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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 June 30, 2021
 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: 001-36225 
KINDRED BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware46-1160142
(State of incorporation)
(I.R.S. Employer
Identification No.)
1555 Bayshore Highway, Suite 200
Burlingame, California 94010
(Address of principal executive offices) (Zip code)
Registrant’s telephone number: (650701-7901
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par valueKINThe NASDAQ Stock Market LLC
Preferred Stock Purchase RightsKINThe 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 time 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
1

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reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller 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, 2021, Kindred Biosciences, Inc. had outstanding 45,462,318 shares of common stock, $0.0001 par value.
 



Table of Contents

Kindred Biosciences, Inc.

TABLE OF CONTENTS
Part No.Item No.DescriptionPage
No.
I
1
2
3
4
II
1
1A
2
3
4
5
6




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PART I - FINANCIAL INFORMATION

 ITEM 1.    FINANCIAL STATEMENTS

Kindred Biosciences, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
June 30, 2021December 31, 2020
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$46,715 $11,620 
Short-term investments27,484 46,758 
Accounts, royalty and license receivable1,212 624 
Other receivables343  
Inventories 207 
Prepaid expenses and other3,329 3,415 
Total current assets79,083 62,624 
Property and equipment, net26,555 28,204 
Long-term investments159 1,500 
Operating lease right-of-use assets3,021 3,428 
Other assets54 58 
Total assets$108,872 $95,814 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$926$145
Accrued compensation1,8832,070
Accrued liabilities3,0682,745
Current portion of operating lease liabilities864825
Current portion of loan payable4,5191,111
Total current liabilities11,2606,896
Long-term liabilities:
Long-term operating lease liabilities2,4922,934
Long-term loan payable, net of debt discount15,35118,502
Total liabilities29,10328,332
Commitments and contingencies (Note 10)


Stockholders' equity:
Common stock, $0.0001 par value; 100,000,000 shares authorized; 45,439,229 and 39,492,134 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
54
Additional paid-in capital343,488312,321
Accumulated other comprehensive income (loss)(1)12
Accumulated deficit(263,723)(244,855)
Total stockholders' equity79,76967,482
Total liabilities and stockholders' equity$108,872$95,814

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Kindred Biosciences, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
 
Three months ended June 30,Six months ended June 30,
2021202020212020
Revenues:
Net product revenues
$ $163 $227 $766 
Partner royalty revenue
250 158 576 158 
Contract manufacturing revenue
1,137 546 2,979 546 
Revenue from asset sale
2,150 38,700 2,150 38,700 
Total revenues3,537 39,567 5,932 40,170 
Operating costs and expenses:
Cost of product revenues (1)
 27 207 3,604 
Contract manufacturing costs639 336 1,022 336 
   Research and development5,573 7,398 11,860 16,265 
   Selling, general and administrative5,869 5,105 10,553 13,978 
 Restructuring costs 2,288  3,964 
Total operating costs and expenses12,081 15,154 23,642 38,147 
Income (loss) from operations(8,544)24,413 (17,710)2,023 
Interest and other expense, net(584)(367)(1,158)(738)
Net income (loss)(9,128)24,046 (18,868)1,285 
Change in unrealized gains or losses on available-for-sale securities
(3)40 (13)31 
Comprehensive income (loss)
$(9,131)$24,086 $(18,881)$1,316 
Net income (loss) per share, basic
$(0.20)$0.61 $(0.44)$0.03 
Weighted-average number of common shares outstanding, basic
45,277 39,240 43,195 39,213 
Net income (loss) per share, diluted
$(0.20)$0.60 $(0.44)$0.03 
Weighted-average number of common shares outstanding, diluted
45,277 40,086 43,195 40,267 
(1) Includes $3,494 Finished Goods write-off in the first quarter of 2020 related to the Dechra Asset Purchase Agreement, consistent with the transition to proprietary Dechra branding and regulatory best practices related to label transitions on asset sale.

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

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Kindred Biosciences, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended June 30,
   
20212020
Cash Flows from Operating Activities
Net income (loss)$(18,868)$1,285 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation expense4,014 3,987 
Depreciation and amortization expense2,416 2,260 
Gain on disposal of property and equipment (17)
Amortization of discount on marketable securities103 (156)
Amortization of debt discount of loan payable257 171 
Finished goods write off related to Dechra asset purchase (1)
 3,494 
Changes in operating assets and liabilities:
Accounts receivable(748)660 
Inventories207 335 
Prepaid expenses and other90 (2,507)
Accounts payable713 (642)
Accrued liabilities and accrued compensation(234)(1,746)
Net cash provided by (used in) operating activities(12,050)7,124 
Cash Flows from Investing Activities
Purchases of investments
(31,883)(51,798)
Sales of investments
2,996  
Maturities of investments
49,386 58,870 
Purchases of property and equipment
(325)(2,902)
Proceeds from sale of property and equipment
 26 
Net cash provided by investing activities20,174 4,196 
Cash Flows from Financing Activities
Exercises of stock options and purchase of ESPP shares
662 261 
Payment of restricted stock tax liability on net settlement
(507)(669)
Net proceeds from sale of common stock
26,816  
Net cash provided by (used in) financing activities26,971 (408)
Net change in cash and cash equivalents
35,095 10,912 
Cash and cash equivalents at beginning of period
11,620 15,986 
Cash and cash equivalents at end of period
$46,715 $26,898 
(1) Includes $3,494 Finished Goods write-off in the first quarter of 2020 related to the Dechra Asset Purchase Agreement, due to the transition to proprietary Dechra branding on asset sale.
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities
$93 $31 
Proceeds due from exercise of stock options$183 $ 

