☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2020
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐☐☒ No ☒and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation (§and post such files). Yes ☒ No ☐Large accelerated filer ☐ Accelerated filer ☐☒ ☒ (Do not check if a smaller reporting company)☐ Smaller reporting company ☐☒Emerging growth company ☒
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PART I. | 1 | |||||
Item 1. | 1 | |||||
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Item 2. | 25 | |||||
Item 3. | 40 | |||||
Item 4. | 40 | |||||
PART II. | 41 | |||||
Item 1. | 41 | |||||
Item 1A. | 41 | |||||
Item 5. | 89 | |||||
Item 6. | 90 | |||||
91 | ||||||
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• | the impacts of the COVID-19 pandemic; |
• | the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs; |
• | our estimates regarding expenses, future revenue, capital requirements and need for additional financing; |
• | our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash and cash equivalents and the period in which we expect that such cash and cash equivalents will enable us to fund such operating expenses and capital expenditure requirements; |
• | our plans to develop our product candidates; |
• | the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for our product candidates; |
• | the potential advantages of our product candidates; |
• | the rate and degree of market acceptance and clinical utility of our product candidates; |
• | our estimates regarding the potential market opportunity for our product candidates; |
• | our commercialization, marketing and manufacturing capabilities and strategy; |
• | our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates; |
• | our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives; |
• | the impact of government laws and regulations; |
• | our competitive position; |
• | developments relating to our competitors and our industry; and |
• | our ability to establish collaborations or obtain additional funding. |
June 30, 2018 | December 31, 2017 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 16,495 | $ | 48,058 | ||||
Short-term investments | 1,000 | 9,997 | ||||||
Prepaid expenses and other current assets | 4,826 | 3,014 | ||||||
Restricted cash | 1,966 | 1,966 | ||||||
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Total current assets | 24,287 | 63,035 | ||||||
Property and equipment, net | 9,868 | 6,778 | ||||||
Goodwill | 21,359 | 21,359 | ||||||
In-process research and development | 106,842 | 106,842 | ||||||
Deferred offering costs | 3,976 | 511 | ||||||
Other assets | — | 22 | ||||||
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Total assets | $ | 166,332 | $ | 198,547 | ||||
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Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 6,219 | $ | 4,594 | ||||
Accrued expenses | 5,758 | 5,888 | ||||||
Current portion of contingent consideration | 2,387 | 1,296 | ||||||
Deferred rent | — | 307 | ||||||
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Total current liabilities | 14,364 | 12,085 | ||||||
Long-term portion of contingent consideration | 91,382 | 79,713 | ||||||
Deferred tax liabilities | 3,437 | 6,039 | ||||||
Deferred rent, net of current portion | 2,023 | 1,329 | ||||||
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Total liabilities | 111,206 | 99,166 | ||||||
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Commitments and contingencies (Notes 3 and 12) | ||||||||
Redeemable convertible preferred stock (Series A, B and C), $0.001 par value; 145,833,064 shares authorized as of June 30, 2018 and December 31, 2017; 142,288,292 shares issued and outstanding as of June 30, 2018 and December 31, 2017; aggregate liquidation preference of $192,374 as of June 30, 2018 and December 31, 2017 | 193,540 | 192,896 | ||||||
Stockholders’ equity (deficit): | ||||||||
Common stock, $0.001 par value; 236,092,611 shares authorized as of June 30, 2018 and December 31, 2017; 9,631,939 shares and 9,582,791 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively | 10 | 10 | ||||||
Additionalpaid-in capital | 59,096 | 55,204 | ||||||
Accumulated deficit | (197,520 | ) | (148,808 | ) | ||||
Accumulated other comprehensive income | — | 79 | ||||||
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Total stockholders’ equity (deficit) | (138,414 | ) | (93,515 | ) | ||||
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Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) | $ | 166,332 | $ | 198,547 | ||||
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September 30, 2020 | December 31, 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 674,050 | $ | 84,580 | ||||
Short-term investments | — | 104,098 | ||||||
Collaboration receivables | 25,139 | 4,596 | ||||||
Prepaid expenses and other current assets | 10,822 | 9,391 | ||||||
Restricted cash | 950 | 950 | ||||||
Total current assets | 710,961 | 203,615 | ||||||
Property and equipment, net | 15,044 | 12,539 | ||||||
Right-of-use | 75,650 | 10,400 | ||||||
Goodwill | 21,359 | 21,359 | ||||||
Intangible assets, net | 81,280 | 85,536 | ||||||
Other assets | 4,334 | 2,752 | ||||||
Total assets | $ | 908,628 | $ | 336,201 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 6,815 | $ | 15,968 | ||||
Accrued expenses | 11,766 | 7,072 | ||||||
Current portion of deferred revenue | 93,164 | 18,100 | ||||||
Current portion of operating lease liability | 12,279 | 530 | ||||||
Total current liabilities | 124,024 | 41,670 | ||||||
Contingent consideration | 123,740 | 103,655 | ||||||
Deferred revenue, net of current portion | 242,047 | 25,256 | ||||||
Operating lease liability, net of current portion | 53,151 | 12,084 | ||||||
Total liabilities | 542,962 | 182,665 | ||||||
Commitments and contingencies (Notes 3 and 12) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019 | — | — | ||||||
Common stock, $0.001 par value; 200,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 74,251,559 shares and 60,022,067 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 74 | 60 | ||||||
Additional paid-in capital | 758,314 | 512,231 | ||||||
Accumulated deficit | (392,722 | ) | (359,496 | ) | ||||
Accumulated other comprehensive income | — | 741 | ||||||
Total stockholders’ equity | 365,666 | 153,536 | ||||||
Total liabilities and stockholders’ equity | $ | 908,628 | $ | 336,201 | ||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | 15,219 | $ | 13,506 | $ | 27,921 | $ | 23,127 | ||||||||
General and administrative | 5,991 | 3,125 | 10,769 | 6,099 | ||||||||||||
Change in fair value of contingent consideration | 7,852 | 2,324 | 12,760 | 4,599 | ||||||||||||
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Total operating expenses | 29,062 | 18,955 | 51,450 | 33,825 | ||||||||||||
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Loss from operations | (29,062 | ) | (18,955 | ) | (51,450 | ) | (33,825 | ) | ||||||||
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Other income (expense): | ||||||||||||||||
Interest income | 91 | 79 | 181 | 158 | ||||||||||||
Other income (expense), net | (32 | ) | 73 | (45 | ) | 60 | ||||||||||
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Total other income (expense), net | 59 | 152 | 136 | 218 | ||||||||||||
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Loss before benefit from income taxes | (29,003 | ) | (18,803 | ) | (51,314 | ) | (33,607 | ) | ||||||||
Benefit from income taxes | 1,500 | 870 | 2,602 | 1,721 | ||||||||||||
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Net loss | (27,503 | ) | (17,933 | ) | (48,712 | ) | (31,886 | ) | ||||||||
Accretion of redeemable convertible preferred stock to redemption value | 459 | 192 | 644 | 360 | ||||||||||||
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Net loss attributable to common stockholders | $ | (27,044 | ) | $ | (17,741 | ) | $ | (48,068 | ) | $ | (31,526 | ) | ||||
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Net loss per share attributable to common stockholders—basic and diluted | $ | (2.94 | ) | $ | (2.31 | ) | $ | (5.26 | ) | $ | (4.13 | ) | ||||
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Weighted average common shares outstanding—basic and diluted | 9,187,207 | 7,676,426 | 9,139,638 | 7,631,883 | ||||||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Collaboration revenue | $ | 66,446 | $ | 1,266 | $ | 87,420 | $ | 3,914 | ||||||||
Operating expenses: | ||||||||||||||||
Research and development | 26,344 | 17,295 | 76,785 | 51,343 | ||||||||||||
General and administrative | 9,163 | 6,881 | 25,223 | 21,284 | ||||||||||||
Change in fair value of contingent consideration | 14,190 | (19,834 | ) | 20,085 | (3,243 | ) | ||||||||||
Impairment of intangible asset | — | 18,559 | — | 18,559 | ||||||||||||
Total operating expenses | 49,697 | 22,901 | 122,093 | 87,943 | ||||||||||||
Income (loss) from operations | 16,749 | (21,635 | ) | (34,673 | ) | (84,029 | ) | |||||||||
Other income, net | 595 | 408 | 1,447 | 1,286 | ||||||||||||
Income (loss) before benefit from income taxes | 17,344 | (21,227 | ) | (33,226 | ) | (82,743 | ) | |||||||||
Benefit from income taxes | — | — | — | 486 | ||||||||||||
Net income (loss) | $ | 17,344 | $ | (21,227 | ) | $ | (33,226 | ) | $ | (82,257 | ) | |||||
Net income (loss) per share—basic | $ | 0.24 | $ | (0.41 | ) | $ | (0.51 | ) | $ | (1.69 | ) | |||||
Weighted average common shares outstanding—basic | 73,183,923 | 51,891,157 | 65,187,435 | 48,574,275 | ||||||||||||
Net income (loss) per share—diluted | $ | 0.23 | $ | (0.41 | ) | $ | (0.51 | ) | $ | (1.69 | ) | |||||
Weighted average common shares outstanding—diluted | 76,440,293 | 51,891,157 | 65,187,435 | 48,574,275 | ||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net loss | $ | (27,503 | ) | $ | (17,933 | ) | $ | (48,712 | ) | $ | (31,886 | ) | ||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized gains (losses) onavailable-for-sale securities, net of tax of $0 | — | 45 | (79 | ) | 77 | |||||||||||
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Comprehensive loss | $ | (27,503 | ) | $ | (17,888 | ) | $ | (48,791 | ) | $ | (31,809 | ) | ||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income (loss) | $ | 17,344 | $ | (21,227 | ) | $ | (33,226 | ) | $ | (82,257 | ) | |||||
Other comprehensive income (loss): | ||||||||||||||||
Unrealized gains (losses) on available-for-sale | (540 | ) | 109 | (741 | ) | 483 | ||||||||||
Comprehensive income (loss) | $ | 16,804 | $ | (21,118 | ) | $ | (33,967 | ) | $ | (81,774 | ) | |||||
Six Months Ended June 30, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (48,712 | ) | $ | (31,886 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization expense | 1,447 | 740 | ||||||
Stock-based compensation expense | 4,258 | 792 | ||||||
Change in fair value of contingent consideration | 12,760 | 4,599 | ||||||
Deferred income tax benefit | (2,602 | ) | (1,721 | ) | ||||
Accretion of discount on short-term investments | 43 | (98 | ) | |||||
Changes in operating assets and liabilities, net of effects of acquisition: | ||||||||
Prepaid expenses and other assets | (2,509 | ) | (501 | ) | ||||
Accounts payable | 1,081 | 1,071 | ||||||
Accrued expenses | 266 | 1,651 | ||||||
Deferred rent | 387 | 4 | ||||||
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Net cash used in operating activities | (33,581 | ) | (25,349 | ) | ||||
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Cash flows from investing activities: | ||||||||
Purchases of investments | (6,000 | ) | (60,791 | ) | ||||
Sales and maturities of investments | 14,918 | 35,962 | ||||||
Purchases of property and equipment | (4,757 | ) | (323 | ) | ||||
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Net cash provided by (used in) investing activities | 4,161 | (25,152 | ) | |||||
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Cash flows from financing activities: | ||||||||
Payments of initial public offering costs | (2,421 | ) | — | |||||
Proceeds from option exercises | 278 | — | ||||||
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Net cash used in financing activities | (2,143 | ) | — | |||||
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Net decrease in cash, cash equivalents and restricted cash | (31,563 | ) | (50,501 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 50,024 | 58,761 | ||||||
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Cash, cash equivalents and restricted cash at end of period | $ | 18,461 | $ | 8,260 | ||||
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Cash, cash equivalents and restricted cash at end of period: | ||||||||
Cash and cash equivalents | $ | 16,495 | $ | 6,025 | ||||
Restricted cash | 1,966 | 2,235 | ||||||
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Total cash, cash equivalents and restricted cash at end of period | $ | 18,461 | $ | 8,260 | ||||
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Supplemental disclosure ofnon-cash investing and financing activities: | ||||||||
Purchases of property and equipment included in accrued expenses | $ | 489 | $ | 39 | ||||
Deferred offering costs included in accounts payable and accrued expenses | $ | 1,402 | $ | — | ||||
Accretion of redeemable convertible preferred units and stock to redemption value | $ | 644 | $ | 360 |
thousands, except share amounts)
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders’ Equity | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balances at December 31, 2019 | 60,022,067 | $ | 60 | $ | 512,231 | $ | (359,496 | ) | $ | 741 | $ | 153,536 | ||||||||||||
Exercise of stock options | 15,596 | — | 132 | — | — | 132 | ||||||||||||||||||
Stock-based compensation expense | — | — | 3,172 | — | — | 3,172 | ||||||||||||||||||
Unrealized gains on available-for-sale | — | — | — | — | 114 | 114 | ||||||||||||||||||
Net loss | — | — | — | (14,282 | ) | — | (14,282 | ) | ||||||||||||||||
Balances at March 31, 2020 | 60,037,663 | 60 | 515,535 | (373,778 | ) | 855 | 142,672 | |||||||||||||||||
Issuance of common stock in connection with public offerings, net of underwriting discounts and commissions and offering costs | 8,544,982 | 9 | 153,602 | — | — | 153,611 | ||||||||||||||||||
Exercise of stock options | 776,864 | — | 5,699 | — | — | 5,699 | ||||||||||||||||||
Stock-based compensation expense | — | — | 6,014 | — | — | 6,014 | ||||||||||||||||||
Unrealized losses on available-for-sale | — | — | — | — | (315 | ) | (315 | ) | ||||||||||||||||
Net loss | — | — | — | (36,288 | ) | — | (36,288 | ) | ||||||||||||||||
Balances at June 30, 2020 | 69,359,509 | 69 | 680,850 | (410,066 | ) | 540 | 271,393 | |||||||||||||||||
Issuance of common stock in connection with Securities Purchase Agreement | 4,884,434 | 5 | 73,749 | — | — | 73,754 | ||||||||||||||||||
