UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2020

OR

 

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

For the transition period from_______________ to _______________

Commission File Number: 001-39103

 

CABALETTA BIO, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-1685768

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

2929 Arch Street, Suite 600

19104

Philadelphia, PA

 

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (267) 759-3100

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.00001 per share

 

CABA

 

The 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, 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 8, 2020, the registrant had 24,034,022 shares of common stock, $0.00001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Balance Sheets

2

 

Condensed Statements of Operations

3

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity

4

 

Condensed Statements of Cash Flows

5

 

Notes to Unaudited Condensed Financial Statements

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

85

Item 3.

Defaults Upon Senior Securities

85

Item 4.

Mine Safety Disclosures

85

Item 5.

Other Information

85

Item 6.

Exhibits

86

Signatures

87

 

 

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors, including, without limitation, risks, uncertainties and assumptions regarding the impact of the COVID-19 pandemic on our business, operations, strategy, goals and anticipated timelines, our ongoing and planned preclinical activities, our ability to initiate, enroll, conduct or complete ongoing and planned clinical trials, our timelines for regulatory submissions and our financial position that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

the success, cost and timing and conduct of our clinical trial program, including our planned Phase 1 clinical trial of DSG3-CAART, or the DesCAARTesTM Trial, and our other product candidates, including statements regarding the timing of initiation and completion of the clinical trials and the period during which the results of the clinical trials will become available;

 

the timing of and our ability to obtain and maintain regulatory approval of our product candidates, including DSG3-CAART, MuSK-CAART, FVIII-CAART and DSG3/1-CAART, in any of the indications for which we plan to develop them, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate;

 

the impact of any business interruptions to our operations, including the timing and enrollment of patients in our planned clinical trials, or to those of our clinical sites, manufacturers, suppliers, or other vendors resulting from the coronavirus disease (COVID-19) pandemic or similar public health crisis;

 

our expected use of proceeds from the initial public offering and the period over which such proceeds, together with cash, will be sufficient to meet our operating needs;

 

our plans to pursue research and development of other product candidates;

 

our plan to infuse our DSG3-CAART product candidate without lymphodepletion or other preconditioning agents initially in our planned DesCAARTesTM Trial;

 

the potential advantages of our proprietary Cabaletta Approach for selective B cell Ablation platform, called our CABA platform, and our product candidates;

 

the extent to which our scientific approach and CABA platform may potentially address a broad range of diseases;

 

the potential benefits and success of our arrangements with the Trustees of the University of Pennsylvania, or Penn, and the Children’s Hospital of Philadelphia, or CHOP, and our scientific co-founders, Drs. Milone and Payne;

 

our ability to successfully commercialize our product candidates, including DSG3-CAART and our other product candidates;

 

the potential receipt of revenue from future sales of DSG3-CAART and our other product candidates;

 

the rate and degree of market acceptance and clinical utility of DSG3-CAART and our other product candidates;

 

our estimates regarding the potential market opportunity for DSG3-CAART and our other product candidates, and our ability to serve those markets;

 

our sales, marketing and distribution capabilities and strategy, whether alone or with potential future collaborators;

 

our ability to establish and maintain arrangements or a facility for manufacture of DSG3-CAART and our other product candidates;

 

our ability to obtain funding for our operations, including funding necessary to initiate and complete our planned DesCAARTesTM Trial and our ongoing preclinical studies of MuSK-CAART, DSG3/1-CAART and FVIII-CAART;

 

the potential achievement of milestones and receipt of payments under our collaborations;

 

our ability to enter into additional collaborations with existing collaborators or other third parties;

 

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and our ability to operate our business without infringing on the intellectual property rights of others;

 

the success of competing therapies that are or become available, and our competitive position;

 

the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

 

the impact of government laws and regulations in the United States and foreign countries; and

 

our ability to attract and retain key scientific or management personnel.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligations to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

 

1

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CABALETTA BIO, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

 

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

131,003

 

 

$

136,204

 

Prepaid expenses and other current assets

 

 

3,119

 

 

 

4,348

 

Total current assets

 

 

134,122

 

 

 

140,552

 

Property and equipment, net

 

 

739

 

 

 

815

 

Other assets

 

 

104

 

 

 

101

 

Total Assets

 

$

134,965

 

 

$

141,468

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,991

 

 

$

920

 

Accrued and other current liabilities

 

 

1,265

 

 

 

2,227

 

Total current liabilities

 

 

3,256

 

 

 

3,147

 

Commitments and Contingencies (see Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.00001 par value: 10,000,000 shares authorized as of

    March 31, 2020 and December 31, 2019, respectively; no shares issued or

    outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Voting and non-voting common stock, $0.00001 par value: 150,000,000

   (143,590,481 voting shares and 6,409,519 non-voting shares) shares authorized

   at March 31, 2020 and December 31, 2019, respectively; 24,034,022

   (17,624,503 voting shares and 6,409,519 non-voting shares) shares issued and

   outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

172,153

 

 

 

171,280

 

Accumulated deficit

 

 

(40,444

)

 

 

(32,959

)

Total stockholders’ equity

 

 

131,709

 

 

 

138,321

 

Total liabilities and stockholders’ equity

 

$

134,965

 

 

$

141,468

 

 

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

2

 

 

 


 

CABALETTA BIO, INC.

Condensed Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

4,620

 

 

$

2,761

 

General and administrative

 

 

3,275

 

 

 

1,229

 

Total operating expenses

 

 

7,895

 

 

 

3,990

 

Loss from operations

 

 

(7,895

)

 

 

(3,990

)

Other income:

 

 

 

 

 

 

 

 

Interest income

 

 

410

 

 

 

458

 

Net loss

 

 

(7,485

)

 

 

(3,532

)

Deemed dividend

 

 

 

 

 

(5,326

)

Net loss attributable to common stockholders

 

$

(7,485

)

 

$

(8,858

)

Net loss per share of voting and non-voting common stock, basic and diluted

 

$

(0.33

)

 

$

(6.05

)

 

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

3

 

 

 


 

CABALETTA BIO, INC.