The accompanying notes are an integral part of these condensed consolidated financial statements. 
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Kindred Biosciences, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.    Description of Business, Basis of Presentation and Summary of Significant Accounting Policies
Kindred Biosciences, Inc. ("KindredBio", "we", "us" or "our") was incorporated on September 25, 2012 (inception) in the State of Delaware. On April 25, 2016, we filed a Certificate of Incorporation with the State of Delaware for a wholly owned subsidiary, KindredBio Equine, Inc. ("KindredBio Equine"). KindredBio Equine has one class of capital stock which is designated common stock, $0.0001 par value per share. The authorized number of shares of common stock for KindredBio Equine is 1,000. On February 1, 2019, we filed a Certificate of Incorporation with the State of Delaware for a wholly owned subsidiary, Centaur Biopharmaceutical Services, Inc. ("Centaur Biopharmaceutical Services"). Centaur Biopharmaceutical Services has one class of capital stock which is designated common stock, $0.0001 par value per share. The authorized number of shares of common stock for Centaur Biopharmaceutical Services is 1,000.
We are a biopharmaceutical company focused on saving and improving the lives of pets. Our activities since inception have consisted principally of raising capital, establishing facilities, recruiting management and technical staff, performing research and development, and advancing our product candidates seeking regulatory approval. Our headquarters are located in Burlingame, California.
Our first product, Mirataz® (mirtazapine transdermal ointment) was approved in May 2018 and became commercially available to veterinarians in the United States in July 2018. In November 2019, our second product, Zimeta™ (dipyrone injection) for the control of fever in horses was approved by the FDA and became commercially available in December 2019. In addition, we have multiple other product candidates, predominantly biologics, in various stages of development. We believe there are significant unmet medical needs for pets, and that the pet therapeutics segment of the animal health industry is likely to grow substantially as new therapeutics are identified, developed and marketed specifically for pets.
In March 2020, we announced a strategic realignment of our business model whereby we plan to rely more on a partnership-based model for commercialization strategy similar to the traditional human biotech commercialization strategy whereby pipeline assets are partnered with larger commercial partners that can maximize product opportunity in return for upfront payments, contingent milestones, and royalties on future sales. Our focus is on accelerating our deep pipeline of late-stage biologics candidates in canine and feline markets and strengthening our strategic position by prioritizing our most attractive late stage programs and managing our expenses to best position the company for success.
In March 2020, we sold Mirataz to Dechra Limited for a cash purchase price of $43 million. In December 2020, we entered into a Distribution and Licensing Agreement granting Dechra Veterinary Products, LLC, an exclusive license under our Patents and Marketing Authorizations to promote, market, sell and distribute Zimeta in the U.S. and Canadian territories.
In addition, we announced an agreement granting Elanco Animal Health Incorporated ("Elanco") exclusive global rights to KIND-030 in December 2020. Under the terms of the agreement, we received a non-refundable upfront payment of $500,000, and will receive development milestone payments of up to $16 million upon achievement of certain development, regulatory and manufacturing targets, and sales milestones in an aggregate amount of up to $94 million payable throughout the term of the agreement. Furthermore, royalty payments are to range from the low to high teens. The agreement specifies that KindredBio will supply the licensed product to Elanco, and that Elanco will conduct the necessary regulatory activities to achieve approvals in Europe and other key international markets.
On June 15, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Elanco Animal Health Incorporated, an Indiana corporation (“Elanco”), and Knight Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Elanco. The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into KindredBio (the “Merger”), with KindredBio surviving the Merger and becoming a wholly owned subsidiary of Elanco. (See Note 13).
We are subject to risks common to companies in the biotechnology and pharmaceutical industries. There can be no assurance that our research and development will be successfully completed, that adequate patent or other intellectual property protection for our technology will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. We operate in an environment of substantial competition
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from other animal health companies. In addition, we are dependent upon the services of our employees and consultants, as well as third-party contract research organizations and manufacturers.
The December 2019 outbreak of the novel strain of coronavirus (COVID-19) may adversely impact both our ability to obtain sufficient and timely supplies of our products and other product candidates and our revenue from those products. In addition to adversely affecting our ability to obtain sufficient and timely supplies of products and product candidates from suppliers, any outbreak of contagious diseases, such as the recent novel strain of coronavirus (COVID-19) that is affecting the global community, could adversely affect our business and operations in other ways, many of which cannot currently be determined or quantified. These uncertain factors, including the duration of the outbreak, the severity of the disease and the actions to contain or treat its impact, could impair our operations including, among others, employee mobility and productivity, availability of facilities, conduct of our clinical trials, manufacturing and supply capacity, and availability and productivity of third party service suppliers.
The accompanying unaudited interim condensed consolidated financial statements (“financial statements”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in our annual report on Form 10-K as filed with the SEC on March 16, 2021. In the opinion of management, all adjustments, consisting of a normal and recurring nature, considered necessary for a fair presentation, have been included in these financial statements.
The accompanying financial statements include the accounts of Kindred Biosciences and its wholly owned subsidiaries (the "Company"). All inter-company accounts and transactions have been eliminated in consolidation.

