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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-37798
Selecta Biosciences, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
26-1622110
 
 
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
 
 
 
480 Arsenal Way
Watertown
MA
02472
 
 
(Address of principal executive offices)
(Zip Code)
 

(617) 923-1400
(Registrant’s telephone number, including area code)

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


Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 par value per share
SELB
Nasdaq Global Market
 
 
 
 
 
 
 
 
 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
 
Large accelerated filer
 
Accelerated filer
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 





If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No x
As of November 4, 2019, the registrant had 48,196,387 shares of common stock, par value $0.0001 per share, outstanding.




TABLE OF CONTENTS
 
 
 
Part I. FINANCIAL INFORMATION
 
 
 
Financial Statements
 
 
 
 
Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018
 
 
 
 
Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months ended September 30, 2019 and 2018 (Unaudited)
 
 
 
 
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Three Months ended March 31, June 30, and September 30, 2019 and 2018 (Unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2019 and 2018 (Unaudited)
 
 
 
 
Notes to Consolidated Financial Statements (Unaudited)
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
Part II. OTHER INFORMATION
 
 
 
Item 1. 
Legal Proceedings
 
 
 
Item 1A. 
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
 
SIGNATURES
 
 
 
 
 


1



FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, the plans and objectives of management for future operations and future results of anticipated products and a potential amendment to our exclusive patent license agreement with the Massachusetts Institute of Technology are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as the following:
-
our status as a development-stage company and our expectation to incur losses in the future;
-
our ability to continue as a going concern, our future capital needs and our need to raise additional funds;
-
our ability to build a pipeline of product candidates and develop and commercialize drugs;
-
our unproven approach to therapeutic intervention;
-
our ability to enroll patients in clinical trials, timely and successfully complete those trials and receive necessary regulatory approvals;
-
our ability to establish our own manufacturing facilities and to receive or manufacture sufficient quantities of our product candidates;
-
our ability to maintain our existing or future collaborations or licenses; and to reach an agreement regarding an acceptable amendment of our exclusive patent license agreement with the Massachusetts Institute of Technology;
-
our ability to protect and enforce our intellectual property rights;
-
federal, state, and foreign regulatory requirements, including FDA regulation of our product candidates;
-
our ability to obtain and retain key executives and attract and retain qualified personnel;
-
developments relating to our competitors and our industry, including the impact of government regulation; and
-
our ability to successfully manage our growth.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.


2




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

Selecta Biosciences, Inc. and Subsidiaries
Consolidated Balance Sheets 
(Amounts in thousands, except share data and par value)
 
September 30,
 
December 31,
 
2019
 
2018
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash, cash equivalents, and restricted cash
$
34,513

 
$
37,403

Prepaid expenses and other current assets
1,606

 
4,673

Total current assets
36,119


42,076

Property and equipment, net
1,452

 
2,127

Right of use asset, net (Note 8)
594

 

Long-term restricted cash
1,379

 
279

Total assets
$
39,544


$
44,482

Liabilities and stockholders’ equity (deficit)
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,478

 
$
1,100

Accrued expenses
5,316

 
11,700

Loan payable, current portion
20,927

 
21,385

Lease liability, current portion (Note 8)
734

 

Deferred revenue, current portion
1,023

 
959

Total current liabilities
29,478


35,144

Non‑current liabilities:
 
 
 
Deferred rent and lease incentive

 
34

Deferred revenue, net of current portion
14,981

 
13,818

Other long‑term liabilities

 
904

Total liabilities
44,459


49,900

Commitments and contingencies (Note 17)

 

Stockholders’ equity (deficit):
 
 
 
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

Common stock, $0.0001 par value; 200,000,000 shares authorized; 48,196,387 and 22,471,776 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
5

 
3

Additional paid-in capital
320,478

 
279,539

Accumulated deficit
(320,865
)
 
(280,403
)
Accumulated other comprehensive loss
(4,533
)
 
(4,557
)
Total stockholders’ equity (deficit)
(4,915
)
 
(5,418
)
Total liabilities and stockholders’ equity (deficit)
$
39,544


$
44,482

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

3




Selecta Biosciences, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(Amounts in thousands, except share and per share data)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(Unaudited)
Grant and collaboration revenue
$

 
$

 
$
23

 
$

Operating expenses:
 
 
 
 
 
 
 
Research and development
8,104

 
11,885

 
27,591

 
37,431

General and administrative
3,690

 
4,056

 
12,317

 
13,092

Total operating expenses
11,794

 
15,941

 
39,908

 
50,523

Loss from operations
(11,794
)
 
(15,941
)
 
(39,885
)
 
(50,523
)
Investment income
184

 
295

 
707

 
829

Foreign currency transaction (loss), net
7

 
26

 
(33
)
 
97

Interest expense
(388
)
 
(384
)
 
(1,184
)
 
(1,099
)
Other (expense), net
(3
)
 
3

 
(67
)
 
11

Net loss
(11,994
)
 
(16,001
)
 
(40,462
)
 
(50,685
)
Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustment
(5
)
 
(42
)
 
24

 
(113
)
Unrealized gain on securities
(3
)
 
1

 

 
16

Total comprehensive loss
$
(12,002
)
 
$
(16,042
)
 
$
(40,438
)
 
$
(50,782
)
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.26
)
 
$
(0.71
)
 
$
(0.94
)
 
$
(2.27
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
46,407,846

 
22,403,954

 
43,265,909

 
22,368,574

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


4




Selecta Biosciences, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(Amounts in thousands, except share data)
(Unaudited)
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
Additional
 
 
 
other
 
Stockholders’
 
