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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 30, 2020

OR

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: 001-38584

 

CONSTELLATION PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

26-1741721

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

 

215 First Street, Suite 200

Cambridge, Massachusetts

02142

(Address of principal executive offices)

(Zip code)

(617714-0555

(Registrant’s telephone number, including area code)

 

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, $0.0001 par value per share

 

CNST

 

Nasdaq Global Select Market

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 the 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 July 31, 2020, the registrant had 47,500,032 shares of common stock, $0.0001 par value per share, outstanding.

 

 


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. 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, plan, objectives of management and expected market growth are forward-looking statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under “Risk Factors” and include, among other things:

 

our ongoing clinical trials, including our Phase 2 clinical trial of CPI-0610, our Phase 1b/2 clinical trial of CPI-1205 and our Phase 1/2 clinical trial of CPI-0209;

 

our plans to advance our clinical-stage product candidates into later stage trials, including our plans to conduct a Phase 3 trial of CPI-0610

 

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;

 

our plans to develop and, if approved, subsequently commercialize CPI-0610, CPI-0209 and any other product candidates, including in combination with other drugs and therapies;

 

the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for CPI-0610, CPI-0209 and other product candidates;

 

our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents and marketable securities;

 

the potential advantages of our product candidates;

 

our estimates regarding the potential market opportunity for our product candidates;

 

our manufacturing, commercialization and marketing capabilities and strategy;

 

our intellectual property position;

 

our ability to identify products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

 

our estimates regarding expenses, future revenue, timing of any future revenue, capital requirements and needs for additional financing;

 

the impact of government laws and regulations;

 

our competitive position;

 

developments relating to our competitors and our industry;

 

our ability to maintain and establish collaborations or obtain additional funding; and

 

the impact of the COVID-19 pandemic on our ability to enroll and monitor patients in our clinical trials, collect data, secure needed supplies, initiate new clinical trials, meet our current milestones and timeline, and continue to successfully execute on our plans and operations.

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. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into.

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.

2


Constellation Pharmaceuticals, Inc.

Table of Contents

 

 

 

 

 

Page

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

4

 

 

Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2020 and December 31, 2019

 

4

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) For the Three and Six Months Ended June 30, 2020 and 2019

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) For the Three and Six Months Ended June 30, 2020 and 2019

                  

6

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30, 2020 and 2019

 

7

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

29

Item 4.

 

Controls and Procedures

 

30

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

31

Item 1A.

 

Risk Factors

 

31

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

71

Item 6.

 

Exhibits

 

72

 

 

 

 

 

Signatures

 

73

 

 

3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CONSTELLATION PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

179,112

 

 

$

334,332

 

Marketable securities

 

 

341,401

 

 

 

49,602

 

Prepaid expenses and other current assets

 

 

2,586

 

 

 

3,055

 

Total current assets

 

 

523,099

 

 

 

386,989

 

Property and equipment, net

 

 

1,443

 

 

 

971

 

Restricted cash

 

 

425

 

 

 

425

 

Operating lease, right-of-use assets

 

 

9,378

 

 

 

10,745

 

Other assets

 

 

453

 

 

 

 

Total assets

 

$

534,798

 

 

$

399,130

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,659

 

 

$

7,278

 

Accrued expenses and other current liabilities

 

 

16,538

 

 

 

12,915

 

Current portion of long-term debt, net of discount

 

 

2,150

 

 

 

 

Current portion of lease liabilities - operating lease

 

 

2,937

 

 

 

2,562

 

Total current liabilities

 

 

27,284

 

 

 

22,755

 

Long-term debt, net of current portion and discount

 

 

27,569

 

 

 

29,642

 

Operating lease liabilities, net of current portion

 

 

7,248

 

 

 

8,759

 

Other long-term liabilities

 

 

716

 

 

 

390

 

Total liabilities

 

 

62,817

 

 

 

61,546

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued

   or outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized

   at June 30, 2020 and December 31, 2019, respectively; 47,500,032

   and 41,719,039 shares issued and outstanding at June 30, 2020 and

   December 31, 2019, respectively

 

 

5

 

 

 

4

 

Additional paid-in capital

 

 

846,305

 

 

 

656,973

 

Accumulated other comprehensive gain (loss)

 

 

255

 

 

 

(6

)

Accumulated deficit

 

 

(374,584

)

 

 

(319,387

)

Total stockholders' equity

 

 

471,981

 

 

 

337,584

 

Total liabilities and stockholders' equity

 

$

534,798

 

 

$

399,130

 

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

 

4


CONSTELLATION PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

22,627

 

 

$

15,955

 

 

$

42,702

 

 

$

31,632

 

General and administrative

 

 

6,960

 

 

 

4,886

 

 

 

12,868

 

 

 

9,315

 

Total operating expenses

 

 

29,587

 

 

 

20,841

 

 

 

55,570

 

 

 

40,947

 

Loss from operations

 

 

(29,587

)

 

 

(20,841

)

 

 

(55,570

)

 

 

(40,947

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

686

 

 

 

652

 

 

