mcrb-10q_20180630.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ (Do not check if a small reporting company)

Small reporting company

Emerging growth company

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 26, 2018, the registrant had 40,795,663 shares of common stock, $0.001 par value per share, outstanding.

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, and Section 21E of the Securities Exchange Act of 1934, as amended. 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, plans and objectives of management for future operations and future results of anticipated products, 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 risks, uncertainties and assumptions described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward looking statements are subject to numerous risks, including, without limitation, the following:

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.

	June 30,			December 31,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	57,960		$	36,088
Investments		38,106			113,895
Prepaid expenses and other current assets		5,471			5,095
Total current assets		101,537			155,078
Property and equipment, net		29,904			32,931
Restricted cash		1,513			1,513
Total assets	$	132,954		$	189,522
Liabilities and Stockholders’ Equity/(Deficit)
Current liabilities:
Accounts payable	$	5,158			7,033
Accrued expenses and other current liabilities		13,651			12,513
Deferred revenue - related party		17,962			12,079
Total current liabilities		36,771			31,625
Lease incentive obligation, net of current portion		8,119			8,989
Deferred Rent		2,231			2,233
Deferred revenue, net of current portion - related party		97,959			84,847
Other long-term liabilities		1,129			1,129
Total liabilities		146,209			128,823
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2018 and December 31, 2017; no shares issued and outstanding at June 30, 2018 and December 31, 2017		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2018 and December 31, 2017; 40,754,681 and 40,571,015 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively		40			40
Additional paid-in capital		332,870			324,376
Accumulated other comprehensive loss		(29	)		(146	)
Accumulated deficit		(346,136	)		(263,571	)
Total stockholders’ equity/(deficit)		(13,255	)		60,699
Total liabilities and stockholders’ equity	$	132,954		$	189,522

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenue:
Collaboration revenue - related party	$	4,271		$	3,014		$	8,037		$	6,029
Grant revenue		341			—			546			—
Total revenue		4,612			3,014			8,583			6,029
Operating expenses:
Research and development expenses		24,053			23,060			47,513			43,203
General and administrative expenses		8,695			8,370			17,472			17,132
Total operating expenses		32,748			31,430			64,985			60,335
Loss from operations		(28,136	)		(28,416	)		(56,402	)		(54,306	)
Other income (expense):
Interest income		349			615			696			1,390
Other income (expense)		—			(217	)		—			(576	)
Total other income, net		349			398			696			814
Net loss	$	(27,787	)	$	(28,018	)	$	(55,706	)	$	(53,492	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.68	)	$	(0.69	)	$	(1.37	)	$	(1.32	)
Weighted average common shares outstanding, basic and diluted		40,661,464			40,394,605			40,645,040			40,381,643
Other comprehensive (loss) income:
Unrealized (loss) gain on investments, net of tax of $0	$	77		$	(25	)	$	117		$	(27	)
Total other comprehensive (loss) income		77			(25	)		117			(27	)
Comprehensive loss	$	(27,710	)	$	(28,043	)	$	(55,589	)	$	(53,519	)

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

	Six Months Ended June 30,
	2018			2017
Cash flows from operating activities:
Net loss	$	(55,706	)	$	(53,492	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		8,570			8,781
Depreciation and amortization expense		3,895			3,490
Non-cash interest expense		—			2
Accretion of discount on investments		(132	)		(116	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(376	)		287
Deferred revenue		(7,863	)		(6,029	)
Accounts payable		(1,537	)		(3,651	)
Accrued expenses and other current liabilities		712			(577	)
Net cash (used in) operating activities		(52,437	)		(51,305	)
Cash flows from investing activities:
Purchases of property and equipment		(1,655	)		(3,527	)
Purchases of investments		(15,456	)		(43,795	)
Sales and maturities of investments		91,495			77,807
Net cash provided by investing activities		74,384			30,485
Cash flows from financing activities:
Proceeds from exercise of stock options		96			36
Proceeds from issuance of common stock and restricted common stock		26
Payments of employee tax obligations related to vesting of restricted stock units		(197	)		—
Net cash (used in) provided by financing activities		(75	)		36
Net increase (decrease) in cash and cash equivalents		21,872			(20,784	)
Cash, cash equivalents and restricted cash at beginning of period		37,601			55,939
Cash, cash equivalents and restricted cash at end of period	$	59,473		$	35,155
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment purchases included in accounts payable and accrued expenses	$	90		$	140

