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As filed with the Securities and Exchange Commission on June 1, 2018

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

TRANSLATE BIO, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   2836   61-1807780

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

29 Hartwell Avenue

Lexington, Massachusetts 02421

(617) 945-7361

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Ronald C. Renaud, Jr.

President and Chief Executive Officer

Translate Bio, Inc.

29 Hartwell Avenue

Lexington, Massachusetts 02421

(617) 945-7361

(Name, address, including zip code, and telephone number, including. area code, of agent for service)

 

Copies to:

 

Susan W. Murley

Cynthia T. Mazareas

Wilmer Cutler Pickering Hale and Dorr LLP

60 State Street

Boston, Massachusetts 02109

(617) 526-6000

 

Paul Burgess

General Counsel

Translate Bio, Inc.

29 Hartwell Avenue

Lexington, Massachusetts 02421

(617) 945-7361

 

Divakar Gupta

Joshua A. Kaufman

Nicole Brookshire

Mark Ballantyne

Cooley LLP

1114 Avenue of the Americas

New York, New York 10036

(212) 479-6000

 

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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   ☒  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided in Section 7(a)(2)(B) of the Securities Act.  ☒

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to Be Registered

 

Proposed Maximum Aggregate

Offering Price(1)

 

Amount of

Registration Fee(2)

Common stock, par value $0.001 per share

  $115,000,000   $14,318

 

 

(1)   Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)   Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price. Includes the offering price of additional shares of common stock that the underwriters have the option to purchase to cover over-allotments, if any.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JUNE 1, 2018

 

PRELIMINARY PROSPECTUS

 

                Shares

 

LOGO

 

Common Stock

 

 

 

This is an initial public offering of common stock by Translate Bio, Inc. We are selling                  shares of common stock. The estimated initial public offering price is between $         and $        per share.

 

We have granted the underwriters an option to purchase up to                  additional shares of common stock to cover over-allotments, if any. We have applied to list our common stock on the Nasdaq Global Market under the symbol “TBIO.”

 

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 13 of this prospectus.

 

We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per share      Total  

Initial public offering price

   $                   $               

Underwriting discounts and commissions(1)

   $      $  

Proceeds to us, before expenses

   $      $  

 

(1)   We refer you to “Underwriting” beginning on page 186 for additional information regarding underwriter compensation.

 

 

 

The underwriters expect to deliver the shares of common stock to purchasers on or about                , 2018.

 

 

 

Citigroup   Leerink Partners   Evercore ISI

 

                , 2018


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TABLE OF CONTENTS

 

Prospectus Summary

     1  

Risk Factors

     13  

Cautionary Note Regarding Forward-Looking Statements and Industry Data

     63  

Use of Proceeds

     65  

Dividend Policy

     67  

Capitalization

     68  

Dilution

     70  

Selected Consolidated Financial Data

     73  

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

     75  

Business

     97  

Management

     146  

Executive Compensation

     152  

Transactions with Related Persons

     166  

Principal Stockholders

     172  

Description of Capital Stock

     175  

Shares Eligible for Future Sale

     179  

Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders of Common Stock

     182  

Underwriting

     186  

Legal Matters

     193  

Experts

     193  

Where You Can Find More Information

     193  

Index to Financial Statements

     F-1  

 

We are responsible for the information contained in this prospectus. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

 

We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

 

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PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes thereto and the information set forth in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Unless the context otherwise requires, we use the terms “company,” “we,” “us” and “our” in this prospectus to refer to Translate Bio, Inc. and our subsidiaries.

 

Overview

 

We are a leading messenger RNA, or mRNA, therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction. Using our proprietary mRNA therapeutic platform, or MRT platform, we create mRNA that encodes functional proteins. We believe that the mRNA design, delivery and manufacturing capabilities of our MRT platform provide us with the most advanced platform for developing product candidates that deliver mRNA encoding functional proteins for therapeutic uses. Our mRNA is delivered to the target cell where the cell’s own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. We believe that our MRT platform is broadly applicable across multiple diseases in which the production of a desirable protein can have a therapeutic effect. We are initially focused on restoring the expression of intracellular and transmembrane proteins, areas that have eluded conventional protein therapeutics, in patients with genetic diseases where there is high unmet medical need. We are developing our lead MRT product candidate for the lung, MRT5005, for the treatment of cystic fibrosis, or CF, for which we initiated a Phase 1/2 clinical trial in May 2018. We are developing our lead MRT product candidate for the liver, MRT5201, for the treatment of ornithine transcarbamylase, or OTC, deficiency, for which we plan to initiate a Phase 1/2 clinical trial in the first half of 2019. We believe that our MRT platform is distinct from other mRNA-based technologies and has the potential to provide clinical benefits by transforming life-threatening illnesses into manageable chronic conditions.

 

mRNA plays a central role in the production of proteins, which are needed to carry out essential cellular functions. mRNA transcribes genetic information encoded in DNA into instructions that are used by cells to produce proteins. mRNA therapy is engineered to deliver mRNA encoding natural, functional proteins that replace defective or missing proteins, and has potential advantages, including that it:

 

   

restores gene expression without entering the cell nucleus or changing the genome;

 

   

enables the treatment of diseases that were previously undruggable by using the cell’s own machinery to produce natural and fully functional proteins;

 

   

has drug-like properties that are familiar to health care providers, including the potential to repeat and adjust dosing in a chronic setting; and

 

   

permits rapid development from target gene selection to product candidate.

 

Our product candidates consist of two major components: the protein-coding mRNA and a delivery vehicle. Once we have established delivery capability to a target tissue, we can design new product candidates that vary only in the mRNA sequence, which we expect will allow for rapid target and development candidate identification. We believe that this will enable our MRT platform to be flexible and scalable as we develop additional product candidates. We engineer our mRNA sequences for enhanced stability and to provide for optimal expression of desired proteins. Our mRNA is manufactured by a proprietary, cell-free, enzyme catalyzed process using structural components that are identical to natural mRNA within the body. We then formulate the

 

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product candidate by packaging our biosynthetic mRNA into proprietary lipid-based nanoparticle, or LNP, delivery vehicles that are optimized for distribution to specific tissues. We are initially focused on the development of product candidates to treat diseases of the lung and liver. We also believe that our platform has the potential to apply across a broad array of diseases and target tissues. In our preclinical studies, we have observed targeted delivery to the eye, central nervous system, or CNS, lymphatic system and circulatory system, as well as the ability of our platform to enable the production of antibodies. Additionally, we have observed significant improvements in mRNA potency and delivery when compared to prior generations of our mRNA technology as well as competing approaches.

 

Our MRT platform has been in development for the past ten years, initially at Shire Human Genetic Therapies, Inc., or Shire, a subsidiary of Shire plc. We acquired the MRT platform from Shire in December 2016 and have dedicated substantial resources to the further development of the platform and product candidates. The scientific founders of the MRT platform who were responsible for the research, development, manufacturing and delivery know-how and intellectual property supporting this platform joined our company as part of the acquisition. We have been building upon Shire’s pioneering work and significant investment by advancing our product candidates towards clinical trials. We believe these efforts have positioned us as a leading company in mRNA therapeutic development worldwide.

 

We are developing our lead MRT product candidate for the lung, MRT5005, for the treatment of patients with CF, which is the most common fatal inherited disease in the United States. CF affects more than 30,000 patients in the United States and a total of more than 70,000 patients worldwide and leads to premature death. CF is caused by genetic mutations that result in dysfunctional or absent cystic fibrosis transmembrane conductance regulator, or CFTR, protein. CF results in mucus buildup in the lungs, pancreas and other organs, and mortality is primarily driven by a progressive decline in lung function. There remains a large unmet medical need in the CF patient population as currently approved therapies are limited to patients with specific genetic mutations and patients treated with these therapies still suffer from long-term declines in lung function and exacerbations that require hospitalization.

 

We believe MRT5005 will be the first clinical-stage mRNA product candidate designed to deliver mRNA encoding fully functional CFTR protein to the lung. MRT5005 is being developed to treat all patients with CF, regardless of the underlying genetic mutation. This broad applicability is in contrast to CFTR protein modulators currently marketed or in clinical development, which are only effective in a subset of patients with specific genetic mutations.

 

We have designed MRT5005 to be inhaled via a handheld nebulizer and to be administered in a once-weekly dose. Once the inhaled MRT5005 has entered the epithelial cells lining the patient’s lungs, our therapeutic mRNA uses the cells’ own machinery for translation and expression of fully functional CFTR protein, thereby restoring this essential ion channel, which we believe will address the pathology of CF directly. In our preclinical studies we have observed dose-dependent increases in CFTR being restored to cell membranes and that the inhaled formulation of MRT5005 resulted in broad CFTR expression in lung tissue. We have initiated a double-blind, placebo-controlled Phase 1/2 clinical trial of MRT5005 in which we plan to enroll at least 32 patients with CF. We enrolled and dosed the first patient in the single-ascending dose part of this trial in late May 2018. After dosing, this patient developed transient flu-like symptoms, which responded to acetaminophen and diphenhydramine. Because this is a blinded study, we do not know whether the patient received placebo or drug. In other clinical studies of nebulized lipid nanoparticles in CF, similar observations of flu-like symptoms have been reported. We anticipate initiating the multiple-ascending dose part of the trial by the end of 2018. In November 2015, the U.S. Food and Drug Administration, or FDA, granted orphan drug designation to MRT5005 for the treatment of CF.

 

We are advancing our lead MRT product candidate for the liver, MRT5201, for the treatment of patients with OTC deficiency, a metabolic liver enzyme disorder that results from a mutation in the OTC gene. OTC deficiency is the most common urea cycle disorder. This enzyme is an intracellular protein necessary for preventing the accumulation of ammonia, a normal byproduct of protein breakdown. When the enzyme is defective or absent, high levels of ammonia accumulate in the blood, which can cause serious and irreversible neurological damage. The incidence of OTC deficiency is estimated to be 1 in 56,500 live births in the United States.

 

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We have designed MRT5201 for intravenous delivery of mRNA encoding fully functional OTC enzyme to the liver to enable hepatocytes, the predominant type of liver cell, to produce normal OTC enzyme. We expect that sufficient expression of the functional OTC enzyme in hepatocytes would reduce or eliminate the need for current treatments such as strict low-protein diets or ammonia scavengers. We have conducted preclinical studies in OTC-deficient mice in which we have observed delivery of MRT5201 and expression of functionally active human OTC in the mouse liver. Furthermore, MRT5201 was observed to normalize levels of urinary orotic acid, a biomarker of the disease, in these mice and render them resistant to the introduction of ammonia from outside the body for up to four weeks. We anticipate initiating a Phase 1/2 clinical trial of MRT5201 in patients with OTC deficiency in the first half of 2019. In March 2018, the FDA granted orphan drug designation to MRT5201 for the treatment of OTC deficiency.

 

Our technology and products are protected by an extensive intellectual property portfolio, including issued patents and pending patent applications covering mRNA sequences, lipids and polymer composition of matter, manufacturing, specific targets, disease treatments, and formulation and delivery technology. We continue to innovate to improve both the mRNA constructs as well as the delivery technology involved in creating our MRT product candidates.

 

We have assembled a management team with highly relevant experience in product development in general and mRNA therapeutics in particular. Our management team has been involved with the development of over ten products approved by the FDA, including Aubagio, Cinryze, Elaprase, Firazyr, Gattex, Humira, Intuniv, Lialda, Natpara, VPRIV, Vyvanse and Xiidra.

 

Our Pipeline

 

Our proprietary MRT platform has been designed with the potential to apply across a broad array of diseases and target tissues and through multiple routes of administration. The following chart summarizes key information about our two lead product candidates and programs:

 

LOGO

 

Our MRT Platform

 

Our MRT platform has enabled us to develop product candidates designed to deliver mRNA that can carry instructions to produce intracellular, transmembrane and secreted proteins. Our platform is also designed to be flexible and scalable by allowing for the development of MRT product candidates that vary only in the mRNA sequence and the tissue-specific delivery vehicle. This modular nature of our platform may allow us to rapidly advance into new indications after successfully establishing delivery vehicles for specific tissues. For example, we are utilizing our MRT platform to identify and rapidly develop new product candidates designed to address the underlying causes of additional diseases of the lung and liver.

 

Advantages of our MRT Platform

 

We believe that our proprietary MRT platform and the design of our product candidates, which consist of the protein-coding mRNA and a delivery vehicle, will allow for chronic dosing of our MRT product candidates for the following reasons:

 

   

Enhanced Stability. Our mRNA design, manufacturing processes and nanoparticle formulations are designed to protect our mRNA from degradation by nucleases, including ribonuclease, or RNase, and by chemical or physical forces, in order to achieve the appropriate duration of therapeutic effect.

 

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Low Immunogenicity. We use manufacturing processes to remove impurities and we design our mRNA using structural components that are identical to natural mRNA within the body, thereby reducing the risk of stimulating an immune response.

 

   

Tissue-Specific Delivery. Our delivery technology is designed for efficient encapsulation and cellular uptake in target tissues, thereby reducing the risk of degradation, off-target toxicity and unwanted stimulation of the immune system.

 

   

Scalable and Flexible Manufacturing. We employ a unique, biosynthetic, cell-free process to manufacture pure, high-quality mRNA and delivery vehicles with significant potency at a scale suitable for clinical trials and that is designed to be scaled to support commercial production.

 

mRNA Construct Design

 

Delivering the desired mRNA sequences is the first step to restoring healthy function to proteins. In our preclinical studies, we observed that such mRNA sequences, when flanked by proprietary signaling sequences and packaged into our delivery vehicles, entered cells and restored proper cellular protein production.

 

We design our proprietary mRNA sequences to encode the natural protein sequences. We use unmodified mRNA bases to replicate the composition and function of endogenous mRNA. We then further optimize the sequences to result in efficient protein production. We achieve this optimization through the selection of appropriate transcription and translational control elements to maximize protein expression across a broad range of tissues.

 

Delivery

 

After we create the desired mRNA sequences, we then package our mRNA sequences into delivery vehicles, such as our LNPs, that are customized for delivery to specific tissues. The advantage of our delivery technology is that it can be utilized regardless of the mRNA sequence being delivered. We intend to apply our delivery expertise gained in the development of our lead MRT product candidates to the design, optimization and manufacturing of new MRT product candidates.

 

Manufacturing

 

Through years of investment, we have established current Good Manufacturing Practices, or cGMP, of our mRNA drug substance. We have developed proprietary processes that reproducibly provide sufficient quantities of highly pure, high-quality and highly potent mRNA to support our clinical trials. We believe that our manufacturing processes successfully address key issues commonly associated with the manufacturing of mRNA, such as poor capping at one end of the mRNA sequence and the extensive presence of prematurely-terminated sequences, such as double-stranded RNA and other contaminants. The modular nature of our mRNA drug substance manufacturing processes allows for versatility by using the same core production and purification processes for any mRNA drug substance.

 

We have also established cGMP manufacturing of the LNP drug product, which is the delivery vehicle containing the mRNA drug substance. We have developed a proprietary process to produce high-quality, highly-potent and stable LNPs that encapsulate our mRNA drug substance. We designed our LNP drug product to facilitate cellular uptake as well as provide stability, including against degradation by nucleases, such as RNase. We have designed a large-scale cGMP manufacturing process for our LNP drug products that we believe can support our clinical trials and is readily scalable. Similar to our mRNA manufacturing, our LNP manufacturing process utilizes a modular approach that we believe will be cost-effective and will minimize development costs associated with each new mRNA drug substance.

 

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Broad Applicability of our MRT Platform

 

We believe that our MRT platform may be applied across a broad array of diseases and target tissues via multiple routes of administration. In addition to the inhalation and intravenous administration employed for our two lead programs for the treatment of CF and OTC deficiency, respectively, we have observed successful production of the desired proteins through other routes of administration in preclinical studies, which may allow us to develop MRT product candidates for the treatment of a wide range of rare and non-rare diseases, including CNS disorders, ocular diseases and blood disorders. We believe our platform may also be applied to produce therapeutic antibodies and vaccines in areas such as infectious disease and oncology. We are conducting research in the below areas to identify additional product candidates.

 

LOGO

 

Our Strategy

 

Our goal is to continue building a leading, global mRNA therapeutics company that capitalizes on our extensive experience with proprietary mRNA product development, delivery, manufacturing and process development.

 

The key components of our strategy to achieve our goal include:

 

   

Rapidly advance MRT5005 into and through clinical development as a first-in-class treatment for all patients with CF, regardless of the specific genetic mutation, by directly addressing the underlying cause of the disease. We have initiated a Phase 1/2 clinical trial in patients with CF.

 

   

Rapidly advance MRT5201 into and through clinical development as a first-in-class treatment for patients with OTC deficiency by directly addressing the underlying cause of the disease. We plan to initiate a Phase 1/2 clinical trial in patients with OTC deficiency in the first half of 2019.

 

   

Leverage the broad applicability of our proprietary MRT platform by developing additional MRT product candidates for our own pipeline as well as selectively pursuing strategic collaborations. Specifically, we intend to:

 

   

Maintain our initial focus on genetic diseases with high unmet medical need in the lungs and liver to utilize our platform to rapidly develop new product candidates targeting these tissues.

 

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Broaden our focus to develop product candidates that address diseases with high unmet medical need, including CNS disorders, ocular diseases and blood disorders.

 

   

Explore opportunities to collaborate where potential partners may add strategic value to our platform or programs.

 

   

Develop deep and active relationships with patient advocacy groups in order to better understand the needs of patients to optimize our treatment approaches and also to identify patients that could potentially benefit from our MRT product candidates.

 

   

Seek strategic acquisitions or in-licenses of technology or assets that may complement our proprietary MRT platform and programs.

 

   

Aggressively strengthen and protect our intellectual property and scientific and technical know-how.

 

   

Maintain the flexibility to develop and potentially commercialize products ourselves.

 

Risks Associated with Our Business

 

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus. These risks include, but are not limited to, the following:

 

   

We have incurred significant losses since inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability. As of March 31, 2018, we had an accumulated deficit of $170.0 million.

 

   

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

 

   

Even if this offering is successful, we will not have sufficient funding to complete the clinical development of MRT5005 or MRT5201. Accordingly, we will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, reduce or eliminate certain of our product development efforts or other operations.

 

   

Our approach to the discovery and development of product candidates based on messenger RNA technology is unproven, and we do not know whether we will be able to successfully develop any products.

 

   

In the near term, we are dependent on the success of MRT5005 and MRT5201. If we are unable to initiate or complete the clinical development of, obtain marketing approval for or successfully commercialize MRT5005 and MRT5201, either alone or with a future collaborator, or if we experience significant delays in doing so, our business could be substantially harmed.

 

   

Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes.

 

   

We expect to rely on third parties to conduct our clinical trials and some aspects of our research and preclinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing.

 

   

Our reliance on third parties to manufacture our product candidates increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

 

   

If we are unable to obtain and maintain patent protection for our products and technology, or if the scope of the patent protection obtained is not sufficiently broad or robust, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our products and technology may be adversely affected.

 

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Our rights to develop and commercialize our product candidates are subject, in part, to the terms and conditions of licenses granted to us by others, and, if we fail to comply with our obligations under these arrangements, we could lose such intellectual property rights or owe damages to the licensor of such intellectual property.

 

   

The regulatory approval processes of the FDA, the EMA and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

 

   

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

 

   

Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this prospectus.

 

   

We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.

 

Reorganization

 

We are a Delaware corporation that was incorporated on November 10, 2016 under the name RaNA Therapeutics, Inc. On December 5, 2016, we completed a series of transactions, which we refer to as the “Reorganization,” pursuant to which RaNA Therapeutics, LLC, or RaNA LLC, became a direct, wholly owned subsidiary of RaNA Therapeutics, Inc., and all of the outstanding equity securities of RaNA LLC were exchanged for equity securities of RaNA Therapeutics, Inc. The purpose of the Reorganization was to reorganize our corporate structure so that our existing investors would own capital stock in a corporation rather than equity interests in a limited liability company. As part of the Reorganization:

 

   

holders of RaNA LLC’s outstanding Class A preferred units received one share of our Series A preferred stock for each Class A preferred unit held immediately prior to the Reorganization, with an aggregate of 36,194,026 shares of our Series A preferred stock issued in the Reorganization;

 

   

holders of RaNA LLC’s outstanding Class B preferred units received one share of our Series B preferred stock for each Class B preferred unit held immediately prior to the Reorganization, with an aggregate of 59,133,987 shares of our Series B preferred stock issued in the Reorganization, with the exception of one stockholder that exchanged Class B preferred units for 462,963 shares of our common stock;

 

   

holders of RaNA LLC’s outstanding common units received one share of our common stock for each common unit held immediately prior to the Reorganization, with an aggregate of 3,562,230 shares of our common stock exchanged for common units in the Reorganization; and

 

   

holders of RaNA LLC’s outstanding common incentive units received shares of our restricted common stock in an amount equal in value to the value of such common incentive units as determined by the applicable provisions of the RaNA LLC operating agreement in effect immediately prior to the Reorganization, with an aggregate of 11,070,466 shares of our restricted common stock issued in the Reorganization.

 

On June 26, 2017, we changed our name from RaNA Therapeutics, Inc. to Translate Bio, Inc. On December 19, 2017, RaNA LLC merged with and into Translate Bio, Inc., with Translate Bio, Inc. continuing as the surviving corporation.

 

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Except as otherwise indicated herein or as the context otherwise requires, all information in this prospectus is presented giving effect to the Reorganization.