 

2,090

 

 

 

1,407

 

Gain on disposal of equipment

 

 

29

 

 

 

 

 

 

29

 

 

 

 

Interest expense

 

 

(857

)

 

 

(578

)

 

 

(1,707

)

 

 

(653

)

Total other income (expense), net

 

 

(142

)

 

 

74

 

 

 

412

 

 

 

754

 

Loss before income taxes

 

 

(29,729

)

 

 

(20,767

)

 

 

(55,158

)

 

 

(40,193

)

Income tax expense

 

 

24

 

 

 

 

 

 

39

 

 

 

 

Net loss

 

$

(29,753

)

 

$

(20,767

)

 

$

(55,197

)

 

$

(40,193

)

Net loss per share attributable to common stockholders, basic

   and diluted

 

$

(0.70

)

 

$

(0.80

)

 

$

(1.31

)

 

$

(1.56

)

Weighted average number of common shares used in net loss

   per share attributable to common stockholders, basic

   and diluted

 

 

42,589,415

 

 

 

25,809,556

 

 

 

42,177,523

 

 

 

25,807,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(29,753

)

 

$

(20,767

)

 

$

(55,197

)

 

$

(40,193

)

Other comprehensive gain:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities

 

 

345

 

 

 

2

 

 

 

261

 

 

 

11

 

Total other comprehensive gain

 

$

345

 

 

$

2

 

 

$

261

 

 

$

11

 

Comprehensive loss

 

$

(29,408

)

 

$

(20,765

)

 

$

(54,936

)

 

$

(40,182

)

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

5


CONSTELLATION PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

 

 

Equity

 

Balances at December 31, 2019

 

 

41,719,039

 

 

$

4

 

 

$

656,973

 

 

$

(6

)

 

$

(319,387

)

 

 

 

$

337,584

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,559

 

 

 

 

 

 

 

 

 

 

 

2,559

 

Stock option exercises

 

 

103,025

 

 

 

 

 

 

911

 

 

 

 

 

 

 

 

 

 

 

911

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(84

)

 

 

 

 

 

 

 

(84

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,444

)

 

 

 

 

(25,444

)

Balances at March 31, 2020

 

 

41,822,064

 

 

$

4

 

 

$

660,443

 

 

$

(90

)

 

$

(344,831

)

 

 

 

$

315,526

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,635

 

 

 

 

 

 

 

 

 

 

 

3,635

 

Issuance of common stock from public offering, net

   of underwriting discounts and commissions

 

 

5,500,000

 

 

 

1

 

 

 

180,726

 

 

 

 

 

 

 

 

 

 

 

180,727

 

Stock option exercises

 

 

177,968

 

 

 

 

 

 

1,501

 

 

 

 

 

 

 

 

 

 

 

1,501

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

345

 

 

 

 

 

 

 

 

345

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,753

)

 

 

 

 

(29,753

)

Balances at June 30, 2020

 

 

47,500,032

 

 

$

5

 

 

$

846,305

 

 

$

255

 

 

$

(374,584

)

 

 

 

$

471,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain

 

 

Deficit

 

 

 

 

Equity

 

Balances at December 31, 2018

 

 

25,803,135

 

 

$

3

 

 

$

337,992

 

 

$

 

 

$

(233,837

)

 

 

 

$

104,158

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,313

 

 

 

 

 

 

 

 

 

 

 

1,313

 

Vesting of common stock issued upon early

   exercise of unvested options

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercises

 

 

3,754

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

 

 

21

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

9

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,426

)

 

 

 

 

(19,426

)

Balances at March 31, 2019

 

 

25,806,974

 

 

$

3

 

 

$

339,326

 

 

$

9

 

 

$

(253,263

)

 

 

 

$

86,075

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,797

 

 

 

 

 

 

 

 

 

 

 

1,797

 

Vesting of common stock issued upon early

   exercise of unvested options

 

 

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock option exercises

 

 

12,364

 

 

 

 

 

 

77

 

 

 

 

 

 

 

 

 

 

 

77

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,767

)

 

 

 

 

(20,767

)

Balances at June 30, 2019

 

 

25,819,423

 

 

$

3

 

 

$

341,200

 

 

$

11

 

 

$

(274,030

)

 

 

 

$

67,184

 

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

6


CONSTELLATION PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(55,197

)

 

$

(40,193

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

267

 

 

 

364

 

Stock-based compensation expense

 

 

6,194

 

 

 

3,110

 

Non-cash interest expense

 

 

403

 

 

 

158

 

Amortization and accretion on marketable securities

 

 

(374

)

 

 

(523

)

Gain on disposal of equipment

 

 

(29

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

469

 

 

 

257

 

Operating lease, right-of-use assets

 

 

1,367

 

 

 

1,461

 

Accounts payable

 

 

(2,197

)

 

 

801

 

Accrued expenses and other current liabilities

 

 

3,623

 

 

 

(131

)

Operating lease liabilities

 

 

(1,136

)

 

 

(1,484

)

Other assets

 

 

(453

)

 

 

 

