SEC Filing | Day One Biopharmaceuticals, Inc.

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10-Q

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, 2022

☐ 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: 001-40431

DAY ONE BIOPHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)



Delaware	83-2415215
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

395 Oyster Point Blvd., Suite 217 South San Francisco, CA	94080
(Address of principal executive offices)	(Zip Code)

(650) 484-0899

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	DAWN	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 May 9, 2022, the registrant had 61,911,929 shares of common stock, $0.0001 par value per share, outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and section 27A of the Securities Act of 1933, as amended, or the Securities Act. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, business strategy, market size, potential growth opportunities, nonclinical and clinical development activities, efficacy and safety profile of our product candidates, potential therapeutic benefits and economic value of our product candidates, use of net proceeds from our public offerings, our ability to maintain and recognize the benefits of certain designations received by product candidates, the timing and results of nonclinical studies and clinical trials, commercial collaboration with third parties, and our ability to recognize milestone and royalty payments from commercialization agreements, the expected impact of the COVID-19 pandemic and other global events, including the recent and developing armed conflict in Ukraine, on our operations, and the receipt and timing of potential regulatory designations, approvals and commercialization of product candidates, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “predict,” “target,” “intend,” “could,” “would,” “should,” “project,” “plan,” “expect,” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law. You should read this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

Unless the context indicates otherwise, as used in this Quarterly Report on Form 10-Q, the terms “Day One,” “the Company,” “we,” “us,” and “our” refer to Day One Biopharmaceuticals, Inc., a Delaware corporation, and its consolidated subsidiaries taken as a whole, unless otherwise noted. “Day One” and all product candidate names are our common law trademarks. This Quarterly Report contains additional trade names, trademarks and service marks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

Table of Contents



		Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Interim Consolidated Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Redeemable Convertible Preferred Shares, Redeemable Noncontrolling Interest and Stockholders’ Equity/ Members’ (Deficit)	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II.	OTHER INFORMATION	29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 3.	Defaults Upon Senior Securities	91
Item 4.	Mine Safety Disclosures	91
Item 5.	Other Information	91
Item 6.	Exhibits	92
Signatures		93

PART I-FINANCIAL INFORMATION

Day One Biopharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)


	March 31, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	262,731		$	284,309
Prepaid expenses and other current assets		4,637			5,059
Total current assets		267,368			289,368
Property and equipment, net		66			57
Operating lease right-of-use asset		180			227
Deposits and other long-term assets		165			169
Total assets		267,779			289,821
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	701		$	1,744
Accrued expenses and other current liabilities		7,304			6,709
Current portion of operating lease liabilities		171			204
Total current liabilities		8,176			8,657
Operating lease liabilities, long-term		—			16
Total liabilities		8,176			8,673
Commitments and contingencies (Note 6)
Stockholders’ equity
Common stock, $0.0001 par value; 500,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 61,911,929 and 61,952,292 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		6			6
Additional paid-in-capital		414,831			408,629
Accumulated deficit		(155,234	)		(127,487	)
Total stockholders’ equity		259,603			281,148
Total liabilities and stockholders' equity	$	267,779		$	289,821

See accompanying notes to the condensed consolidated financial statements.

Day One Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended March 31,
	2022			2021
Operating expenses:
Research and development	$	15,003		$	12,632
General and administrative		12,745			3,454
Total operating expenses		27,748			16,086
Loss from operations		(27,748	)		(16,086	)
Interest income (expense), net		2			(7	)
Other expense, net		(1	)		(8	)
Net loss and comprehensive loss		(27,747	)		(16,101	)
Net loss attributable to redeemable convertible noncontrolling interest		—			(919	)
Net loss attributable to common stockholders/members	$	(27,747	)	$	(15,182	)
Net loss per share, basic and diluted	$	(0.48	)	$	(2.58	)
Weighted-average number of common shares used in computing net loss per share, basic and diluted		58,382,444			5,892,145

See accompanying notes to the condensed consolidated financial statements.

