UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 November 2, 2021, the registrant had
Table of Contents
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Page |
PART I. |
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Item 1. |
4 |
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Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 |
4 |
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5 |
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6 |
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8 |
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9 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 |
Item 3. |
49 |
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Item 4. |
49 |
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PART II. |
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50 |
Item 1. |
50 |
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Item 1A. |
50 |
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Item 2. |
52 |
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Item 3. |
52 |
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Item 4. |
52 |
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Item 5. |
52 |
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Item 6. |
53 |
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54 |
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
1
In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed above under “Summary of the Material Risks Associated with Our Business” and under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.
2
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10‑Q.
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2020, or the Annual Report, and this Quarterly Report on Form 10-Q.
NOTE REGARDING COMPANY REFERENCES
Unless the context otherwise requires, the terms “Codiak,” “the Company,” “we,” “us,” and “our” in this Form 10-Q refer to Codiak BioSciences, Inc. and its consolidated subsidiaries.
3
Item 1. Financial Statements
CODIAK BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share data)
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SEPTEMBER 30, |
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DECEMBER 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Restricted cash, net of current portion |
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Operating right-of-use assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Deferred revenue |
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Operating lease liabilities |
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Total current liabilities |
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Long-term liabilities: |
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Deferred revenue, net of current portion |
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Note payable, net of discount |
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Operating lease liabilities, net of current portion |
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Other long-term liabilities |
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Total liabilities |
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Commitments and (Note 8) |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CODIAK BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except share and per share data)
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THREE MONTHS ENDED |
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NINE MONTHS ENDED |
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2021 |
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2020 |
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2021 |
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2020 |
Revenue: |
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Collaboration revenue |
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$ |
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$ |
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$ |
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$ |
Total revenue |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
Other income (expense): |
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Interest expense |
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( |
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( |
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( |
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( |
Interest income |
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Other income |
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Total other expense, net |
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( |
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( |
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( |
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( |
Net loss |
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$( |
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$( |
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$( |
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$( |
Cumulative dividends on redeemable convertible preferred stock |
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— |
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( |
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( |
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Net loss attributable to common stockholders |
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$( |
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$( |
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$( |
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$( |
Net loss per share attributable to common stockholders, basic and diluted |
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$( |
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$( |
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$( |
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$( |
Weighted average common shares outstanding, basic and diluted |
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Comprehensive loss: |
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Net loss |
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$( |
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$( |
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$( |
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$( |
Other comprehensive loss: |
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Unrealized loss on investments, net of tax of $ |
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— |
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— |
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— |
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( |
Total other comprehensive loss |
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— |
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— |
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— |
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( |
Comprehensive loss |
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$( |
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$( |
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$( |
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$( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
CODIAK BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited, in thousands, except share data)
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SERIES A |
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SERIES B |
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SERIES C |
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COMMON |
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ADDITIONAL |
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ACCUM- |
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ACCUM- |
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TOTAL |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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CAPITAL |
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INCOME |
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DEFICIT |
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(DEFICIT) |
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Balance at June 30, 2021 |
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— |
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$— |
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— |
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$— |
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— |
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$— |
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$ |
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$ |
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$— |
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$( |
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$ |
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Exercise of options to purchase common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
|||||||||
Balance at September 30, 2021 |
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— |
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$— |
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— |
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$— |
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— |
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$— |
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$ |
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$ |
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$— |
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$( |
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$ |
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Balance at June 30, 2020 |
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$ |
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$ |
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$ |
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$— |
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$ |
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$- |
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$( |
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$( |
|||||||||||||
Issuance of common stock in connection with license agreement |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||||||||||||
Exercise of options to purchase common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||||||||||||
Accretion of preferred stock to redemption value |
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— |
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— |
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— |
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— |
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— |
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( |
|
— |
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— |
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( |
||||||||||||
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
|
— |
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— |
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— |
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|||||||||||
Net loss |
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— |
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— |
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— |
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— |
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— |
|
— |
|
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— |
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— |
|
— |
|
— |
|
( |
|
( |
|||||||||
Balance at September 30, 2020 |
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$ |
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$ |
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$ |
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$— |
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$ |
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$— |
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$( |
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$( |
6
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SERIES A |
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SERIES B |
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SERIES C |
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COMMON |
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ADDITIONAL |
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ACCUM- |
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ACCUM- |
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TOTAL |
||||||||
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SHARES |
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AMOUNT |
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SHARES |
|
AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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CAPITAL |
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INCOME |
|
DEFICIT |
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(DEFICIT) |
Balance at December 31, 2020 |
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— |
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$— |
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— |
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$— |
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— |
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$— |
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$ |
|
$ |
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$— |
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$( |
|
$ |
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Exercise of options to purchase common stock |
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— |
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— |
|
— |
|
— |
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— |
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— |
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— |
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— |
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— |
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|||
Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock upon public offering, |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|||
Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
|
— |
|
— |
|
( |
|
( |
Balance at September 30, 2021 |
|
— |
|
$— |
|
— |
|
$— |
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— |
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$— |
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$ |
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$ |
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$— |
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$( |
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$ |
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Balance at December 31, 2019 |
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$ |
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$ |
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$ |
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$— |
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$ |
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$ |
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$( |
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$( |
||||
Issuance of Series B redeemable convertible |
|
— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock in connection with |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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|||
Exercise of options to purchase common stock |
|
— |
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— |
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— |
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— |
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— |
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— |
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— |
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|
— |
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— |
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|||
Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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||
Accretion of redeemable convertible preferred |
|
— |
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— |
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— |
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— |
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— |
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( |
|
— |
|
( |
|
( |
|||
Unrealized loss on investments |
|
— |
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— |
|
— |
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— |
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— |
|
— |
|
|
— |
|
— |
|
— |
|
( |
|
— |
|
( |
Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
( |
|
( |
Balance at September 30, 2020 |
|
|
$ |
|
|
$ |
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|
$ |
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|
|
$— |
|
$ |
|
$— |
|
$( |
|
$( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
CODIAK BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
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NINE MONTHS ENDED |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash from operating activities: |
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Stock-based compensation expense |
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Non-cash interest expense |
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Fair value of common stock earned in connection with license agreement |
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— |
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Depreciation and amortization expense |
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Accretion of investments |
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— |
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( |
) |
Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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( |
) |
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Operating right-of-use assets |
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Other non-current assets |
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- |
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( |
) |
Accounts payable |
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( |
) |
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Accrued expenses |
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Deferred revenue |
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( |
) |
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Operating lease liabilities |
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( |
) |
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Net cash used in operating activities |
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( |
) |
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( |
) |
Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
) |
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( |
) |
Maturities of investments |
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— |
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Net cash (used in) provided by investing activities |
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( |
) |
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Cash flows from financing activities: |
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Proceeds from long-term debt, net of issuance costs |
|
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— |
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Proceeds from exercise of common stock options |
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Proceeds from public offering of common stock, net of issuance costs |
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( |
) |
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Net cash provided by financing activities |
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Net Increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
|
$ |
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$ |
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Supplemental disclosures: |
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Cash paid for interest |
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$ |
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$ |
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Non-cash investing and financing activities: |
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Purchases of property and equipment included in accounts payable and |
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$ |
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|
$ |
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||
Deferred offering costs included in accrued expenses |
|
$ |
— |
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|
$ |
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|
Accretion of redeemable convertible preferred stock to redemption value |
|
$ |
— |
|
|
$ |
|
|
Operating right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
||
|
|
SEPTEMBER 30, |
|
|||||
Reconciliation to amounts within the condensed consolidated balance sheets |
|
2021 |
|
|
2020 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash, net of current portion |
|
$ |
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
CODIAK BIOSCIENCES, INC.
Notes to CONDENSED Consolidated Financial Statements
(Unaudited)
1. Nature of the Business
Codiak BioSciences, Inc. (collectively, with its consolidated subsidiaries, any of Codiak, we, us, or the Company) was incorporated in Delaware on
Since its inception, the Company has devoted substantially all of its resources to its research and development efforts, including activities to develop its engEx Platform, advance engEx product candidates into clinical trials, perform preclinical research to identify potential engEx product candidates, to perform process development to refine Codiak’s exosome engineering and manufacturing processes, and to provide general and administrative support for these operations.
The Company has primarily funded its operations with proceeds from the sales of common stock, redeemable convertible preferred stock, collaborative and research arrangements with Jazz and Sarepta and its Loan and Security agreement with Hercules Capital, Inc. (Hercules). As of September 30, 2021, the Company has raised an aggregate of $
The Company has incurred significant operating losses and negative cash flows from operations since inception. The Company expects to continue to incur significant expenses and operating losses for the foreseeable future. In addition, the Company anticipates that its expenses will increase significantly in connection with ongoing activities to support its engEx Platform development, drug discovery and preclinical and clinical development, in addition to creating a portfolio of intellectual property and providing administrative support.
The Company does not expect to generate significant revenue from sales of its engEx product candidates unless and until clinical development has been successfully completed and regulatory approval is obtained. If the Company obtains regulatory approval for any of its investigational products, it expects to incur significant commercialization expenses.
9
As a result, the Company will need substantial additional funding to support its continued operations and growth strategy. Until such a time as the Company can generate significant revenue from product sales, if ever, the Company expects to finance its operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may be unable to raise additional funds or enter into such other agreements on favorable terms, or at all. If the Company fails to raise capital or enter into such agreements as, and when, needed, the Company may have to significantly delay, scale back or discontinue the development and commercialization of one or more of its product candidates or delay its pursuit of potential in-licenses or acquisitions.
As of September 30, 2021, the Company had cash and cash equivalents of $
The Company is subject to those risks associated with any biopharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations.
2. Summary of Basis of Presentation and Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements that accompany these notes have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting, consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Annual Report). Any reference in these notes to applicable guidance is meant to refer to the authoritative accounting principles generally accepted in the United States as found in the Accounting Standard Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). Certain reclassifications were made to the 2020 financial statements to conform to the current period’s presentation. The reclassifications did not result in any changes to net loss or net stockholders’ deficit in either period presented. This report should be read in conjunction with the consolidated financial statements in our 2020 Annual Report.
The consolidated financial statements include the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. Significant estimates relied upon in preparing the consolidated financial statements include, among others: estimates related to revenue recognition, the valuation of common stock and stock-based compensation awards, leases, accrued expenses and income taxes.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements for the three and nine months ended September 30, 2021 are consistent with those described in our 2020 Annual Report.
10
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes (ASU 2019-12), as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12, also clarifies and simplifies other aspects of the accounting for income taxes. ASU 2019-12, is effective for the Company on January 1, 2022, with early adoption permitted. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (ASU 2016-13). The new standard adjusts the accounting for assets held at amortized cost basis, including marketable securities accounted for as available-for-sale. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU 2016-13 is effective for the Company on January 1, 2023, with early adoption permitted. The Company is currently evaluating the potential impact that this standard may have on its financial position and results of operations.
3. Fair Value Measurements
The following tables present information about the Company’s assets measured at fair value on a recurring basis, and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):
|
|
SEPTEMBER 30, 2021 |
|
|||||||||||||||||
|
|
TOTAL |
|
|
LEVEL 1 |
|
|
LEVEL 2 |
|
|
LEVEL 3 |
|
|
NOT |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
DECEMBER 31, 2020 |
|
|||||||||||||||||
|
|
TOTAL |
|
|
LEVEL 1 |
|
|
LEVEL 2 |
|
|
LEVEL 3 |
|
|
NOT |
|
|||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
As of September 30, 2021 and December 31, 2020, the Company’s cash equivalents consisted of money market funds invested in US Treasury securities with original maturities of less than 90 days from the date of purchase.
During the three and nine months ended September 3
The fair value of the Company’s debt is classified as Level 2 for the periods presented and approximates its carrying value due to the variable interest rate.