Net cash used in operating activities

 

 

(47,063

)

 

 

(36,180

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(373,417

)

 

 

(63,123

)

Purchases of property and equipment

 

 

(161

)

 

 

(469

)

Proceeds from sale of property and equipment

 

 

29

 

 

 

 

Proceeds from maturities and sales of marketable securities

 

 

82,253

 

 

 

20,600

 

Net cash used in investing activities

 

 

(291,296

)

 

 

(42,992

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from common stock offerings, net of underwriting discounts and

   commissions

 

 

180,727

 

 

 

 

Proceeds from issuance of long-term debt

 

 

 

 

 

19,650

 

Payment of debt issuance costs

 

 

 

 

 

(125

)

Proceeds from issuance of common stock upon stock option exercises

 

 

2,412

 

 

 

98

 

Net cash provided by financing activities

 

 

183,139

 

 

 

19,623

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(155,220

)

 

 

(59,549

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

334,757

 

 

 

115,017

 

Cash, cash equivalents and restricted cash at end of period

 

$

179,537

 

 

$

55,468

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

1,304

 

 

$

347

 

Income taxes paid

 

$

24

 

 

 

 

 

Supplemental disclosure of noncash investing and financing

   information:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

578

 

 

$

41

 

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

 

7


CONSTELLATION PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. Nature of the Business and Basis of Presentation

Constellation Pharmaceuticals, Inc. (“Constellation” or the “Company”) is a clinical-stage biopharmaceutical company using its expertise in epigenetics to discover and develop novel therapeutics that address serious unmet medical needs in patients with cancers associated with abnormal gene expression or drug resistance. The Company was incorporated in January 2008 as EpiGenetiX, Inc. under the laws of the State of Delaware. On March 31, 2008, the Company changed its name to Constellation Pharmaceuticals, Inc.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional 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’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The accompanying financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has funded its operations with the proceeds of sales of convertible preferred stock, payments received in connection with collaboration agreements, borrowings under loan agreements, and proceeds from sales of its common stock public and private offerings.

On June 19, 2020, the Company completed a public offering of an aggregate of 5,500,000 of its common stock and received net proceeds of approximately $180.7 million.

The Company has incurred losses since inception, including net losses of $29.8 million and $55.2 for the three and six months ended June 30, 2020, respectively, and $85.6 million for the year ended December 31, 2019. As of June 30, 2020, the Company had an accumulated deficit of $374.6 million. The Company expects to continue to generate operating losses in the foreseeable future. Based on the Company’s current operating plan, the Company expects that its cash, cash equivalents and marketable securities at June 30, 2020, will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of the interim financial statements. Management’s belief with respect to its ability to fund operations is based on estimates that are subject to risks and uncertainties. If actual results are different from management’s estimates, the Company may need to seek additional funding sooner than would otherwise be expected. There can be no assurance that the Company will be able to obtain additional funding on acceptable terms, if at all.

The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

2. Summary of Significant Accounting Policies

Unaudited Interim Consolidated Financial Information

The accompanying unaudited condensed consolidated financial statements as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim consolidated financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Annual Report”).

The unaudited condensed consolidated financial statements include the accounts of Constellation Pharmaceuticals, Inc. and its wholly owned subsidiary, Constellation Securities Corporation. All intercompany transactions and balances of the subsidiary have been eliminated in consolidation. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2020, and results of operations for the three and six months ended June 30, 2020 and 2019, stockholders’ equity for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019 have been made. The Company’s results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.

8


Concentrations of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company maintains most of its cash, cash equivalents and marketable securities at two accredited financial institutions in amounts that could exceed federally insured limits. Cash equivalents are invested in an institutional money market fund. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.

Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” to the Consolidated Financial Statements included in the Annual Report. There have been no material changes to the significant accounting policies previously disclosed in the Annual Report other than as noted below.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents consists of highly liquid investments that are readily convertible into cash with original maturities of three months or less from the date of purchase. The Company has a policy of making investments only in government securities or with commercial institutions that have at least an investment grade credit rating. The Company invests its cash primarily in reverse repurchase agreements (RRAs), government securities and obligations, corporate debt securities and money market funds. RRAs are collateralized by deposits in the form of government securities and obligations for an amount not less than 102% of their value. The Company does not record an asset or liability as the Company is not permitted to sell or repledge the associated collateral. The Company has a policy that the collateral has at least the prevailing credit rating of US Government Treasuries and Agencies. The Company utilizes a third-party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the RRAs on a daily basis. RRAs have stated maturities of less than 30 days.

As of June 30, 2020, the Company classified $0.4 million as restricted cash related to a letter of credit issued as a security deposit in connection with Company's lease of its corporate office facilities (Note 10). Cash, cash equivalents and restricted cash consists of the following (in thousands):

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Cash and cash equivalents

 

$

179,112

 

 

$

334,332

 

Restricted cash

 

 

425

 

 

 

425

 

Cash, cash equivalents and restricted cash

 

$

179,537

 

 

$

334,757

 

 

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:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

9


The Company’s cash equivalents and