Stock Offerings

On April 8, 2020, we entered into an At Market Offering ("ATM") whereby we may offer and sell shares of our common stock from time to time up to $25 million. Through December 31, 2020, 59,211 shares were sold through the ATM, for total gross proceeds of approximately $298,000. Net proceeds, after deducting underwriting discounts and commissions and offering expense, were approximately $201,000. In January 2021, we sold another 1,456,497 shares, for total gross proceeds of approximately $7,059,000. Net proceeds, after deducting underwriting discounts and commissions and offering expense, were approximately $6,876,000. On January 15, 2021, we entered into an amendment to the ATM. In accordance with the terms of the amended ATM, we may offer and sell shares of our common stock up to $24,366,000. From February 3, 2021 through June 30, 2021, 4,190,985 shares were sold through the amended ATM, for total gross proceeds of approximately $20,466,000. Net proceeds, after deducting underwriting discounts and commissions and offering expense, were approximately $19,939,000.

Borrowings
On September 30, 2019, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Solar Capital Ltd., to make available to KindredBio an aggregate principal amount of up to $50 million under the Loan Agreement. The Loan Agreement provides for a term loan commitment of $50 million in three tranches: (1) a $20 million term A loan that was funded on September 30, 2019; (2) a $15 million term B loan that was to be funded at our request, subject to certain conditions described in the Loan Agreement being satisfied, no later than December 31, 2020; and (3) a $15 million term C loan that was to be funded at our request, subject to certain conditions described in the Loan Agreement being satisfied, on or before June 30, 2021. Each term loan has a maturity date of September 30, 2024. We elected not to draw down on the $15 million term B loan before the December 31, 2020 deadline. We also elected not to draw down on the $15 million term C loan before the June 30, 2021 deadline. Each term loan bears interest at a floating per annum rate equal to the one-month LIBOR rate (with a floor of 2.17%) plus 6.75%. We are permitted to make interest-only payments on each term loan through October 31, 2021. See Note 6.

On March 16, 2020, we entered into the First Amendment with the Lenders in connection with the sale of our Mirataz asset. Among other things, the First Amendment increases the minimum cash amount, as defined in the Loan Agreement, required to be maintained by KindredBio to $10,000,000.

On December 23, 2020, we entered into the Second Amendment with the Lenders in connection with the Zimeta Distribution and license Agreement with Dechra. All other terms and conditions remain the same as the First Amendment.

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On May 5, 2021, we entered into the Third Amendment with the Lenders in connection with the KIND-030 license agreement with Elanco. All other terms and conditions remain the same as the First Amendment.

Pursuant to the Merger Agreement, we are obligated to terminate the Loan Agreement prior to the closing of the Merger.

Liquidity

We have incurred losses and negative cash flows from operations and had an accumulated deficit of $263,723,000 as of June 30, 2021. We expect to continue to incur losses and negative cash flows as we continue our product development activities, seek regulatory approvals for our product candidates, establish a biologics manufacturing capability, and commercialize any approved products. To date, we have been funded primarily through sales of our equity and recently through an asset sale and licensing of our products. We might require additional capital until such time as we can generate operating revenues in excess of operating expenses. We believe that our cash, cash equivalents and investments totaling $74,358,000 as of June 30, 2021, along with the remaining proceeds from the Mirataz sale, revenues from partner licensing and royalties as well as contract manufacturing will be sufficient to fund our planned operations to the fourth quarter of 2023.

If we require additional funding for operations, we may seek such funding through public or private equity or debt financings or other sources, such as corporate collaborations and licensing arrangements. We may not be able to obtain financing on acceptable terms, or at all, and we may not be able to enter into corporate collaborations or licensing arrangements. The terms of any financing may result in dilution or otherwise adversely affect the holdings or the rights of our stockholders.

Revenue Streams

Our revenues consist of revenue from Mirataz and Zimeta associated partner royalties, remaining revenue from the sale of our Mirataz asset, partner licensing revenue and contract manufacturing revenue. While we did record product revenue for Zimeta in the first quarter of 2021, we do not expect to have product revenue going forward.

Product revenue

Our product revenues consist of product revenues resulting from the sales of Mirataz through April 2020 and Zimeta through January 2021. We account for a contract with a customer when there is a legally enforceable contract between us and our customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Our customers could either be distributors who subsequently resell our products to third parties such as veterinarians, clinics or animal hospitals, licensing partners or other third parties.

Revenue from asset sale

On March 16, 2020, we entered into an Asset Purchase Agreement to sell Mirataz to Dechra for a cash purchase price of $43 million. On April 15, 2020, we completed the sale of Mirataz to Dechra and received payment of $38.7 million on the closing date. Of the remaining $4.3 million, $2.15 million has been received in May 2021 out of escrow and the balance of $2.15 million will be paid out 18 months after closing date, assuming no escrow claims.

Partner royalties

We recognize royalty revenue in connection with licenses granted under license and development arrangements with partners. Royalties are based upon a percentage of commercial sales of partnered products based on levels of net sales. These sales-based royalties, for which the license was deemed the predominant element to which the royalties relate, are estimated and recognized in the period in which the partners’ commercial sales occur. The royalties are generally reported and payable to us within 45 to 60 days of the end of each calendar quarter in which the commercial sales are made. We base our estimates of royalties earned on actual sales information from our partners when available. If actual royalties received are different than amounts estimated, we would adjust the royalty revenue in the period in which the adjustment becomes known. We do not recognize revenues if it is probable that a significant reversal of revenues will occur.

Contract manufacturing revenue

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The manufacturing revenue stream generally represents revenue from the manufacturing of customer product(s). Under a manufacturing contract, a quantity of manufacturing runs is ordered and the product is manufactured according to the customer’s specifications and typically only one performance obligation is included. Each manufacturing run represents a distinct service that is sold separately and has stand-alone value to the customer. The product(s) are manufactured exclusively for a specific customer and have no alternative use. The customer retains control of their product during the entire manufacturing process and can make changes to the process or specifications at their request.