Day One Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Shares,

Redeemable Noncontrolling Interest and Stockholders’ Equity/ Members’ (Deficit)

(in thousands, except share amounts)

(unaudited)


	Common Shares					Additional Paid-In		Accumulated			Stockholders'
	Shares			Amount		Capital		Deficit			Equity
Balance at December 31, 2021		61,952,292		$	6	$	408,629	$	(127,487	)	$	281,148
Share-based compensation expenses		—			—		6,202		—			6,202
Unvested common stock forfeiture		(40,363	)		—		—		—			—
Net loss attributable to common stockholders		—			—		—		(27,747	)		(27,747	)
Balance at March 31, 2022		61,911,929		$	6	$	414,831	$	(155,234	)	$	259,603


	Redeemable Convertible Preferred Shares				Redeemable Noncontrolling			Common Shares				Incentive Shares				Accumulated			Stockholders' Equity/Members'
	Shares		Amount		Interest			Shares		Amount		Shares		Amount		Deficit			(Deficit)
Balance at December 31, 2020		22,851,257	$	91,964	$	5,702			6,035,869	$	2,000		4,112,012	$	637	$	(56,842	)	$	(54,205	)
Issuance of Series B redeemable convertible preferred shares for cash, net of issuance costs of $243		9,638,141		129,757		—			—		—		—		—		—			—
Share-based compensation expenses		—		—		—			—		—		—		538		—			538
Issuance of incentive shares		—		—		—			—		—		874,335		—		—			—
Net loss attributable to redeemable noncontrolling interest		—		—		(919	)		—		—		—		—		—			—
Net loss attributable to Day One Biopharmaceuticals Holding Company, LLC members		—		—		—			—		—		—		—		(15,182	)		(15,182	)
Balance at March 31, 2021		32,489,398	$	221,721	$	4,783			6,035,869	$	2,000		4,986,352	$	1,175	$	(72,024	)	$	(68,849	)

See accompanying notes to the condensed consolidated financial statements.

Day One Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities
Net loss	$	(27,747	)	$	(16,101	)
Adjustments to reconcile net loss to net cash used in operating activities:
Acquired in-process research and development assets		—			8,000
Share-based compensation expense		6,202			538
Depreciation expense		6			5
Amortization of operating right-of-use assets		47			44
Non-cash interest expense		—			7
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		422			(2,542	)
Deposits and other long-term assets		4			(26	)
Accounts payable		(1,043	)		484
Accrued expenses and other current liabilities		595			(101	)
Operating lease liabilities		(49	)		(51	)
Net cash used in operating activities		(21,563	)		(9,743	)
Cash flows from investing activities
Cash paid for acquired in-process research and development assets		—			(8,000	)
Property and equipment expenditures		(15	)		—
Cash used in investing activities		(15	)		(8,000	)
Cash flows from financing activities
Proceeds from issuance of Series B redeemable convertible preferred shares, net of issuance costs		—			129,757
Payments of financing issuance costs		—			(872	)
Net cash provided by financing activities		—			128,885
Net (decrease) increase in cash and cash equivalents		(21,578	)		111,142
Cash and cash equivalents, beginning of period		284,309			43,728
Cash and cash equivalents, end of period	$	262,731		$	154,870
Supplemental disclosures of noncash activities
Deferred offering costs not yet paid	$	—		$	686

See accompanying notes to the condensed consolidated financial statements.

Day One Biopharmaceuticals, Inc.

