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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 June 30, 2020
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.)
 
 
 
 
 
65 Grove Street
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
The 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 July 31, 2020, the registrant had 107,143,410 shares of common stock, par value $0.0001 per share, outstanding.




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1. 
 
 
 
Item 1A. 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 
 


1



FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) 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, the impact of the novel coronavirus (COVID-19) pandemic on our business and operations and our future financial results, and the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements 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 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 have continued access to manufacturing facilities and to receive or manufacture sufficient quantities of our product candidates;
-
our ability to maintain our existing or future collaborations or licenses;
-
the impact of the COVID-19 pandemic on our operations, the continuity of our business, including our preclinical studies and clinical trials, and general economic conditions;
-
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)
 
June 30,
 
December 31,
 
2020
 
2019
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
59,730

 
$
89,893

Restricted cash
278

 
279

Accounts receivable

 
5,000

Prepaid expenses and other current assets
1,044

 
1,495

Total current assets
61,052


96,667

Property and equipment, net
1,301

 
1,222

Right-of-use asset, net
11,474

 
301

Long-term restricted cash
1,379

 
1,379

Total assets
$
75,206


$
99,569

Liabilities and stockholders’ equity (deficit)
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,242

 
$
500

Accrued expenses
9,308

 
13,492

Loan payable
8,384

 
18,905

Lease liability
1,648

 
372

Deferred revenue
1,928

 
1,674

Total current liabilities
22,510


34,943

Non‑current liabilities:
 
 
 
Loan payable, net of current portion
6,449

 

Lease liability
10,120

 

Deferred revenue
16,412

 
14,680

Warrant liabilities
32,767

 
41,549

Total liabilities
88,258


91,172

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 June 30, 2020 and December 31, 2019, respectively

 

Common stock, $0.0001 par value; 200,000,000 shares authorized; 100,847,810 and 86,325,547 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
10

 
9

Additional paid-in capital
370,944

 
348,664

Accumulated deficit
(379,454
)
 
(335,753
)
Accumulated other comprehensive loss
(4,552
)
 
(4,523
)
Total stockholders’ equity (deficit)
(13,052
)
 
8,397

Total liabilities and stockholders’ equity (deficit)
$
75,206


$
99,569

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 June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(Unaudited)
Grant and collaboration revenue
$

 
$
13

 
$

 
$
23

Operating expenses:
 
 
 
 
 
 
 
Research and development
10,730

 
12,134

 
25,454

 
19,487

General and administrative
5,637

 
4,114

 
9,735

 
8,627

Total operating expenses
16,367

 
16,248

 
35,189

 
28,114

Loss from operations
(16,367
)
 
(16,235
)
 
(35,189
)
 
(28,091
)
Investment income
13

 
246

 
253

 
523

Foreign currency transaction gain (loss), net
(42
)
 
(10
)
 
40

 
(40
)
Interest expense
(205
)
 
(400
)
 
(478
)
 
(796
)
Change in fair value of warrant liabilities
(7,539
)
 

 
(8,385
)
 

Other (expense), net
59

 
5

 
58

 
(64
)
Net loss
(24,081
)
 
(16,394
)
 
(43,701
)
 
(28,468
)
Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustment
31

 
7

 
(29
)
 
29

Unrealized gain on securities

 
1

 

 
3

Total comprehensive loss
$
(24,050
)
 
$
(16,386
)
 
$
(43,730
)
 
$
(28,436
)
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.25
)
 
$
(0.37
)
 
$
(0.46
)
 
$
(0.68
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic and diluted
96,785,915

 
44,855,083

 
95,754,714

 
41,668,902

 
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, 2019
86,325,547

$
9

 
$
348,664

 
$
(335,753
)
 
$
(4,523
)
 
$
8,397

Issuance of common stock under Employee Stock Purchase Plan
78,583


 
114

 

 

 
114

Issuance of common stock upon exercise of options
5,128


 
3

 

 

