jnce-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________________________________________________________________

FORM 10-Q

________________________________________________________________________________________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________.

Commission File Number 001-37998

________________________________________________________________________________________________________

JOUNCE THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

________________________________________________________________________________________________________


Delaware		45-4870634
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

780 Memorial Drive
Cambridge,	Massachusetts	02139
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (857) 259‑3840

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	JNCE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non‑accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2021, there were 51,208,357 shares of common stock, $0.001 par value per share, outstanding.

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		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 202 1 and December 31, 20 20	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 202 1 and 20 20	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 202 1 and 20 20	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 202 1 and 20 20	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 6.	Exhibits	27

SIGNATURES

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References to Jounce

Throughout this Quarterly Report on Form 10-Q, the “Company,” “Jounce,” “Jounce Therapeutics,” “we,” “us,” and “our,” except where the context requires otherwise, refers to Jounce Therapeutics, Inc. and its consolidated subsidiary, and “board of directors” refers to the board of directors of Jounce Therapeutics, Inc.

Cautionary Note Regarding Forward-Looking Statements and Industry Data

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

The words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “target,” “will” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

•the timing, progress, and results of preclinical studies and clinical trials for our current and future product candidates, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

•our plans and expectations in light of the COVID-19 pandemic and its impacts on our operations and global healthcare systems;

•the timing, scope, or likelihood of regulatory filings and approvals, including, as applicable, timing of our investigational new drug applications for, biologics license application filing for, and final Food and Drug Administration approval of our current and future product candidates;

•our ability to use our Translational Science Platform to identify targets for future product candidates and to match immunotherapies to select patient subsets;

•our ability to identify, develop and advance future product candidates into, and successfully complete, clinical studies;

•our ability to develop combination therapies, whether on our own or in collaboration with third parties, for our current and future product candidates;

•our expectations regarding the size of the patient populations for our product candidates, if approved for commercial use, and any product candidates we may develop;

•our commercialization and marketing capabilities and strategy;

•the pricing and reimbursement of our current and future product candidates, if approved;

•the implementation of our business model and our strategic plans for our business, our current and future product candidates, and our technology;

•our ability to develop and commercialize a companion diagnostic or complementary diagnostic for our current and future product candidates;

•the rate and degree of market acceptance and clinical utility of our current and future product candidates;

•the potential benefits of our exclusive license of JTX-1811 to Gilead Sciences, Inc.;

•our ability to establish or maintain future collaborations or strategic relationships or obtain additional funding;

•our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

•our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our current and future product candidates, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;

•our competitive position, and developments and projections relating to our competitors and our industry;

•our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and

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•the impact of laws and regulations.

There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. You should also read carefully the factors described in the sections “Summary of Risks Factors” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

This Quarterly Report on Form 10-Q may include industry and market data, which we may obtain from our own internal estimates and research, as well as from industry and general publications and research, surveys, and studies conducted by third parties. Industry publications, studies, and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third‑party sources.

Website and Social Media Disclosure

From time to time, we may use our website (www.jouncetx.com), investor and media relations website (http://ir.jouncetx.com), Facebook page (https://www.facebook.com/jouncetx), LinkedIn page (https://www.linkedin.com/company/3494537/) and Twitter feed (https://twitter.com/JounceTx) as channels for the distribution of information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this report.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Jounce Therapeutics, Inc.

Condensed Consolidated Balance Sheets (unaudited)

(amounts in thousands, except par value amounts)


	March 31,		December 31,
	2021		2020
Assets:
Current assets:
Cash and cash equivalents	$	196,273	$	147,493
Short-term investments	61,205		58,985
Prepaid expenses and other current assets	9,535		4,913
Total current assets	267,013		211,391
Property and equipment, net	6,709		7,336
Long-term investments	13,808		6,710
Operating lease right-of-use asset	14,146		14,856
Other non-current assets	3,477		3,943
Total assets	$	305,153	$	244,236
Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable	$	1,631	$	2,036
Accrued expenses	7,470		12,044
Deferred revenue, current - related party	392		1,931
Operating lease liability, current	3,378		3,271
Other current liabilities	54		42
Total current liabilities	12,925		19,324
Operating lease liability, net of current portion	12,774		13,618