11
4. Investments
All of the Company’s investments matured during the year ended December 31, 2020. The Company did
Investments with original maturities of less than 90 days are included in cash and cash equivalents on the condensed consolidated balance sheets. Investments with maturities of less than 12 months would be considered current and those investments with maturities greater than 12 months would be considered non-current.
The Company did
5. Property and Equipment, net
Property and equipment, net, consisted of the following (in thousands):
|
|
SEPTEMBER 30, |
|
|
DECEMBER 31, |
|
||
Leasehold improvements |
|
$ |
|
|
$ |
|
||
Laboratory equipment |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Computer equipment and software |
|
|
|
|
|
|
||
Construction-in-process |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Less: Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
Depreciation and amortization expense for the three and nine months ended September 30, 2021 was $
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
SEPTEMBER 30, |
|
|
DECEMBER 31, |
|
||
Accrued employee compensation |
|
$ |
|
|
$ |
|
||
Accrued external research and development costs |
|
|
|
|
|
|
||
Accrued professional services and consulting |
|
|
|
|
|
|
||
Other expenditures |
|
|
|
|
|
|
||
Accrued facilities costs |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
12
7. Leases
We have entered into various long-term non-cancelable lease arrangements for our facilities, expiring at various times through
Operating Leases
500 Technology Square
The Company leased building space at 500 Technology Square in Cambridge, Massachusetts. Under the terms of the lease, the Company leased approximately
4 Hartwell Place
On March 5, 2019, the Company entered into a lease for manufacturing space at 4 Hartwell Place in Lexington, Massachusetts. Under the terms of the lease, the Company leases approximately
35 CambridgePark Drive
On March 22, 2019, the Company entered into a lease for office and laboratory space at 35 CambridgePark Drive in Cambridge, Massachusetts. Under the terms of the lease, the Company leases approximately
Sublease
On April 27, 2020, the Company entered into a sublease for
13
Effective July 1, 2021, the Company received notice of the sublessee’s intent to exercise its
Upon execution of the sublease agreement, the sublessee provided the Company a security deposit of $
The components of operating lease costs were as follows (in thousands):
|
|
FOR THE THREE MONTHS ENDED SEPTEMBER 30, |
|
|
FOR THE NINE MONTHS ENDED SEPTEMBER 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Operating lease costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Short-term lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease costs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sublease income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable lease costs were primarily related to operating expenses, taxes and utilities associated with the operating leases, which were assessed based on the Company’s proportionate share of such costs for the leased premises.
Additional lease information is summarized in the following table (in millions, except lease term and discount rate):
|
|
NINE MONTHS ENDED |
|
|
NINE MONTHS ENDED |
|
||
|
|
2021 |
|
|
2020 |
|
||
Cash paid for amounts included in the measurement of operating |
|
$ |
|
|
$ |
|
||
Weighted-average remaining lease term - operating leases (years) |
|
|
|
|
|
|
||
Weighted-average discount rate - operating leases |
|
|
% |
|
|
% |
Undiscounted cash flows used in calculating the Company’s operating lease liabilities and amounts to be received under the sublease at 35 CambridgePark Drive as of September 30, 2021 are as follows (in thousands):
Fiscal Year |
|
OPERATING |
|
|
SUBLEASE |
|
|
NET |
|
|||
2021 (remainder of the year) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2022 |
|
|
|
|
|
|
|
|
|
|||
2023 |
|
|
|
|
|
|
|
|
|
|||
2024 |
|
|
|
|
|
— |
|
|
|
|
||
2025 |
|
|
|
|
|
— |
|
|
|
|
||
Thereafter |
|
|
|
|
|
— |
|
|
|
|
||
Total undiscounted cash flows |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Less: Amounts representing interest |
|
|
( |
) |
|
|
|
|
|
|
||
Present value of lease liabilities |
|
$ |
|
|
|
|
|
|
|
14
8. Commitments and contingencies
Purchase commitments
Under the Company’s Sponsored Research Agreement with the University of Texas MD Anderson Cancer Center (MDACC), as amended (the MDACC Research Agreement), the Company was obligated to pay fixed quarterly cash payments to MDACC over the term of the agreement. The Company was also obligated to make additional quarterly payments pursuant to the MDACC Research Agreement, payable in the form of a fixed number of the Company’s Series B redeemable convertible preferred stock throughout the remainder of the agreement. Pursuant to the Third Amendment to the MDACC Research Agreement, the termination date was modified to be effective December 31, 2019. The Company made the final $
In November 2015, the Company entered into a Patent and Technology License Agreement with MDACC, as amended in April 2018 (the MDACC License Agreement). Under the terms of this agreement the Company is obligated to pay milestone payments upon the achievement of development and regulatory milestones and payments upon the execution of sublicenses for qualifying products, in addition to potential royalty payments on commercial products.
Additionally, the Company has a license agreement with Kayla Therapeutics S.A.S. (Kayla) under which the Company is obligated to make milestone payments upon the achievement of clinical and regulatory milestones and payments upon the execution of sublicenses, in addition to potential royalty payments on commercial products. The first milestone was achieved upon the first dosing of exoSTING to the first subject in the Company’s Phase 1/2 clinical trial in September 2020. Upon achievement of the milestone, the Company was obligated to make a nonrefundable payment of $
Purchase orders
The Company has agreements with third parties for various services, including services related to clinical and preclinical operations and support, for which the Company is not contractually able to terminate for convenience to avoid future obligations to the vendors. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, the Company is contractually obligated to make certain payments to vendors, primarily to reimburse them for their unrecoverable outlays incurred prior to cancelation. The actual amounts the Company could pay in the future to the vendors under such agreements may differ from the purchase order amounts due to cancellation provisions.
Indemnification agreements
The Company enters into standard indemnification agreements and/or indemnification sections in other agreements in the ordinary course of business. Pursuant to the agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. The Company does not believe that the outcome of any existing claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it had not accrued any liabilities related to such obligations in its condensed consolidated balance sheets as of September 30, 2021 or December 31, 2020.
Legal proceedings
The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of FASB ASC Topic 450, Contingencies. The Company expenses costs related to its legal proceedings as incurred.
15
9. Indebtedness
On September 30, 2019 (the Closing Date), the Company entered into a Loan and Security Agreement (the Loan Agreement) with Hercules pursuant to which a term loan in an aggregate principal amount of up to $
Upon issuance, the initial advance under the first tranche was recorded as a liability with an initial carrying value of $
Effective September 17, 2021 (the Amended Closing Date), the Company amended the Loan Agreement with Hercules (the Amended Loan Agreement), increasing aggregate principal amount available from $
Under the Amended Term Loan Facility, a new third tranche of $
The Company may prepay advances under the Amended Loan Agreement, in whole or in part, at any time subject to a prepayment charge (Prepayment Premium) equal to: (i)
Upon prepayment or repayment of all or any of the term loans under the Term Loan Facility, the Company will pay (in addition to any Prepayment Premium) an end of term charge of
The end of term charge of $1.4 million, or 5.5% of the $
The Company evaluated the Amended Loan Agreement and Amended Term Loan Facility with Hercules, in accordance with the provisions of ASC 470. The Company concluded that terms under the Amended Loan Agreement were not substantially different from those under the original Loan Agreement and the Amended Loan Agreement should be accounted for prospectively.
The Amended Term Loan Facility remains secured by a lien on substantially all of the Company’s assets, other than the Company’s intellectual property. The Company has agreed not to pledge or grant a security interest on the Company’s intellectual property to any third party. The Amended Term Loan Facility also contains customary covenants and representations, including a liquidity covenant, whereby the Company is obligated to maintain, in an account covered by Hercules’ account control agreement, an amount equal to the lesser of: (i)
16
obligations under the Amended Term Loan Facility, or (ii) the Company’s then-existing cash and cash equivalents, financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.
The events of default under the Amended Loan Agreement include, without limitation, and subject to customary grace periods, the following: (i) any failure by the Company to make any payments of principal or interest under the Amended Loan Agreement, (ii) any breach or default in the performance of any covenant under the Amended Loan Agreement, (iii) the occurrence of a material adverse effect, (iv) any making of false or misleading representations or warranties in any material respect, (v) the Company’s insolvency or bankruptcy, (vi) certain attachments or judgments on the assets of the Company, or (vii) the occurrence of any material default under certain agreements or obligations of the Company’s involving indebtedness. If an event of default occurs, Hercules is entitled to take enforcement action, including acceleration of amounts due under the Amended Loan Agreement.
As of September 30, 2021 and December 31, 2020, the carrying value of the term loan was $
The future principal payments under the Amended Loan Agreement are as follows as of September 30, 2021 (in thousands):
Fiscal Year |
|
PRINCIPAL |
|
|
2021 |
|
$ |
— |
|
2022 |
|
|
— |
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
|
|
$ |
|
10. Stock-based compensation
Stock plans
2020 Stock Option and Incentive Plan
The 2020 Stock Option and Incentive Plan (the 2020 Plan), was adopted by the Company’s board of directors in October 2020, approved by the Company’s stockholders in October 2020 and became effective as of October 12, 2020. The 2020 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards. The number of shares of the Company’s common stock initially reserved for issuance under the 2020 Plan was
17
The shares of the Company’s common stock subject to outstanding awards under the 2015 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right will be added back to the shares of common stock available for issuance under the 2020 Plan. As of September 30, 2021, there were
The Company’s stock options expire after approximately
2020 Employee stock purchase plan
The Company’s 2020 Employee Stock Purchase Plan, (the ESPP) was adopted by our board of directors in October 2020, approved by the Company’s stockholders in October 2020 and became effective October 12, 2020. The ESPP initially provides participating employees with the opportunity to purchase up to an aggregate of
Stock Options
The following table summarizes the Company’s option activity during the nine months ended September 30, 2021:
|
|
NUMBER |
|
|
WEIGHTED |
|
|
WEIGHTED |
|
|
AGGREGATE |
|
||||
|
|
|
|
|
|
|
|
(In years) |
|
|
(In thousands) |
|
||||
Outstanding as of December 31, 2020 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited/Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding as of September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercisable as of September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested and expected to vest as of September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value per share of options granted during the three and nine months ended September 30, 2021, was $
The aggregate intrinsic value of stock options exercised during the three and nine months ended September 30, 2021 was $
18
Stock Option Valuation
Service-based awards
The key assumptions used in the Black-Scholes option pricing model on the date of grant for options with service-based vesting conditions were as follows, presented on a weighted average basis:
|
|
THREE MONTHS ENDED |
|
|
NINE MONTHS ENDED |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Risk-free interest rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Expected term (in years) |
|
|
|
|
|
|
|
|
||||||||
Expected volatility |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Expected dividend yield |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Fair value per share of common stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Performance-based awards
The Company did
Stock-based Compensation Expense
The following table presents the components and classification of stock-based compensation expense (in thousands):
|
|
THREE MONTHS ENDED |
|
|
NINE MONTHS ENDED |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Research and development |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Employee |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Non-employee |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company did
As of September 30, 2021, the total unrecognized compensation expense related to the Company’s option awards was $
11. Collaboration agreements
The following table summarizes our total consolidated net revenue from our strategic collaborators for the periods presented (in thousands):
|
|
THREE MONTHS ENDED |
|
|
NINE MONTHS ENDED |
|
||||||||||
Collaboration Revenue by Strategic Collaborator: |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Jazz |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sarepta |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total collaboration revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
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19
The following tables present changes in the Company’s contract assets and liabilities for the nine months ended September 30, 2021 (in thousands):
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NINE MONTHS ENDED SEPTEMBER 30, 2021 |
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BALANCE |
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ADDITIONS |
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DEDUCTIONS |
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BALANCE |
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Contract assets: |
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Account receivable (1) |
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$ |
— |
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|
$ |
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|
$ |
( |
) |
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$ |
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||
Contract liabilities: |
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Deferred revenue |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
During the three and nine months ended September 30, 2021 and 2020, the Company recognized the following revenue (in thousands):
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THREE MONTHS ENDED |
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NINE MONTHS ENDED |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenue recognized in the period from: |
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||||
Amounts included in deferred revenue at the beginning of the period |
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$ |
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|
$ |
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$ |
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$ |
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Jazz collaboration and license agreement
Agreement summary
On January 2, 2019, the Company entered into a Collaboration and License Agreement (the Jazz Collaboration Agreement) with Jazz focused on the research, development and commercialization of exosome therapeutics to treat cancer. The Company granted Jazz an exclusive, worldwide, sublicensable, royalty-bearing license to develop, manufacture and commercialize therapeutic candidates directed at up to
Under the terms of the Jazz Collaboration Agreement, the Company is responsible for the initial development of therapeutic candidates directed at all
Following the conclusion of the applicable clinical trials for the first
20
As part of the Jazz Collaboration Agreement, Jazz has paid the Company an up-front payment of $
Either party can terminate the agreement with respect to a region and a target upon the other party’s material breach relating to such region and target, subject to specified notice and cure provisions. Jazz also has the right to terminate the agreement in its entirety or in part (with respect to a particular collaboration target, research program, licensed compound or product, region or, in some cases, country) for convenience at any time upon
Absent early termination, the term of the Jazz Collaboration Agreement will continue on a country-by-country basis and licensed product-by-licensed product basis, until the expiration of the royalty payment obligations for the country and the licensed product (or, in the case of a shared territory for an optioned product, will continue for so long as such optioned product is being sold by Jazz or its affiliates or sublicensees in the shared territory). Any expiration or termination of the Jazz Collaboration Agreement does not affect the rights and obligations of the parties that accrued prior to the expiration or termination date. Upon termination of the Jazz Collaboration Agreement, all licenses granted by the Company to Jazz will immediately terminate.