Common stock
 
paid‑In
 
Accumulated
 
comprehensive
 
Equity
 
Shares
Amount
 
Capital
 
deficit
 
loss
 
(Deficit)
Balance at December 31, 2018
22,471,776

$
3

 
$
279,539

 
$
(280,403
)
 
$
(4,557
)
 
$
(5,418
)
Issuance of common stock under Employee Stock Purchase Plan
11,943


 
20

 

 

 
20

Issuance of common stock upon exercise of options
115,600


 
145

 

 

 
145

Issuance of common stock, net of issuance costs of $344
22,188,706

2

 
30,940

 

 

 
30,942

Stock‑based compensation expense


 
1,180

 

 

 
1,180

Currency translation adjustment


 

 

 
22

 
22

Unrealized gains (losses) on securities


 

 

 
2

 
2

Net loss


 

 
(12,074
)
 

 
(12,074
)
Balance at March 31, 2019
44,788,025

$
5


$
311,824

 
$
(292,477
)
 
$
(4,533
)
 
$
14,819

Issuance of common stock through at-the-market offering, net
164,926


 
372

 

 

 
372

Stock‑based compensation expense


 
1,251

 

 

 
1,251

Currency translation adjustment


 

 

 
7

 
7

Unrealized gains (losses) on securities


 

 

 
1

 
1

Net loss


 

 
(16,394
)
 

 
(16,394
)
Balance at June 30, 2019
44,952,951

$
5

 
$
313,447

 
$
(308,871
)
 
$
(4,525
)
 
$
56

Issuance of common stock under Employee Stock Purchase Plan
5,262


 
8

 

 

 
8

Issuance of common stock upon exercise of options
10,000


 
5

 

 

 
5

Issuance of vested restricted stock units
50,000


 

 

 

 

Issuance of common stock through private placement, net of issuance costs of $37
3,178,174


 
5,715

 

 

 
5,715

Stock‑based compensation expense


 
1,303

 

 

 
1,303

Currency translation adjustment


 

 

 
(5
)
 
(5
)
Unrealized gains (losses) on securities


 

 

 
(3
)
 
(3
)
Net loss


 

 
(11,994
)
 

 
(11,994
)
Balance at September 30, 2019
48,196,387

$
5

 
$
320,478

 
$
(320,865
)
 
$
(4,533
)
 
$
(4,915
)
The accompanying notes are an integral part of these unaudited consolidated financial statements.



5



Selecta Biosciences, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(Amounts in thousands, except share data)
(Unaudited)

 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
Additional
 
Stock
 
 
 
other
 
Stockholders'
 
Common stock
 
paid‑In
 
option
 
Accumulated
 
comprehensive
 
Equity
 
Shares
Amount
 
Capital
 
receivable
 
deficit
 
loss
 
(Deficit)
Balance at December 31, 2017
22,343,254

$
3

 
$
273,128

 
$

 
$
(216,897
)
 
$
(4,420
)
 
$
51,814

Adoption of new accounting principle


 

 

 
1,830

 

 
1,830

Issuance of common stock under Employee Stock Purchase Plan
6,586


 
51

 

 

 

 
51

Stock‑based compensation expense


 
1,153

 

 

 

 
1,153

Currency translation adjustment


 

 

 

 
19

 
19

Unrealized gains (losses) on securities


 

 

 

 
3

 
3

Net loss


 

 

 
(15,888
)
 

 
(15,888
)
Balance at March 31, 2018
22,349,840

$
3

 
$
274,332

 
$

 
$
(230,955
)
 
$
(4,398
)
 
$
38,982

Issuance of common stock upon exercise of options
46,343


 
311

 

 

 

 
311

Stock‑based compensation expense


 
1,245

 

 

 

 
1,245

Currency translation adjustment


 

 

 

 
(90
)
 
(90
)
Unrealized gains on securities


 

 

 

 
12

 
12

Net loss


 

 

 
(18,796
)
 

 
(18,796
)
Balance at June 30, 2018
22,396,183

$
3

 
$
275,888

 
$

 
$
(249,751
)
 
$
(4,476
)
 
$
21,664

Issuance of common stock under Employee Stock Purchase Plan
18,152


 
145

 

 

 

 
145

Issuance of common stock upon exercise of options
12,158


 
162

 
(53
)
 

 

 
109

Stock‑based compensation expense


 
1,526

 

 

 

 
1,526

Currency translation adjustment


 

 

 

 
(42
)
 
(42
)
Unrealized gains (losses) on securities


 

 

 

 
1

 
1

Net loss


 

 

 
(16,001
)
 

 
(16,001
)
Balance at September 30, 2018
22,426,493

$
3

 
$
277,721

 
$
(53
)
 
$
(265,752
)
 
$
(4,517
)
 
$
7,402

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


6




Selecta Biosciences, Inc. and Subsidiaries 
Consolidated Statements of Cash Flows
 (Amounts in thousands)
 
Nine Months Ended September 30,
 
2019
 
2018
 
(Unaudited)
Cash flows from operating activities
 
 
 
Net loss
$
(40,462
)
 
$
(50,685
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
522

 
789

Amortization of premiums (accretion of discounts) on investments
(154
)
 
(101
)
(Gain) loss on disposal of property and equipment
67

 
(85
)
Stock‑based compensation expense
3,734

 
3,924

Non‑cash interest expense
338

 
354

Net realized losses on investments
(1
)
 

Changes in operating assets and liabilities:
 
 
 
Prepaid expenses, deposits and other assets
4,078

 
(2,816
)
Accounts payable
378

 
(369
)
Deferred revenue
(13
)
 
