caba-10q_20200630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2020

OR

 

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

For the transition period from_______________ to _______________

Commission File Number: 001-39103

 

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 July 29, 2020, the registrant had 24,039,594 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 and Comprehensive Loss

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

87

Item 3.

Defaults Upon Senior Securities

87

Item 4.

Mine Safety Disclosures

87

Item 5.

Other Information

87

Item 6.

Exhibits

88

Signatures

89

 

 

 

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 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 and our planned Investigational New Drug application submissions, 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 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 and our expanded sponsored research agreement 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  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)

 

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

112,097

 

 

$

136,204

 

Short-term investments

 

 

7,698

 

 

 

 

Prepaid expenses and other current assets

 

 

3,676

 

 

 

4,348

 

Total current assets

 

 

123,471

 

 

 

140,552

 

Property and equipment, net

 

 

806

 

 

 

815

 

Long-term investments

 

 

3,383

 

 

 

 

Other assets

 

 

238

 

 

 

101

 

Total assets

 

$

127,898

 

 

$

141,468

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

991

 

 

$

920

 

Accrued and other current liabilities

 

 

2,272

 

 

 

2,227

 

Total current liabilities

 

 

3,263

 

 

 

3,147

 

Commitments and Contingencies (see Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

    June 30, 2020 and December 31, 2019, respectively; no shares issued or

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

 

 

 

 

 

 

Additional paid-in capital

 

 

173,220

 

 

 

171,280

 

Accumulated other comprehensive income

 

 

11

 

 

 

 

Accumulated deficit

 

 

(48,596

)

 

 

(32,959

)

Total stockholders’ equity

 

 

124,635

 

 

 

138,321

 

Total liabilities and stockholders’ equity

 

$

127,898

 

 

$

141,468

 

 

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

2

 

 

 


 

CABALETTA BIO, INC.

Condensed Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,331

 

 

$

2,664

 

 

$

9,951

 

 

$

5,425

 

General and administrative

 

 

2,861

 

 

 

1,138

 

 

 

6,136

 

 

 

2,367

 

Total operating expenses

 

 

8,192

 

 

 

3,802

 

 

 

16,087

 

 

 

7,792

 

Loss from operations

 

 

(8,192

)

 

 

(3,802

)

 

 

(16,087

)

 

 

(7,792

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

40

 

 

 

444

 

 

 

450

 

 

 

902

 

Net loss

 

 

(8,152

)

 

 

(3,358

)

 

 

(15,637

)

 

 

(6,890

)

Deemed dividend

 

 

 

 

 

 

 

 

 

 

 

(5,326

)

Net loss attributable to common stockholders

 

$

(8,152

)

 

$

(3,358

)

 

$

(15,637

)

 

$

(12,216

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on available-for-sale investments, net of tax

 

 

11

 

 

 

 

 

 

11

 

 

 

 

Net comprehensive loss

 

$

(8,141

)

 

$

(3,358

)

 

$

(15,626

)

 

$

(12,216

)

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

 

$

(0.35

)

 

$

(1.87

)

 

$

(0.68

)

 

$

(7.48

)

 

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 Other

 

 

Accumulated

 

 

Total Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Income

 

 

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

)

Exchange of convertible preferred stock, including deemed dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(416

)

 

 

 

 

 

416

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

416

 

 

 

 

 

 

 

 

 

416

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,358

)

 

 

(3,358

)

Balance—June 30, 2019

 

 

19,356,835

 

 

$

97,954

 

 

 

 

3,848,320

 

 

$

 

 

$

 

 

$

 

 

$

(21,994

)

 

$

(21,994

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated Other

 

 

Accumulated

 

 

Total Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Comprehensive Income

 

 

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

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,067

 

 

 

 

 

 

 

 

 

1,067

 

Net unrealized gains on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,152

)

 

 

(8,152

)

Balance—June 30, 2020

 

 

 

 

$

 

 

 

 

24,034,022

 

 

$

 

 

$

173,220

 

 

$

11

 

 