Notes to the Condensed Consolidated Financial Statements

Description of Business and Organization

Organization and Business

Day One Biopharmaceuticals, Inc., or the Company, is a clinical-stage biopharmaceutical company dedicated to developing and commercializing targeted therapies for patients of all ages with genomically-defined cancers. The Company’s lead product candidate, tovorafenib (DAY101), is an oral, brain-penetrant, highly-selective type II pan-RAF kinase inhibitor. The Company was formed as a limited liability company under the laws of the State of Delaware in November 2018, under the name Hero Therapeutics Holding Company, LLC. Subsequently, the Company changed its name to Day One Therapeutics Holding Company, LLC in December 2018 and to Day One Biopharmaceuticals Holding Company, LLC, or Day One Holding LLC, in March 2020.

On May 26, 2021, the Company completed a conversion by filing a certificate of conversion with the Secretary of State of the State of Delaware and changed its name to Day One Biopharmaceuticals, Inc. Prior to December 31, 2021, the Company had two subsidiaries: DOT Therapeutics-2, Inc. (formerly Hero Therapeutics Inc. and Day One Biopharmaceuticals, Inc.), or DOT-2, incorporated in Delaware in November 2018, and DOT Therapeutics-1, Inc., or DOT-1, incorporated in Delaware in December 2019 (collectively, “the Subsidiaries.”)

In December 2021, the Company’s board of directors approved the merger of the Subsidiaries with and into the Company, with the Company being the surviving corporation (collectively, the “Merger”), effective December 31, 2021. For more information on the financial statement impact of the Merger, refer to the section titled “Basis of Presentation.”

Initial Public Offering, Corporate Conversion and Exchange of Takeda’s shares

On June 1, 2021, the Company closed its initial public offering, or the IPO, in which it sold an aggregate of 11,500,000 shares of common stock at a price to the public of $16.00 per share, which included 1,500,000 shares issued upon the full exercise by the underwriters of their option to purchase additional shares of common stock. The Company received aggregate net proceeds from the IPO of $167.0 million, after deducting underwriting discounts and commissions and offering costs, of $17.0 million. The common stock began trading on the Nasdaq Global Select Market on May 27, 2021, under the symbol “DAWN.”

In contemplation of the IPO, on May 26, 2021, the Company completed a legal entity conversion, or the Conversion, which included the following: Day One Holding LLC (i) converted from a Delaware limited liability company to a Delaware corporation by filing a certificate of conversion with the Secretary of State of the State of Delaware and (ii) changed its name to Day One Biopharmaceuticals, Inc.

As part of the Conversion:

•

holders of Series A redeemable convertible preferred shares of Day One Holding LLC received one share of Series A redeemable convertible preferred stock of the Company for each Series A redeemable convertible preferred share held immediately prior to the Conversion;

•

holders of Series B redeemable convertible preferred shares of Day One Holding LLC received one share of Series B redeemable convertible preferred stock of the Company for each Series B redeemable convertible preferred share held immediately prior to the Conversion;

•

holders of common shares of Day One Holding LLC received one share of common stock of the Company for each common share held immediately prior to the Conversion;

•

each outstanding incentive share in Day One Holding LLC converted into a number of shares of common stock of the Company based upon a conversion price determined by the board of directors. The conversion price was determined as a difference between the IPO price of $16.00 per share and the participating threshold for each incentive share. The Company issued 5,433,290 common stock shares upon the conversion of incentive shares of Day One Holding LLC, of which 4,719,605 common stock shares continue to vest as per the original vesting terms of the incentive shares awards.

In connection with the IPO and the Conversion, pursuant to the terms of the Millennium Stock Exchange Agreement, or the Millennium Stock Exchange Agreement, and the Conversion, Millennium Pharmaceuticals, Inc. exchanged 9,857,143 shares of Series A redeemable convertible preferred stock of DOT-1, a subsidiary of Day One Holding LLC, for 6,470,382 shares of common stock of the Company, or the Exchange.

Notes to the Condensed Consolidated Financial Statements

The Company holds all property and assets of Day One Holding LLC and assumed all of the debts and obligations of Day One Holding LLC. Effective on the date of the Conversion, each member of the board of directors and officers of Day One Holding LLC became a member of the board of directors and officers of the Company. The Conversion was a tax-free reorganization, that included authorization to issue capital stock consisting of 500,000,000 shares of common stock, $0.0001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.0001 par value per share.