Condensed Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity

(in thousands, except share amounts)

(unaudited)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance—December 31, 2018

 

 

12,393,047

 

 

$

43,921

 

 

 

 

3,848,320

 

 

$

 

 

$

1,762

 

 

$

(12,452

)

 

$

(10,690

)

Issuance of convertible preferred stock,

  net of issuance costs of $1,293

 

 

6,963,788

 

 

 

48,707

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange of convertible preferred stock,

   including deemed dividend

 

 

 

 

 

5,326

 

 

 

 

 

 

 

 

 

 

(2,258

)

 

 

(3,068

)

 

 

(5,326

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

496

 

 

 

 

 

 

496

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,532

)

 

 

(3,532

)

Balance—March 31, 2019

 

 

19,356,835

 

 

 

97,954

 

 

 

 

3,848,320

 

 

 

 

 

 

 

 

 

(19,052

)

 

 

(19,052

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance—December 31, 2019

 

 

 

 

$

 

 

 

 

24,034,022

 

 

$

 

 

$

171,280

 

 

$

(32,959

)

 

$

138,321

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

873

 

 

 

 

 

 

873

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,485

)

 

 

(7,485

)

Balance—March 31, 2020

 

 

 

 

$

 

 

 

 

24,034,022

 

 

$

 

 

$

172,153

 

 

$

(40,444

)

 

$

131,709

 

 

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

4

 

 

 


 

CABALETTA BIO, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,485

)

 

$

(3,532

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

873

 

 

 

496

 

Depreciation

 

 

76

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,230

 

 

 

749

 

Other assets

 

 

(4

)

 

 

(28

)

Accounts payable

 

 

1,176

 

 

 

(302

)

Accrued and other current liabilities

 

 

(797

)

 

 

352

 

Net cash used in operating activities

 

 

(4,931

)

 

 

(2,265

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(226

)

 

 

(180

)

Net cash used in investing activities

 

 

(226

)

 

 

(180

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock

 

 

 

 

 

50,000

 

Issuance costs of convertible preferred stock

 

 

 

 

 

(216

)

Issuance costs of common stock

 

 

(44

)

 

 

 

Payment of deferred offering costs

 

 

 

 

 

(121

)

Net cash (used in) provided by financing activities

 

 

(44

)

 

 

49,663

 

Net (decrease) increase in cash and cash equivalents

 

 

(5,201

)

 

 

47,218

 

Cash and cash equivalents—beginning of period

 

 

136,204

 

 

 

33,017

 

Cash and cash equivalents—end of period

 

$

131,003

 

 

$

80,235

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Exchange of convertible preferred stock, including deemed dividend

 

$

 

 

$

10,090

 

Issuance costs included in accounts payable

 

$

147

 

 

$

1,077

 

Deferred offering costs in accrued expenses and accounts payable

 

$

 

 

$

547

 

 

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

5

 

 

 


 

CABALETTA BIO, INC.

Notes to Unaudited Condensed Financial Statements

(in thousands, except share and per share amounts)

 

1. Basis of Presentation

Cabaletta Bio, Inc. (the Company or Cabaletta) was incorporated in April 2017 in the State of Delaware as Tycho Therapeutics, Inc. and, in August 2018, changed its name to Cabaletta Bio, Inc. The Company is headquartered in Pennsylvania. Cabaletta is a clinical-stage biotechnology company focused on the discovery and development of engineered T cell therapies for B cell-mediated autoimmune diseases.

Principal operations commenced in April 2018, when the Company executed sponsored research agreements with the Trustees of the University of Pennsylvania (Penn).

On October 16, 2019, the Company effected a 1-for-1.5 reverse split of the Company’s issued and outstanding shares of common stock, par value $0.00001 per share. Upon the effectiveness of the reverse stock split: (i) all shares of outstanding common stock were adjusted; (ii) the conversion price of the Series A convertible preferred stock (Series A Preferred), Series A-1 convertible preferred stock (Series A-1 Preferred), Series A-2 convertible preferred stock (Series A-2 Preferred) and Series B convertible preferred stock (Series B Preferred; collectively, the Convertible Preferred Stock) was adjusted; (iii) the number of shares of common stock for which each outstanding option to purchase common stock is exercisable was adjusted; and (iv) the exercise price of each outstanding option to purchase common stock was adjusted. All of the outstanding common stock share numbers (including shares of common stock subject to the Company’s options and as converted for the outstanding Convertible Preferred Stock shares), share prices, exercise prices and per share amounts contained in the financial statements have been retroactively adjusted in the financial statements to reflect this reverse stock split for all periods presented. The par value per share and the authorized number of shares of common stock and Convertible Preferred Stock were not adjusted as a result of the reverse stock split.

On October 29, 2019, the Company completed its initial public offering (IPO) of 6,800,000 shares of common stock at an offering price of $11.00 per share. The Company received net proceeds of $66,156 after deducting underwriting discounts, commissions and estimated offering expenses. In connection with the IPO, the Company’s outstanding shares of Convertible Preferred Stock were automatically converted into 12,904,534 shares of common stock. In November 2019, the underwriters partially exercised their option and purchased an additional 475,501 shares of common stock resulting in net proceeds to the Company of approximately $4,864, after deducting underwriting discounts and commissions.