Accounting analysis
The Company evaluated the Jazz Collaboration Agreement, as amended, in accordance with the provisions of ASC 606. The Company concluded that the contract counterparty is a customer in the arrangement. The Company accounted for the extension of the exercise period pursuant to the First Amendment as a modification. The Company did not account for the First Amendment as a separate contract because the amendment did not result in an increase to the scope of the arrangement nor was the pricing of the arrangement increased. Accordingly, the First Amendment was combined with the Jazz Collaboration Agreement. For the remaining promised goods and services that are distinct from the goods and services that were transferred on or before the date of the effectiveness of the First Amendment, the Company has accounted for the modification on a prospective basis as if it were a termination of the existing contract and the creation of a new contract. Conversely, the remaining promised goods and services that are not distinct from the goods and services that were transferred on or before the date of the effectiveness of the First Amendment were deemed to form part of a single performance obligation that is partially satisfied so they have been accounted for as part of the existing contract for which an adjustment has been recorded on a cumulative catch-up basis at the date of the modification.
The Company determined that the change to the arrangement that was enacted by the First Amendment did not impact the identification of the promises in the contract. The Company’s obligations under the Jazz Collaboration Agreement, as amended, comprise the following substantive promises:
21
For purposes of evaluating the Jazz Collaboration Agreement, as amended, in accordance with ASC 606, the Company has determined that the ability for Jazz to either nominate an Additional Target or request an Additional Research Program represents a material right because the pricing inherent in such option provides the customer with a discount that is incremental to the range of discounts that would otherwise be granted for the related goods and services to comparable customers. More specifically, the Development and Commercialization License and associated research services under the related Work Plan that would be provided pursuant to Jazz’s option to include an Additional Target within the scope of the arrangement would be provided at
The Company determined that the extension of the exercise period pursuant to the First Amendment did not affect the composition of the performance obligations. For purposes of evaluating the Jazz Collaboration Agreement, as amended, in accordance with ASC 606, the Company determined that the Development and Commercialization License Promise for each of the Initial Collaboration Targets is neither capable of being distinct nor distinct within the context of the contract from the associated Research Services Promise and Development Services Promise. Due to the specialized nature of the services to be provided by the Company, specifically with respect to the Company’s proprietary expertise related to exosome engineering and manufacturing, the customer cannot benefit from or utilize the license without the research and development services. Moreover, the Company concluded that the Development and Commercialization License Promise, Research Services Promise and Development Services Promise for each individual target are interrelated to and interdependent on each other. Due to the nature of the services and capabilities of the parties, the customer cannot derive its intended benefit from the license without the accompanying research and development services to be performed pursuant to the underlying Work Plans and Early Development Plans. The nature of the combined performance obligation is to provide certain research and development services for targets that are designated for inclusion in the arrangement in order to transfer a combined item to the customer in the form of a product candidate for which human proof of concept has been established. As such, the Company has treated the Development and Commercialization License Promise, Research Services Promise and Development Services Promise related to each
22
target as a combined performance obligation (each, a License and Services Performance Obligation; collectively, the License and Services Performance Obligations). However, the Company has determined that the License and Services Performance Obligation associated with each target is distinct from the License and Services Performance Obligation for the other targets because: (i) Jazz can benefit from the license and research and development services for a given target on their own since the results related thereto can be evaluated discretely and (ii) each bundle for an individual target is separately identifiable since it does not affect either the Company’s ability to perform or Jazz’s ability to assess the program for any other target. Thus, the License and Services Performance Obligation for each target is a separate performance obligation. Each of the material right promises has been deemed a distinct performance obligation due to their nature as specified in ASC 606. Therefore, the Company has identified the following
Accordingly, in accounting for the modification resulting from the First Amendment, the License and Services Performance Obligations were treated as part of the existing contract, whereas the material right performance obligations were treated as a termination of the existing contract and the creation of a new contract.
At inception of the arrangement, the Company measured the transaction price solely in reference to the $
23
Upon modification, the Company allocated the transaction price associated with the remaining consideration to each of the identified performance obligations on a relative standalone selling price basis. Certain elements of variable consideration are attributable to specific performance obligations; however, no amounts of variable consideration have been included in the transaction price. The Company updated the standalone selling prices for each of the identified performance obligations to reflect assumptions and estimates in effect on the modification date. The Company determined the updated standalone selling prices for each of the performance obligations included in the Jazz Collaboration Agreement considering relevant market conditions, entity-specific factors and information about the customer, while maximizing the use of available observable inputs.
PERFORMANCE OBLIGATION |
|
ALLOCATED TRANSACTION PRICE |
|
|||
License and Services Performance Obligation: Initial Collaboration Target #1 |
|
$ |
|
|||
License and Services Performance Obligation: Initial Collaboration Target #2 |
|
|
|
|||
License and Services Performance Obligation: Initial Collaboration Target #3 |
|
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|
|||
License and Services Performance Obligation: Initial Collaboration Target #4 |
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|
|||
Additional Target or Program Material Right Performance Obligation |
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|
|||
Replacement Target Material Right Performance Obligation |
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|
|||
Backup Candidate Material Right Performance Obligation: Backup Candidate #1 |
|
|
|
|||
Backup Candidate Material Right Performance Obligation: Backup Candidate #2 |
|
|
|
|||
Transaction Price |
|
$ |
|
The standalone selling price for each of the License and Services Performance Obligations was estimated using a hybrid approach whereby the standalone selling price for each of the Development and Commercialization License Promises was estimated using an income approach, while the standalone selling price of the Research Services Promises and Development Services Promises for each of the plans associated with the individual targets were estimated using an expected cost-plus margin approach. The discounted cash flow analysis utilized in deriving the estimated standalone selling price for each of the Development and Commercialization License Promises included such key assumptions as: development timeline, revenue forecast, discount rate and probabilities of technical and regulatory success. The cost-plus margin approach utilized in deriving the estimated standalone selling price for the Research Services Promises and Development Services Promises for each target was based on the estimate of the overall effort to perform the underlying Work Plans and Early Development Plans and an estimated market rate for the associated services. The standalone selling prices for the Additional Target or Program Material Right Performance Obligation and Replacement Target Material Right Performance Obligation were estimated based on a similar hybrid approach as the License and Services Performance Obligations, but also contemplated the discount the customer could receive without exercising the corresponding option and the likelihood that the respective option will be exercised. The standalone selling price for the Additional Target or Program Material Right Performance Obligation also reflects the likelihood that each of the alternatives will be selected by Jazz. Lastly, the standalone selling prices for the Backup Candidate Material Right Performance Obligations was estimated using an expected cost-plus margin approach based on the estimate of the overall effort to perform the associated non-GLP toxicology studies.
Amounts allocated to each of the License and Services Performance Obligations is recognized as revenue over time commensurate with the term of the associated Research Program and development activities performed pursuant to a program focused on establishing human proof-of-concept for a given target using a proportional performance model which depicts the Company’s performance in transferring control to the customer. The Company utilizes a cost-based input method to measure progress because such method best reflects the satisfaction of the performance obligation as the underlying services are provided. In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to the budgeted costs to complete each of the respective programs. These costs consist primarily of internal full-time equivalent effort and third-party costs. Allocated amounts are recognized as revenue based on actual costs incurred as a percentage of total budgeted costs. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the programs is recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.
24
On April 2, 2021, the Company and Jazz mutually agreed to discontinue their work on STAT3, one of five oncogene targets subject to the Jazz Collaboration Agreement. The Company recognized the remaining $
During the three and nine months ended September 30, 2021, the Company recognized $
The aggregate amount of the transaction price allocated to the License and Services Performance Obligations that were unsatisfied, as of September 30, 2021 was $
As of September 30, 2021 and December 31, 2020, the Company had $
Sarepta license and option agreement
Agreement summary
On June 17, 2020, the Company entered into a
Either party had the right to terminate the Sarepta Research Agreement upon the other party’s material breach, subject to specified notice and cure provisions. Sarepta also had the right to terminate the Sarepta Research Agreement in its entirety or in part (with respect to a particular target) for convenience at any time upon specified written notice, subject to an obligation to pay the Company’s related personnel costs for a specified period of time after the effective date of termination as well as to pay for any unavoidable costs as a result of the termination. Expiration or termination of the Sarepta Research Agreement would not affect the rights and obligations of the parties that accrued prior to the expiration or termination date. Upon termination of the Sarepta Research Agreement, the license and options granted by the Company to Sarepta would immediately terminate.
On October 1, 2021, Sarepta notified the Company that it was terminating early the
25
Under the terms of the Sarepta Research Agreement, the Company granted to Sarepta a non-exclusive, royalty-free, worldwide license, with a limited right to sublicense, to use certain intellectual property of the Company in the conduct of activities for which Sarepta was responsible under the Sarepta Research Agreement (the Research License). The Sarepta Research Agreement provided that the activities conducted by the parties would be performed in accordance with a research plan which set forth the activities to be undertaken over the course of the Sarepta Research Agreement covering all targets included in the agreement (the Research Plan). The Company was responsible for the conduct of all activities to which it was assigned under the Research Plan. The Sarepta Research Agreement initially covered five agreed targets as selected by Sarepta at inception of the Sarepta Research Agreement (each, a Research Target). However, Sarepta had the right to replace up to two of the Research Targets with certain other agreed pre-named targets. To the extent a target was replaced, the original target would have been discontinued as a Research Target under the arrangement and the replacement target would have become a Research Target under the Sarepta Research Agreement.