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

Seres Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Delaware in October 2010 under the name Newco LS21, Inc. In October 2011, the Company changed its name to Seres Health, Inc., and in May 2015, the Company changed its name to Seres Therapeutics, Inc. The Company is a microbiome therapeutics platform company developing a novel class of biological drugs, which are designed to restore health by repairing the function of a dysbiotic microbiome. The Company’s lead product candidate, SER-109, is designed to reduce recurrences of Clostridium difficile infection (“CDI”), a debilitating infection of the colon, and, if approved by the U.S. Food and Drug Administration (“FDA”), could be a first-in-field oral microbiome drug. The Company’s second product candidate, SER-287, is being developed to treat inflammatory bowel disease (“IBD”) including ulcerative colitis (“UC”). The Company is also developing SER-401, a microbiome therapeutic candidate for use with checkpoint inhibitors (“CPI’s”) in patients with solid tumors. In addition, using its microbiome therapeutics platform, the Company is developing product candidates to treat diseases where the microbiome is implicated, including SER-262, a rationally designed product candidate, to prevent an initial recurrence of primary CDI, SER-301, a rationally designed IBD product candidate, and SER-155, a rationally designed product candidate to prevent infections and improve gastrointestinal barrier function (including the consequences of graft versus host disease) in patients following allogeneic hematopoietic stem cell transplants or solid organ transplants. The Company is also using its microbiome therapeutics platform to conduct research on various indications, including: infectious diseases, metabolic diseases, and inflammatory and immune diseases, including immuno-oncology.

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 pre-clinical 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, 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.

Under Accounting Standards Update, or ASU, 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40), or ASC 205-40, the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued.

As of June 30, 2018, the Company had an accumulated deficit of $346.1 million and cash, cash equivalents and short-term investments of $96.1 million. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirements of ASC 205-40 and determined that the Company’s accumulated deficit, history of losses, and future expected losses meet the ASC 205-40 standard for raising substantial doubt about the Company’s ability to continue as a going concern within one year of the issuance date of these condensed consolidated financial statements.

The Company’s current financial resources and currently forecasted operating plan would allow the Company to operate into the second quarter of 2019 which is within one year from the issuance of these condensed consolidated financial statements. The Company has developed plans to mitigate this risk, which primarily consist of raising additional capital through some combination of equity or debt financings, and/or potentially new collaborations and reducing cash expenditures.

If the Company is not able to secure adequate additional funding, the Company plans to make reductions in spending. In that event, the Company may have to delay, scale back, or eliminate some or all of the Company’s planned clinical trials. The actions necessary to reduce spending under this plan at a level that mitigates the factors described above is not considered probable, as defined in the accounting standards; as such, under the requirements of ASC 205-40, the full extent to which management may extend the Company’s funds through these actions may not be considered in management’s assessment of the Company’s ability to continue as a going concern for the next 12 months as defined by ASC-205-40.

As a result, in accordance with the requirements of ASC 205-40, management has concluded that it is required to disclose that substantial doubt exists about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued.

The Company is eligible to receive contingent milestone payments under its license and collaboration agreement with Nestec Ltd. (“NHS”), an affiliate of Nestlé Health Science US Holdings, Inc. (“Nestlé Health Science”), a significant stockholder of the Company, if certain development milestones are achieved. However, these milestones are uncertain and there is no assurance that the Company will receive any of them. Until such time, if ever, as the Company can generate substantial product revenue, the Company will finance its cash needs through a combination of public or private equity offerings, debt financings, governmental funding, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties. The Company may not be able to obtain funding on acceptable terms, or at all. If the Company is unable to raise additional funds as and when needed, it would have a negative impact on the Company’s financial condition, which may require the Company to delay, reduce or eliminate certain research and development activities and reduce or eliminate discretionary operating expenses, which could constrain the Company’s ability to pursue its business strategies.

The accompanying unaudited condensed consolidated financial statements as of June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 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, 2017 included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2017, which was filed with the SEC on March 8, 2018.

The unaudited interim financial statements have been prepared on the same basis as the audited consolidated financial statements. The condensed consolidated balance sheet at December 31, 2017 was derived from audited annual financial statements, but does not contain all of the footnote disclosures from the annual financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments which are necessary for a fair presentation of the Company’s financial position as of June 30, 2018 and consolidated results of operations for the three and six months ended June 30, 2018 and 2017 and its cash flows for the six months ended June 30, 2018 and 2017. Such adjustments are of a normal and recurring nature. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2018.

The significant accounting policies and estimates used in preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2017, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2018 except for the adoption of the new revenue standard discussed in Note 8, Collaboration Revenue.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, the accrual of research and development expenses and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options and warrants and unvested restricted stock.

