0001564590-19-018819.txt : 20190513 0001564590-19-018819.hdr.sgml : 20190513 20190513160306 ACCESSION NUMBER: 0001564590-19-018819 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 66 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190513 DATE AS OF CHANGE: 20190513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Homology Medicines, Inc. CENTRAL INDEX KEY: 0001661998 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 473468154 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38433 FILM NUMBER: 19818353 BUSINESS ADDRESS: STREET 1: 45 WIGGINS AVE. CITY: BEDFORD STATE: MA ZIP: 01730 BUSINESS PHONE: 857-305-1825 MAIL ADDRESS: STREET 1: 45 WIGGINS AVE. CITY: BEDFORD STATE: MA ZIP: 01730 10-Q 1 fixx-10q_20190331.htm 10-Q fixx-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

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: 001-38433

 

Homology Medicines, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-3468154

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

One Patriots Park

Bedford, MA

01730

(Address of principal executive offices)

(Zip Code)

 

(781) 301-7277

(Registrant’s telephone number, including area code)

 

N/A

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

 

 

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

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

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

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

FIXX

Nasdaq Global Select Market

 

As of May 6, 2019, the registrant had 43,613,956 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, anticipated timing and likelihood of success of clinical trials, expected timing of the release of clinical trial data, the plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

2


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

4

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (Unaudited)

4

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (Unaudited)

5

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2019 and 2018 (Unaudited)

6

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended March 31, 2019 and 2018 (Unaudited)

7

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (Unaudited)

8

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

 

PART II.

 

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3.

Defaults Upon Senior Securities

74

Item 4.

Mine Safety Disclosures

74

Item 5.

Other Information

74

Item 6.

Exhibits

75

Signatures

76

 

 

 

 

 

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(UNAUDITED)

 

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

(as revised)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,839

 

 

$

38,220

 

Short-term investments

 

 

147,128

 

 

 

176,517

 

Prepaid expenses and other current assets

 

 

2,535

 

 

 

6,948

 

Total current assets

 

 

190,502

 

 

 

221,685

 

Property and equipment, net

 

 

40,984

 

 

 

35,637

 

Deferred offering costs

 

 

266

 

 

 

 

Restricted cash

 

 

1,274

 

 

 

1,772

 

Total assets

 

$

233,026

 

 

$

259,094

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

11,794

 

 

$

15,732

 

Accrued expenses and other liabilities

 

 

3,792

 

 

 

5,040

 

Deferred rent

 

 

1,156

 

 

 

977

 

Deferred revenue

 

 

905

 

 

 

770

 

Total current liabilities

 

 

17,647

 

 

 

22,519

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Deferred rent, net of current portion

 

 

10,592

 

 

 

9,470

 

Deferred revenue, net of current portion

 

 

30,523

 

 

 

30,750

 

Total liabilities

 

 

58,762

 

 

 

62,739

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of

   March 31, 2019 and December 31, 2018; no shares issued and

   outstanding at March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized as of

   March 31, 2019 and December 31, 2018; 37,557,002 and

   37,509,815 shares issued as of March 31, 2019 and December 31, 2018,

   respectively; and 37,437,297 and 37,358,526 shares

   outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

293,865

 

 

 

292,187

 

Accumulated other comprehensive gain (loss)

 

 

6

 

 

 

(77

)

Accumulated deficit

 

 

(119,610

)

 

 

(95,758

)

Total stockholders’ equity

 

 

174,264

 

 

 

196,355

 

Total liabilities and stockholders' equity

 

$

233,026

 

 

$

259,094

 

 

See notes to condensed consolidated financial statements.

 

4


 

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(UNAUDITED)

 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

(as revised)

 

Collaboration revenue

 

$

270

 

 

$

1,129

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

20,536

 

 

 

7,997

 

General and administrative

 

 

4,857

 

 

 

3,828

 

Total operating expenses

 

 

25,393

 

 

 

11,825

 

Loss from operations

 

 

(25,123

)

 

 

(10,696

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

1,271

 

 

 

479

 

Total other income (expense)

 

 

1,271

 

 

 

479

 

Net loss and net loss attributable to common

   stockholders-basic and diluted

 

$

(23,852

)

 

$

(10,217

)

Net loss per share attributable to common

   stockholders-basic and diluted

 

$

(0.64

)

 

$

(4.09

)

Weighted-average common shares outstanding-basic and diluted

 

 

37,384,507

 

 

 

2,500,178

 

 

See notes to condensed consolidated financial statements.