 

Corporate Information

 

Our principal executive offices are located at 29 Hartwell Avenue, Lexington, Massachusetts 02421, and our telephone number is (617) 945-7361. Our website address is www.translate.bio. The information contained on, or that can be accessed through, our website is not a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

 

Implications of Being an Emerging Growth Company

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April 2012. As a result, we may take advantage of reduced reporting requirements that are otherwise applicable to public companies, including delaying auditor attestation of internal control over financial reporting, providing only two years of audited financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus and reducing executive compensation disclosures.

 

We may remain an emerging growth company for up to five years from the date of the first sale in this offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.07 billion, or we issue more than $1 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

 

We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. As a result, the information that we provide to our stockholders may be different than what you might receive from other public reporting companies in which you hold equity interests. However, we have irrevocably elected not to avail ourselves of the extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

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THE OFFERING

 

Common stock offered

                     shares

 

Common stock to be outstanding immediately following this offering

                     shares

 

Over-allotment option

                     shares

 

Use of proceeds

We estimate that the net proceeds from this offering will be approximately $                 million (or approximately $         million if the underwriters exercise in full their option to purchase up to         additional shares of common stock to cover over-allotments, if any), based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, to fund the development of MRT5005 for the treatment of patients with CF, to fund the development of MRT5201 for the treatment of patients with OTC deficiency, to fund discovery and additional preclinical research and development of additional product candidates and platform enhancement, and for working capital and other general corporate purposes. See “Use of Proceeds.”

 

Risk factors

You should read the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

 

Proposed Nasdaq Global Market symbol

“TBIO”

 

The number of shares of our common stock to be outstanding after this offering is based on (i) 53,235,828 shares of our common stock outstanding as of April 30, 2018, (ii) 142,288,292 shares of our common stock issuable upon the automatic conversion of all outstanding shares of our preferred stock upon the closing of this offering and (iii)              shares of common stock to be issued to Shire upon the closing of this offering in satisfaction of contractual obligations, based on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

 

The number of shares of our common stock to be outstanding after this offering excludes:

 

   

30,976,525 shares of common stock issuable upon exercise of stock options outstanding as of April 30, 2018 at a weighted average exercise price of $1.35 per share;

 

   

5,153,009 shares of common stock available for future issuance as of April 30, 2018 under our 2016 Stock Incentive Plan, as amended; and

 

   

13,956,456 and 2,326,076 additional shares of our common stock that will become available for future issuance under our 2018 Equity Incentive Plan and our 2018 Employee Stock Purchase Plan, respectively, each of which will become effective immediately prior to the effectiveness of the registration statement of

 

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which this prospectus is a part, as well as any automatic increases in the number of shares of common stock reserved for future issuance under these plans.

 

Unless otherwise indicated, all information in this prospectus assumes:

 

   

no exercise of the outstanding options described above;

 

   

no exercise by the underwriters of their option to purchase additional shares of our common stock;

 

   

the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 142,288,292 shares of our common stock upon the closing of this offering; and

 

   

the filing and effectiveness of our restated certificate of incorporation and the adoption of our amended and restated bylaws upon the closing of this offering.

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

 

You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2016 and 2017 and the consolidated balance sheet data as of December 31, 2017 from our audited consolidated financial statements appearing at the end of this prospectus. The consolidated statement of operations data for the three months ended March 31, 2017 and 2018 and the consolidated balance sheet data as of March 31, 2018 have been derived from our unaudited consolidated financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the unaudited data reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial information in those statements. Our historical results are not necessarily indicative of results that should be expected in any future period, and our results for any interim period are not necessarily indicative of results that should be expected for any full year.

 

     Year Ended December 31,     Three Months Ended March 31,  
         2016                 2017                 2017                 2018        
     (in thousands, except per share amounts)  

Consolidated Statement of Operations Data:

        

Operating expenses:

        

Research and development

   $ 15,658     $ 47,023     $ 9,621     $ 12,702  

General and administrative

     11,144       14,311       2,973       4,779  

Change in fair value of contingent consideration

     —         17,914       2,275       4,908  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     26,802       79,248       14,869       22,389  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (26,802     (79,248     (14,869     (22,389
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest income

     114       281       78       89  

Other income (expense), net

     (10     43       (14     (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     104       324       64       77  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before benefit from income taxes

     (26,698     (78,924     (14,805     (22,312

Benefit from income taxes

     —         12,481       851       1,103  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (26,698     (66,443     (13,954     (21,209

Accretion of redeemable convertible preferred units and stock to redemption value

     (671     (719     (167     (185
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (27,369   $ (67,162   $ (14,121   $ (21,394
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders—basic and diluted(1)

   $ (3.26   $ (1.56   $ (0.34   $ (0.42
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding—basic and diluted(1)

     8,389       43,090       42,150       50,509  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)(1)

     $       $  
    

 

 

     

 

 

 

Pro forma weighted average common shares outstanding—basic and diluted (unaudited)(1)

        
    

 

 

     

 

 

 

 

(1)   See Note 11 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common stockholders and on the calculation of pro forma basic and diluted net loss per share attributable to common stockholders.

 

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     As of March 31, 2018  
     Actual     Pro Forma(2)      Pro Forma
As  Adjusted(3)
 
     (in thousands)  

Consolidated Balance Sheet Data:

       

Cash, cash equivalents and short-term investments

   $ 36,798     $ 36,798      $           

Working capital(1)

     31,027       32,521     

Total assets

     182,836       182,836     

Contingent consideration liability

     85,917       84,423     

Redeemable convertible preferred stock

     193,081       —       

Total stockholders’ equity (deficit)

     (113,605     80,970     

 

(1)   We define working capital as current assets less current liabilities.
(2)   The pro forma balance sheet data give effect to:

 

   

our issuance of                  shares of common stock to Shire upon the closing of this offering in satisfaction of contractual obligations, based on an assumed initial offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the reclassification of the contingent consideration liability related to such shares; and

 

   

the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 142,288,292 shares of common stock upon closing of this offering.

 

(3)   The pro forma as adjusted balance sheet data give further effect to our issuance and sale of                  shares of our common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

       A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, working capital, total assets and total stockholders’ equity by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, working capital, total assets and total stockholders’ equity by $         million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. This pro forma as adjusted information is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing.

 

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RISK FACTORS

 

Investing in our common stock involves a high degree of risk. Before investing in our common stock, you should consider carefully the risks described below, together with the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus. If any of the following risks occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.

 

Risks Related to our Financial Position and Need for Additional Capital

 

We have incurred significant losses since inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

 

Since inception, we have incurred significant losses. Our net losses were $26.7 million and $66.4 million for the years ended December 31, 2016 and 2017, respectively, and $21.2 million for the three months ended March 31, 2018. As of March 31, 2018, we had an accumulated deficit of $170.0 million. We have funded our operations to date primarily with proceeds from the sale of preferred stock and bridge units, which ultimately converted into shares of preferred stock. We expect that it could be several years, if ever, before we have a commercialized product candidate. We expect to continue to incur significant expenses and operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if, and as, we:

 

   

pursue the clinical development of MRT5005 and MRT5201, our lead product candidates;

 

   

leverage our programs to advance our other product candidates into preclinical and clinical development;

 

   

seek regulatory approvals for any product candidates that successfully complete clinical trials;

 

   

seek to discover and develop additional product candidates;

 

   

establish a sales force, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly;

 

   

hire additional clinical, quality control and scientific personnel;

 

   

expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

 

   

maintain, expand and protect our intellectual property portfolio;

 

   

acquire or in-license other product candidates and technologies; and

 

   

incur additional legal, accounting and other expenses in operating as a public company.

 

To become and remain profitable, we, or any potential future collaborators, must develop and eventually commercialize product candidates with significant market potential. This will require us to succeed in a range of challenging activities, including completing preclinical studies and clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate sufficient revenue to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

 

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We have never generated revenue from product sales and may never be profitable.

 

We have never generated revenue from product sales. Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with our collaborative partners, to successfully develop and obtain the regulatory approvals necessary to commercialize our product candidates. We do not have any products approved for sale and do not anticipate generating revenue from product sales for the next several years, if ever. Our ability to generate future revenue from product sales depends heavily on our, or any potential future collaborators’, success in:

 

   

completing preclinical and clinical development of our product candidates and identifying and developing new product candidates;

 

   

seeking and obtaining marketing approvals for any of our product candidates;

 

   

launching and commercializing product candidates for which we obtain marketing approval by establishing a sales force, marketing, medical affairs and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

 

   

achieving formulary status in hospitals and adequate coverage and reimbursement by government and third-party payors for our product candidates;

 

   

establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for our product candidates, if approved;

 

   

obtaining market acceptance of our product candidates as viable treatment options;

 

   

addressing any competing technological and market developments;

 

   

negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations in such collaborations;

 

   

maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how;

 

   

defending against third-party interference or infringement claims, if any; and

 

   

attracting, hiring and retaining qualified personnel.

 

Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs in commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, or other regulatory agencies to perform clinical trials or studies in addition to those that we currently anticipate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

 

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

 

Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development activities for our programs, undertaking preclinical studies, entering into licensing agreements and planning for potential commercialization. While we have initiated a Phase 1/2 clinical trial of MRT5005 and plan to initiate a Phase 1/2 clinical trial of MRT5201, we have not yet completed a clinical trial of any of our product candidates. We have not yet demonstrated the ability to initiate or conduct clinical trials, obtain marketing approvals, manufacture a commercial-scale product or conduct sales and marketing activities necessary for successful commercialization. Consequently, any evaluation of our business to date or predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history.

 

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If we obtain marketing approval for any of our product candidates, we will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays and may not be successful in such a transition.

 

Even if this offering is successful, we will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain capital when needed may force us to delay, reduce or eliminate certain of our product development efforts or other operations.

 

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate clinical trials of and seek marketing approval for, our product candidates. These expenditures will include costs associated with our asset purchase agreement with Shire Human Genetic Therapies, Inc., or Shire, a subsidiary of Shire plc, or the Shire Agreement. Under the terms of the Shire Agreement, we are obligated to make significant cash payments upon the achievement of specified commercial milestones, as well as earnout payments in connection with sales of products based on the compounds that we acquired from Shire.

 

We will require additional capital to advance MRT5005 and MRT5201 and any other product candidates we develop through necessary clinical trials and clinical development. In addition, if we obtain marketing approval for any of our product candidates that we plan to commercialize ourselves, we expect to incur significant expenses related to product sales, medical affairs, marketing, manufacturing and distribution. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain additional funding in connection with our continuing operations. We may raise this additional funding through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions and funding under government or other contracts. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

 

We believe that the anticipated net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, will enable us to fund our operating expenses and capital expenditure requirements through                . To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured.

 

Our estimates regarding our ability to fund our operating expenses and capital expenditure requirements with our existing cash, cash equivalents and short-term investments and the anticipated net proceeds from this offering are based on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:

 

   

the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;

 

   

the costs, timing and outcome of regulatory review of our product candidates;

 

   

the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

 

   

the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;

 

   

the ability to receive additional non-dilutive funding, including grants from organizations and foundations;

 

   

the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;

 

   

the cost and timing of hiring new employees to support our continued growth;

 

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costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

 

   

our ability to establish and maintain collaborations on favorable terms, if at all;

 

   

the extent to which we acquire or in-license other product candidates and technologies; and

 

   

the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.

 

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that typically 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 product candidates, if approved, may not achieve commercial success. Our product revenue, if any, and any commercial milestones or royalty payments under any collaboration agreements that we may enter into will be derived from or based on sales of products that may not be commercially available for many years, if at all. Accordingly, we will continue to rely on additional financing to achieve our business objectives.

 

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Our issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our common stock to decline, and our stockholders may not agree with our financing plans or the terms of such financings.

 

Our failure to raise capital as and when needed would negatively impact our financial condition and our ability to pursue our business strategy, and we could be forced to delay, reduce or eliminate certain of our research and development programs or any future commercialization efforts.

 

Raising additional capital may cause dilution to our stockholders, including purchasers of our common stock in this offering, restrict our operations or require us to relinquish rights to technologies or product candidates.

 

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through the combination of public or private equity offerings, debt financings, grants, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring debt, making capital expenditures or declaring dividends. In addition, debt financing would result in increased fixed payment obligations.

 

If we raise funds through collaborations, strategic partnerships or marketing, distribution 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 to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we will be required to delay, reduce or eliminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

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Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this prospectus.

 

The report from our independent registered public accounting firm for the year ended December 31, 2017 includes an explanatory paragraph stating that our recurring losses from operations and need for additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected, and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely that investors will lose all or a part of their investment. After this offering, future reports from our independent registered public accounting firm may also contain statements expressing substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms, if at all.

 

We may be required to make payments in connection with our acquisition of the MRT Program from Shire.

 

In December 2016, we acquired the messenger RNA, or mRNA, therapeutic platform, or MRT Program, pursuant to the Shire Agreement. Under the Shire Agreement, we are obligated to make milestone payments to Shire of up to $60.0 million in the aggregate upon the occurrence of specified commercial milestones, including upon the first commercial sale of a product that includes or is composed of MRT compounds acquired from Shire, or MRT Product, for the treatment of cystic fibrosis, or CF, and upon the achievement of a specified level of annual net sales with respect to MRT Products. We are also obligated to make additional milestone payments of $10.0 million for each non-CF MRT Product upon the first commercial sale of a non-CF MRT Product; provided that such milestone payments will only be due once for any two non-CF MRT Products that contain the same MRT compounds. Under the Shire Agreement, we are also obligated to pay a fixed, quarterly earnout payment of a mid single-digit percentage of net sales of each MRT Product. The earnout period will begin on the date of the first commercial sale of MRT Products and will end, on a product-by-product and country-by-country basis, on the later of (1) the expiration of the last valid claim of the assigned patents covering the manufacture, use or composition of such product in such country of the applicable MRT Product and (2) ten years after the first commercial sale of the MRT Product in such country. If these payments become due under the terms of the Shire Agreement, we may not have sufficient funds available to meet our obligations and our development efforts may be materially harmed.

 

Comprehensive tax reform legislation could adversely affect our business and financial condition.

 

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act, which significantly reforms the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely), one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain how various states will respond to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge

 

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prospective investors in our common stock to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

 

We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit carryforwards.

 

As of December 31, 2017, we had federal and state net operating loss carryforwards of $124.0 million and $102.5 million, respectively, which will, if not utilized, each begin to expire in 2031; federal and state research and development tax credit carryforwards of $3.2 million and $1.3 million, respectively, which will, if not utilized, begin to expire in 2032 and 2027, respectively; and orphan drug tax credit carryforwards of $2.0 million, which will, if not utilized, begin to expire in 2037. These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset our future income tax liabilities. Under the newly enacted federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain how various states will respond to the newly enacted federal tax law.

 

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our net operating loss and tax credit carryforwards are subject to an annual limitation under Section 382. In addition, we may experience ownership changes in the future as a result of subsequent changes in our stock ownership, including this offering, some of which may be outside of our control. If we determine that an ownership change has occurred and our ability to use our historical net operating loss and tax credit carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.

 

Risks Related to the Development of Our Product Candidates

 

Our approach to the discovery and development of product candidates based on mRNA is unproven, and we do not know whether we will be able to successfully develop any products.

 

We focus on delivering mRNA encoding functional versions of proteins into cells without altering the underlying DNA. Our future success depends on the successful development of this novel therapeutic approach. Relatively few mRNA-based therapeutic product candidates have been tested in animals or humans, and the data underlying the feasibility of developing mRNA-based therapeutic products is both preliminary and limited. To date, no product that utilizes mRNA as a therapeutic has been approved in the United States or Europe. We have not yet succeeded and may not succeed in demonstrating the efficacy and safety of any of our product candidates in clinical trials or in obtaining marketing approval thereafter. We have not yet completed a clinical trial of any product candidate and we have not yet assessed safety of any product candidate in humans. As such, there may be adverse effects from treatment with any of our current or future product candidates that we cannot predict at this time.

 

As a result of these factors, it is more difficult for us to predict the time and cost of product candidate development, and we cannot predict whether the application of our MRT platform, or any similar or competitive mRNA platforms, will result in the development, and regulatory approval of any products. There can be no assurance that any development problems we experience in the future related to our MRT platform or any of our research programs will not cause significant delays or unanticipated costs, or that such development problems can be solved. Any of these factors may prevent us from completing our preclinical studies or any clinical trials that we may initiate or commercializing any product candidates we may develop on a timely or profitable basis, if at all.

 

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We have never obtained marketing approval for a product candidate, and we may be unable to obtain, or may be delayed in obtaining, marketing approval for any of our product candidates.

 

We are a clinical-stage company and have not received approval from the FDA, EMA or other regulatory authority to market any product candidate. The regulatory review process may be more expensive or take longer than we expect, and we may be required to conduct additional studies and/or trials beyond those we anticipate. If it takes us longer to develop and/or obtain regulatory approval for our product candidates than we expect, such delays could materially and adversely affect our business, financial condition, results of operations and prospects.

 

In the near term, we are dependent on the success of MRT5005 and MRT5201. If we are unable to initiate or complete the clinical development of, obtain marketing approval for or successfully commercialize MRT5005 and MRT5201, either alone or with a future collaborator, or if we experience significant delays in doing so, our business would be substantially harmed.

 

We do not currently have products approved for sale and are investing a significant portion of our efforts and financial resources in the development of MRT5005 and MRT5201. Our prospects are substantially dependent on our ability, or that of any future collaborator, to develop and obtain marketing approval for, and successfully commercialize, MRT5005 and MRT5201 in one or more disease indications.

 

The success of MRT5005 and MRT5201 will depend on several factors, including the following:

 

   

successful initiation of clinical trials;

 

   

successful patient enrollment in and completion of clinical trials;

 

   

a safety, tolerability and efficacy profile that is satisfactory to the FDA, EMA or other regulatory authorities for marketing approval;

 

   

timely receipt of marketing approvals from applicable regulatory authorities;

 

   

the extent of any required post-marketing approval commitments to applicable regulatory authorities;

 

   

establishment and maintenance of arrangements with third-party manufacturers for both clinical and any future commercial manufacturing;

 

   

adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales;

 

   

obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally;

 

   

protection of our rights in our intellectual property portfolio;

 

   

successful launch of commercial sales following any marketing approval;

 

   

a continued acceptable safety profile following any marketing approval;

 

   

commercial acceptance by hospitals, the patient community, the medical community and third-party payors;

 

   

the availability of coverage and adequate reimbursement from third-party payors;

 

   

the performance of our future collaborators, if any; and

 

   

our ability to compete with other therapies.

 

Many of these factors are beyond our control, including clinical development, the regulatory review process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are unable to develop, receive marketing approval for and successfully commercialize MRT5005 and MRT5201, on our own or with any future collaborator, or experience delays as a result of any of these factors or otherwise, our business would be substantially harmed.

 

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Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes. If the initiation or completion of clinical trials of our product candidates, particularly MRT5005 and MRT5201, are prolonged or delayed, we or any future collaborators may be unable to obtain required regulatory approvals, and therefore will be unable to commercialize our product candidates on a timely basis or at all, which will adversely affect our business.

 

Before obtaining marketing approval for our product candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates. Clinical testing is expensive, time-consuming, difficult to design and implement and uncertain as to outcome. We cannot guarantee that our clinical trials, such as our Phase 1/2 clinical trial of MRT5005 in patients with CF, will be conducted as planned, completed on schedule, if at all, or yield positive results.

 

A clinical trial failure can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

 

   

delays in reaching a consensus with regulatory authorities or collaborators on trial design;

 

   

delays in reaching agreement on acceptable terms with contract research organizations, or CROs, and clinical trial sites;

 

   

delays in opening clinical trial sites or obtaining required institutional review board or independent ethics committee approval at each clinical trial site;

 

   

delays in recruiting suitable subjects or a sufficient number of subjects to participate in our clinical trials;

 

   

imposition of a clinical hold by regulatory authorities, including upon submission of an IND, such as the clinical hold that the FDA had placed on the IND for our clinical trial of MRT5005 and subsequently lifted in April 2018, or as a result of a serious adverse event or after an inspection of our clinical trial operations or trial sites;

 

   

failure by us, any CROs we engage, clinical investigators or any other third parties to adhere to clinical trial requirements;

 

   

failure to perform the clinical trial in accordance with good clinical practices, or GCP, or applicable regulatory requirements in the European Union, the United States, or other countries;

 

   

delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites, including delays by third parties with whom we have contracted to perform certain of those functions;

 

   

delays or failures in demonstrating the comparability of product manufactured at one facility or with one process to product manufactured at another facility or with another process, including clinical trials to demonstrate such comparability;

 

   

delays in having patients complete participation in a trial or return for post-treatment follow-up;

 

   

clinical trial sites or subjects dropping out of a trial;

 

   

selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data;

 

   

occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

 

   

occurrence of serious adverse events in trials of the same class of agents conducted by other sponsors; and

 

   

changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.

 

Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue from product sales, regulatory and commercialization milestones

 

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and royalties. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional trials to bridge our modified product candidates to earlier versions. Clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business, financial condition, results of operations and prospects.

 

We could encounter delays if a clinical trial is suspended or terminated by us, by the institutional review boards of the institutions in which such trials are conducted or their ethics committees, by the Data Review Committee or Data Safety Monitoring Board for such trial or by the FDA or other foreign regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, including those relating to the class of products to which our product candidates belong.

 

Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates or early termination of the development of our product candidates.

 

Preclinical drug development is uncertain. Some or all of our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these product candidates on a timely basis or at all, which would have an adverse effect on our business.