The restricted stock units granted by the Company entitle the holder of such awards to dividends declared or paid by the board of directors, regardless of whether such awards are unvested, as if such shares were outstanding common shares at the time of the dividend. However, the unvested restricted stock units are not entitled to share in the residual net assets (deficit) of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies how a company identifies promised goods or services and clarifies whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes collected from customers. In December 2016 the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance issued in ASU 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples. ASU 2016-08, ASU 2016-10 and ASU 2016-12 have the same effective dates and transition requirements as ASU 2014-09, all of which collectively are herein referred to as “ASC 606.” The Company has adopted this standard as of the required effective date of January 1, 2018, using the modified retrospective transition method. See Note 8, “Collaboration Revenue,” for discussion of the impact of adoption of this standard.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), (“ASU 2016-02”), which establishes principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), or ASU 2018-01, which adds two practical expedients to the new lease guidance. ASU 2018-01 is effective for the Company for annual periods beginning after December 15, 2018 and interim periods therein, with early adoption permitted. The Company is currently in the process of evaluating the impact of the guidance on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. This standard addresses specific cash flow issues with the objective of reducing existing diversity in practice in how certain cash receipts and cash payments are presented in the statement of cash flows. The standard was effective for the Company on January 1, 2018. The Company adopted this standard as of the required effective date of January 1, 2018. The adoption of this standard did not have any impact on the Company’s financial statements.

In November 2016, the FASB issued ASU 2016-18, Restricted Cash. The new standard requires restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The new standard was effective for the Company on January 1, 2018. The Company adopted the new standard as of the required effective date of January 1, 2018 and will reflect the adoption retrospectively to all periods presented. The Company’s statements of cash flows includes restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on such statements. A reconciliation of the cash, cash equivalents, and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the statement of cash flows is as follows:

	June 30,		December 31,		June 30,		December 31,
	2018		2017		2017		2016
Cash and cash equivalents	$	57,960	$	36,088	$	33,642	$	54,539
Restricted cash		1,513		1,513		1,513		1,400
Total cash, cash equivalents and restricted cash as shown in the statement of cash flows	$	59,473	$	37,601	$	35,155	$	55,939

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718).” ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions. This ASU is effective for public entities for interim and annual reporting periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of the guidance on its consolidated financial statements.

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above. The Company’s investments in certificates of deposit are carried at amortized cost, which approximates fair value. Certain cash equivalents or investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The carrying values of the Company’s accounts payable and accrued expenses approximate their fair value due to the short-term nature of these liabilities.

The following table presents information about the Company’s assets as of June 30, 2018 and December 31, 2017 that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (note there were no liabilities measured at fair value on a recurring basis in either of the periods presented):

	Fair Value Measurements as of June 30, 2018 Using:
	Level 1		Level 2		Level 3		Not Subject to Leveling ⁽¹⁾		Total
Assets:
Cash Equivalents	$	—	$	2,992	$	—	$	44,306	$	47,298
Investments:
Commercial Paper	$	—	$	10,717	$	—	$	—	$	10,717
Certificates of Deposit		—		3,430		—		—		3,430
Corporate Bonds		—		6,744		—		—		6,744
Government Securities		—		3,746		—		—		3,746
Treasury Bonds		—		13,469		—		—		13,469
	$	—	$	41,098	$	—	$	44,306	$	85,404
⁽¹⁾ Certain cash equivalents and investments that are valued using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

	Fair Value Measurements as of December 31, 2017 Using:
	Level 1		Level 2		Level 3		Not Subject to Leveling ⁽¹⁾		Total
Assets:
Cash Equivalents	$	—	$	—	$	—	$	25,964	$	25,964
Investments:
Commercial Paper	$	—	$	6,198	$	—	$	—	$	6,198
Certificates of Deposit		—		8,916						8,916
Corporate Bonds		—		58,865		—		—		58,865
Government Securities		—		22,954		—		—		22,954
Treasury Bonds		—		16,962		—		—		16,962
	$	—	$	113,895	$	—	$	25,964	$	139,859
⁽¹⁾ Certain cash equivalents and investments that are valued using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

As of June 30, 2018, the Company’s cash equivalents, which were invested in money market funds and corporate bonds with original maturities of less than 90 days from the date of purchase, were valued based on Level 2 inputs.

As of December 31, 2017, the Company’s cash equivalents consisted of money market funds and corporate bonds with original maturities of less than 90 days from the date of purchase and were valued based on Level 2 inputs.