Risks and Uncertainties

The Company does not expect to generate revenue from sales of engineered T cell therapies for B cell-mediated autoimmune diseases or any other revenue unless and until the Company completes preclinical and clinical development and obtains regulatory approval for one or more product candidates. If the Company seeks to obtain regulatory approval for any of its product candidates, the Company expects to incur significant commercialization expenses.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. As a result, the Company is unable to predict the timing or amount of increased expenses or when or if the Company will be able to achieve or maintain profitability. Further, the Company is currently dependent on Penn for much of its preclinical research, clinical research and development activities, and expects to be dependent upon Penn for initial manufacturing activities (Note 5). Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. Even if the Company is able to generate revenues from the sale of its product candidates, if approved, it may not become profitable. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations.

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. As of May 2020, COVID-19 has spread to other countries, including Europe and the United States, and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and the United States, Europe and Asia have implemented severe travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. The Company’s financial results for the three months ended March 31, 2020 were not significantly impacted by COVID-19, however, the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its financial condition, operations, and business plans for 2020, including the timing and enrollment of patients in its planned clinical trials and other expected milestones of its product candidates.


6

 

 

 


 

Liquidity

The Company has sustained annual operating losses and expects to continue to generate operating losses for the foreseeable future. The Company’s ultimate success depends on the outcome of its research and development activities. The Company had cash and cash equivalents of $131,003 as of March 31, 2020. Through March 31, 2020, the Company has incurred an accumulated deficit of $40,444. Management expects to incur additional losses in the future as it continues its research and development and will need to raise additional capital to fully implement its business plan and to fund its operations.

The Company intends to raise such additional capital through a combination of equity offerings, debt financings, government funding arrangements, strategic alliances or other sources. However, if such financing is not available at adequate levels and on a timely basis, or such agreements are not available on favorable terms, or at all, as and when needed, the Company will need to reevaluate its operating plan and may be required to delay or discontinue the development of one or more of its product candidates or operational initiatives. The Company expects that its cash and cash equivalents as of March 31, 2020, will be sufficient to fund its projected operations for at least 12 months following the date of these financial statements.

 

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited interim financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) and the applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB). As permitted under these rules, certain footnotes and other financial information that are normally required by GAAP have been condensed or omitted.

In the opinion of management, the accompanying unaudited interim financial statements include all normal and recurring adjustments (which consist primarily of accruals and estimates that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2020 and the results of its operations and its cash flows for the three months ended March 31, 2020 and 2019. The results for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. The balance sheet as of December 31, 2019 included herein was derived from the audited financial statements as of that date. The unaudited interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements, which are included in the Company’s 2019 Annual Report on Form 10-K, filed with the SEC on March 30, 2020 (2019 Annual Report).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to, the fair value of common stock, stock-based compensation and the valuation allowance on the Company’s deferred tax assets. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

 

Off-Balance Sheet Risk and Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents, which are primarily invested in U.S. treasury-based money market funds.  A portion of the Company’s cash is maintained at a federally insured financial institution. The deposits held at this institution are in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institution in which those deposits are held.  The cash in this account is swept daily into U.S. treasury-based and U.S. government-based money market funds. The Company has no off‑balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.

 


7

 

 

 


 

Significant Accounting Policies

 

There have been no significant changes to the Company’s accounting policies during the three months ended March 31, 2020, as compared to the significant accounting policies described in Note 2 of the “Notes to the Financial Statements” in the Company’s audited financial statements included in its 2019 Annual Report.

Fair Value Measurement

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability 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. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Related Party Transactions

The Company engaged a firm controlled by a former executive (until February 2019) of the Company for professional services related to accounting, finance and other administrative functions. For the three months ended March 31, 2020 and 2019, the costs incurred under this arrangement totaled $151 and $187, respectively. As of March 31, 2020 and December 31, 2019, amounts owed under this arrangement totaled $95 and $36, respectively, and are included in accounts payable in the accompanying balance sheets.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (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 financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

8

 

 

 


 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with guidance regarding the accounting for and disclosure of leases. The update requires lessees to recognize the liabilities related all leases, including operating leases, with a term greater than 12 months on the balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. This guidance is effective for public companies for annual and interim periods beginning after December 15, 2018. For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted. The Company expects to adopt Topic 842 for its annual period ending December 31, 2021, but has yet to evaluate the effect that ASU 2016-02 will have on its financial statements or financial statement disclosures.

3. Fair Value Measurements

Fair value of financial instruments

At March 31, 2020 and December 31, 2019, the Company’s financial instruments included cash and cash equivalents, accounts payable and accrued expenses. The carrying amounts reported in the Company's financial statements for these instruments approximate their respective fair values because of the short-term nature of these instruments.

The following tables present financial information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

March 31, 2020

 

 

 

Total

 

 

Quoted

Prices in

Active Markets

for Identical

Assets (Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

131,003

 

 

$

131,003

 

 

$

 

 

$

 

Total

 

$

131,003

 

 

$

131,003

 

 

$

 

 

$

 

 

 

 

 

December 31, 2019

 

 

 

Total

 

 

Quoted

Prices in

Active Markets

for Identical

Assets (Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

136,204

 

 

$

136,204

 

 

$

 

 

$

 

Total

 

$

136,204

 

 

$

136,204

 

 

$

 

 

$

 

 

4. Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Research and development services

 

$

469

 

 

$

231

 

General and administrative services

 

 

132

 

 

 

297

 

Compensation expense

 

 

563

 

 

 

1,522

 

Other

 

 

101

 

 

 

177

 

 

 

$

1,265

 

 

$

2,227

 

9

 

 

 


 

 

5. Commitments and Contingencies

Operating Lease Agreement

In February 2019, the Company entered into an operating lease agreement for new office space in Philadelphia, Pennsylvania. The lease term commenced in May 2019 and will expire in July 2022. The initial annual base rent is $261, and such amount will increase by 2% annually on each anniversary of the commencement date. The Company records rent expense on a straight-line basis over the lease term. Rent expense related to this lease agreement recognized in the accompanying statements of operations was $67 for the three months ended March 31, 2020.