Pursuant to the terms of the Sarepta Research Agreement, the Company granted to Sarepta an option to obtain an exclusive, worldwide, sublicensable license to use certain intellectual property of the Company for the development, manufacturing and commercialization of exosome therapeutic candidates directed to one or more of the Research Targets (each, a Sarepta Option). Each of the licenses that would have been issued upon exercise of a Sarepta Option covered the use of the Company’s intellectual property in the exploitation of therapeutics directed to a particular target (each, a Development and Commercialization License). Sarepta Options could have been exercised on a Research Target-by-Research Target basis any time prior to completion of the research activities for the respective target, but no later than
Under the terms of the Collaboration Agreement which would have been entered into upon the exercise of a Sarepta Option, the Company would have been responsible for the conduct of the associated preclinical development through the generation of a development candidate directed to the applicable target in accordance with a plan which set forth the activities to be conducted with respect to each preclinical development program (each, a Preclinical Development Plan). Additionally, the Company was obligated to provide manufacturing and supply through the completion of Phase 2 clinical trials. The Company was entitled to receive reimbursement of costs incurred with respect to the activities performed in the execution of the Preclinical Development Plans and any manufacturing activities. Following the selection of a development candidate from a preclinical development program, Sarepta would have been responsible for any further development, regulatory matters and commercialization at its sole cost and expense.
Under the terms of the Sarepta Research Agreement, the Company received up-front and non-refundable cash payments totaling $
26
Accounting analysis
The Company evaluated the Sarepta Research Agreement in accordance with the provisions of ASC 606. The Company concluded that the contract counterparty is a customer in the arrangement. The Company’s obligations under the Sarepta Research Agreement comprised the following seven substantive promises:
For purposes of evaluating the Sarepta Research Agreement in accordance with ASC 606, the Company determined that the ability for Sarepta to acquire a Development and Commercialization License and the related preclinical development services and manufacturing for each of the Research Targets that are the subject of the arrangement represents a material right because the pricing inherent in such option provides the customer with a discount that is incremental to the range of discounts that would otherwise be granted for the related goods to comparable customers. More specifically, primarily as a function of the economics of the arrangement whereby the consideration to be received exceeds the value of the license and services to be provided, the pricing of the option was determined to contain an implicit discount.
For purposes of evaluating the Sarepta Research Agreement in accordance with ASC 606, the Company determined that the Research License Promise was neither capable of being distinct nor distinct within the context of the contract from the associated Research Services Promise. Due to the specialized nature of the services to be provided by the Company, specifically with respect to the Company’s proprietary expertise related to exosome engineering and manufacturing, the customer could not benefit from the license without the research services. Furthermore, Sarepta would have been be utilizing the license to perform additional discovery and research efforts as part of the overall work being conducted by the Company. As such, the license rights did not have utility outside of the context of the activities under the Research Plan. Moreover, the Company concluded that the Research License Promise and Research Services Promise were interrelated to and interdependent on each other. Due to the nature of the services and capabilities of the parties, the customer could not derive its intended benefit from the license without the accompanying research services to be performed pursuant to the underlying Research Plan. The nature of the combined performance obligation was to provide certain research services for targets that are designated for inclusion in the arrangement in order to transfer a combined item to the customer in the form of certain exosome-based constructs from which product candidates can be derived. As such, the Company had treated the Research License Promise and Research Services Promise as a combined performance obligation. Each of the material right promises had been deemed a distinct performance obligation due to their nature as specified in ASC 606. Therefore, the Company had identified the following six performance obligations in connection with its obligations under the Sarepta Research Agreement:
At inception of the Sarepta Research Agreement, the Company determined that the aggregate transaction price totaled approximately $
The Company allocated the transaction price to each of the identified performance obligations on a relative standalone selling price basis, or in the case of variable consideration, to one or more specific performance obligations. The Company determined the standalone selling prices for each of the performance obligations included in the Sarepta Research Agreement considering relevant market conditions, entity-specific factors and information about the customer, while maximizing the use of available observable inputs.
27
PERFORMANCE OBLIGATION |
|
ALLOCATED TRANSACTION PRICE |
|
|||
Research License and Services Performance Obligation |
|
$ |
|
|||
Material Right Performance Obligation: Research Target #1 |
|
|
|
|||
Material Right Performance Obligation: Research Target #2 |
|
|
|
|||
Material Right Performance Obligation: Research Target #3 |
|
|
|
|||
Material Right Performance Obligation: Research Target #4 |
|
|
|
|||
Material Right Performance Obligation: Research Target #5 |
|
|
|
|||
Transaction Price |
|
$ |
|
The standalone selling price for the Research License and Services Performance Obligation was estimated primarily using an expected cost-plus margin approach. The cost-plus margin approach utilized in deriving the estimated standalone selling price was based on the estimate of the overall effort to perform the underlying Research Plan and an estimated market rate for the associated services. The Company determined that the standalone selling price for each of the Material Right Performance Obligations is the same across all targets. The Company considered factors such as the early stage of development, license rights and likelihood of exercise.
Amounts allocated to the Research License and Services Performance Obligation are recognized as revenue over time commensurate with the term of the Research Plan using a proportional performance model which depicts the Company’s performance in transferring control to the customer. The Company has concluded that it will utilize a cost-based input method to measure progress because such method best reflects the satisfaction of the performance obligation as the underlying services are provided. In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to the budgeted costs to complete the research program. These costs consist primarily of internal full-time equivalent effort and third-party costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgement is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the program will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods. As of September 30, 2021, there were no significant change in the Company’s assumptions or estimates related to the costs to complete. Amounts allocated to the Research License and Services Performance Obligation will be recognized over the term of the Research Plan. Amounts allocated to each of the Material Right Performance Obligations will be recognized as revenue upon the earlier of when: (i) the option is exercised wherein the future goods and/or services are transferred or (ii) the option expires. As of September 30, 2021, all of the material rights are outstanding as
The aggregate amount of the transaction price allocated to the Research License and Services Performance Obligation that was unsatisfied, as of September 30, 2021 was $
During the three and nine months ended September 30, 2021, the Company recognized $
28
12. Other significant agreements
MDACC sponsored research agreement
In November 2015, the Company entered into the MDACC Research Agreement with MDACC. Under the MDACC Research Agreement, the Company engaged MDACC to perform research and development services relating to its technology on patients suffering with cancer (the Research Program). MDACC was obligated to use reasonable efforts to conduct the Research Program and furnish the facilities necessary to carry out the program. The Research Program allowed for amendments from time to time during the term, by agreement of the parties, to modify the current Research Program or to add additional research projects for inclusion as part of the Research Program. The MDACC Research Agreement provided the Company with an option to negotiate a license to certain other technology derived from the program in the field of exosome technology. The term of the MDACC Research Agreement was originally scheduled to expire in November 2018. The MDACC Research Agreement was subsequently amended in February 2017 and in April 2018 to extend the term of the MDACC Research Agreement to
Under the terms of the MDACC Research Agreement, the Company was obligated to pay fixed tiered quarterly cash payments (the Quarterly Payments) and to issue a fixed number of shares of its Series A Preferred Stock or Series B Preferred Stock to MDACC in consideration for the research services. The Quarterly Payments consisted of the following: (i) direct expenses comprising $
MDACC in-license agreement
In November 2015, the Company entered into a Patent and Technology License Agreement with MDACC, as amended in April 2018 (the MDACC License Agreement). Pursuant to the MDACC License Agreement, the Company holds exclusive worldwide license rights to certain intellectual property relating to the use of exosomes for diagnostic and therapeutic applications and a non-exclusive worldwide license under certain related technologies, with the right to grant sublicenses. The Company also obtained the exclusive right of first negotiation, for a specified time period, for a license to certain of MDACC’s rights in future exosome technology.
Under the terms of the MDACC License Agreement, the Company is responsible for all patent costs incurred by MDACC for the underlying licensed technology in excess of $
Pursuant to the MDACC License Agreement, the Company is also required to make future payments to MDACC upon the occurrence of events related to the development of products and upon the achievement of certain development and regulatory approval milestones up to an aggregate of $
29
The MDACC License Agreement will continue until the last to occur of: (i) the expiration of all patents issued underlying the licenses conveyed, (ii) the cancellation, withdrawal or express abandonment of all patent rights underlying the licenses conveyed or (iii) the fifteenth anniversary of the effective date of the agreement. Upon expiration of the MDACC License Agreement, the licenses granted will automatically convert to a fully-paid irrevocable and perpetual license. The Company may terminate the license for convenience upon
As of September 30, 2021,
Kayla Therapeutics S.A.S license agreement
On November 6, 2018, the Company entered into a License Agreement with Kayla, pursuant to which it obtained a co-exclusive worldwide, sublicensable license under certain patent rights and to related know-how and methods to research, develop, manufacture and commercialize compounds and products covered by such patent rights in all diagnostic, prophylactic and therapeutic uses (the Kayla License Agreement). The foregoing license is co-exclusive with Kayla, but Kayla’s retained rights are subject to certain restrictions.
During the first 6 years following the effective date of the Kayla License Agreement, Kayla and its affiliates may not research, develop, manufacture or commercialize anywhere in the world any product containing a small molecule STING agonist and an exosome. In addition, during the term of the Kayla License Agreement, Kayla and its affiliates may not grant a license to any third party under the licensed patent rights to, develop, manufacture or commercialize anywhere in the world a product containing certain STING compounds for therapeutic or veterinary purpose. The Kayla License Agreement also restricts the Company from developing any competing product containing a small molecule STING agonist and an exosome until the expiration of a non-compete period determined by the achievement of clinical milestones.
Pursuant to ASC 730, the Company determined that the assets acquired represent in-process research and development with no alternative future use. Therefore, the value of the consideration given for the licenses was expensed to acquired in-process research and development in the period in which it was incurred.
In consideration for entering into the Kayla License Agreement, the Company paid an up-front payment of $
The Company has certain diligence obligations under the Kayla License Agreement, which include using commercially reasonable efforts to develop, commercialize and market the products developed under the licensed patent rights, including using commercially reasonable efforts to initiate a cohort extension of a Phase 1/2 trial after obtaining IND approval. The Company is also obligated to pay up to $
The Company is obligated to pay to Kayla tiered royalties ranging from low single-digits to mid-single-digits based on annual net sales by the Company, its affiliates and its sublicensees of licensed products. The royalty term is determined on a product-by-product and country-by-country basis and continues until the later of (i) the expiration of the
30
last valid claim of the licensed patent rights that covers such product in such country, (ii) the loss or expiration of any period of marketing exclusivity for such product in such country, or (iii)
13. Net loss per share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data):
|
|
THREE MONTHS ENDED |
|
|
NINE MONTHS ENDED |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Cumulative dividends on redeemable convertible preferred stock |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net loss attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding, basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to common stockholders, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following common stock equivalents, 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 been anti-dilutive:
|
|
THREE MONTHS ENDED |
|
|
NINE MONTHS ENDED |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Series A redeemable convertible preferred stock |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Series B redeemable convertible preferred stock |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Series C redeemable convertible preferred stock |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Outstanding stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
31
14. Subsequent events
On November 1, 2021, the Company and Lonza entered into an Asset Purchase Agreement (the “APA”) pursuant to which to Lonza will acquire the Company’s exosome manufacturing facility and related assets, and sublease the premises, located at 4 Hartwell Place, Lexington, MA. As consideration for the asset purchase, the Company shall receive approximately $
In connection with, and as consideration for the APA, at the Closing, the Company and Lonza shall enter into a Manufacturing Services Agreement (the “MSA”). Pursuant to the MSA, Lonza will become the exclusive manufacturing partner for future clinical and commercial manufacturing of the Company’s exosome products pipeline.