 

In order to obtain FDA approval to market a new biological product, we must demonstrate proof of safety, purity and potency or efficacy in humans. To satisfy these requirements, we will have to conduct adequate and well-controlled clinical trials. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies that support our planned IND in the United States. We cannot be certain of the timely completion or outcome of our preclinical testing and studies, and we cannot predict if the FDA will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of these product candidates. As a result, we cannot be sure that we will be able to submit INDs or similar applications for any preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin. For example, after we submitted an IND for MRT5005 to initiate our Phase 1/2 clinical trial in patients with CF, the FDA placed a clinical hold on the IND, requiring us to submit, prior to initiating the trial, additional chemistry, manufacturing and controls information relating to materials and processes used during the manufacture of the product candidate. The FDA lifted the clinical hold in April 2018.

 

Conducting preclinical testing is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity, novelty and intended use of the product candidate, and often can be several years or more per product candidate. Delays associated with product candidates for which we are conducting preclinical testing and studies ourselves may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the preclinical testing and studies of certain product candidates conducted by our potential partners over which we have no control. The commencement and rate of completion of preclinical studies and clinical trials for a product candidate may be delayed by many factors, including, for example:

 

   

inability to generate sufficient preclinical or other in vivo or in vitro data to support the initiation of clinical trials; and

 

   

delays in reaching a consensus with regulatory agencies on study design.

 

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Moreover, even if we do initiate clinical trials for other product candidates, our development efforts may not be successful, and clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety, purity and potency or efficacy necessary to obtain the requisite regulatory approvals for any of our product candidates or product candidates employing our technology. Even if we obtain positive results from preclinical studies or initial clinical trials, we may not achieve the same success in future trials.

 

Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials.

 

Results from preclinical studies are not necessarily predictive of clinical trial results, results from early clinical trials are not necessarily predictive of later clinical trial results and interim results of a clinical trial are not necessarily indicative of final results. Our product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or successful advancement through initial clinical trials.

 

There can be no assurance that the success we achieved in preclinical studies of MRT5005 or MRT5201 or may achieve in preclinical studies of other product candidates will result in success in clinical trials of these product candidates. In addition, we cannot assure you that we will be able to achieve the same or similar success in our preclinical studies and clinical trials of our other product candidates.

 

Our preclinical studies in animal models have been conducted using human mRNA, which differs from animal mRNA, making it difficult for us to use animal models to assess whether our product candidates are safe or effective in humans. In particular, the preclinical studies we have conducted in rats and non-human primates are not indicative of clinical trial outcomes in CF, as success of treatment of CF in animals does not predict success in humans.

 

We have not completed any clinical trials evaluating any of our product candidates or proposed delivery modes, including the use of lipid-based nanoparticles, or LNPs, that are customized for delivery to specific tissues.

 

There is a high failure rate for drugs and biologic products proceeding through preclinical studies and clinical trials. Any product candidates we develop may fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through initial clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical studies and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of our product candidate development. Any such delays could materially and adversely affect our business, financial condition, results of operations and prospects.

 

We may find it difficult to enroll and dose patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates.

 

Identifying, qualifying and enrolling patients to participate in clinical trials of our product candidates is critical to our success, and we may not be able to identify, recruit, enroll and dose a sufficient number of patients, or those with required or desired characteristics, to complete our clinical trials in a timely manner. The timing of our clinical trials depends on our ability to recruit patients to participate as well as to subsequently dose these patients and complete required follow-up periods. In particular, because our clinical trial of MRT5005 and our planned clinical trial of MRT5201 are focused on indications with relatively small patient populations, our ability to enroll eligible patients may be limited or may result in slower enrollment than we anticipate. Many CF clinical trial sites place importance on the review, ranking and sanctioning of CF patient advocacy groups. If CF patient advocacy groups do not timely sanction or highly rate our clinical trials, or prioritize trials of other sponsors over our trials, we may not be able to enroll sufficient patients to conduct our trials at their member sites, or it may take longer to conduct these trials.

 

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In addition, we may experience enrollment delays related to increased or unforeseen regulatory, legal and logistical requirements at certain clinical trial sites. These delays could be caused by regulatory reviews by regulatory authorities and contractual discussions with individual clinical trial sites. Any delays in enrolling and/or dosing patients in our planned clinical trials could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether.

 

Patient enrollment may be affected if our competitors have ongoing clinical trials for product candidates for the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials instead enroll in our competitors’ clinical trials. Patient enrollment may also be affected by other factors, including:

 

   

coordination between us, CROs and any future collaborators in our efforts to enroll and administer the clinical trial;

 

   

size of the patient population and process for identifying patients;

 

   

design of the trial protocol;

 

   

eligibility and exclusion criteria;

 

   

perceived risks and benefits of the product candidate under study;

 

   

availability of competing commercially available therapies and other competing product candidates’ clinical trials;

 

   

time of year in which the trial is initiated or conducted;

 

   

variations in the seasonal incidence of the target indication;

 

   

severity of the disease under investigation;

 

   

ability to obtain and maintain subject consent;

 

   

ability to enroll and treat patients in a timely manner;

 

   

risk that enrolled subjects will drop out before completion of the trial;

 

   

proximity and availability of clinical trial sites for prospective patients;

 

   

patient referral practices of physicians; and

 

   

ability to monitor subjects adequately during and after treatment.

 

Our inability to enroll a sufficient number of patients for clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in these clinical trials may result in increased development costs for our product candidates, which could cause the value of our company to decline and limit our ability to obtain additional financing.

 

We may not be successful in our efforts to identify or discover additional product candidates and may fail to capitalize on programs or product candidates for which there is a greater likelihood of commercial success.

 

Our success depends upon our ability to identify, develop and commercialize product candidates based on our MRT platform. If we do not successfully develop and eventually commercialize products, we not be able to generate product revenue, resulting in significant harm to our financial position and adverse effects to our share price. Research programs to identify new product candidates require substantial technical, financial and human resources. Although our product candidates are currently in preclinical or clinical development, we may fail to identify other potential product candidates for clinical development.

 

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Additionally, because we have limited financial and managerial resources, we may forego or delay pursuit of opportunities for certain programs or product candidates or for indications that later prove to have greater commercial potential. For example, we currently intend to focus our capital resources primarily on the clinical development of MRT5005 and MRT5201. However, the development of MRT5005 and MRT5201 may ultimately prove to be unsuccessful or less successful than another product candidate in our pipeline that we might have chosen to pursue on a more aggressive basis with our capital resources. Our estimates regarding the potential market for our product candidates could be inaccurate, and our spending on current and future research and development programs may not yield any commercially viable products. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights. Alternatively, we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a collaborative arrangement.

 

If any of these events occur, we may be forced to abandon or delay our development efforts with respect to a particular product candidate, or we may fail to develop a potentially successful product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We may fail to demonstrate safety and efficacy of our product candidates to the satisfaction of applicable regulatory authorities.

 

If the results of any of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with our product candidates, we may:

 

   

be delayed in obtaining marketing approval for our product candidates, if at all;

 

   

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

   

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

 

   

be subject to changes in the way the product is administered;

 

   

be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;

 

   

have regulatory authorities withdraw, or suspend, their approval of the product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy, or REMS;

 

   

be subject to the addition of labeling statements, such as contraindications or warnings, including a black box warning;

 

   

be sued; or

 

   

experience damage to our reputation.

 

If serious adverse or undesirable side effects are identified during the development of our product candidates or proposed delivery modes, we may abandon or limit our development of such product candidates.

 

If our product candidates or proposed delivery modes are associated with undesirable side effects or have unexpected characteristics, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause side effects or raise other safety issues that delayed or prevented further development of the compound. Further, given the relatively small patient populations for which we are developing our product candidates, we expect to have to evaluate long-term exposure to establish the

 

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safety and tolerability of our product candidates in a chronic dose setting. The adverse effects from long-term exposure, as well as exposure in general, to our product candidates are unknown because they are a new class of therapeutics that have never been evaluated in a clinical trial. The risk of adverse or undesirable side effects therefore remains a significant concern, and we cannot assure you that these or other risks will not occur in any of our current or future clinical trials of MRT5005, MRT5201 or other product candidates that we may develop.

 

If we elect or are forced to suspend or terminate any or clinical trial of our product candidates, the commercial prospects of such product candidate will be harmed, and our ability to generate product revenue from such product candidate will be delayed or eliminated. Any of these occurrences could materially harm our business, financial condition, results of operations and prospects.

 

Because we are developing product candidates for the treatment of diseases in which there is little clinical experience using new technologies, there is increased risk that the FDA, the EMA or other regulatory authorities may not consider the endpoints of our clinical trials to provide clinically meaningful results and that these results may be difficult to analyze.

 

During the regulatory review process, we will need to identify success criteria and endpoints such that the FDA, the EMA or other regulatory authorities will be able to determine the clinical efficacy and safety profile of any product candidates we may develop. Because our initial focus is to identify and develop product candidates to treat diseases in which there is little clinical experience using new technologies, there is heightened risk that the FDA, the EMA or other regulatory authorities may not consider the clinical trial endpoints that we propose to provide clinically meaningful results. In addition, the resulting clinical data and results may be difficult to analyze. Even if the FDA determines that our success criteria is sufficiently validated and clinically meaningful, we may not achieve the pre-specified endpoints to a degree of statistical significance.

 

This may be a particularly significant risk for many of the genetically defined diseases for which we plan to develop product candidates because many of these diseases have small patient populations, and designing and executing a rigorous clinical trial with appropriate statistical power is more difficult than with diseases that have larger patient populations. Further, even if we do achieve the pre-specified criteria, the results may be unpredictable or inconsistent with the results of the non-primary endpoints or other relevant data. The FDA also weighs the benefits of a product against its risks, and the FDA may view the efficacy results in the context of safety as not being supportive of regulatory approval. The EMA and other regulatory authorities may make similar comments with respect to these endpoints and data. Any product candidate we may develop will be based on a novel technology that makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval.

 

We may conduct clinical trials at sites outside the United States. The FDA may not accept data from trials conducted in such locations, and the conduct of trials outside the United States could subject us to additional delays and expense.

 

We may conduct one or more of our clinical trials with one or more trial sites that are located outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with GCP. The FDA must be able to validate the data from the trial through an onsite inspection, if necessary. The trial population must also have a similar profile to the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful, except to the extent the disease being studied does not typically occur in the United States. In addition, while these clinical trials are subject to the applicable local laws, whether the FDA accepts the data will depend upon its determination that the trials also complied with all applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from any trial that we

 

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conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and delay or permanently halt our development of MRT5005, MRT5201 or any future product candidates.

 

In addition, conducting clinical trials outside the United States could have a significant adverse impact on us. Risks inherent in conducting international clinical trials include:

 

   

clinical practice patterns and standards of care that vary widely among countries;

 

   

non-U.S. regulatory authority requirements that could restrict or limit our ability to conduct our clinical trials;

 

   

administrative burdens of conducting clinical trials under multiple non-U.S. regulatory authority schema;

 

   

foreign exchange fluctuations; and

 

   

diminished protection of intellectual property in some countries.

 

The manufacture of mRNA-based therapeutics is complex and manufacturers often encounter difficulties in production. If we or any of our third-party manufacturers encounter difficulties, our ability to provide product candidates for clinical trials or products, if approved, to patients could be delayed or halted.

 

The manufacture of mRNA-based therapeutics is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our third-party manufacturers must comply with current Good Manufacturing Practices, or cGMP, regulations and guidelines for the manufacturing of our product candidates used in preclinical studies and clinical trials and, if approved, marketed products. Manufacturers of biotechnology products often encounter difficulties in production, particularly in scaling up and validating initial production. Furthermore, if microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities where our product candidates are made, such manufacturing facilities may be closed for an extended period of time to investigate and remedy the contamination. Shortages of raw materials may also extend the period of time required to develop our product candidates.

 

We cannot assure you that any disruptions or other issues relating to the manufacture of any of our product candidates will not occur in the future. Any delay or interruption in the supply of clinical trial supplies could delay the completion of planned clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. Any adverse developments affecting clinical or commercial manufacturing of our product candidates or products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the supply of our product candidates or products. We may also have to take inventory write-offs and incur other charges and expenses for product candidates or products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could delay or impede the development and commercialization of any of our product candidates or products and could have an adverse effect on our business, prospects, financial condition and results of operations.

 

If the market opportunities for our product candidates are smaller than we believe they are, even assuming approval of a product candidate, our business may suffer.

 

Our product candidates are based on novel therapeutic approaches. As such, physicians, hospitals, third-party payors and patients may not accept our product candidates as treatment options, even if approved. While we believe there are commercial opportunities for our product candidates, we cannot be sure that is the case, particularly given the novelty of mRNA-based therapeutics.

 

Our projections of both the number of people affected by disease within our target indications, as well as the subset of these people who could benefit from treatment with our product candidates, are based on our beliefs

 

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and estimates. These estimates have been derived from a variety of sources, including scientific literature, patient foundations and market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Likewise, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or reach, which would adversely affect our results of operations and our business.

 

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

 

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face and will continue to face competition from third parties that use mRNA, gene editing or gene therapy development platforms and from companies focused on more traditional therapeutic modalities, such as small molecules. The competition is likely to come from multiple sources, including large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions.

 

Our competitors also include companies that are or will be developing other mRNA technology methods as well as small molecules, biologics and nucleic acid-based therapies for the same indications that we are targeting with our mRNA-based therapeutics.

 

Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and other resources, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even greater concentration of resources among a smaller number of competitors. Our commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products faster or earlier than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, technologies developed by our competitors may render our product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors’ products. In addition, the availability of our competitors’ products could limit the demand and the prices we are able to charge for any products that we may develop and commercialize.

 

If approved for the treatment of CF, MRT5005 would compete with Kalydeco (ivacaftor) and Orkambi, each of which is marketed by Vertex Pharmaceuticals Incorporated, or Vertex. Kalydeco (ivacaftor) is a cystic fibrosis transmembrane conductance regulator, or CFTR, potentiator that is approved for the treatment of patients with CF who have the G551D mutation or other specified mutations in their CFTR gene. Orkambi is a combination of lumacaftor, a CFTR corrector, and Kalydeco and is approved for the treatment of patients with CF who have the F508del mutation in their CFTR gene. Vertex submitted a new drug application, or NDA, in 2017 for a combination treatment of tezacaftor/ivacaftor, which is under priority review by the FDA. Tezacaftor is a CFTR corrector for the treatment of patients with CF who have at least one copy of the F508del mutation in their CFTR gene. Vertex also has several CFTR corrector compounds in clinical development, including VX-440, VX-152, VX-371, VX-659 and VX-445, each of which is in Phase 2 or Phase 3 clinical trials in combination with other drugs and product candidates. Vertex announced that it initiated Phase 3 clinical trials of VX-659 and VX-445 as part of a combination therapy in February and April 2018, respectively.

 

We are aware of several companies with product candidates for the treatment of CF in Phase 2 clinical development in addition to Vertex, including Copernicus Therapeutics Inc., Flatley Discovery Lab, LLC, Galapagos NV, Grifols S.A., NovaBiotics Ltd, Novartis AG, Novotersis LLC, Parion Sciences, Inc., Proteostasis Therapeutics, Inc., Protalix BioTherapeutics, Inc., Sanofi S.A., Spyryx Biosciences, Inc. and Verona Pharma plc. We are aware of several companies with product candidates for the treatment of CF in Phase 1 clinical

 

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development, including Galapagos NV, Alpine Immune Sciences Inc., AstraZeneca plc, Eloxx Pharmaceuticals Ltd, Flatley Discovery Lab, LLC, Paranta Biosciences Ltd., ProQR Therapeutics N.V. and Proteostasis Therapeutics, Inc. Corbus Pharmaceuticals Holdings, Inc. completed a Phase 2 clinical trial of lenabasum for the treatment of CF and initiated a Phase 2b clinical trial in the first quarter of 2018.

 

Other companies developing products that modulate or affect CFTR function for the treatment of CF also include: Editas Medicine Inc., CRISPR Therapeutics AG, Ethris GmbH and Moderna Therapeutics Inc.

 

There are currently no approved therapies that address the underlying cause of OTC deficiency. There are several ammonia scavengers that treat OTC deficiency, including Buphenyl and Ravicti, each marketed by Horizon Pharma plc, and Ammonul, marketed by Swedish Ophan Biovitrum AB and Valeant Pharmaceuticals Ireland. We are aware of several product candidates in clinical development for the treatment of OTC deficiency that may compete with MRT5201. DTX is an adeno-associated virus, or AAV, OTC gene stimulator in Phase 2 clinical development by Ultragenyx Pharmaceutical Inc. HepaStem/Heparesc is a liver progenitor cell-based therapy in Phase 2 clinical development by Promethera Biosciences S.A. Lunar-OTC is an OTC gene stimulator in preclinical development by Arcturus Therapeutics Ltd. in collaboration with CureVac. SEL-313 is an AAV-based gene therapy in preclinical development by Selecta Biosciences, Inc. in collaboration with Genetheon S.A.

 

Other companies developing products that modulate or affect OTC function for the treatment of OTC deficiency include Swedish Orphan Biovitrum AB, Roivant Sciences Ltd., Ethris GmbH and Arcturus Therapeutics Ltd.

 

Risks Related to Dependence on Third Parties

 

We may enter into collaborations with third parties to develop product candidates. If these collaborations are not successful, our business could be adversely affected.

 

As part of our strategy, we intend to seek to enter into collaborations with third parties for one or more of our programs or product candidates. Our likely collaborators for any such collaboration arrangements include large and mid-size pharmaceutical companies and biotechnology companies. If we enter into any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that any future collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenue from these arrangements will depend on any future collaborators’ abilities to successfully perform the functions assigned to them.

 

Any collaborations we enter into in the future may pose several risks, including the following:

 

   

collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

   

collaborators may not perform their obligations as expected;

 

   

the clinical trials conducted as part of these collaborations may not be successful;

 

   

collaborators may not pursue development and/or commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities;

 

   

collaborators may delay clinical trials, provide insufficient funding for clinical trials, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

   

we may not have access to, or may be restricted from disclosing, certain information regarding product candidates being developed or commercialized under a collaboration and, consequently, may have limited ability to inform our stockholders about the status of such product candidates;

 

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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

 

   

product candidates developed in collaboration with us may be viewed by any collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

 

   

a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of any such product candidate;

 

   

disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development of any product candidates, may cause delays or termination of the research, development or commercialization of such product candidates, may lead to additional responsibilities for us with respect to such product candidates or may result in litigation or arbitration, any of which would be time-consuming and expensive;

 

   

collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

 

   

disputes may arise with respect to the ownership of intellectual property developed pursuant to our collaborations;

 

   

collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

 

   

collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.

 

If our collaborations do not result in the successful development and commercialization of products, or if one of any future collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of product candidates could be delayed and we may need additional resources to develop our product candidates.

 

In addition, if any future collaborator terminates its agreement with us, we may find it more difficult to attract new collaborators and our reputation among the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval and commercialization described in this prospectus also apply to the activities of any future collaborators.

 

If we are not able to establish collaborations on commercially reasonable terms, we may have to alter our development and commercialization plans.

 

We face significant competition in attracting appropriate collaborators to advance the development of any product candidates for which we may seek a collaboration. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, EMA or other regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a

 

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challenge to such ownership without regard to the merits of the challenge, the terms of any existing collaboration agreements, and industry and market conditions generally. The collaborator may also have the opportunity to collaborate on other product candidates or technologies for similar indications and will have to evaluate whether such a collaboration could be more attractive than one with us.

 

Collaborations are complex and time-consuming to negotiate, document and execute. In addition, consolidation among large pharmaceutical companies has reduced the number of potential future collaborators.

 

Under the Shire Agreement, prior to the first dosing of a patient with a CFTR MRT Product, Shire has a 90-day right of first negotiation before we may grant rights or sell assets relating to our CFTR MRT Products to a third party. Shire may exercise the right of first negotiation for a period of 30 days following Shire’s receipt of written notice from us notifying Shire of the offer from a third party to acquire, license or commercialize grant rights or sell assets relating to our CF program.

 

We may not be able to negotiate collaborations on a timely basis, on acceptable terms or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue, which could have an adverse effect on our business, prospects, financial condition and results of operations.

 

We expect to rely on third parties to conduct our clinical trials and some aspects of our research and preclinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing.

 

We expect to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials. In addition, we currently rely and expect to continue to rely on third parties to conduct some aspects of our research and preclinical studies. Any of these third parties may terminate their engagements with us, some in the event of an uncured material breach and some at any time for convenience. If any of our relationships with these third parties terminate, we may not be able to enter into alternative arrangements on commercially reasonable terms, if at all. Switching or including additional third parties involves increased cost and requires management’s time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays may occur in our product development activities. Although we seek to carefully manage our relationships with our third parties, we could encounter similar challenges or delays in the future and these challenges or delays could have a material adverse impact on our business, financial condition and prospects.

 

Our reliance on third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards. We and these third parties are required to comply with GCP, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable regulatory authorities, for all of our products in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the EMA or comparable regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced

 

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under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a U.S. government-sponsored database, clinicaltrials.gov, within certain timeframes. Similar requirements are applicable outside the United States. Failure to comply can result in fines, adverse publicity and civil and criminal sanctions.

 

Furthermore, third parties on whom we rely may also have relationships with other entities, some of which may be our competitors. In addition, these third parties are not our employees, and except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, non-clinical and preclinical programs. If these third parties do not successfully satisfy their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our preclinical studies or clinical trials may be extended, delayed or terminated, and we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our products. As a result, our results of operations and the commercial prospects for our products would be harmed, our costs could increase and our ability to generate revenue could be impaired.