810

Accrued expenses and other liabilities
(7,046
)
 
1,766

                    Net cash used in operating activities
(38,559
)
 
(46,413
)
Cash flows from investing activities
 
 
 
Receipts from the maturity of short-term investments
16,350

 
41,655

Purchases of short-term investments
(18,188
)
 
(15,598
)
Sale of short term investments
1,992

 

Purchases of property and equipment
(10
)
 
(516
)
Proceeds from the sale of property and equipment
94

 
105

                    Net cash provided by investing activities
238

 
25,646

Cash flows from financing activities
 
 
 
Repayments of principal on outstanding debt
(700
)
 

Net proceeds from issuance of common stock
30,942

 

Net proceeds from issuance of common stock- at-the-market offering
372

 

Net proceeds from issuance of common stock- private placement
5,715

 

Proceeds from exercise of stock options
150

 
421

Proceeds from issuance of common stock under Employee Stock Purchase Plan
28

 
196

                    Net cash provided by financing activities
36,507

 
617

Effect of exchange rate changes on cash
24

 
(113
)
Net change in cash, cash equivalents, and restricted cash
(1,790
)
 
(20,263
)
Cash, cash equivalents, and restricted cash at beginning of period
37,682

 
71,027

Cash, cash equivalents, and restricted cash at end of period
$
35,892

 
$
50,764

Supplement cash flow information
 
 
 
Cash paid for interest
$
1,652

 
$
833

Noncash investing and financing activities
 
 
 
Purchase of property and equipment not yet paid
$

 
$
310

Unrealized gain (loss) on marketable securities
$

 
$
16

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

7




Selecta Biosciences, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

1. Nature of the Business and Basis of Presentation
Selecta Biosciences, Inc. (the “Company”) was incorporated in Delaware on December 10, 2007, and is based in Watertown, Massachusetts. The Company is a clinical-stage biotechnology company focused on unlocking the full potential of biologic therapies based on its immune tolerance technology (ImmTOR™) platform. The Company plans to combine ImmTOR with a range of biologic therapies for rare and serious diseases that require new treatment options due to high immunogenicity of existing therapies. Since inception, the Company has devoted its efforts principally to research and development of its technology and product candidates, recruiting management and technical staff, acquiring operating assets, and raising capital.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

The accompanying financial statements have been prepared on a basis that assumes the Company is a going concern, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from any uncertainty related to its ability to continue as a going concern.

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These 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, 2018 included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 15, 2019 (the “Annual Report on Form 10-K”). The unaudited interim financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments that are necessary for a fair statement of the Company’s financial position as of September 30, 2019 and consolidated results of operations and cash flows for the three and nine months ended September 30, 2019. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.

Liquidity and Management's Plan

The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations. The Company is subject to a number of risks similar to other early-stage life science companies, including, but not limited to, successful development of its product candidates, raising additional capital with favorable terms, protection of proprietary technology and market acceptance of any approved future products. The successful development of product candidates requires substantial working capital which may not be available to the Company on favorable terms or at all.

8




To date, the Company has financed its operations primarily through the initial public offering of its common stock, a private placement of its common stock, issuances of common and preferred stock, debt, research grants and research collaborations. The Company currently has no source of product revenue, and it does not expect to generate product revenue for the foreseeable future. To date, all of the Company's revenue has been collaboration and grant revenue. The Company has devoted substantially all of its financial resources and efforts to developing its ImmTOR technology, identifying potential product candidates and conducting preclinical studies and its clinical trials. The Company is in the early stages of development of its product candidates, and it has not completed development of any ImmTOR-enabled therapies.

As of September 30, 2019, the Company’s cash, cash equivalents and restricted cash were $35.9 million, of which $0.4 million was held by its Russian subsidiary designated solely for use in its operations. The Company has incurred losses and negative cash flows from operating activities since inception. As of September 30, 2019 and December 31, 2018, the Company had an accumulated deficit of $320.9 million and $280.4 million, respectively. The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research, development of its product candidates, conducting preclinical studies and clinical trials, and its administrative organization. The Company will require substantial additional financing to fund its operations and to continue to execute its strategy, and the Company will pursue a range of options to secure additional capital. These conditions raise substantial doubt about its ability to continue as a going concern within one year after the date that the financial statements are issued.

Management is actively exploring licenses and other strategic collaborations that have the potential to provide non-dilutive capital and/or accelerate the development of new or existing product candidates incorporating the Company’s ImmTOR technology. Additionally, the Company may seek to fund its operations through issuances of equity and/or other securities. If the Company enters into strategic collaborations and alliances, which may include existing collaboration partners, the Company may have to relinquish valuable rights to its technologies or product candidates, or grant licenses on terms that are not favorable to the Company. To the extent that the Company raises additional capital through the sale of equity, the ownership interest of its existing shareholders will be diluted and other preferences may be necessary that adversely affect the rights of existing shareholders. The Company requires additional external sources of capital to complete the ongoing head-to-head Phase 2 COMPARE trial against KRYSTEXXA® and additional capital to conduct the planned Phase 3 clinical program for SEL-212. If the Company is unable to raise sufficient capital through strategic collaborations and/or the sale of equity or other securities, it intends to curtail expenses contemplated by the current operating plan, and the Company may be required to delay, limit, reduce or terminate its product development efforts or grant rights to develop and market product candidates that it would otherwise prefer to develop and market itself. Because of the uncertainty in securing additional capital and the insufficient amount of capital resources at September 30, 2019, management has concluded that substantial doubt exists with respect to the Company's ability to continue as a going concern within one year after the date of the filing of this Quarterly Report on Form 10-Q.