In connection with, and at the Closing, the Company and Lonza shall enter into a Licensing and Collaboration Agreement (the “License”). Pursuant to the License, the Company shall grant Lonza a worldwide, exclusive and sub-licensable license to the Company’s high-throughput exosome manufacturing intellectual property in the contract development and manufacturing field. Pursuant to the License, the Company is eligible to receive from Lonza a double-digit percentage of future sublicensing revenues. The Company shall retain its pipeline of therapeutic candidates and core exosome engineering, drug-loading expertise and related intellectual property. The companies will collaborate to establish a joint Center of Excellence for further development of exosome manufacturing technology, with a shared oversight committee. The Center of Excellence will leverage the strengths of both companies to pursue developments in exosome production, purification and analytics.
32
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2021, or the Quarterly Report, and our consolidated financial statements and related notes and other financial information in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, such as statements regarding our plans, objectives, expectations, intentions, and projections, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the ‘‘Risk Factors’’ section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company focused on pioneering the development of exosome-based therapeutics, a new class of medicines with the potential to transform the treatment of a wide spectrum of diseases with high unmet medical need. Exosomes have evolved as intercellular transfer mechanisms for complex, biologically active macromolecules and have emerged in recent years as a compelling potential drug delivery vehicle. By leveraging our deep understanding of exosome biology, we have developed our engineering and manufacturing platform, or engEx Platform, to expand upon the innate properties of exosomes to design, engineer and manufacture novel exosome therapeutics. We have utilized our engEx Platform to generate a deep pipeline of engineered exosomes, or engEx exosomes, aimed at treating a broad range of diseases, including oncology, neuro-oncology, and infectious disease and rare disease.
In September 2020, we initiated clinical trials for our lead engEx product candidates, exoSTING and exoIL-12, which are being developed to address solid tumors. To our knowledge, exoSTING and exoIL-12 are the first engineered exosomes to enter clinical development. In December 2020 and February 2021, we reported positive results from Part A of our Phase 1 clinical trial of exoIL-12 in healthy human volunteers. In this randomized, placebo controlled, double-blind study, exoIL-12 demonstrated a favorable safety and tolerability profile, with no local or systemic treatment-related adverse events and no detectable systemic exposure of IL-12. Results also confirmed retention of IL-12 at the injection site and prolonged pharmacodynamic effects. These results in healthy volunteers, which are consistent with our preclinical observations, provide validation of our engEx Platform and one of the founding principles of Codiak—that engineered exosomes can offer the opportunity to tailor therapeutic payloads to provide an active biological response while at the same time limiting unwanted side effects. We also have multiple preclinical and discovery programs of our engEx exosomes that we are or have previously been advancing either independently or through our strategic collaborations with Jazz Pharmaceuticals Ireland Limited, or Jazz, and Sarepta Therapeutics, Inc., or Sarepta.
On October 1, 2021, Sarepta notified us that it was terminating early the two-year Research License and Option Agreement, effective June 17, 2020, between Sarepta and us. The termination will be effective as of December 3, 2021.
On November 1, 2021, the Company and Lonza entered into an Asset Purchase Agreement (the “APA”) pursuant to which to Lonza will acquire the Company’s exosome manufacturing facility and related assets, and sublease the premises, located at 4 Hartwell Place, Lexington, MA. As consideration for the asset purchase, the Company shall receive approximately $65.0 million worth of exosome manufacturing services for its clinical programs for four years. The closing is expected to occur within two weeks of the execution of the APA (the “Closing”). At the Closing, it is expected that certain specialized manufacturing and quality personnel of the Company will become employees of Lonza.
In connection with, and as consideration for the APA, at the Closing, the Company and Lonza shall enter into a Manufacturing Services Agreement (the “MSA”). Pursuant to the MSA, Lonza will become the exclusive manufacturing partner for future clinical and commercial manufacturing of the Company’s exosome products pipeline.
In connection with, and at the Closing, the Company and Lonza shall enter into a Licensing and Collaboration Agreement (the “License”). Pursuant to the License, the Company shall grant Lonza a worldwide, exclusive and sub-licensable license to the Company’s high-throughput exosome manufacturing intellectual property in the contract development and manufacturing field. Pursuant to the License, the Company is eligible to receive from Lonza a double-digit percentage of future sublicensing revenues. The Company shall retain its pipeline of therapeutic candidates and core exosome engineering, drug-loading expertise and related intellectual property. The companies will collaborate to establish a joint Center of Excellence for further development of exosome manufacturing technology, with a shared oversight committee. The Center of Excellence will leverage the strengths of both companies to pursue developments in exosome production, purification and analytics.
33
We were incorporated and commenced operations in 2015. Since inception, we have devoted substantially all of our resources to developing our engEx Platform, our engEx product candidates and engEx exosomes, clinical and preclinical candidates; building our intellectual property portfolio, process development and manufacturing function; business planning; raising capital and providing general and administrative support for these operations. To date, we have financed our operations primarily with proceeds from sales of our common stock and redeemable convertible preferred stock, and our term loan facility with Hercules Capital, Inc., or Hercules, and our collaborations with Jazz and Sarepta. As of September 30, 2021, we raised an aggregate of $168.2 million through the issuance of our redeemable convertible preferred stock, net of issuance costs, $24.6 million from our term loan facility with Hercules, net of issuance costs, and received $66.0 million in payments from our collaborations with Jazz and Sarepta. On October 16, 2020, we completed our initial public offering, or IPO, pursuant to which we issued and sold 5,500,000 shares of our common stock at a public offering price of $15.00 per share, resulting in net proceeds of $74.4 million, after deducting underwriting discounts and commissions and other offering expenses. On February 17, 2021, we completed a follow-on public offering, pursuant to which we issued and sold 3,162,500 shares of our common stock (inclusive of the exercise of the underwriter’s option to purchase 412,500 additional shares of common stock) at a public offering price of $21.00 per share, resulting in aggregate net proceeds of $61.7 million, after deducting underwriting discounts and commissions and other offering expenses.
We have not generated any revenue from product sales and do not expect to do so for several years, and may never do so. We advanced our first two engEx product candidates, exoSTING and exoIL-12, into clinical trials in September 2020. All of our other engEx exosomes are still in preclinical development. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our engEx product candidates. Since our inception, we have incurred significant losses, including net losses of $91.7 million and $78.0 million for the years ended December 31, 2020 and 2019, respectively. During the nine months ended September 30, 2021, we incurred a net loss of $53.8 million. As of September 30, 2021, we had an accumulated deficit of $341.9 million. We expect to incur substantial additional losses in the future as we expand our research and development activities. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:
We do not anticipate generating revenue from product sales for the foreseeable future, if ever, unless and until we successfully complete clinical development and obtain marketing approvals for our engEx product candidates. In addition, if we obtain marketing approval for any of our engEx product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
34
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our engEx product candidates or delay our pursuit of potential in-licenses or acquisitions.
Further, business interruptions resulting from the COVID-19 pandemic or similar public health crises could cause a significant disruption in the development of our engEx product candidates and our business operations. Securing the necessary approvals for new drugs requires the expenditure of substantial time and resources and any delay or failure to obtain such approvals could materially adversely affect our development efforts. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
We expect that our existing cash and cash equivalents as of September 30, 2021 of $98.6 million will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect. Our future viability beyond the next 12 months is dependent on our ability to raise additional capital to fund our operations during that time frame. See ‘‘—Liquidity and capital resources’’ for further information.
Financial operations overview
Revenue
We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for several years, if at all. If our development efforts for our current or future engEx product candidates are successful and result in marketing approval or additional collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from current or additional collaboration or license agreements.
In January 2019, we entered into a Collaboration and License Agreement with Jazz, pursuant to which we granted Jazz an exclusive, worldwide, royalty-bearing license to use our engEx Platform for the purposes of developing, manufacturing and commercializing exosome therapeutic candidates directed at up to five targets. In April 2021, we and Jazz mutually agreed to discontinue our work on STAT3, one of five oncogene targets subject to the Collaboration and License Agreement. On June 30, 2021, Jazz formally nominated the fifth collaboration target, ahead of the contractual deadline of July 2, 2021. In June 2020, we entered into a Research License and Option Agreement with Sarepta, pursuant to which we received funding to conduct collaborative research, and provided Sarepta with options to obtain exclusive licenses for exosome therapeutic candidates directed at up to five targets. On October 1, 2021, Sarepta notified us that it was terminating early the two-year Research License and Option Agreement, effective June 17, 2020, between Sarepta and us. The termination will be effective as of December 3, 2021. In the future, we expect substantially all of our revenue to be generated from our collaboration with Jazz and any other collaboration and license agreements we may enter into going forward.
During the three and nine months ended September 30, 2021, we recognized of $0.1 million and $11.2 million of revenue, respectively, under to our Collaboration and License Agreement with Jazz. During the three and nine months ended September 30, 2020, we recognized $0.2 million and $0.5 million of revenue, respectively, under our Collaboration and License Agreement with Jazz. As of September 30, 2021 and December 31, 2020, we had $43.7 million and $55.0 million, respectively, of deferred revenue with respect to our Collaboration and License Agreement with Jazz. During the three and nine months ended September 30, 2021, we recognized $1.0 million and $4.0 million of revenue related to the Sarepta Research Agreement. During the three and nine months ended September 30, 2020, the Company recognized $0.8 million under the Sarepta Research Agreement. As of September 30, 2021 and December 31, 2020, we had $7.0 million and $7.7 million of deferred revenue in connection with the Research License and Option Agreement with Sarepta.
35
Operating expenses
Research and development expense
The nature of our business and primary focus of our activities generate a significant amount of research and development costs. Research and development expenses represent costs incurred by us for the following:
The costs above comprise the following categories:
Our primary focus of research and development since inception has been the development of our engEx Platform and our pipeline of engEx product candidates, including our initial product candidates, exoSTING and exoIL-12, and discovery programs. Our research and development costs consist of personnel costs, external costs, such as fees paid to CMOs, CROs, and consultants in connection with our clinical and preclinical studies and experiments, and other internal costs, including rent, depreciation, and other miscellaneous costs. We do not allocate employee-related costs and other internal costs to specific research and development programs because these costs are used across all programs under development. We present external research and development costs for any individual engEx product candidate when we advance that product candidate into clinical trials. As exoSTING and exoIL-12 entered clinical trials in September 2020, we have presented our research and development costs for exoSTING and exoIL-12 below.
The following table reflects our research and development expenses for each period presented:
|
|
THREE MONTHS ENDED |
|
|
NINE MONTHS ENDED |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
|
(In thousands) |
|
|||||||||||||
exoSTING |
|
$ |
1,370 |
|
|
$ |
18,676 |
|
|
$ |
3,534 |
|
|
$ |
21,365 |
|
exoIL-12 |
|
|
599 |
|
|
|
430 |
|
|
|
1,978 |
|
|
|
2,935 |
|
engEx Platform |
|
|
3,404 |
|
|
|
3,123 |
|
|
|
12,112 |
|
|
|
11,738 |
|
Personnel-related (including stock-based compensation) |
|
|
6,874 |
|
|
|
5,635 |
|
|
|
20,091 |
|
|
|
16,242 |
|
Other research and development expenses |
|
|
3,220 |
|
|
|
2,776 |
|
|
|
9,721 |
|
|
|
8,373 |
|
Total research and development expenses |
|
$ |
15,467 |
|
|
$ |
30,640 |
|
|
$ |
47,436 |
|
|
$ |
60,653 |
|
36
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we conduct clinical trials for our lead engEx product candidates, exoSTING and exoIL-12, continue to discover and develop additional engEx product candidates, continue to invest in manufacturing technologies, enhance our engEx Platform, expand into additional therapeutic areas and incur expenses associated with hiring additional personnel to support our research and development efforts.
At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our engEx product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our engEx product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:
A change in any of these variables with respect to the development of any of our engEx product candidates would significantly change the costs, timing and viability associated with the development of that engEx product candidate.
General and administrative expense
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. These costs relate to the operation of the business unrelated to the research and development function or any individual program.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our engEX product candidates, if approved. We also expect to continue to incur increased expenses associated with being a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs. We also expect to incur additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities.