The customer and our project team typically have a timeline on each milestone and duration time. They also have an estimated start and finish date. When the project is moving forward, they constantly change to the actual date to track the project progress. The timing has been shared by both parties. This becomes the most important basis for our revenue recognition.

Because of the timing effect of revenue recognition, billings and cash collections can be recorded in three different ways: billed trade receivables, contract assets (unbilled receivables), and contract liabilities (customer deposits and deferred revenue). Contract assets are recorded when our right to consideration is conditioned on something other than the passage of time. Contract assets are reclassified to trade receivables on the balance sheet when our rights become unconditional. Contract liabilities represent customer deposits and deferred revenue billed and/or received in advance of our fulfillment of performance obligations. Contract liabilities convert to revenue as we perform our obligations under the contract.

Partner Licensing Revenue

Partner licensing revenue consists of revenue that compensates us for services performed, such as formulation, process development, and preparation of pre-clinical and clinical drug product materials under research and development arrangements with partners. Revenues related to research and development are generally recognized as the related services or activities are performed using the output method and in accordance with the contract terms. To the extent that the agreements specify services are to be performed on a fixed basis, revenues are recognized consistent with the pattern of the work performed. In agreements that specify milestones, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is recognized at a point in time. Non-refundable milestone payments related to arrangements under which we have continuing performance obligations would be deferred and recognized over the period of performance. Milestone payments that are not within our control, such as submission for approval to regulators by a partner or approvals from regulators, are not considered probable of being achieved until those submissions are submitted by the customer or approvals are received.

Revenue Recognition

We recognize revenues in accordance with ASC Topic 606 (“ASC 606”), "Revenue from Contracts with Customers". We account for a contract with a customer when there is a legally enforceable contract between us and our customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Our customers could either be distributors who subsequently resell our products to third parties such as veterinarians, clinics or animal hospitals, licensing partners or the third parties.

In accordance with ASC 606, we apply the following steps to recognize revenue that reflect the consideration to which we expect to be entitled to receive in exchange for the promised goods or services:

1. Identify the contract with a customer
A contract with a customer exists when we enter into an enforceable contract with a customer. These contracts define each party's rights, payment terms and other contractual terms and conditions of the sale. We apply judgment in determining the customer’s ability and intention to pay, which is based on published credit and financial information pertaining to the customer.
2. Identify the performance obligations in the contract
Our product in a given purchase order is delivered at the same time and we do not separate an individual order into separate performance obligations. We have concluded the sale of finished goods and related shipping and handling are accounted for as a single performance obligation as there are no other promises to deliver goods beyond what is specified in each accepted customer order.
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Under a manufacturing contract, a quantity of manufacturing runs is ordered and the product is manufactured according to the customer’s specifications and typically only one performance obligation is included. Each manufacturing run represents a distinct service that is sold separately and has stand-alone value to the customer.

3. Determine the transaction price
The transaction price is determined based on the consideration which we will be entitled to receive in exchange for transferring goods or service to the customer, typically a fixed consideration in our contractual agreements.
4. Allocate the transaction price to the performance obligations
The transaction price is allocated to the performance obligations identified in each contract. The nature of the promises/obligations under our contracts is to transfer a distinct good or service. Accordingly, because a single performance obligation exists, including in each milestone pertaining to contract manufacturing, no allocation of the transaction price is necessary.
5. Determine the satisfaction of performance obligation
Revenue for product sales is recognized when control of the finished goods is transferred to the customer, net of applicable reserves for variable consideration. Control of the finished goods is transferred at a point in time, upon delivery to the customer.
For contract manufacturing service, revenue is recognized over time. Control of the finished manufactured products is transferred at a point in time, upon delivery to the customer.

Royalty revenues are estimated and recognized in the period in which the partners’ commercial sales occur. The royalties are generally reported and payable to us within 45 to 60 days of the end of each calendar quarter in which the commercial sales are made.

For partner licensing, revenues related to research and development are generally recognized as the related services or activities are performed using the output method and in accordance with the contract terms. To the extent that the agreements specify services are to be performed on a fixed basis, revenues are recognized consistent with the pattern of the work performed. In agreements that specify milestones, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method.

Reserves for Variable Consideration

Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration for which reserves are established. Components of variable consideration include product returns, allowances and discounts. These estimates take into consideration a range of possible outcomes for the expected value (probability-weighted estimate) or relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts. The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized where the contract will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenues and earnings in the period such variances become known.

No reserves for contract manufacturing service are recorded as each manufacturing run represents a distinct service that is sold separately and has stand-alone value to the customer. The product(s) are manufactured exclusively for a specific customer and have no alternative use.

Sales-based royalty revenues recorded by us are based on the licensee’s actual net sales that occurred during the relevant period. No reserves were established and to-date, there were no adjustments made in subsequent periods.

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Revenues from partner licensing is recognized when non-refundable, up-front fees are allocated to a license that is determined to be distinct from the other performance obligations identified in the license agreement. No reserves were established.