 
3

Issuance of vested restricted stock units
10,937


 

 

 

 

Issuance of common stock through at-the-market offering, net
598,977


 
1,141

 

 

 
1,141

Other financing fees


 
(147
)
 

 

 
(147
)
Stock‑based compensation expense


 
1,409

 

 

 
1,409

Currency translation adjustment


 

 

 
(60
)
 
(60
)
Net loss


 

 
(19,620
)
 

 
(19,620
)
Balance at March 31, 2020
87,019,172

$
9

 
$
351,184

 
$
(355,373
)
 
$
(4,583
)
 
$
(8,763
)
Issuance of common stock upon exercise of options
37,500


 
98

 

 

 
98

Issuance of vested restricted stock units
10,938


 

 

 

 

Issuance of common stock through at-the-market offering, net
470,509


 
967

 

 

 
967

Issuance of common stock upon exercise of pre-funded warrants
8,342,128

1

 

 

 

 
1

Issuance of common stock upon exercise of common warrants
4,967,563


 
17,214

 

 

 
17,214

Stock‑based compensation expense


 
1,481

 

 

 
1,481

Currency translation adjustment


 

 

 
31

 
31

Net loss


 

 
(24,081
)
 

 
(24,081
)
Balance at June 30, 2020
100,847,810

$
10

 
$
370,944

 
$
(379,454
)
 
$
(4,552
)
 
$
(13,052
)
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
 
 
 
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
 
22,188,706

2

 
30,940

 

 

 
30,942

Stock‑based compensation expense
 


 
1,180

 

 

 
1,180

Currency translation adjustment
 


 

 

 
22

 
22

Unrealized gains 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 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


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)
 
Six Months Ended June 30,
 
2020
 
2019
 
(Unaudited)
Cash flows from operating activities
 
 
 
Net loss
$
(43,701
)
 
$
(28,468
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
356

 
355

Amortization of premiums (accretion of discounts) on investments

 
(131
)
Non-cash lease expense
602

 
723

(Gain) Loss on disposal of property and equipment
(35
)
 
76

Stock‑based compensation expense
2,890

 
2,431

Non‑cash interest expense
173

 
267

Warrant liabilities revaluation
8,385

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
5,000

 

Prepaid expenses, deposits and other assets
451

 
2,189

Accounts payable
735

 
1,363

Deferred revenue
2,000

 
(11
)
Accrued expenses and other liabilities
(362
)
 
(6,231
)
                    Net cash used in operating activities
(23,506
)
 
(27,437
)
Cash flows from investing activities
 
 
 
Receipts from the maturity of short-term investments

 
4,850

Purchases of short-term investments

 
(18,188
)
Sale of short term investments

 
1,992

Purchases of property and equipment
(334
)
 
(5
)
Proceeds from the sale of property and equipment
45

 
77

                    Net cash used in investing activities
(289
)
 
(11,274
)
Cash flows from financing activities
 
 
 
Repayments of principal on outstanding debt
(4,200
)
 

Net proceeds from issuance of common stock

 
30,942

Net proceeds from issuance of common stock- at-the-market offering
2,137

 
372

Issuance costs paid for December 2019 financing
(4,381
)
 

Other financing fees
(147
)
 

Proceeds from exercise of pre-funded and common warrants
49

 

Proceeds from exercise of stock options
101

 
145

Proceeds from issuance of common stock under Employee Stock Purchase Plan
114

 
20

                    Net cash (used in) provided by financing activities
(6,327
)
 
31,479

Effect of exchange rate changes on cash
(42
)
 
29

Net change in cash, cash equivalents, and restricted cash
(30,164
)
 
(7,203
)
Cash, cash equivalents, and restricted cash at beginning of period
91,551

 
37,682

Cash, cash equivalents, and restricted cash at end of period
$
61,387

 
$
30,479

Supplement cash flow information
 
 
 
Cash paid for interest
$
387

 
$
634

Noncash investing and financing activities
 
 
 
Cashless warrant exercise
$
17,089

 
$

Reclassification of warrant liability to equity upon exercise of warrants
$
77

 
$

Purchase of property and equipment not yet paid
$
111

 
$

Equity offering costs in accrued liabilities
$
29

 
$
14

Unrealized gain on marketable securities
$

 
$
3

 

7



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

8




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.