37
Interest income
Interest income consists of interest income earned from our cash, cash equivalents and investments.
Interest expense
Interest expense consists of interest expense incurred from our term loan facility with Hercules.
Other income
Other income primarily consists of the sublease income under the sublease of a portion of our 35 CambridgePark Drive office and laboratory space that commenced in May 2020.
Income taxes
Since our inception in 2015, we have not recorded any US federal or state income tax benefits for the net losses we have incurred in each year or our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2020, we had federal and state net operating loss carryforwards of $137.6 million and $138.1 million, respectively, which may be available to offset future taxable income. During the year ended December 31, 2020, we generated a federal net operating loss of $101.2 million, which has an indefinite carryforward period. The remaining $36.4 million of federal net operating loss carryforwards and our state net operating loss carryforwards as of December 31, 2020 would begin to expire in 2035. As of December 31, 2020, we also had federal and state research and development tax credit carryforwards of $8.3 million and $3.9 million, respectively, which may be available to offset future income tax liabilities and which would begin to expire in 2035 and 2031, respectively. During the three and nine months ended September 30, 2020, the Company recorded no income tax benefits for the net operating losses incurred or research and development tax credits earned in each interim period due to its uncertainty of realizing a benefit from those items.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017, or the TCJA. Corporate taxpayers may carryback NOLs originating during 2018 through 2020 for up to five years, which was not previously allowed under the TCJA. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the TCJA) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the TCJA.
In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any adjustments to our income tax provision for the three and nine months ended September 30, 2021, or net deferred tax assets as of September 30, 2021 since we have not recorded any US federal or state income tax benefits for the net losses incurred in any period due to our uncertainty of realizing a benefit from those items.
38
Results of operations
The following table summarizes our condensed consolidated statements of operations for each period presented (in thousands):
|
|
THREE MONTHS ENDED |
|
|
NINE MONTHS ENDED |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Collaboration revenue |
|
$ |
1,157 |
|
|
$ |
954 |
|
|
$ |
15,238 |
|
|
$ |
1,275 |
|
Total revenue |
|
|
1,157 |
|
|
|
954 |
|
|
|
15,238 |
|
|
|
1,275 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
15,467 |
|
|
|
30,640 |
|
|
|
47,436 |
|
|
|
60,653 |
|
General and administrative |
|
|
7,186 |
|
|
|
5,342 |
|
|
|
20,711 |
|
|
|
13,933 |
|
Total operating expenses |
|
|
22,653 |
|
|
|
35,982 |
|
|
|
68,147 |
|
|
|
74,586 |
|
Loss from operations |
|
|
(21,496 |
) |
|
|
(35,028 |
) |
|
|
(52,909 |
) |
|
|
(73,311 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
(689 |
) |
|
|
(607 |
) |
|
|
(2,091 |
) |
|
|
(1,196 |
) |
Interest income |
|
|
4 |
|
|
|
4 |
|
|
|
18 |
|
|
|
246 |
|
Other income |
|
|
479 |
|
|
|
338 |
|
|
|
1,163 |
|
|
|
553 |
|
Total other expense, net |
|
|
(206 |
) |
|
|
(265 |
) |
|
|
(910 |
) |
|
|
(397 |
) |
Net loss |
|
$ |
(21,702 |
) |
|
$ |
(35,293 |
) |
|
$ |
(53,819 |
) |
|
$ |
(73,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of the three months ended September 30, 2021 and 2020
Collaboration revenue
Collaboration revenue increased by $0.2 million from $1.0 million for the three months ended September 30, 2020 to $1.2 million for the three months ended September 30, 2021. This increase is the result of $0.3 million of additional revenue recognized during the three months ended September 30, 2021 when compared to the same period in 2020, under the now-terminated Research License and Option Agreement with Sarepta. The increase in Sarepta revenue recognized during the three months ended September 30, 2021, when compared to the same period in the previous year, is the result of an increase in program activity during the three months ended September 30, 2021, as the Sarepta Research License and Option Agreement started in July 2020. The increase in Collaboration revenue driven by Sarepta, was partly offset by a less than $0.1 million decrease in revenue of recognized under the Jazz Collaboration Agreement during the three months ended September 30, 2021, when compared to the three months ended September 30, 2020.
Research and development expense
The following table summarizes our research and development expenses for the three months ended September 30, 2021 and 2020, along with the changes in those items (in thousands):
|
|
THREE MONTHS ENDED |
|
|
ABSOLUTE INCREASE |
|
|
PERCENTAGE INCREASE |
|
|||||||
|
|
2021 |
|
|
2020 |
|
|
(DECREASE) |
|
|
(DECREASE) |
|
||||
exoSTING |
|
$ |
1,370 |
|
|
$ |
18,676 |
|
|
$ |
(17,306 |
) |
|
|
-93 |
% |
exoIL-12 |
|
|
599 |
|
|
|
430 |
|
|
|
169 |
|
|
|
39 |
% |
engEx Platform |
|
|
3,404 |
|
|
|
3,123 |
|
|
|
281 |
|
|
|
9 |
% |
Personnel-related (including stock-based compensation) |
|
|
6,874 |
|
|
|
5,635 |
|
|
|
1,239 |
|
|
|
22 |
% |
Other research and development expenses |
|
|
3,220 |
|
|
|
2,776 |
|
|
|
444 |
|
|
|
16 |
% |
Total research and development expenses |
|
$ |
15,467 |
|
|
$ |
30,640 |
|
|
$ |
(15,173 |
) |
|
|
|
Research and development expenses decreased $15.2 million from $30.6 million for the three months ended September 30, 2020 to $15.5 million for the three months ended September 30, 2021.
The decrease in research and development expenses was primarily attributable to the following:
39
General and administrative expense
The following table summarizes our general and administrative expenses for the three months ended September 30, 2021 and 2020, along with the changes in those items (in thousands):
|
|
THREE MONTHS ENDED |
|
|
ABSOLUTE INCREASE |
|
|
PERCENTAGE INCREASE |
|
|||||||
|
|
2021 |
|
|
2020 |
|
|
(DECREASE) |
|
|
(DECREASE) |
|
||||
Professional fees |
|
$ |
1,476 |
|
|
$ |
1,776 |
|
|
$ |
(300 |
) |
|
|
-17 |
% |
Personnel-related (including stock-based compensation) |
|
|
3,751 |
|
|
|
2,811 |
|
|
|
940 |
|
|
|
33 |
% |
Facility-related and other general and administrative expenses |
|
|
1,959 |
|
|
|
755 |
|
|
|
1,204 |
|
|
|
159 |
% |
Total general and administrative expenses |
|
$ |
7,186 |
|
|
$ |
5,342 |
|
|
$ |
1,844 |
|
|
|
|
General and administrative expenses increased $1.8 million from $5.3 million for the three months ended September 30, 2020 to $7.2 million for the three months ended September 30, 2021.
The increase in general and administrative expenses was primarily attributable to the following:
Interest income
There was an immaterial change of less than $0.1 million in interest income between the three months ended September 30, 2020 and the three months ended September 30, 2021. All of our investments were matured as of April 2020. As of September 30, 2021, we did not hold any investments.
Interest expense
Interest expense increased $0.1 million from $0.6 million for the three months ended September 30, 2020 to $0.7 million for three months ended September 30, 2021. The increase was driven by an additional draw down of $15.0 million in July 2020 under our term loan facility with Hercules.
Other income
Other income increased by $0.1 million from $0.3 million for the three months ended September 30, 2020 to $0.5 million for three months ended September 30, 2021. The increase in other income was driven by the annual increase in base rent received from our sublease beginning in the second quarter of 2021.
40
Comparison of the nine months ended September 30, 2021 and 2020
Collaboration revenue
Collaboration revenue increased by $14.0 million from $1.3 million for the nine months ended September 30, 2020 to $15.2 million for the nine months ended September 30, 2021. This increase was primarily due to our mutual decision with Jazz to discontinue our work on STAT3, one of five oncogene targets subject in our Collaboration and License Agreement with Jazz, during the first quarter of 2021. The Company recognized the remaining $10.9 million in deferred revenue allocated to this target as revenue during the three months ended March 31, 2021. Total revenue recognized under the Jazz Collaboration Agreement increased by $10.7 million when compared to the nine months ended September 30, 2020. Revenue recognized under our Sarepta Research License and Option Agreement increased by $3.2 million between the nine months ended September 30, 2020, and the nine months ended September 30, 2021 due to increased research activity. There was $0.8 million of revenue recognized under the now-terminated Sarepta Research License and Option Agreement during the nine months ended September 2020.
Research and development expense
The following table summarizes our research and development expenses for the nine months ended September 30, 2021 and 2020, along with the changes in those items (in thousands):
|
|
NINE MONTHS ENDED |
|
|
ABSOLUTE INCREASE |
|
|
PERCENTAGE INCREASE |
|
|||||||
|
|
2021 |
|
|
2020 |
|
|
(DECREASE) |
|
|
(DECREASE) |
|
||||
exoSTING |
|
$ |
3,534 |
|
|
$ |
21,365 |
|
|
$ |
(17,831 |
) |
|
|
-83 |
% |
exoIL-12 |
|
|
1,978 |
|
|
|
2,935 |
|
|
|
(957 |
) |
|
|
-33 |
% |
engEx Platform |
|
|
12,112 |
|
|
|
11,738 |
|
|
|
374 |
|
|
|
3 |
% |
Personnel-related (including stock-based compensation) |
|
|
20,091 |
|
|
|
16,242 |
|
|
|
3,849 |
|
|
|
24 |
% |
Other research and development expenses |
|
|
9,721 |
|
|
|
8,373 |
|
|
|
1,348 |
|
|
|
16 |
% |
Total research and development expenses |
|
$ |
47,436 |
|
|
$ |
60,653 |
|
|
$ |
(13,217 |
) |
|
|
|
Research and development expenses decreased $13.2 million from $60.7 million for nine months ended September 30, 2020 to $47.4 million for the nine months ended September 30, 2021.
The decrease in research and development expenses was primarily attributable to the following:
General and administrative expense
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2021 and 2020, along with the changes in those items (in thousands):
|
|
NINE MONTHS ENDED |
|
|
ABSOLUTE INCREASE |
|
|
PERCENTAGE INCREASE |
|
|||||||
|
|
2021 |
|
|
2020 |
|
|
(DECREASE) |
|
|
(DECREASE) |
|
||||
Professional fees |
|
$ |
3,891 |
|
|
$ |
4,087 |
|
|
$ |
(196 |
) |
|
|
-5 |
% |
Personnel-related (including stock-based compensation) |
|
|
10,987 |
|
|
|
7,689 |
|
|
|
3,298 |
|
|
|
43 |
% |
Facility-related and other general and administrative expenses |
|
|
5,833 |
|
|
|
2,157 |
|
|
|
3,676 |
|
|
|
170 |
% |
Total general and administrative expenses |
|
$ |
20,711 |
|
|
$ |
13,933 |
|
|
$ |
6,778 |
|
|
|
|
41
General and administrative expenses increased $6.8 million from $13.9 million for the nine months ended September 30, 2020 to $20.7 million for the nine months ended September 30, 2021.
The increase in general and administrative expenses was primarily attributable to the following:
Interest income
Interest income decreased $0.2 million from $0.2 million for the nine months ended September 30, 2020 to less than $0.1 million for the nine months ended September 30, 2021. The decrease in interest income was primarily driven by the maturity of all our investments in April 2020. As of September 30, 2021, we did not hold any investments.
Interest expense
Interest expense increased $0.9 million from $1.2 million for the nine months ended September 30, 2020 to $2.1 million for the nine months ended September 30, 2021. The increase was driven by an additional draw down of $15.0 million in July 2020 under our term loan facility with Hercules.