 

5


 

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(UNAUDITED)

 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

(as revised)

 

Net loss

 

$

(23,852

)

 

$

(10,217

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Change in unrealized gain (loss) on available for sale securities, net

 

 

83

 

 

 

(13

)

Total other comprehensive gain (loss)

 

 

83

 

 

 

(13

)

Comprehensive loss

 

$

(23,769

)

 

$

(10,230

)

 

See notes to condensed consolidated financial statements.

 


6


 

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share and per share amounts)

(UNAUDITED)

 

 

 

 

 

Convertible

Preferred Stock

$0.0001 Par Value

 

 

 

Common Stock

$0.0001 Par Value

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Deficit

 

Balance at December 31, 2017

 

 

127,199,705

 

 

$

137,762

 

 

 

 

2,637,011

 

 

$

 

 

$

800

 

 

$

(73

)

 

$

(40,181

)

 

$

(39,454

)

Vesting of common stock from

   option exercises

 

 

 

 

 

 

 

 

 

34,137

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Issuance of common stock from

   option exercises

 

 

 

 

 

 

 

 

 

26,204

 

 

 

 

 

 

69

 

 

 

 

 

 

 

 

 

69

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

380

 

 

 

 

 

 

 

 

 

380

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,217

)

 

 

(10,217

)

Balance at March 31, 2018 (as revised)

 

 

127,199,705

 

 

$

137,762

 

 

 

 

2,697,352

 

 

$

 

 

$

1,265

 

 

$

(86

)

 

$

(50,398

)

 

$

(49,219

)

 

 

 

 

 

Common Stock

$0.0001 Par Value

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018 (as revised)

 

 

37,358,526

 

 

$

3

 

 

$

292,187

 

 

$

(77

)

 

$

(95,758

)

 

$

196,355

 

Vesting of common stock from

   option exercises

 

 

31,584

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Issuance of common stock from

   option exercises

 

 

18,876

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

21

 

Issuance of common stock pursuant to

   employee stock purchase plan

 

 

28,311

 

 

 

 

 

 

396

 

 

 

 

 

 

 

 

 

396

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,243

 

 

 

 

 

 

 

 

 

1,243

 

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

83

 

 

 

 

 

 

83

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,852

)

 

 

(23,852

)

Balance at March 31, 2019

 

 

37,437,297

 

 

$

3

 

 

$

293,865

 

 

$

6

 

 

$

(119,610

)

 

$

174,264

 

 

See notes to condensed consolidated financial statements.

 

 

7


 

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

 

 

 

Three months ended March 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

(as revised)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(23,852

)

 

$

(10,217

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,266

 

 

 

221

 

Stock-based compensation expense

 

 

1,243

 

 

 

380

 

Accretion on short-term investments

 

 

(661

)

 

 

(123

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expense and other current assets

 

 

4,413

 

 

 

(1,728

)

Accounts payable

 

 

(85

)

 

 

511

 

Accrued expenses and other liabilities

 

 

(1,404

)

 

 

(764

)

Deferred revenue

 

 

(92

)

 

 

(463

)

Deferred rent

 

 

1,301

 

 

 

1,139

 

Net cash used in operating activities

 

 

(17,871

)

 

 

(11,044

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(84,467

)

 

 

(18,595

)

Maturities of short-term investments

 

 

114,600

 

 

 

26,270

 

Purchases of property and equipment

 

 

(10,466

)

 

 

(1,035

)

Net cash provided by investing activities

 

 

19,667

 

 

 

6,640

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock from option exercises

 

 

21

 

 

 

69

 

Proceeds from issuance of common stock pursuant to employee stock purchase plan

 

 

396

 

 

 

 

Payment of deferred offering costs

 

 

(92

)

 

 

(1,027

)

Net cash provided by (used in) financing activities

 

 

325

 

 

 

(958

)

Net change in cash, cash equivalents and restricted cash

 

 

2,121

 

 

 

(5,362

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

39,992

 

 

 

53,347

 

Cash, cash equivalents and restricted cash, end of period

 

$

42,113

 

 

$

47,985

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Reclassification of liability for common stock vested

 

$

18

 

 

$

16

 

Property and equipment additions included in accounts payable

 

$

5,274

 

 

$

27

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

174

 

 

$

2,046

 

 

See notes to condensed consolidated financial statements.