Exercise of stock options | 7,616 | — | 60 | — | — | 60 | ||||||||||||||||||
Stock-based compensation expense | — | — | 3,655 | — | — | 3,655 | ||||||||||||||||||
Unrealized losses on available-for-sale | — | — | — | — | (540 | ) | (540 | ) | ||||||||||||||||
Net income | — | — | — | 17,344 | — | 17,344 | ||||||||||||||||||
Balances at September 30, 2020 | 74,251,559 | $ | 74 | $ | 758,314 | $ | (392,722 | ) | $ | — | $ | 365,666 | ||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders’ Equity | ||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balances at December 31, 2018 | 45,139,955 | $ | 45 | $ | 371,257 | $ | (246,203 | ) | $ | 196 | $ | 125,295 | ||||||||||||
Exercise of stock options | 154,484 | — | 897 | — | — | 897 | ||||||||||||||||||
Stock-based compensation expense | — | — | 1,959 | — | — | 1,959 | ||||||||||||||||||
Unrealized gains on available-for-sale | — | — | — | — | 155 | 155 | ||||||||||||||||||
Net loss | — | — | — | (33,198 | ) | — | (33,198 | ) | ||||||||||||||||
Balances at March 31, 2019 | 45,294,439 | 45 | 374,113 | (279,401 | ) | 351 | 95,108 | |||||||||||||||||
Issuance of common stock in connection with private placement, net of placement agent fees and offering costs | 5,582,940 | 6 | 44,128 | — | — | 44,134 | ||||||||||||||||||
Issuance of common stock in connection with a former employee letter agreement | 67,406 | — | 847 | — | — | 847 | ||||||||||||||||||
Forfeited restricted common stock | (1,334 | ) | — | (1 | ) | — | — | (1 | ) | |||||||||||||||
Exercise of stock options | 66,917 | — | 519 | — | — | 519 | ||||||||||||||||||
Stock-based compensation expense | — | — | 2,703 | — | — | 2,703 | ||||||||||||||||||
Unrealized gains on available-for-sale | — | — | — | — | 219 | 219 | ||||||||||||||||||
Net loss | — | — | — | (27,832 | ) | — | (27,832 | ) | ||||||||||||||||
Balances at June 30, 2019 | 51,010,368 | 51 | 422,309 | (307,233 | ) | 570 | 115,697 | |||||||||||||||||
Issuance of common stock in connection with public offering, net of underwriting discounts and commissions and offering costs | 9,000,000 | 9 | 84,002 | — | — | 84,011 | ||||||||||||||||||
Forfeited restricted common stock | (449 | ) | — | — | — | — | — | |||||||||||||||||
Exercise of stock options | 10,806 | — | 84 | — | — | 84 | ||||||||||||||||||
Stock-based compensation expense | — | — | 2,899 | — | — | 2,899 | ||||||||||||||||||
Unrealized gains on available-for-sale | — | — | — | — | 109 | 109 | ||||||||||||||||||
Net loss | — | — | — | (21,227 | ) | — | (21,227 | ) | ||||||||||||||||
Balances at September 30, 2019 | 60,020,725 | $ | 60 | $ | 509,294 | $ | (328,460 | ) | $ | 679 | $ | 181,573 | ||||||||||||
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (33,226 | ) | $ | (82,257 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization expense | 6,374 | 2,951 | ||||||
Stock-based compensation expense | 12,841 | 8,408 | ||||||
Impairment of intangible asset | — | 18,559 | ||||||
Change in fair value of contingent consideration | 20,085 | (3,243 | ) | |||||
Deferred income tax benefit | — | (486 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Collaboration receivables | (20,543 | ) | 125 | |||||
Prepaid expenses and other assets | (5,766 | ) | (2,293 | ) | ||||
Right-of-use | 1,338 | 357 | ||||||
Long-term prepaid rent | (10,057 | ) | (2,492 | ) | ||||
Accounts payable | (8,560 | ) | (1,740 | ) | ||||
Accrued expenses | 4,913 | 2,244 | ||||||
Lease liability | (962 | ) | (270 | ) | ||||
Deferred revenue | 291,855 | (1,763 | ) | |||||
Net cash provided by (used in) operating activities | 258,292 | (61,900 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of investments | (27,409 | ) | (138,156 | ) | ||||
Sales and maturities of investments | 130,765 | 116,311 | ||||||
Purchases of property and equipment | (5,434 | ) | (2,241 | ) | ||||
Net cash provided by (used in) investing activities | 97,922 | (24,086 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from public offerings, net of underwriting discounts and commissions | 154,292 | 84,600 | ||||||
Payments of public offering costs | (681 | ) | (589 | ) | ||||
Proceeds from Securities Purchase Agreement | 73,754 | — | ||||||
Proceeds from private placement, net of placement agent fees | — | 44,608 | ||||||
Payments of private placement offering costs | — | (477 | ) | |||||
Proceeds from option exercises | 5,891 | 1,500 | ||||||
Net cash provided by financing activities | 233,256 | 129,642 | ||||||
Net increase in cash, cash equivalents and restricted cash: | 589,470 | 43,656 | ||||||
Cash, cash equivalents and restricted cash at beginning of period | 85,530 | 56,224 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 675,000 | $ | 99,880 | ||||
Cash, cash equivalents and restricted cash at end of period: | ||||||||
Cash and cash equivalents | $ | 674,050 | $ | 98,930 | ||||
Restricted cash | 950 | 950 | ||||||
Total cash, cash equivalents and restricted cash at end of period | $ | 675,000 | $ | 99,880 | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Purchases of property and equipment included in accounts payable and accrued expenses | $ | 377 | $ | 2 | ||||
Issuance of common stock in connection with a former employee letter agreement | $ | — | $ | 847 |
trial. In December 2016,April 2019, the Company acquiredcompleted dosing of all patients in the single-ascending dose (“SAD”) portion of the Phase 1/2 clinical trial and in July 2019, the Company reported interim data from Shire Human Genetic Therapies, Inc.the SAD portion of the clinical trial through
Two of the target pathogens under development are
Reverse Stock Split
On June 15, 2018, the Company effected aone-for-5.5555 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s redeemable convertible preferred stock (see Note 7). Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and the associated adjustment of the preferred stock conversion ratios.
Initial Public Offering
On June 27, 2018, the Company’s registration statement on FormS-1 relating to its initial public offering of its common stock (“the IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). In the IPO, which closed on July 2, 2018, the Company issued and sold 9,350,000 shares of common stock at a public offering price of $13.00 per share. On July 24, 2018, the Company issued and sold an additional 364,371 shares of common stock at a price of $13.00 per share pursuant to the exercise of the underwriters’ over-allotment option in the IPO. The aggregate net proceeds to the Company from the IPO, inclusive of the proceeds from the over-allotment exercise, were approximately $113.4 million after deducting underwriting discounts and commissions of $8.8 million and estimated offering expenses of approximately $4.1 million. Upon closing of the IPO, all 142,288,292 shares of the Company’s redeemable convertible preferred stock then outstanding converted into an aggregate of 25,612,109 shares of common stock. As of July 31, 2018, there were 45,141,690 shares of common stock outstanding.
Sanofi Pasteur Collaboration and Licensing Agreement
On June 8, 2018, the Company entered into a collaboration and license agreement with Sanofi Pasteur Inc. (“Sanofi”), the vaccines global business unit of Sanofi S.A., to develop mRNA vaccines for up to five undisclosed infectious disease pathogens (the “Sanofi Agreement”). The Sanofi Agreement became effective on July 9, 2018, following notice of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Act of 1976. Under the Sanofi Agreement, the Company and Sanofi will jointly conduct research and development activities to advance mRNA vaccines and mRNA vaccine platform development during a three-year research term, which may be extended by mutual agreement.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
The Company is eligible to receive up to $805.0 million in payments, which includes an upfront payment of $45.0 million, which the Company received on July 18, 2018; certain development, regulatory and sales-related milestones across several vaccine targets; and option exercise fees if Sanofi exercises its option related to development of vaccines for additional pathogens. The Company is also eligible to receive tiered royalty payments associated with worldwide sales of the developed vaccines, if any (see Note 15).
Going Concern
In accordance with Accounting Standards Update (“ASU”)No. 2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through June 30, 2018, the Company has funded its operations with the proceeds from the sale of redeemable convertible preferred stock. The Company has incurred recurring losses since its inception, including net losses of $48.7 million and $31.9 million for the six months ended June 30, 2018 and 2017, respectively. In addition, the Company had an accumulated deficit of $197.5 million as of June 30, 2018. The Company expects to continue to generate operating losses for the foreseeable future.
As of August 9, 2018, the date of issuance of these unaudited interim condensed financial statements, the Company expects that its cash, cash equivalents and investments of $17.5 million as of June 30, 2018, together with the approximate $113.4 million of net proceeds received in July 2018 from the Company’s IPO, inclusive of the proceeds from the over-allotment exercise, and the $45.0 million upfront payment received in July 2018 under the Sanofi Agreement, will be sufficient to fund its operating expenses and capital expenditure requirements into the first half of 2020.
If the Company is unable to obtain funding, the Company will be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, the valuation of common stock and stock-based awards, the valuation of assets acquired and liabilities assumed in business combinations, and the impairment of identifiable intangible assets and goodwill. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheet as of JuneSeptember 30, 2018,2020, the unaudited condensed consolidated statements of operations and of comprehensive lossincome (loss) for the three and sixnine months ended JuneSeptember 30, 20182020 and 20172019, the unaudited condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and the unaudited condensed consolidated statements of cash flows for the sixnine months ended JuneSeptember 30, 20182020 and 20172019 have been prepared by the Company pursuant to the rules and regulations of the SECSecurities and Exchange Commission (“SEC”) for interim financial statements. The accompanying balance sheet as of December 31, 2019 has been derived from the Company’s audited financial statements for the interim financial statements.year ended December 31, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 20172019 included in the Company’s prospectus that forms a part of the Company’s Registration StatementAnnual Report on FormS-1 (FileNo. 333-225368). The prospectus
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Cash
All highly liquid investments purchased withsell shares of its common stock, from time to time, having an original maturity dateaggregate offering price of up to $100.0 million.
Investments
The Company’s debt security investments are classified asavailable-for-sale and are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Realized gains and losses and declines in value determined to be other than temporary are based on the specific identification method and are included as a component of other income (expense), net in the consolidated statements of operations.
The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the statement of operations. No such adjustments were necessary during the periods presented.
The Company’s investments as of June 30, 2018 and December 31, 2017 had original maturities of less than one year.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents as well as short-term investments. Cash, cash equivalents and short-term investments consist of demand deposits, money market funds and U.S. government agency bonds. The Company generally maintains balances in various operating accounts with financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash, cash equivalents and short-term investments and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Restricted Cash
In connection with its operating lease commitments,2020, the Company issued lettersand sold 5,681,819 shares of credit collateralized by cash deposits that are classified as restricted cash in the consolidated balance sheets. Restricted cash amounts have been classified as current assets based on the release datescommon stock and a stockholder of the restrictions underCompany sold 6,824,992 shares of common stock through a public offering pursuant to the lettersJune 2020 Registration Statement. The price to the public was $22.00 per share, resulting in gross proceeds to the Company of credit, which occur annually.
Deferred Offering Costs
The Company capitalizes certain legal, professional accounting$125.0 million, before deducting underwriting discounts and commissions of $7.5 million and other third-party fees that are directly associated within-process equity financings as deferred offering costs until such financings are consummated. After consummationexpenses of the equity financing, these costs are recorded in stockholders’ equity (deficit) as a reduction of proceeds generated as a result of the offering. Should anin-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations. As of June 30, 2018 and December 31, 2017, the Company recorded deferred offering costs of $4.0 million and $0.5 million, respectively, in connection with its IPO.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful lives of each asset. Estimated useful lives are periodically assessed to determine if changes are appropriate. Upon retirement or sale, the related cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations. Repair and maintenance costs are expensed as incurred. The estimated useful lives of the Company’s property and equipment are as follows:
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
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Costs for capital assets not yet placed into service are capitalized asconstruction-in-progress and depreciated or amortized in accordance with the above useful lives once placed into service.
Property and equipment are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate an asset group for recoverability, the Company compares the forecasted undiscounted cash flows expected to result from the use and eventual disposition of the asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use and eventual disposition of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows using market participant assumptions.million. The Company did not recordreceive any impairment losses on propertyproceeds from the sale of shares of common stock by the stockholder.