 

Our reliance on third parties to manufacture our product candidates and any future products increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

 

We do not own or operate manufacturing facilities for the production of clinical or commercial supplies of the product candidates that we are developing or evaluating in our research program. We have limited personnel with experience in drug manufacturing and lack the resources and capabilities to manufacture any of our product candidates on a clinical or commercial scale. We currently rely on third parties for supply of our product candidates, and we outsource to third parties all manufacturing of our product candidates in preparation for our clinical trials.

 

In order to conduct clinical trials of our product candidates, we will need to have them manufactured in potentially large quantities. Our third-party manufacturers may be unable to meet this increased demand in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities and at any other time. For example, ongoing data on the stability of our products may shorten the expiry of our products and lead to clinical trial material supply shortages, and potentially clinical trial delays. If these third-party manufacturers are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch of that product candidate may be delayed or not obtained, which could significantly harm our business.

 

Our use of new third-party manufacturers increases the risk of delays in production or insufficient supplies of our product candidates as we transfer our manufacturing technology to these manufacturers and as they gain experience manufacturing our product candidates.

 

Even after a third-party manufacturer has gained significant experience in manufacturing our product candidates or even if we believe we have succeeded in optimizing the manufacturing process, there can be no assurance that such manufacturer will produce sufficient quantities of our product candidates in a timely manner or continuously over time, or at all.

 

We do not currently have any agreements with third-party manufacturers for the long-term commercial supply of any of our product candidates. In the future, we may be unable to enter into such agreements with third-party manufacturers for commercial supplies of our product candidates, or may be unable to do so on

 

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acceptable terms. Even if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails risks, including:

 

   

reliance on the third party for regulatory compliance and quality assurance;

 

   

the possible breach of the manufacturing agreement by the third party;

 

   

the possible misappropriation of our proprietary information, including our trade secrets and know-how; and

 

   

the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.

 

Third-party manufacturers may not be able to comply with cGMP requirements or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and/or criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.

 

Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP requirements particularly for the development of mRNA-based therapeutics, and that might be capable of manufacturing for us.

 

If the third parties that we engage to supply any materials or manufacture product for our preclinical tests and clinical trials should cease to do so for any reason, we likely would experience delays in advancing these tests and trials while we identify and qualify replacement suppliers or manufacturers, and we may be unable to obtain replacement supplies on terms that are favorable to us. For example, we rely on one third-party supplier of the handheld nebulizer that patients in our clinical trials will use to administer MRT5005. The failure of our supplier to provide sufficient quantities, acceptable quality and timely delivery of the nebulizer at an acceptable price, or an interruption in the delivery of goods from such supplier, could delay or otherwise adversely affect our clinical trials of MRT5005, and harm our business and prospects. The use of an alternative manufacturer of the nebulizer could involve significant delays and other costs and regulatory challenges, and may not be available to us on reasonable terms, if at all. In addition, if we are not able to obtain adequate supplies of our product candidates or the substances used to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively.

 

Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any products that receive marketing approval on a timely and competitive basis.

 

Risks Related to the Commercialization of our Product Candidates

 

If we are unable to establish sales, medical affairs and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any product revenue.

 

We do not currently have a sales and marketing organization and have never commercialized a product. To successfully commercialize any products that may result from our development programs, we will need to develop these capabilities, either on our own or with others. The establishment and development of our own commercial and medical science liaison teams or the engagement of a contract sales force will be expensive and time-consuming and could delay any product launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We may seek to enter into collaborations with entities to utilize their established marketing and distribution capabilities, but we may be unable to enter into such agreements on

 

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favorable terms, if at all. If any future collaborators do not commit sufficient resources to commercialize our products, or we are unable to develop the necessary capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We compete with many well-funded and profitable pharmaceutical and biotechnology companies that currently have extensive and experienced medical affairs, marketing and sales operations to recruit, hire, train and retain marketing and sales personnel. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates. Without an internal team or the support of a third party to perform marketing, sales and medical affairs functions, we may be unable to compete successfully against these more established companies.

 

Our efforts to educate the medical community and third-party payors about the benefits of our product candidates may require significant resources and may never be successful. If any of our product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals or third-party payors, we will not be able to generate significant revenue from such product, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

The hospital formulary approval and insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate hospital formulary approval and/or insurance coverage and reimbursement for our products, if approved, could limit our ability to market those products and decrease our ability to generate product revenue.

 

We expect that hospital formulary approval and insurance coverage and reimbursement by government and other third-party payors of our products, if approved, will be essential for most patients to be able to access these treatments. Accordingly, sales of our product candidates, if approved, will depend substantially on the extent to which the costs of our product candidates will be paid by hospitals or will be reimbursed by government authorities, private health coverage insurers and other third-party payors. Hospital formulary approval and insurance coverage and reimbursement by other third-party payors may depend upon several factors, including the third-party payor’s determination that use of a product is:

 

   

a covered benefit under the applicable health plan;

 

   

safe, effective and medically necessary;

 

   

appropriate for the specific patient population;

 

   

cost-effective; and

 

   

neither experimental nor investigational.

 

Obtaining hospital formulary approval and insurance coverage and reimbursement for a product from third-party payors is a time-consuming and costly process that will require us to provide to the hospitals and payors supporting scientific, clinical and cost-effectiveness data. We may not be able to provide data sufficient to gain acceptance with respect to hospital formulary approval and insurance coverage and reimbursement. If hospital formulary approval, insurance coverage and reimbursement are not available, or are available only at limited levels, we may not be able to successfully commercialize our product candidates.

 

There is significant uncertainty related to hospital formulary approval and insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including government payors such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered and reimbursed. It is difficult to predict what third-party payors will decide with respect to the insurance coverage and reimbursement for our product candidates.

 

Outside the United States, international operations generally are subject to extensive government price controls and other market regulations, and increasing emphasis on cost-containment initiatives in the European Union, Canada and other countries may put pricing pressure on us. In many countries, the prices of medical

 

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products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries may use different methods to keep the cost of medical products artificially low. Foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable product revenue.

 

Moreover, hospitals and government and other third-party payors in the United States and abroad have increasingly taken measures to cap or reduce health care costs. For example, governmental and other third-party payors may attempt to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward reducing hospital costs, managed health care, the increasing influence of health maintenance organizations and additional legislative changes.

 

The commercial success of any of our product candidates will depend upon its degree of market acceptance by physicians, patients, hospitals, third-party payors and others in the medical community.

 

Even with the requisite approvals from the FDA in the United States, EMA in the European Union and other regulatory authorities internationally, the commercial success of our product candidates, if approved, will significantly depend on the acceptance of physicians, hospitals and health care payors of our product candidates as medically necessary, cost-effective and safe. Any product that we commercialize may not gain acceptance by physicians, hospitals, health care payors and others in the medical community. If these commercialized products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on several factors, including:

 

   

the efficacy and safety of such product candidates as demonstrated in clinical trials;

 

   

the potential and perceived advantages of our product candidates over other treatments;

 

   

the cost-effectiveness of treatment relative to alternative treatments;

 

   

the clinical indications for which the product candidate is approved by the FDA, the EMA or other regulatory body;

 

   

the willingness of physicians to prescribe new therapies over the existing standard of care and future new therapies;

 

   

the willingness of the target patient population to try new therapies;

 

   

the prevalence and severity of any side effects;

 

   

product labeling or product insert requirements of the FDA, EMA or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling, including any black box warning;

 

   

relative convenience and ease of administration;

 

   

our ability to educate the medical community and third-party payors about the benefit of our product candidates;

 

   

the strength of marketing and distribution support;

 

   

the timing of market introduction of competitive products;

 

   

any restrictions on the use of our products together with other medications;

 

   

publicity concerning our products or competing products and treatments; and

 

   

sufficient third-party payor insurance coverage and adequate reimbursement.

 

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Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be fully known until after we begin to commercialize the product.

 

If we obtain approval to commercialize our product candidates outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

 

We expect that we will be subject to additional risks in commercializing our product candidates outside the United States, including:

 

   

different regulatory requirements for approval of drugs and biologics in foreign countries;

 

   

reduced protection for intellectual property rights;

 

   

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

   

economic weakness, including inflation, or political instability foreign economies and markets;

 

   

different pricing and reimbursement regimes;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters, including earthquakes, typhoons, floods and fires.

 

Risks Related to Our Business Operations

 

Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.

 

We are highly dependent on members of our executive team. The loss of the services of any of them may adversely impact the achievement of our objectives. Any of our executive officers could leave our employment at any time, as all of our employees are “at-will” employees.

 

Recruiting and retaining qualified employees, consultants and advisors for our business, including scientific and technical personnel, is also critical to our success. Competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies and academic institutions for skilled individuals. In addition, failure to succeed in preclinical studies, clinical trials or applications for marketing approval may make it more challenging to recruit and retain qualified personnel. The inability to recruit, or loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects.

 

If we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer.

 

If we are successful in executing our business strategy, we will need to expand our managerial, operational, financial and other systems and resources to manage our operations, continue our research and development

 

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activities and, in the longer term, build a commercial infrastructure to support commercialization of any of our product candidates that are approved for sale. Future growth would impose significant added responsibilities on members of management. It is likely that our management, finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and product candidates requires that we continue to develop more robust business processes and improve our systems and procedures in each of these areas and to attract and retain sufficient numbers of talented employees. We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals.

 

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any product candidates that we may develop.

 

We face an inherent risk of product liability exposure related to the testing of our product candidates in clinical trials and may face an even greater risk if we commercialize any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any product candidates that we may develop;

 

   

loss of revenue;

 

   

substantial monetary awards to trial participants or patients;

 

   

significant time and costs to defend the related litigation;

 

   

withdrawal of clinical trial participants;

 

   

the inability to commercialize any product candidates that we may develop; and

 

   

injury to our reputation and significant negative media attention.

 

Our insurance coverage may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage each time we commence a clinical trial and if we successfully commercialize any product candidate. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

 

Our internal computer systems, or those of any collaborators, contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.

 

Our internal computer systems and those of any collaborators, contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.

 

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Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading laws.

 

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include failures to:

 

   

comply with FDA regulations or the regulations applicable in the European Union and other jurisdictions;

 

   

provide accurate information to the FDA, the EMA and other regulatory authorities;

 

   

comply with health care fraud and abuse laws and regulations in the United States and abroad;

 

   

comply with the U.S. Foreign Corrupt Practices Act, or FCPA, or other anti-corruption laws and regulations;

 

   

comply with U.S. federal securities laws relating to trading in our common stock;

 

   

report financial information or data accurately; or

 

   

disclose unauthorized activities to us.

 

In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations regulate a wide range of pricing, discounting, marketing and promotional practices, as well as sales and customer incentive programs and other business arrangements. Other forms of misconduct could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA, EMA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. We expect to adopt a code of conduct and implement other internal controls applicable to all of our employees, consultants and contractors, but it is not always possible to identify and deter third-party misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, we may be subject to civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government health care programs, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations, any of which could have a significant impact on our business, financial condition, results of operations and prospects.

 

Risks Related to Our Intellectual Property

 

If we are unable to obtain and maintain patent protection for our products and technology, or if the scope of the patent protection obtained is not sufficiently broad or robust, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our products and technology may be adversely affected.

 

Our success depends, in large part, on our ability to obtain and maintain patent protection in the United States and other countries with respect to our product candidates and technology. We and our licensors have sought, and intend to seek, to protect our proprietary position by filing patent applications in the United States and abroad related to our product candidates and technology that are important to our business.

 

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has, in recent years, been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our

 

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pending and future patent applications may not result in patents being issued which protect our technology or product candidates or which effectively prevent others from commercializing competitive technologies and product candidates. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or our licensors were the first to file a patent application relating to any particular aspect of a product candidate. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be initiated by such third party, or by the United States Patent and Trademark Office, or USPTO, itself, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications.

 

The patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.

 

Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our licensed patents and/or applications and any patent rights we own or may own in the future. We rely, in part, on our outside counsel or our licensing partners to pay these fees due to the USPTO and to non-U.S. patent agencies. The USPTO and various non-U.S. government patent agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply and we are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market and this circumstance could have a material adverse effect on our business.

 

Filing, prosecuting and enforcing patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from infringing our patents in all countries outside the United States, or from selling or importing products that infringe our patents in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

Even if the patent applications we license or own do issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us or otherwise provide us with any competitive advantage. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner.

 

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and product candidates. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual

 

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property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

 

Our product candidates may face competition from biosimilars approved through an abbreviated regulatory pathway.

 

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-approved reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first approved by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first approved. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full Biologics License Application, or BLA, for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the other company’s product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty.

 

We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

 

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

 

As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity, and obtaining and enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, and these decisions have narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our and our licensors’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on future decisions by the U.S. Congress, the federal courts and the USPTO, as well as similar bodies in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents and patents we and our licensors or any collaborators may obtain in the future.

 

Patent reform legislation enacted in the United States in 2011 could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation and switch the U.S. patent system from a “first to invent” system to a “first inventor to file”

 

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system. The USPTO has developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular the first inventor to file provisions, became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents, all of which could have a material adverse effect on our business and financial condition.

 

Our rights to develop and commercialize our product candidates are subject, in part, to the terms and conditions of licenses granted to us by others, and, if we fail to comply with our obligations under these arrangements, we could lose such intellectual property rights or owe damages to the licensor of such intellectual property.

 

We are a party to several intellectual property license agreements, including agreements with the Massachusetts Institute of Technology, or MIT, that are important to our business, and may need to obtain additional licenses from others to advance our research or allow commercialization of our product candidates. These and other licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and product candidates in the future. It is possible that we may be unable to obtain additional licenses at a reasonable cost or on reasonable terms, if at all. As a result, we may not be able to prevent competitors from developing and commercializing competitive products in territories included in all of our licenses. In that event, we may be required to expend significant time and resources to redesign our product candidates or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could harm our business significantly.

 

Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, development and commercialization timelines, milestone payments, royalties and other obligations on us. See “Business—License Agreements.” If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license.

 

For example, our license agreement with MIT imposes specified diligence, annual payment, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under the license agreement, MIT may have the right to terminate the license agreement, in which event we might not be able to market, and may be required to transfer to MIT our rights in, any product that is covered by the MIT agreement, including MRT5201. Termination of the license agreement may also result in our having to negotiate a new or reinstated license with less favorable terms, which would have a material adverse impact on our business.

 

In our existing license agreements, and we expect in future agreements, patent prosecution of our licensed technology is in certain cases controlled solely by the licensor, and we are in certain cases required to reimburse the licensor for their costs of patent prosecution. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products covered by the intellectual property. Further, in each of our license agreements, we are responsible for bringing any actions against any third party for infringing the patents we have licensed. Certain of our license agreements also require us to meet development thresholds to maintain the license, including establishing a set timeline for developing and commercializing products and minimum yearly diligence obligations in developing and commercializing the product. Disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

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the extent to which our technology and processes infringe the intellectual property of the licensor that is not subject to the licensing agreement;

 

   

the sublicensing of patent and other rights under any collaborative development relationships;

 

   

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

   

the inventorship or ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

 

   

the priority of invention of patented technology.

 

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

 

In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful.

 

Competitors may infringe our patents or the patents of our licensing partners, or we may be required to defend against claims of infringement. Countering infringement or unauthorized use claims or defending against claims of infringement can be expensive and time-consuming. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

 

In addition, many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own, develop or license.

 

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Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court. We may not be able to protect our trade secrets in court.

 

If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. In addition, patent validity challenges may, under certain circumstances, be based upon non-statutory obviousness-type double patenting, which, if successful, could result in a finding that the claims are invalid for obviousness-type double patenting or the loss of patent term, including a patent term adjustment granted by the USPTO, if a terminal disclaimer is filed to obviate a finding of obviousness-type double patenting. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld information material to patentability from the USPTO, or made a misleading statement, during prosecution. Third parties also may raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, inter partes review and equivalent proceedings in foreign jurisdictions. Such proceedings could result in the revocation or cancellation of or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art of which the patent examiner and we or our licensing partners were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we could lose at least part, and perhaps all, of the patent protection on one or more of our product candidates. Such a loss of patent protection could have a material adverse impact on our business.

 

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect, and some courts inside and outside the United States are less willing or unwilling to protect trade secrets. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

 

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

 

Our commercial success depends upon our ability and the ability of any collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights and intellectual property of third parties. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current manufacturing methods, product candidates or future methods or products, resulting in either an injunction prohibiting our manufacture or sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties. The biotechnology and pharmaceutical industries are characterized by extensive and complex litigation regarding patents and other intellectual property rights. We may in the future become party to, or be threatened with,

 

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adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates and technology, including interference proceedings, post grant review and inter partes review before the USPTO. The risks of being involved in such litigation and proceedings may also increase as our product candidates approach commercialization and as we gain greater visibility as a public company. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could materially and adversely affect our ability to commercialize any of our product candidates or technologies covered by the asserted third-party patents. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent.

 

If we are found to infringe a third party’s valid and enforceable intellectual property rights, we could be required to obtain a license from such third party to continue developing, manufacturing and marketing our product candidates and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing technology or product candidates. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. A finding of infringement could prevent us from manufacturing and commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial condition, results of operations and prospects.

 

Others may claim an ownership interest in our intellectual property and our product candidates, which could expose us to litigation and have a significant adverse effect on our prospects.

 

While we are presently unaware of any claims or assertions by third parties with respect to our patents or other intellectual property, we cannot guarantee that a third party will not assert a claim or an interest in any of such patents or intellectual property. For example, a third party may claim an ownership interest in one or more of our, or our licensors’, patents or other proprietary or intellectual property rights. A third party could bring legal actions against us and seek monetary damages or enjoin clinical testing, manufacturing or marketing of the affected product candidate or product. If we become involved in any litigation, it could consume a substantial portion of our resources and cause a significant diversion of effort by our technical and management personnel. If any such action is successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the affected product candidate or product, in which case we could be required to pay substantial royalties or grant cross-licenses to patents. We cannot, however, assure you that any such license would be available on acceptable terms, if at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations as a result of claims of patent infringement or violation of other intellectual property rights. Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses and the identity of any adverse party. This is especially true in intellectual property cases, which may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations or prospects.

 

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If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.

 

Trade secrets and know-how can be difficult to protect. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. Thus, despite such agreement, there can be no assurance that such inventions will not be assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all.

 

Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery. For example, a public presentation in the scientific or popular press on the properties of our product candidates could motivate a third party, despite any perceived difficulty, to assemble a team of scientists having backgrounds similar to those of our employees to attempt to independently reverse engineer or otherwise duplicate our antibody technologies to replicate our success.

 

We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.

 

Many of our employees, consultants or advisors are currently, or were previously, employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals, or we, have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or current employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

 

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-

 

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executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property.

 

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

 

Any registered trademarks or trade names may be challenged, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.

 

Intellectual property rights do not necessarily address all potential threats.

 

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

   

others may be able to make products that are similar to our product candidates but that are not covered by the claims of the patents that we own or license or may own in the future;

 

   

we, or any partners or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or may own in the future;

 

   

we, or any partners or collaborators, might not have been the first to file patent applications covering certain of our or their inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or licensed intellectual property rights;

 

   

it is possible that our pending licensed patent applications or those that we may own in the future will not lead to issued patents;

 

   

issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors;

 

   

our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

   

we may not develop additional proprietary technologies that are patentable;

 

   

the patents of others may have an adverse effect on our business; and

 

   

we may choose not to file a patent for certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

 

Should any of these events occur, they could significantly harm our business, financial condition, results of operations and prospects.

 

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Risks Related to Regulatory Approval and Other Legal Compliance Matters

 

The regulatory approval process of the FDA is lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

 

The time required to obtain approval by the FDA is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates, or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

 

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

   

the FDA may disagree with the design or implementation of our clinical trials;

 

   

we may be unable to demonstrate to the satisfaction of the FDA that a product candidate is safe, pure and potent or effective for its proposed indication;

 

   

results of clinical trials may not meet the level of statistical significance required by the FDA for approval;

 

   

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

   

the FDA may disagree with our interpretation of data from preclinical studies or clinical trials;

 

   

data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA to the FDA or other submission or to obtain regulatory approval in the United States;

 

   

the FDA may find deficiencies with or fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

   

the approval policies or regulations of the FDA may significantly change in a manner rendering our clinical data insufficient for approval.

 

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations and prospects. The FDA has substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA.

 

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

 

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Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us or any future collaborators from obtaining approvals for the commercialization of some or all of our product candidates. As a result, we cannot predict when or if, and in which territories, we, or any future collaborators, will obtain marketing approval to commercialize a product candidate.

 

The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of drug products are subject to extensive regulation by the FDA, EMA and other regulatory authorities, and regulations may differ from country to country. We, and any future collaborators, are not permitted to market our product candidates in the United States or in other countries until we, or they, receive approval of a BLA from the FDA, approval of a marketing authorization application, or MAA, from the EMA, or marketing approval from other applicable regulatory authorities. Our product candidates are in various stages of development and are subject to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our product candidates in the United States, Europe or in any other jurisdiction. We have not yet been successful at conducting and managing the clinical trials necessary to obtain marketing approvals, including FDA approval of a BLA and EMA approval of an MAA.

 

The process of obtaining marketing approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved.

 

In addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical studies and clinical trials could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we, or any future collaborators, ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

 

Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability or that of any future collaborators to generate revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.