As of March 31, 2020, the future minimum payments for operating leases are as follows:

 

April 1, 2020 to December 31, 2020

 

$

198

 

2021

 

 

268

 

2022

 

 

158

 

Thereafter

 

 

 

 

 

$

624

 

 

Research Service Agreement

In August 2018, the Company entered into a research service agreement with the Children’s Hospital of Philadelphia (CHOP) for the manufacturing of preclinical study and clinical trial material. Research and development expense related to this research service agreement with CHOP recognized in the accompanying statements of operations was $0 and $179 for the three months ended March 31, 2020 and 2019, respectively. There were no amounts due under the research service agreement with CHOP as of March 31, 2020.

 

License Agreement with the Trustees of the University of Pennsylvania

In August 2018, the Company entered into a license agreement with Penn (the Penn Agreement) and activated the license in October 2018 pursuant to which the Company obtained (a) a non-exclusive, non-sublicensable worldwide license to certain of Penn’s intellectual property to conduct research, product development, clinical trials, cell manufacturing and other activities, and (b) an exclusive, worldwide, royalty-bearing right and license, with a right to sublicense, on a target-by-target basis, under certain of Penn’s intellectual property to make, use, sell, offer for sale, import, and otherwise commercialize products for the treatment of autoimmune and alloimmune diseases. In July 2019, the Penn Agreement was amended and restated to include CHOP as a party to the agreement.

Unless earlier terminated, the Penn Agreement expires on the expiration or abandonment or other termination of the last valid claim in Penn’s intellectual property licensed by the Company. The Company may terminate the Penn Agreement at any time for convenience upon 60 days written notice. In the event of an uncured, material breach, Penn may terminate the Penn Agreement upon 60 days written notice.

Under the terms of the Penn Agreement, the Company is obligated to pay $2,000 annually for three years beginning August 2018 for funding to the laboratories of each of Drs. Milone and Payne (see Sponsored Research Agreements—Penn). During the term of the Penn Agreement until the first commercial sale of the first product, the Company is obligated to pay Penn a non-refundable, non-creditable annual license maintenance fee of $10. In 2018, the Company issued 481,318 shares of common stock, with a value of $1,155 and reimbursed Penn $89 for various out-of-pocket expenses related to Penn’s intellectual property. No other amounts have been paid to Penn to date under the Penn Agreement.

The Company is required to pay certain milestone payments upon the achievement of specified clinical and commercial milestones. Milestone payments are reduced by a certain percentage for the second product that achieves a milestone, by an additional percentage for the third product that achieves a milestone, and so on, for each subsequent product that achieves a milestone. In the event that the Company is able to successfully develop and launch multiple products under the Penn Agreement, total milestone payments could approach $20,000. Penn is also eligible to receive tiered royalties at percentage rates in the low single-digits, subject to an annual minimum royalty, on annual worldwide net sales of any products that are commercialized by the Company or its sublicensees that contain or incorporate, or are covered by, the intellectual property licensed by the Company. To the extent the

10

 

 

 


 

Company sublicenses its license rights under the Penn Agreement, Penn would be eligible to receive tiered sublicense income at percentage rates in the mid-single to low double-digits.

There were no amounts due under the Penn Agreement as of March 31, 2020.

Sponsored Research Agreements

The Company has sponsored research agreements with two faculty members at Penn, who are also scientific co-founders of the Company and members of the Company’s scientific advisory board. Under the agreements, the Company has committed to funding a defined research plan for three years through April 2021. The total estimated three-year cost of $8,524 under the two agreements satisfies the Company’s annual obligation under the Penn Agreement (see License Agreement with the Trustees of the University of Pennsylvania above). Research and development expense related to these research agreements recognized in the accompanying statements of operations was $603 and $710 for the three months ended March 31, 2020 and 2019, respectively. Advance payments under these research agreements included in prepaid expenses and other current assets in the accompanying balance sheets were $985 and $1,588 as of March 31, 2020 and December 31, 2019, respectively.

Master Translational Research Services Agreement

In October 2018, the Company entered into a services agreement (the Services Agreement) with Penn for additional research and development services from various laboratories within Penn. The research and development activities are detailed in separately executed Penn organization-specific addenda.

Research and development expense related to executed addenda under the master translational research service agreement with Penn recognized in the accompanying statements of operations for the three months ended March 31, 2020 and 2019 was $711 and $1,067, respectively. The Company may incur expenses up to $450 through the remaining term of the Addendum in 2020 related to the manufacture of vector under the Center for Advanced Retinal and Ocular Therapeutics, or CAROT, Addendum.

Subscription and Technology Transfer Agreement

In July 2019, the Company entered into a subscription and technology transfer agreement pursuant to which the Company owed Penn an upfront subscription fee, which was paid in the third quarter of 2019, and a nominal non-refundable royalty on the net sales of products, a portion of which will be credited toward milestone payments and royalties, respectively, under the Amended License Agreement. Technology transfer activities will be at the Company’s cost and subject to agreement as to the technology to be transferred. No expense was recognized under this agreement during the three months ended March 31, 2020 and March 31, 2019, respectively.

Manufacturing Agreements

Under agreements with manufacturers and other related vendors, the Company is progressing a staged plan for vector development and may incur up to $2,000 in committed spend over the next nine months.