Business Combinations
The Company accounts for business combinations usingSanofi agreed to further amend the acquisition method of accounting. Application of this method of accounting requires that (i) identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value asOriginal Sanofi Agreement to expand the scope of the acquisition datecollaboration and (ii) the excess of the purchase price over the net fair value of identifiable assets acquired and liabilities assumed be recognized as goodwill, which is not amortized for accounting purposes but is subjectlicenses granted to testing for impairment at least annually. Acquiredin-process research and development (“IPR&D”Sanofi (the “Second Sanofi Amendment”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. Transaction costs related to business combinations are expensed as incurred.
Determining the fair value of assets acquired and liabilities assumed in a business combination requires management to use significant judgment and estimates, especially with respect to intangible assets. Critical estimates in valuing certain identifiable assets include, but are not limited to, the selection of valuation methodologies, estimates of future revenue and cash flows, expected long-term market growth, future expected operating expenses, costs of capital and appropriate discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ materially from estimates.
During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the consolidated statements of operations as operating expenses or income.
Acquisition-related contingent consideration, which consists of potential milestone and earnout payment obligations as well as anti-dilution rights provided to Shire (see Note 3), was recorded in the consolidated balance sheets at its acquisition-date estimated fair value, in accordance with the acquisition method of accounting. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the consolidated statements of operations. The fair value measurement is based on significant inputs not observable by market participants and thus represents a Level 3 input in the fair value hierarchy (see Note 4).
Asset Acquisitions
The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire IPR&D with no alternative future use is charged to expense at the acquisition date.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
In-Process Research and Development
The fair value of IPR&D acquired through a business combination is capitalized as an indefinite-lived intangible asset until the completion or abandonment of the related research and development activities. When the related research and development is completed, the asset is reclassified to a definite-lived asset and amortized over its estimated useful life.
The fair value of an IPR&D intangible asset is typically determined using an income approach whereby management forecasts the net cash flows expected to be generated by the asset over its estimated useful life. The net cash flows reflect the asset’s stage of completion, the probability of technical success, the projected costs to complete, expected market competition, and an assessment of the asset’s life-cycle. The net cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams.
Indefinite-lived IPR&D is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company tests its indefinite-lived IPR&D annually for impairment on October 1st. In testing indefinite-lived IPR&D for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that its fair value is less than its carrying amount, or the Company can perform a quantitative impairment analysis to determine the fair value of the indefinite-lives IPR&D without performing a qualitative assessment. Qualitative factors that the Company considers include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If the Company chooses to first assess qualitative factors and the Company determines that it is more likely than not that the fair value of the indefinite-lived IPR&D is less than its carrying amount, the Company would then determine the fair value of the indefinite-lived IPR&D. Under either approach, if the fair value of the indefinite-lived IPR&D is less than its carrying amount, an impairment charge is recognized in the consolidated statements of operations. During the three and six months ended June 30, 2018 and 2017, the Company did not recognize any impairment charges related to its indefinite-lived IPR&D (see Note 3).
Definite-lived IPR&D, if any, The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is tested for recoverability whenever events or changes in business circumstances indicate thatreferred to as the carrying amount of“Amended Sanofi Agreement.”
Goodwill
Goodwill represents the excess of the fair value of the consideration transferred over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company tests its goodwill annually for impairment on October 1st.
The Company has determined that there is a single reporting unit for purposes of testing goodwill for impairment. In testing goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit was less than its carrying amount, or the Company can perform atwo-step quantitative impairment analysis without performing a qualitative assessment. Examples of such events or circumstances considered in the Company’s qualitative assessment include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. If the Company chooses to first assess qualitative factors and the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, the Company would then perform atwo-step quantitative impairment test. Thetwo-step test starts with comparing the fair value of the reporting unit to the carrying amount of a reporting unit, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, no impairment loss is recognized. However, if the fair value of the reporting unit is less than its carrying value, the second step of the impairment test is performed to determine if goodwill is impaired. If the Company determines that goodwill is impaired, the carrying value of the goodwill is written down to its fair value and an impairment charge is recognized in the consolidated statements of operations. During the three and six months ended June 30, 2018 and 2017, the Company did not recognize any impairment charges related to goodwill.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company’s cash equivalents and short-term investments are carried at fair value, determined based on Level 2 inputs in the fair value hierarchy described above (see Note 4). The Company’s contingent consideration liability is carried at fair value, determined based on Level 3 inputs in the fair value hierarchy described above (see Note 4). The carrying values of the Company’s prepaid expenses and other current assets, accounts payable, accrued expenses and other short-term liabilities approximate their fair values due to the short-term nature of these assets and liabilities.
Segment Information
The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. The Company’s primary focus is on the advancement of the Company’s MRT platform to treat diseases caused by protein or gene dysfunction.
Research and Development Costs
Costs associated with internal research and development and external research and development services, including drug development and preclinical studies, are expensed as incurred. Research and development expenses include costs for salaries, employee benefits, subcontractors, facility-related expenses, depreciation and amortization, stock-based compensation, third-party license fees, laboratory supplies, and external costs of outside vendors engaged tojointly conduct discovery, preclinical and clinical development activities and clinical trials as well as to manufacture clinical trial materials, and other costs. The Company recognizes external research and development costs based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such prepaid expenses are recognized asto advance mRNA vaccines targeting up to 7 infectious disease pathogens. The term of the
Upfront payments, milestone payments (other than those deemed contingent consideration in a business combination) and annual maintenance fees under license agreements are expensed in the period in which they are incurred.
Research and Development Contract Costs and Accruals
The Company has entered into various research and development-related contracts with companies both inside and outside of the United States. The related costs are recorded asfurther expanded to jointly conduct research and development expenses as incurred. The Company records accrualsactivities to advance mRNA vaccines for estimated ongoing research and development costs. When evaluatingup to an additional 3 infectious disease pathogens, bringing the adequacytotal to
Stock-Based Compensation
The Company measures all stock-based awards granted to employees and directors based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. For stock-based awards with service-based vesting conditions,Second Sanofi Amendment, the Company recognizes compensation expense usingand an affiliate of Sanofi (the “Investor”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) for the straight-line method. For stock-based awards with both performance-basedsale and service-based vesting conditions, the Company recognizes compensation expense using the graded-vesting method over the requisite service period, commencing when achievementissuance of the performance condition becomes probable. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and the Company’s expected dividend yield (see Note 9). The fair value of each restricted common stock award is estimated on the date of grant based on the fair value4,884,434 shares of the Company’s common stock on that same date.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
For stock-based awards granted tonon-employee consultants, compensation expense is recognized over the period during which services are rendered by suchnon-employee consultants until completed. AtInvestor at a price of $25.59 per share representing a 50 percent premium to the end of each financial reporting period
The Company classifies stock-based compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Classification and Accretion of Redeemable Convertible Preferred Units and Redeemable Convertible Preferred Stock
The Company has classified its redeemable convertible preferred units and redeemable convertible preferred stock outside of stockholders’ equity (deficit) because the units or shares contain certain redemption features that are not solely within the control of the Company. Costs incurred in connection with the issuance of each series of redeemable convertible preferred units or stock are recordedability to continue as a reduction of gross proceeds from issuance. The carrying values of redeemable convertible preferred units and stock are accreted to their redemption values through a charge to additionalpaid-in capital or accumulated deficit overgoing concern within one year after the period from date of issuance to the earliest date on which the holders could, at their option, elect to redeem their units or shares.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive income (loss) was unrealized gains (losses) on U.S. government agency bonds, which are classified asavailable-for-sale-securities.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in theare issued.
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying atwo-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemedmore-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognizeare described in the consolidatedCompany’s audited financial statements. The amountstatements as of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
Net Income (Loss) per Share
The Company follows thetwo-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. Thetwo-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. Thetwo-class method requires income available to common stockholders for the period to be allocated between commonyear ended December 31, 2019, and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Basic net income (loss) per share attributable to common stockholders is computed by dividingnotes thereto, which are included in the net income (loss) attributable to common stockholders byCompany’s Annual Report on Form
The Company’s preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the three and sixnine months ended JuneSeptember 30, 2018 and 2017.
2020, there were no material changes to the Company’s significant accounting policies.
In August 2016, the FASB issued ASUNo. 2016-15,Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Topic 230) (“ASU2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented in the statement of cash flows. The adoption of ASU2016-15 is required to be applied retrospectively. The Company adopted ASU2016-15 as of the required effective date of January 1, 2018, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.
In November 2016, the FASB issued ASUNo. 2016-18,Statement of Cash Flows (Topic 230) (“ASU2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. The Company adopted ASU2016-18 as of the required effective date of January 1, 2018. The effect of the adoption was that the amount of cash and cash equivalents previously presented on the consolidated statements of cash flows for the six months ended June 30, 2017 increased by $2.2 million to reflect the inclusion of restricted cash. Additionally, as a result of the adoption, transfers between restricted and unrestricted cash are no longer presented as a component of the Company’s investing activities.
In May 2017, the FASB issued ASUNo. 2017-09,Compensation—Stock Compensation: Scope of Modification Accounting (Topic 718) (“ASU2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The Company adopted ASU2017-09 as of the required effective date of January 1, 2018, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASUNo. 2016-02, Leases (Topic 842)(“ASU2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record aright-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The guidance is effective for public entities for annual periods beginning after December 15, 2018 and for interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU2016-02 will have on its consolidated financial statements.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
In January 2017, the FASB issued ASUNo. 2017-04,
statements and disclosures.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Collaboration revenue | $ | 66,446 | $ | 1,266 | $ | 87,420 | $ | 3,914 |
September 30, 2020 | December 31, 2019 | |||||||
Contract liabilities | ||||||||
Deferred revenue | $ | 335,211 | $ | 43,356 |
3. Acquisitions, Goodwillprogress towards satisfying the performance obligation. As of September 30, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligation is estimated to be approximately $589.2 million, which is expected to be recognized as revenue through 2024. Revenue recognized from contract liabilities at the beginning of the period was $3.5 million and Other$1.8 million during the nine months ended September 30, 2020 and 2019, respectively.
and Goodwill
On
The Company accounted for the acquisition of the assets and employees as a business combination. As consideration for the acquisition, the Company issued 5,815,560 shares of common stock to Shire and agreed to make potential future milestone and earnout payments to Shire upon the occurrence of specified commercial milestones. In particular, the Company is obligated to make milestone payments to Shire of up to $60.0 million in the aggregate upon the occurrence of specified commercial milestones, including upon the first commercial sale of an MRT Product for the treatment of CF and upon the achievement of a specified level of annual net sales with respect to an MRT Product. The Company is also obligated to make additional milestone payments of $10.0 million for eachnon-CF MRT Product upon the first commercial sale of anon-CF MRT Product; provided that such milestone payments will only be due once for any twonon-CF MRT Products that contain the same MRT compounds or once pernon-CF MRT Product that is a vaccine developed under the Company’s collaboration with Sanofi (see Note 15).
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Under the Shire Agreement, the Company is also obligated to pay a quarterly earnout payment of amid-single-digit percentage of net sales of each MRT Product. The earnout period, which is determined on aproduct-by-product andcountry-by-country basis, will begin on the date of the first commercial sale of such MRT Product in such country and will end on the later of (i) ten years after such first commercial sale and (ii) the expiration of the last valid claim of the patent rights acquired from Shire or derived from patent rights orknow-how acquired from Shire covering such MRT Product in such country.
Under the Shire Agreement, the Company was obligated to consummate an equity financing of at least $100.0 million (the “Subsequent Financing”). As part of the Shire Agreement, the Company provided Shire anti-dilution rights whereby it agreed to issue Shire additional common stock such that Shire will own, upon the completion of the Subsequent Financing, either (i) 18.0% of the Company’s common stock on anas-converted and fully diluted basis or (ii) if less, 19.9% of the voting power of all then outstanding common stock of the Company, excluding shares of unvested restricted stock. Under the Shire Agreement, until the Subsequent Financing was consummated, the Company was obligated to use the first $50.0 million of gross proceeds from the Subsequent Financing solely for activities and expenses associated with the MRT Program. As a result of the Company’s IPO, the Company fully satisfied the Subsequent Financing obligation. In addition, as a result of and concurrent with the closing of the Company’s IPO on July 2, 2018, the Company issued 183,619 shares of common stock to Shire in full satisfaction of the Company’s anti-dilution obligations to Shire (see Notes 4 and 15).
Elements of Purchase Consideration
As part of its accounting for the business combination, the Company recorded the fair value of the common stock issued on the acquisition date as well as contingent consideration liabilities for the potential future milestone and earnout payments and for the anti-dilution rights provided to Shire through the completion of the Subsequent Financing. The aggregate acquisition-date fair value of consideration transferred was determined to be $112.2 million, consisting of the following (in thousands):
Fair value of common stock | $ | 41,089 | ||
Fair value of contingent consideration — potential milestone and earnout payments | 62,666 | |||
Fair value of contingent consideration — anti-dilution rights | 8,407 | |||
|
| |||
Total fair value of purchase consideration | $ | 112,162 | ||
|
|
Common Stock Issued at Closing. The fair value of the 5,815,560 shares of common stock issued on the acquisition date, aggregating $41.1 million, was determined based on the fair value of $7.06 per share of common stock estimated by the Company at the acquisition date based, in part, on the results of a third-party valuation. The third-party valuation was prepared using a hybrid method, which used market approaches to estimate the Company’s equity value, including an OPM backsolve based on the $1.98 price per share of Series C redeemable preferred stock sold by the Company in a Series C financing on the same date as the acquisition date of the MRT Program (see Note 7). The hybrid method is a probability-weighted expected return method (“PWERM”) where the equity value in one or more of the scenarios is allocated using an option-pricing method (“OPM”). In the third-party valuation, two types of future-event scenarios were considered: an IPO scenario and a remain-private scenario. Each type of future-event scenario was probability weighted by the Company based on an evaluation of its historical and forecasted performance and operating results, an analysis of market conditions at the time, and its expectations as to the timing and likely prospects of the future-event scenarios. A discount for lack of marketability was then applied to arrive at an indication of fair value per share of the common stock.