 

8


 

HOMOLOGY MEDICINES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(UNAUDITED)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business—Homology Medicines, Inc. (the “Company”) is a pre-clinical stage biopharmaceutical company dedicated to translating proprietary gene editing and gene therapy technology into novel treatments for patients with rare genetic diseases with significant unmet medical needs by curing the underlying cause of the disease. The Company was founded in March 2015 as a Delaware corporation. Its principal offices are in Bedford, Massachusetts.

Since its inception, the Company has devoted substantially all of its resources to recruiting personnel, developing its technology platform and advancing its pipeline of product candidates, developing manufacturing processes, building out manufacturing and research and development space, and maintaining and building its intellectual property portfolio. The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependency on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and clinical manufacturing of its product candidates. The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, obtain regulatory approval of its products, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.

On April 2, 2018, the Company completed its initial public offering (“IPO”) with the sale of 10,350,000 shares of its common stock, including shares issued upon the exercise in full of the underwriters’ over-allotment option, at a public offering price of $16.00 per share, resulting in net proceeds of $150.8 million, after deducting underwriting discounts and commissions and offering expenses. Upon the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock automatically converted into 24,168,656 shares of common stock at the applicable conversion ratio then in effect.

To date, the Company has not generated any revenue from product sales and does not expect to generate any revenue from the sale of product in the foreseeable future. Through March 31, 2019, the Company has financed its operations primarily through the public offering of its common stock, the issuance of convertible preferred stock, and with proceeds from its collaboration and license agreement with Novartis Institutes of BioMedical Research, Inc. (“Novartis”) (see Note 10). During the three months ended March 31, 2019, the Company incurred a net loss of $23.9 million and as of March 31, 2019, has $119.6 million in accumulated deficit. The Company expects to incur additional operating losses and negative operating cash flows for the foreseeable future.

Management believes that existing cash, cash equivalents and short-term investments will allow the Company to continue its operations into the fourth quarter of 2021. In the absence of a significant source of recurring revenue, the continued viability of the Company beyond that point is dependent on its ability to continue to raise additional capital to finance its operations. There can be no assurance that the Company will be able to obtain sufficient capital to cover its costs on acceptable terms, if at all.

Basis of Presentation— The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2018, included in the Company's Annual Report on Form 10-K on file with the SEC.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position as of March 31, 2019, and consolidated results of operations and cash flows for the three months ended March 31, 2019 and 2018, respectively. Such adjustments are of a normal and recurring nature. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.

9


 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation—The Company’s condensed consolidated financial statements include the accounts of the Company and Homology Medicines Securities Corporation, a wholly owned Massachusetts corporation, for the sole purpose of buying, selling, and holding securities on the Company’s behalf. All intercompany balances and transactions have been eliminated in the condensed consolidated financial statements.

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and the disclosure of contingent assets and liabilities as of and during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, revenue recognition, accrued research and development expenses, useful lives assigned to property and equipment, as well as the fair values of common stock, convertible preferred stock and convertible preferred stock tranche liability. The Company assesses estimates on an ongoing basis; however, actual results could materially differ from those estimates.

Comprehensive Income (Loss) —Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s only element of other comprehensive income (loss) is unrealized gains and losses on available-for-sale investments.

Cash and Cash Equivalents and Restricted Cash—Cash and cash equivalents consist of standard checking accounts, money market accounts and certain investments. The Company considers all highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less to be cash equivalents. Restricted cash consists of cash serving as collateral for letters of credit issued for security deposits for the Company’s facility leases in Bedford, Massachusetts.