Product Returns

Consistent with the industry practice, we generally offer customers a limited right of return of damaged or expired product that has been purchased directly from us. Our return policy generally allows customers to receive credit for expired products within 90 days after the product’s expiration date. We estimate the amount of our product revenues that may be returned by our customers and record these estimates as a reduction of product revenues in the period the related product revenues are recognized, as well as within accrued liabilities, in the consolidated balance sheets. We currently estimate product return liabilities using probability-weighted available industry data and data provided by the distributors such as the inventories remaining in the distribution channel. To-date, we have no returns and believe that returns of our product in future periods will be minimal. We do not record a return asset associated with the returned damaged or expired goods due to such asset is deemed to be fully impaired at the time of product return. We no longer carry any product returns reserve for Mirataz, but have maintained a small amount of product return reserve for Zimeta.

Our contract manufacturing customer retains control of their product during the entire manufacturing process and can make changes to the process or specifications at their request. There are no product returns.

Sales Discounts and Allowances

We compensate our distributors for sales order management, data and distribution and other services through sales discounts and allowances. However, such services are not distinct from our sale of products to distributors and, therefore, these discounts and allowances are recorded as a reduction of product revenues in the consolidated statements of operations and comprehensive loss, as well as a reduction to accounts receivable in the consolidated balance sheets. Starting February 2021, we no longer have sales to distributors.

No discounts and allowances are recorded for contract manufacturing service as the price of each milestone is agreed upon when the contract is signed.

Cost of Revenues

Cost of product revenues consists primarily of the cost of direct materials, direct labor and overhead costs associated with manufacturing, inbound shipping and other third-party logistics costs. 

Contract manufacturing costs consist primarily of the cost of direct materials, direct labor and overhead costs associated with manufacturing, rent, facility costs and related machinery depreciation.

Inventories

We value inventory at the lower of cost or net realizable value. We determine the cost of inventory using the standard-cost method, which approximates actual cost based on a first-in, first-out method. We analyze our inventory levels quarterly and write down inventory subject to expire in excess of expected requirements, or that has a cost basis in excess of its expected net realizable value. In the quarter ended March 31, 2020, we wrote off $3,494,000 Mirataz inventory related to the Dechra Asset Purchase Agreement, due to the transition to Dechra brand labelling. In January 2021, we sold all our excess Zimeta finished goods inventory to Dechra. Currently, we do not own any inventory.

Property, Plant and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. We calculate depreciation using the straight-line method over the estimated useful lives of the assets, which range from two to five years for furniture, fixtures, lab and computer equipment and software, and fifteen to thirty-nine years for land improvements and real property. Land and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of property and equipment that have not yet been placed in service for their intended use. Expenditures for repairs and maintenance of assets are charged to expense as incurred. We amortize leasehold improvements using the straight-
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line method over the estimated useful lives of the respective assets or the lease term, whichever is shorter. Upon retirement or sale, the cost and related accumulated depreciation and amortization of assets disposed of are removed from the accounts and any resulting gain or loss is included in other income/expense.

Use of Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Estimates are based on historical experiences or on forecasts, including information received from third parties and other assumptions that the Company believes are reasonable under the circumstances. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from those estimates.
Comprehensive Income (Loss)
Our comprehensive income (loss) includes the change in unrealized gains or losses on available-for-sale debt securities. The cumulative amount of gains or losses are reflected as a separate component of stockholders' equity in the condensed consolidated balance sheets as accumulated other comprehensive income (loss).
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848)", changes to the interbank offered rates (IBORs), and, particularly, the risk of cessation of the London Interbank Offered Rate ("LIBOR"). The amendments provide optional expedients and exceptions for applying U.S. GAAP to contracts that reference LIBOR expected to be discontinued because of reference rate reform. The expedients and exceptions do not apply to contract modifications made after December 31, 2022. The following optional expedients are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: Modifications of contracts within the scope of Topics 470, Debt, should be accounted for by prospectively adjusting the effective interest rate. The amendments also permit an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. When elected, the optional expedients for contract modifications must be applied consistently for all contracts. It applies to all entities within the scope of the affected accounting guidance and will take effect as of March 12, 2020 through December 31, 2022. We have one loan contract which references LIBOR rate. We have not modified the contract with our lenders yet. We are currently evaluating the new guidance and have not determined the impact this standard may have on our financial statements.

We do not believe there are any other recently issued standards not yet effective that will have a material impact on our financial statements when the standards become effective.
2. Revenues and Cost of Revenues
On March 16, 2020, we entered into an Asset Purchase Agreement to sell Mirataz to Dechra for a cash purchase price of $43 million. On April 15, 2020, we completed the sale of Mirataz to Dechra and received payment of $38.7 million on the closing date. Of the remaining $4.3 million, $2.15 million has been received in May 2021 out of escrow and the balance of $2.15 million will be paid out 18 months after closing date, assuming no escrow claims.

In December 2020, we entered into a Distribution and Licensing Agreement granting Dechra an exclusive license under our patents and marketing authorizations to promote, market, sell and distribute Zimeta in the U.S. and Canadian territories. Our revenue generated from product sale of Mirataz ended as of April 2020 and from Zimeta ended as of January 2021. We record partner royalties from Dechra based on Mirataz and Zimeta net sales on a quarterly basis.

Our exclusive license and collaboration agreement with Elanco allows us to receive future development milestone payments of up to $16 million upon achievement of certain development, regulatory and manufacturing targets, and sales milestones in an aggregate amount of up to $94 million payable throughout the term of the agreement, including royalty payments ranging from the low to high teens. Under the terms of the agreement, KindredBio has received an upfront payment of $500,000 in February 2021. We did not have any royalty income or recognize any milestone payments from Elanco in the three
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and six months ended June 30, 2021.

We recorded contract manufacturing revenue for the manufacture of Vaxart's oral vaccine candidate for COVID-19 based on the percentage completion of specific milestones for the quarter. The expansion of our manufacturing agreement with Vaxart for COVID-19 and other vaccine candidates will extend our contract manufacturing activities through at least the end of 2021.