All amounts due under the 2017 Term Loan (see Note 9) have been classified as a current liability as of September 30, 2019 due to the considerations discussed above and the assessment that the material adverse change clause under the 2017 Term Loan is not within the Company's control. The Company has not been notified of an event of default by the Lender as of the date of the filing of this Quarterly Report on Form 10-Q.

Guarantees and Indemnifications

As permitted under Delaware law, the Company indemnifies its officers, directors, consultants and employees for certain events or occurrences that happen by reason of the relationship with, or position held at, the Company. Through September 30, 2019, the Company had not experienced any losses related to these indemnification obligations, and no claims were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Selecta RUS, LLC (“Selecta (RUS)”), a Russian limited liability corporation, and Selecta Biosciences Security Corporation, a Massachusetts Security Corporation. All significant intercompany accounts and transactions have been eliminated.
Foreign Currency

9



The functional currency of Selecta (RUS) is the Russian ruble. Assets and liabilities of Selecta (RUS) are translated at period-end exchange rates, while revenues and expenses are translated at average exchange rates for the period. Translation gains and losses are reflected in accumulated other comprehensive loss within stockholders’ deficit. Foreign currency transaction gains or losses are reflected in the consolidated statements of operations and comprehensive loss. 
Use of Estimates 
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company’s 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 revenues and expenses during the reporting period. The Company’s management considers many factors in selecting appropriate financial accounting policies and controls, and bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. In preparing these consolidated financial statements, management used significant estimates in the following areas, among others: revenue recognition, accounting for stock-based compensation and estimating accrued research and development expenses. The Company assesses the above estimates on an ongoing basis; however, actual results could materially differ from those estimates.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment, the research and development of nanoparticle immunomodulatory drugs for the treatment and prevention of human diseases.
Cash Equivalents, Short-term Investments and Restricted Cash
Cash equivalents include all highly liquid investments maturing within 90 days from the date of purchase. Investments consist of securities with remaining maturities greater than 90 days when purchased. The Company classifies these investments as available-for-sale and records them at fair value in the accompanying consolidated balance sheets. Investments with less than one year until maturity are classified as short term, while investments with maturities greater than one year are classified as long term. Unrealized gains or losses are included in accumulated other comprehensive income (loss). Premiums or discounts from par value are amortized to investment income over the life of the underlying investment.
Although available to be sold to meet operating needs or otherwise, securities are generally held through maturity. The cost of securities sold is determined based on the specific identification method for purposes of recording realized gains and losses. During the three months ended September 30, 2019, there were de minimis realized losses on sales of investments, and no investments were adjusted for other than temporary declines in fair value.
As of September 30, 2019, the Company has restricted cash balances relating to secured letters of credit in connection with its current Headquarters Lease and New Headquarters Lease (as defined in Note 8). The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same such amounts shown in the consolidated statement of cash flows:
 
 
September 30,
 
 
2019
 
2018
Cash and cash equivalents
 
$
34,234

 
$
50,485

Restricted cash
 
279

 

Long-term restricted cash
 
1,379

 
279

Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows
 
$
35,892

 
$
50,764



Concentrations of Credit Risk and Off‑Balance Sheet Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, short-term deposits and investments, and accounts receivable. Cash and cash equivalents are deposited with federally insured financial institutions in the United States and may, at times, exceed federally insured limits. Management believes that the financial institutions that hold the Company’s deposits are financially credit worthy and, accordingly, minimal risk exists with respect to those balances. Generally, these deposits may be redeemed upon demand and therefore bear minimal interest rate risk. As an integral part of operating its Russian subsidiary, the Company also maintains cash in Russian bank accounts in denominations of both Russian rubles and U.S. dollars. As of September 30, 2019, the Company maintained approximately $0.4 million in Russian bank accounts, all of which was held in U.S. dollars.

10



The Company did not have any off-balance sheet arrangements as of September 30, 2019 and December 31, 2018.
Fair Value of Financial Instruments
The Company’s financial instruments consist mainly of cash equivalents, restricted cash, accounts payable, loans payable, and common stock warrants. The carrying amounts of cash equivalents, restricted cash, accounts receivable, and accounts payable approximate their estimated fair value due to their short-term maturities. At September 30, 2019, the carrying amount of the Company's loan payable approximates its estimated fair value due to the short-term nature of the instrument.
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three‑level hierarchy is used to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements), and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1—Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2—Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3—Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
To the extent that a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair value of the Company's loan payable was determined using Level 2 inputs.
Fair value is a market‑based measure considered from the perspective of a market participant rather than an entity‑specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may change for many instruments. This condition could cause an instrument to be reclassified within levels in the fair value hierarchy. There were no transfers within the fair value hierarchy during the nine months ended September 30, 2019 or the year ended December 31, 2018.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight‑line method over the estimated useful lives of the respective assets, generally seven years for furniture and fixtures, five years for laboratory equipment, software and office equipment and three years for computer equipment. Leasehold improvements are amortized over their useful life or the life of the lease, whichever is shorter. Major additions and betterments are capitalized. Maintenance and repairs, which do not improve or extend the life of the respective assets, are charged to operations as incurred. Costs incurred for construction in progress are recorded as assets and are not amortized until the construction is substantially complete and the assets are ready for their intended use.
Impairment of Long‑Lived Assets
The Company reviews long‑lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In order to determine if assets have been impaired, assets are tested at the lowest level for which identifiable independent cash flows are available, which is at the entity level ("asset group"). An impairment loss is recognized when the sum of projected undiscounted cash flows is less than the carrying value of the asset group. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of the asset group. Based on management's evaluation, the fair value of the asset group, measured as the market capitalization of the Company exceeds its carrying value, and for this reason the Company did not recognize any material impairment losses during the nine months ended September 30, 2019 and 2018.
Debt Issuance Costs
Debt issuance costs and fees paid to lenders are classified as a debt discount and are recorded as a direct deduction from the face amount of the related debt. Issuance costs paid to third parties that are the direct result of the debt issuance are capitalized as a direct deduction from the face amount of the related debt. Debt issuance costs are amortized over the term of the related debt using the interest method and recorded as interest expense. Costs and fees paid to third parties are expensed as incurred.