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the condensed consolidated statements of cash flows:

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

40,839

 

 

$

46,213

 

Restricted cash

 

 

1,274

 

 

 

1,772

 

Total cash, cash equivalents and restricted cash

 

$

42,113

 

 

$

47,985

 

 

Short-Term Investments—Short-term investments represent holdings of available-for-sale marketable securities in accordance with the Company’s investment policy and cash management strategy. Short-term investments mature within one-year from the balance sheet date. Investments in marketable securities are recorded at fair value, with any unrealized gains and losses reported within accumulated other comprehensive income as a separate component of stockholders’ equity (deficit) until realized or until a determination is made that an other-than-temporary decline in market value has occurred. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, together with interest on securities, are included in interest income on the Company’s condensed consolidated statements of operations. The cost of marketable securities sold is determined based on the specific identification method and any realized gains or losses on the sale of investments are reflected as a component of other income (expense), net.

Research and Development Costs—Research and development costs are charged to expense as incurred. Research and development expense consists of expenses incurred in performing research and development activities, including salaries and benefits, materials and supplies, preclinical expenses, stock-based compensation expense, depreciation of equipment, contract services, and other outside expenses.

Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid expense or accrued research and development expense.

Revenue Recognition— In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue (Topic 606): Revenue from Contracts with Customers (“ASU 2014-09”), which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in FASB ASC Topic 605, Revenue Recognition (“ASC 605”), and creates a new Topic 606, Revenue from Contracts with Customers (“ASC 606”). In 2015 and 2016, the FASB issued additional ASUs related to Topic 606 that delayed the effective date of the new

10


 

guidance, clarified certain aspects including principal versus agent considerations, identifying performance obligations, and licensing, and included other improvements and practical expedients. On January 1, 2019, the Company adopted ASC 606 using the full retrospective transition method.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.

The promised good or services in the Company’s arrangements would likely consist of a license, rights to the Company’s intellectual property or research, development and manufacturing services. Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised good or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily available and whether the goods or services are integral or dependent to other goods or services in the contract.

The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of consideration to which the Company expects to be entitled to. The Company utilizes either the most likely amount method or expected value method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration that is included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

The Company’s contracts may include development and regulatory milestone payments that are assessed under the most likely amount method and constrained until it is probable that a significant revenue reversal would not occur. Milestone payments that are not within the Company’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of such development and regulatory milestones and any related constraint, and if necessary, adjust its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenue in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from the Company’s collaboration arrangement.

The Company allocates the transaction price based on the estimated standalone selling price of each performance obligation. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the stand-alone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress for its over-time arrangements at each reporting period and, if necessary, updates the measure of progress and revenue recognized.

11


 

The Company adopted ASC 606 effective January 1, 2019, using the full retrospective transition method. Under this method, the Company revised its condensed consolidated financial statements for prior period amounts as if ASC 606 had been effective for such periods. The references "as revised" used herein refer to revisions of data for the three months ended March 31, 2019 and the year ended December 31, 2018 as a result of the adoption of ASC 606. The adoption of ASC 606 did not have an impact on periods prior to January 1, 2018. In addition to revisions to financial statement amounts and related tables, Note 10 has been revised to reflect the adoption of ASC 606.

As part of the adoption, the Company reviewed its collaboration and license agreement with Novartis to determine the cumulative effect impact related to the adoption of ASC 606. (For a complete discussion of the accounting for the Company’s agreement with Novartis, see Note 10.) The adoption of ASC 606 resulted in a change to the pattern of revenue recognition whereby the Company expects to recognize revenue from its collaboration agreement with Novartis as costs are incurred, which likely will not occur evenly over the performance period as a result of applying the cost-to-cost method, in contrast to recognizing revenue on a straight-line basis over the estimated performance period under ASC 605. The impact on previously reported amounts as a result of the adoption of ASC 606 is as follows:

 

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

(in thousands)

 

 

 

As revised

under ASC 606

 

 

As originally reported

under ASC 605

 

 

Effect

of change

 

Current portion of deferred revenue

 

$

770

 

 

$

3,684

 

 

$

(2,914

)

Long-term portion of deferred revenue

 