Total liabilities	25,699		32,942
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value: 5,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued or outstanding at March 31, 2021 or December 31, 2020	—		—
Common stock, $0.001 par value: 160,000 shares authorized at March 31, 2021 and December 31, 2020; 51,200 and 41,729 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	51		42
Additional paid-in capital	456,964		362,270
Accumulated other comprehensive income	(25)		(17)
Accumulated deficit	(177,536)		(151,001)
Total stockholders’ equity	279,454		211,294
Total liabilities and stockholders’ equity	$	305,153	$	244,236

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

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Jounce Therapeutics, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

(amounts in thousands, except per share amounts)


	Three Months Ended March 31,
	2021		2020
Revenue:
License and collaboration revenue—related party	$	1,539	$	—
Operating expenses:
Research and development	20,507		19,646
General and administrative	7,615		7,539
Total operating expenses	28,122		27,185
Operating loss	(26,583)		(27,185)
Other income, net	49		750
Loss before provision for income taxes	(26,534)		(26,435)
Provision for income taxes	1		8
Net loss	$	(26,535)	$	(26,443)
Net loss per share, basic and diluted	$	(0.58)	$	(0.78)

Weighted-average common shares outstanding, basic and diluted	45,962		34,029

Comprehensive loss:
Net loss	$	(26,535)	$	(26,443)
Other comprehensive income:
Unrealized (loss) gain on available-for-sale securities	(8)		90
Comprehensive loss	$	(26,543)	$	(26,353)

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

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Jounce Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (unaudited)
(amounts in thousands)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2020	41,729	$	42	$	362,270	$	(17)	$	(151,001)	$	211,294
Issuance of common stock from at the market offering, net of issuance costs	3,156	3		30,218		—		—		30,221
Issuance of common stock from follow-on public offering, net of issuance costs	5,750	6		60,632		—		—		60,638
Exercises of common stock options	342	—		1,019		—		—		1,019
Vesting of restricted stock units	223	—		—		—		—		—
Stock-based compensation expense	—	—		2,825		—		—		2,825
Other comprehensive loss	—	—		—		(8)		—		(8)
Net loss	—	—		—		—		(26,535)		(26,535)
Balance at March 31, 2021	51,200	$	51	$	456,964	$	(25)	$	(177,536)	$	279,454













	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2019	33,738	$	34	$	281,664	$	54	$	(107,159)	$	174,593
Issuance of common stock from at the market offering, net of issuance costs	201	—		1,648		—		—		1,648
Exercise of common stock options	9	—		38		—		—		38
Vesting of restricted stock units	101	—		—		—		—		—
Stock-based compensation expense	—	—		2,618		—		—		2,618
Other comprehensive income	—	—		—		90		—		90
Net loss	—	—		—		—		(26,443)		(26,443)
Balance at March 31, 2020	34,049	$	34	$	285,968	$	144	$	(133,602)	$	152,544

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

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Jounce Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(amounts in thousands)


	Three Months Ended March 31,
	2021		2020
Operating activities:
Net loss	$	(26,535)	$	(26,443)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	2,825		2,618
Depreciation expense	785		938
Net amortization of premiums and discounts on investments	139		(84)
Other non-cash items	—		19
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(4,573)		(543)
Other non-current assets	466		18
Accounts payable	(518)		1,407
Accrued expenses and other current liabilities	(4,575)		(1,457)
Deferred revenue—related party	(1,539)		—

Other liabilities	(27)		(19)
Net cash used in operating activities	(33,552)		(23,546)
Investing activities:
Purchases of investments	(21,265)		(19,856)
Proceeds from maturities of investments	11,800		63,650

Purchases of property and equipment	(158)		(50)
Net cash (used in) provided by investing activities	(9,623)		43,744
Financing activities:
Proceeds from issuance of common stock, net of issuance costs	90,985		1,514
Proceeds from exercise of stock options	970		38
Net cash provided by financing activities	91,955		1,552
Net increase in cash, cash equivalents and restricted cash	48,780		21,750
Cash, cash equivalents and restricted cash, beginning of period	148,763		54,511
Cash, cash equivalents and restricted cash, end of period	$	197,543	$	76,261
Non-cash investing and financing activities:

Issuance costs in accounts payable and accrued expenses	$	163	$	—
Stock option exercise receivables in prepaid expenses and other current assets	$	49	$	—
Supplemental cash flow information:
Cash paid for lease liabilities	$	1,492	$	1,090
Cash paid for income taxes	$	8	$	—

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

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Jounce Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Nature of Business

Jounce Therapeutics, Inc. (the “Company”) is a clinical-stage immunotherapy company dedicated to transforming the treatment of cancer by developing therapies that enable the immune system to attack tumors and provide long-lasting benefits to patients. The Company is subject to a number of risks similar to those of other clinical-stage companies, including dependence on key individuals; the need to develop commercially viable products; competition from other companies, many of which are larger and better capitalized; and the need to obtain adequate additional financing to fund the development of its products.

As of March 31, 2021, the Company had cash, cash equivalents and investments of $271.3 million. The Company expects that its existing cash, cash equivalents and investments will enable it to fund its expected operating expenses and capital expenditure requirements for at least 12 months from May 4, 2021, the filing date of this Quarterly Report on Form 10-Q. The Company expects to finance its future cash needs through a combination of equity or debt financings, collaborations, licensing arrangements and strategic alliances.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements as of March 31, 2021 and December 31, 2020, and for the three months ended March 31, 2021 and 2020, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles in the United States of America (“GAAP”) as found in the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”) for condensed consolidated financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these condensed consolidated financial statements reflect all normal recurring adjustments which are necessary for a fair presentation of the Company’s financial position and results of its operations, as of and for the periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021 (the “Annual Report on Form 10-K”).

The information presented in the condensed consolidated financial statements and related notes as of March 31, 2021, and for the three months ended March 31, 2021 and 2020, is unaudited. The December 31, 2020 condensed consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.

Interim results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021, or any future period.

The accompanying condensed consolidated financial statements include the accounts of Jounce Therapeutics, Inc. and its wholly-owned subsidiary, Jounce Mass Securities, Inc. All intercompany transactions and balances have been eliminated in consolidation.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the Annual Report on Form 10-K. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates which include, but are not limited to, accrued expenses, stock-based compensation expense and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions it believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Recent Accounting Pronouncements, Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and it establishes additional disclosure

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requirements related to credit risks. For available-for-sale debt securities with expected credit losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This guidance was originally effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and early adoption was permitted. In November 2019, the FASB subsequently issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, whereby the effective date of this standard for smaller reporting companies was deferred to annual reporting periods beginning after December 15, 2022, including interim periods within those annual reporting periods, and early adoption is still permitted. Accordingly, the Company will now adopt this standard effective January 1, 2023, and it is currently evaluating the potential impact that ASU 2016-13 may have on the consolidated financial statements.

3. License and Collaboration Revenue

Gilead License Agreement

On August 31, 2020, the Company and Gilead Sciences, Inc. (“Gilead”) entered into an exclusive license agreement (the “Gilead License Agreement”) to license the Company’s JTX-1811 program to Gilead. Concurrently with the license agreement, the Company and Gilead entered into a stock purchase agreement (the “Stock Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”, and together with the License Agreement and the Stock Purchase Agreement, the “Transaction Agreements”). Pursuant to the Gilead License Agreement, the Company granted to Gilead a worldwide and exclusive license to develop, manufacture and commercialize JTX-1811 and certain derivatives thereof (the “Licensed Products”). Gilead paid the Company a one-time, non-refundable upfront payment of $85.0 million pursuant to the Gilead License Agreement and the Company sold Gilead 5,539,727 shares of common stock pursuant to the Stock Purchase Agreement for proceeds of $35.0 million upon the closing in October 2020. The Company will continue to develop JTX-1811 during the initial development term, which includes conducting activities defined within the agreement to advance JTX-1811 through the clearance of an investigational new drug (“IND”) application or an earlier date specified by Gilead, at which time the program will be transitioned to Gilead.