11



Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in the equity of a business entity during a period from transactions and other events and circumstances from non‑owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income (loss) consists of: (i) all components of net loss and (ii) all components of comprehensive loss other than net loss, referred to as other comprehensive loss. Other comprehensive loss is comprised of foreign currency translation adjustments and the unrealized gains and losses on available-for-sale securities.
The components of accumulated other comprehensive income (loss), net of tax, were as follows (in thousands):
 
Foreign currency translation adjustment
 
Unrealized gains (losses) on available-for-sale securities
 
Accumulated other comprehensive income (loss)
Balance at December 31, 2018
$
(4,557
)
 
$

 
$
(4,557
)
Other comprehensive income (loss) during the period
$
24

 
$

 
$
24

Balance at September 30, 2019
$
(4,533
)
 
$

 
$
(4,533
)


Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. Pursuant to ASC 606, a customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. If a promised good or service is not distinct, it is combined with other performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. For example, certain performance obligations associated with Spark (see Note 12) will be satisfied over time, and revenue will be recognized using the output method, based on the proportion of actual deliveries to the total expected deliveries over the initial term.
Collaboration and Grant Revenue: The Company currently generates its revenue through grants, collaboration and license agreements with strategic collaborators for the development and commercialization of product candidates. Grants and license agreements with customers are accounted for in accordance with ASC 606. The Company analyzes collaboration arrangements by first assessing whether they are within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808) and evaluates whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. Collaboration agreements with customers that are not within the scope of ASC 808 are accounted for in accordance with ASC 606. To the extent the collaboration agreement is within the scope of ASC 808, the Company also assesses whether any aspects of the agreement are within the scope of other accounting literature (specifically ASC 606). The Company early adopted ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which provides guidance on evaluating certain transactions between collaborative arrangement participants. If the Company concludes that some or all aspects of the agreement are distinct and represent a transaction with a customer, the Company accounts for those aspects of the arrangement within the scope of ASC 606. The Company recognizes the shared costs incurred that are not within the scope of other accounting literature as a component of the related expense in the period incurred by analogy to ASC 730 and records reimbursements from counterparties as an offset to the related costs. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under the agreements in accordance with ASC 606, the Company performs the five steps above. As part of the accounting for the arrangement, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include market conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success.

12



The terms of the Company’s arrangements typically include one or more of the following: (i) up-front fees; (ii) milestone payments related to the achievement of development, regulatory, or commercial goals; (iii) royalties on net sales of licensed products; (iv) reimbursements or cost-sharing of R&D expenses; and (v) profit/loss sharing arising from co-promotion arrangements.
Licenses of Intellectual Property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. If not distinct, the license is combined with other performance obligations in the contract. For licenses that are combined with other performance obligations, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Optional licenses are evaluated to determine if they are issued at a discount, and therefore, represent material rights and accounted for as separate performance obligations.
Milestone Payments: At the inception of each arrangement that includes developmental and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service. If the milestone payment is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method. The Company also evaluates the milestone to determine whether they are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated, otherwise, such amounts are constrained and excluded from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the transaction price. Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation shall be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes.
Manufacturing Supply Services: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer’s discretion are evaluated to determine if they are distinct and optional. For optional services that are distinct, the Company assesses if they are priced at a discount, and therefore, provide a material right to the licensee to be accounted for as separate performance obligations.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) in accordance with the royalty recognition constraint.
Research and Development Costs
Costs incurred in the research and development of the Company’s products are expensed as incurred. Research and development expenses include costs incurred in performing research and development activities, including salaries and benefits, facilities cost, overhead costs, contract services, supplies and other outside costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Clinical Trial Costs
Clinical trial expenses are a significant component of research and development expenses, and the Company outsources a significant portion of these costs to third parties. Third party clinical trial expenses include patient costs, clinical research organization costs and costs for data management. The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as a prepaid asset or accrued clinical trial cost. These third party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. Non-refundable advance clinical payments for goods or services that will be used or rendered for future R&D activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed. The Company also records accruals for estimated ongoing clinical research and development costs. When evaluating the adequacy of the accrued