 

Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad and may limit our ability to generate revenue from product sales.

 

In order to market and sell our products in the European Union and many other jurisdictions, we, and any future collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The marketing approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. We, and any future collaborators, may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA.

 

In many countries outside the United States, a product candidate must also be approved for reimbursement before it can be sold in that country. In some cases, the price that we intend to charge for our products, if approved, is also subject to approval. Obtaining non-U.S. regulatory approvals and compliance with non-U.S. regulatory requirements could result in significant delays, difficulties and costs for us and any future

 

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collaborators and could delay or prevent the introduction of our product candidates in certain countries. In addition, if we or any future collaborators fail to obtain the non-U.S. approvals required to market our product candidates outside the United States or if we or any future collaborators fail to comply with applicable non-U.S. regulatory requirements, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business, financial condition, results of operations and prospects may be adversely affected.

 

We, or any future collaborators, may not be able to obtain and maintain orphan drug exclusivity for our product candidates in the United States and Europe.

 

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs and biologics for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug or biologic intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States. In November 2015, the FDA granted orphan drug designation to MRT5005 for the treatment of CF, and in March 2018, the FDA granted orphan drug designation to MRT5201 for the treatment of OTC deficiency. We may seek orphan drug designations for MRT5005 and MRT5201 for other indications or for other of our product candidates. There can be no assurances that we will be able to obtain such designations.

 

Even if we, or any future collaborators, obtain orphan drug designation for a product candidate as we have obtained for MRT5005 for the treatment of CF and for MRT5201 for the treatment of OTC deficiency, we, or they, may not be able to obtain or maintain orphan drug exclusivity for that product candidate. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same product for that time period. The applicable period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition. Moreover, even after an orphan drug is approved, the FDA can subsequently approve a different product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

 

On August 3, 2017, Congress passed the FDA Reauthorization Act of 2017, or FDARA. FDARA, among other things, codified the FDA’s pre-existing regulatory interpretation, to require that a drug sponsor demonstrate the clinical superiority of an orphan drug that is otherwise the same as a previously approved drug for the same rare disease in order to receive orphan drug exclusivity. The new legislation reverses prior precedent holding that the Orphan Drug Act unambiguously requires that the FDA recognize the orphan exclusivity period regardless of a showing of clinical superiority. The FDA may further reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.

 

We may seek fast track designation by the FDA for one or more of our product candidates, but we might not receive such designation, and even if we do, such designation may not actually lead to a faster development or regulatory review or approval process.

 

If a product is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet needs for this condition, the treatment sponsor may apply for FDA fast track designation. If we seek fast track designation for a product candidate, we may not receive it from the FDA. However, even if we receive fast track designation, fast track designation does not ensure that we will

 

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receive marketing approval or that approval will be granted within any particular timeframe. We may not experience a faster development, regulatory review or approval process with fast track designation compared to conventional FDA procedures. Additionally, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast track designation alone does not guarantee qualification for the FDA’s priority review procedures.

 

A breakthrough therapy designation by the FDA for a product candidate may not lead to a faster development or regulatory review or approval process, and it would not increase the likelihood that the product candidate will receive marketing approval.

 

We may seek a breakthrough therapy designation for one or more product candidates. A breakthrough therapy is defined as a product candidate that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Product candidates designated as breakthrough therapies by the FDA are also eligible for priority review if supported by clinical data at the time of the submission of the BLA.

 

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under conventional FDA procedures and it would not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the product candidate no longer meets the conditions for qualification or it may decide that the time period for FDA review or approval will not be shortened.

 

Even if we, or any future collaborators, obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.

 

Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation. We, and any future collaborators, must therefore comply with requirements concerning advertising and promotion for any of our product candidates for which we or they obtain marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we, and any future collaborators will not be able to promote any products we develop for indications or uses for which they are not approved.

 

In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our third-party manufacturers, any future collaborators and their third-party manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs.

 

Accordingly, assuming we, or any future collaborators, receive marketing approval for one or more of our product candidates, we, and any future collaborators, and our respective third-party manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.

 

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If we, and any future collaborators, are not able to comply with post-approval regulatory requirements, we, and any future collaborators, could have the marketing approvals for our products withdrawn by regulatory authorities and our, or any future collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

 

Any of our product candidates for which we, or any future collaborators, obtain marketing approval in the future could be subject to post-marketing restrictions or withdrawal from the market and we, or any future collaborators, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.

 

Any of our product candidates for which we, or any future collaborators, obtain marketing approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject to continual requirements of and review by the FDA, EMA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the requirement to implement a REMS.

 

The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or any future collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the Federal Food, Drug, and Cosmetic Act and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.

 

In addition, later discovery of previously unknown side effects or other problems with our products or their manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

 

   

restrictions on such products, manufacturers or manufacturing processes;

 

   

restrictions on the labeling or marketing of a product;

 

   

restrictions on product distribution or use;

 

   

requirements to conduct post-marketing studies or clinical trials;

 

   

warning letters or untitled letters;

 

   

withdrawal of the products from the market;

 

   

refusal to approve pending applications or supplements to approved applications that we submit;

 

   

recall of products;

 

   

restrictions on coverage by third-party payors;

 

   

fines, restitution or disgorgement of profits or revenue;

 

   

suspension or withdrawal of marketing approvals, including license revocation;

 

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refusal to permit the import or export of products;

 

   

product seizure; and

 

   

injunctions or the imposition of civil or criminal penalties.

 

Our relationships with health care providers, physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other health care laws and regulations, which could expose us to civil, criminal and administrative sanctions, contractual damages, reputational harm and diminished future profits and earnings.

 

Health care providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any drugs for which we obtain marketing approval. Our future arrangements with third-party payors, health care providers and physicians may expose us to broadly applicable fraud and abuse and other health care laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any drugs for which we obtain marketing approval. These include the following:

 

   

Anti-Kickback Statute—the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing any remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good, facility, item or service, for which payment may be made, in whole or in part, by a federal health care program, such as Medicare and Medicaid;

 

   

False Claims Act—the federal civil and criminal false claims laws impose criminal and civil penalties, including, in some cases, through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal health care program or knowingly making a false statement or record material to payment of a false claim or knowingly avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties;

 

   

HIPAA—the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any health care benefit program or making false statements relating to health care matters, and apply regardless of the payor (e.g., public or private);

 

   

HIPAA and HITECH—HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, which impose obligations on HIPAA covered entities and their business associates, including mandatory contractual terms and required implementation of administrative, physical and technical safeguards to maintain the privacy and security of individually identifiable health information;

 

   

Transparency Requirements—federal transparency laws, including the federal Physician Payments Sunshine Act, require applicable manufacturers of covered drugs to annually report payments and other transfers of value to physicians and teaching hospitals and ownership or investment interests held by physicians and their family members; and

 

   

Analogous State and Foreign Laws—analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, which may be broader than similar federal laws, can apply to claims involving health care items or services regardless of payor, and are enforced by many different federal and state agencies as well as through private actions.

 

Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require

 

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drug manufacturers to report information related to payments and other transfers of value to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.

 

Efforts to ensure that our business arrangements with third parties will comply with applicable health care laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other health care laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and/or administrative penalties, damages, fines, individual imprisonment, disgorgement, exclusion of drugs from government funded health care programs, such as Medicare and Medicaid, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. If any of the physicians or other health care providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded health care programs.

 

The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the European Union. The provision of benefits or advantages to physicians is governed by the national anti-bribery laws of European Union Member States, such as the U.K. Bribery Act 2010, or the Bribery Act. Infringement of these laws could result in substantial fines and imprisonment.

 

Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.

 

The collection and use of personal health data in the European Union is governed by the provisions of the Data Protection Directive. This directive imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The Data Protection Directive also imposes strict rules on the transfer of personal data out of the European Union to the United States. Failure to comply with the requirements of the Data Protection Directive and the related national data protection laws of the European Union Member States may result in fines and other administrative penalties. The draft Data Protection Regulation currently going through the adoption process is expected to introduce new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. If the draft Data Protection Regulation is adopted in its current form it may increase our responsibility and liability in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. This may be onerous and adversely affect our business, financial condition, results of operations and prospects.

 

Current and future legislation may increase the difficulty and cost for us and any future collaborators to obtain marketing approval of and commercialize our product candidates and affect the prices we, or they, may obtain.

 

In the United States and some foreign jurisdictions, there have been and continue to be a number of legislative and regulatory changes and proposed changes regarding the health care system that could, among

 

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other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability, or the ability of any future collaborators, to profitably sell any products for which we, or they, obtain marketing approval. We expect that current laws, as well as other health care reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any future collaborators, may receive for any approved products.

 

In March 2010, President Obama signed into law the ACA. Among the provisions of the ACA of importance to our business, including, without limitation, our ability to commercialize and the prices we may obtain for any of our product candidates are the following:

 

   

an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products;

 

   

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

 

   

expansion of federal health care fraud and abuse laws, including the civil False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance;

 

   

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices;

 

   

extension of manufacturers’ Medicaid rebate liability;

 

   

expansion of eligibility criteria for Medicaid programs;

 

   

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

 

   

new requirements to report certain financial arrangements with physicians and teaching hospitals;

 

   

a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and

 

   

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

 

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions to Medicare payments to providers of 2% per fiscal year that starting 2013 and, due to subsequent legislative amendments to the statute, the reductions will stay in effect through 2025 unless additional congressional action is taken, and the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws and any new health care reform measures may result in additional reductions in Medicare and other health care funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. Further, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.

 

We expect that these health care reforms, as well as other health care reform measures that may be adopted in the future, may result in additional reductions in Medicare, Medicaid and other health care funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels may negatively impact the

 

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prices we receive or the frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare, Medicaid or other government programs may result in a similar reduction in payments from private payors.

 

Since enactment of the ACA, there have been numerous legal challenges and Congressional actions to repeal and replace provisions of the law. In May 2017, the U.S. House of Representatives passed legislation known as the American Health Care Act of 2017. Thereafter, the Senate Republicans introduced and then updated a bill to replace the ACA known as the Better Care Reconciliation Act of 2017. The Senate Republicans also introduced legislation to repeal the ACA without companion legislation to replace it, and a “skinny” version of the Better Care Reconciliation Act of 2017. In addition, the Senate considered proposed health care reform legislation known as the Graham-Cassidy bill. None of these measures was passed by the U.S. Senate.

 

The Trump Administration has also taken executive actions to undermine or delay implementation of the ACA. In January 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, health care providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In October 2017, the President signed a second Executive Order allowing for the use of association health plans and short-term health insurance, which may provide fewer health benefits than the plans sold through the ACA exchanges. At the same time, the Administration announced that it will discontinue the payment of cost-sharing reduction, or CSR, payments to insurance companies until Congress approves the appropriation of funds for such CSR payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA.

 

A bipartisan bill to appropriate funds for CSR payments was introduced in the Senate, but the future of that bill is uncertain. Further, each chamber of Congress has put forth multiple bills designed to repeal or repeal and replace portions of the ACA. Although none of these measures has been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements of the ACA. Congress will likely consider other legislation to replace elements of the ACA, during the next Congressional session. We will continue to evaluate the effect that the ACA and its possible repeal and replacement could have on our business.

 

The costs of prescription pharmaceuticals in the United States has also been the subject of considerable discussion in the United States, and members of Congress and the Administration have stated that they will address such costs through new legislative and administrative measures. The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenue and become profitable could be impaired.

 

Finally, legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us and any future collaborators to more stringent product labeling and post-marketing testing and other requirements.

 

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Governments outside of the United States tend to impose strict price controls, which may adversely affect our revenues from the sales of drugs, if any.

 

In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug. To obtain reimbursement or pricing approval in some countries, we, or our future collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our drug to other available therapies. If reimbursement of our drugs is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially harmed.

 

We are subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, results of operations and financial condition.

 

Our operations are subject to anti-corruption laws, including the FCPA, the Bribery Act, and other anti-corruption laws that apply in countries where we do business and may do business in the future. The FCPA, the Bribery Act, and these other laws generally prohibit us, our officers and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We may in the future operate in jurisdictions that pose a high risk of potential FCPA or Bribery Act violations, and we may participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA, the Bribery Act, or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

 

We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United States, United Kingdom, and authorities in the European Union, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations, which we collectively refer to as Trade Control Laws.

 

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA, the Bribery Act, or other legal requirements, including Trade Control Laws. If we are not in compliance with the FCPA, the Bribery Act, and other anti-corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. The Securities and Exchange Commission, or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Likewise, any investigation of any potential violations of the FCPA, the Bribery Act, other anti-corruption laws or Trade Control Laws by U.S., U.K. or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.

 

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could significantly harm our business.

 

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Although we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of

 

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contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

 

We maintain workers’ compensation insurance to cover costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts, which could adversely affect our business, financial condition, results of operations or prospects. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.

 

Risks Related to this Offering and Ownership of Our Common Stock

 

After this offering, our executive officers, directors and principal stockholders will maintain the ability to control all matters submitted to stockholders for approval.

 

Assuming the sale by us of                  shares of common stock in this offering (or                  shares if the underwriters exercise their option to purchase additional shares in full) and based on the number of shares outstanding as of April 30, 2018, assuming the automatic conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock before this offering will, in the aggregate, beneficially own shares representing approximately     % of our capital stock (or     % if the underwriters exercise their option to purchase additional shares in full), not including any shares purchased by these stockholders in this offering. In addition, two of our directors are affiliated with stockholders who each beneficially owned more than 5% of our outstanding common before this offering, assuming the automatic conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering. If these stockholders were to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and business affairs. For example, these persons, if they act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in management of our company that other stockholders disagree with.

 

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is performing well.

 

Sales of a substantial number of shares of our common stock in the public market could occur at any time, subject to certain restrictions described below. These sales, or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have outstanding                shares of common stock based on the number of shares outstanding as of April 30, 2018, assuming the automatic conversion of all outstanding shares of our preferred stock into common stock upon the closing of this offering (or                shares if the underwriters exercise their option to purchase additional shares in full). Of the                shares to be outstanding immediately after the closing of this offering, the                shares sold in this offering (assuming the underwriters do not exercise their option to purchase additional shares) may be resold in the public market immediately without restriction, unless purchased by our affiliates. The remaining                  shares will be restricted as a result of securities laws or lock-up agreements but will be able to be sold after the offering as described in the “Shares Eligible for Future Sale” and “Underwriting” sections of this prospectus.

 

Moreover, after this offering, holders of an aggregate of approximately 181,095,276 shares of our common stock will have rights, subject to certain conditions, to require us to file registration statements covering their

 

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shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the “Underwriting” section of this prospectus.

 

If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.

 

The initial public offering price of our common stock will be substantially higher than the pro forma as adjusted net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our pro forma as adjusted net tangible book value per share after this offering. To the extent outstanding options are exercised, you will incur further dilution. Based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $         per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering and the assumed initial public offering price. See “Dilution.”

 

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.

 

The trading market for our common stock will rely, in part, on the research and reports that industry or financial analysts publish about us or our business. We do not currently have, and may never obtain, research coverage by industry or financial analysts. If no, or few, analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

 

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

 

Our stock price is likely to be volatile. The stock market in general, and the market for biopharmaceutical companies in particular, has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

 

   

results of preclinical studies and clinical trials of our product candidates or those of our competitors;

 

   

the success of competitive products or technologies;

 

   

commencement or termination of collaborations;

 

   

regulatory or legal developments in the United States and other countries;

 

   

developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

the level of expenses related to any of our product candidates or clinical development programs;

 

   

the results of our efforts to discover, develop, acquire or in-license additional product candidates;

 

   

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

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variations in our financial results or those of companies that are perceived to be similar to us;

 

   

changes in the structure of health care payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

the entry into significant acquisitions, strategic partnerships or divestitures by us or our competitors;

 

   

significant sales of our common stock, including sales by our directors, executive officers or 5% stockholders;

 

   

general economic, industry and market conditions; and

 

   

the other factors described in this “Risk Factors” section.

 

If any of the foregoing matters were to occur, or if our operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation often has been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources, which could seriously harm our business, financial condition, results of operations and prospects.

 

An active trading market for our common stock may not develop.

 

Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the underwriters. Although we have applied to have our common stock listed on the Nasdaq Global Market, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares, or at all.

 

We have broad discretion in the use of our cash, cash equivalents and short-term investments, including the net proceeds from this offering, and may not use them effectively.

 

Our management will have broad discretion in the use of our cash, cash equivalents and short-term investments, including the net proceeds from this offering, and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest our cash and cash equivalents, including the net proceeds from this offering, in a manner that does not produce income or that loses value. See “Use of Proceeds.”

 

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

 

We are an “emerging growth company,” or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an EGC until the earlier of: (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the last day of the first year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30. For so long as we remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not EGCs. These exemptions include:

 

   

being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus;

 

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not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

   

reduced disclosure obligations regarding executive compensation;

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved; and

 

   

an exemption from compliance with the requirement of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on the financial statements.

 

We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting requirements in this prospectus. In particular, we have not included all of the executive compensation information that would be required if we were not an EGC and we have presented only two years of audited financial statements and correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure. We cannot predict whether investors will find our common stock less attractive if we rely on certain or all of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

In addition, the JOBS Act provides that an EGC may take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not EGCs.

 

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and requirements.

 

As a public company, and particularly after we are no longer an EGC, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules subsequently implemented by the SEC and the Nasdaq Stock Market have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors.

 

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

 

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us, as and when required, conducted in connection with Section 404 of the Sarbanes-Oxley Act, or Section 404, or any subsequent testing by our independent registered public accounting firm, as and when required, may reveal deficiencies in our internal control over financial reporting that are deemed to be significant deficiencies or material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

 

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Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an EGC, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

 

We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.

 

We have identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

In preparation of our financial statements to meet the requirements of this offering, we determined that a material weakness in our internal control over financial reporting existed during fiscal 2016 and remained unremediated as of December 31, 2017. The material weakness we identified is that we did not design and maintain effective controls and procedures over our accounting for and reporting of the income tax impacts of business combinations. This control deficiency could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected, and accordingly, we determined that the control deficiency constitutes a material weakness. The material weakness also resulted in revisions to our previously issued 2016 annual consolidated financial statements, which we concluded were not material to those financial statements, and adjustments to our interim consolidated financial statements for the nine months ended September 30, 2017 before their issuance. Specifically, the material weakness resulted in errors in our accounting for and reporting of income taxes and goodwill in the purchase accounting for a business combination and in subsequent reporting periods.

 

We are in the process of implementing a remediation plan designed to improve our internal control over financial reporting and remediate the control deficiency that led to this material weakness.

 

We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. In addition, neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required. Had we or our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified. If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or identify any additional material weaknesses in the future, or otherwise fail to maintain an effective system of internal controls, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain

 

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compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our share price may decline as a result.

 

Provisions in our certificate of incorporation and bylaws and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

 

Provisions in our certificate of incorporation and our bylaws that will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

 

   

establish a classified board of directors such that not all members of the board are elected at one time;

 

   

allow the authorized number of our directors to be changed only by resolution of our board of directors;

 

   

limit the manner in which stockholders can remove directors from the board;

 

   

establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

 

   

require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

 

   

limit who may call stockholder meetings;

 

   

authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

 

   

require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our certificate of incorporation or bylaws.

 

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

 

Our certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

 

Our certificate of incorporation, which will be effective upon the closing of this offering, will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty owed by our directors, officers, other employees or stockholders to the company or our stockholders, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law or as to which the Delaware General Corporation Law

 

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confers jurisdiction on the Court of Chancery of the State of Delaware, or any action asserting a claim arising pursuant to our certificate of incorporation or our bylaws or governed by the internal affairs doctrine. This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, other employees or other stockholders, which may discourage such lawsuits against us and our directors, officers, other employees or other stockholders. Alternatively, if a court were to find this provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

 

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future, and investors seeking cash dividends should not purchase shares of our common stock.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

 

The forward-looking statements in this prospectus include, among other things, statements about:

 

   

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;

 

   

our estimates regarding expenses, future revenue, capital requirements and need for additional financing;

 

   

our plans to develop our product candidates;

 

   

the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for our product candidates;

 

   

our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents and short-term investments and proceeds from this offering;

 

   

the potential advantages of our product candidates;

 

   

the rate and degree of market acceptance and clinical utility of our product candidates;

 

   

our estimates regarding the potential market opportunity for our product candidates;

 

   

our commercialization, marketing and manufacturing capabilities and strategy;

 

   

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;

 

   

our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

 

   

our expectations related to the use of proceeds from this offering;

 

   

the impact of government laws and regulations;

 

   

our competitive position;

 

   

developments relating to our competitors and our industry;

 

   

our ability to establish collaborations or obtain additional funding; and

 

   

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding

 

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that our actual future results may be materially different from what we expect. The forward-looking statements contained in this prospectus are made as of the date of this prospectus, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.

 

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates of potential market opportunities. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.

 

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USE OF PROCEEDS

 

We estimate that the net proceeds from our issuance and sale of                 shares of our common stock in this offering will be approximately $         million, or approximately $         million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the net proceeds to us from this offering by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $         million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

As of March 31, 2018, we had cash, cash equivalents and short-term investments of $36.8 million. We currently estimate that we will use the net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, as follows:

 

   

approximately $         million to fund the development of MRT5005 for the treatment of patients with cystic fibrosis;

 

   

approximately $         million to fund the development of MRT5201 for the treatment of patients with ornithine transcarbamylase deficiency;

 

   

approximately $         million to fund discovery and additional preclinical research and development of additional product candidates and platform enhancement; and

 

   

the remainder for working capital and other general corporate purposes.