In September 2019, we were selected by the National Cancer Institute ("NCI") as one of three contractors in response to the solicitation for the PREVENT Cancer Preclinical Drug Development Program ("PREVENT"): Current Good Manufacturing Practice ("cGMP") Production of Vaccines and Biologicals for Cancer Prevention (cGMP Pool). As a cGMP pool contractor, KindredBio is eligible to provide manufacturing, formulation and analytical services to meet the needs of the PREVENT pipeline. In February 2021, we were awarded a work order from the NCI and began work on our first NCI project.

We account for a contract with a customer when there is a legally enforceable contract between us and our customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. Our product revenues are measured based on the consideration specified in the contract with each customer, net of product returns, discounts and allowances.
The following table summarizes revenues and costs for the three and six months ended June 30, 2021 and 2020 (in thousands).
Three months ended June 30,Six months ended June 30,
2021202020212020
Revenues
Net product revenues$ $163 $227 $766 
Partner royalty revenue250 158 576 158 
Contract manufacturing revenue1,137 546 2,979 546 
Revenue from asset sale2,150 38,700 2,150 38,700 
Total revenues3,537 39,567 5,932 40,170 
Costs of revenues
Cost of product revenues (1)
 27 207 3,604 
Contract manufacturing costs639 336 1,022 336 
Total costs of revenues639 363 1,229 3,940 
Gross margin$2,898 $39,204 $4,703 $36,230 
(1) Includes $3,494 Finished Goods write-off in the first quarter of 2020 related to the Dechra Asset Purchase Agreement, due to the transition to proprietary Dechra branding on asset sale.
The following table summarizes contract manufacturing revenues and costs by projects for the three and six months ended June 30, 2021 and 2020 (in thousands).
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Three months ended June 30,Six months ended June 30,
2021202020212020
Vaxart project
Contract manufacturing revenues$960 $546 $2,760 $546 
Contract manufacturing costs479 336 824 336 
Net profit481 210 1,936 210 
NCI Project
Contract manufacturing revenues177  219  
Contract manufacturing costs160  198  
Net profit17  21  
Total
Contract manufacturing revenues1,137 546 2,979 546 
Contract manufacturing costs639 336 1,022 336 
Net profit$498 $210 $1,957 $210 
The following table summarizes product revenues and costs for the three and six months ended June 30, 2021 and 2020 (in thousands).
Three months ended June 30,Six months ended June 30,
2021202020212020
Mirataz
Net product revenues$ $156 $ $752 
Cost of product revenues (1)
 24  3,599 
Net profit/(loss) 132  (2,847)
Zimeta
Net product revenues 7 227 14 
Cost of product revenues 3 207 5 
Net profit 4 20 9 
Total
Net product revenues 163 227 766 
Cost of product revenues (1)
 27 207 3,604 
Net profit/(loss)$ $136 $20 $(2,838)
(1) Includes $3,494 Finished Goods write-off in the first quarter of 2020 related to the Dechra Asset Purchase Agreement, due to the transition to proprietary Dechra branding on asset sale.
Concentrations of credit risk
Our net product revenue for the quarter ended March 31, 2021 was generated entirely from sales within the United States for excess Zimeta inventory sold to Dechra. There are no other product sales in the second quarter of 2021. Our partner royalties for Mirataz and Zimeta are also with Dechra. In total, Dechra accounted for approximately 7% and 14% of total revenue in the three and six months ended June 30, 2021. Product sales to two large distributors, namely Covetrus and MWI Animal Health, and three large distributors, namely Covetrus, MWI Animal Health and Midwest Veterinary Supply, each accounted for more than 10% of net revenues for the three and six months ended June 30, 2020. Approximately 95% and 75% of our gross product revenues were to two and three distributors for the three and six months ended June 30, 2020, respectively.

Vaxart accounted for 84% and 93% of the contract manufacturing services we provided for the three and six months ended June 30, 2021, respectively. We started to have manufacturing revenue from the second quarter of 2020, and Vaxart was
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the only manufacturing customer in the whole year of 2020. Manufacturing contracts require up-front payments and installment payments during the service period. We perform periodic evaluations of the financial condition of our customers and generally do not require collateral, but we can terminate any contract if a material default occurs.

Product returns

Our return policy generally allows customers to receive credit for expired products within 90 days after the product’s expiration date. We estimated product return liabilities of 3% for Zimeta of gross product revenue using probability-weighted available industry data and data provided by distributors such as the inventories remaining in the distribution channel. We are no longer marketing Zimeta and will not be increasing the product return liabilities, but adjustments will be made to the reserves based on actual returns in the future.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are stated at their carrying values, net of any allowances for doubtful accounts. Accounts receivable consist primarily of amounts due from distributors, for which collection is probable based on the customer's intent and ability to pay. Receivables are evaluated for collection probability on a regular basis and an allowance for doubtful accounts is recorded, if necessary. We have no allowance for doubtful accounts as of June 30, 2021 and December 31, 2020 as our analysis did not uncover any collection risks.

Contract assets

Because of the timing effect of revenue recognition, billings and cash collections can be recorded into three different ways: billed trade receivables, contract assets (unbilled receivables), and contract liabilities (customer deposits and deferred revenue). Contract assets are recorded when our right to consideration is conditioned on something other than the passage of time. Contract assets are reclassified to trade receivables on the balance sheet when our rights become unconditional. Contract liabilities represent customer deposits and deferred revenue billed and/or received in advance of our fulfillment of performance obligations. Contract liabilities convert to revenue as we perform our obligations under the contract. We recorded $160,000 contract assets and no contract liabilities on June 30, 2021. We did not record any contract asset and/or contract liabilities on December 31, 2020.