Milestone and Royalties

The Company is entitled to receive payments from Gilead upon the achievement of specified clinical, regulatory and sales milestones, including potential clinical development and regulatory milestone payments up to an aggregate total of $510.0 million and potential sales milestone payments up to an aggregate total of $175.0 million.

The Company is also eligible to receive tiered royalty payments based on a percentage of annual worldwide net sales ranging from the high-single digits to mid-teens, based on future annual net sales of the Licensed Products, on a Licensed Product-by-Licensed Product and country-by-country basis.

Termination

Gilead may terminate the License Agreement for convenience, at its sole discretion, in its entirety or on a Licensed Product-by-Licensed Product or region-by-region basis, at any time with prior written notice to the Company. Unless terminated earlier in accordance with its terms, the Gilead License Agreement provides that it will expire (i) on a Licensed Product-by-Licensed Product and country-by-country basis on the date of the expiration of the royalty term with respect to such Licensed Product in such country and (ii) in its entirety upon the expiration of all applicable royalty terms with respect to the Licensed Products in

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all countries, following which the applicable licenses under the License Agreement will become fully paid-up, perpetual, irrevocable and royalty-free.

Accounting Analysis

Identification of the Contract(s)

The Company assessed the Gilead License Agreement and concluded that it represents a contract with a customer within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”). In addition, the Company determined that the Gilead License Agreement and Stock Purchase Agreement should be evaluated as a combined contract in accordance with ASC 606 given that the agreements were executed contemporaneously, negotiated as a package and have the same commercial objective to provide funding to further the Company’s research and development activities.

Identification of Promises and Performance Obligations

The Company determined that the Gilead License Agreement contains the following promises: (i) delivery of a worldwide and exclusive license to develop, manufacture and commercialize JTX-1811 (the “JTX-1811 License”), (ii) provision of certain research transition activities, specifically outlined within the Gilead License Agreement, related to the advancement of JTX-1811 through the clearance of an IND application and transition of the JTX-1811 program to Gilead (the “Research and Transition Services”), (iii) appointment of an individual to act as an alliance manager and primary point of contact for Gilead, (iv) appointment of individuals to participate on the Joint Steering Committee (“JSC”), and (v) optional assistance by Jounce after completion of Research and Transition Services upon the request of Gilead.

The Company assessed the above promises and concluded that each of the JTX-1811 License and Research and Transition Services is capable of being distinct and distinct within the context of the Gilead License Agreement. Based upon this evaluation, the Company concluded that its promise to deliver the JTX-1811 License and promise to perform Research and Transition Services represent separate performance obligations in the Gilead License Agreement.

The Company determined that the appointment of an individual to act as an alliance manager and primary point of contact for Gilead, participation in alliance management meetings and the appointment of individuals to participate on the JSC do not constitute the transfer of a good or service to Gilead and as such, do not represent performance obligations under the contract.

Finally, the Company assessed Gilead’s ability to request optional assistance by Jounce after completion of Research and Transition Services and determined that it was both quantitatively and qualitatively immaterial in the context of the Gilead License Agreement. Accordingly, the Company did not assess the optional assistance as a performance obligation.

Determination of Transaction Price

As noted above, the Company received a non-refundable upfront payment of $85.0 million upon the closing of the Gilead License Agreement. This upfront payment represents an element of fixed consideration under the Gilead License Agreement.

The Company also evaluated as possible variable consideration the milestones and royalties discussed above. With respect to clinical development and regulatory milestones, based upon the high degree of uncertainty and risk associated with these potential payments, the Company concluded that all such amounts should be fully constrained and are not included in the initial transaction price. As part of the evaluation of the constraint the Company considered certain factors, including that receipt of such milestones is outside the control of the Company and the probability of success criteria is estimated. Each of these variable consideration items was evaluated under the most-likely amount method. As for royalties and sales milestones, the Company determined that the royalties and milestones relate solely to the JTX-1811 License, which is a license of intellectual property (“IP”). Accordingly, the Company did not include any potential royalty or sales milestone amounts in the initial transaction price, and the Company will not recognize revenue related to these royalties and sales milestones until the associated sales occur and relevant thresholds are met.

