10-Q 1 tbio-10q_20190331.htm 10-Q tbio-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from                      to                     

Commission File Number: 001-38550

 

Translate Bio, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

61-1807780

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

29 Hartwell Avenue

Lexington, Massachusetts

02421

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 945-7361

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

 

 

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

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

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

TBIO

 

Nasdaq Global Select Market

 

As of May 7, 2019, the registrant had 50,902,649 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

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

1

 

Condensed Consolidated Statements of Operation for the Three Months Ended March 31, 2019 and 2018

2

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018

3

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2019 and 2018

4

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

5

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

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

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 6.

Exhibits

76

Signatures

 

77

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TRANSLATE BIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

62,431

 

 

$

55,199

 

Short-term investments

 

 

60,154

 

 

 

88,904

 

Prepaid expenses and other current assets

 

 

5,247

 

 

 

4,474

 

Restricted cash

 

 

1,025

 

 

 

1,025

 

Total current assets

 

 

128,857

 

 

 

149,602

 

Property and equipment, net

 

 

10,771

 

 

 

10,245

 

Right-of-use assets, net

 

 

10,769

 

 

 

 

Goodwill

 

 

21,359

 

 

 

21,359

 

Intangible assets, net

 

 

105,980

 

 

 

106,445

 

Total assets

 

$

277,736

 

 

$

287,651

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,192

 

 

$

5,168

 

Accrued expenses

 

 

6,452

 

 

 

6,547

 

Current portion of deferred revenue

 

 

5,708

 

 

 

2,572

 

Current portion of operating lease liability

 

 

411

 

 

 

 

Total current liabilities

 

 

16,763

 

 

 

14,287

 

Long-term portion of contingent consideration

 

 

115,344

 

 

 

103,642

 

Deferred revenue, net of current portion

 

 

38,017

 

 

 

41,841

 

Deferred tax liabilities

 

 

 

 

 

481

 

Deferred rent

 

 

 

 

 

2,105

 

Operating lease liability, net of current portion

 

 

12,504

 

 

 

 

Total liabilities

 

 

182,628

 

 

 

162,356

 

Commitments and contingencies (Notes 3, 4 and 13)

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized as of March 31, 2019

   and December 31, 2018; no shares issued and outstanding as of March 31, 2019 and

   December 31, 2018

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized as of March 31, 2019

   and December 31, 2018; 45,294,439 shares and 45,139,955 shares issued and

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

 

 

45

 

 

 

45

 

Additional paid-in capital

 

 

374,113

 

 

 

371,257

 

Accumulated deficit

 

 

(279,401

)

 

 

(246,203

)

Accumulated other comprehensive income

 

 

351

 

 

 

196

 

Total stockholders’ equity (deficit)

 

 

95,108

 

 

 

125,295

 

Total liabilities and stockholders’ equity (deficit)

 

$

277,736

 

 

$

287,651

 

 

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

1


TRANSLATE BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Collaboration revenue

 

$

1,474

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

17,423

 

 

 

12,702

 

General and administrative

 

 

6,554

 

 

 

4,779

 

Change in fair value of contingent consideration

 

 

11,702

 

 

 

4,908

 

Total operating expenses

 

 

35,679

 

 

 

22,389

 

Loss from operations

 

 

(34,205

)

 

 

(22,389

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

521

 

 

 

89

 

Other expense

 

 

 

 

 

(12

)

Total other income (expense), net

 

 

521

 

 

 

77

 

Loss before benefit from income taxes

 

 

(33,684

)

 

 

(22,312

)

Benefit from income taxes

 

 

486

 

 

 

1,103

 

Net loss

 

 

(33,198

)

 

 

(21,209

)

Accretion of redeemable convertible preferred stock to

   redemption value

 

 

 

 

 

(185

)

Net loss attributable to common stockholders

 

$

(33,198

)

 

$

(21,394

)

Net loss per share attributable to common stockholders—basic

   and diluted

 

$

(0.74

)

 

$

(2.35

)

Weighted average common shares outstanding—basic and

   diluted

 

 

45,004,521

 

 

 

9,091,651

 

 

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

2


TRANSLATE BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(33,198

)

 

$

(21,209

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available-for-sale securities, net of

   tax of $0

 

 

155

 

 

 

(79

)

Comprehensive loss

 

$

(33,043

)

 

$

(21,288

)