$

(48,596

)

 

$

124,635

 

 

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

 

4

 

 

 


 

CABALETTA BIO, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(15,637

)

 

$

(6,890

)

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

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,940

 

 

 

912

 

Amortization of premium on investments

 

 

28

 

 

 

 

Depreciation

 

 

154

 

 

 

21

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

672

 

 

 

93

 

Deferred offering costs

 

 

 

 

 

(817

)

Other assets

 

 

(137

)

 

 

(89

)

Accounts payable

 

 

198

 

 

 

(120

)

Accrued and other current liabilities

 

 

209

 

 

 

804

 

Net cash used in operating activities

 

 

(12,573

)

 

 

(6,086

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(246

)

 

 

(380

)

Purchases of available-for-sale securities

 

 

(11,097

)

 

 

 

Net cash used in investing activities

 

 

(11,343

)

 

 

(380

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock

 

 

 

 

 

50,000

 

Issuance costs of convertible preferred stock

 

 

 

 

 

(1,293

)

Issuance costs of common stock

 

 

(191

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(191

)

 

 

48,707

 

Net (decrease) increase in cash and cash equivalents

 

 

(24,107

)

 

 

42,241

 

Cash and cash equivalents—beginning of period

 

 

136,204

 

 

 

33,017

 

Cash and cash equivalents—end of period

 

$

112,097

 

 

$

75,258

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Exchange of convertible preferred stock, including deemed dividend

 

$

 

 

$

10,090

 

Deferred offering costs in accrued expenses and accounts payable

 

$

 

 

$

249

 

Property and equipment purchases included in accounts payable

 

$

126

 

 

$

 

 

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 and, in March 2020, was declared a pandemic by the World Health Organization. The virus continues to spread globally, including in the United States, and efforts to contain the spread of COVID-19, including severe travel restrictions, social distancing requirements, stay-at-home orders and other measures, have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. The Company’s financial results for the three and six months ended June 30, 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 its ability to raise additional capital, the timing and enrollment of patients in its planned clinical trials, future financings 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 and investments of $123,178 as of June 30, 2020. Through June 30, 2020, the Company has incurred an accumulated deficit of $48,596. 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 and investments as of June 30, 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 June 30, 2020 and the results of its operations and its cash flows for the three and six months ended June 30, 2020 and 2019. The results for the three and six months ended June 30, 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, the fair value of the Company’s investments, 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, and available-for-sale debt securities, which are invested in investment grade corporate bonds with high credit quality issuers. These investments have maturities between 2020 and 2021. 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

Aside from the Investments accounting policy described below, there have been no significant changes to the Company’s accounting policies during the three and six months ended June 30, 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.

 

Investments

Investments are available-for-sale and are carried at estimated fair value. The Company’s valuations of available-for-sale debt securities are generally derived from independent pricing services based upon quoted prices in active markets for similar securities, with prices adjusted for yield and number of days to maturity, or based on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active markets. Management determines the appropriate classification of its investments in debt securities at the time of purchase and at the end of each reporting period. Investments with original maturities beyond three months at the date of purchase and which mature at, or less than, twelve months from the balance sheet date are classified as current.

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive income. The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors including the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the available-for-sale security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or if more likely than not it will be required to sell any available-for-sale securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other-than-temporary, if any, on available-for-sale securities are included in interest and other income, net. The cost of investments sold is based on the specific-identification method. Interest income on investments as well as amortization of discount or premium is included in interest income.

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 and six months ended June 30, 2020, the costs incurred under this arrangement totaled $71 and $222, respectively. For the three and six months ended June 30, 2019, the costs incurred under this arrangement totaled $93 and $280, respectively. As of June 30, 2020 and December 31, 2019, amounts owed under this arrangement totaled $13 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

8

 

 

 


 

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.