The Company assessed proceeds of $35.0 million received under the Stock Purchase Agreement and determined that the fair value of the equity component was $55.7 million based on the closing price of $10.06 per share in October 2020. Pursuant to the agreement, the Company sold 5,539,727 shares of common stock for aggregate cash consideration of $35.0 million, or $6.32 per share, which is equal to the daily volume weighted average per share intraday price of the Common Stock on Nasdaq over the 30-trading day period ending on and including August 28, 2020 plus a 30% premium. As a result, the Company determined that the gross proceeds of $35.0 million received under the Stock Purchase Agreement included a discount to the fair value of the Company’s stock as of October 16, 2020 equal to $20.7 million. In accordance with ASC 606, the discount amount will be included in the transaction price for revenue recognition, resulting in an initial transaction price of $64.3 million.

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Allocation of Transaction Price to Performance Obligations

The Company allocated the transaction price to each performance obligation on a relative estimated standalone selling price basis. The Company developed the estimated standalone selling price for the JTX-1811 License based on the present value of expected future cash flows associated with the license and related clinical development and regulatory milestones. In developing such estimate, the Company applied judgement in determining the timing needed to develop the Licensed Product, the probability of success, and the discount rate. The Company developed the estimated standalone selling price for the Research and Transition Services obligation based on the nature of the services to be performed and the Company’s best estimate of the length of time required to perform the services necessary to achieve clearance of an IND application for the JTX-1811 program.

Based on the above considerations, $60.8 million of the initial transaction price was allocated to the JTX-1811 License performance obligation and $3.5 million was allocated to the Research and Transition Services performance obligation.

Recognition of Revenue

The Company determined that the JTX-1811 License is a functional license as the underlying IP has significant standalone functionality. In addition, the Company determined that the JTX-1811 License represents a right to use certain of the Company’s IP as it exists at a point in time. Finally, the Company determined that October 16, 2020 represents (i) the date at which the Company made available the IP to Gilead and (ii) the beginning of the period during which Gilead is able to use and benefit from its right to use the IP. Based upon these considerations, the Company recognized the entirety of the initial transaction price allocated to the JTX-1811 License performance obligation during the year ended December 31, 2020.

Further, the Company determined the input method under ASC 606 is the most appropriate method of revenue recognition for the Research and Transition Services performance obligation. The method of measuring progress towards delivery of the services incorporated actual internal and external costs incurred, relative to total internal and external costs expected to be incurred to satisfy the performance obligation. The period over which total costs were estimated reflected the Company’s best estimate of the period over which it would perform the research and transition services to achieve clearance of an IND application of the JTX-1811 program and transition the program to Gilead. Based upon these considerations, the Company recognized $1.5 million in revenue related to the Research and Transition Services performance obligation during the three months ended March 31, 2021.

The following table presents changes in the Company’s contract liabilities related to the Gilead License Agreement during the during the three months ended March 31, 2021 (in thousands):


	January 1, 2021		Additions		Reductions		March 31, 2021
Contract liabilities:
Deferred revenue - related party	1,931		—		(1,539)		392
Total	$	1,931	$	—	$	(1,539)	$	392

The reductions to the deferred revenue contract liability during the three months ended March 31, 2021 was comprised of revenue recognized for Research and Transition services performed during the period. All revenue recognized during the three months ended March 31, 2021 related to the Gilead License Agreement was included within the beginning balance of the deferred revenue contract liability.

As of March 31, 2021, the remaining amount of the transaction price allocated to the Research and Transition Services that was unsatisfied is expected to be recognized in 2021 as services are performed. The Company has not received any milestone or royalty payments under the Gilead License Agreement as of March 31, 2021

4. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is determined based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. As a basis for considering such assumptions, GAAP establishes a three-tier value hierarchy, which prioritizes the inputs used to develop the assumptions and for measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets for identical assets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the

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Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

The Company measures the fair value of money market funds, U.S. Treasuries and government agency securities based on quoted prices in active markets for identical securities. Investments also include corporate debt securities which are valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

The carrying amounts reflected in the condensed consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature.