 

We may use a portion of the net proceeds from this offering for the acquisition of businesses, technologies or other assets that we believe are complementary to our own, although we currently have no agreements, commitments or understandings with respect to any such transaction.

 

This expected use of net proceeds from this offering and our existing cash, cash equivalents and short-term investments represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from clinical trials, the timing of regulatory submissions and the outcome of regulatory review, as well as any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

 

We believe that the anticipated net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, will enable us to fund our operating expenses and capital expenditure requirements through                . We do not expect that the net proceeds from this offering and our existing cash, cash equivalents and short-term investments will be sufficient to enable us to complete our Phase 1/2 clinical trial of MRT5005 or our planned Phase 1/2 clinical trial of MRT5201. We will require additional capital to advance MRT5005 and MRT5201 through necessary clinical trials and complete the clinical development of MRT5005 and MRT5201, commercialize either product candidate, if we receive regulatory approval, and pursue in-licenses or acquisitions of other product candidates, if any. Due to the numerous risks and uncertainties associated with product development, including the risks and uncertainties with respect to successful enrollment and completion of clinical trials, at this time, we cannot reasonably estimate the amount of additional funding that will be

 

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necessary to complete the clinical development of MRT5005, MRT5201 or any future product candidates. If we receive regulatory approval for MRT5005, MRT5201 or other product candidates, we will incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution.

 

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

 

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DIVIDEND POLICY

 

We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the discretion of our board of directors and will depend on then-existing conditions, including our results of operations, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

 

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CAPITALIZATION

 

The following table sets forth our cash, cash equivalents and short-term investments and our capitalization as of March 31, 2018:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to (i) our issuance of                  shares of common stock to Shire upon the closing of this offering in satisfaction of contractual obligations, based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the reclassification of the contingent consideration liability related to such shares; (ii) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 142,288,292 shares of common stock upon the closing of this offering; and (iii) the filing and effectiveness of our restated certificate of incorporation upon the closing of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to our issuance and sale of          shares of our common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The pro forma and pro forma as adjusted information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information together with our consolidated financial statements and related notes appearing at the end of this prospectus and the information set forth under the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of March 31, 2018  
     Actual     Pro Forma     Pro Forma
As Adjusted
 
     (in thousands, except share and per
share amounts)
 

Cash, cash equivalents and short-term investments

   $ 36,798     $ 36,798     $               
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock (Series A, B and C), $0.001 par value; 145,833,064 shares authorized, 142,288,292 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   $ 193,081     $ —       $  
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

      

Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted

     —         —      

Common stock, $0.001 par value; 236,092,611 shares authorized, 53,237,559 shares issued and outstanding, actual; 200,000,000 shares authorized,                  shares issued and outstanding, pro forma; 200,000,000 shares authorized,                  shares issued and outstanding, pro forma as adjusted

     53      

Additional paid-in capital

     56,359      

Accumulated deficit

     (170,017     (170,017  

Accumulated other comprehensive income

     —         —      
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (113,605     80,970    
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 79,476     $ 80,970     $  
  

 

 

   

 

 

   

 

 

 

 

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Our capitalization following the closing of this offering will depend on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ equity and total capitalization by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ equity and total capitalization by $         million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

The table above is based on the number of shares of common stock outstanding as of March 31, 2018, and excludes:

 

   

32,021,875 shares of common stock issuable upon exercise of stock options outstanding as of March 31, 2018 at a weighted average exercise price of $1.34 per share;

 

   

4,107,659 shares of common stock available for future issuance as of March 31, 2018 under our 2016 Stock Incentive Plan, as amended; and

 

   

13,956,456 and 2,326,076 additional shares of our common stock that will become available for future issuance under our 2018 Equity Incentive Plan and our 2018 Employee Stock Purchase Plan, respectively, each of which will become effective immediately prior to the effectiveness of the registration statement of which this prospectus is a part, as well as any automatic increases in the number of shares of common stock reserved for future issuance under these plans.

 

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DILUTION

 

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.

 

Our historical net tangible book value (deficit) as of March 31, 2018 was $(244.2) million, or $(4.59) per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and the carrying value of our preferred stock, which is not included within stockholders’ equity (deficit). Historical net tangible book value (deficit) per share represents historical net tangible book value (deficit) divided by the 53,237,559 shares of our common stock outstanding as of March 31, 2018.

 

Our pro forma net tangible book value (deficit) as of March 31, 2018 was $(49.6) million, or $         per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to (i) our issuance of                  shares of common stock to Shire upon the closing of this offering in satisfaction of contractual obligations, based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the reclassification of the contingent consideration liability related to such shares; and (ii) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 142,288,292 shares of common stock upon the closing of this offering. Pro forma net tangible book value (deficit) per share represents pro forma net tangible book value (deficit) divided by the total number of shares outstanding as of March 31, 2018, after giving effect to the pro forma adjustments described above.

 

After giving further effect to our issuance and sale of                 shares of our common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 would have been $         million, or $         per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $         to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $         to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the assumed initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

     $               

Historical net tangible book value (deficit) per share as of March 31, 2018

   $ (4.59  

Increase per share attributable to the pro forma adjustments described above

    
  

 

 

   

Pro forma net tangible book value (deficit) per share as of March 31, 2018

    

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing common stock in this offering

    
  

 

 

   

Pro forma as adjusted net tangible book value per share after this offering

    
    

 

 

 

Dilution per share to new investors purchasing common stock in this offering

     $  
    

 

 

 

 

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $             and dilution per share to new investors purchasing common stock in this offering by $            , assuming that the number of shares offered by us, as set forth on the cover page of this

 

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prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share after this offering by $            and decrease the dilution per share to new investors purchasing common stock in this offering by $            , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by $            and increase the dilution per share to new investors purchasing common stock in this offering by $            , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $            , representing an immediate increase in pro forma as adjusted net tangible book value per share of $            to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $            to new investors purchasing common stock in this offering, assuming an initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

 

The following table summarizes, as of March 31, 2018, on the pro forma as adjusted basis described above, the total number of shares of common stock purchased from us on an as converted to common stock basis, the total consideration paid or to be paid, and the average price per share paid or to be paid by existing stockholders and by new investors in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 

     Shares Purchased     Total Consideration     Average
Price Per
Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

               $ 191,809,205        %     $  

New investors

             $       
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $        100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $            million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by            percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by            percentage points, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $            million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by            percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by            percentage points, assuming no change in the assumed initial public offering price.

 

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters’ exercise their option to purchase additional shares in full, the number of shares of our common stock held by existing stockholders would be reduced to     % of the total number of shares of our

 

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common stock outstanding after this offering, and the number of shares of common stock held by new investors purchasing common stock in this offering would be increased to     % of the total number of shares of our common stock outstanding after this offering.

 

The discussion and tables above are based on the number of shares of common stock outstanding as of March 31, 2018, and exclude:

 

   

32,021,875 shares of common stock issuable upon exercise of stock options outstanding as of March 31, 2018 at a weighted average exercise price of $1.34 per share;

 

   

4,107,659 shares of common stock available for future issuance as of March 31, 2018 under our 2016 Stock Incentive Plan, as amended; and

 

   

13,956,456 and 2,326,076 additional shares of our common stock that will become available for future issuance under our 2018 Equity Incentive Plan and our 2018 Employee Stock Purchase Plan, respectively, each of which will become effective immediately prior to the effectiveness of the registration statement of which this prospectus is a part, as well as any automatic increases in the number of shares of common stock reserved for future issuance under these plans.

 

To the extent that stock options are exercised, new stock options are issued under our equity incentive plans, or we issue additional shares of common stock in the future, there will be further dilution to investors purchasing common stock in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

 

You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2016 and 2017 and the consolidated balance sheet data as of December 31, 2016 and 2017 from our audited consolidated financial statements appearing at the end of this prospectus. The consolidated statement of operations data for the three months ended March 31, 2017 and 2018 and the consolidated balance sheet data as of March 31, 2018 have been derived from our unaudited consolidated financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the unaudited data reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial information in those statements. Our historical results are not necessarily indicative of results that should be expected in any future period, and our results for any interim period are not necessarily indicative of results that should be expected for any full year.

 

     Year Ended December 31,     Three Months Ended March 31,  
         2016                 2017                 2017                 2018        
     (in thousands, except per share amounts)  

Consolidated Statement of Operations Data:

        

Operating expenses:

        

Research and development

   $ 15,658     $ 47,023     $ 9,621     $ 12,702  

General and administrative

     11,144       14,311       2,973       4,779  

Change in fair value of contingent consideration

     —         17,914       2,275       4,908  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     26,802       79,248       14,869       22,389  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (26,802     (79,248     (14,869     (22,389
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest income

     114       281       78       89  

Other income (expense), net

     (10     43       (14     (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     104       324       64       77  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before benefit from income taxes

     (26,698     (78,924     (14,805     (22,312

Benefit from income taxes

     —         12,481       851       1,103  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (26,698     (66,443     (13,954     (21,209

Accretion of redeemable convertible preferred units and stock to redemption value

     (671     (719     (167     (185
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (27,369   $ (67,162   $ (14,121   $ (21,394
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders—basic and diluted(1)

   $ (3.26   $ (1.56   $ (0.34   $ (0.42
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding—basic and diluted(1)

     8,389       43,090       42,150       50,509  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)(1)

     $       $  
    

 

 

     

 

 

 

Pro forma weighted average common shares outstanding—basic and diluted (unaudited)(1)

        
    

 

 

     

 

 

 

 

(1)   See Note 11 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common stockholders and on the calculation of pro forma basic and diluted net loss per share attributable to common stockholders.

 

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     As of December 31,     As of March  31,
2018
 
     2016     2017    
     (in thousands)  

Consolidated Balance Sheet Data:

      

Cash, cash equivalents and short-term investments

   $ 70,721     $ 58,055     $ 36,798  

Working capital(1)

     60,430       50,950       31,027  

Total assets

     205,563       198,547       182,836  

Contingent consideration liability

     71,073       81,009       85,917  

Redeemable convertible preferred stock

     150,277       192,896       193,081  

Total stockholders’ deficit

     (38,590     (93,515     (113,605

 

(1)   We define working capital as current assets less current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the “Selected Consolidated Financial Data” section of this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, 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 prospectus, our actual results could differ materially from the results described in or implied by these forward-looking statements.

 

Overview

 

We are a leading messenger RNA, or mRNA, therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction. Using our proprietary mRNA therapeutic platform, or MRT platform, we create mRNA that encodes functional proteins. We believe that the mRNA design, delivery and manufacturing capabilities of our MRT platform provide us with the most advanced platform for developing product candidates that deliver mRNA encoding functional proteins for therapeutic uses. Our mRNA is delivered to the target cell where the cell’s own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. We believe that our MRT platform is broadly applicable across multiple diseases in which the production of a desirable protein can have a therapeutic effect. We are initially focused on restoring the expression of intracellular and transmembrane proteins, areas that have eluded conventional protein therapeutics, in patients with genetic diseases where there is high unmet medical need. We are developing our lead MRT product candidate for the lung, MRT5005, for the treatment of cystic fibrosis, or CF, for which we initiated a Phase 1/2 clinical trial in May 2018. We are developing our lead MRT product candidate for the liver, MRT5201, for the treatment of ornithine transcarbamylase, or OTC, deficiency, for which we plan to initiate a Phase 1/2 clinical trial in the first half of 2019. We believe that our MRT platform is distinct from other mRNA-based technologies and has the potential to provide clinical benefits by transforming life-threatening illnesses into manageable chronic conditions.

 

Since our inception in 2011, we have devoted substantially all of our focus and financial resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for our programs. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily with proceeds from the sale of preferred stock and bridge units, which ultimately converted into shares of preferred stock, as described below. Through March 31, 2018, we had received net cash proceeds of $189.2 million from sales of our preferred stock and bridge units.

 

Since our inception, we have incurred significant operating losses. Our ability to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were $26.7 million and $66.4 million for the years ended December 31, 2016 and 2017, respectively, and $21.2 million for the three months ended March 31, 2018. As of March 31, 2018, we had an accumulated deficit of $170.0 million. We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates. Further, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

 

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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, strategic partnerships or marketing, distribution or licensing arrangements with third parties or grants from organizations and foundations. 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 product candidates or delay our pursuit of potential in-licenses or acquisitions.

 

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.

 

As of March 31, 2018, we had cash, cash equivalents and short-term investments of $36.8 million. We believe that the anticipated net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, will enable us to fund our operating expenses and capital expenditure requirements through            . We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.”

 

Without giving effect to the anticipated net proceeds from this offering, we expect that our existing cash, cash equivalents and short-term investments will be sufficient to fund our operating expenses and capital expenditure requirements through August 31, 2018. Beyond that point, we will need to raise additional capital to finance our operations, which cannot be assured. We have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern within one year after the March 30, 2018 issuance date of our annual consolidated financial statements for the year ended December 31, 2017 and the May 18, 2018 issuance date of our interim consolidated financial statements for the three months ended March 31, 2018. See Note 1 to our consolidated financial statements appearing at the end of this prospectus for additional information on our assessment.

 

Similarly, in its report on our financial statements for the year ended December 31, 2017, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern.

 

Acquisition of MRT Program

 

On December 22, 2016, we entered into an asset purchase agreement with Shire Human Genetic Therapies, Inc., or Shire, a subsidiary of Shire plc, which we refer to as the Shire Agreement. Pursuant to the Shire Agreement, we acquired Shire’s mRNA therapy platform, or the MRT Program, for an aggregate purchase price of $112.2 million, consisting of 32,308,347 shares of common stock with an aggregate fair value of $41.1 million and contingent consideration with a fair value of $71.1 million on the acquisition date. The contingent consideration includes the obligation to issue additional shares of common stock to Shire in connection with the closing of subsequent equity financings required under the terms of the Shire Agreement, which had a fair value of $8.4 million on the acquisition date, as well as the obligation to make future milestone and earnout payments upon the occurrence of specified commercial milestones, which had a fair value of $62.7 million on the acquisition date. As part of the acquisition, the scientific founders of the MRT platform and other key members of the Shire program joined us to advance our MRT platform and the development of our product candidates. Under the Shire Agreement, we are obligated to use commercially reasonable efforts to develop and seek and obtain regulatory approval for products that include or are composed of MRT compounds acquired from Shire, or MRT Products, and to achieve specific developmental milestones.

 

In June 2017, we implemented a strategy to primarily devote our resources to the advancement of our MRT platform. Thereafter, we then devoted substantially fewer resources to the advancement of our oligonucleotide

 

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discovery program, which seeks to develop RNA-targeted product candidates that selectively upregulate gene expression to increase endogenous protein levels for therapeutic benefit. We expect to continue to primarily devote our resources to the advancement of our MRT platform for the foreseeable future.

 

The Reorganization

 

We are a Delaware corporation that was incorporated on November 10, 2016 under the name RaNA Therapeutics, Inc. As more fully described in the section of this prospectus titled “Prospectus Summary—Reorganization,” on December 5, 2016, we completed a series of transactions, which we refer to as the Reorganization, pursuant to which RaNA Therapeutics, LLC, or RaNA LLC, became a direct, wholly owned subsidiary of RaNA Therapeutics, Inc. The purpose of the Reorganization was to reorganize our corporate structure so that our existing investors would own capital stock in a corporation rather than equity interests in a limited liability company. As part of the Reorganization, (1) the holders of all outstanding Class A preferred units of RaNA LLC exchanged their units on a one-for-one basis for shares of Series A preferred stock of RaNA Therapeutics, Inc., (2) the holders of substantially all outstanding Class B preferred units of RaNA LLC exchanged their units on a one-for-one basis for shares of Series B preferred stock of RaNA Therapeutics, Inc., (3) the holders of all outstanding common units of RaNA LLC exchanged their units on a one-for-one basis for shares of common stock of RaNA Therapeutics, Inc., and (4) the holders of all outstanding common incentive units of RaNA LLC exchanged their units on a one-for-0.7907 basis for shares of restricted common stock of RaNA Therapeutics, Inc., with such ratio being necessary to reflect no change in the fair value of each respective equity instrument immediately before and after the exchange.

 

Upon completion of the Reorganization, the historical consolidated financial statements of RaNA LLC became the historical consolidated financial statements of RaNA Therapeutics, Inc. because the Reorganization was accounted for as a reorganization of entities under common control.

 

In June 2017, we changed our name from RaNA Therapeutics, Inc. to Translate Bio, Inc.

 

Except as otherwise indicated or the context otherwise requires, all information in this prospectus is presented giving effect to the Reorganization.

 

Components of Our Results of Operations

 

Revenue

 

To date, we have not generated any revenue from product sales, and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.

 

Operating Expenses

 

Research and Development Expenses

 

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:

 

   

employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions;

 

   

expenses incurred in connection with the preclinical and planned clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs;

 

   

the cost of manufacturing drug products for use in our preclinical studies and planned clinical trials, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs;

 

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laboratory supplies;

 

   

facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance;

 

   

costs related to compliance with regulatory requirements; and

 

   

payments made under third-party licensing agreements.

 

We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the services have been performed or the goods have been delivered, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments, milestone payments (other than those deemed contingent consideration in a business combination) and annual maintenance fees under license agreements are expensed in the period in which they are incurred.

 

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include costs of laboratory supplies incurred for each program as well as fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery and to manage our preclinical development, process development, manufacturing and clinical development activities.

 

The table below summarizes our research and development expenses incurred by program:

 

     Year Ended
December 31,
     Three Months
Ended March 31,
 
     2016      2017      2017      2018  
     (in thousands)  

CF program (including MRT5005)

   $ 48      $ 15,641      $ 2,621      $ 4,045  

OTC deficiency program (including MRT5201)

     18        8,244        1,218        2,618  

MRT discovery program

     32        2,560        794        869  

Oligonucleotide discovery program

     6,006        2,499        979        69  

Unallocated research and development expenses

     9,554        18,079        4,009        5,101  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 15,658      $ 47,023      $ 9,621      $ 12,702  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we conduct our Phase 1/2 clinical trial of MRT5005 for the treatment of patients with CF; continue preclinical development of our lead MRT product candidate for the liver, MRT5201, and prepare to initiate a Phase 1/2 clinical trial of MRT5201 for the treatment of patients with OTC deficiency, which we plan to initiate in the first half of 2019; prepare regulatory filings for our product candidates; continue to discover and develop additional product candidates; and potentially advance product candidates from our MRT platform into later stages of clinical development. Further, we expect that expenses related to our oligonucleotide discovery program will decrease significantly in the future due to a shift in our focus from the oligonucleotide discovery program to our MRT platform in June 2017. We expect to continue to devote a substantial portion of our resources to our MRT platform for the foreseeable future.

 

The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to

 

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complete the preclinical and clinical development of any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

 

   

the timing and progress of preclinical and clinical development activities;

 

   

the number and scope of preclinical and clinical programs we decide to pursue;

 

   

our ability to maintain our current research and development programs and to establish new ones;

 

   

establishing an appropriate safety profile with investigational new drug application, or IND, enabling studies;

 

   

successful patient enrollment in, and the initiation and completion of, clinical trials;

 

   

the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration, or FDA, or any comparable foreign regulatory authority;

 

   

the receipt of regulatory approvals from applicable regulatory authorities;

 

   

the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;

 

   

our ability to establish new licensing or collaboration arrangements;

 

   

the performance of our future collaborators, if any;

 

   

establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

   

development and timely delivery of commercial-grade drug formulations that can be used in our planned clinical trials and for commercial launch;

 

   

obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;

 

   

launching commercial sales of our product candidates, if approved, whether alone or in collaboration with others; and

 

   

maintaining a continued acceptable safety profile of the product candidates following approval.

 

Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time to complete clinical development of that product candidate. We may never obtain regulatory approval for any of our product candidates. Drug commercialization will take several years and millions of dollars in development costs.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries, related benefits and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance, as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services.

 

We anticipate that our general and administrative expenses will increase as we increase our headcount to support our continued research activities and development of our product candidates. Following the completion of this offering, we also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance and investor and public relations costs associated with being a public company.

 

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Change in Fair Value of Contingent Consideration

 

In connection with our acquisition of the MRT Program, we recognized contingent consideration liabilities for future potential milestone and earnout payment obligations and anti-dilution rights with respect to common stock issued to Shire. The contingent consideration was initially recorded at fair value on the acquisition date and is subsequently remeasured to fair value at each reporting date. Any changes in the fair value of the contingent consideration liabilities are recognized as operating income or expenses.

 

Other Income (Expense), Net

 

Interest Income

 

Interest income consists of income recognized in connection with our investments in money market funds and U.S. government agency bonds.

 

Other Income (Expense), Net

 

Other income (expense), net consists of miscellaneous income and expense unrelated to our core operations.

 

Income Taxes

 

Since our inception and through December 31, 2016, we had not recorded any income tax benefits for the net losses we incurred or for the research and development tax credits generated in each year, due to our uncertainty of realizing a benefit from those items.

 

During the year ended December 31, 2017, we recognized an income tax benefit of $12.5 million, consisting of (i) a $6.4 million benefit due to a reduction of the same amount in the deferred tax liabilities recorded as part of our acquisition of the MRT Program and (ii) a $6.1 million benefit resulting from the impact of the Tax Cuts and Jobs Act, or the Tax Act.