 

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

 

3


TRANSLATE BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

AND STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(In thousands, except share amounts)

 

 

 

Redeemable

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity (Deficit)

 

Balances at December 31, 2018

 

 

 

 

$

 

 

 

45,139,955

 

 

$

45

 

 

$

371,257

 

 

$

(246,203

)

 

$

196

 

 

$

125,295

 

Exercise of stock options

 

 

 

 

 

 

 

 

154,484

 

 

 

 

 

 

897

 

 

 

 

 

 

 

 

 

897

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,959

 

 

 

 

 

 

 

 

 

1,959

 

Unrealized gains on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

155

 

 

 

155

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33,198

)

 

 

 

 

 

(33,198

)

Balances at March 31, 2019

 

 

 

 

$

 

 

 

45,294,439

 

 

$

45

 

 

$

374,113

 

 

$

(279,401

)

 

$

351

 

 

$

95,108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable

Convertible

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity (Deficit)

 

Balances at December 31, 2017

 

 

142,288,292

 

 

$

192,896

 

 

 

9,582,791

 

 

$

10

 

 

$

55,204

 

 

$

(148,808

)

 

$

79

 

 

$

(93,515

)

Accretion of redeemable convertible preferred stock to redemption value

 

 

 

 

 

185

 

 

 

 

 

 

 

 

 

(185

)

 

 

 

 

 

 

 

 

(185

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,383

 

 

 

 

 

 

 

 

 

1,383

 

Unrealized gains on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(79

)

 

 

(79

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,209

)

 

 

 

 

 

(21,209

)

Balances at March 31, 2018

 

 

142,288,292

 

 

$

193,081

 

 

 

9,582,791

 

 

$

10

 

 

$

56,402

 

 

$

(170,017

)

 

$

 

 

$

(113,605

)

 

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

4


TRANSLATE BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(33,198

)

 

$

(21,209

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,025

 

 

 

536

 

Stock-based compensation expense

 

 

1,959

 

 

 

1,383

 

Change in fair value of contingent consideration

 

 

11,702

 

 

 

4,908

 

Deferred income tax benefit

 

 

(486

)

 

 

(1,103

)

Accretion of discount on short-term investments

 

 

 

 

 

42

 

Changes in operating assets and liabilities, net of effects of acquisition:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(285

)

 

 

(1,979

)

Right-of-use assets

 

 

115

 

 

 

 

Accounts payable

 

 

(1,048

)

 

 

1,531

 

Accrued expenses

 

 

(71

)

 

 

(1,404

)

Deferred rent

 

 

 

 

 

362

 

Lease liability

 

 

(74

)

 

 

 

Deferred revenue

 

 

(1,170

)

 

 

 

Net cash used in operating activities

 

 

(21,531

)

 

 

(16,933

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

 

 

 

(6,000

)

Sales and maturities of investments

 

 

28,905

 

 

 

9,918

 

Purchases of property and equipment

 

 

(1,039

)

 

 

(2,906

)

Net cash provided by investing activities

 

 

27,866

 

 

 

1,012

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments of initial public offering costs

 

 

 

 

 

(1,339

)

Proceeds from option exercises

 

 

897

 

 

 

 

Net cash provided by (used in) financing activities

 

 

897

 

 

 

(1,339

)

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

 

 

7,232

 

 

 

(17,260

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

56,224

 

 

 

50,024

 

Cash, cash equivalents and restricted cash at end of period

 

$

63,456

 

 

$

32,764

 

Cash, cash equivalents and restricted cash at end of period:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

62,431

 

 

$

30,798

 

Restricted cash

 

 

1,025

 

 

 

1,966

 

Total cash, cash equivalents and restricted cash at end of period

 

$

63,456

 

 

$

32,764

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

95

 

 

$

716

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

 

 

$

926

 

Accretion of redeemable convertible preferred stock to redemption value

 

$

 

 

$

185

 

 

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

 

5


TRANSLATE BIO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Nature of the Business and Basis of Presentation

Translate Bio, Inc. (the “Company”) is a clinical-stage messenger RNA (“mRNA”) therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction. Using its proprietary mRNA therapeutic platform (“MRT platform”), the Company creates mRNA that encodes functional proteins. The Company’s 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. The Company is 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.