Assets measured at fair value on a recurring basis as of March 31, 2021 were as follows (in thousands):


	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds, included in cash equivalents	$	191,760	$	191,760	$	—	$	—
Investments:
Corporate debt securities	79,526		—		79,526		—


Totals	$	271,286	$	191,760	$	79,526	$	—

Assets measured at fair value on a recurring basis as of December 31, 2020 were as follows (in thousands):


	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds, included in cash equivalents	$	147,492	$	147,492	$	—	$	—
Investments:
Corporate debt securities	63,691		—		63,691		—
Government agency securities	2,005		—		2,005		—
Totals	$	213,188	$	147,492	$	65,696	$	—

There were no changes in valuation techniques during the three months ended March 31, 2021 or during the year ended December 31, 2020. There were no liabilities measured at fair value on a recurring basis as of March 31, 2021 or December 31, 2020.

5. Investments

Short-term investments consist of investments with maturities greater than ninety days and less than one year from the balance sheet date. Long-term investments consist of investments with maturities of greater than one year that are not expected to be used to fund current operations. The Company classifies all of its investments as available-for-sale securities. Accordingly, these investments are recorded at fair value. Realized gains and losses, amortization and accretion of discounts and premiums are included in other income, net. Unrealized gains and losses on available-for-sale securities are included in other comprehensive income as a component of stockholders’ equity until realized.

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Cash equivalents, short-term investments and long-term investments as of March 31, 2021 were comprised as follows (in thousands):


	March 31, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Cash equivalents and short-term investments:
Money market funds, included in cash equivalents	$	191,760	$	—	$	—	$	191,760
Corporate debt securities	65,728		1		(11)		65,718


Total cash equivalents and short-term investments	257,488		1		(11)		257,478
Long-term investments:
Corporate debt securities	13,823		—		(15)		13,808


Total long-term investments	13,823		—		(15)		13,808
Total cash equivalents and investments	$	271,311	$	1	$	(26)	$	271,286

Cash equivalents, short-term investments and long-term investments as of December 31, 2020 were comprised as follows (in thousands):


	December 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Cash equivalents and short-term investments:
Money market funds, included in cash equivalents	$	147,492	$	—	$	—	$	147,492
Corporate debt securities	56,985		9		(13)		56,981

Government agency securities	2,001		4		—		2,005
Total cash equivalents and short-term investments	206,478		13		(13)		206,478
Long-term investments:
Corporate debt securities	6,727		—		(17)		6,710

Total long-term investments	6,727		—		(17)		6,710
Total cash equivalents and investments	$	213,205	$	13	$	(30)	$	213,188

As of March 31, 2021 and December 31, 2020, the aggregate fair value of securities that were in an unrealized loss position for less than twelve months was $37.3 million and $28.3 million, respectively. As of both March 31, 2021 and December 31, 2020, there were no securities that were in an unrealized loss position for more than twelve months. As of March 31, 2021, the Company did not intend to sell, and would not be more likely than not required to sell, the securities in an unrealized loss position before recovery of their amortized cost bases. Furthermore, the Company determined that there was no material change in the credit risk of these securities. As a result, the Company determined it did not hold any securities with any other-than-temporary impairment as of March 31, 2021.

There were no realized gains or losses on available-for-sale securities during the three months ended March 31, 2021. There were immaterial realized gains and losses on available-for-sale securities during the three months ended March 31, 2020.

6. Restricted Cash

As of both March 31, 2021 and December 31, 2020, the Company maintained non-current restricted cash of $1.3 million. This amount is included within “Other non-current assets” in the accompanying condensed consolidated balance sheets and is comprised solely of a letter of credit required pursuant to the lease for the Company’s corporate headquarters.