Upon the closing of the IPO, 32,489,398 shares of redeemable convertible preferred stock issued by the Company in the Conversion converted into an equal number of shares of common stock. The Company also granted options for 4,418,874 common stock shares at $16.00 per share upon the IPO date.

Shares Split

On May 23, 2021, the board of directors of Day One Holding LLC approved an amendment to its operating agreement to effect a forward split of the Company’s shares at a 2.325-for-1 ratio, or the Stock Split. The Stock Split became effective on May 23, 2021, upon approval by the members and execution of the amended LLC operating agreement. All issued and outstanding common shares, redeemable convertible preferred shares, incentive shares and per share amounts contained in these condensed consolidated financial statements have been retroactively adjusted to reflect this Stock Split for all periods presented.

Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies as disclosed in Note 2 to the Company’s annual consolidated financial statements for the years ended December 31, 2021 and 2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The condensed consolidated balance sheet at December 31, 2021, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Because the Merger (refer to the section “Organization and Business”) did not constitute a change in the reporting entity, as defined in ASC 250, Accounting changes and error corrections, the Company has reported the assets and liabilities transferred from its Subsidiaries at historical carrying value, effective December 31, 2021.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Any reference in these notes to applicable guidance is meant to refer to the authoritative generally accepted accounting principles as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASU, of the Financial Accounting Standards Board, or FASB.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, the valuation of share-based awards, the valuation of deferred tax assets and income tax uncertainties, and accruals for research and development activities. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable. Actual results may differ from those estimates or assumptions.

Notes to the Condensed Consolidated Financial Statements

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an emerging growth company.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU 2019-12 on January 1, 2022, and this adoption had no material impact on the Company’s financial statements and related disclosures.

Fair Value Measurements

The financial instruments of the Company measured at fair value on a recurring basis are U.S. government money market funds, recorded as cash equivalents. The fair value is based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.

The following table sets forth the Company’s financial instruments as of March 31, 2022 and December 31, 2021, which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):


	March 31, 2022
	Total		Level 1		Level 2		Level 3
Money market funds, included in cash and cash equivalents	$	90,265	$	90,265	$	—	$	—


	December 31, 2021
	Total		Level 1		Level 2		Level 3
Money market funds, included in cash and cash equivalents	$	111,221	$	111,221	$	—	$	—

There were no transfers between Level 1, Level 2 or Level 3 categories during the periods presented.

Balance Sheet Items

Prepaid Expenses and Other Current Assets

Prepaid and other current assets consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Prepaid insurance	$	874	$	2,099
Prepaid research and development expenses		3,365		1,945
Other prepaid expenses and other assets		398		1,015
Total prepaid expenses and other current assets	$	4,637	$	5,059

Notes to the Condensed Consolidated Financial Statements

Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):


	March 31, 2022			December 31, 2021
Furniture and fixtures	$	78		$	78
Leasehold improvements		14			15
Other property and equipment		15			—
Property and equipment, gross		107			93
Less: accumulated depreciation		(41	)		(36	)
Property and equipment, net	$	66		$	57

Depreciation expense for each of the three months ended March 31, 2022 and 2021 was immaterial.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	March 31, 2022		December 31, 2021
Accrued payroll related expenses	$	1,648	$	3,308
Accrued research and development expenses		4,171		2,565
Accrued professional service expenses		1,098		732
Other		387		104
Total accrued expenses and other current liabilities	$	7,304	$	6,709