13



liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the estimates made by the Company. The historical clinical accrual estimates made by the Company have not been materially different from the actual costs.
Income Taxes
The Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Company’s financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax assets to the amount that will more-likely-than-not be realized.
The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If it is not more-likely-than-not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more‑likely‑than‑not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. To date, the Company has not incurred interest and penalties related to uncertain tax positions.
Warrants
The Company determines the accounting classification of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing variable number of shares.
If warrants do not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments are made, the Company concludes whether the warrants are classified as liability or equity. Liability classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded in the statements of operations as a gain or loss. Equity classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date.
Stock‑Based Compensation
The Company accounts for all stock‑based compensation granted to employees and non‑employees using a fair value method. Stock‑based compensation is measured at the grant date fair value and is recognized over the requisite service period of the awards, usually the vesting period, on a straight‑line basis, net of estimated forfeitures. The Company reduces recorded stock‑based compensation for estimated forfeitures. To the extent that actual forfeitures differ from the Company’s estimates, the differences are recorded as a cumulative adjustment in the period the estimates were adjusted. Stock‑based compensation expense recognized in the consolidated financial statements is based on awards that are ultimately expected to vest.
Net Loss Per Share
The Company has reported losses since inception and has computed basic net loss per share by dividing net loss by the weighted average number of common shares outstanding for the period. The Company has computed diluted net loss per common share after considering all potentially dilutive common shares, including stock options, convertible preferred stock, and warrants outstanding during the period except where the effect of including such securities would be antidilutive. Because the Company has reported net losses since inception, these potential common shares have been anti‑dilutive and basic and diluted loss per share have been the same.
Contingent Liabilities
The Company accounts for its contingent liabilities in accordance with ASC No. 450, Contingencies. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of September 30, 2019 and

14



December 31, 2018, the Company was not a party to any litigation that could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.
Leases
Under ASC 842 which was adopted January 1, 2019, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company elected not to recognize leases with a term less than one year on its balance sheet. Operating lease right-of-use (ROU) assets and their corresponding lease liabilities are recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment.
In accordance with the guidance in ASU 2016-02, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.) Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components. Although separation of lease and non-lease components is required, the Company elected the practical expedient to not separate lease and non-lease components. The lease component results in an operating right-of-use asset being recorded on the balance sheet and amortized on a straight-line basis as lease expense. See Note 8 for details.
Under prior guidance ASC 840, rent expense and lease incentives from operating leases were recognized on a straight‑line basis over the lease term. The difference between rent expense recognized and rental payments was recorded as deferred rent in the accompanying consolidated balance sheets.
Recent Accounting Pronouncements
Recently Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. (“ASU”) 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases are classified as either operating or finance based on criteria similar to current lease accounting, with the classification affecting the pattern and classification of expense recognition in the statement of operations.
Subsequently, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (ASU 2018-11), which includes certain amendments to ASU 2016-02 intended to provide relief in implementing the new standard. Among these amendments is the option to not restate comparative periods presented in the financial statements. The Company has elected this transition approach, using a cumulative-effect adjustment on the effective date of the standard, with comparative periods presented in accordance with the existing guidance in ASC 840.
Pursuant to the guidance under ASU 2016-02, the Company elected certain available expedients by electing the transition package of practical expedients permitted with ASU 2016-02, which allows the Company the option not to reassess previous accounting conclusions around, (i) whether expired or existing contracts contain leases, (ii) lease classification for any expired or existing leases, and (iii) the treatment of initial direct costs for any existing leases. The Company also made an accounting policy election to exclude leases with an initial term of 12 months or less from their balance sheet.
The Company adopted the new standard as of the required effective date of January 1, 2019 resulting in the recognition of a net additional lease liability and right-of-use asset. The standard did not impact the Company's consolidated net loss. See Note 8 for details.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (ASU 2018-18), which provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. The Company early adopted the new standard effective September 30, 2019, and there was no impact on its consolidated financial statements. See Note 14 for details.
Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. Subsequently, in November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 also requires enhanced disclosures to help financial

15



statement users better understand significant estimates and judgments used in estimating credit losses. This ASU is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is assessing the impact this standard will have on its consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13) which changes the fair value measurement disclosure requirements of ASC 820. Entities will no longer be required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. This ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is assessing the impact this standard will have on its consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, (ASU 2018-15). The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The new standard will be effective beginning January 1, 2020 and early adoption is permitted. The Company is currently evaluating the potential impact ASU 2018-15 may have on its financial position upon adoption.
3. Available-for-Sale Marketable Securities
As of September 30, 2019, and December 31, 2018, the Company did not have available-for-sale marketable securities.

4. Net Loss Per Share
The Company has reported a net loss for the three and nine months ended September 30, 2019, and 2018, and for this reason basic and diluted net loss per share are the same for all periods presented. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per‑share data):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(11,994
)
 
$
(16,001
)
 
$
(40,462
)
 
$
(50,685
)
Denominator:
 
 
 
 
 
 
 
Weighted‑average common shares outstanding—basic and diluted
46,407,846

 
22,403,954

 
43,265,909

 
22,368,574

Net loss per share attributable to common stockholders —basic and diluted
$
(0.26
)
 
$
(0.71
)
 
$
(0.94
)
 
$
(2.27
)


All potential dilutive common shares have been excluded from the computation of the diluted net loss per share for all periods presented, as the effect would have been anti-dilutive. Potential dilutive common share equivalents consist of the following:
 
September 30,
 
2019
 
2018
Stock options to purchase common stock
5,354,645

 
3,188,169

Unvested restricted stock units
225,000

 
40,000

Stock warrants to purchase common stock
95,619

 
176,432

Total
5,675,264

 
3,404,601

 

5. Fair Value Measurements
The tables below present information about the Company’s financial assets that are measured and carried at fair value as of September 30, 2019 and December 31, 2018, and indicate the level within the fair value hierarchy where each measurement is

16



classified. Below is a summary of assets measured at fair value on a recurring basis (in thousands):
 
September 30, 2019
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Cash equivalents:
 
 
 
 
 
 
 
     Money market funds
$
6,878

 
$

 
$

 
$
6,878

Total cash equivalents
$
6,878

 
$

 
$

 
$
6,878

 
 
December 31, 2018
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
Cash equivalents:
 
 
 
 
 
 
 