 

During the three months ended March 31, 2017 and 2018, we recognized income tax benefits of $0.9 million and $1.1 million, respectively. The $0.9 million income tax benefit recognized during the three months ended March 31, 2017 was due to a reduction of the same amount in the deferred tax liabilities recorded as part of our acquisition of the MRT Program. The $1.1 million income tax benefit recognized during the three months ended March 31, 2018 resulted from a reduction in the deferred tax liabilities recorded as part of our acquisition of the MRT Program as well as deferred tax assets recorded for net operating losses generated in 2018 that have an unlimited carryforward period. Under the Tax Act, net operating losses generated in 2018 and years thereafter can be carried forward indefinitely. As a result, the deferred tax liabilities associated with our indefinite-lived intangible assets may be used as a source of income to support the realization of the federal tax benefit of our indefinite-lived net operating losses generated in 2018.

 

On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The enactment of the Tax Act resulted in us recording a net income tax benefit of $6.1 million in the year ended December 31, 2017. The $6.1 million net income tax benefit consisted of (i) the remeasurement of the deferred tax liabilities for our indefinite-lived intangible assets due to the tax rate reduction, which resulted in a corresponding income tax benefit of $3.7 million, and (ii) a reduction in the valuation allowance for deferred tax assets related to deductible temporary differences that will generate unlimited net operating loss carryforwards when they reverse in future periods, which resulted in a corresponding income tax benefit of $2.4 million.

 

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The staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. We are still in the process of analyzing the impact to us of the Tax Act, and our analysis is not yet complete. Where we have been able to make reasonable estimates of the effects related to the Tax Act, we have recorded provisional amounts. All of our recorded income tax benefits and provisions related to the Tax Act are provisional. The ultimate impact to our consolidated financial statements of the Tax Act may differ from the provisional amounts.

 

As of December 31, 2017, we had U.S. federal and state net operating loss carryforwards of $124.0 million and $102.5 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2031. As of December 31, 2017, we also had U.S. federal and state research and development tax credit carryforwards of $3.2 million and $1.3 million, respectively, which begin to expire in 2032 and 2027, respectively, and orphan drug tax credit carryforwards of $2.0 million, which begin to expire in 2037. We recorded a full valuation allowance against our net deferred tax assets at December 31, 2016. As of December 31, 2017 and March 31, 2018, we recorded a full valuation allowance against our deferred tax assets, except for $2.4 million and $2.3 million, respectively, of deferred tax assets related to deductible temporary differences that will generate unlimited net operating loss carryforwards when they reverse in future periods.

 

Results of Operations

 

Comparison of the Three Months Ended March 31, 2017 and 2018

 

The following table summarizes our results of operations for the three months ended March 31, 2017 and 2018:

 

     Three Months Ended
March 31,
       
     2017     2018     Change  
           (in thousands)        

Operating expenses:

      

Research and development

   $ 9,621     $ 12,702     $ 3,081  

General and administrative

     2,973       4,779       1,806  

Change in fair value of contingent consideration

     2,275       4,908       2,633  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     14,869       22,389       7,520  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (14,869     (22,389     (7,520
  

 

 

   

 

 

   

 

 

 

Other income (expense):

      

Interest income

     78       89       11  

Other income (expense), net

     (14     (12     2  
  

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     64       77       13  
  

 

 

   

 

 

   

 

 

 

Loss before benefit from income taxes

     (14,805     (22,312     (7,507

Benefit from income taxes

     851       1,103       252  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (13,954   $ (21,209   $ (7,255
  

 

 

   

 

 

   

 

 

 

 

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Research and Development Expenses

 

     Three Months Ended
March 31,
        
     2017      2018      Change  
     (in thousands)  

Direct research and development expenses by program:

 

     

CF program (including MRT5005)

   $ 2,621      $ 4,045      $ 1,424  

OTC deficiency program (including MRT5201)

     1,218        2,618        1,400  

MRT discovery program

     794        869        75  

Oligonucleotide discovery program

     979        69        (910

Unallocated research and development expenses:

        

Personnel related (including stock-based compensation)

     2,627        3,454        827  

Other

     1,382        1,647        265  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $    9,621      $  12,702      $  3,081  
  

 

 

    

 

 

    

 

 

 

 

Research and development expenses were $9.6 million for the three months ended March 31, 2017, compared to $12.7 million for the three months ended March 31, 2018. The increase of $3.1 million was primarily due to increases in external research and development services costs resulting from the continued development of our CF and OTC deficiency programs.

 

Direct expenses of our CF program increased by $1.4 million in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase in direct expenses for the three months ended March 31, 2018 related primarily to costs incurred in preparation of our Phase 1/2 clinical trial of MRT5005 for the treatment of patients with CF, which we initiated in May 2018. Such expenses included the cost of raw materials and the cost to manufacture our MRT5005 product candidate for future clinical trials, in addition to the initial costs of CROs to conduct our Phase 1/2 clinical trial.

 

Direct expenses of our OTC deficiency program increased by $1.4 million in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase in direct expenses for the three months ended March 31, 2018 was primarily a result of increased costs incurred related to preclinical development and IND-enabling studies. Such expenses included costs of CROs conducting research and preclinical studies, the cost of raw materials and the cost to manufacture our MRT5201 product candidate for preclinical studies.

 

Direct expenses of our MRT discovery program increased by $0.1 million in the three months ended March 31, 2018 compared to the three months ended March 31, 2017.

 

Direct expenses of our oligonucleotide discovery program decreased by $0.9 million in the three months ended March 31, 2018 compared to the three months ended March 31, 2017 due to a shift in our focus and re-prioritization of the program in June 2017 as we continued development of our MRT platform at that time.

 

Unallocated research and development expenses increased by $1.1 million in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase of $0.8 million in personnel-related costs was primarily due to an increase of the same amount in stock-based compensation expense, resulting from options granted during the year ended December 31, 2017. Personnel-related costs for the three months ended March 31, 2017 and 2018 included stock-based compensation expense of $26,000 and $0.8 million, respectively. The increase of $0.3 million in other unallocated research and development expenses was primarily due to a $0.3 million increase in facilities costs resulting from our June 2017 lease of office and laboratory space in Lexington, Massachusetts, which we occupied as our headquarters in March 2018.

 

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General and Administrative Expenses

 

General and administrative expenses were $3.0 million for the three months ended March 31, 2017, compared to $4.8 million for the three months ended March 31, 2018. The increase of $1.8 million was primarily due to increases of $0.9 million in personnel-related costs and $0.6 million in professional fees.

 

The $0.9 million increase in personnel-related costs was primarily due to an increase of $0.5 million in stock-based compensation expense, resulting from options granted during the year ended December 31, 2017, as well as an increase in headcount in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. Personnel-related costs for the three months ended March 31, 2017 and 2018 included stock-based compensation expense of $0.1 million and $0.6 million, respectively.

 

The $0.6 million increase in professional fees was due to an increase of $0.4 million in legal fees associated with filing patent applications and prosecuting our intellectual property and an increase of $0.2 million in audit costs.

 

Change in Fair Value of Contingent Consideration

 

In the three months ended March 31, 2017 and 2018, we recognized operating expenses of $2.3 million and $4.9 million, respectively, for changes in the fair value of the contingent consideration liabilities we recorded in connection with our acquisition of the MRT Program in December 2016. The contingent consideration liabilities relate to future potential milestone and earnout payment obligations and anti-dilution rights with respect to common stock issued to Shire. The $2.6 million increase in the expense was attributed primarily to an increase in the fair value of the contingent consideration liability for future earnout payments that could be due.

 

Other Income (Expense), Net

 

Total other income, net was $0.1 million for each of the three months ended March 31, 2017 and 2018 and consisted primarily of interest income earned on our short-term investments.

 

Benefit from Income Taxes

 

During the three months ended March 31, 2017 and 2018, we recognized income tax benefits of $0.9 million and $1.1 million, respectively. The $0.9 million income tax benefit recognized during the three months ended March 31, 2017 was due to a reduction of the same amount in the deferred tax liabilities recorded as part of our acquisition of the MRT Program. The $1.1 million income tax benefit recognized during the three months ended March 31, 2018 resulted from a reduction in the deferred tax liabilities recorded as part of our acquisition of the MRT Program as well as deferred tax assets recorded for net operating losses generated in 2018 that have an unlimited carryforward period. The reduction in the deferred tax liabilities during the three months ended March 31, 2017 and 2018 resulted from increases in each of those periods in the tax basis of the indefinite-lived intangible assets that we recorded in the acquisition of the MRT Program.

 

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Comparison of the Years Ended December 31, 2016 and 2017

 

The following table summarizes our results of operations for the years ended December 31, 2016 and 2017:

 

     Year Ended
December 31,
       
     2016     2017     Change  
     (in thousands)  

Operating expenses:

      

Research and development

   $ 15,658     $ 47,023     $ 31,365  

General and administrative

     11,144       14,311       3,167  

Change in fair value of contingent consideration

     —         17,914       17,914  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     26,802       79,248       52,446  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (26,802     (79,248     (52,446
  

 

 

   

 

 

   

 

 

 

Other income (expense):

      

Interest income

     114       281       167  

Other income (expense), net

     (10     43       53  
  

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     104       324       220  
  

 

 

   

 

 

   

 

 

 

Loss before benefit from income taxes

     (26,698     (78,924     (52,226

Benefit from income taxes

     —         12,481       12,481  
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (26,698   $ (66,443   $ (39,745
  

 

 

   

 

 

   

 

 

 

 

Research and Development Expenses

 

     Year Ended
December 31,
        
     2016      2017      Change  
     (in thousands)  

Direct research and development expenses by program:

 

     

CF program (including MRT5005)

   $ 48      $ 15,641      $ 15,593  

OTC deficiency program (including MRT5201)

     18        8,244        8,226  

MRT discovery program

     32        2,560        2,528  

Oligonucleotide discovery program

     6,006        2,499        (3,507

Unallocated research and development expenses:

        

Personnel related (including stock-based compensation)

     5,882         11,385        5,503  

Other

        3,672        6,694           3,022  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 15,658      $ 47,023      $ 31,365  
  

 

 

    

 

 

    

 

 

 

 

Research and development expenses were $15.7 million for the year ended December 31, 2016, compared to $47.0 million for the year ended December 31, 2017. The increase of $31.4 million was primarily due to increases in external research and development services costs and employee-related costs resulting from our acquisition of the MRT Program in December 2016.

 

The combined $26.3 million increase in direct costs related to our MRT platform, including the costs of our CF program, OTC deficiency program and MRT discovery program, resulted from our acquisition of the MRT Program in December 2016.

 

Direct expenses of our CF program increased by $15.6 million in the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase in direct expenses for the year ended December 31, 2017 reflected a full year of incurred costs and related primarily to preclinical development and IND-enabling studies in preparation of our planned Phase 1/2 clinical trial of MRT5005 for the treatment of patients with CF, which we initiated in May 2018. Such expenses included costs of CROs conducting research and preclinical

 

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studies, the cost of raw materials and the cost to manufacture our MRT5005 product candidate for preclinical studies and future clinical trials.

 

Direct expenses of our OTC deficiency program increased by $8.2 million in the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase in direct expenses for the year ended December 31, 2017 reflected a full year of incurred costs and related to the preclinical development of the program. Such expenses included costs of CROs conducting research and preclinical studies, the cost of raw materials and the cost to manufacture preclinical materials.

 

Direct expenses of our MRT discovery program increased by $2.5 million in the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase in direct expenses for the year ended December 31, 2017 reflected a full year of incurred costs and related to our ongoing exploratory research in the program.

 

Direct expenses of our oligonucleotide discovery program decreased by $3.5 million in the year ended December 31, 2017 compared to the year ended December 31, 2016 due to a shift in our focus and re-prioritization of the program in June 2017 as we continued development of our MRT platform at that time.

 

Unallocated research and development expenses increased by $8.5 million in the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase of $5.5 million in personnel-related costs was primarily due to the addition of employees in connection with our acquisition of the MRT Program in December 2016. Personnel-related costs for the years ended December 31, 2016 and 2017 included stock-based compensation expense of $0.1 million and $1.9 million, respectively. The increase of $3.0 million in other unallocated expenses was primarily due to a $1.6 million increase in facilities costs due to our two new leases in Lexington, Massachusetts. We assumed a lease in connection with our acquisition of the MRT Program from Shire in December 2016. We also entered into a lease in June 2017 for office and laboratory space and occupied the leased property as our headquarters in March 2018. The increase in other unallocated expenses was also due to a $0.4 million increase in consultant fees for early discovery research and a $0.7 million increase in depreciation expense and laboratory equipment maintenance costs related to equipment acquired in connection with the acquisition of the MRT Program in December 2016.

 

General and Administrative Expenses

 

General and administrative expenses were $11.1 million for the year ended December 31, 2016, compared to $14.3 million for the year ended December 31, 2017. The increase of $3.2 million was primarily due to increases of $2.1 million in personnel-related costs, $1.1 million in consultant costs, $0.4 million in depreciation expense and $0.2 million in facilities costs, all partially offset by a decrease of $1.1 million in professional fees.

 

The $2.1 million increase in personnel-related costs was due to an increase in average general and administrative headcount in 2017 compared to 2016. Personnel-related costs for the years ended December 31, 2016 and 2017 included stock-based compensation expense of $0.6 million and $1.8 million, respectively.

 

The $1.1 million increase in consultant costs included $0.8 million of costs incurred in 2017 related to organizational restructuring, company rebranding and strategic planning.

 

The $0.4 million increase in depreciation expense was primarily due to leasehold improvements we acquired in connection with our acquisition of the MRT Program in December 2016.

 

The $0.2 million increase in facilities costs was due to our new lease in Lexington, Massachusetts. We entered into a lease in June 2017 for office and laboratory space and occupied the leased property as our headquarters in March 2018.

 

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The $1.1 million decrease in professional fees was primarily due to $3.0 million of costs incurred in the year ended December 31, 2016 for transaction costs related to our acquisition of the MRT Program in December 2016, partially offset by an increase of $1.7 million in legal fees associated with filing patent applications and prosecuting our intellectual property and an increase of $0.3 million in audit costs.

 

Change in Fair Value of Contingent Consideration

 

In the year ended December 31, 2017, we recognized an operating expense of $17.9 million for changes in the fair value of the contingent consideration liabilities we recorded in connection with our acquisition of the MRT Program in December 2016. The contingent consideration liabilities relate to future potential milestone and earnout payment obligations and anti-dilution rights with respect to common stock issued to Shire.

 

Other Income (Expense), Net

 

Total other income, net was $0.1 million for the year ended December 31, 2016, compared to $0.3 million for the year ended December 31, 2017. The $0.2 million increase in other income, net was primarily due to interest income earned on our short-term investments.

 

Benefit from Income Taxes

 

During the year ended December 31, 2017, we recognized an income tax benefit of $12.5 million, consisting of (i) a $6.4 million benefit due to a reduction of the same amount in the deferred tax liabilities recorded as part of our acquisition of the MRT Program and (ii) a $6.1 million benefit resulting from the impact of the Tax Act. The reduction in the deferred tax liabilities during the year ended December 31, 2017 resulted from an increase in 2017 in the tax basis of the indefinite-lived intangible assets that we recorded in the acquisition of the MRT Program.

 

During the year ended December 31, 2016, we recognized no income tax benefit or provision.

 

Liquidity and Capital Resources

 

Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates, and we do not expect to generate revenue from sales of any product candidates for several years, if at all. We have funded our operations to date primarily with proceeds from the sale of preferred stock and the sale of bridge units that converted into preferred units, which ultimately converted into shares of preferred stock. Through March 31, 2018, we had received net cash proceeds of $189.2 million from sales of our preferred stock and bridge units.

 

Cash Flows

 

The following table summarizes our sources and uses of cash for each of the periods presented:

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2016     2017     2017     2018  
     (in thousands)  

Net cash used in operating activities

   $ (23,718   $ (50,788   $ (9,581   $ (16,933

Net cash provided by (used in) investing activities

     6,108       304       (39,879     1,012  

Net cash provided by (used in) financing activities

     50,747       41,747       —         (1,339
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

   $ 33,137     $ (8,737   $ (49,460   $ (17,260
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Operating Activities

 

During the three months ended March 31, 2018, operating activities used $16.9 million of cash, resulting from our net loss of $21.2 million and net cash used by changes in our operating assets and liabilities of $1.5 million, partially offset by net non-cash charges of $5.8 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2018 consisted of a $2.0 million increase in prepaid expenses and other assets and a $1.4 million decrease in accrued expenses, both partially offset by a $1.5 million increase in accounts payable and a $0.4 million increase in deferred rent. The increase in prepaid expenses and other assets was primarily due to increased prepaid amounts paid to CMOs for manufacturing drug product materials related to our MRT platform. The decrease in accrued expenses was primarily related to the timing of payments of employee compensation amounts that were accrued as of December 31, 2017 and paid during the three months ended March 31, 2018. The increase in accounts payable was primarily due to the increases in research and development activities and costs associated with our MRT platform. The increase in deferred rent was due to a facilities lease we entered into in June 2017 for office and laboratory space in Lexington, Massachusetts.

 

During the three months ended March 31, 2017, operating activities used $9.6 million of cash, resulting from our net loss of $14.0 million, partially offset by net non-cash charges of $1.7 million and net cash provided by changes in our operating assets and liabilities of $2.7 million. Net cash provided by changes in our operating assets and liabilities for the three months ended March 31, 2017 consisted primarily of a $2.4 million increase in accrued expenses and a $0.7 million increase in accounts payable, both partially offset by a $0.4 million increase in prepaid expenses and other assets. The increases in accounts payable and accrued expenses were primarily due to the increases in research and development activities and costs associated with our MRT platform as well as personnel-related costs due to an increase in average headcount resulting from our acquisition of the MRT Program in December 2016. The increase in prepaid expenses and other assets was primarily due to increased prepaid amounts paid to CMOs for manufacturing drug product materials and CROs for research contracts related to our MRT platform.

 

During the year ended December 31, 2017, operating activities used $50.8 million of cash, resulting from our net loss of $66.4 million, partially offset by net non-cash charges of $10.6 million and net cash provided by changes in our operating assets and liabilities of $5.0 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2017 consisted primarily of a $4.0 million increase in accounts payable, a $2.3 million increase in accrued expenses and a $1.0 million increase in deferred rent, all partially offset by a $2.3 million increase in prepaid expenses and other assets. The increases in accounts payable and accrued expenses were primarily due to the increases in research and development activities and costs associated with our MRT platform as well as personnel-related costs due to an increase in headcount in 2017 compared to 2016. The increase in prepaid expenses and other assets was primarily due to increased prepaid amounts paid to CMOs for manufacturing drug product materials and CROs for research contracts related to our MRT platform. The increase in deferred rent was due to a facilities lease we entered into in June 2017 for office and laboratory space in Lexington, Massachusetts.

 

During the year ended December 31, 2016, operating activities used $23.7 million of cash, resulting from our net loss of $26.7 million, partially offset by non-cash charges of $1.9 million and net cash provided by changes in our operating assets and liabilities of $1.1 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2016 consisted primarily of a $1.1 million increase in accrued expenses and a $0.2 million increase in deferred rent, both partially offset by a $0.3 million increase in prepaid expenses and other assets. The increase in accrued expenses was primarily due to the accrual of transaction-related costs that were incurred in our acquisition of the MRT Program in December 2016. The increase in prepaid expenses and other assets was primarily due an increase in advance payments to certain consultants and suppliers.

 

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Investing Activities

 

During the three months ended March 31, 2018, net cash provided by investing activities was $1.0 million, consisting of $9.9 million of sales and maturities of short-term investments, partially offset by $6.0 million of purchases of short-term investments as well as $2.9 million of purchases of property and equipment, which primarily consisted of leasehold improvements and other property related to our lease of office and laboratory space in Lexington, Massachusetts.

 

During the three months ended March 31, 2017, net cash used in investing activities was $39.9 million, consisting of $52.8 million of purchases of short-term investments and $0.1 million of purchases of property and equipment, both partially offset by $13.0 million of sales and maturities of short-term investments.

 

During the year ended December 31, 2017, net cash provided by investing activities was $0.3 million, consisting of $73.8 million of sales and maturities of short-term investments, partially offset by $70.8 million of purchases of short-term investments and $2.8 million of purchases of property and equipment.

 

During the year ended December 31, 2016, net cash provided by investing activities was $6.1 million, consisting of $41.9 million of sales and maturities of short-term investments, partially offset by $34.9 million of purchases of short-term investments and $0.9 million of purchases of property and equipment.

 

Financing Activities

 

During the three months ended March 31, 2018, net cash used in financing activities was $1.3 million, consisting solely of payments of initial public offering costs.

 

During the three months ended March 31, 2017, we had no cash flows from financing activities.

 

During the year ended December 31, 2017, net cash provided by financing activities was $41.7 million, consisting of gross proceeds of $42.0 million from our sale of Series C preferred stock in December 2017, net of $0.1 million of issuance costs, partially offset by $0.2 million of payments of initial public offering costs.

 

During the year ended December 31, 2016, net cash provided by financing activities was $50.7 million, consisting solely of proceeds from our sale of Series C preferred stock in December 2016, net of $0.3 million of issuance costs.

 

Funding Requirements

 

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate clinical trials of and seek marketing approval for our product candidates. In addition, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Our expenses will also increase if, and as, we:

 

   

leverage our programs to advance our other product candidates into preclinical and clinical development;

 

   

seek regulatory approvals for any product candidates that successfully complete clinical trials;

 

   

seek to discover and develop additional product candidates;

 

   

establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly;

 

   

hire additional clinical, quality control and scientific personnel;

 

   

expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

 

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maintain, expand and protect our intellectual property portfolio; and

 

   

acquire or in-license other product candidates and technologies.