The fair value of the Company’s investments, which consisted of commercial paper, certificates of deposit, corporate bonds, government securities and treasury bonds as of June 30, 2018 and December 31, 2017 were determined using Level 2 inputs. During the six months ended June 30, 2018, there were no transfers between Level 1, Level 2 and Level 3.

As of June 30, 2018 and December 31, 2017, the fair value of available-for-sale investments by type of security was as follows:

	June 30, 2018
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Investments:
Commercial Paper	$	10,717	$	—	$	—		$	10,717
Certificates of Deposit		3,430		—		—			3,430
Corporate Bonds		6,754		—		(10	)		6,744
Government Securities		3,747		—		(1	)		3,746
Treasury Bonds		13,486		—		(17	)		13,469
	$	38,134	$	—		(28	)	$	38,106

	December 31, 2017
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Investments:
Commercial Paper	$	6,198	$	—	$	—		$	6,198
Certificates of Deposit		8,916		—		—			8,916
Corporate Bonds		58,937		—		(72	)		58,865
Government Securities		22,997		—		(43	)		22,954
Treasury Bonds		16,992		—		(30	)		16,962
	$	114,040	$	—	$	(145	)	$	113,895

Investments with original maturities of less than 90 days are included in cash and cash equivalents on the consolidated balance sheets and are not included in the table above. Investments with maturities of less than 12 months are considered current and those investments with maturities greater than 12 months are considered non-current.

All investments with unrealized losses at June 30, 2018 have been in a loss position for less than 12 months or the loss is not material and temporary in nature. The Company does not intend to sell the investments that are in an unrealized loss position before recovery of their amortized cost basis.

	June 30, 2018			December 31, 2017
Laboratory equipment	$	13,988			13,181
Computer equipment		2,852			2,832
Furniture and office equipment		1,033			1,033
Leasehold improvements		27,977			27,963
Construction in progress		388			361
		46,238			45,370
Less: Accumulated depreciation and amortization	$	(16,334	)	$	(12,439	)
	$	29,904		$	32,931

Depreciation and amortization expense was $1,954, $ 3,895, $1,760 and $3,490 for the three and six months ended June 30, 2018 and 2017, respectively.

The following table summarizes the Company’s stock option activity since December 31, 2017:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(in years)
Outstanding as of December 31, 2017		6,125,692		$	13.00		7.70	$	15,808
Granted		1,732,276			10.16
Exercised		(140,066	)		0.68
Forfeited		(236,424	)		16.95
Outstanding as of June 30, 2018		7,481,478		$	12.45		7.75	$	11,509
Options vested and expected to vest as of June 30, 2018		7,481,478			12.45		7.75		11,509
Options exercisable as of June 30, 2018		3,987,920		$	11.87		6.78	$	11,390

The weighted average grant-date fair value of stock options granted during the three and six months ended June 30, 2018 and 2017 was $6.89, $5.82, $7.44 and $6.98 per share, respectively.

The Company has granted restricted stock units with time-based vesting conditions. The table below summarizes the Company’s restricted stock unit activity since December 31, 2017:

The Company recorded stock-based compensation expense related to stock options, restricted stock units and ESPP plan in the following expense categories of its condensed consolidated statements of operations and comprehensive loss:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Research and development expenses	$	2,262	$	2,094	$	4,190	$	3,967
General and administrative expenses		2,072		2,409		4,380		4,814
	$	4,334	$	4,503	$	8,570	$	8,781

The Company’s Employee Stock Purchase Plan (“ESPP”) provides that eligible employees may contribute up to 15% of their eligible earnings toward the semi-annual purchase of the Company' common stock. The ESPP is qualified under Section 423 of the Internal Revenue Code. The employee's purchase price is derived from a formula based on the closing price of the common stock on the first day of the offering period versus the closing price on the date of purchase (or, if not a trading day, on the immediately preceding trading day). The offering period under the ESPP has a duration of six months, and the purchase price with respect to each offering period beginning on or after such date is, until otherwise amended, equal to 85% of the lesser of (i) the fair market value of the Company's common stock at the commencement of the applicable six-month offering period or (ii) the fair market value of the Company's common stock on the purchase date. The Company estimates the fair value of common stock under the ESPP using a

Black-Scholes valuation model. The fair value was estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions: risk-free interest rate (1.89%); expected term (0.5 years); expected volatility (65.5%); and an expected dividend yield (0%). The Company recorded an immaterial amount of stock-based compensation expense under the ESPP for the three and six months ended June 30, 2018

The total number of available ESPP shares is increased annually, beginning in 2016 and ending in 2025. The ESPP allows for share replenishment equal to the lesser of (i) 400,000 shares and (ii) 1% of the number of shares of the Company’s common stock outstanding on the last day of the preceding calendar year, or an amount determined by the Company’s Board of Directors. As of June 30, 2018, a total of 1.6 million shares were reserved and available for issuance under the ESPP.