3.    Fair Value Measurements
Certain assets and liabilities are carried at fair value. 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. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, is used to measure fair value:

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.
The carrying amount of financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to the short maturities of these financial instruments. Financial assets, which consist of money market funds and available-for-sale securities, are measured at fair value on a recurring basis.
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Financial assets, which consist of money market funds and available-for-sale securities, are measured at fair value on a recurring basis and are summarized as follows (in thousands):
Fair Value Measurements as of June 30, 2021
DescriptionTotalQuoted Prices in
Active Markets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable Inputs
(Level 3)
Cash equivalents:
Money market funds$42,290 $42,290 $ $ 
Commercial paper3,000  3,000  
Short-term investments:
U.S. treasury bills3,507 3,507   
Commercial paper20,286  20,286  
Corporate notes3,691  3,691  
Long-term investments:
Corporate notes159  159  
$72,933 $45,797 $27,136 $ 
Fair Value Measurements as of December 31, 2020
DescriptionTotalQuoted Prices in
Active Markets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Unobservable Inputs
(Level 3)
Cash equivalents:
Money market funds$219$219$$
U.S. treasury bills4,0604,060 
Commercial paper3,8993,899 
U.S. government agency notes2,0002,000 
Corporate notes315315 
Short-term investments:
U.S. treasury bills6,5316,531
U.S. government agency notes36,44436,444
Corporate notes3,7833,783
Long-term investments:
U.S. government agency notes1,5001,500
$58,751$10,810$47,941$
During the six months ended June 30, 2021, there were no transfers of assets between Level 1, Level 2 or Level 3 of the fair value hierarchy.
At June 30, 2021 and December 31, 2020, we did not have any financial liabilities which were measured at fair value on a recurring basis.



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4.    Investments
We classify all highly-liquid investments with stated maturities of greater than three months from the date of purchase and remaining maturities of less than one year as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such investments are viewed as being available to support current operations. We classify and account for investments as available-for-sale and reflect realized gains and losses using the specific identification method. Changes in market value, if any, excluding other-than-temporary impairments, are reflected in other comprehensive income (loss).
The fair value of available-for-sale investments by type of security at June 30, 2021 was as follows (in thousands):

Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Short-term investments:
Commercial paper$20,287 $1 $(2)$20,286 
U.S. treasury bills3,507   3,507 
Corporate notes3,691 1 (1)3,691 
27,485 2 (3)27,484 
Long-term investments:
Corporate notes159   159 
159   159 
Total available-for-sale investments$27,644 $2 $(3)$27,643 

The fair value of available-for-sale investments by type of security at December 31, 2020 was as follows (in thousands):
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Short-term investments:
   U.S. treasury bills $6,531 $ $ $6,531 
   U.S. government agency notes36,437 8 (1)36,444 
   Corporate notes 3,778 5  3,783 
46,746 13 (1)46,758 
Long-term investments:
 U.S. government agency notes1,500   1,500 
1,500   1,500 
Total available-for-sale investments$48,246 $13 $(1)$48,258 

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5.    Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
June 30, 2021December 31, 2020
Accrued consulting$2,120 $468 
Accrued research and development costs519 1,654 
Other expenses429 623 
$3,068 $2,745 

6.    Borrowings
On September 30, 2019, we entered into the Loan and Security Agreement with Solar Capital Ltd. The Lenders have agreed to make available to KindredBio an aggregate principal amount of up to $50 million under the Loan Agreement. The Loan Agreement provides for a term loan commitment of $50 million in three tranches: (1) a $20 million term A loan that was funded on September 30, 2019; (2) a $15 million term B loan that was to be funded at our request, subject to certain conditions described in the Loan Agreement being satisfied, no later than December 31, 2020; and (3) a $15 million term C loan that was to be funded at our request, subject to certain conditions described in the Loan Agreement being satisfied, on or before June 30, 2021. Each term loan has a maturity date of September 30, 2024. We elected not to draw down on the $15 million term B loan before the December 31, 2020 deadline. We also elected not to draw down on the $15 million term C loan before the June 30, 2021 deadline. Each term loan bears interest at a floating per annum rate equal to the one-month LIBOR rate (with a floor of 2.17%) plus 6.75%. We are permitted to make interest-only payments on each term loan through October 31, 2021. We were in compliance with all covenants as of June 30, 2021.

In conjunction with the Dechra Asset Purchase Agreement, on March 16, 2020, we entered into the First Amendment with the Lenders in connection with the sale of our Mirataz asset. Among other things, the First Amendment increases the minimum cash amount, as defined in the Loan Agreement, required to be maintained by KindredBio to $10,000,000. We paid an amendment fee of One Hundred Thousand Dollars $100,000, which was deemed fully earned and non-refundable on the First Amendment's effective date.

On December 23, 2020, we entered into the Second Amendment with the Lenders in connection with the Zimeta Distribution and License Agreement with Dechra. We paid an amendment fee of $15,000. All other terms and conditions remain the same as the First Amendment.

On May 5, 2021, we entered into the Third Amendment with the Lenders in connection with the KIND-030 license agreement with Elanco. All other terms and conditions remain the same as the First Amendment. Pursuant to the Merger Agreement, we are obligated to terminate the Loan Agreement prior to the closing of the Merger.