Liabilities for Contingent Consideration. The fair value of the contingent consideration related to potential future milestone and earnout payments that may be due to Shire was estimated by the Company at the acquisition date based, in part, on the results of a third-party valuation. The third-party valuation was prepared using a discounted cash flow analysis based on various assumptions, including the probability of achieving specified events, discount rates, and the period of time until earnout payments are payable and the conditions triggering the milestone payments are met.
The fair value of the contingent consideration related to Shire’s anti-dilution rights was estimated by the Company at the acquisition date based, in part, on the results of a third-party valuation. The third-party valuation was prepared using a PWERM, which considered as inputs the probability of occurrence of events that would trigger the issuance of additional shares, the expected timing of such events, the expected value of the contingently issuable equity upon the occurrence of a triggering event and a risk-adjusted discount rate.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
The Company assessed the anti-dilution rights provided to Shire and determined that the rights (i) met the definition of a freestanding financial instrument that was not indexed to the Company’s own stock and (ii) did not meet the definition of a derivative. As the rights did not meet the definition of a derivative and did not qualify for equity classification, the Company determined to classify the anti-dilution rights as a liability. Accordingly, the Company recognized the liability at fair value on the acquisition date and recognizes changes in the fair value of the anti-dilution rights at each subsequent reporting period in the consolidated statements of operations (see Note 4).
Allocation of the Purchase Consideration
Identifiable intangible assets | $ | 106,907 | ||
Property and equipment | 2,416 | |||
Deferred tax assets | 1,308 | |||
Deferred tax liabilities | (18,520 | ) | ||
Valuation allowance for deferred tax assets | (1,308 | ) | ||
Goodwill | 21,359 | |||
|
| |||
Total purchase price consideration | $ | 112,162 | ||
|
|
values. The tables below present the Company’s definite-lived intangible assets that are subject to amortization and indefinite-lived intangible assets:
September 30, 2020 | ||||||||||||||||||||
Estimated Life | Gross Carrying Amount | Accumulated Amortization | Impairment Charge | Net Carrying Amount | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Definite-lived intangible assets: | ||||||||||||||||||||
MRT | 6 years | $ | 45,992 | $ | (7,003 | ) | $ | 0 | $ | 38,989 | ||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||
IPR&D - CF | Indefinite | 42,291 | 0 | 0 | 42,291 | |||||||||||||||
Total intangible assets, net | $ | 88,283 | $ | (7,003 | ) | $ | 0 | $ | 81,280 | |||||||||||
December 31, 2019 | ||||||||||||||||||||
Estimated Life | Gross Carrying Amount | Accumulated Amortization | Impairment Charge | Net Carrying Amount | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Definite-lived intangible assets: | ||||||||||||||||||||
MRT | 8 years | $ | 45,992 | $ | (2,747 | ) | $ | 0 | $ | 43,245 | ||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||
IPR&D - CF | Indefinite | 42,291 | — | — | 42,291 | |||||||||||||||
IPR&D - OTC | Indefinite | 18,559 | — | (18,559 | ) | — | ||||||||||||||
Total intangible assets, net | $ | 106,842 | $ | (2,747 | ) | $ | (18,559 | ) | $ | 85,536 |
In-process research and development — MRT | $ | 45,992 | ||
In-process research and development — CF | 42,291 | |||
In-process research and development — OTC | 18,559 | |||
Lease agreement | 65 | |||
|
| |||
Total identifiable intangible assets | $ | 106,907 | ||
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|
The fair value of the IPR&D assets acquired was estimated byand the Company atbegan amortization of this intangible asset. Amortization will be recorded over the acquisition dateintangible asset’s estimated life based in part, on an economic consumption model. The Company recorded amortization expense of $0 and $0.4 million during the results ofthree months ended September 30, 2020 and 2019, respectively, and $4.3 million and $1.2 million during the third-party valuation. The third-party valuation was prepared using the multi-period excess earnings method (“MPEEM”), a form of the income approach, which assumes the fair value of an intangible asset is equalnine months ended September 30, 2020 and 2019, respectively, related to the present value of the incremental risk-adjustedafter-tax cash flows attributable only to each IPR&D thedefinite-lived MRT intangible asset. The MPEEMestimated aggregate amortization expense for each of the five succeeding fiscal years is $7.5 million, $10.6 million,
A deferred tax liability of $18.5$18.6 million was recorded as part ofduring the business combination forthree months ended September 30, 2019, representing thenon-deductible portion entire value of the indefinite-lived IPR&D acquired. As part ofrelated to the business combination,OTC deficiency program. Concurrent with the impairment charge, the Company also recorded $1.3 million of acquired deferred tax assetsremoved the contingent consideration liability related to depreciation of property and equipment, but recorded those with a full valuation allowance due to the uncertainty of realizing a benefit from those assets.
this program.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
impairment or more frequently if there are indicators of impairment. The results of operations ofCompany tests its goodwill annually for impairment on October 1
On June 7, 2018,2019, the Company and Shire entered into an amendmentdid 0t recognize any impairment charges related to the Shire Agreement to align certain terms of the Shire Agreement with the collaboration and license agreement that the Company entered into with Sanofi on June 8, 2018. Pursuant to this amendment, a mRNA vaccine that is developed pursuant to the Company’s collaboration with Sanofi will be considered an MRT Product if it includes a MRT compound having a mRNA sequence that encodes a protein that is from, or that binds to, an infectious disease pathogen in a field that has been licensed by the Company to Sanofi. Pursuant to the amended Shire Agreement, the Company is obligated to make milestone payments of $10.0 million for eachnon-CF MRT Product upon the first commercial sale of anon-CF MRT Product; provided that such milestone payments will only be due once for any twonon-CF MRT Products that contain the same MRT compounds or once pernon-CF MRT Product that is a vaccine developed under the Company’s collaboration with Sanofi. The Company has concluded that this amendment will not affect the contingent purchase consideration recorded for accounting purposes.
4.goodwill.
Fair Value Measurements as of June 30, 2018 Using: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | — | $ | 11,148 | $ | — | $ | 11,148 | ||||||||
U.S. government agency bonds | — | 1,000 | — | 1,000 | ||||||||||||
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| |||||||||
$ | — | $ | 12,148 | $ | — | $ | 12,148 | |||||||||
|
|
|
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|
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|
| |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | — | $ | — | $ | 93,769 | $ | 93,769 | ||||||||
|
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|
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|
| |||||||||
$ | — | $ | — | $ | 93,769 | $ | 93,769 | |||||||||
|
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|
|
|
|
Fair Value Measurements as of December 31, 2017 Using: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | — | $ | 28,636 | $ | — | $ | 28,636 | ||||||||
U.S. government agency bonds | — | 9,997 | — | 9,997 | ||||||||||||
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| |||||||||
$ | — | $ | 38,633 | $ | — | $ | 38,633 | |||||||||
|
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|
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|
|
| |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | — | $ | — | $ | 81,009 | $ | 81,009 | ||||||||
|
|
|
|
|
|
|
| |||||||||
$ | — | $ | — | $ | 81,009 | $ | 81,009 | |||||||||
|
|
|
|
|
|
|
|
Fair Value Measurements as of September 30, 2020 Using: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 0 | $ | 636,615 | $ | 0 | $ | 636,615 | ||||||||
U.S. government agency bonds | 0 | 0 | 0 | 0 | ||||||||||||
$ | 0 | $ | 636,615 | $ | 0 | $ | 636,615 | |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 0 | $ | 0 | $ | 123,740 | $ | 123,740 | ||||||||
$ | 0 | $ | 0 | $ | 123,740 | $ | 123,740 | |||||||||
Fair Value Measurements as of December 31, 2019 Using: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | — | $ | 56,591 | $ | — | $ | 56,591 | ||||||||
U.S. government agency bonds | — | 104,098 | — | 104,098 | ||||||||||||
$ | — | $ | 160,689 | $ | — | $ | 160,689 | |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | — | $ | — | $ | 103,655 | $ | 103,655 | ||||||||
$ | — | $ | — | $ | 103,655 | $ | 103,655 | |||||||||
payments.
The fair value of the anti-dilution liability was estimated by the Company at each reporting date based, in part, on the results of a third-party valuation using the PWERM, which considers as inputs the probability of occurrence of events that would trigger the issuance of shares, the expected timing of such events, the expected value of the contingently issuable equity upon the occurrence of a triggering event and a risk-adjusted discount rate.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Unobservable Inputs at June 30, 2018 and December 31, 2017 | Fair Value at | |||||||||||
Projected Year | June 30, | December 31, | ||||||||||
Discount Rate | of Payment | 2018 | 2017 | |||||||||
Earnout payments | 15.0% | 2025 - 2039 | $ | 83,709 | $ | 72,896 | ||||||
Milestone payments | 15.0% | 2025 - 2030 | 7,673 | 6,817 | ||||||||
Anti-dilution rights | 1.39% - 1.77% | N/A | 2,387 | 1,296 | ||||||||
|
|
|
| |||||||||
$ | 93,769 | $ | 81,009 | |||||||||
|
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|
|
Unobservable | Fair Value at | |||||||||
Projected Year of Payment | September 30, 2020 | December 31, 2019 | ||||||||
Earnout payments | 2026 - 2039 | 115,079 | $ | 96,097 | ||||||
Milestone payments | 2026 - 2032 | 8,661 | 7,558 | |||||||
$ | 123,740 | $ | 103,655 | |||||||
Fair Value | ||||
Balance as of December 31, 2017 | $ | 81,009 | ||
Change in fair value of contingent consideration | 12,760 | |||
|
| |||
Balance as of June 30, 2018 | $ | 93,769 | ||
|
|
Fair Value | ||||
Balance as of December 31, 2019 | $ | 103,655 | ||
Increase in fair value of contingent consideration | 20,085 | |||
Balance as of September 30, 2020 | $ | 123,740 | ||
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
Laboratory equipment | $ | 5,914 | $ | 5,382 | ||||
Computer equipment | 626 | 481 | ||||||
Office equipment | 701 | 249 | ||||||
Leasehold improvements | 5,632 | 1,131 | ||||||
Construction in progress | 950 | 2,591 | ||||||
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| |||||
13,823 | 9,834 | |||||||
Less: Accumulated depreciation and amortization | (3,955 | ) | (3,056 | ) | ||||
|
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|
| |||||
$ | 9,868 | $ | 6,778 | |||||
|
|
|
|
September 30, 2020 | December 31, 2019 | |||||||
Laboratory equipment | $ | 11,763 | $ | 9,044 | ||||
Computer equipment | 892 | 779 | ||||||
Office equipment | 942 | 883 | ||||||
Leasehold improvements | 5,730 | 5,635 | ||||||
Construction in progress | 5,094 | 3,460 | ||||||
24,421 | 19,801 | |||||||
Less: Accumulated depreciation and amortization | (9,377 | ) | (7,262 | ) | ||||
$ | 15,044 | $ | 12,539 | |||||
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
6.
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
Accrued consultant and professional fees | $ | 2,204 | $ | 1,130 | ||||
Accrued employee compensation and benefits | 1,940 | 2,252 | ||||||
Accrued external research and development expenses | 1,132 | 1,115 | ||||||
Other | 482 | 1,391 | ||||||
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| |||||
$ | 5,758 | $ | 5,888 | |||||
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7. Redeemable Convertible Preferred Stock
As of June 30, 2018 and December 31, 2017, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 145,833,064 shares of redeemable convertible preferred stock. As of June 30, 2018 and December 31, 2017, the Company had 36,194,026 shares of Series A redeemable convertible preferred stock (the Series A preferred stock”), 59,133,9877 shares of Series B redeemable convertible preferred stock (the Series B preferred stock”) and 46,960,279 shares of Series C redeemable convertible preferred stock (the “Series C preferred stock”) issued and outstanding. The Series A preferred stock, Series B preferred stock and Series C preferred stock were redeemable and convertible by the holders under specified conditions. The redeemable convertible preferred stock is classified outside of stockholders’ equity (deficit) because the shares contain redemption features that are not solely within the control of the Company. The Series A preferred stock, Series B preferred stock and Series C preferred stock are collectively referred to as the “Preferred Stock.”
In December 2017, the Company issued and sold 21,202,710 shares of Series C preferred stock at a price of $1.98 per share for aggregate proceeds of $41.9 million, net of issuance costs of $0.1 million.
Upon issuance of each class of Preferred Stock, the Company assessed the embedded conversion and liquidation features of the securities and determined that such features did not require the Company to separately account for these features. The Company also concluded that no beneficial conversion feature existed upon the issuance date of each class of Preferred Stock or
September 30, 2020 | December 31, 2019 | |||||||
Accrued employee compensation and benefits | $ | 4,918 | $ | 3,547 | ||||
Accrued external research and development expenses | 2,058 | 1,763 | ||||||
Accrued consultant and professional fees | 1,358 | 1,390 | ||||||
Other | 3,432 | 372 | ||||||
$ | 11,766 | $ | 7,072 | |||||
Upon2020 are costs related to entering into the closing of the Company’s IPO on July 2, 2018, all then-outstanding shares of Preferred Stock converted into an aggregate of 25,612,109 shares of common stock according to their terms.