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2020 and 2019 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, 2019 included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 12, 2020 (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 June 30, 2020 and consolidated results of operations and cash flows for the six months ended June 30, 2020. Such adjustments are of a normal and recurring nature. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.

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.

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

9



substantially all of its financial resources and efforts to developing its ImmTOR platform, 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 June 30, 2020, the Company’s cash, cash equivalents and restricted cash were $61.4 million, of which $1.7 million was restricted cash related to lease commitments and $0.3 million was held by its Russian subsidiary designated solely for use in its operations, and together with the $25 million payment received from Sobi under the Sobi Private Placement and the expected payment from Sobi of $75 million that is due under the Sobi License, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023. The Company has incurred losses and negative cash flows from operating activities since inception. As of June 30, 2020 and December 31, 2019, the Company had an accumulated deficit of $379.5 million and $335.8 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.

At this time, there is significant uncertainty relating to the trajectory of the pandemic and the impact of related responses. Any impact of COVID-19 on the Company's business, revenues, results of operations and financial condition will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. See “Risk Factors - The outbreak of the novel coronavirus disease, COVID-19, could adversely impact our business, including our preclinical studies and clinical trials.” in Part II, Item 1A 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 June 30, 2020, 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
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’ equity (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, the valuation of its warrant liabilities 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

10



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 marketable securities 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 six months ended June 30, 2020, there were no realized losses on sales of investments, and no investments were adjusted for other than temporary declines in fair value.
As of June 30, 2020, the Company had restricted cash balances relating to secured letters of credit in connection with its Prior Headquarters Lease and 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:
 
 
June 30,
 
 
2020
 
2019
Cash and cash equivalents
 
$
59,730

 
$
30,200

Restricted cash
 
278

 
279

Long-term restricted cash
 
1,379

 

Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows
 
$
61,387

 
$
30,479



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 creditworthy 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 June 30, 2020, the Company maintained approximately $0.3 million in Russian bank accounts, all of which was held in U.S. dollars.
The Company did not have any off-balance sheet arrangements as of June 30, 2020 and December 31, 2019.
Fair Value of Financial Instruments
The Company’s financial instruments consist mainly of cash equivalents, restricted cash, accounts payable, loans payable, and common 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 June 30, 2020, 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.

11



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 warrant liabilities were determined using Level 3 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 six months ended June 30, 2020 or the year ended December 31, 2019.
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 six months ended June 30, 2020 and 2019.
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.
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 recognized through net income.
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 Topic 606, Revenue from Contracts with Customers (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)

12



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, AskBio, and Sarepta (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 Topic 730, Research and Development (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.
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 research and development (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

13



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 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 must or may require settlement by issuing variable number of shares.

14



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 and pre-funded warrants 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 June 30, 2020 and December 31, 2019, 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
The Company accounts for its leases in accordance with ASC Topic 842, Leases (ASC 842), and 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 ASC 842, 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. Right-of-use assets and operating lease liabilities are remeasured upon certain modifications to leases using the present value of remaining lease payments and estimated incremental borrowing rate upon lease modification. See Note 8 for details.
Recent Accounting Pronouncements
Recently Adopted
In August 2018, 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

15



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. The Company adopted the new standard effective January 1, 2020, and there was no impact on its consolidated financial statements.
Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This ASU is effective for public entities for fiscal years beginning after December 15, 2020. The Company is assessing the impact this standard will have on its consolidated financial statements and disclosures.
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 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.
3. Marketable Securities
As of June 30, 2020 and December 31, 2019, the Company did not have marketable securities.