Significant Agreements

License agreement with Merck KGaA, Darmstadt, Germany

On February 10, 2021, DOT-2, the Company’s subsidiary, entered into a license agreement, or the MRKDG License Agreement, with Merck KGaA, Darmstadt, Germany, a pharmaceutical corporation located in Darmstadt, Germany. Under the MRKDG License Agreement, Merck KGaA, Darmstadt, Germany granted to the Company an exclusive worldwide license, with the right to grant sublicenses through multiple tiers, under specified patent rights and know-how for the Company to research, develop, manufacture, and commercialize products containing and comprising the pimasertib and MSC2015103B compounds. The Company also received clinical inventories supplies to use in its research and development activities. The Company’s exclusive license grant is subject to a non-exclusive license granted by Merck KGaA, Darmstadt, Germany’s affiliate to a cancer research organization and Merck KGaA, Darmstadt, Germany retains the right to conduct, directly or indirectly, certain ongoing clinical studies relating to pimasertib.

Under the MRKDG License Agreement, the Company has obligations to use commercially reasonable efforts to develop and commercialize at least two licensed products in at least two specified major market countries by the year 2029.

In consideration for the rights granted under the MRKDG License Agreement and clinical supplies, the Company made an upfront payment of $8.0 million, which was recorded as research and development expenses, as the technology does not have an alternative future use and supplies are used for research activities. The Company may also be required to make additional payments of up to $367.0 million based upon the achievement of specified development, regulatory, and commercial milestones, as well a high, single-digit royalty percentage on future net sales of licensed products, if any. Milestones and royalties are contingent upon future events and will be recorded when the milestones are achieved and when payments are due. No milestones were achieved and due as of March 31, 2022.

The term of the MRKDG License Agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the expiration of the Company’s obligation to pay royalties to the licensor with respect to such licensed product in such country and will expire in its entirety upon the expiration of all of the Company’s payment obligations with respect to all licensed products and all countries under the MRKDG License Agreement.

Effective December 31, 2021, DOT-2 was merged with and into the Company, with the Company being the surviving corporation and assuming DOT-2’s obligations under the MRKDG License Agreement.

Notes to the Condensed Consolidated Financial Statements

Takeda Assets Purchase Agreement

On December 16, 2019, DOT-1 entered into an asset purchase agreement, or the Takeda Asset Agreement, with Millennium Pharmaceuticals, Inc., a related party and an affiliate of Takeda Pharmaceutical Company Limited, or Takeda. Pursuant to the Takeda Asset Agreement, DOT-1 purchased certain technology rights and know-how related to TAK-580 (which is now tovorafenib (DAY101)) that provides a new approach for treating patients with primary brain tumors or brain metastases of solid tumors. DOT-1 also received clinical inventories supplies to use in the Company’s research and development activities of such RAF-inhibitor and an assigned investigator clinical trial agreement. Takeda also assigned to DOT-1 its exclusive license agreement, or the Viracta License Agreement, with Viracta Therapeutics, Inc. (f/k/a Sunesis Pharmaceuticals, Inc.), or Viracta. Takeda also granted DOT-1 a worldwide, sublicensable exclusive license under specified patents and know-how and non-exclusive license under other patents and know-how generated by Takeda under the Takeda Asset Agreement. The Company also granted Takeda a grant back license, as defined in the Takeda Asset Agreement, which is terminable either automatically or by DOT-1 in the event Takeda does not achieve specified development milestones within the applicable timeframes set forth under the Takeda Asset Agreement. This grant back license to Takeda was terminated at the time of Conversion in connection with the Millennium Stock Exchange Agreement.

In consideration for the sale and assignment of assets and the grant of the license under the Takeda Asset Agreement, DOT-1 made an upfront payment of $1.0 million in cash and issued 9,857,143 shares of Series A redeemable convertible preferred stock in DOT-1 in December 2019. The fair value of issued shares was estimated as $9.9 million, based on the price paid by other investors for issued shares in the Series A financing of DOT-1. Based on the terms of the Millennium Stock Exchange Agreement, Takeda exchanged the 9,857,143 shares of Series A redeemable convertible preferred stock of DOT-1 for 6,470,382 shares of the Company’s common stock upon the effectiveness of the Conversion, on May 26, 2021