     Money market funds
$
10,123

     
$


$

 
$
10,123

Total cash equivalents
$
10,123

 
$

 
$

 
$
10,123

 
At each of September 30, 2019 and December 31, 2018, cash and cash equivalent investments were held in money market funds maturing within 90 days from the date of purchase.
6. Property and Equipment
Property and equipment consists of the following (in thousands):
 
September 30,
 
December 31,
 
2019
 
2018
Laboratory equipment
$
4,909

 
$
5,379

Computer equipment and software
477

 
561

Leasehold improvements
278

 
278

Furniture and fixtures
235

 
247

Office equipment
135

 
135

Construction in process
2

 
79

Total property and equipment
6,036


6,679

Less accumulated depreciation
(4,584
)
 
(4,552
)
Property and equipment, net
$
1,452


$
2,127

 
Depreciation expense was $0.2 million and $0.2 million for the three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, depreciation expense was $0.5 million and $0.8 million, respectively.
7. Accrued Expenses
Accrued expenses consist of the following (in thousands):
 
September 30,
 
December 31,
 
2019
 
2018
Payroll and employee related expenses
$
1,780

 
$
2,497

Current portion of deferred rent and lease incentive

 
117

Collaboration and licensing

 
1,222

Accrued patent fees
565

 
736

Accrued external research and development costs
1,760

 
5,344

Accrued professional and consulting services
793

 
994

Accrued grant refund

 
175

Accrued interest
96

 
106

Other
322

 
509

     Accrued expenses
$
5,316


$
11,700


8. Leases
On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. The Company recorded operating lease assets (right-of-use assets) of $1.6 million and operating lease liabilities of $1.8 million and reversed a lease liability of $0.2 million related to straight-line rent and incentives. There was no impact to accumulated deficit upon

17



adoption of Topic 842. The underlying assets of the Company’s leases are primarily office space. The Company determines if an arrangement qualifies as a lease at its inception.
As a practical expedient permitted under Topic 842, the Company has elected to account for the lease and non-lease components as a single lease component for all leases of which it is the lessee. Lease payments, which may include lease and non-lease components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts that depend on a rate or index as stipulated in the lease contract.
When the Company cannot readily determine the rate implicit in the lease, the Company determines its incremental borrowing rate by using the rate of interest that it would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. On January 1, 2019, the discount rate used on existing operating leases at adoption, which had remaining lease terms of 15 months, was 10.0%. For new or renewed leases starting in 2020, the discount rate is determined based on the Company’s incremental borrowing rate adjusted for the lease term including any reasonably certain renewal periods.
The Company enters into lease agreements with terms generally ranging from 2-8 years. Some of the Company’s lease agreements include Company options to either extend and/or early terminate the lease, the costs of which are included in its operating lease liabilities to the extent that such options are reasonably certain of being exercised. Leases with renewal options allow the Company to extend the lease term typically between 1 and 5 years. When determining the lease term, renewal options reasonably certain of being exercised are included in the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain that the Company would exercise such option. Renewal and termination options were generally not included in the lease term for the Company’s existing operating leases.
The Company has a non‑cancellable operating lease for its laboratory and office space located at 480 Arsenal Way, Watertown, Massachusetts ("Headquarters Lease"). As part of the Headquarters Lease agreement, the landlord provided the Company a tenant improvement allowance of up to $0.7 million, which the Company fully utilized during 2012. The leasehold improvements are capitalized as a component of property and equipment. In connection with the Headquarters Lease, the Company secured a letter of credit for $0.3 million which renews automatically each year and is classified in restricted cash.
In August 2016, the Company signed an amendment to the Headquarters Lease, which extends the term through March 31, 2020. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, lease and non-lease components are combined.
In October 2017, the Company entered into a lease for approximately 5,100 square feet of additional office space located at 75 North Beacon Street, Watertown, Massachusetts (the “75 North Beacon Lease”). On January 11, 2019, the Company vacated 75 North Beacon Street, Watertown, MA and consolidated all employees at its corporate headquarters at 480 Arsenal Way, Watertown, MA. The right of use asset carrying amount of $0.2 million attributable to the 75 North Beacon Lease was written down to zero during the first quarter of 2019.
The Company has a month‑to‑month facility agreement for its Moscow, Russia office. Rent expense is recognized as incurred.
In July 2019, the Company entered into a lease for 25,078 square feet of laboratory and office space located at 65 Grove Street, Watertown, Massachusetts (the “New Headquarters Lease”). The Company estimates that it will incur $0.8 million in non-reimbursable lessee-paid construction costs for lessor assets. None of these costs were incurred as of September 30, 2019. Lease commencement is expected to occur in March 2020, and the expected lease term is 8 years, therefore the right of use asset and lease liability is not recorded as of September 30, 2019. Rent commencement is expected to occur in May 2020, and the base rent for the first year is $0.2 million per month. The total minimum rental commitments for the New Headquarters Lease are $15.8 million. In connection with the New Headquarters Lease, the Company secured a letter of credit from Silicon Valley Bank for $1.4 million which renews automatically each year.