As of each balance sheet date, the Preferred Stock consisted of the following (in thousands, except share amounts):
June 30, 2018 | ||||||||||||||||||||
Preferred Shares Authorized | Preferred Shares Issued and Outstanding | Carrying Value | Liquidation Preference | Common Stock Issuable Upon Conversion | ||||||||||||||||
Series A preferred stock | 36,194,026 | 36,194,026 | $ | 36,194 | $ | 36,194 | 6,514,986 | |||||||||||||
Series B preferred stock | 59,133,987 | 59,133,987 | 64,365 | 63,199 | 10,644,210 | |||||||||||||||
Series C preferred stock | 50,505,051 | 46,960,279 | 92,981 | 92,981 | 8,452,913 | |||||||||||||||
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145,833,064 | 142,288,292 | $ | 193,540 | $ | 192,374 | 25,612,109 | ||||||||||||||
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December 31, 2017 | ||||||||||||||||||||
Preferred Shares Authorized | Preferred Shares Issued and Outstanding | Carrying Value | Liquidation Preference | Common Stock Issuable Upon Conversion | ||||||||||||||||
Series A preferred stock | 36,194,026 | 36,194,026 | $ | 36,194 | $ | 36,194 | 6,514,986 | |||||||||||||
Series B preferred stock | 59,133,987 | 59,133,987 | 64,002 | 63,199 | 10,644,210 | |||||||||||||||
Series C preferred stock | 50,505,051 | 46,960,279 | 92,700 | 92,981 | 8,452,913 | |||||||||||||||
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145,833,064 | 142,288,292 | $ | 192,896 | $ | 192,374 | 25,612,109 | ||||||||||||||
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TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Each share of common stock entitles the holder to one vote for each share of common stock held. Common stockholders are entitled to receive dividends, as declared by the board of directors. These dividends are subject to the preferential dividend rights of the holders of the Company’s Preferred Stock. Through June 30, 2018 and December 31, 2017, no cash dividends have been declared or paid.
As of June 30, 2018 and December 31, 2017, the Company had reserved 32,115,490 shares of common stock for the conversion of outstanding shares of Preferred Stock (see Note 7), the exercise of outstanding stock options (see Note 9) and the number of shares remaining available for future issuance under the 2018 Equity Incentive Plan. Upon the completion of the Company’s IPO on July 2, 2018, all shares of the Preferred Stock converted to common stock.
9. Incentive Stock Options and Restricted Stock
Shares that are expired, terminated, surrendered or canceled under the 2018 Plan without having been exercised will be available for future grants
Unvestedperiod of one to four years.
AsDirectors. In December 2019, the Board of June 30, 2018,Directors elected to add no shares had been issued underof common stock to the 2018 ESPP.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Intrinsic Value | |||||||||||||
(in years) | ||||||||||||||||
Outstanding as of December 31, 2016 | 209,797 | $ | 4.73 | 9.70 | $ | — | ||||||||||
Granted | 4,257,593 | |||||||||||||||
Forfeited | (102,474 | ) | ||||||||||||||
|
| |||||||||||||||
Outstanding as of December 31, 2017 | 4,364,916 | $ | 7.17 | 9.79 | $ | 977 | ||||||||||
Granted | 1,966,114 | $ | 8.76 | |||||||||||||
Exercised | (49,459 | ) | $ | 5.62 | ||||||||||||
Forfeited | (188,163 | ) | $ | 6.16 | ||||||||||||
|
| |||||||||||||||
Outstanding as of June 30, 2018 | 6,093,408 | $ | 7.72 | 9.23 | $ | 30,020 | ||||||||||
|
| |||||||||||||||
Vested as of June 30, 2018 | 1,182,097 | $ | 7.08 | 8.25 | $ | 6,586 | ||||||||||
Vested and expected to vest as of June 30, 2018 | 6,093,408 | $ | 7.72 | 9.23 | $ | 30,020 | ||||||||||
Vested as of December 31, 2017 | 661,593 | $ | 7.04 | 9.72 | $ | 231 | ||||||||||
Vested and expected to vest as of December 31, 2017 | 4,364,916 | $ | 7.17 | 9.79 | $ | 977 |
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Intrinsic Value | |||||||||||||
(in years) | ||||||||||||||||
Outstanding as of December 31, 2019 | 8,646,378 | $ | 8.06 | 8.42 | $ | 3,687 | ||||||||||
Granted | 2,992,734 | $ | 9.22 | |||||||||||||
Exercised | (800,076 | ) | $ | 7.36 | ||||||||||||
Forfeited | (529,492 | ) | $ | 8.59 | ||||||||||||
Outstanding as of September 30, 2020 | 10,309,544 | $ | 8.42 | 8.04 | $ | 55,026 | ||||||||||
Exercisable as of September 30, 2020 | 4,915,617 | $ | 7.96 | 7.23 | $ | 27,795 | ||||||||||
Vested and expected to vest as of September 30, 2020 | 10,309,544 | $ | 8.42 | 8.04 | $ | 55,026 |
$10.7 million and $0.6 million, respectively.
The total fair value of options vested during the six months ended June 30, 2018 was $2.1 million.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to
Six Months Ended June 30, 2018 | ||||||||
2018 | 2017 | |||||||
Risk-free interest rate | 2.80 | % | 2.02 | % | ||||
Expected term (in years) | 6.0 | 6.0 | ||||||
Expected volatility | 75.7 | % | 65.0 | % | ||||
Expected dividend yield | 0 | % | 0 | % |
The following table presents the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to anon-employee:
| ||||
| ||||
| ||||
|
There were no stock options granted tonon-employees during the six months ended June 30, 2018. During the six months ended June 30, 2017, the Company granted to non-employees stock options for the purchase of 265,854 shares of common stock.
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Risk-free interest rate | 0.77 | % | 2.39 | % | ||||
Expected term (in years) | 6.1 | 6.0 | ||||||
Expected volatility | 68.7 | % | 73.1 | % | ||||
Expected dividend yield | 0 | % | 0 | % |
Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
Unvested restricted common stock outstanding as of December 31, 2016 | 986,893 | $ | 1.10 | |||||
Forfeited restricted common stock | (100,563 | ) | $ | 1.10 | ||||
Vested restricted common stock | (359,852 | ) | $ | 1.04 | ||||
|
| |||||||
Unvested restricted common stock outstanding as of December 31, 2017 | 526,478 | $ | 1.14 | |||||
Forfeited restricted common stock | (311 | ) | $ | 1.28 | ||||
Vested restricted common stock | (157,292 | ) | $ | 1.03 | ||||
|
| |||||||
Unvested restricted common stock outstanding as of June 30, 2018 | 368,875 | $ | 1.19 | |||||
|
|
The total fair value of restricted common stock vested during the six months ended June 30, 2018 and 2017 was $0.2 million and $0.2 million, respectively, which the Company recorded as stock-based compensation during those periods.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
Unvested restricted common stock outstanding as of December 31, 2019 | 34,168 | $ | 1.28 | |||||
Forfeited restricted common stock | 0 | $ | 0 | |||||
Vested restricted common stock | (34,168 | ) | $ | 1.28 | ||||
Unvested restricted common stock outstanding as of September 30, 2020 | 0 | $ | 0 | |||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Research and development expenses | $ | 1,671 | $ | 610 | $ | 2,453 | $ | 636 | ||||||||
General and administrative expenses | 1,204 | 81 | 1,805 | 156 | ||||||||||||
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$ | 2,875 | $ | 691 | $ | 4,258 | $ | 792 | |||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Research and development expenses | $ | 1,578 | $ | 1,301 | $ | 7,123 | $ | 3,454 | ||||||||
General and administrative expenses | 2,077 | 1,598 | 5,718 | 4,954 | ||||||||||||
$ | 3,655 | $ | 2,899 | $ | 12,841 | $ | 8,408 | |||||||||
10.
2017 U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into United States law. The Tax Act includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 34% to 21%, effective as of January 1, 2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The enactment of the Tax Act resulted in the Company recording a net income tax benefit of $6.1 million in the year ended December 31, 2017. The $6.1 million net income tax benefit consisted of (i) the remeasurement of the deferred tax liabilities for the Company’s indefinite-lived intangible assets due to the tax rate reduction, which resulted in a corresponding income tax benefit of $3.7 million, and (ii) a reduction in the valuation allowance for deferred tax assets related to deductible temporary differences that will generate unlimited net operating loss carryforwards when they reverse in future periods, which resulted in a corresponding income tax benefit of $2.4 million.
The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company is still in the process of analyzing the impact to the Company of the Tax Act and its analysis is not yet complete. Where the Company has been able to make reasonable estimates of the effects related to the Tax Act, the Company has recorded provisional amounts. No adjustments to the provisional amounts recorded as of December 31, 2017 were recorded during the three and six months ended June 30, 2018.
Income Taxes
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
11. Net Loss per Share
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss | $ | (27,503 | ) | $ | (17,933 | ) | $ | (48,712 | ) | $ | (31,886 | ) | ||||
Accretion of redeemable convertible preferred units and stock to redemption value | 459 | 192 | 644 | 360 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Net loss attributable to common stockholders | $ | (27,044 | ) | $ | (17,741 | ) | $ | (48,068 | ) | $ | (31,526 | ) | ||||
|
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|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding—basic and diluted | 9,187,207 | 7,676,426 | 9,139,638 | 7,631,883 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net loss per share attributable to common stockholders—basic and diluted | $ | (2.94 | ) | $ | (2.31 | ) | $ | (5.26 | ) | $ | (4.13 | ) | ||||
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|
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|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Basic net income (loss) per common share: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 17,344 | $ | (21,227 | ) | $ | (33,226 | ) | $ | (82,257 | ) | |||||
Denominator: | ||||||||||||||||
Weighted average common shares | 73,183,923 | 51,891,157 | 65,187,435 | 48,574,275 | ||||||||||||
Net income (loss) per share—basic | $ | 0.24 | $ | (0.41 | ) | $ | (0.51 | ) | $ | (1.69 | ) | |||||
Diluted net income (loss) per common share: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 17,344 | $ | (21,227 | ) | $ | (33,226 | ) | $ | (82,257 | ) | |||||
Denominator: | ||||||||||||||||
Weighted average common shares | 76,440,293 | 51,891,157 | 65,187,435 | 48,574,275 | ||||||||||||
Net income (loss) per share—diluted | $ | 0.23 | $ | (0.41 | ) | $ | (0.51 | ) | $ | (1.69 | ) |
The Company’s potentially dilutive securities, which include stock options, unvested restricted common stock and redeemable convertible preferred stock, have been excluded from the computation of diluted net loss per share attributable to common stockholders as the effect would be to reduce the net loss per share. Therefore, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. stock.
Three and Six Months Ended June 30, | ||||||||
2018 | 2017 | |||||||
Options to purchase common stock | 6,093,408 | 1,255,347 | ||||||
Unvested restricted common stock | 368,875 | 714,370 | ||||||
Redeemable convertible preferred stock (as converted to common stock) | 25,612,109 | 21,795,593 | ||||||
|
|
|
| |||||
32,074,392 | 23,765,310 | |||||||
|
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|
|
In addition to the potentially dilutive securities noted above, as
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Options to purchase common stock | 0 | 8,568,506 | 10,309,544 | 8,568,506 | ||||||||||||
Unvested restricted common stock | 0 | 72,677 | 0 | 72,677 | ||||||||||||
0 | 8,641,183 | 10,309,544 | 8,641,183 | |||||||||||||
12. Commitments and Contingencies
Lease Commitments
The Company leases office, laboratory and other space under operating leases that expired between April 2018 and April 2028. The Company recognizes rent expense on a straight-line basis over the respective lease period and has recorded deferred rent for rent expense incurred but not yet paid. The Company recorded rent expense of $0.8 million and $0.5 million during the three months ended June 30, 2018 and 2017, respectively and $1.7 million and $1.1 million during the six months ended June 30, 2018 and 2017, respectively.
In May 2015, the Company entered into an operating lease for office and laboratory space in Cambridge, Massachusetts, which was due to expire in May 2022. In connection with entering into this lease agreement, the Company issued a letter of credit collateralized by cash deposits totaling $1.0 million, which was reduced to $0.7 million in December 2017. These cash deposits are
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
classified as restricted cash on the consolidated balance sheets.
Pursuant to the Shire Agreement (see Note 3), in December 2016, the Company assumed an operating lease, due to expire in May 2018, for office and laboratory space in Lexington, Massachusetts. Monthly lease payments of less than $0.1 million due under the lease include base rent and ancillary charges. In January 2017, in connection with this lease agreement, the Company issued two letters of credit collateralized by cash deposits totaling $0.3 million, which are classified as restricted cash on the consolidated balance sheets. In November 2017, the lease was amended pursuant to which (i) the lease was extended by 12 months, commencing in June 2018 and expiring in May 2019, and (ii) the landlord was granted the option, at its sole discretion, to terminate the lease upon 90 days’ notice, provided that the expiration date will be no earlier than November 30, 2018. On June 22, 2018 the Company entered into a Terminationsuite retention and Surrender Agreementdevelopment agreement with Albany Molecular Research, Inc. (“AMRI”) under which a series of cleanroom suites were built at AMRI’s manufacturing facility in accordance with the landlord relatingCompany’s objectives (“AMRI Agreement”). The AMRI Agreement continues for
is not reasonably certain it will exercise this option.