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


	Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
	Beginning of Period		End of Period		Beginning of Period		End of Period
Cash and cash equivalents	$	147,493	$	196,273	$	53,241	$	74,991
Restricted cash	1,270		1,270		1,270		1,270
Cash, cash equivalents and restricted cash	$	148,763	$	197,543	$	54,511	$	76,261

7. Accrued Expenses

Accrued expenses as of March 31, 2021 and December 31, 2020 were comprised as follows (in thousands):


	March 31,		December 31,
	2021		2020
Employee compensation and benefits	$	2,955	$	6,825
External research and professional services	4,219		4,855
Lab consumables and other	296		364
Total accrued expenses	$	7,470	$	12,044

8. Common Stock and Preferred Stock

Common Stock

The Company is authorized to issue 160,000,000 shares of common stock. Holders of common stock are entitled to one vote per share. Holders of common stock are entitled to receive dividends, if and when declared by the board of directors.

On December 17, 2019, the Company entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, pursuant to which the Company offered and sold shares of its common stock with an aggregate offering price of up to $50.0 million under an “at the market” offering program (the “ATM Offering”). The Sales Agreement provided that Cowen would be entitled to a sales commission equal to 3.0% of the gross sales price per share of all shares sold under the ATM Offering. During the three months ended March 31, 2021, the Company sold an aggregate of 3,156,200 shares of common stock at an average price of $9.87 per share under the ATM Offering for net proceeds of $30.2 million, which completed the sale of all available amounts under the ATM Offering.

In addition, the Company completed a follow-on public offering of its common stock, selling an aggregate of 5,750,000 shares of common stock at a public offering price of $11.25 per share for net proceeds of $60.6 million, after deducting underwriting discounts and commissions and offering fees, during three months ended March 31, 2021.

Preferred Stock

The Company is authorized to issue 5,000,000 shares of undesignated preferred stock in one or more series. As of March 31, 2021, no shares of preferred stock were issued or outstanding.

Shares Reserved for Future Issuance

As of March 31, 2021 and December 31, 2020, the Company had reserved for future issuance the following number of shares of common stock (in thousands):


	March 31,	December 31,
	2021	2020
Shares reserved for vesting of restricted stock units	822	588
Shares reserved for exercises of outstanding stock options	7,174	6,586
Shares reserved for future issuance under the 2017 Stock Option and Incentive Plan	1,563	1,284
Total shares reserved for future issuance	9,559	8,458

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9. Stock-based Compensation

2013 Stock Option and Grant Plan

In February 2013, the board of directors adopted and the Company’s stockholders approved the 2013 Stock Option and Grant Plan (the “2013 Plan”), as amended and restated, under which it could grant incentive stock options (“ISOs”), non-qualified stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) to eligible employees, officers, directors, and consultants. The 2013 Plan was subsequently amended in January 2015, April 2015, July 2015, March 2016 and October 2016 to allow for the issuance of additional shares of common stock.

2017 Stock Option and Incentive Plan

In January 2017, the board of directors adopted and the Company’s stockholders approved the 2017 Stock Option and Incentive Plan (the “2017 Plan”). Upon the adoption of the 2017 Plan, no further awards will be granted under the 2013 Plan.

The 2017 Plan provides for the grant of ISOs, non-qualified stock options, RSAs, RSUs, stock appreciation rights and other stock-based awards. The Company’s employees, officers, directors and consultants and advisors are eligible to receive awards under the 2017 Plan. The terms of awards, including vesting requirements, are determined by the board of directors, subject to the provisions of the 2017 Plan.

The Company initially registered on Form S-8 1,753,758 shares of common stock under the 2017 Plan, which was comprised of (i) 1,510,000 shares of common stock reserved for issuance under the 2017 Plan, plus (ii) 243,758 shares of common stock originally reserved for issuance under the 2013 Plan that became available for issuance under the 2017 Plan upon the completion of the Company’s IPO. The 2017 Plan also provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2017 Plan on January 1, 2018 and each January 1st thereafter. The number of shares added each year will be equal to the lesser of (i) 4% of the outstanding shares on the immediately preceding December 31st or (ii) such amount as determined by the compensation committee of the board of directors. Effective January 1, 2020 and 2021, 1,349,526 and 1,669,162 additional shares, respectively, were automatically added to the shares authorized for issuance under the 2017 Plan.

As of March 31, 2021, there were

SEC Form 10-Q filed by Jounce Therapeutics, Inc.