Other Purchase Commitments

In the normal course of business, the Company enters into various purchase commitments with third-party contract manufacturers for the manufacture and processing of its product candidates and related raw materials, contracts with contract research organizations for clinical trials and agreements with vendors for other services and products for operating purposes. These agreements generally provide for termination or cancellation, other than for costs already incurred.  

Indemnification

The Company enters into certain types of contracts that contingently require the Company to indemnify various parties against claims from third parties. These contracts primarily relate to (i) the Company’s Amended and Restated Bylaws (bylaws) under which the Company must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship, (ii) contracts under which the Company must indemnify directors and certain officers and consultants for liabilities arising out of their relationship, (iii) contracts under which the Company may be required to indemnify partners against certain claims, including claims from third parties asserting, among other things, infringement of their intellectual property rights, and (iv) procurement, consulting, or license agreements under which the Company may be required to indemnify vendors, consultants or licensors for certain claims, including claims that may be brought against them arising from the Company’s acts or omissions with respect to the supplied products, technology or services. From time to time, the Company may receive indemnification claims under

11

 

 

 


 

these contracts in the normal course of business. In addition, under these contracts, the Company may have to modify the accused infringing intellectual property and/or refund amounts received.

In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may have a material adverse effect on the Company’s future business, operating results or financial condition. It is not possible to determine the maximum potential amount under these contracts due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

6. Preferred Stock

Preferred Stock

The Company has 10,000,000 shares of authorized preferred stock as of March 31, 2020, none of which is issued or outstanding. The preferred stock is not redeemable and does not have a stated voting, dividend or liquidation preference.

Convertible Preferred Stock

The Company has issued Series A Preferred, Series A-1 Preferred, Series A-2 Preferred, and Series B Preferred of Convertible Preferred Stock. The Company classified Convertible Preferred Stock outside of stockholders’ equity (deficit) because the shares contained deemed liquidation rights that were a contingent redemption feature not solely within the control of the Company.

The following table summarizes the Company’s Convertible Preferred Stock issued and outstanding as of March 31, 2019:

 

 

 

Series A

Preferred

 

 

Series A-1

Preferred

 

 

Series A-2

Preferred

 

 

Series B

Preferred

 

 

Total Convertible

Preferred Stock

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Balance—December 31,

   2018

 

 

3,146,551

 

 

$

12,575

 

 

 

7,372,719

 

 

$

24,994

 

 

 

1,873,777

 

 

$

6,352

 

 

 

 

 

$

 

 

 

12,393,047

 

 

$

43,921

 

Issuance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,963,788

 

 

 

50,000

 

 

 

6,963,788

 

 

 

50,000

 

Exchange, including

   deemed dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,405,332

)

 

 

(4,764

)

 

 

1,405,332

 

 

 

10,090

 

 

 

 

 

 

5,326

 

Issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,293

)

 

 

 

 

 

(1,293

)

Balance—March 31,

   2019

 

 

3,146,551

 

 

$

12,575

 

 

 

7,372,719

 

 

$

24,994

 

 

 

468,445

 

 

$

1,588

 

 

 

8,369,120

 

 

$

58,797

 

 

 

19,356,835

 

 

$

97,954

 

 

In January 2019, the Company’s certificate of incorporation was amended to increase the authorized shares of Convertible Preferred Stock to 20,762,168 shares, and the Company issued 6,963,788 shares of Series B Preferred, resulting in gross proceeds of $50,000. In connection, the Company issued a further 1,405,332 shares of Series B Preferred in exchange for 1,405,332 shares of Series A-2 Preferred. The Company determined the terms of the Series B Preferred to be materially, qualitatively different than the terms of the Series A-2 Preferred and, as such, applied extinguishment accounting with respect to the Series A-2 Preferred received in the exchange resulting in removal of the carrying amount of the Series A-2 Preferred received ($4,764), the addition of the Series B Preferred issued at fair value determined with reference to the contemporaneous issuance of Series B Preferred ($10,090) and the difference ($5,326) determined to be a deemed dividend recorded to additional paid-in capital (to the extent of paid-in capital) and accumulated deficit within stockholders’ deficit on the balance sheet.

The shares of Convertible Preferred Stock had various rights, including voting and dividend rights, preferences and privileges, including optional and mandatory conversion rights.

In October 2019, the Convertible Preferred Stock was converted into 12,904,534 shares of Common Stock. Certain holders of the Company’s Convertible Preferred Stock elected to have such shares convert into 6,409,519 shares of non-voting Common Stock following the closing of the Company’s IPO. The non-voting shares of Common Stock have the same rights and preferences as the Common Stock but are non-voting. No Convertible Preferred Stock was outstanding as of March 31, 2020 or December 31, 2019.

7. Common Stock

Common Stock

Pursuant to the Amended and Restated Certificate of Incorporation filed in August 2018, the Company was authorized to issue a total of 21,147,115 shares of common stock. In January 2019, the Company’s certificate of incorporation was further amended to authorize the issuance of 29,000,000 shares of common stock. In October 2019, the Company’s certificate of incorporation was further

12

 

 

 


 

amended to authorize the issuance of 143,590,481 shares of voting common stock and 6,409,519 shares of non-voting common stock. Holders of voting common stock shall have the exclusive right to vote for the election of directors of the Company and on all other matters requiring stockholder action.

In May 2018, several of the Company’s founders agreed to modify their shares of common stock outstanding to include vesting provisions that require continued service to the Company in order to vest in those shares. As such, the 2,904,000 modified shares of common stock became compensatory upon such modification. The fair value of the awards on the modification date was determined to be $0.74 per share of common stock, based on the issuance of convertible notes in May 2018, considering the maximum conversion price and the seniority of the notes. The total compensation cost resulting from the modification was $2,126. The total compensation cost is being recognized over the three-year vesting term attendant to the founders’ common shares. During the three months ended March 31, 2020, the Company recognized $124 and $44 of this amount in research and development expense and general and administrative expense, respectively. During the three months ended March 31, 2019, the Company recognized $132 and $44 of this amount in research and development expense and general and administrative expense, respectively.