$

30,750

 

 

$

29,474

 

 

$

1,276

 

Accumulated deficit

 

$

(95,758

)

 

$

(97,396

)

 

$

1,638

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

 

 

Three Months Ended March 31, 2018

 

 

 

(in thousands, except per share amounts)

 

 

 

As revised

under ASC 606

 

 

As originally reported

under ASC 605

 

 

Effect

of change

 

Collaboration revenue

 

$

1,129

 

 

$

823

 

 

$

306

 

Loss from operations

 

$

(10,696

)

 

$

(11,002

)

 

$

306

 

Net loss

 

$

(10,217

)

 

$

(10,523

)

 

$

306

 

Net loss per share attributable to common

   stockholders-basic and diluted

 

$

(4.09

)

 

$

(4.21

)

 

$

0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31, 2018

 

 

 

(in thousands, except per share amounts)

 

 

 

As revised

under ASC 606

 

 

As originally reported

under ASC 605

 

 

Effect

of change

 

Collaboration revenue

 

$

5,322

 

 

$

3,684

 

 

$

1,638

 

Loss from operations

 

$

(59,926

)

 

$

(61,564

)

 

$

1,638

 

Net loss

 

$

(55,577

)

 

$

(57,215

)

 

$

1,638

 

Net loss per share attributable to common

   stockholders-basic and diluted

 

$

(1.95

)

 

$

(2.00

)

 

$

0.05

 

12


 

 

Condensed Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

(in thousands)

 

 

 

As revised

under ASC 606

 

 

As originally reported

under ASC 605

 

 

Effect

of change

 

Net loss

 

$

(10,217

)

 

$

(10,523

)

 

$

306

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

(463

)

 

$

(157

)

 

$

(306

)

Cash, cash equivalents and restricted cash, beginning of period

 

$

53,347

 

 

$

53,347

 

 

$

 

Cash, cash equivalents and restricted cash, end of period

 

$

47,985

 

 

$

47,985

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31, 2018

 

 

 

(in thousands)

 

 

 

As revised

under ASC 606

 

 

As originally reported

under ASC 605

 

 

Effect

of change

 

Net loss

 

$

(55,577

)

 

$

(57,215

)

 

$

1,638

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

(1,890

)

 

$

(252

)

 

$

(1,638

)

Cash, cash equivalents and restricted cash, beginning of period

 

$

53,347

 

 

$

53,347

 

 

$

 

Cash, cash equivalents and restricted cash, end of period

 

$

39,992

 

 

$

39,992

 

 

$

 

 

Net Loss per Share—Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period and, if dilutive, the weighted-average number of potential shares of common stock.

Diluted net loss per share is computed using the if converted method. The Company allocates earnings first to preferred stockholders based on dividend rights and then to common and preferred stockholders based on ownership interests. The weighted-average number of common shares included in the computation of diluted net loss gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, unvested shares of common stock and convertible preferred stock.

Common stock equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is generally the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Recent Accounting Pronouncements—The Jumpstart Our Business Startups Act of 2012 permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. As an emerging growth company, the Company has elected to take advantage of this extended transition period.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which eliminates the current tests for lease classification under U.S. GAAP and requires lessees to recognize the right-to-use assets and related lease liabilities in the balance sheet. ASU No. 2016-02 is effective for the Company beginning January 1, 2020 with early application permitted. The new standard provides for a modified retrospective application. The Company is evaluating the impact adoption of this standard will have on its condensed consolidated financial statements.

In December 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), which requires that amounts described as restricted cash or cash equivalents must be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted ASU No. 2016-18 on January 1, 2019, and reclassified restricted cash in the condensed consolidated statements of cash flows to be included in cash and cash equivalents. The reclassification was not material to the periods presented.

13


 

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which changes certain aspects of the accounting for share-based payments granted to nonemployees. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. ASU 2018-07 is effective for the Company beginning January 1, 2020. Early application of this standard is permitted however companies may not apply this standard earlier than the application of ASU 2014-09. The Company is evaluating the impact adoption of this standard will have on its condensed consolidated financial statements.