The term of the Takeda Asset Agreement will expire on a country-by-country basis upon expiration of all assigned patent rights and all licensed patent rights in such country. Takeda may terminate the Takeda Asset Agreement prior to the Company's first commercial sale of a product if we cease conducting any development activities for a continuous and specified period of time and such cessation is not agreed upon by the parties and is not done in response to guidance from a regulatory authority. Additionally, Takeda can terminate the Takeda Asset Agreement in the event of the Company's bankruptcy. In the event of termination of the Takeda Asset Agreement by Takeda as a result of our cessation of development or bankruptcy, all assigned patents, know-how and contracts (other than the Viracta License Agreement) will be assigned back to Takeda and Takeda will obtain a reversion license under patents and know-how generated to exploit all such terminated products.

Effective December 31, 2021, DOT-1 was merged with and into the Company, with the Company being the surviving corporation and assuming DOT-1’s obligations under the Takeda Assets Purchase Agreement.

Viracta License Agreement

On December 16, 2019, DOT-1 amended and restated the Viracta License Agreement that was assigned pursuant to the Takeda Asset Agreement. Under the Viracta License Agreement, DOT-1 received a worldwide exclusive license under specified patent rights and know-how to develop, use, manufacture, and commercialize products containing compounds binding the RAF protein family.

DOT-1 paid $2.0 million upfront in cash to Viracta, which was recorded as research and development expenses in 2019. DOT-1 made a milestone payment of $3.0 million to Viracta in February 2021, which was recorded as research and development expense when the milestone was achieved in April 2021. DOT-1 is also required to make additional milestone payments of up to $54.0 million upon achievement of specified development and regulatory milestones for each licensed product in two indications, with milestones payable for the second indication to achieve a specified milestone event being lower than milestones payable for the first indication. Additionally, if DOT-1 obtains a priority review voucher with respect to a licensed product and sells such priority review voucher to a third party or uses such priority review voucher, DOT-1 is obligated to pay Viracta a specified percentage in the mid-teen digits of all net consideration received from any such sale or of the value of such used priority review voucher, as applicable. Commencing on the first commercial sale of a licensed product in a country, DOT-1 is obligated to pay tiered royalties ranging in the mid-single-digit percentages on net sales of licensed products, if any. The obligation to pay royalties will end on a country-by-country and licensed product-by-licensed product basis commencing on the first commercial sale in a country and continuing until the later of: (i) the expiration of the last valid claim of the Viracta licensed patents, jointly owned collaboration patents or specified patents owned by the Company covering the use or sale of such product in such country, (ii) the expiration of the last statutory exclusivity pertaining to such product in such country or (iii) the tenth anniversary of the first commercial sale of such product in such country. No other milestones, except as discussed above, were achieved and due as of March 31, 2022.

The term of the Viracta License Agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the expiration of the Company’s obligation to pay royalties to Viracta with respect to such product in such country. DOT-1 has the right to terminate the Viracta License Agreement with respect to any or all of the licensed products at will upon a specified notice period.

Notes to the Condensed Consolidated Financial Statements

Effective December 31, 2021, DOT-1 was merged with and into the Company, with the Company being the surviving corporation and assuming DOT-1’s obligations under Viracta License Agreement.

Commitments and Contingencies

Leases

The Company entered into a lease agreement for its corporate office facility in South San Francisco, California in March 2020, which expires in January 2023. The Company can extend the lease term for additional three years at market rates upon the notice of extension. The Company is obligated to pay monthly rent expense and its pro rata share of utilities, common area maintenance expenses and property taxes. The landlord also provided an allowance of $10,000 for any tenant improvements. The Company concluded that it is an operating lease. Common area expenses are a non-lease component and a variable consideration and included in operating expenses as incurred. The extension period has not been included in the determination of the Right of Use, or ROU, asset or the lease liability for operating leases as the Company concluded that it is not reasonably certain that it would exercise this option.

