection with the process of evaluating strategic alternatives. There can be no assurance, however, that the Company will be able to successfully consummate any particular strategic transaction. The process of continuing to evaluate these strategic options may be very costly, time-consuming and complex and the Company has incurred, and may in the future incur, significant costs related to this continued evaluation, such as legal, accounting and advisory fees and expenses and other related charges. Should the Company resume the development of product candidates, it will need to obtain substantial additional funding in connection with continuing operations, particularly as the Company advances its preclinical activities and clinical trials for its product candidates in development. If the Company is unable to raise capital when needed, or on attractive terms, it could be forced to delay, reduce or eliminate its research or drug development programs or any future commercialization efforts. There is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
2. Summary of Significant Accounting Policies
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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual for research and development expenses and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Unaudited Interim Financial Information
The consolidated balance sheet at December 31, 2022 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022 included in the Company’s most recent Annual Report on Form 10-K on file with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s consolidated financial position as of March 31, 2023 and consolidated results of operations for the three months ended March 31, 2023 and 2022 and consolidated cash flows for the three months ended March 31, 2023 and 2022 have been made. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023 or any other interim period.
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Magenta Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Marketable Securities
The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses are included as a component of interest and other income, net based on the specific identification method. The Company classifies its marketable securities with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities are available for current operations.
Effective January 1, 2023, when the fair value is below the amortized cost of a marketable security, an estimate of expected credit losses is made. The credit-related impairment amount is recognized in the consolidated statements of operations and comprehensive loss. Credit losses are recognized through the use of an allowance for credit losses account in the consolidated balance sheet and subsequent improvements in expected credit losses are recognized as a reversal of an amount in the allowance account. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, then the allowance for the credit loss is written-off and the excess of the amortized cost basis of the asset over its fair value is recorded in the consolidated statements of operations and comprehensive loss. There were no credit losses recorded during the three months ended March 31, 2023.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in its consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial
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Table of Contents
Magenta Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For the three months ended March 31, 2023 and 2022, the Company’s only element of other comprehensive income (loss) was unrealized gains (losses) on marketable securities.
Net Loss per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options. For periods in which the Company has reported net losses, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
The Company reported a net loss for the three months ended March 31, 2023 and 2022.
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As of March 31, |
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2023 |
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2022 |
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Stock options to purchase common stock |
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Unvested restricted common stock units |
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Shares of common stock issuable under Employee |
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Recently Issued Accounting Pronouncements
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
14
Table of Contents
Magenta Therapeutics, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
3. Fair Value of Financial Assets
As of March 31, 2023, marketable securities by security type consisted of (in thousands):
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Gross |
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Gross |
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Estimated |
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Amortized |
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Unrealized |
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Unrealized |
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Credit |
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Fair |
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Cost |
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Gains |
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Losses |
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Losses |
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Value |
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U.S. treasury notes (due within one year) |
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$ |
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$ |
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$ |
( |
) |
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$ |
— |
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$ |
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Total |
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$ |
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$ |
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$ |
( |
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$ |
— |
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$ |
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As of December 31, 2022 marketable securities by security type consisted of (in thousands):
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Gross |
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Gross |
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Estimated |
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Amortized |
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Unrealized |
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Unrealized |
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Fair |
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Cost |
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Gains |
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Losses |
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Value |
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U.S. treasury notes (due within one year) |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Total |
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$ |
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$ |
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$ |
( |
) |
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$ |
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The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):
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Fair Value Measurements at March 31, 2023 Using: |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Cash equivalents: |
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Money market funds |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Marketable securities: |
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U.S. treasury notes |
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— |
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Total |
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$ |
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$ |
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$ |
— |
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$ |
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Fair Value Measurements at December 31, 2022 Using: |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Cash equivalents: |
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Money market funds |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Marketable securities: |
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U.S. treasury notes |
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— |
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Total |
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$ |
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$ |
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$ |
— |
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$ |
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