2018 Stock Option and Grant Plan

In September 2018, the Company adopted the 2018 Stock Option and Grant Plan (2018 Plan), which provided for the Company to sell or issue common stock, or other stock-based awards, to employees, members of the board of directors and consultants of the Company. The 2018 Plan was administered by the board of directors, or at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or their committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than 10 years. The Company generally granted stock-based awards with service conditions only (service-based awards), although there has been one grant with performance conditions. Stock options granted under the 2018 Plan generally vest over three to four years. There were 1,959,411 options granted under the 2018 Plan prior to the plan termination upon consummation of the Company’s IPO in October 2019.

2019 Stock Option and Incentive Plan

The 2019 Stock Option and Incentive Plan (2019 Plan) was approved by the Company’s board of directors on October 14, 2019, and became effective on October 23, 2019. The 2019 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, directors and consultants. The number of shares initially reserved for issuance under the 2019 Plan was 2,342,288, which was increased by 961,361 shares on January 1, 2020 and shall be cumulatively increased each January 1 thereafter by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee of the board of directors. As of March 31, 2020, there were 2,582,689 shares remaining available for issuance.

  A summary of stock option activity is presented below:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Contractual

Term (years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding as of January 1, 2020

 

 

2,129,632

 

 

$

5.12

 

 

 

9.2

 

 

$

18,844

 

Granted

 

 

528,072

 

 

 

15.07

 

 

 

 

 

 

 

 

 

Forfeited/Cancelled

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of March 31, 2020

 

 

2,657,704

 

 

 

7.10

 

 

 

9.2

 

 

 

6,326

 

Options Exercisable at March 31, 2020

 

 

482,234

 

 

 

2.20

 

 

 

8.7

 

 

 

2,488

 

 

 

The aggregate intrinsic value of options granted is calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock. The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2020 and 2019 was $9.44 and $3.85, respectively. The aggregate grant-date fair value of options vested during the three months ended March 31, 2020 and 2019 was $388 and $83, respectively.

13

 

 

 


 

The fair value of each award is estimated using Black-Scholes based on the following assumptions:

 

 

Three Months Ended

March 31,

 

 

2020

 

2019

Risk-free interest rate

 

0.93%—1.48%

 

2.23%—2.59%

Expected term

 

5.7—6.1 years

 

5.6—6.1 years

Expected volatility

 

70%—73%

 

70%—73%

Expected dividend yield

 

0%

 

0%

 

Black-Scholes requires the use of subjective assumptions which determine the fair value of stock-based awards. These assumptions include:

Fair value of common stock—Historically, because there was no public market for the Company’s common stock until its IPO in October 2019, the fair value of the Company’s common stock underlying stock-based awards was estimated on each grant date by the Company’s board of directors. In order to determine the fair value of the Company’s common stock underlying stock-based awards, the Company’s board of directors considered, among other things, a valuation of the Company’s common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.

Expected volatility—The Company has limited trading history for its common stock, with its IPO in October 2019, and, as such, the expected volatility is estimated based on the volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock-based awards. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of a stock-based award.

Expected dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Stock-based Compensation

The Company recognizes stock-based compensation with respect to equity awards under the 2018 Plan and with respect to vesting common stock issued to founders. The Company has recorded stock-based compensation in the accompanying statements of operations as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

419

 

 

$

360

 

General and administrative

 

 

454

 

 

 

136

 

Total

 

$

873

 

 

$

496

 

 

As of March 31, 2020, there was $11,076 of unrecognized compensation cost related to unvested option awards, including $176 with respect to one grant with performance-based vesting terms, which is expected to be recognized over a weighted-average period of 3.1 years. As of March 31, 2020, there was $744 of unrecognized compensation cost related to unvested stock awards granted to several Company founders, which is expected to be recognized over a weighted-average period of 1.1 years.

2019 Employee Stock Purchase Plan

The 2019 Employee Stock Purchase Plan (2019 ESPP) was approved by the Company’s board of directors on October 14, 2019, and became effective on October 23, 2019. A total of 234,229 shares of common stock were initially reserved for issuance under the 2019 ESPP, which was cumulatively increased on January 1, 2020 by 234,229 shares and each January 1 thereafter through January 1, 2029 by the least of (i) 234,229 shares of common stock, (ii) 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or (iii) such lesser number of shares determined by the 2019 ESPP’s administrator. The

14

 

 

 


 

2019 ESPP allows eligible employees to purchase shares during certain offering periods. No shares have been purchased under the 2019 ESPP as of March 31, 2020.

8. Income Taxes

The Company did not record an income tax benefit in its statements of operations for the three months ended March 31, 2020 and 2019 as it is more likely than not that the Company will not recognize the federal and state deferred tax benefits generated by its losses. The Company has provided a valuation allowance for the full amount of its net deferred tax assets and liabilities as of March 31, 2020 and December 31, 2019, as management has determined it is more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized. The Company has not recorded any amounts for unrecognized tax benefits as of March 31, 2020 and December 31, 2019.

 

9. Net Loss Per Share

The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. For the three months ended March 31, 2020, the Company had voting and non-voting common stock outstanding. Since the rights of the voting and non-voting common stock are identical, except with respect to voting, the undistributed losses of the Company have been allocated on a proportionate basis to the two classes. Diluted net loss per share is calculated using the if-converted method, which assumes conversion of all non-voting common stock to voting common stock.

