| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policie s Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Principles of Consolidation The accompanying consolidated financial statements include the accounts of 89bio and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying consolidated financial statements include but are not limited to accruals for uncertain tax positions, accrued research and development expenses and the valuation of stock options. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates. Foreign Currencies We engage in foreign-currency-denominated transactions with certain vendors, as well as between subsidiaries with different functional currencies. Our subsidiary in Israel uses the U.S. dollar as its functional currency for financial reporting. Gains and losses from foreign-currency-denominated transactions, primarily denominated in New Israeli Shekels, were not material for all periods presented and are reflected in the consolidated statements of operations and comprehensive loss as a component of interest income and other, net. Our subsidiary in Lithuania uses the Euro as its functional currency for financial reporting. The re-measurement from Euros to U.S. dollars results in translation gain and loss adjustments, which are included in the consolidated balance sheets as part of accumulated other comprehensive income. Fair Value Measurements 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. Assets and liabilities recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows: Level 1 —Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 —Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets and Liabilities Measured at Fair Value on a Recurring Basis Financial instruments measured and recorded at fair value on a recurring basis consist of cash equivalents and marketable securities and common stock warrants issued in connection with a term loan facility that do not meet all of the criteria for equity classification. Financial Instruments Not Carried at Fair Value Our financial instruments, including cash, other current assets, accounts payable and accrued expenses are carried at cost which approximates their fair value because of the short-term nature of these financial instruments. The fair value of our term loan approximates its carrying value, or amortized cost, due to the prevailing market rates of interest it bears. Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. Bank deposits are held by accredited financial institutions and these deposits may at times be in excess of insured limits. We limit our credit risk associated with cash and cash equivalents by placing them with financial institutions that we believe are of high quality. We have not experienced any losses on our deposits of cash or cash equivalents. We have established guidelines relative to diversification and maturities to maintain safety and liquidity and limit amounts invested in marketable securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. As of December 31, 2024, we do not believe a significant risk of loss from a concentration of credit risk exists with respect to our marketable securities. Other Risks and Uncertainties Our future results of operations involve a number of other risks and uncertainties. Factors that could affect our future operating results and cause actual results to vary materially from expectations include, but are not limited to, our early stages of clinical drug development; our ability to advance product candidates into, and successfully complete, clinical trials on the timelines we project; our ability to adequately demonstrate sufficient safety and efficacy of our product candidates; our ability to enroll patients in our ongoing and future clinical trials; our ability to successfully manufacture and supply our product candidates for clinical trials; our ability to obtain additional capital to finance our operations; uncertainties related to the projections of the size of patient populations suffering from the diseases we are targeting; our ability to obtain, maintain, and protect our intellectual property rights; developments relating to our competitors and our industry, including competing product candidates and therapies; general economic and market conditions; and other risks and uncertainties. Our product candidates will require approvals from the U.S. Food and Drug Administration and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If we are denied approval, approval is delayed or we are unable to maintain approval for any product candidate, it could have a materially adverse impact on us. Segment Information Operating segments are defined as components of an enterprise that have the following characteristics: (i) they engage in business activities from which they may earn revenue and incur expense, (ii) their operating results are regularly reviewed by the chief operating decision maker (“CODM”) for resource allocation decisions and performance assessment, and (iii) their discrete financial information is available. Our CODM is our Chief Executive Officer, who manages and allocates resources to our operations on a consolidated basis. We operate as one segment and our operations are focused on the development and commercialization of innovative therapies for the treatment of liver and cardio-metabolic diseases. Segment information is further described in Note 11. Cash and Cash Equivalents We consider all highly-liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents primarily consist of amounts invested in money market funds, commercial paper and U.S. government treasury securities and are carried at fair value. Marketable Securities We invest our excess cash in marketable securities with high credit ratings including money market funds, commercial paper, securities issued by the U.S. government and its agencies and corporate debt securities. We account for all marketable securities as available-for-sale, as the sale of such securities may be required prior to maturity. These marketable securities are carried at fair value, with unrealized gains and losses reported as accumulated other comprehensive income (loss) until realized. The cost of debt securities is adjusted for accretion of premiums and amortization of discounts to maturity. Such amortization and accretion, as well as interest and dividends, are included in interest income and other, net. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis and are also included in interest income and other, net. We classify our marketable securities as current assets, which reflects our intention to use the proceeds from sales of these securities to fund our operations, as necessary, even though the stated maturity date may be one year or more beyond the current balance sheet date. We periodically assess our available-for-sale marketable securities for impairment. For marketable securities in an unrealized loss position, this assessment first takes into account our intent to sell, or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of these criteria are met, the marketable security’s amortized cost basis is written down to fair value through interest income and other, net. For marketable securities in an unrealized loss position that do not meet the aforementioned criteria, we assess whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded in interest income and other, net, limited by the amount that the fair value is less than the amortized cost basis. Impairment not recorded through an allowance for credit losses is recognized in other comprehensive loss. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when we believe the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. These changes are recorded in interest income and other, net. To date, we have not experienced any credit-related losses on our marketable securities. Leases We have noncancellable operating leases for office space. We determine whether a contract is or contains a lease at contract inception based on the presence of identified assets and our right to obtain substantially all the economic benefit from or to direct the use of such assets. When we determine a lease exists, we record a right-of-use (“ROU”) asset and corresponding lease liability on our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the lease term. Lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets are recognized at the lease commencement date at the value of the lease liability and are adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Lease liabilities are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, we use our estimated collateralized incremental borrowing rate that we would pay for a similar amount and term. Lease liabilities are subsequently measured at amortized cost using the effective-interest method. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We do not record lease contracts with a term of 12 months or less on our consolidated balance sheets. We do not have any material short-term leases. When our real estate lease arrangements include lease and non-lease components (for example, common area maintenance and other operating costs), we have applied the practical expedient to combine fixed payments for non-lease components with lease payments and account for them together as a single lease component, which increases assets and corresponding liabilities. Any variable payments are expensed as incurred and are not included in the operating lease asset and liability. Lease expense for an operating lease liability is recognized on a straight-line basis over the lease term, including any rent-free periods, and is included in operating expenses. Property and Equipment, Net Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets, generally ranging from three to seven years . Leasehold improvements are amortized on a straight-line basis over the shorter of the assets’ estimated useful life or the remaining term of the lease. Upon retirement or sale of the assets, the cost and related accumulated depreciation and amortization are removed from the consolidated balance sheets and the resulting gains or losses are recorded in the consolidated statements of operations and comprehensive loss. Maintenance and repair costs are expensed as incurred. Impairment of Long-Lived Assets We periodically evaluate our long-lived assets, including property and equipment and ROU assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets or group of assets may not be fully recoverable. If indicators of impairment exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value of the assets, we reduce the carrying amount of the assets through an impairment charge, to their estimated fair values based on a discounted cash flow approach or, when available and appropriate, to comparable market values. There were no impairment indicators for the periods presented. Accrued Research and Development Expenses We record preclinical and clinical study and research expenses based on the services performed, pursuant to contracts with research institutions that conduct and manage preclinical and clinical studies and research services on its behalf. The majority of these expenses are recorded based on invoices and statements received from these vendors. We also record these expenses based upon the estimated services provided but not yet invoiced. Liabilities associated with these expenses are included in accrued expenses in the consolidated balance sheets. These costs are recorded as research and development expenses. In making these estimates of services provided but not yet invoiced or for which statements have not been received from vendors, we consider factors such as estimates of the progress of work completed in accordance with agreements established with our third-party service providers. As actual costs become known, we adjust our accrued expenses. We have not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to our accrued expenses could materially affect our results of operations. Contingent milestone payments, if any, are recognized when payment becomes probable and reasonably estimable, which is generally upon achievement of the milestone. Warrants to Purchase Common Stock Warrants to purchase common stock are classified as either a liability or equity. If the warrants are mandatorily redeemable, require settlement in cash or a variable number of shares, they are classified as a liability. If not classified as a liability under those criteria, we then assess whether the warrants may require cash settlement. Warrants that may require cash settlement are classified as liabilities, regardless of the likelihood of that settlement. Liability-classified warrants are measured at fair value, with changes in fair value recognized in the consolidated statements of operations and comprehensive loss as a gain or loss. If the warrants do not require liability classification under those criteria, and are indexed to our common stock, they are classified as equity. Equity-classified warrants are initially measured at fair value, with no subsequent changes in fair value recognized. Research and Development Expenses Research and development expenses are expensed as incurred and consist primarily of costs incurred for the development of our lead product candidate, pegozafermin. Research and development expenses consist primarily of external costs related to preclinical and clinical development and related supplies and personnel costs. Personnel costs consist of salaries, employee benefits and stock-based compensation for individuals involved in research and development efforts. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered. Payments associated with agreements to acquire licenses to develop, use, manufacture and commercialize products and purchases of pegozafermin from contract manufacturing organizations that have not reached technological feasibility and do not have alternate future commercial use are expensed as incurred. Where contingent milestone payments are due to third parties under license or other agreements, the milestone payment obligations are recognized as expense when achievement of the contingent milestone is probable, which is generally upon achievement of the milestone. Stock-Based Compensation We utilize stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) for equity compensation. We measure equity awards made to employees, directors, and non-employee service providers based on estimated fair values and recognize stock-based compensation over the requisite service period. We account for forfeitures as they occur. We estimate the fair value of stock option awards on the date of grant using a Black-Scholes option pricing model. We recognize compensation for stock option awards, including awards with graded-vesting, on a straight-line basis over the requisite service period. The Black-Scholes option pricing model requires a number of assumptions, of which the most significant are expected volatility, expected option term (the time from the grant date until the options are exercised or expire), risk-free rate, and expected dividend rate. These assumptions include: • Expected volatility—We have a limited trading history for our common stock. As a result, we estimate expected volatility based on a combination of our own historical stock price volatility and that of a publicly traded set of peer companies such that the time period over which historical volatility data used is at least equal to the expected term of the option award. The peer companies were chosen based on their similar size, stage in the life cycle, or area of specialty. • Expected term—The expected term of options granted to employees and directors is determined using the “simplified” method. Under this approach, the expected term is presumed to be the midpoint between the weighted-average vesting term and the contractual term of the option. The simplified method makes the assumption that the employee will exercise stock options evenly over the period when the stock options are vested and ending on the date when the stock options would expire. The expected option term for options granted to non-employees is estimated on a grant-by-grant basis. • Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon bonds in effect on the grant date for periods with an equivalent expected term as the option. • Expected dividend—We have never paid dividends and have no foreseeable plans to pay dividends on our shares of common stock. Therefore, an expected dividend of zero is used. The grant date fair value of RSUs and PSUs are based on the closing price of our common stock on the date of grant. RSUs are service-based awards and are recognized over the requisite service period on a straight-line basis. Compensation expense for PSUs is recognized over the estimated service period for each tranche of an award (the accelerated attribution method) when its performance condition is deemed probable of achievement. For PSUs containing performance conditions which were not deemed probable of achievement, no stock compensation expense is recognized. Additionally, at each reporting period, we evaluate the probable outcome of the performance conditions and as applicable, recognize the cumulative effect of the change in estimate in the period of the change. Income Taxes Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or loss in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. We have established full valuation allowances on our U.S. deferred tax assets because realization of these tax benefits through future taxable income is not more likely than not as of December 31, 2024 and 2023. We intend to maintain the valuation allowances until sufficient positive evidence exists to support the reversal of the valuation allowances. The calculation of our accruals for tax contingencies involves dealing with uncertainties in the application of complex tax laws. Our estimates for the potential outcome of any uncertain tax issue are based on the detailed facts and circumstances of each issue. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial condition. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to estimate and measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Based on new information becoming available, or other relevant developments occur, we adjust our accrued amounts accordingly. Any adjustment will impact income tax expense or benefit in the period in which such determination is made, and the adjustment could be material. Interest and penalties related to unrecognized tax benefits are included within income tax expense. Basic and Diluted Net Loss per Share Basic and diluted net loss per share is calculated based upon the weighted-average number of shares of common stock outstanding during the period . Shares of common stock that are potentially issuable for little or no cash consideration at issuance are included in the calculation of basic and diluted net loss per share , even if they are antidilutive. During periods of income, participating securities are allocated a proportional share of income determined by dividing total weighted-average participating securities by the sum of the total weighted-average common shares and participating securities (the “two-class method”). Shares of our common stock warrants participate in any dividends that may be declared by us and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to participating securities since they have no contractual obligation to share in our losses. Diluted loss per share is computed after giving consideration to the dilutive effect of stock options, RSUs, PSUs and common stock warrants, except where such non-participating securities would be anti-dilutive. As we incurred net losses for the periods presented, basic net loss per share is the same as diluted net loss per share since the effects of potentially dilutive securities are antidilutive. Comprehensive Loss Comprehensive loss is comprised of net loss and changes in unrealized gains or losses on marketable securities and foreign currency translation adjustments. Recently Adopted Accounting Standards In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. ASU 2023-07 requires disclosures to include significant segment expenses that are regularly provided to the CODM, a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures required by Topic 280 to be included in interim periods. The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. We adopted this ASU for the annual period ended December 31, 2024 on a retrospective basis. While the adoption had no impact on our financial statements, additional required disclosures have been included in Note 11. Recently Issued Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid. The ASU is effective for our annual periods beginning on January 1, 2025 and will be applied on a prospective basis with the option to apply the standard retrospectively. There will be no impact to our consolidated financial statements; however, there will be changes to our consolidated financial statement disclosures, primarily related to the effective tax rate reconciliation and cash paid for income taxes. In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , that will require entities to provide enhanced disclosures related to certain expense categories included in income statement captions. The ASU aims to increase transparency and provide investors with more detailed information about the nature of expenses reported on the face of the income statement. The standard does not change the requirements for the presentation of expenses on the face of the income statement. The ASU is effective for our annual reporting periods beginning January 1, 2027 and interim reporting periods beginning after January 1, 2028. Early adoption is permitted. We are currently evaluating the effect of adopting this new accounting guidance on our financial statement disclosures. |