2019.
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Lease cost | ||||||||
Operating lease cost | $ | 3,397 | $ | 2,019 | ||||
Total lease cost | $ | 3,397 | $ | 2,019 | ||||
Other information | ||||||||
Operating cash flows from operating leases | $ | 3,022 | $ | 1,933 | ||||
Operating lease liabilities arising from obtaining right-of-use | $ | 53,778 | — | |||||
Weighted-average remaining lease term | 5 years | 8 years | ||||||
Weighted-average discount rate | 11.9 | % | 17.5 | % |
September 30, | ||||
2020 | $ | 7,784 | ||
2021 | 14,737 | |||
2022 | 15,178 | |||
2023 | 15,591 | |||
2024 | 16,050 | |||
2025 and thereafter | 19,164 | |||
Total future minimum lease payments | 88,504 | |||
Less: imputed interest | (23,074 | ) | ||
Present value of lease liabilities | $ | 65,430 | ||
December 31, | ||||
2020 | $ | 2,659 | ||
2021 | 2,737 | |||
2022 | 2,818 | |||
2023 | 2,860 | |||
2024 | 2,937 | |||
2025 and thereafter | 10,160 | |||
Total future minimum lease payments | 24,171 | |||
Less: imputed interest | (11,557 | ) | ||
Present value of lease liabilities | $ | 12,614 | ||
Pursuant to the Shire Agreement (see Note 3), in December 2016, the Company was assigned and assumed several contracts related to the MRT Program. The material agreements that were assigned to and assumed by the Company in connection with the acquisition are described below.
The
As amended, the agreementas of September 30, 2020. The 2019 MIT Agreement expires in October 2019December 2022 and may be extended thereafter by mutual agreement of the parties.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
not include nucleic acids that function through an RNA interface mechanism or transcriptional activation mechanism (the “coding RNA component”), and (ii) products covered by the licensed patent rights (the “lipid products”). A product containing both a coding RNA component and a lipid product is referred to as a “licensed product.” Under the licensed patent rights, the Company is permitted to develop, manufacture and commercialize the licensed products for the delivery of coding RNA components to treat disease in humans.
including products that may be developed under the Company’s collaboration with Sanofi.
2019.
MIT.
Research and development expenses
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
2019.
Consulting Agreement
a private placement of the Company’s common stock in May 2019, entities affiliated with Baupost Group, L.L.C. (“Baupost”), a substantial stockholder, purchased 2,352,941 shares of the Company’s common stock at a price per share of $8.50 for an aggregate purchase price of $20.0 million.
As additional compensation for services provided under the consulting agreement, through December 31, 2016, the Company granted to Mr. Lynch 321,823 shares of restricted common stock, which are fully vested. During thesecond year ended December 31, 2017, the Company granted to Mr. Lynch stock options to purchase 85,170 shares of common stock, at an exercise price of $7.39 per share, which vest monthly over a four-year period. The stock options had a grant-date fair value of $4.06 per share and an aggregate fair value of $0.3 million.
Transition Services Agreement with Shire
In connection with the entering into the Shire Agreement (see Note 3), the Company and Shire entered into a transition services agreement (the “Transition Agreement”) pursuant to which Shire provided certain transition services, such as information technology, finance, legal, facilities-related and regulatory, for nine months following the acquisition of the MRT Program. During the threerent commencement date and six months ended June 30, 2017, the Company recorded general and administrative expenses of $4,575 and $16,025, respectively, and paid Shire $4,725 and $14,525, respectively, for the services provided under the Transition Agreement, which expired in September 2017.
14. Costs Associated with Restructuring
In June 2017, the Company implemented a reorganization of its operations, which reduced its workforce by 17 positions in connection with a strategic realignment of resources aimed at better supporting the advancement of its MRT platform. The benefits provided to the employees as part of this reorganization were determined to be involuntary termination benefits provided under the terms of aone-time benefit arrangement pursuant to which employees were not required to provide future services to the Company. During the three and six months ended June 30, 2017, the Company recorded employee severance charges of $0.5 million related to this restructuring, which were included in research and development expenses in the consolidated statements of operations.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
Changes in accrued restructuring costs were as follows (in thousands):
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
15. Subsequent Events
Sanofi Collaboration and License Agreement
On June 8, 2018, the Company entered into a collaboration and license agreement with Sanofi. The Sanofi Agreement became effective on July 9, 2018, following receipt of clearance under the Hart–Scott–Rodino Antitrust Improvements Act of 1976.
Under the Sanofi Agreement, the Company and Sanofi have agreed to collaborate to perform certain research and development activities to advance mRNA vaccines and mRNA vaccine platform development during a three-year research term, which may be extended by mutual agreement. The collaboration activities willthereafter shall be subject to a collaboration plan to be updated annually. The Sanofi Agreement provides that Sanofi make an upfront payment to the Company3% annual increase.
TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, CONTINUED)
the Company $5.0 million with respect to each additional licensed field for which it exercises an option. Sanofi has also agreed to pay the Company milestone payments upon the achievement of specified development, regulatory and commercialization milestones. In particular, the Company is entitled to receive development and regulatory milestone payments of up to $63.0 million per licensed field and sales milestone payments of up to $85.0 million per licensed field. In addition, the Company is entitled to receive a $10.0 million milestone payment from Sanofi following completion of the technology and process transfer.
Sanofi has agreed to pay the Company a tiered royalty on worldwide net sales of all mRNA vaccines within each licensed field ranging from a high single-digit percentage to a low teens percentage, depending on quarterly net sales by Sanofi, its affiliates and its sublicensees. The royalty paid to the Company can be reduced with respect to a product once the relevant licensed patent rights expire or if additional licensed technology is required, but the royalty payments generally may not fall below the Company’s royalty obligations to third parties plus a royalty of a low single-digit percentage. Royalty payments under the Sanofi Agreement are payable on aproduct-by-product andcountry-by-country basis beginning on the launch of the product in the country until the later of the expiration of the last valid claim covering such product or 10 years after the launch of such product in such country.
The Sanofi Agreement provides that it will remain in effect until terminated in accordance with its terms. Either the Company or Sanofi may terminate the Sanofi Agreement in its entirety if the other party is subject to certain insolvency proceedings. Either party may terminate the Sanofi Agreement in its entirety or with respect to a particular licensed field, country or product if the other party materially breaches the Sanofi Agreement and the breach remains uncured for a specified period, which may be extended in certain circumstances. Sanofi may also terminate the Sanofi Agreement its entirety or with respect to a particular licensed field, country or product for safety reasons or for convenience, in each case after a specified notice period. After termination of the Sanofi Agreement, Sanofi may continue to manufacture and commercialize the terminated products for a specified period of time, subject to Sanofi’s payment obligations.
The Company is currently evaluating its accounting treatment for the Sanofi Agreement.
Initial Public Offering
On June 27, 2018, the Company’s registration statement on FormS-1 relating to its IPO was declared effective by the SEC. In the IPO, which closed on July 2, 2018, the Company issued and sold 9,350,000 shares of common stock at a public offering price of $13.00 per share. On July 24, 2018, the Company issued and sold an additional 364,371 shares of common stock at a price of $13.00 per share pursuant to the exercise of the underwriters’ over-allotment option in the IPO. The aggregate net proceeds to the Company from the IPO, inclusive of the proceeds from the over-allotment exercise, were approximately $113.4 million after deducting underwriting discounts and commissions of $8.8 million and estimated offering expenses of approximately $4.1 million. Upon closing of the IPO, all 142,288,292 shares of the Company’s redeemable convertible preferred stock then outstanding converted into an aggregate of 25,612,109 shares of common stock. As of July 31, 2018, there were 45,141,690 shares of common stock outstanding.
Issuance of Common Stock to Shire
As a result of and concurrent with the closing of the Company’s IPO on July 2, 2018, the Company issued 183,619 shares of common stock to Shire in full satisfaction of the Company’s anti-dilution obligations to Shire. The issued shares of common stock had a fair value of $2.4 million (see Note 4).
Changes to Authorized Common and Preferred Shares
On July 2, 2018, the Company filed a restated certificate of incorporation in the State of Delaware, which, among other things, restated the number of shares of all classes of stock that the Company has authority to issue to 210,000,000 shares, consisting of (i) 200,000,000 shares of common stock, $0.001 par value per share, and (ii) 10,000,000 shares of preferred stock, $0.001 par value per share. The shares of preferred stock are currently undesignated.
SomeMarch 12, 2020. This Management’s Discussion and Analysis of the statements contained in this discussionFinancial Condition and analysis or set forth elsewhere in this Quarterly Report onForm 10-Q, including information with respect to our plans and strategy for our business, constitute forward looking statements within the meaningResults of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based theseOperations contains forward-looking statements onthat reflect our current expectationsplans, estimates, and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report onForm 10-Q, particularly including those risks identified inPart II-Item 1A “Risk Factors” and our other filings with the SEC.
Our actualbeliefs. Actual results and timing of certain events may differ materially and adversely from the results discussed, projected, anticipated, or indicatedthose expressed in any forward-looking statements. We caution youAmong the important factors that could cause actual results to differ materially from those indicated by our forward-looking statements are not guarantees of future performancethose discussed under the heading “Risk Factors” in Part II, Item 1A. and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements containedelsewhere in this Quarterly Report onForm 10-Q. Statements made herein are as of the date of the filing of thisForm 10-Q with the SECreport, and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report onForm 10-Q, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
2019 Annual Report.
accommodate multiple
Through September 30, 2020, we have funded our operations primarily through sales of equity securities and research and collaboration agreements and we have received proceeds of approximately $1.1 billion from such transactions.
On June 8, 2018, we entered into a collaboration and license agreement with Sanofi to develop mRNA vaccines for up to five undisclosed infectious disease pathogens, or the Sanofi Agreement. The Sanofi Agreement became effective on July 9, 2018, following notice of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Act of 1976. Under the Sanofi Agreement, we and Sanofi will jointly conduct research and development activities to advance mRNA vaccines and mRNA vaccine platform development during a three-year research term, which may be extended by mutual agreement.
We are eligible to receive up to $805.0 million in payments, which includes an upfront payment of $45.0 million, which we received on July 18, 2018, certain development, regulatory and sales-related milestones across several vaccine targets, and option exercise fees if Sanofi exercises its option related to development of vaccines for additional pathogens. We are also eligible to receive tiered royalty payments associated with worldwide sales of the developed vaccines, if any.
Prior to the IPO and the Sanofi Agreement, we had funded our operations primarily with proceeds from the sale of preferred stock and bridge units, which ultimately converted into shares of our preferred stock. Through June 30, 2018, we had received net cash proceeds of $189.2 million from sales of our preferred stock and bridge units.
included elsewhere in this Quarterly Report on Form
from Product Sales
In July 2018, we received an upfront payment of $45.0 million from Sanofi under
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
CF program (including MRT5005) | $ | 4,570 | $ | 4,795 | $ | 8,614 | $ | 7,416 | ||||||||
OTC deficiency program (including MRT5201) | 2,707 | 1,159 | 5,325 | 2,377 | ||||||||||||
MRT discovery program | 1,138 | 1,262 | 2,007 | 2,056 | ||||||||||||
Oligonucleotide discovery program | 10 | 1,081 | 79 | 2,060 | ||||||||||||
Unallocated research and development expenses | 6,794 | 5,209 | 11,896 | 9,218 | ||||||||||||
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|
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|
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| |||||||||
Total research and development expenses | $ | 15,219 | $ | 13,506 | $ | 27,921 | $ | 23,127 | ||||||||
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|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands) | ||||||||||||||||
Vaccine program | $ | 8,437 | $ | 243 | $ | 20,412 | $ | 788 | ||||||||
MRT5005 program | 2,643 | 5,458 | 12,087 | 17,343 | ||||||||||||
Discovery program | 2,923 | 1,873 | 8,730 | 5,416 | ||||||||||||
MRT5201 program | — | 2,155 | — | 6,241 | ||||||||||||
Oligonucleotide program | — | 107 | — | 202 | ||||||||||||
Unallocated research and development expenses | 12,341 | 7,459 | 35,556 | 21,353 | ||||||||||||
Total research and development expenses | $ | 26,344 | $ | 17,295 | $ | 76,785 | $ | 51,343 | ||||||||
Interest Income
Interestnet
Other
Other income (expense), net consists of miscellaneous income and expense unrelated to our core operations.
Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The enactment of the Tax Act resulted in us recording a net income tax benefit of $6.1 million in the year ended December 31, 2017. The $6.1 million net income tax benefit consisted of (i) the remeasurement of the deferred tax liabilities for our indefinite-lived intangible assets due to the tax rate reduction, which resulted in a corresponding income tax benefit of $3.7 million, and (ii) a reduction in the valuation allowance for deferred tax assets related to deductible temporary differences that will generate unlimited net operating loss carryforwards when they reverse in future periods, which resulted in a corresponding income tax benefit of $2.4 million.
The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. We are still in the process of analyzing the impact to us of the Tax Act, and our analysis is not yet complete. Where we have been able to make reasonable estimates of the effects related to the Tax Act, we have recorded provisional amounts. All of our recorded income tax benefits and provisions related to the Tax Act are provisional. The ultimate impact to our condensed consolidated financial statements of the Tax Act may differ from the provisional amounts.