4. Net Loss Per Share
The Company has reported a net loss for the three and six months ended June 30, 2020, and 2019. For this reason basic and diluted net loss per share are the same for all periods presented. Since the shares underlying the 8,342,128 pre-funded warrants were issuable for little or no consideration, they are considered outstanding for both basic and diluted earnings per share. During the second quarter 2020, all 8,342,128 pre-funded warrants were exercised, but had no effect on basic and diluted shares at exercise because all were included in both basic and diluted from the period of issuance. 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 June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Numerator:
 
 
 
 
 
 
 
Net loss attributable to common stockholders
$
(24,081
)
 
$
(16,394
)
 
$
(43,701
)
 
$
(28,468
)
Denominator:
 
 
 
 
 
 
 
Weighted‑average common shares and pre-funded warrants outstanding—basic and diluted
96,785,915

 
44,855,083

 
95,754,714

 
41,668,902

Net loss per share attributable to common stockholders —basic and diluted
$
(0.25
)
 
$
(0.37
)
 
$
(0.46
)
 
$
(0.68
)


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:
 
June 30,
 
2020
 
2019
Stock options to purchase common stock
7,473,613

 
4,637,463

Unvested restricted stock units
159,375

 
275,000

Stock warrants to purchase common stock
14,841,100

 
95,619

Total
22,474,088

 
5,008,082

 

5. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The tables below present information about the Company’s financial assets and liabilities that are measured and carried at fair value as of June 30, 2020 and December 31, 2019, and indicate the level within the fair value hierarchy where each

16



measurement is classified. Below is a summary of assets and liabilities measured at fair value on a recurring basis (in thousands):
 
June 30, 2020
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
     Money market funds
$
30,574

 
$
30,574

 
$

 
$

Total
$
30,574

 
$
30,574

 
$

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
     Warrant liabilities
$
32,767

 
$

 
$

 
$
32,767

Total
$
32,767

 
$

 
$

 
$
32,767

 
 
December 31, 2019
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
     Money market funds
$
50,401

 
$
50,401

     
$

 
$

Total
$
50,401

 
$
50,401

 
$

 
$

 
 
 
 
 
 
 
 
Liabilities:


 


 


 


     Warrant liabilities
$
41,549

 
$

 
$

 
$
41,549

Total
$
41,549

 
 
 
$

 
$
41,549

 
At each of June 30, 2020 and December 31, 2019, the money market funds were classified as cash and cash equivalent on the accompanying consolidated balance sheet as they mature within 90 days from the date of purchase.
Assumptions Used in Determining Fair Value of Common Warrants
In December 2019, the Company issued common warrants in connection with a private placement of common shares. Pursuant to the terms of the common warrants, the Company could be required to settle the common warrants in cash in the event of certain acquisitions of the Company and, as a result, the common warrants are required to be measured at fair value and reported as a liability on the balance sheet. The Company recorded the fair value of the common warrants upon issuance using the Black-Scholes valuation model and are required to revalue the common warrants at each reporting date with any changes in fair value recorded in the statement of operations. The valuation of the common warrants is considered under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable.  The significant unobservable inputs used in the fair value measurement of the warrant liabilities were the volatility rate and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement. The change in the fair value of the Level 3 warrant liability is reflected in the statement of operations for the six months ended June 30, 2020.
The estimated fair value of warrants is determined using Level 3 inputs inherent in the Black Scholes simulation valuation.
Estimated fair value of the underlying stock. The Company estimates the fair value of the common stock based on the closing stock price at the end of each reporting period.
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury at the valuation date commensurate with the expected remaining life assumption.
Dividend rate. The dividend rate is based on the historical rate, which the Company anticipates will remain at zero.
Expected life. The expected life of the warrants is assumed to be equivalent to their remaining contractual term which expires on December 23, 2024.
Volatility. The Company estimates stock price volatility based on the Company’s historical volatility and the historical volatility of peer companies for a period of time commensurate with the expected remaining life of the warrants.
A summary of the Black Scholes pricing model assumptions used to record the fair value of the warrant liability is as follows:

17



 
June 30,
 
2020
Risk-free interest rate
0.29
%
Dividend yield

Expected life (in years)
4.48

Expected volatility
94.99
%

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis
The following table reflects a roll-forward of fair value for the Company’s Level 3 warrant liabilities (see Note 10), for the six months ended June 30, 2020 (in thousands):
 
Warrant liabilities
Fair value as of December 31, 2019
$
41,549

     Exercises
(17,167
)
     Change in fair value
8,385

Fair value as of June 30, 2020
$
32,767



6. Property and Equipment
Property and equipment consists of the following (in thousands):
 
June 30,
 
December 31,
 
2020
 
2019
Laboratory equipment
$
4,357

 
$
4,836

Computer equipment and software
517

 
515

Leasehold improvements

 
278

Furniture and fixtures
325

 
237

Office equipment
164

 
135

Construction in process
10

 
2

Total property and equipment
5,373


6,003

Less accumulated depreciation
(4,072
)
 
(4,781
)
Property and equipment, net
$
1,301


$
1,222

 
Depreciation expense was $0.2 million for each of the three months ended June 30, 2020 and 2019, respectively. For each of the six months ended June 30, 2020 and 2019, depreciation expense was $0.4 million. The Company recorded accelerated depreciation costs of less than $0.1 million in the reported property and equipment for the six months ended June 30, 2020 relating to the new corporate headquarters move in 2020.
7. Accrued Expenses
Accrued expenses consist of the following (in thousands):
 
June 30,
 
December 31,
 
2020
 
2019
Payroll and employee related expenses
$
2,112

 
$
2,235

Collaboration and licensing
1,350

 
1,050

Accrued patent fees
492

 
487

Accrued external research and development costs
4,247

 
4,379

Accrued professional and consulting services
763

 
468

Accrued interest
44

 
82

Issuance costs, December 2019 financing

 
4,381

Other
300

 
410

     Accrued expenses
$
9,308


$
13,492


8. Leases

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The Company accounts for its leases in accordance with ASC Topic 842, Leases (ASC 842).
480 Arsenal Way Lease
The Company had a non‑cancellable operating lease for its laboratory and office space located at 480 Arsenal Way, Watertown, Massachusetts ("Prior Headquarters Lease"). Pursuant to the Prior Headquarters Lease, 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 were capitalized as a component of property and equipment. In connection with the Prior Headquarters Lease, the Company secured a letter of credit for $0.3 million which renewed automatically each year and was classified in restricted cash. In August 2016, the Company signed an amendment to the Prior Headquarters Lease, which extended the term through March 31, 2020. In March 2020, the Company signed an amendment to extend the lease term one additional month to April 30, 2020. The right-of-use asset and lease liability were remeasured and recorded based on the change in the lease term in which the net impact was immaterial.
75 North Beacon Street Lease
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”) for a term through March 31, 2020. On January 11, 2019, the Company vacated 75 North Beacon Street, Watertown, MA and consolidated all employees at its then- corporate headquarters at 480 Arsenal Way, Watertown, MA. The right-of-use asset with carrying amount of $0.2 million attributable to the 75 North Beacon Lease was written down to zero during the first quarter of 2019.
65 Grove Street Lease
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 “Headquarters Lease”). The Company estimates that it will incur $0.8 million in non-reimbursable construction costs. The lease began in March 2020, consistent with when the Company took control of the office space and the lease term is 8 years. The discount rate of 8.9% was determined based on the Company’s incremental borrowing rate adjusted for the lease term including any reasonably certain renewal periods. Rent payments began in May 2020, and the base rent for the first year is $0.2 million per month. In connection with the Headquarters Lease, the Company secured a letter of credit from Silicon Valley Bank for $1.4 million which renews automatically each year. The Company recorded the right-of-use asset and operating lease liabilities of $11.8 million during the three months ended March 31, 2020 as control of the premises was transferred to the Company.
Moscow, Russia Lease
The Company has a month‑to‑month facility agreement for its Moscow, Russia office. Rent expense is recognized as incurred.
Summary of All Lease Costs Recognized Under ASC 842
Rent expense for the three months ended June 30, 2020 and 2019 was $0.8 million and $0.6 million, respectively. Rent expense for the six months ended June 30, 2020 and 2019 was $1.4 million and $1.1 million, respectively.
For the three and six months ended June 30, 2020 and 2019 the components of lease costs were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Operating lease expense
$
613