The Company determined the lease incremental borrowing rate, or IBR, based on the information available at the applicable lease commencement date as the Company’s lease did not provide an implicit rate. The IBR is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment where the asset is located. The Company determined the amounts of its lease liabilities using an IBR of 8%. As of March 31, 2022, the remaining lease term was 0.8 years.

The Company’s lease does not require any contingent rental payments, impose financial restrictions, or contain any residual value guarantees.

Lease expense of right-of-use assets is recognized on a straight-line basis over the applicable lease term. Lease expense was $47,000 and $44,000 for the three months ended March 31, 2022 and 2021, respectively. Cash paid for amounts included in the measurement of operating lease liabilities was $52,000 and $51,000 for the three months ended March 31, 2022 and 2021, respectively. Variable payments expensed during the three months ended March 31, 2022 and 2021 were immaterial.

As of March 31, 2022, the future lease obligations were as follows (in thousands):


For the Years Ending December 31,	March 31, 2022
Remaining in 2022	$	158
2023		18
Total future minimum lease payments		176
Less: Imputed interest		(5	)
Present value of operating lease liabilities	$	171

Research and Development Agreements

The Company enters into contracts in the normal course of business with clinical research organizations for clinical trials, with contract manufacturing organizations for clinical supplies manufacturing and with other vendors for preclinical studies, supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, with the exception of one vendor with a potential termination fee if a purchase order is cancelled within a specified time, and another vendor where labor costs are non-cancellable after the approval of the project plan. As of March 31, 2022 and December 31, 2021, there were no amounts accrued related to termination and cancellation charges as these are not probable.

License Agreements

The Company entered into the license agreements, as disclosed in Note 5, pursuant to which the Company is required to pay milestones contingent upon meeting of specific events. The first milestone related to the Viracta License Agreement was achieved and recorded to research and development expense during the year ended December 31, 2021. The Company may be required to pay royalties on sales of products developed under these agreements. All products are in development as of March 31, 2022 and December 31, 2021, and no such royalties were due.

Legal Proceedings

Notes to the Condensed Consolidated Financial Statements

The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company is not subject to any material legal proceedings, and to the best of its knowledge, no material legal proceedings are currently pending or threatened.

Indemnification Agreements

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities. The exposure under these agreements is unknown because it involves claims that may be made against it in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. The Company also has indemnification obligations to its directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at its request in such capacities. There have been no claims, to date and the Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company had not recorded any liabilities for these agreements as of March 31, 2022 and December 31, 2021.

Redeemable Convertible Preferred Shares

On June 1, 2021, the Company completed its IPO, selling an aggregate of 11,500,000 shares of common stock. All outstanding redeemable convertible preferred shares were converted into 32,489,398 shares of common stock upon the completion of the IPO. As of March 31, 2022, the Company did not have any outstanding shares of redeemable convertible preferred shares.

In February 2021, the Company issued 9,638,141 Series B redeemable convertible preferred shares at a price of $13.488 per share for gross cash proceeds of $130.0 million. The Company incurred issuance costs of $243,000.

Common Stock

Pursuant to its certificate of incorporation, the Company is authorized to issue 500.0 million shares of common stock at a par value $0.0001. As of March 31, 2022, 61,911,929 shares of common stock were issued and outstanding.

In November 2018, the Company entered into common shares purchase agreements with two founders of the Company. The individuals purchased a total of 2,790,000 common shares for a total purchase price of $300. Shares vested monthly for two and four years, respectively. Vesting for a certain number of shares was accelerated upon the Company’s closing of its Series A redeemable convertible preferred share financing. The Company also has an option for a period of ninety days after the individual’s employment is terminated either voluntarily or involuntarily to repurchase the unvested common shares at a price that is the lower of the original price per share paid by the founder for such stock or the fair value as of the date of such repurchase. The founders’ shares were converted to common stock in the Conversion. As of March 31, 2022, all founders’ common stock were vested.