 

We believe that the anticipated net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, will enable us to fund our operating expenses and capital expenditure requirements through                 . We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

 

Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:

 

   

the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;

 

   

the costs, timing and outcome of regulatory review of our product candidates;

 

   

the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

 

   

the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;

 

   

the ability to receive additional non-dilutive funding, including grants from organizations and foundations;

 

   

the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;

 

   

the cost and timing of hiring new employees to support our continued growth;

 

   

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

 

   

the ability to establish and maintain collaborations on favorable terms, if at all;

 

   

the extent to which we acquire or in-license other product candidates and technologies; and

 

   

the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.

 

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

 

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties and grants from organizations and foundations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in increased fixed payment obligations.

 

If we raise funds through collaborations, strategic partnerships or marketing, distribution 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.

 

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If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

Contractual Obligations and Commitments

 

The following table summarizes our contractual obligations as of March 31, 2018 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1 to 3
Years
     4 to 5
Years
     More Than
5 Years
 
     (in thousands)  

Operating lease commitments(1)

   $ 28,929      $ 2,935      $ 5,246      $ 5,497      $ 15,251  

Purchase commitments(2)

     7,995        732        2,526        2,526        2,211  

Research commitments(3)

     1,620        1,213        407        —          —    

License agreement obligations(4)

     1,100        150        350        400        200  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,644      $ 5,030      $ 8,529      $ 8,423      $ 17,662  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Reflects minimum payments due for our leases of office, laboratory and other space under operating leases that expire between April 2018 and April 2028.
(2)   Reflects minimum purchase commitments under a master supply agreement expiring in December 2024 with Roche Diagnostics Corporation, which we engaged to manufacture drug product materials.
(3)   Reflects sponsored research commitments under our research agreement with the Massachusetts Institute of Technology, or MIT.
(4)   Reflects the annual license maintenance fees payable under our license agreement with MIT. Amounts in the table represent reflect such fees payable through 2023, but we will be obligated to make such payments until the license agreement is terminated.

 

In addition, under various licensing and related agreements to which we are a party, we may be required to make milestone and earnout payments and to pay royalties and other amounts to third parties. We have not included any such contingent payment obligations in the table above as the amount, timing and likelihood of such payments are not known. Such contingent payment obligations are described below.

 

Under the Shire Agreement, we are obligated to make milestone payments to Shire of up to $60.0 million in the aggregate upon the occurrence of specified commercial milestones, including upon the first commercial sale of an MRT Product for the treatment of CF and upon the achievement of a specified level of annual net sales with respect to an MRT Product. We are also obligated to make additional milestone payments of $10.0 million for each non-CF MRT Product upon the first commercial sale of a non-CF MRT Product; provided that such milestone payments will only be due once for any two non-CF MRT Products that contain the same MRT compounds. Under the Shire Agreement, we are also obligated to pay a quarterly earnout payment of a mid single-digit percentage of net sales of each MRT Product. The earnout period, which is determined on a product-by-product and country-by-country basis, will begin on the date of the first commercial sale of such MRT Product in such country and will end on the later of (1) ten years after such first commercial sale and (2) the expiration of the last valid claim of the patent rights acquired from Shire or derived from patent rights or know-how acquired from Shire covering such MRT Product in such country.

 

Under our license agreement with MIT, we are obligated to make milestone payments to MIT aggregating up to $1.375 million upon the achievement of specified clinical and regulatory milestones with respect to each licensed product and $1.250 million upon our first commercial sale of each licensed product, and to pay royalties of a low single-digit percentage to MIT based on our, and any of our affiliates’ and sublicensees’, net sales of licensed products. The royalties are payable on a product-by-product and country-by-country basis, and may be

 

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reduced in specified circumstances. In addition, we are obligated to pay MIT a low double-digit percentage of the portion of income from sublicensees that we ascribe to the licensed patents, excluding royalties on net sales and research support payments.

 

We have entered into contracts in the normal course of business with CROs, CMOs and other third parties for preclinical research studies and testing, clinical trials and manufacturing services. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice and, as a result, are not included in the table of contractual obligations and commitments above. Payments due upon cancellation consist only of payments for services provided and expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

 

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

 

Accrued Research and Development Expenses

 

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:

 

   

vendors in connection with preclinical development activities;

 

   

CROs and investigative sites in connection with preclinical studies and clinical trials; and

 

   

CMOs in connection with the production of preclinical and clinical trial materials.

 

We base our expenses related to external research and development services on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the

 

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actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

 

Business Combinations

 

We accounted for our acquisition of the MRT Program as a business combination. We account for business combinations using the acquisition method of accounting. Application of this method of accounting requires that (1) identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value as of the acquisition date and (2) the excess of the purchase price over the net fair value of identifiable assets acquired and liabilities assumed be recognized as goodwill, which is not amortized for accounting purposes but is subject to testing for impairment at least annually. Acquired in-process research and development, or IPR&D, is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. Transaction costs related to business combinations are expensed as incurred.

 

Determining the fair value of assets acquired and liabilities assumed in a business combination requires that we use significant judgment and estimates, especially with respect to intangible assets. Critical estimates in valuing certain identifiable assets include, but are not limited to, the selection of valuation methodologies, estimates of future revenue and cash flows, expected long-term market growth, future expected operating expenses, costs of capital and appropriate discount rates. Our estimates of fair value are based upon assumptions we believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ materially from estimates.

 

During the measurement period, which extends no later than one year from the acquisition date, we may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the consolidated statements of operations as operating expenses or income.

 

Valuation of Contingent Consideration

 

Contingent consideration reflected on our consolidated balance sheets consists of liabilities for potential milestone and earnout payment obligations and anti-dilution rights recorded in connection with our acquisition of the MRT Program in December 2016. Contingent consideration is initially recognized at fair value at the acquisition date and is subsequently remeasured to fair value at each reporting date, with changes recorded in our consolidated statements of operations. Significant judgment is required in estimating fair value. Our estimates of fair value are based on upon assumptions we believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ materially from estimates.

 

The fair value of the contingent consideration related to the potential future milestone and earnout payments was estimated by us on the acquisition date and is estimated by us at each reporting date based, in part, on the results of a third-party valuation. The third-party valuation is prepared using a discounted cash flow analysis based on various assumptions, including the probability of achieving specified events, discount rates and the period of time until the earnout payments are payable and the conditions triggering the milestone payments are met.

 

The fair value of the contingent consideration related to the anti-dilution rights was estimated by us on the acquisition date and is estimated by us at each reporting date based, in part, on the results of a third-party valuation. The third-party valuation is prepared using a probability-weighted expected return method, or

 

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PWERM, which considers as inputs the probability of occurrence of events that would trigger the issuance of additional shares, the expected timing of such events, the expected value of the contingently issuable equity upon the occurrence of a triggering event and a risk-adjusted discount rate.

 

Impairment of In-Process Research and Development

 

IPR&D reflected on our consolidated balance sheets consists of indefinite-lived intangible assets recorded in connection with our acquisition of the MRT Program in December 2016. Indefinite-lived IPR&D is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. We test our indefinite-lived IPR&D annually for impairment on October 1st. In testing indefinite-lived IPR&D for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that its fair value is less than its carrying amount, or we can perform a quantitative impairment analysis to determine the fair value of the indefinite-lived IPR&D without performing a qualitative assessment. Qualitative factors that we consider include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If we choose to first assess qualitative factors and we determine that it is more likely than not that the fair value of the indefinite-lived IPR&D is less than its carrying amount, we would then determine the fair value of the indefinite-lived IPR&D. Under either approach, if the fair value of the indefinite-lived IPR&D is less than its carrying amount, an impairment charge would be recognized for the difference between the fair value and the carrying amount in the consolidated statements of operations. Significant judgment is required in testing IPR&D for impairment, and changes in estimates and assumptions could materially affect the determination of whether impairment exists and, if so, the amount of that impairment.

 

During the years ended December 31, 2016 and 2017 and the three months ended March 31, 2017 and 2018, we did not recognize any impairment charges related to our indefinite-lived IPR&D.

 

Impairment of Goodwill

 

Goodwill reflected on our consolidated balance sheets consists of an intangible asset recorded in connection with our acquisition of the MRT Program in December 2016. Goodwill is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. We test our goodwill annually for impairment on October 1st. We have determined that there is a single reporting unit for purposes of testing goodwill for impairment. We have the option to first assess qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit was less than its carrying amount, or we can perform a two-step quantitative impairment analysis without performing a qualitative assessment. Examples of such events or circumstances considered in our qualitative assessment include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. If we choose to first assess qualitative factors and we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we would then perform a two-step quantitative impairment test.

 

The two-step test starts with comparing the fair value of the reporting unit to the carrying amount of the reporting unit, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, no impairment loss is recognized. However, if the fair value of the reporting unit is less than the carrying value, we must perform the second step of the impairment test to determine if goodwill is impaired. If we determine that goodwill is impaired, the carrying value of the goodwill is written down to its fair value and an impairment charge is recognized in the consolidated statements of operations. Significant judgment is required in testing goodwill for impairment, and changes in estimates and assumptions could materially affect the determination of whether impairment exists and, if so, the amount of that impairment.

 

During the years ended December 31, 2016 and 2017 and the three months ended March 31, 2017 and 2018, we did not recognize any impairment charges related to goodwill.

 

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Stock-Based Compensation

 

We measure stock-based awards granted to employees and directors based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. For stock-based awards with service-based vesting conditions, we recognize compensation expense using the straight-line method. For stock-based awards with both performance-based and service-based vesting conditions, we recognize compensation expense using the graded-vesting method over the requisite service period, commencing when achievement of the performance condition becomes probable. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. The fair value of each restricted common stock award is estimated on the date of grant based on the fair value of our common stock on that same date.

 

For stock-based awards granted to non-employee consultants, we recognize compensation expense over the period during which services are rendered by such non-employee consultants until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.

 

Determination of the Fair Value of Common Stock

 

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation to the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

 

Our third-party valuations of common stock were prepared using the hybrid method, which used market approaches to estimate our equity value. The hybrid method is a probability-weighted expected return method, or PWERM, where the equity value in one or more of the scenarios is allocated using an option-pricing method, or OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the business, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. These third-party valuations were performed at various dates, which resulted in valuations of our common stock of $0.85 per share as of November 30, 2016 (which gave pro forma effect to the Reorganization), $1.27 per share as of December 22, 2016, $1.27 per share as of June 30, 2017, $1.33 per share as of December 13, 2017, $1.50 per share as of March 5, 2018 and $1.76 per share as of May 18, 2018. In addition to considering the results of these third-party valuations, our board of directors considered various objective and

 

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subjective factors to determine the fair value of our common stock as of each grant date, which may be a date later than the most recent third-party valuation date, including:

 

   

the prices at which we sold preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;

 

   

the progress of our research and development programs, including the status of preclinical studies and planned clinical trials for our product candidates;

 

   

our stage of development and our business strategy;

 

   

external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;

 

   

our financial position, including cash on hand, and our historical and forecasted performance and operating results;

 

   

the lack of an active public market for our common stock and our preferred stock;

 

   

the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or a sale of our company in light of prevailing market conditions; and

 

   

the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

 

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

 

Following the closing of this offering, the fair value of our common stock will be determined based on the quoted market price of our common stock.

 

Options Granted

 

The following table sets forth by grant date the number of shares subject to stock options granted from January 1, 2016 through May 22, 2018, the per share exercise price of the options, the fair value of common stock per share on each grant date, and the per share estimated fair value of the options:

 

Grant Date

   Number of
Shares Subject
to Options
Granted
     Per Share
Exercise
Price of
Options
     Fair Value per
Common
Share on
Grant Date
     Per Share
Estimated Fair
Value of
Options
 

December 7, 2016

     1,165,532      $ 0.85      $ 0.85      $ 0.48  

June 13, 2017

     5,808,553      $ 1.27      $ 1.27      $ 0.76  

September 27, 2017

     1,719,960      $ 1.27      $ 1.27      $ 0.72  

December 22, 2017

     16,124,698      $ 1.33      $ 1.33      $ 0.73  

March 7, 2018

     7,772,432      $ 1.50      $ 1.50      $ 1.00  

May 22, 2018

     3,150,513      $ 1.76      $ 1.76      $ 1.22  

 

Emerging Growth Company Status

 

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us 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. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

 

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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 Securities and Exchange Commission.

 

Recently Issued Accounting Pronouncements

 

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing at the end of this prospectus.

 

Quantitative and Qualitative Disclosures about Market Risks

 

Interest Rate Risk

 

As of December 31, 2017 and March 31, 2018, we had cash equivalents consisting of money market funds and short-term investments consisting of U.S. government agency bonds that have contractual maturities of less than one year. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of the investments in our portfolio, an immediate 10% change in market interest rates would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.

 

As of December 31, 2017 and March 31, 2018, we had no debt outstanding and are therefore not exposed to interest rate risk with respect to debt.

 

Foreign Currency Exchange Risk

 

All of our employees and our operations are currently located in the United States. We have, from time to time, engaged in contracts with contractors or other vendors in a currency other than the U.S. dollar. To date, we have had minimal exposure to fluctuations in foreign currency exchange rates as the time period between the date that transactions are initiated and the date of payment or receipt of payment is generally of short duration. Accordingly, we believe we do not have a material exposure to foreign currency risk.

 

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BUSINESS

 

Overview

 

We are a leading messenger RNA, or mRNA, therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction. Using our proprietary mRNA therapeutic platform, or MRT platform, we create mRNA that encodes functional proteins. We believe that the mRNA design, delivery and manufacturing capabilities of our MRT platform provide us with the most advanced platform for developing product candidates that deliver mRNA encoding functional proteins for therapeutic uses. Our mRNA is delivered to the target cell where the cell’s own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. We believe that our MRT platform is broadly applicable across multiple diseases in which the production of a desirable protein can have a therapeutic effect. We are initially focused on restoring the expression of intracellular and transmembrane proteins, areas that have eluded conventional protein therapeutics, in patients with genetic diseases where there is high unmet medical need. We are developing our lead MRT product candidate for the lung, MRT5005, for the treatment of cystic fibrosis, or CF, for which we initiated a Phase 1/2 clinical trial in May 2018. We are developing our lead MRT product candidate for the liver, MRT5201, for the treatment of ornithine transcarbamylase, or OTC, deficiency, for which we plan to initiate a Phase 1/2 clinical trial in the first half of 2019. We believe that our MRT platform is distinct from other mRNA-based technologies and has the potential to provide clinical benefits by transforming life-threatening illnesses into manageable chronic conditions.

 

mRNA plays a central role in the production of proteins, which are needed to carry out essential cellular functions. mRNA transcribes genetic information encoded in DNA into instructions that are used by cells to produce proteins. mRNA therapy is engineered to deliver mRNA encoding natural, functional proteins that replace defective or missing proteins, and has potential advantages, including that it:

 

   

restores gene expression without entering the cell nucleus or changing the genome;

 

   

enables the treatment of diseases that were previously undruggable by using the cell’s own machinery to produce natural and fully functional proteins;

 

   

has drug-like properties that are familiar to health care providers, including the potential to repeat and adjust dosing in a chronic setting; and

 

   

permits rapid development from target gene selection to product candidate.

 

Our product candidates consist of two major components: the protein-coding mRNA and a delivery vehicle. Once we have established delivery capability to a target tissue, we can design new product candidates that vary only in the mRNA sequence, which we expect will allow for rapid target and development candidate identification. We believe that this will enable our MRT platform to be flexible and scalable as we develop additional product candidates. We engineer our mRNA sequences for enhanced stability and to provide for optimal expression of desired proteins. Our mRNA is manufactured by a proprietary, cell-free, enzyme catalyzed process using structural components that are identical to natural mRNA within the body. We then formulate the product candidate by packaging our biosynthetic mRNA into proprietary lipid-based nanoparticle, or LNP, delivery vehicles that are optimized for distribution to specific tissues. We are initially focused on the development of product candidates to treat diseases of the lung and liver. We also believe that our platform has the potential to apply across a broad array of diseases and target tissues. In our preclinical studies, we have observed targeted delivery to the eye, central nervous system, or CNS, lymphatic system and circulatory system, as well as the ability of our platform to enable the production of antibodies. Additionally, we have observed significant improvements in mRNA potency and delivery when compared to prior generations of our mRNA technology as well as competing approaches.

 

Our MRT platform has been in development for the past ten years, initially at Shire Human Genetic Therapies, Inc., or Shire, a subsidiary of Shire plc. We acquired the MRT platform from Shire in December 2016 and have dedicated substantial resources to the further development of the platform and product candidates. The scientific founders of the MRT platform who were responsible for the research, development, manufacturing and

 

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delivery know-how and intellectual property supporting this platform joined our company as part of the acquisition. We have been building upon Shire’s pioneering work and significant investment by advancing our product candidates towards clinical trials. We believe these efforts have positioned us as a leading company in mRNA therapeutic development worldwide.

 

We are developing our lead MRT product candidate for the lung, MRT5005, for the treatment of patients with CF, which is the most common fatal inherited disease in the United States. CF affects more than 30,000 patients in the United States and a total of more than 70,000 patients worldwide and leads to premature death. CF is caused by genetic mutations that result in dysfunctional or absent cystic fibrosis transmembrane conductance regulator, or CFTR, protein. CF results in mucus buildup in the lungs, pancreas and other organs, and mortality is primarily driven by a progressive decline in lung function. There remains a large unmet medical need in the CF patient population as currently approved therapies are limited to patients with specific genetic mutations and patients treated with these therapies still suffer from long-term decline in lung function and exacerbations that require hospitalization.

 

We believe MRT5005 will be the first clinical-stage mRNA product candidate designed to deliver mRNA encoding fully functional CFTR protein to the lung. MRT5005 is being developed to treat all patients with CF, regardless of the underlying genetic mutation. This broad applicability is in contrast to CFTR protein modulators currently marketed or in clinical development, which are only effective in a subset of patients with specific genetic mutations.

 

We have designed MRT5005 to be inhaled via a handheld nebulizer and to be administered in a once-weekly dose. Once the inhaled MRT5005 has entered the epithelial cells lining the patient’s lungs, our therapeutic mRNA uses the cells’ own machinery for translation and expression of fully functional CFTR protein, thereby restoring this essential ion channel, which we believe will address the pathology of CF directly. In our preclinical studies we have observed dose-dependent increases in CFTR being restored to cell membranes and that the inhaled formulation of MRT5005 resulted in broad CFTR expression in lung tissue. We have initiated a double-blind, placebo-controlled Phase 1/2 clinical trial of MRT5005 in which we plan to enroll at least 32 patients with CF. We enrolled and dosed the first patient in the single-ascending dose part of this trial in late May 2018. After dosing, this patient developed transient flu-like symptoms, which responded to acetaminophen and diphenhydramine. Because this is a blinded study, we do not know whether the patient received placebo or drug. In other clinical studies of nebulized lipid nanoparticles in CF, similar observations of flu-like symptoms have been reported. We anticipate initiating the multiple-ascending dose part of the trial by the end of 2018. In November 2015, the U.S. Food and Drug Administration, or FDA, granted orphan drug designation to MRT5005 for the treatment of CF.

 

We are advancing our lead MRT product candidate for the liver, MRT5201, for the treatment of patients with OTC deficiency, a metabolic liver enzyme disorder that results from a mutation in the OTC gene. OTC deficiency is the most common urea cycle disorder. This enzyme is an intracellular protein necessary for preventing the accumulation of ammonia, a normal byproduct of protein breakdown. When the enzyme is defective or absent, high levels of ammonia accumulate in the blood, which can cause serious and irreversible neurological damage. The incidence of OTC deficiency is estimated to be 1 in 56,500 live births in the United States.

 

We have designed MRT5201 for intravenous delivery of mRNA encoding fully functional OTC enzyme to the liver to enable hepatocytes, the predominant type of liver cell, to produce normal OTC enzyme. We expect that sufficient expression of the functional OTC enzyme in hepatocytes would reduce or eliminate the need for current treatments such as strict low-protein diets or ammonia scavengers. We have conducted preclinical studies in OTC-deficient mice in which we have observed delivery of MRT5201 and expression of functionally active human OTC in the mouse liver. Furthermore, MRT5201 was observed to normalize levels of urinary orotic acid, a biomarker of the disease, in these mice and render them resistant to the introduction of ammonia from outside the body for up to four weeks. We anticipate initiating a Phase 1/2 clinical trial of MRT5201 in patients with OTC deficiency in the first half of 2019. In March 2018, the FDA granted orphan drug designation to MRT5201 for the treatment of OTC deficiency.

 

In addition to genetic diseases of the lung and liver, we continue to explore other tissues where we believe we can leverage the broad applicability of our MRT platform across multiple diseases in which the production of desirable protein can have a therapeutic effect.

 

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Our technology and products are protected by an extensive intellectual property portfolio, including issued patents and pending patent applications covering mRNA sequences, lipids and polymer composition of matter, manufacturing, specific targets, disease treatments, and formulation and delivery technology. We continue to innovate to improve both the mRNA constructs as well as the delivery technology involved in creating our MRT product candidates.

 

We have assembled a management team with highly relevant experience in product development in general and mRNA therapeutics in particular. Our management team has been involved with the development of over ten products approved by the FDA, including Aubagio, Cinryze, Elaprase, Firazyr, Gattex, Humira, Intuniv, Lialda, Natpara, VPRIV, Vyvanse and Xiidra.

 

Our Pipeline

 

Our proprietary MRT platform has been designed with the potential to apply across a broad array of diseases and target tissues and through multiple routes of administration. The following chart summarizes key informat