 

 

Voting common stock

 

 

Non-voting common stock

 

Basic net loss per share:

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

Allocation of undistributed losses attributable to common stockholders

 

$

(5,380

)

 

$

(2,105

)

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Weighted average number of shares used in basic per share computation

 

 

16,379,788

 

 

 

6,409,519

 

Net loss per share, basic

 

$

(0.33

)

 

$

(0.33

)

 

 

 

 

 

 

 

 

 

Diluted net loss per share:

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

Allocation of undistributed losses for basic computation

 

$

(5,380

)

 

$

(2,105

)

Reallocation of undistributed losses as a result of conversion of

     non-voting to voting common shares

 

 

(2,105

)

 

 

 

Allocation of undistributed losses

 

$

(7,485

)

 

$

(2,105

)

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Weighted average number of shares used in basic per share computation

 

 

16,379,788

 

 

 

6,409,519

 

Add: conversion of non-voting to voting common shares outstanding

 

 

6,409,519

 

 

 

 

Weighted average number of shares used in diluted per share computation

 

 

22,789,307

 

 

 

6,409,519

 

Net loss per share, diluted

 

$

(0.33

)

 

$

(0.33

)

 

For the three months ended March 31, 2019, basic and diluted net loss per share is:

 

 

Common stock

 

Basic and diluted net loss per share:

 

 

 

 

Numerator

 

 

 

 

Net loss attributable to common stockholders

 

$

(8,858

)

 

 

 

 

 

Denominator

 

 

 

 

Weighted average number of shares used in basic and

     diluted per share computation

 

 

1,464,572

 

Net loss per share, diluted

 

$

(6.05

)

 

15

 

 

 


 

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive:

 

 

As of March 31,

 

 

 

2020

 

 

2019

 

Convertible preferred stock

 

 

 

 

 

19,356,835

 

Stock options to purchase common stock

 

 

2,657,704

 

 

 

1,304,285

 

Non-vested common stock

 

 

1,158,185

 

 

 

2,382,651

 

 

 

 

3,815,889

 

 

 

23,043,771

 

 

16

 

 

 


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Risk Factors” and our unaudited interim condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and the notes thereto for the year ended December 31, 2019 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors,” our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Overview

We are a clinical-stage biotechnology company focused on the discovery and development of engineered T cell therapies for patients with B cell-mediated autoimmune diseases. Our proprietary technology utilizes Chimeric AutoAntibody Receptor, or CAAR, T cells that are designed to selectively bind and eliminate only specific B cells that produce disease-causing autoantibodies, or pathogenic B cells, while sparing normal B cells. Our lead CAAR T cell product candidate was designed based on the Chimeric Antigen Receptor, or CAR, T cell technology that has been successfully developed and is marketed for the treatment of B cell cancers. We believe our technology, in combination with our proprietary Cabaletta Approach for selective B cell Ablation platform, called our CABA platform, has applicability across over two dozen B cell-mediated autoimmune diseases that we have identified, reviewed and prioritized. In order to accelerate product development for our lead program and to access a proven cell therapy manufacturing platform, we have entered into a collaboration with the University of Pennsylvania, or Penn. We hold multiple agreements with Penn to develop CAAR T cell therapies for the treatment of these diseases. Our goal is to leverage our team’s expertise in autoimmunity and engineered T cell therapy and our collaboration with Penn to rapidly discover and develop our portfolio of CAAR T product candidates. Our initial focus is on pemphigus vulgaris, or PV, which is an autoimmune blistering skin disease. We submitted an Investigational New Drug, or IND, application for our lead product candidate, DSG3-CAART, to the U.S. Food and Drug Administration, or the FDA, in August 2019. Our IND was cleared in September 2019 and we plan to initiate our DesCAARTesTM Trial in 2020. The FDA granted DSG3-CAART orphan drug designation for the treatment of PV in January 2020, and fast track designation for improving healing of mucosal blisters in patients with mucosal pemphigus vulgaris, or mPV, in May 2020. We are also advancing additional product candidates currently in discovery-stage or preclinical development for the treatment of muscle-specific kinase myasthenia gravis, or MuSK MG, mucocutaneous PV, or mcPV, and Hemophilia A with Factor VIII, or FVIII, alloantibodies.

We were incorporated in April 2017. In August 2018, we entered into multiple agreements with Penn to develop the CAAR T technology to treat B cell-mediated autoimmune diseases. Our operations to date have been financed primarily by net proceeds of $86.4 million from the sale of convertible notes and convertible preferred stock and net proceeds of $71.0 million from the sale of common stock in our initial public offering, or IPO, in October 2019. As of March 31, 2020, we had $131.0 million in cash and cash equivalents.

Impact of the COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. As of May 2020, COVID-19 has spread to Europe, the United States and many other countries, and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and the United States, Europe and Asia have implemented severe travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. As a result, the COVID-19 pandemic has caused significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets.

We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19 community-wide. We have established a work-from-home policy for all employees, other than those performing or supporting business-critical operations, such as certain members of our laboratory staff. For those employees, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We have also maintained efficient communication with our partners and potential clinical sites as the COVID-19 situation has progressed. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs.

The Company’s financial results for the three months ended March 31, 2020 were not significantly impacted by COVID-19.  However, the future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations

17

 

 

 


 

and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. See “Item 1A. Risk Factors” for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.