The Company has reserved shares of common stock for future issuances as follows:


	March 31, 2022
Common stock options issued and outstanding		7,018,228
Common stock available for future grants		2,081,924
Common stock available for ESPP		1,199,169
Restricted stock units issued and outstanding		392,757
Total		10,692,078

Equity-Based Compensation

Prior to the Conversion, Day One Holding LLC granted incentive shares under the Incentive Share Plan and was authorized to issue 8,924,177 incentive shares. Incentive shares were a separate non-voting class of shares that participated in distributions only after incentive shares vested, unless it was approved by the board of directors and included at least two of the preferred members, and a participation threshold was met. The incentive shares represented profits interests in Day One Holding

Notes to the Condensed Consolidated Financial Statements

LLC, which was an interest in the increase in the Company’s value over the participation threshold, as defined in its operating agreement and as determined at the time of grant. A holder of incentive shares had the right to participate in distributions of profits only in excess of the participation threshold. The participation threshold was based on the valuation of the Company’s common shares on or around the grant date.

The fair value of the incentive shares was estimated using an option pricing model with the following assumptions:


		Three Months Ended March 31,
		2021
Common share fair value		$6.36 - $7.51
Participating threshold		$6.36
Risk free rate		0.14%
Volatility		72.90%
Time to liquidity (in years)		0.20 - 1.80
Grant date fair value		$4.52

During the Conversion, the Company converted all incentive shares to vested and unvested shares of common stock. As such, there was no incentive shares activity for the three months ended March 31, 2022.

The Company used the option pricing model to estimate the fair value of each incentive shares award on the date of grant. The members’ equity value was based on a recent enterprise valuation analysis performed and common share fair value. The participation threshold amounts were determined by the board of directors at the time of grant. The expected life of the awards granted during the period was determined based on an expected time to the liquidation event. The Company applied the risk-free interest rate based on the U.S. Treasury yield in effect at the time of the grant.

2021 Equity Incentive Plan

The following table provides a summary of the unvested common stock awards activity during the three months ended March 31, 2022.


	Number of Shares			Weighted Average Grant Date Fair Value
Unvested common stock as of December 31, 2021		3,753,862		$	16.00
Vested		(360,816	)	$	16.00
Forfeiture		(40,363	)	$	16.00
Unvested common stock as of March 31, 2022		3,352,683		$	16.00

In May 2021, in connection with the IPO, the board of directors and stockholders approved the 2021 Equity Incentive Plan, or the 2021 Plan, which became effective on the day before the date of the effectiveness of the IPO. The 2021 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, awards of restricted stock, restricted stock units and other stock-based awards. The number of shares of common stock reserved for issuance under the 2021 Plan is equal to the sum of: (x) 6,369,000 shares of common stock; plus (y) 4,719,605 shares of common stock issued in respect of the Conversion of incentive shares that were subject to vesting immediately prior to the effectiveness of the registration statement for the IPO that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right. The number of shares available for grant and issuance under the 2021 Plan will be automatically increased on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2021 and continuing for each fiscal year until, and including, the fiscal year commencing on January 1, 2031, by the lesser of (a) 5% of the number of shares of all classes of the Company’s common stock, plus the total number of shares of Company common stock issuable upon conversion of any preferred stock or exercise of any warrants to acquire shares of Company common stock for a nominal exercise price issued and outstanding on each December 31 immediately prior to the date of increase or (b) such number of shares determined by the board of directors.

The following table provides a summary of stock option activity under the 2021 Plan during the three months ended March 31, 2022.

Notes to the Condensed Consolidated Financial Statements


	Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021		5,071,896		$	16.90
Granted		2,008,230		$	14.22
Forfeiture		(61,898	)	$	16.78
Outstanding at March 31, 2022		7,018,228		$	16.13		9.3	$	26