The Company adopted ASC 606 on January 1, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”), which is also referred to herein as "legacy GAAP" or the "previous guidance". The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company's services and will provide financial statement readers with enhanced disclosures.

The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018, was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the condensed consolidated balance sheet as of January 1, 2018:

The adoption of ASC 606 changed the pattern and timing of revenue recognition under the Company’s license and collaboration agreement with NHS. Under ASC 605, the upfront fee of $120,000 received by the Company in the first quarter of 2016 was deferred and recognized on a straight-line basis over the estimated performance period of 10 years. In addition, the Company recognized revenue associated with substantive development milestones not considered probable at the inception of the license and collaboration agreement with NHS in their entirety in the period in which the milestone was achieved, in accordance with FASB ASC Topic 605-28, Revenue Recognition-Milestone Method.

Under ASC 606, the Company recognizes revenue using the cost-to-cost method which best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue will be recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. The estimate of the Company’s measure of progress and estimate of transaction price will be updated at each reporting date, as a change in estimate, and will require judgement. The amount of consideration allocated to satisfied performance obligations, based on the Company’s measure of progress will be recognized immediately on a cumulative catch-up basis, resulting in an adjustment to revenue in the period of change. The amount related to the unsatisfied portion will be recognized as that portion is satisfied over time. In addition, substantive development milestones, which were previously recognized in the period when the milestone was achieved, will be recognized over the remaining performance period under ASC 606. As the adoption method does not result in a recast of the prior year consolidated financial statements, ASC 606 requires the Company to provide additional disclosures during the year of adoption of the amount by which each financial statement line item is affected by adoption of the new standard and explanations of the reasons for significant changes.

We do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year, or less or the amount is immaterial. At June 30, 2018, we have not capitalized any costs to obtain any of our contracts.

The adoption of ASC 606 resulted in an increase to deferred revenue, which in turn generated an additional deferred tax asset that increased the Company’s net deferred tax asset position. As the Company fully reserves its net deferred tax assets, the impact was offset by the valuation allowance.

The following table compares the reported condensed consolidated balance sheet, statement of operations and cash flows, as of and for the three and six months ended June 30, 2018 to the pro-forma amounts had the previous guidance (ASC 605) been in effect:

Total reported liabilities were $24,902 greater as reported under ASC 606 than would have been reported under ASC 605 as of June 30, 2018. This change consists of a $19,037 increase in deferred revenue, net of current portion, related party, and a $5,865 increase in deferred revenue - related parties.

Delaware		27-4326290
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 Sidney Street - 4^th Floor Cambridge, MA		02139
(Address of principal executive offices)		(Zip Code)

		Page

PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)		4
Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017		4
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2018 and 2017		5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risk		31
Item 4. Controls and Procedures		31

PART II – OTHER INFORMATION		33
Item 1. Legal Proceedings		33
Item 1A. Risk Factors		33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		63
Item 3. Defaults Upon Senior Securities		63
Item 4. Mine Safety Disclosures		63
Item 5. Other Information		63
Item 6. Exhibits		64

SIGNATURES		65

	Three and Six Months Ended June 30,
	2018		2017
Stock options to purchase common stock		7,481,478		6,314,838
Unvested restricted stock units		289,248		408,400
		7,770,726		6,723,238

	June 30, 2018		December 31, 2017
Development and manufacturing costs	$	7,163	$	3,910
Payroll and payroll-related costs		3,132		4,962
Professional fees		455		344
Facility and other		2,901		3,297
	$	13,651	$	12,513

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested restricted stock units as of December 31, 2017		356,778		$	10.01
Granted		—		$	—
Forfeited		(6,030	)	$	9.78
Vested		(61,500	)	$	10.12
Unvested restricted stock units as of June 30, 2018		289,248		$	10.00

	As Reported at			Adjustments Due to			Balance at
	December 31, 2017			ASC 606			January 1, 2018
Deferred revenue - related party		12,079			5,339			17,418
Deferred revenue, net of current portion - related party		84,847			21,518			106,365
Accumulated deficit		(263,571	)		(26,857	)		(290,428	)

	As of June 30, 2018
	As Reported under ASC 606			Pro forma as if accounted for under ASC 605
Deferred revenue - related party		17,962			12,097
Deferred revenue, net of current portion - related party		97,959			78,922
Accumulated deficit		(346,136	)		(321,234	)