Other income
Other income increased by $0.6 million from $0.6 million for the nine months ended September 30, 2020 to $1.2 million for the nine months ended September 30, 2021. The increase in other income was driven by rental income received from our sublease beginning in the second quarter of 2020, partially offset by a reduction in the amortization of purchased premiums and discounts associated with our investments during the nine months ended September 30, 2021, as a result of the maturity of all of our investments in April 2020.
42
Liquidity and capital resources
Sources of liquidity
Since our inception, we have incurred significant losses in each period and on an aggregate basis. We have not yet commercialized any of our engEx product candidates, which are in various phases of early-stage and clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. We have funded our operations through September 30, 2021 with aggregate net proceeds of $168.2 million from sales of our redeemable convertible preferred stock, $24.6 million from our term loan facility with Hercules, net of issuance costs, and $66.0 million received from our collaborations with Jazz and Sarepta. On October 16, 2020, we completed our IPO for net proceeds of $74.4 million, after deducting underwriting discounts and commissions and other offering expenses. On February 17, 2021, we completed a follow-on public offering for net proceeds of $61.7 million, after deducting underwriting discounts and commissions and other offering expenses. As of September 30, 2021, we had cash and cash equivalents of $98.6 million.
Hercules Loan Agreement
On September 30, 2019 (the Closing Date), the Company entered into a Loan and Security Agreement (the Loan Agreement) with Hercules pursuant to which a term loan in an aggregate principal amount of up to $75.0 million (the Term Loan Facility) was made available to the Company in four tranches, subject to certain terms and conditions. Ten million of the first tranche was advanced to the Company on the Closing Date and an additional $15.0 million under the first tranche was drawn down on July 24, 2020. Under the Loan Agreement, there were three additional tranches made available to the Company of $10.0 million (tranche two), $10.0 million (tranche three), and $30.0 million (tranche four). As of September 30, 2021, tranche two and tranche three had expired under the Loan Agreement.
Upon issuance, the initial advance under the first tranche was recorded as a liability with an initial carrying value of $9.5 million, net of debt issuance costs. The July 24, 2020, advance under the first tranche was recorded as a liability with an initial carrying value of $15.0 million. The initial carrying value of all outstanding advances is accreted to the repayment amount, which includes the outstanding principal plus the end of term charge, through interest expense using the effective interest rate method over the term of the loan.
Effective September 17, 2021 (the Amended Closing Date), the Company amended the Loan Agreement with Hercules (the Amended Loan Agreement), increasing the aggregate principal amount available from $75.0 million under the Term Loan Facility to $85.0 million (the Amended Term Loan Facility).
Under the Amended Term Loan Facility, a new third tranche of $10.0 million was established and is available immediately at the Company’s option through December 15, 2021. Tranche four was amended such that the $30.0 million available is now available through the interest only period, subject to future Lender investment Committee Approval. Tranche five of up to $20.0 million was established under the Amended Loan Agreement and is available through September 30, 2023, upon satisfaction of certain clinical milestones. Tranche five is only available in minimum draws of $5.0 million.
Advances under the Amended Term Loan Facility bear interest at a rate equal to the greater of (i) 8.25% plus the Prime Rate (as reported in The Wall Street Journal) less 3.25%, and (ii) 8.25%. The interest only period under the Term Loan Facility was extended from November 1, 2022 to October 1, 2023 under the Amended Term Loan Facility. The Company will now make interest only payments through October 1, 2023. Under the Amended Term Loan Facility, following the interest only period, the Company will repay the principal balance and interest on the advances in equal monthly installments through October 1, 2025, compared to October 1, 2024 under the Term Loan Facility.
The Company may prepay advances under the Amended Loan Agreement, in whole or in part, at any time subject to a prepayment charge (Prepayment Premium) equal to: (i) 2.0% of amounts so prepaid, if such prepayment occurs during the first year following the Amended Closing Date, (ii) 1.5% of the amount so prepaid, if such prepayment occurs during the second year following the Amended Closing Date, or (iii) 1.0% of the amount so prepaid, if such prepayment occurs after the second year following the Amended Closing Date.
Upon prepayment or repayment of all or any of the term loans under the Amended Term Loan Facility, the Company will pay (in addition to any Prepayment Premium) an end of term charge of 5.5% of the aggregate funded amount under the Amended Term Loan Facility. With respect to the first tranche, an end of term charge of $1.4 million will be payable upon any prepayment or repayment.
43
The end of term charge of $1.4 million, or 5.5% of the $25.0 million of principal advanced under the Term Loan Facility, remains payable at the maturity date under the original term Loan Facility of October 1, 2024. To the extent that the Company is provided with additional advances under the Amended Term Loan Facility, the 5.5% end of term charge will be applied to any such additional amounts, payable on October 1, 2025, the amended maturity date of the Amended Term Loan Facility.
The Amended Term Loan Facility remains secured by a lien on substantially all of the Company’s assets, other than the Company’s intellectual property. The Company has agreed not to pledge or grant a security interest on the Company’s intellectual property to any third party. The Term Loan Facility also contains customary covenants and representations, including a liquidity covenant, whereby the Company is obligated to maintain, in an account covered by Hercules’ account control agreement, an amount equal to the lesser of: (i) 110% of the amount of the Company’s obligations under the Term Loan Facility or (ii) the Company’s then-existing cash and cash equivalents; financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.
The events of default under the Amended Loan Agreement include, without limitation, and subject to customary grace periods, the following: (i) any failure by us to make any payments of principal or interest under the Amended Loan Agreement, (ii) any breach or default in the performance of any covenant under the Amended Loan Agreement, (iii) the occurrence of a material adverse effect, (iv) any making of false or misleading representations or warranties in any material respect, (v) our insolvency or bankruptcy, (vi) certain attachments or judgments on our assets, or (vii) the occurrence of any material default under certain of our agreements or obligations involving indebtedness. If an event of default occurs, Hercules is entitled to take enforcement action, including acceleration of amounts due under the Amended Loan Agreement.
Historical cash flows
The following table provides information regarding our cash flows for each period presented:
|
|
NINE MONTHS ENDED |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
|
(In thousands) |
|
|||||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(52,622 |
) |
|
$ |
(29,491 |
) |
Investing activities |
|
|
(2,913 |
) |
|
|
53,172 |
|
Financing activities |
|
|
65,204 |
|
|
|
13,975 |
|
Net increase in cash, cash equivalents and restricted cash |
|
$ |
9,669 |
|
|
$ |
37,656 |
|
|
|
|
|
|
|
|
Operating activities
The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in components of operating assets and liabilities, which are generally attributable to timing of payments, and the related effect on certain account balances, operational and strategic decisions and contracts to which we may be a party.
During the nine months ended September 30, 2021, operating activities used $52.6 million of cash, primarily due to a net loss of $ 53.8 million, partially offset by non-cash charges of, $8.1 million for stock-based compensation, $4.2 million for depreciation and amortization, and $0.4 million for non-cash interest expense. Additionally, changes in our operating assets and liabilities primarily consisted of a $12.0 million decrease in deferred revenue, a $1.3 million net increase in accounts payable and accrued expenses, a $0.7 million decrease in our operating lease right-of-use assets, a $0.7 million net increase in prepaid expenses and other current assets, and a $0.9 million decrease in our operating lease liabilities. The change in our deferred revenue was due to activity under our Collaboration and License Agreement with Jazz.
44
During the nine months ended September 30, 2020, operating activities used $29.5 million of cash, primarily due to a net loss of $73.7 million, partially offset by non-cash charges of $5.0 million for stock-based compensation, $3.1 million for depreciation, $2.7 million for common stock earned by Kayla Therapeutics in connection with our license agreement, and $0.3 million for non-cash interest expense. Additionally, changes in our operating assets and liabilities primarily consisted of a $11.0 million increase in our operating lease liabilities, a $1.0 million decrease related to our operating lease right-of-use assets, a $8.7 million increase in deferred revenue, a $10.5 million net increase in accounts payable and accrued expenses and a $2.1 million net decrease in prepaid expenses and other current assets. The net change in our prepaid expenses, accounts payable and accrued expenses was due to the timing of payments, including a $15.0 million cash milestone payment due to Kayla Therapeutics remaining in accrued expenses as of September 30, 2020. The change in our deferred revenue was due to proceeds from our license and option agreement with Sarepta. The change in our operating lease liabilities and operating lease right-of-use assets were driven by our 4 Hartwell Place and 35 CambridgePark Drive leases and lease incentive payments of $12.9 million received in the nine months ended September 30, 2020.
Investing activities
During the nine months ended September 30, 2021, net cash used in investing activities was $2.9 million for purchases of property and equipment. During the nine months ended September 30, 2020, net cash provided by investing activities was $53.2 million, consisting of maturities of short-term investments of $73.1 million, partially offset by $19.9 million for purchases of property and equipment to outfit our new office, laboratory and manufacturing spaces.
Financing activities
During the nine months ended September 30, 2021, net cash provided by financing activities was $65.2 million, driven by our follow-on public offering, completed on February 17, 2021, resulting in aggregate net proceeds of $61.7 million, and $3.5 million resulting from the proceeds from the exercise of common stock options. During the nine months ended September 30, 2020, net cash provided by financing activities was $14.0 million, consisting of $15.0 million in proceeds from an advance drawn down on our long-term debt, partially offset by $1.2 million paid for IPO costs.
Plan of operation and future funding requirements
We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance our clinical trials of exoSTING and exoIL-12 and our preclinical activities for our engEx development programs. In addition, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.
Based on our current operating plan, we expect our cash and cash equivalents as of September 30, 2021, will enable us to fund our operating expenses and capital expenditure requirements for twelve months following the date of this Quarterly Report on Form 10-Q. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect.
On November 1, 2021, the Company and Lonza entered into an Asset Purchase Agreement (the “APA”) pursuant to which to Lonza will acquire the Company’s exosome manufacturing facility and related assets, and sublease the premises, located at 4 Hartwell Place, Lexington, MA. As consideration for the asset purchase, the Company shall receive approximately $65.0 million worth of exosome manufacturing services for its clinical programs for four years. The closing is expected to occur within two weeks of the execution of the APA (the “Closing”). At the Closing, it is expected that certain specialized manufacturing and quality personnel of the Company will become employees of Lonza.
In connection with, and as consideration for the APA, at the Closing, the Company and Lonza shall enter into a Manufacturing Services Agreement (the “MSA”). Pursuant to the MSA, Lonza will become the exclusive manufacturing partner for future clinical and commercial manufacturing of the Company’s exosome products pipeline.
In connection with, and at the Closing, the Company and Lonza shall enter into a Licensing and Collaboration Agreement (the “License”). Pursuant to the License, the Company shall grant Lonza a worldwide, exclusive and sub-licensable license to the Company’s high-throughput exosome manufacturing intellectual property in the contract development and manufacturing field. Pursuant to the License, the Company is eligible to receive from Lonza a double-digit percentage of future sublicensing revenues. The Company shall retain its pipeline of therapeutic candidates and core exosome engineering, drug-loading expertise and related intellectual property. The companies will collaborate to establish a joint Center of Excellence for further development of exosome manufacturing technology, with a shared oversight committee. The Center of Excellence will leverage the strengths of both companies to pursue developments in exosome production, purification and analytics.
45
Because of the numerous risks and uncertainties associated with the development of our engEx Platform, exoSTING, exoIL-12, exoASO-STAT6 and other engEx development programs, and because the extent to which we may receive payments under our existing collaboration agreements or enter into collaborations with third parties for development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to:
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our engEx product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially result in dilution to the holders of our common stock.
If we raise additional funds through strategic collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.