2019
Three Months Ended June 30, | ||||||||||||
2018 | 2017 | Change | ||||||||||
(in thousands) | ||||||||||||
Operating expenses: | ||||||||||||
Research and development | $ | 15,219 | $ | 13,506 | $ | 1,713 | ||||||
General and administrative | 5,991 | 3,125 | 2,866 | |||||||||
Change in fair value of contingent consideration | 7,852 | 2,324 | 5,528 | |||||||||
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Total operating expenses | 29,062 | 18,955 | 10,107 | |||||||||
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Loss from operations | (29,062 | ) | (18,955 | ) | (10,107 | ) | ||||||
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Other income (expense): | ||||||||||||
Interest income | 91 | 79 | 12 | |||||||||
Other income (expense), net | (32 | ) | 73 | (105 | ) | |||||||
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Total other income (expense), net | 59 | 152 | (93 | ) | ||||||||
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Loss before benefit from income taxes | (29,003 | ) | (18,803 | ) | (10,200 | ) | ||||||
Benefit from income taxes | 1,500 | 870 | 630 | |||||||||
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Net loss | $ | (27,503 | ) | $ | (17,933 | ) | $ | (9,570 | ) | |||
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Research2019:
Three Months Ended September 30, | ||||||||||||
2020 | 2019 | Change | ||||||||||
(in thousands) | ||||||||||||
Collaboration revenue | $ | 66,446 | $ | 1,266 | $ | 65,180 | ||||||
Operating expenses: | ||||||||||||
Research and development | 26,344 | 17,295 | 9,049 | |||||||||
General and administrative | 9,163 | 6,881 | 2,282 | |||||||||
Change in fair value of contingent consideration | 14,190 | (19,834 | ) | 34,024 | ||||||||
Impairment of intangible asset | — | 18,559 | (18,559 | ) | ||||||||
Total operating expenses | 49,697 | 22,901 | 26,796 | |||||||||
Income (loss) from operations | 16,749 | (21,635 | ) | 38,384 | ||||||||
Other income, net | 595 | 408 | 187 | |||||||||
Income (loss) before benefit from income taxes | 17,344 | (21,227 | ) | 38,571 | ||||||||
Benefit from income taxes | — | — | — | |||||||||
Net income (loss) | $ | 17,344 | $ | (21,227 | ) | $ | 38,571 | |||||
Three Months Ended June 30, | ||||||||||||
2018 | 2017 | Change | ||||||||||
(in thousands) | ||||||||||||
Direct research and development expenses by program: | ||||||||||||
CF program (including MRT5005) | $ | 4,570 | $ | 4,795 | $ | (225 | ) | |||||
OTC deficiency program (including MRT5201) | 2,707 | 1,159 | 1,548 | |||||||||
MRT discovery program | 1,138 | 1,262 | (124 | ) | ||||||||
Oligonucleotide discovery program | 10 | 1,081 | (1,071 | ) | ||||||||
Unallocated research and development expenses: | ||||||||||||
Personnel related (including stock-based compensation) | 4,459 | 3,512 | 947 | |||||||||
Other | 2,335 | 1,697 | 638 | |||||||||
|
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|
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| |||||||
Total research and development expenses | $ | 15,219 | $ | 13,506 | $ | 1,713 | ||||||
|
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|
|
|
Research and development expenses were $15.2$1.3 million for the three months ended JuneSeptember 30, 2018, compared2020 and 2019, respectively, which was derived from the Sanofi collaboration. The increase of $65.2 million was primarily related to $13.5increased activities for the vaccine program as well as a $30.9 million cumulative
Three Months Ended September 30, | ||||||||||||
2020 | 2019 | Change | ||||||||||
(in thousands) | ||||||||||||
Direct external research and development expenses by program: | ||||||||||||
Vaccine program | $ | 8,437 | $ | 243 | $ | 8,194 | ||||||
MRT5005 program | 2,643 | 5,458 | (2,815 | ) | ||||||||
Discovery program | 2,923 | 1,873 | 1,050 | |||||||||
MRT5201 program | — | 2,155 | (2,155 | ) | ||||||||
Oligonucleotide program | — | 107 | (107 | ) | ||||||||
Unallocated research and development expenses: | ||||||||||||
Personnel related (including stock-based compensation) | 6,014 | 4,629 | 1,385 | |||||||||
Other | 6,327 | 2,830 | 3,497 | |||||||||
Total research and development expenses | $ | 26,344 | $ | 17,295 | $ | 9,049 | ||||||
MRT5005 and MRT5201 programs.
the same period in 2020. The decrease in clinical trial costs in the three months ended September 30, 2020 compared to the same period in 2019 was due to a pause in enrollment and dosing in our ongoing Phase 1/2 clinical trial in patients with CF as a consequence of the
Direct expenses of our oligonucleotide discovery program decreased by $1.1 million in the three months ended June 30, 2018 compared2019 due to the three months ended June 30, 2017 duedecision in 2019 to a shift in our focus andre-prioritization of the program in June 2017 as we continueddiscontinue development of our MRT platform at that time.
Unallocated research and development expenses increased by $1.6$4.9 million induring the three months ended JuneSeptember 30, 20182020 compared to the three months ended JuneSeptember 30, 2017.2019. The increase of $0.9$1.4 million in personnel-related costs was primarily duerelated to an increase in stock-based compensation expense, resulting from options granted during the year ended December 31, 2017 and the six months ended June 30, 2018 and additional $0.3 million expense recorded for a stock option modification that occurredheadcount in the three months ended JuneSeptember 30, 2018.2020 compared to the same period in 2019. The increase of $0.6$3.5 million in other unallocated research and development expenses was due to increasesan increase of $2.6 million primarily due to costs related to entering into the Second Sanofi Agreement and
professional fees.
The $1.4 million increase in personnel-related costs was primarily due to an increase of $1.2 million in stock-based compensation expense, resulting from options granted duringcosts related to entering into the year ended December 31, 2017Second Sanofi Amendment and the six months ended June 30, 2018, as well as an increase of $0.8 million in headcount in the three months ended June 30, 2018 compared to the three months ended June 30, 2017.
The $0.6 million increase in professional fees waspersonnel-related costs primarily due to an increase of $0.5 million in legal fees associated with filing patent applications and prosecuting our intellectual property and an increase of $0.1 million in audit costs.
stock-based compensation expense.
In
Benefit from Income Taxes
During This increase was primarily due to the time value of money due to the passage of time and a decrease in the discount rate.
2019
Six Months Ended June 30, | ||||||||||||
2018 | 2017 | Change | ||||||||||
(in thousands) | ||||||||||||
Operating expenses: | ||||||||||||
Research and development | $ | 27,921 | $ | 23,127 | $ | 4,794 | ||||||
General and administrative | 10,769 | 6,099 | 4,670 | |||||||||
Change in fair value of contingent consideration | 12,760 | 4,599 | 8,161 | |||||||||
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Total operating expenses | 51,450 | 33,825 | 17,625 | |||||||||
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Loss from operations | (51,450 | ) | (33,825 | ) | (17,625 | ) | ||||||
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Other income (expense): | ||||||||||||
Interest income | 181 | 158 | 23 | |||||||||
Other income (expense), net | (45 | ) | 60 | (105 | ) | |||||||
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Total other income (expense), net | 136 | 218 | (82 | ) | ||||||||
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Loss before benefit from income taxes | (51,314 | ) | (33,607 | ) | (17,707 | ) | ||||||
Benefit from income taxes | 2,602 | 1,721 | 881 | |||||||||
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Net loss | $ | (48,712 | ) | $ | (31,886 | ) | $ | (16,826 | ) | |||
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2019:
Nine Months Ended September 30, | ||||||||||||
2020 | 2019 | Change | ||||||||||
(in thousands) | ||||||||||||
Collaboration revenue | $ | 87,420 | $ | 3,914 | $ | 83,506 | ||||||
Operating expenses: | ||||||||||||
Research and development | 76,785 | 51,343 | 25,442 | |||||||||
General and administrative | 25,223 | 21,284 | 3,939 | |||||||||
Change in fair value of contingent consideration | 20,085 | (3,243 | ) | 23,328 | ||||||||
Impairment of intangible asset | — | 18,559 | (18,559 | ) | ||||||||
Total operating expenses | 122,093 | 87,943 | 34,150 | |||||||||
Income (loss) from operations | (34,673 | ) | (84,029 | ) | 49,356 | |||||||
Other income, net | 1,447 | 1,286 | 161 | |||||||||
Income (loss) before benefit from income taxes | (33,226 | ) | (82,743 | ) | 49,517 | |||||||
Benefit from income taxes | — | 486 | (486 | ) | ||||||||
Net loss | $ | (33,226 | ) | $ | (82,257 | ) | $ | 49,031 | ||||
Six Months Ended June 30, | ||||||||||||
2018 | 2017 | Change | ||||||||||
(in thousands) | ||||||||||||
Direct research and development expenses by program: |
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CF program (including MRT5005) | $ | 8,614 | $ | 7,416 | $ | 1,198 | ||||||
OTC deficiency program (including MRT5201) | 5,325 | 2,377 | 2,948 | |||||||||
MRT discovery program | 2,007 | 2,056 | (49 | ) | ||||||||
Oligonucleotide discovery program | 79 | 2,060 | (1,981 | ) | ||||||||
Unallocated research and development expenses: | ||||||||||||
Personnel related (including stock-based compensation) | 7,913 | 6,139 | 1,774 | |||||||||
Other | 3,983 | 3,079 | 904 | |||||||||
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Total research and development expenses | $ | 27,921 | $ | 23,127 | $ | 4,794 | ||||||
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2020 | 2019 | Change | ||||||||||
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Direct external research and development expenses by program: | ||||||||||||
Vaccine program | $ | 20,412 | $ | 788 | $ | 19,624 | ||||||
MRT5005 program | 12,087 | 17,343 | (5,256 | ) | ||||||||
Discovery program | 8,730 | 5,416 | 3,314 | |||||||||
MRT5201 program | — | 6,241 | (6,241 | ) | ||||||||
Oligonucleotide program | — | 202 | (202 | ) | ||||||||
Unallocated research and development expenses: | ||||||||||||
Personnel related (including stock-based compensation) | 20,792 | 13,615 | 7,177 | |||||||||
Other | 14,764 | 7,738 | 7,026 | |||||||||
Total research and development expenses | $ | 76,785 | $ | 51,343 | $ | 25,442 | ||||||
MRT5201 and MRT5005 programs.
Direct expenses of our OTC deficiency program increased by $2.9 million in the six months ended June 30, 20182020 compared to the six months ended June 30, 2017. The increasesame period in direct expenses for the six months ended June 30, 2018 was primarily2019 is due to a result of increased manufacturing activitiespause in anticipation of an IND filingenrollment and dosing in 2018 and a plannedour ongoing Phase 1/2 clinical trial of MRT5201 for the treatment ofin patients with OTC deficiency inCF as a consequence of the first half
professional fees.
The $2.3 million increase in personnel-related costs was primarily due to an increase of $1.6 million in stock-based compensation expense, resulting from options granted during the year ended December 31, 2017 and the six months ended June 30, 2018, as well as an increase in headcount in the six months ended June 30, 2018 compared to the six months ended June 30, 2017.
The $1.1 million increase in professional fees was due to an increase of $0.8$2.0 million in legal fees primarily associated with filing patent applications and prosecuting our intellectual propertycosts related to entering into the Second Sanofi Amendment and an increase of $0.3$1.4 million in audit costs.
The $0.7 million increase in depreciation expense waspersonnel-related costs primarily due to the acceleration of unamortized leasehold improvements related to the lease we acquiredan increase in connection with our acquisition of the MRT Program in December 2016 which we surrendered in June 2018 under a Termination and Surrender Agreement entered into with the landlord.
stock-based compensation expense.
In
This increase was primarily due to the time value of money due to the passage of time and a decrease in the discount rate.
stock by the stockholder.
Six Months Ended June 30, | ||||||||
2018 | 2017 | |||||||
(in thousands) | ||||||||
Net cash used in operating activities | $ | (33,581 | ) | $ | (25,349 | ) | ||
Net cash provided by (used in) investing activities | 4,161 | (25,152 | ) | |||||
Net cash used in financing activities | (2,143 | ) | — | |||||
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Net decrease in cash, cash equivalents and restricted cash | $ | (31,563 | ) | $ | (50,501 | ) | ||
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2020 | 2019 | |||||||
(in thousands) | ||||||||
Net cash provided by (used in) operating activities | $ | 258,292 | $ | (61,900 | ) | |||
Net cash provided by (used in) investing activities | 97,922 | (24,086 | ) | |||||
Net cash provided by financing activities | 233,256 | 129,642 | ||||||
Net increase in cash, cash equivalents and restricted cash | $ | 589,470 | $ | 43,656 | ||||
During the six months ended June 30, 2017, operating activities used $25.3 million of cash, resulting from our net loss of $31.9 million, partially offset by netnon-cash charges of $4.3 million and net cash provided by changes in our operating assets and liabilities of $2.2$252.2 million and net non-cash charges of $39.3 million, partially offset by our net loss of $33.2 million. Net cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2017 consisted primarily of a $1.7$291.9 million increase in deferred revenue as a result of the Second Sanofi Amendment and a $4.9 million increase in accrued expenses, and a $1.1 million increase in accounts payable, both partially offset by a $0.5$20.5 million increase in collaboration receivables, a $10.1 million increase in long-term prepaid rent, an $8.6 million decrease in accounts payable and a $5.8 million increase in prepaid expenses and other assets.