18



The Company's total minimum rental commitments for the New Headquarters Lease as of September 30, 2019 are as follows (in thousands):
 
September 30,
 
2019
2020
$
1,191

2021
1,811

2022
1,865

2023
1,921

2024
1,979

Thereafter
7,027

Total New Headquarters Lease commitment
$
15,794



Rent expense for the three months ended September 30, 2019 and 2018 was $0.5 million and $0.5 million, respectively. Rent expense for the nine months ended September 30, 2019 and 2018 was $1.5 million and $1.5 million, respectively.
For the three and nine months ended September 30, 2019, the components of lease costs were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2019
Operating lease expense
$
341

 
$
1,023

Variable lease expense
211

 
625

Short-term lease expense
3

 
14

Total lease expense
$
555

 
$
1,662


The maturity of the Company's operating lease liabilities as of September 30, 2019 were as follows (in thousands):
 
September 30,
Operating leases:
2019
2019 (Remainder)
$
374

2020
375

     Total future minimum lease payments
$
749

Less imputed interest
15

     Total operating lease liabilities
$
734

Included in the condensed consolidated balance sheet:
 
Current operating lease liabilities
$
734

Non-current operating lease liabilities

Total operating lease liabilities
$
734



The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):
 
Nine Months Ended September 30,
Operating leases:
2019
Supplemental Cash Flows Information
 
       Operating cash flows from operating leases
$
1,108


The changes in the Company’s right of use asset and lease liability for the nine months ended September 30, 2019 are reflected in the changes in prepaid expenses, deposits and other assets and accrued expenses and other liabilities, respectively, in the consolidated statements of cash flows.

19



The following summarizes additional information related to operating leases:
 
September 30,
Operating leases:
2019
Weighted-average remaining lease term
0.5 years

Weighted-average discount rate
10
%


9. Debt
2017 Term Loan
On September 12, 2017, the Company entered into a term loan facility of up to $21.0 million (the “2017 Term Loan”) with Silicon Valley Bank, a California corporation (“SVB”). The 2017 Term Loan is governed by a loan and security agreement, dated September 12, 2017, between the Company and SVB (the “Loan Agreement”). The 2017 Term Loan was funded in full on September 13, 2017 (the “Funding Date”).
On the Funding Date, the Company entered into a payoff letter with SVB, pursuant to which SVB utilized $10.0 million of the 2017 Term Loan to pay off all outstanding obligations under the 2015 Term Loan. The Company recognized a loss on extinguishment of debt in the amount of $0.7 million during the three months ended September 30, 2017.
The Company incurred less than $0.1 million in debt issuance costs in connection with the closing of the 2017 Term Loan. Debt issuance costs are presented in the consolidated balance sheet as a direct deduction from the associated liability and amortized to interest expense over the term of the related debt.
The 2017 Term Loan will mature on February 1, 2022. Each advance under the 2017 Term Loan accrues interest at a floating per annum rate equal to one-half of one percent above the prime rate (as published in the money rates section of The Wall Street Journal). The 2017 Term Loan provided for interest-only payments monthly until August 31, 2019. On September 1, 2019, the Company began making amortization payments on the Term Loan, which will continue to be payable monthly in equal installments of principal and variable interest to fully amortize the outstanding principal over the remaining term of the loan. The monthly interest is subject to recalculation upon a change in the prime rate. The Company may prepay the 2017 Term Loan in full but not in part provided that the Company (i) provides five business days’ prior written notice to SVB, (ii) pays on the date of such prepayment for all outstanding principal plus accrued and unpaid interest, 1% if prepaid after the second anniversary.
Amounts outstanding during an event of default are payable upon SVB’s demand and shall accrue interest at an additional rate of 4.0% per annum of the past due amount outstanding. The events of default under the Loan Agreement include, but are not limited to, the Company’s failure to make any payments of principal or interest under the Loan Agreement or other transaction documents, the Company’s breach or default in the performance of any covenant under the Loan Agreement or other transaction documents, the occurrence of a material adverse effect, the Company making a false or misleading representation or warranty in any material respect under the Loan Agreement, the Company’s insolvency or bankruptcy, any attachment or judgment on the Company’s assets in excess of approximately $0.3 million, or the occurrence of any default under any agreement or obligation of the Company involving indebtedness in excess of approximately $0.3 million. If an event of default occurs, SVB is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement.
The 2017 Term Loan is secured by a lien on substantially all of the assets of the Company, other than intellectual property, provided that such lien on substantially all assets includes any rights to payments and proceeds from the sale, licensing or disposition of intellectual property. The Company has also granted SVB a negative pledge with respect to its intellectual property.
The 2017 Term Loan does not include any financial covenants. The 2017 Term Loan requires a final payment fee of 5% on the aggregate principal amounts borrowed upon repayment at maturity, on a prepayment date, or upon default. The final payment fee totaling $1.1 million is recorded as a loan discount. Under the 2017 Term Loan, the Company is not required to maintain a minimum cash balance. All deposits in operating, depository and securities accounts are required to be maintained with SVB in an amount equal to the lessor of (i) 100% of the dollar value owed or (ii) 105% of the dollar amount of the then outstanding obligations. In addition, the 2017 Term Loan contains a subjective acceleration clause whereby in an event of default, an immediate acceleration of repayment occurs if there is a material impairment of the lenders’ lien or the value of the collateral, a material adverse change in the business condition or operations, or a material uncertainty exists that any portion of the loan may not be repaid.

20



The Company assessed all terms and features of the 2017 Term Loan in order to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the 2017 Term Loan, including any put and call features. The Company determined that all features of the 2017 Term Loan were clearly and closely associated with the debt host and did not require bifurcation as a derivative liability, or the fair value of the embedded feature was immaterial to the Company's consolidated financial statements. The Company reassesses the identified features on a quarterly basis to determine if they require bifurcation.
As of September 30, 2019 and December 31, 2018, the outstanding principal balance under the 2017 Term Loan was $20.3 million and $21.0 million, respectively.
Future minimum principal and interest payments on the 2017 Term Loan as of September 30, 2019 are as follows (in thousands):
2019 (Remainder)
3,066

2020
9,163

2021
8,692

2022
1,752

Total minimum debt payments
$
22,673

Less: Amount representing interest
(