As of June 30, 2021, assuming the principal payments start on November 1, 2021, our future debt payment obligations towards the principal and final fee, excluding interest payments and exit fee, for the respective fiscal years are as follows (in thousands):

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2021$1,186 
20226,667 
20236,667 
20246,275 
Total principal and final fee payments20,795 
Less: Unamortized debt issuance costs(457)
Less: Unaccreted value of final fee(468)
Loan payable, total$19,870 
Loan payable, short-term$4,519 
Loan payable, long-term$15,351 


7.    Common Stock and Stock-Based Awards
Common Stock
During the six months ended June 30, 2021, we issued 209,400 shares of common stock in connection with the exercise of stock options for gross proceeds of $774,000, of which $183,000 was received in July 2021. In addition, 208,175 restricted stock awards and restricted stock units vested during the six months ended June 30, 2021. 19,933 shares of restricted stock awards and 82,344 shares restricted stock units were withheld to satisfy employee tax withholding obligations arising in conjunction with the vesting of restricted stock and restricted stock units (see below).

Stock-Based Awards
The table below shows the number of shares of common stock underlying options granted to employees, directors and consultants, the assumptions used in the Black-Scholes option pricing model used to value those options and the resulting weighted-average grant date fair value per share:
Stock Option PlanThree months ended June 30,Six months ended June 30,
2021202020212020
Shares underlying options granted29,0001,0001,448,849750,000
Weighted-average exercise price$4.95$4.85$4.49$9.80
Weighted average risk- free interest rate1.05 %0.42 %0.56 %1.66 %
Weighted average expected term (years)6.16.15.75.8
Weighted average expected volatility61%56%61%54%
Expected dividend yield
Weighted-average grant date fair value per share$2.77$2.49$2.44$5.00
In June 2018, we adopted the 2018 Equity Incentive Plan (the “2018 Plan”), and reserved 3,000,000 shares of our common stock for issuance under the 2018 Plan. At the Annual Meeting of Stockholders of the Company held on June 15, 2020 (the “2020 Annual Meeting”), our stockholders approved an amendment to the 2018 Equity Incentive Plan (as amended, the “2018 Plan”) to increase the number of shares of common stock authorized for issuance by 1,600,000 shares. The 2018 Plan is the successor to our 2016 Equity Incentive Plan (the “2016 Plan”), which was retired on June 21, 2018 upon stockholders’ approval of our 2018 Plan. The 2016 Plan was the successor to our 2012 Equity Incentive Plan (the "2012 Plan"), which was retired on May 23, 2016 upon stockholders' approval of our 2016 Plan. All awards made under the 2016 and 2012 Plans shall remain subject to the terms of these plans. Options granted under the 2018 Plan may be either incentive stock options or nonstatutory stock options. The 2018 Plan also provides for the grant of stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards. The exercise price of a stock option may not be less than 100% of the closing price of our common stock on the date of the grant. If, at any time we grant an incentive stock option, and the optionee directly or by attribution owns stock possessing more than 10% of the total
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combined voting power of all classes of KindredBio stock, the option price shall be at least 110% of the fair value and shall not be exercisable more than five years after the date of grant. Options generally vest over a period of one or four years from the date of grant. Options granted under the 2018 Plan expire no later than 10 years from the date of grant. As of June 30, 2021, there were 3,391,342 option shares outstanding, and 717,818 shares available for future grants under the 2018 Plan.

Our Employee Stock Purchase Plan (the "Stock Purchase Plan" or "ESPP"), adopted in December 2014, permits eligible employees to purchase common stock at a discount through payroll deductions during defined six-month consecutive offering periods beginning December 1 with the exception of our first offering period which commenced on January 1, 2015 for a five month duration. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock on the first day of the offering or 85% of the fair market value of our common stock on the purchase date. A total of 200,000 shares of common stock are authorized for issuance under the Stock Purchase Plan. At the Annual Meeting of Stockholders of Kindred Biosciences, Inc. held on June 22, 2018, our stockholders approved an amendment to increase the number of shares that may be issued under the ESPP from 200,000 shares to 500,000 shares. A participant may purchase a maximum of 2,000 shares of common stock during each offering period, not to exceed $25,000 worth of common stock on the offering date during each calendar year.

We use the Black-Scholes option pricing model, in combination with the discounted employee price, in determining the value of the Stock Purchase Plan expense to be recognized during each offering period. The following assumptions were used in the Black-Scholes option pricing model to calculate employee stock-based compensation:

Stock Purchase PlanThree months ended June 30,Six months ended June 30,
2021202020212020
Weighted average risk-free interest rate
0.04%0.18%0.07%0.91%
Weighted average expected term (years)
0.50.50.50.5
Weighted average expected volatility
59.3%124.5%63%88.5%
Expected dividend yield
Weighted-average grant date fair value per share
$1.37$2.08$1.28$2.14

Under the Stock Purchase Plan, employees purchased 21,815 shares of common stock for $71,000 during the six months ended June 30, 2021. At June 30, 2021 and December 31, 2020, we had an outstanding liability of $16,000 and $16,000, respectively, which is included in accrued compensation on the condensed consolidated balance sheets, for employee contributions to the Stock Purchase Plan for shares pending issuance at the end of the next offering period.

We recorded stock-based compensation expense as follows (in thousands):
Three months ended June 30,Six months ended June 30,
2021202020212020
Research and development$476 $509 $912 $1,062 
General and administrative1,042 1,414 3,102 2,925 
$1,518 $1,923 $4,014 $3,987 
We had an aggregate of approximately $