Key Agreements

Amended and Restated License Agreement with the Trustees of the University of Pennsylvania and the Children’s Hospital of Philadelphia

In July 2019, we entered into an amended and restated license agreement, or the License Agreement, with Penn and the Children’s Hospital of Philadelphia, or CHOP, collectively, the Institutions, pursuant to which we obtained (a) a non-exclusive, non-sublicensable, worldwide research license to make, have made and use products in two subfields of use, (b) effective as of October 2018, an exclusive, worldwide, royalty-bearing license, with the right to sublicense, under certain patent rights of the Institutions to make, use, sell, offer for sale and import products in the same two subfields of use, and (c) effective as of October 2018, a non-exclusive, worldwide, royalty-bearing license, with limited rights to sublicense, under certain of Penn’s know-how, which know-how satisfies certain criteria and is listed on a mutually agreed to schedule, to make, have made, use, sell, offer for sale, import and have imported products in the same two subfields of use. Our rights are subject to the rights of the U.S. government and certain rights retained by the Institutions.

Unless earlier terminated, the License Agreement will expire with respect to a product upon the later of (a) the expiration of the last to expire patent or patent application covering such product or (b) 10 years after the first commercial sale of such product. We may terminate the License Agreement in its entirety or on a subfield-by-subfield basis at any time for convenience upon a certain number of days’ prior written notice. Penn may terminate the License Agreement in its entirety or on a subfield-by-subfield basis for our uncured material breach, including for our failure to meet certain diligence obligations and milestone events. We, however, may extend the achievement date of any milestone event for an additional period of time by making a payment in a certain amount, subject to certain limitations in the number of times each event may be extended.

Sponsored Research Agreements

We have two sponsored research agreements, or SRAs, with Penn for the laboratories of Drs. Payne and Milone, who are also our scientific co-founders and members of our scientific advisory board. Under these agreements, we are committed to funding a defined research plan for three years through April 2021. The total estimated three-year cost of the two agreements is $8.5 million, which satisfies the $2.0 million annual obligation under the License Agreement.

Master Translational Research Services Agreement

In October 2018, we entered into a Master Translational Services Agreement with Penn, or the Services Agreement, pursuant to which Penn agreed to perform certain services related to the research and development of the technology licensed to us under the License Agreement, as well as certain clinical, regulatory and manufacturing services. The Services Agreement will expire on the later of (i) October 19, 2021 or (ii) completion of the services for which we have engaged Penn under the Services Agreement. Either party may terminate this agreement with or without cause upon a certain number of days’ prior written notice.  The services encompassed by the Services Agreement are performed by different organizations at Penn pursuant to certain addenda to the Services Agreement, including the Center for Advanced Retinal and Ocular Therapeutics, or CAROT, Addendum and the CVPF Addendum. In addition, in July 2019 we entered into an Alliance Agreement with Penn, pursuant to which we will pay Penn a nominal annual fee in order for Penn to provide an adequate and consistent level of support to the services that it provides to us.

Components of Operating Results

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sales of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in marketing approval, we may generate revenue in the future from product sales. We cannot predict if, when or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

We may also in the future enter into license or collaboration agreements for our product candidates or intellectual property, and we may generate revenue in the future from payments as a result of such license or collaboration agreements.

18

 

 

 


 

Operating Expenses

Research and Development

Our research and development expenses include:

 

personnel costs, which include salaries, benefits and stock-based compensation expense;

 

expenses incurred under agreements with consultants, third-party contract organizations that conduct research and development activities on our behalf;

 

costs related to sponsored research service agreements;

 

costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers;

 

licensing fees for intellectual property and know-how;

 

laboratory and vendor expenses related to the execution of preclinical studies and planned clinical trials; and

 

laboratory supplies and equipment used for internal research and development activities and related depreciation expense.

We have not reported program costs since inception because historically we have not tracked or recorded our research and development expenses on a pre-clinical program-by-program basis. We use our personnel and infrastructure resources across the breadth of our research and development activities, which are directed toward identifying and developing product candidates.

We expense all research and development costs in the periods in which they are incurred. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by Penn, our vendors and third-party service providers.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as our programs advance and we conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of the current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:

 

successful completion of preclinical studies and IND-enabling studies;

 

development of chemistry, manufacturing and controls, or CMC, processes and procedures for purposes of IND applications;

 

successful patient enrollment in, and the initiation and completion of, clinical trials;

 

the impact of any business interruptions to our operations, including the timing and enrollment of patients in our planned clinical trials, or to those of our clinical sites, manufacturers, suppliers, or other vendors resulting from the coronavirus disease (COVID-19) pandemic or similar public health crisis;

 

receipt of regulatory approvals from applicable regulatory authorities;

 

establishing commercial manufacturing capabilities or arrangements with third-party manufacturers;

 

obtaining and maintaining patent and trade secret protection and non-patent exclusivity;

 

launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;

 

acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;

 

effectively competing with other therapies and treatment options;

 

a continued acceptable safety and efficacy profile following approval;

19

 

 

 


 

 

enforcing and defending intellectual property and proprietary rights and claims; and

 

achieving desirable medicinal properties for the intended indications.

We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority, were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development. We expect our research and development expenses to increase for the foreseeable future as we continue the development of product candidates.

General and Administrative

Our general and administrative expenses consist primarily of personnel costs, costs related to maintenance and filing of intellectual property, depreciation expense and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation expense. We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, increased costs of operating as a public company and the potential commercialization of our product candidates. We anticipate our general and administrative costs will increase with respect to the hiring of additional personnel, developing commercial infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs.

Other Income

Our other income includes interest income earned on money-market fund cash equivalents.

Results of Operations for the Three Months ended March 31, 2020 and 2019

The following sets forth our results of operations for the three months ended March 31, 2020 and 2019:

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

 

 

(in thousands)

 

 

 

 

 

Statements of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

4,620

 

 

$

2,761

 

 

$

1,859

 

General and administrative

 

 

3,275

 

 

 

1,229

 

 

 

2,046