Commencing on May 18, 2020, we entered into a sublease for 23,280 square feet of our leased space in Cambridge, Massachusetts. The term of the sublease was extended to three years following the sublessee's decision to exercise its option to extend the term for one additional year, effective July 1, 2021. The Company increased the base
46
rent during the option period to reflect a market-based fixed annual rate beginning June 2022. Cash receipts under the sublease are expected to be approximately $1.3 million and $1.8 million for the years ended December 31, 2021, and 2022, respectively, and $0.9 million for the year ended December 31, 2023, excluding reimbursement for a ratable portion of operating expenses. We remain jointly and severally liable under the terms of the head lease and therefore present the cash payments, inclusive of our obligation under the head lease for the subleased premises. As such, operating lease commitments do not include the expected cash receipts under the sublease. The lease term is now expected to end in May 2023.
We have a license agreement with MDACC under which, pursuant to exclusive license rights granted to us under certain patents owned or co-owned by MDACC, we are obligated to pay milestone payments upon the achievement of development and regulatory milestones and the execution of sublicenses for qualifying products covered by rights granted under the agreement. MDACC is eligible to receive, on a product-by-product basis, milestone payments upon the achievement of development and regulatory milestones totaling up to $2.4 million for diagnostic products and up to $9.5 million for therapeutic products. Under this agreement, we may also be obligated to pay royalty payments on commercial products, on a product-by-product basis. Due to the variable and contingent nature of these payments, they are excluded from our contractual obligations as they are not fixed and estimable. We may terminate the license for convenience upon 180 days prior written notice to MDACC. The license automatically terminates upon our bankruptcy, if we challenge the validity or enforceability of any of the licensed patent rights, or our failure to make a number of payments in a timely manner over a specified period of time. Additionally, MDACC may terminate the license for our breach subject to certain specified cure periods.
We have a license agreement with Kayla Therapeutics, pursuant to which we obtained a co-exclusive worldwide, sublicensable license, under certain patent rights and to related know-how and methods to research, develop, manufacture and commercialize compounds and products covered by such patent rights in all diagnostic, prophylactic and therapeutic uses. Such license rights include certain exclusive rights to the STING agonist compound in our exoSTING product candidate. Under the terms of the agreement, we are obligated to use commercially reasonable efforts to develop and commercialize products under the licensed patent rights, and are obligated to pay up to $100.0 million in cash payments and up to $13.0 million payable in shares of our common stock upon the achievement of specified clinical and regulatory milestones. The first milestone was achieved upon the first dosing of exoSTING to the first subject in a Phase 1/2 clinical trial in September 2020. Upon the achievement of the milestone, the Company was obligated to make a nonrefundable payment of $15.0 million in cash and issue 177,318 shares of common stock to Kayla. The common stock was issued as of the date of dosing, and the cash payment of $15.0 million and was paid in October 2020. In addition, we are required to pay Kayla a percentage of the payments that we receive from sublicensees of the rights licensed to us by Kayla, excluding any royalties. The royalty term is determined on a product-by-product and country-by-country basis and continues until the later of (i) the expiration of the last valid claim of the licensed patent rights that covers such product in such country, (ii) the loss or expiration of any period of marketing exclusivity for such product in such country, or (iii) ten years after the first commercial sale of such product in such country; provided that if the royalty is payable when no valid claim covers a given product in a given country, the royalty rate for sales of such product in such country is decreased. We do not include these variable and contingent payments in the consideration of our contractual obligations as they are not fixed and estimable. We may terminate the license agreement on a licensed compound-by-licensed compound basis and on a region-by region basis for any reason upon 30 days prior written notice to Kayla. We or Kayla may terminate the license agreement for the other’s material breach that remains uncured for 60 days after receiving notice thereof.
We have agreements with certain vendors for various services, including services related to preclinical operations and support, for which we are not contractually able to terminate for convenience and avoid any and all future obligations to the vendors. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, we are contractually obligated to make certain payments to vendors, mainly, to reimburse them for their unrecoverable outlays incurred prior to cancellation. The exact amounts of such obligations are dependent on the timing of termination, and the exact terms of the relevant agreement and cannot be reasonably estimated. We do not include these payments in the consideration of our contractual obligations as they are not fixed and estimable.
47
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical accounting policies and significant judgments and estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events. These estimates and judgments, in and of themselves, could materially impact the condensed consolidated financial statements and disclosures based on varying assumptions. The accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 17, 2021, or the Annual Report, are considered by management to be the most important to an understanding of the consolidated financial statements because of their significance to the portrayal of our financial condition and results of operations. There have been no material changes to that information disclosed in our Annual Report during the nine months ended September 30, 2021.
The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results could differ from our estimates.
Emerging growth company and smaller reporting company status
In April 2012, the Jumpstart Our Business Startups Act, or the JOBS Act, was enacted. As an emerging growth company, or EGC, under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to avail ourselves of the exemption regarding the timing of the adoption of accounting standards and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not EGCs.
We will remain classified as an EGC until the earlier of: (i) the last day of our first fiscal year in which we have total annual gross revenues of $1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of our IPO, (iii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years, or (iv) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding equity securities held by non-affiliates.
We are also a “smaller reporting company” and may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recently issued accounting pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.
48
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate fluctuation risk
We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of US interest rates, particularly because our cash equivalents are primarily invested in short-term US Treasury obligations, and our Term Loan Facility bears interest at a variable rate.
Given the short-term nature of the instruments in our portfolio, an immediate change in market interest rates of 100 basis points would not have a material impact on the fair market value of our portfolio or on our financial position or results of operations.
Our Amended Term Loan Facility bears interest at a rate equal to the greater of (i) 8.25% plus the prime rate as reported in the Wall Street Journal less 3.25% and (ii) 8.25%. Accordingly, increases in such prime rate could increase our interest payments under the Term Loan Facility. An increase of 100 basis points in the interest rate of the Term Loan Facility would not have a material impact on our financial position or results of operations.
Foreign currency fluctuation risk
We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.
Inflation fluctuation risk
Inflation generally affects us by increasing our cost of labor. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the three months ended September 30, 2021 or 2020.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Principal Executive Officer (our Chief Executive Officer) and Principal Financial Officer (our Chief Financial Officer, Treasurer), has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, our Principal Executive Officer and Principal Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
49
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently a party to any material legal proceedings. From time to time, we may become involved in other litigation or legal proceedings relating to claims arising from the ordinary course of business.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. Information regarding risks and uncertainties related to our business appears in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission, or the SEC, on March 17, 2021. There have been no material changes from the risk factors previously disclosed in the Annual Report, except as disclosed below. You should carefully consider the risks and uncertainties described in our Annual Report, together with all of the other information contained in this Quarterly Report on Form 10-Q. If any of the risks actually occur, it could harm our business, prospects, operating results and financial condition and future prospects. In such event, the market price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Quarterly Report.
Our use of a third party to manufacture our engEx exosomes may increase the risk that we will not have sufficient quantities when needed or at an acceptable cost.
We have made the strategic decision to outsource all manufacturing of our engEx product candidates and engEx exosomes to Lonza Rockland, Inc. (“Lonza”), pursuant to our Manufacturing Services Agreement (MSA), dated as of November 1, 2021, between us and Lonza.
Except for near term commitments with other CMO suppliers, we intend to rely on Lonza to produce our engEx product candidates and engEx exosomes that are being used in our clinical trials. Should Lonza not meet its obligations under the MSA, we may utilize alternative manufacturers. In so doing, we may incur added costs and delays in identifying and qualifying any such alternative suppliers. Although we expect our agreement with Lonza to close as scheduled, we may be unable to conclude our agreement with Lonza. Because exosome therapeutics are a new modality, there may be unforeseen difficulties in scaling up to commercial quantities and formulation of our product candidates, and the costs of manufacturing could be prohibitive.
We only recently signed our agreement with Lonza, and Lonza does not have prior experience manufacturing our engEx product candidates and engEx exosomes. If Lonza has difficulty or suffers delays in successfully manufacturing material that meets our specifications, it may limit supply of our product candidates and could delay our clinical trials. In some circumstances, we may need to seek alternative suppliers.
Reliance on Lonza and other potential third-party manufacturers entails additional risks, including:
If we do not maintain our key manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing capabilities, which could delay or impair our ability to obtain regulatory approval for our products. If we do find replacement manufacturers, we may not be able to enter into agreements with them on terms and conditions favorable to us and there could be a substantial delay before new facilities could be qualified and registered with the FDA and other foreign regulatory authorities.
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Additionally, if any third-party manufacturer with whom we contract fails to perform its obligations, we may be forced to enter into an agreement with a different manufacturer. In this scenario, our clinical trials supply could be delayed significantly as we establish alternative supply sources. In addition, if we are required to change third-party manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. We may also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product candidate according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new third-party manufacturer could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a third-party manufacturer may possess technology related to the manufacture of our product candidate that such third party owns independently. This would increase our reliance on such third-party manufacturer or require us to obtain a license from such third-party manufacturer in order to have another third party manufacture our product candidates. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials.
If any of our product candidates is approved by any regulatory agency, we intend to utilize Lonza for the commercial production of those products. Should the MSA not close as expected, or should the MSA not continue, we may need to effect arrangements with other third-party contract manufacturers. This process is difficult and time consuming and we may face competition for access to manufacturing facilities as there are a limited number of contract manufacturers operating under cGMPs that are capable of manufacturing our product candidates. Consequently, we may not be able to reach agreement with third-party manufacturers on satisfactory terms, which could delay our commercialization.
Our failure, or the failure of Lonza or other potential third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly affect supplies of our product candidates. The facilities used by our contract manufacturers to manufacture our product candidates must be evaluated by the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMPs. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we may not be able to secure and/or maintain regulatory approval for our product candidates manufactured at these facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA finds deficiencies or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products, if approved.
The FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to confirm compliance with cGMPs.
Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following approval, if obtained.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
None.
Use of Proceeds
On October 13, 2020, the Registration Statement on Form S-1 (File No. 333-248692) for our initial public offering of our common stock was declared effective by the SEC. Shares of our common stock began trading on the Nasdaq Global Market on October 14, 2020.
The underwriters of our initial public offering were Goldman Sachs & Co. LLC, Evercore Group L.L.C., William Blair & Company, L.L.C. and Wedbush Securities Inc. The offering commenced on October 13, 2020 and did not terminate until the sale of all of the shares offered.
We paid to the underwriters of our initial public offering an underwriting discount totaling approximately $5.78 million. In addition, we incurred expenses of approximately $2.37 million which, when added to the underwriting discount, amount to total expenses of approximately $8.15 million. Thus, the net offering proceeds, after deducting underwriting discounts and offering expenses, were approximately $74.4 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10.0% or more of any class of our equity securities or to any other affiliates.
There has been no material change in the planned use of IPO proceeds from that described in the final prospectus filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, dated October 14, 2020.
Issuer Repurchases of Equity Securities
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On November 3, 2021, Jennifer Wheler, M.D., our Chief Medical Officer, separated from the Company, effective as of November 5, 2021. In connection with her departure, Dr. Wheler will receive severance and other separation benefits set forth in the Company’s Executive Severance Plan, a copy of which was attached as Exhibit 10.6 to the Company’s Registration Statement on Form S-1, filed with the SEC on October 7, 2020.
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Item 6. Exhibits.
Exhibit Number |
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Description |
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10.1* |
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31.1* |
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31.2* |
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32.1** |
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101.INS |
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Inline XBRL Instance Document: the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
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Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. |
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* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Codiak BioSciences, Inc. |
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Date: November 4, 2021 |
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By: |
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/s/ Douglas E. Williams |
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Douglas E. Williams, Ph.D. |
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Chief Executive Officer, Director (Principal Executive Officer) |
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Date: November 4, 2021 |
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By: |
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/s/ Linda C. Bain |
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Linda C. Bain |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
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