 
$
341

 
$
1,085

 
$
682

Variable lease expense
174

 
211

 
373

 
414

Short-term lease expense
3

 
3

 
5

 
11

Total lease expense
$
790

 
$
555

 
$
1,463

 
$
1,107



19



The maturity of the Company's operating lease liabilities as of June 30, 2020 and December 31, 2019 were as follows (in thousands):
 
June 30,
 
December 31,
Operating leases:
2020
 
2019
2020 (remainder)
$
1,698

 
$
375

2021
1,812

 

2022
1,866

 

2023
1,922

 

2024
1,980

 

Thereafter
6,985

 

     Total future minimum lease payments
$
16,263

 
$
375

Less imputed interest
4,495

 
3

     Total operating lease liabilities
$
11,768

 
$
372

Included in the condensed consolidated balance sheet:
 
 
 
Current operating lease liabilities
$
1,648

 
$
372

Non-current operating lease liabilities
10,120

 

Total operating lease liabilities
$
11,768

 
$
372



The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):
 
Six Months Ended June 30,
Operating leases:
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
       Operating cash flows from operating leases
$
825

 
$
735


Other than the initial recording of the right-of-use asset and lease liability for the Headquarters Lease, which is non-cash, the changes in the Company’s right-of-use asset and lease liability for the six months ended June 30, 2020 are reflected in the non-cash lease expense and accrued expenses and other liabilities, respectively, in the consolidated statements of cash flows.
The following summarizes additional information related to operating leases:
 
June 30,
 
December 31,
Operating leases:
2020
 
2019
Weighted-average remaining lease term
7.9 years

 
0.3 years

Weighted-average discount rate
8.9
%
 
10.0
%


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.

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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 Company's cash balance 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.
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 June 30, 2020 and December 31, 2019, the outstanding principal balance under the 2017 Term Loan was $14.0 million and $18.2 million, respectively.
Future minimum principal and interest payments on the 2017 Term Loan as of June 30, 2020 are as follows (in thousands):
2020 (Remainder)
4,390

2021
8,626

2022
2,457

Total minimum debt payments
$
15,473

Less: Amount representing interest
(423
)
Less: Debt discount and deferred charges
(217
)
Less: Current portion of loan payable
(8,384
)
Loan payable, net of current portion
$
6,449


The Company has not been notified of an event of default by SVB as of the date of the filing of this Quarterly Report on Form 10-Q.
During each of the three months ended June 30, 2020 and 2019, the Company recognized $0.2 million and $0.4 million of interest expense related to the 2017 Term Loan. During the six months ended June 30, 2020 and 2019, interest expense was $0.5 million and $0.8 million, respectively.