3. SHORT-TERM INVESTMENTS

The Company invests its excess cash in fixed income instruments denominated and payable in U.S. dollars including U.S. treasury securities, commercial paper, corporate debt securities and asset-backed securities in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital.

 

The Company has designated all investments as available-for-sale and therefore such investments are reported at fair value. Unrealized gains or losses on investments are recorded in accumulated other comprehensive income or loss, a component of stockholders’ equity (deficit), on the Company’s condensed consolidated balance sheets.

The following table summarizes the Company’s investments, which are included in cash equivalents and short-term investments:

 

As of March 31, 2019

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Money market mutual funds

 

$

40,291

 

 

$

 

 

$

 

 

$

40,291

 

Asset-backed securities

 

 

18,078

 

 

 

2

 

 

 

(1

)

 

 

18,079

 

Commercial paper

 

 

56,350

 

 

 

 

 

 

 

 

 

56,350

 

Corporate debt securities

 

 

45,887

 

 

 

6

 

 

 

(9

)

 

 

45,884

 

U.S. Treasury securities

 

 

26,876

 

 

 

8

 

 

 

 

 

 

26,884

 

Total

 

$

187,482

 

 

$

16

 

 

$

(10

)

 

$

187,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Money market mutual funds

 

$

31,740

 

 

$

 

 

$

 

 

$

31,740

 

Asset-backed securities

 

 

19,541

 

 

 

 

 

 

(21

)

 

 

19,520

 

Commercial paper

 

 

78,571

 

 

 

 

 

 

 

 

 

78,571

 

Corporate debt securities

 

 

54,511

 

 

 

 

 

 

(50

)

 

 

54,461

 

U.S. Treasury securities

 

 

29,980

 

 

 

 

 

 

(6

)

 

 

29,974

 

Total

 

$

214,343

 

 

$

 

 

$

(77

)

 

$

214,266

 

 

As of March 31, 2019, the Company does not consider those securities that are in an unrealized loss position to be other-than-temporarily impaired, as it has the ability to hold such investments until recovery of the fair value. The Company utilizes the specific identification method in computing realized gains and losses. The Company had no realized gains and losses on its available-for-sale securities for the three months ended March 31, 2019 and 2018. The contractual maturity dates of all of the Company’s investments are less than one year.

 

14


 

4. FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist of cash and cash equivalents, short-term investments, restricted cash and accounts payable. The carrying amount of cash, restricted cash and accounts payable are each considered a reasonable estimate of fair value due to the short-term maturity.

Assets measured at fair value on a recurring basis were as follows:

 

Description

 

March 31,

2019

 

 

Quoted Prices

(Unadjusted) in

Active Markets

for Identical

Assets

(Level 1)

 

 

Significant Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

 

(in thousands)

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market mutual funds

 

$

40,291

 

 

$

40,291

 

 

$

 

 

$

 

U.S. Treasury securities

 

 

69

 

 

 

69

 

 

 

 

 

 

 

Total cash equivalents

 

$

40,360

 

 

$

40,360

 

 

$

 

 

$

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-backed securities

 

$

18,079

 

 

$

 

 

$

18,079

 

 

$

 

Commercial paper

 

 

56,350

 

 

 

 

 

 

56,350

 

 

 

 

Corporate debt securities

 

 

45,884

 

 

 

 

 

 

45,884

 

 

 

 

U.S. Treasury securities

 

 

26,815

 

 

 

 

 

 

26,815

 

 

 

 

Total short-term investments

 

$

147,128

 

 

$

 

 

$

147,128

 

 

$

 

Total financial assets

 

$

187,488

 

 

$

40,360

 

 

$

147,128

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

December 31,

2018

 

 

Quoted Prices

(Unadjusted) in

Active Markets

for Identical

Assets

(Level 1)

 

 

Significant Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

 

(in thousands)

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market mutual funds

 

$

31,740

 

 

$

31,740

 

 

$

 

 

$

 

Commercial paper

 

 

5,974

 

 

 

 

 

 

5,974

 

 

 

 

U.S. Treasury securities

 

 

35

 

 

 

35

 

 

 

 

 

 

 

Total cash equivalents

 

$

37,749

 

 

$

31,775