Investing Activities
Net non-cash charges for the nine months ended September 30, 2020 primarily consisted of a $20.1 million increase in the change in the fair value of contingent consideration which was primarily due to the time value of money due to the passage of time and a decrease in the discount rate, a $12.8 million charge to stock-based compensation expense and a $6.4 million charge for depreciation and amortization expense.
During the six months ended June 30, 2017, net cash used in investing activities was $25.2 million, consisting of $60.8 million of purchases of short-term investments, partially offset by $36.0$116.3 million of sales and maturities of short-term investments.
During the six months ended June 30, 2017, we had no cash flows from financing activities.
COVID-19
If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
The disclosure of contractual obligations and commitments is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and results of Operations—Contractual Obligations and Commitments” in our Prospectus. See Note 12 to our unaudited condensed financial statements included in Item 1, “Unaudited Financial Statements,” of this Quarterly Report on Form10-Q for a discussion of obligations and commitments.
exception of the commitments as described below.
During the three and six months ended June 30, 2018, there were
2019 Annual Report.
As of June 30, 2018 and December 31, 2017, we had no debt outstanding1934, as amended, for this reporting period and are therefore not exposedrequired to interest rate risk with respect to debt.
Foreign Currency Exchange Risk
All of our employees and our operations are currently located inprovide the United States. We have, from time to time, engaged in contracts with contractors or other vendors in a currency other than the U.S. dollar. To date, we have had minimal exposure to fluctuations in foreign currency exchange rates as the time period between the date that transactions are initiated and the date of payment or receipt of payment is generally of short duration. Accordingly, we believe we do not have a material exposure to foreign currency risk.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis. Management has identified the following material weakness, which has caused management to conclude that, as of JuneSeptember 30, 2018, our disclosure controls and procedures were not effective: we did not design and maintain effective controls and procedures over our accounting for and reporting of the income tax impacts of business combinations in fiscal 2016, and such deficiency has remained unremediated as of June 30, 2018. Notwithstanding the assessment that our internal controls and procedures were not effective, we believe that our financial statements contained in this Quarterly Report on Form 10-Q fairly present our financial position, results of operations and cash flows for the years and months covered thereby in all material respects.
2020.
No change
pursue
the success of our collaboration with Sanofi;
Comprehensive tax reform legislation could adversely affect our business and financial condition.
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act, which significantly reforms the Internal Revenue Code
and tax credit carryforwards could expire unused and be unavailable to offset our future income tax liabilities. Under the newly enacted federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain how various states will respond to the newly enacted federal tax law.
For example, in September 2019 we discontinued the development of MRT5201, a liver targeted treatment for ornithine transcarbamylase, or OTC, deficiency, and terminated our Phase 1/2 clinical trial for MRT5201 in patients with OTC deficiency.
In the near term, we are dependent on the success of MRT5005 and MRT5201.
MRT5005.
successful initiation of clinical trials;
For example, in April 2020, we announced that enrollment and dosing had been paused in our ongoing Phase 1/2 clinical trial in patients with CF as a consequence of the
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Our
We are aware of several companies with product candidates for the treatment of CF in Phase 2 clinical development in addition to Vertex, including Copernicus Therapeutics Inc., Flatley Discovery Lab, LLC, Galapagos NV, Grifols S.A., NovaBiotics Ltd, Novartis AG, Novotersis LLC, Parion Sciences, Inc., Proteostasis Therapeutics, Inc., Protalix BioTherapeutics, Inc., Sanofi S.A., Spyryx Biosciences, Inc. and Verona Pharma plc. We are aware of several companies with product candidates for the treatment of CF in Phase 1 clinical development, including Galapagos NV, Alpine Immune Sciences Inc., AstraZeneca plc, Eloxx Pharmaceuticals Ltd, Flatley Discovery Lab, LLC, Paranta Biosciences Ltd., ProQR Therapeutics N.V. and Proteostasis Therapeutics, Inc. Corbus Pharmaceuticals Holdings, Inc. completed a Phase 2 clinical trial of lenabasumtrial.
biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. Examples include AbbVie Inc., Corbus Pharmaceuticals, Inc., Eloxx Pharmaceuticals Ltd, and Proteostasis Therapeutics, Inc.
There are currently
Other companies developing products that modulate or affect OTC function for the treatment of OTC deficiency include Swedish Orphan Biovitrum AB, Roivant Sciences Ltd., Ethris GmbH and Arcturus Therapeutics Ltd.
there will likely be significant and consistent competition as these active programs mature.
As part of our strategy, we intend to seek to enter into collaborations with third parties for one or more of our programs or product candidates. For example, in June 2018, we entered into
Any collaborations we enter into, including ourSanofi.
Collaborators may have
Collaborators
Collaborators
Collaborators may delay
Collaborators
Product
A collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval
Collaborators
Collaborators
Collaborations
If our collaborations doSanofi does not result in the successful development and commercialization of products,vaccines, or if one of any future collaboratorsSanofi terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements,our agreement with Sanofi, our development of productvaccine candidates could be delayed and we may need additional resources to develop our productvaccine candidates.
IfSanofi’s activities.
Under Even if we are able to successfully enter into collaborations with third parties for one or more of our programs or product candidates, such collaborations may be subject to risks similar to those described above under the Shire Agreement, priorrisk factor captioned “We have an existing collaboration with Sanofi and we are highly dependent on the efforts of Sanofi to advance our vaccine development program, including the first dosing of a patientvaccine against
business could be adversely affected
COVID-19
For example, we are party to a leasing arrangement with a third-party manufacturer, Albany Molecular Research, Inc., or AMRI, for the manufacture of certain portions of our product candidates. Although we were closely involved with the design and construction of the cleanroom suites, we may still experience delays in the development services provided by AMRI. Such delays could materially adversely affect our business.
We do not currently have any agreements with third-party manufacturers for the long-term commercial supply of any of our product candidates.
companies and academic institutions for skilled individuals. In addition, failure to succeed in preclinical studies, clinical trials or applications for marketing approval may make it more challenging to recruit and retain qualified personnel. The inability to recruit, or loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects.
If third parties have filed such applications after March 15, 2013, a derivation proceeding in the United States can be initiated by such third parties to determine whether our invention was derived from theirs.
Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or applications will be due to be paid to the United States Patent and Trademark Office, or USPTO, and various government patent agencies outside of the United States over the lifetime of our licensed patents and/or applications and any patent rights we own or may own in the future. We rely, in part, on our outside counsel or our licensing partners to pay these fees due to the USPTO and to
typeobviousness-type double patenting or the loss of patent term, including a patent term adjustment granted by the USPTO, if a terminal disclaimer is filed to obviate a finding of obviousness-type double patenting. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld information material to patentability from the USPTO, or made a misleading statement, during prosecution. Third parties also may raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include
Further, as set forth above in the risk factor captioned “We and Sanofi may not be successful in our joint efforts to successfully develop in an expedited timeframe an mRNA vaccine against
On August 3, 2017, Congress passed the FDA Reauthorization Act of 2017, or FDARA. FDARA, among other things, codified the FDA’s
We may seek
In addition, we may not receive such designation for other product candidates.
In addition, if we seek fast track designation for other product candidates, we may not receive it from the FDA.
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could have a material adverse effect on our business, financial condition or results of operations.
reductions in Medicare and other health care funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. Further, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.
Since enactment of the ACA, there have been numerous legal challenges and Congressional actions to repeal and replace provisions of the law. In May 2017, the U.S. House of Representatives passed legislation known as the American Health Care Act of 2017. Thereafter, the Senate Republicans introduced and then updated a bill to replace the ACA known as the Better Care Reconciliation Act of 2017. The Senate Republicans also introduced legislation to repeal the ACA without companion legislation to replace it, and a “skinny” version of the Better Care Reconciliation Act of 2017. In addition, the Senate considered proposed health care reform legislation known as the Graham-Cassidy bill. None of these measures was passed by the U.S. Senate.
A bipartisan bill to appropriate fundsdistrict court for CSR payments was introduced inreconsideration of the Senate, butseverability question and additional analysis of the future of that bill is uncertain. Further, each chamber of Congress has put forth multiple bills designed to repeal or repeal and replace portionsprovisions of the ACA. Although noneOn January 21, 2020, the U.S. Supreme Court declined to review this decision on an expedited basis. On March 3, 2020, the Court agreed to hear the case through its normal procedures. On June 25, 2020, the Trump Administration and a coalition of these measures has been enacted by Congress18 states asked the court to date, Congress may consider other legislation to repeal and replace elementsstrike down the entirety of the ACA. Congress will likely consider otherLitigation and legislation to replace elements ofover the ACA during the next Congressional session. We willare likely to continue, to evaluate the effect that the ACAwith unpredictable and its possible repeal and replacement could have on our business.
uncertain results.
For example, these persons, if they act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in management of our company that other stockholders disagree with.
Moreover, beginning 180 days after the completion of our initial public offering, holders of an aggregate of approximately 32,597,434 shares of our common stock will have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
universal shelf registration statement. Sales of a substantial number of shares of our common stock, or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
An active trading market for our common stock may not be sustained.
Our shares of common stock began trading on the Nasdaq Global Select Market on June 28, 2018. Given the limited trading history of our common stock, there is a risk that an active trading market for our shares will not be sustained, which could put downward pressure on the market price for our common stock and thereby affect the ability of our stockholders to sell their shares. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an EGC until the earlier of: (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the last day of the first year in which the market value of our common stock that is held bynon-affiliates exceeds $700 million as of June 30. For so long as we remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not EGCs. These exemptions include:
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
reduced disclosure obligations regarding executive compensation;
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved; and
an exemption from compliance with the requirement of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the financial statements.
Investors may find our common stock less attractive as a result of our reliance on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an EGC may take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not EGCs.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and requirements.
We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.
We have identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
In preparation of our financial statements to meet the requirements of our initial public offering, we determined that a material weakness in our internal control over financial reporting existed during fiscal 2016 and remained unremediated as of December 31, 2017. The material weakness we identified is that we did not design and maintain effective controls and procedures over our accounting for and reporting of the income tax impacts of business combinations. This control deficiency could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our annual or interim condensed consolidated financial statements that would not be prevented or detected, and accordingly, we determined that the control deficiency constitutes a material weakness. The material weakness also resulted in revisions to our previously issued 2016 annual consolidated financial statements, which we concluded were not material to those financial statements, and adjustments to our interim condensed consolidated financial statements for the nine months ended September 30, 2017 before their issuance. Specifically, the material weakness resulted in errors in our accounting for and reporting of income taxes and goodwill in the purchase accounting for a business combination and in subsequent reporting periods.
We are in the process of implementing a remediation plan designed to improve our internal control over financial reporting and remediate the control deficiency that led to this material weakness.
We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weakness in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. In addition, neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required. Had we or our independent registered public accounting firm
performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified. If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or identify any additional material weaknesses in the future, or otherwise fail to maintain an effective system of internal controls, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our share price may decline as a result.
Sales of Unregistered Securities
Set forth below is information regarding shares of common stock issued,laboratory space, or the Premises, for our new headquarters to be located at 200 West Street, Waltham, Massachusetts 02451. The Lease has an initial
On July 2, 2018,design, permits, and construction costs in connection with the closingconstruction of our IPO,such tenant improvements. The TI Allowance shall be paid by the Landlord as a reimbursement so long as we issued 183,619 shareshave satisfied the specified requisition conditions, including the completion of common stockthe tenant improvements.
During the three months ended June 30, 2018, pursuant to the terms of our 2016 Stock Incentive Plan, we granted to certain of our employees options to purchase an aggregate of 567,094 shares of our common stock at an exercise price of $9.78 per share. During the three months ended June 30, 2018, we issued an aggregate of 49,459 shares of common stock upon the exercise of options for aggregate consideration of $278,166. The issuances of stock options and the shares of our common stock issued upon the exercise of the options described in this paragraph were issued pursuant to written compensatory plans or arrangements with our employees, directors and consultants, in reliance on the exemption provided by Rule 701 promulgated under the Securities Act. All recipients either received adequate information about us or had access, through employment or other relationships, to such information. On July 2, 2018, we filed a registration statement on FormS-8 under the Securities Act to registersubstantially all of the shares of our common stock subjectremaining lease term, then the Landlord shall have the right to outstanding options and all shares of our common stock otherwise issuable pursuantterminate the Lease. The Landlord also has the right to our equity compensation plans.
Use of Proceeds from Initial Public Offering of Common Stock
On July 2, 2018, we closed our IPO of 9,350,000 shares of common stock at a public offering price of $13.00 per share, and on July 24, 2018, we issued and soldterminate the Lease upon default under the Lease by us, such default including, but not limited to, failure to pay rent, an additional 364,371 shares of common stock at a price of $13.00 per share pursuant to the exerciseassignment or sublet in violation of the underwriters’ over-allotment option. The aggregate gross proceeds to us fromLease, our IPO, inclusivebankruptcy or insolvency, and abandonment of the over-allotment exercise, were $126.3 million. The offer and salePremises.
* | Filed herewith. |
** | Furnished herewith. |
+ | Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. |
Translate Bio, Inc. | ||||||
Date: | By: | /s/ Ronald C. Renaud, Jr. | ||||
Ronald C. Renaud, Jr. | ||||||
President and Chief Executive Officer | ||||||
Date: | By: | /s/ John R. Schroer | ||||
John R. Schroer | ||||||
Chief Financial Officer and Treasurer |
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