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10. Equity
Equity Financings
August 2017 Shelf Registration Statement
On August 11, 2017, the Company filed a universal shelf registration statement on Form S-3 (Reg. No. 333-219900) with the SEC to sell an aggregate amount of up to $200.0 million of certain of its securities. The shelf registration statement was declared effective by the SEC on August 28, 2017.
“At-the-Market” Offerings
Concurrent with the filing of the shelf registration statement, the Company entered into a sales agreement (the “Sales Agreement”) with Jefferies LLC, as sales agent, pursuant to which the Company may, from time to time, issue and sell common stock with an aggregate value of up to $50 million in an "at-the-market" offering.
Sales of common stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a) of the Securities Act, including sales made directly through the Nasdaq Global Market or on any other existing trading market for the Company’s common stock. The Company intends to use the proceeds from the offering for working capital and other general corporate purposes. The Company may suspend or terminate the Sales Agreement at any time.
From August 11, 2017, the date the Company entered into the Sales Agreement, to December 31, 2019, the Company sold 615,453 shares of its common stock pursuant to the Sales Agreement at an average price of approximately $1.84 per share for aggregate net proceeds of $1.0 million, after deducting commissions and other transaction costs.
During the six months ended June 30, 2020, the Company sold 1,069,486 shares of its common stock pursuant to the Sales Agreement at an average price of approximately $2.16 per share for aggregate net proceeds of $2.1 million, after deducting commissions and other transaction costs.
December 2019 Financing
On December 18, 2019, the Company entered into a securities purchase agreement (the "2019 Purchase Agreement") with a group of institutional investors and certain members of the board of directors. Pursuant to the 2019 Purchase Agreement, the Company sold an aggregate of 37,634,883 shares of its common stock at a purchase price of $1.46 per share, warrants to purchase an aggregate of 22,988,501 shares of common stock at a purchase price of $0.125 per share underlying each common warrant, and pre-funded warrants to purchase an aggregate of 8,342,128 shares of common stock at a purchase price of $1.46 per share, all with five year terms (the "2019 PIPE"). The closing of the 2019 PIPE occurred on December 23, 2019. The exercise price of the pre-funded warrants is $0.0001 per share and the exercise price for the common warrants is $1.46 per share. In the event of a certain sale of the Company, the terms of the common warrants require us to make a payment to such common warrant holders based on a Black-Scholes valuation (using variables as specified in the warrants). This provision does not apply to the pre-funded warrants. Therefore, the Company is required to account for the common warrants as liabilities and record them at fair value, while the pre-funded warrants met the criteria to be classified as permanent equity.
The Company recorded the fair value of the common warrants of $40.7 million upon issuance using the Black-Scholes valuation model. The common warrants were revalued as of December 31, 2019 at $41.5 million; a charge in fair value of $8.4 million was recorded in the statement of operations for the six months ended June 30, 2020. Issuance costs were allocated between the equity component with an offset to additional paid-in capital and the liability component recorded as expense on a relative fair value basis. Total net proceeds from the equity offering was $65.6 million, after deducting transaction costs and commissions of $4.4 million which was paid in the three months ended March 31, 2020.
On December 23, 2019, in connection with the 2019 PIPE, the Company entered into a registration rights agreement (the “2019 Registration Rights Agreement”), pursuant to which the Company agreed to prepare and file a registration statement with the SEC within 45 days after the closing of the 2019 PIPE for purposes of registering the resale of the shares of common stock issued and sold in the 2019 PIPE, shares of common stock issuable upon exercise of the warrants sold in the 2019 PIPE, and any shares of common stock issued as a dividend or other distribution with respect to the shares of common stock or shares of common stock issuable upon exercise of the warrants. The 2019 PIPE registration statement was declared effective by the SEC on February 6, 2020.
The Company agreed, among other things, to indemnify the investors in the 2019 PIPE, and their officers, directors, members, employees and agents, successors and assigns, under the registration statement from certain liabilities and to pay all fees and expenses (excluding any legal fees of the selling holder(s), and any underwriting discounts and selling commissions) incident to the Company’s obligations under the 2019 Registration Rights Agreement.

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June 2017 Financing
On June 26, 2017, the Company entered into a securities purchase agreement (the "Institutional Purchase Agreement") with a select group of institutional investors (the “Institutional Investors”) and a securities purchase agreement with Timothy A. Springer, Ph.D., a member of the board of directors (the "Springer Purchase Agreement") for a private placement of the Company's securities (the "2017 PIPE"). The closing of the 2017 PIPE occurred on June 27, 2017.
Pursuant to the Institutional Purchase Agreement, the Company sold an aggregate of 2,750,000 shares of its common stock at a purchase price equal to $16.00