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 June 30, 2020 and December 31, 2019, the Company’s financial instruments included cash and cash equivalents, available-for-sale debt securities, accounts payable and accrued expenses. The carrying amounts for cash and cash equivalents, accounts payable and accrued expenses 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:

 

 

 

June 30, 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 and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

112,097

 

 

$

112,097

 

 

$

 

 

$

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

7,698

 

 

 

 

 

 

7,698

 

 

 

 

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

3,383

 

 

 

 

 

 

3,383

 

 

 

 

Total

 

$

123,178

 

 

$

112,097

 

 

$

11,081

 

 

$

 

 

 

 

 

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 and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

136,204

 

 

$

136,204

 

 

$

 

 

$

 

Total

 

$

136,204

 

 

$

136,204

 

 

$

 

 

$

 

9

 

 

 


 

The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly. There were no transfers of assets between the fair value measurement levels during the three and six months ended June 30, 2020 or 2019.

 

For debt securities classified as available-for-sale investments, the Company records unrealized gains or losses resulting from changes in fair value between measurement dates as a component of other comprehensive income. The Company did not hold any available-for-sale securities as of December 31, 2019.

 

 

 

June 30, 2020

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair value

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in cash and cash equivalents

 

$

112,097

 

 

$

 

 

$

 

 

$

112,097

 

Corporate bonds - due in one year or less

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in short-term investments

 

 

7,693

 

 

 

5

 

 

 

 

 

 

7,698

 

Corporate bonds - due between one to two years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in long-term investments

 

 

3,377

 

 

 

6

 

 

 

 

 

 

3,383

 

Total

 

$

123,167

 

 

$

11

 

 

$

 

 

$

123,178

 

 

4. Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following:

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Research and development services

 

$

1,098

 

 

$

231

 

General and administrative services

 

 

120

 

 

 

297

 

Compensation expense

 

 

941

 

 

 

1,522

 

Other

 

 

113

 

 

 

177

 

 

 

$

2,272

 

 

$

2,227

 

 

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 $66 and $133 for the three and six months ended June 30, 2020 and $43 for the three and six months ended June 30, 2019.

As of June 30, 2020, the future minimum payments for operating leases are as follows:

 

July 1, 2020 to December 31, 2020

 

$

133

 

2021

 

 

268

 

2022

 

 

158

 

Thereafter

 

 

 

 

 

$

559

 

 

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

10

 

 

 


 

service agreement with CHOP recognized in the accompanying statements of operations was $22 and $201 for the three and six months ended June 30, 2019, respectively. There were no expenses related to this agreement for the three or six months ended June 30, 2020 and there were no amounts due under the research service agreement with CHOP as of June 30, 2020.

 

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

In August 2018, the Company entered into a license agreement with Penn, as amended and restated in July 2019 to include CHOP as a party, and as amended in May 2020 (the Penn Agreement) 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.

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). 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 May 2020, the Company paid Penn an additional, non-refundable, non-creditable license fee of $33 under the amended Penn Agreement. 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 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 June 30, 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. In May 2020, one of the agreements was amended to expand the scope of sponsored research. 

Under the amended agreements, the Company has committed to funding a defined research plan through February 2023. The total estimated cost of $11,781 under the 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 $733 and $1,336 for the three and six months ended June 30, 2020, respectively, and $711 and $1,421 for the three and six months ended June 30, 2019, respectively. Advance payments under these research agreements included in prepaid expenses and other current assets in the accompanying balance sheets were $1,673 and $1,588 as of June 30, 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. In May 2020, the Company amended its Addendum with the Center for Advanced Retinal and Ocular Therapeutics (CAROT) to expand access to vector manufacturing.

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 and six months ended June 30, 2020 was $1,027 and

11

 

 

 


 

$1,738, respectively, and $617 and $1,684 for the three and six months ended June 30, 2019, respectively. The Company may incur expenses up to $1,510 through the remaining term of the CAROT Amended 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 and six months ended June 30, 2020 and 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 $2,250 in committed spend over the next six 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 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 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.

12

 

 

 


 

6. Preferred Stock

Preferred Stock

The Company has 10,000,000 shares of authorized preferred stock as of June 30, 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 June 30, 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