The Company is developing its lead MRT product candidate for the lung, MRT5005, for the treatment of cystic fibrosis (“CF”). The Company is conducting a Phase 1/2 clinical trial to evaluate the safety and efficacy of MRT5005. In April 2019, the Company completed dosing of all patients in the single-ascending dose portion of the Phase 1/2 clinical trial and anticipates reporting interim data from this trial in the third quarter of 2019. In early 2019, the Company began dosing patients in the multiple-ascending dose portion of this trial. The Company is developing its lead MRT product candidate for the liver, MRT5201, for the treatment of ornithine transcarbamylase (“OTC”) deficiency. In December 2018, the Company submitted an investigational new drug application (“IND”) for MRT5201, which the U.S. Food and Drug Administration (the “FDA”) has placed on clinical hold, pending additional preclinical toxicology data. The Company has initiated the preclinical studies required, and plans to complete these studies and submit data from these studies to the FDA in the fourth quarter of 2019. The Company remains in discussions with the FDA regarding the clinical hold and plans for the IND.

The Company is subject to risks common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its two wholly owned subsidiaries, Translate Bio MA, Inc. and Translate Bio Securities Corporation, from their date of incorporation. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated balance sheet as of March 31, 2019, the unaudited condensed consolidated statements of operations and of comprehensive loss for the three months ended March 31, 2019 and 2018, the unaudited condensed consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2019 and 2018 and of the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2019 and 2018 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. The accompanying balance sheet as of December 31, 2018 has been derived from the Company’s audited financial statements for the year ended December 31, 2018 previously filed with the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 21, 2019.

The accompanying unaudited interim condensed consolidated financial presentation has been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2019, the results of its operations for the three months ended March 31, 2019 and 2018, and its cash flows for the three months ended March 31, 2019 and 2018. The financial data and other information disclosed in these notes related to the three months ended March 31, 2019 and 2018 are also unaudited. The results for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.

6


Acquisition of Shire’s MRT Program

In December 2016, the Company entered into an asset purchase agreement (as amended in June 2018, the “Shire Agreement”) with Shire Human Genetic Therapies, Inc. (“Shire”) pursuant to which Shire sold equipment to and assigned to the Company all of its rights to certain patent rights, permits, real property leases, contracts, regulatory documentation, books and records, and materials related to Shire’s mRNA therapy platform (the “MRT Program”), including its cystic fibrosis transmembrane conductance regulator (“CFTR”) and OTC deficiency mRNA therapeutic programs.

Reverse Stock Split

On June 15, 2018, the Company effected a one-for-5.5555 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s redeemable convertible preferred stock (see Note 8). Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and the associated adjustment of the preferred stock conversion ratios.

Sales of Common Stock

On July 2, 2018, the Company closed its initial public offering of its common stock (the “IPO”). In the IPO, the Company issued and sold 9,714,371 shares of common stock, including the underwriters’ over-allotment option, at a public offering price of $13.00 per share, resulting in aggregate net proceeds of $113.2 million after deducting underwriting discounts and commissions and offering expenses.

On May 3, 2019, the Company issued and sold 5,582,940 shares of its common stock in a private placement at a price per share of $8.50, resulting in gross proceeds of $47.5 million, before deducting placement agent fees of $2.8 million and other estimated offering expenses of $0.4 million.

Sanofi Pasteur Collaboration and Licensing Agreement

In 2018, the Company entered into a collaboration and license agreement with Sanofi Pasteur Inc. (“Sanofi”), the vaccines global business unit of Sanofi S.A., to develop mRNA vaccines for up to five infectious disease pathogens (the “Sanofi Agreement”). Under the Sanofi Agreement, the Company and Sanofi are jointly conducting research and development activities to advance mRNA vaccines and mRNA vaccine platform development during a three-year research term, which may be extended by mutual agreement. Following the research term, the Company is obligated to manufacture clinical product for Sanofi, which the Company estimates may take up to eight years to complete.

The Company is eligible to receive up to $805.0 million in payments, including an upfront payment of $45.0 million, which the Company received in 2018; certain development, regulatory and sales-related milestones across several vaccine targets; and option exercise fees if Sanofi exercises its option related to development of vaccines for additional pathogens. The Company is also eligible to receive reimbursable development costs and tiered royalty payments associated with worldwide sales of the developed vaccines, if any (see Note 3).

Going Concern

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through March 31, 2019, the Company has funded its operations with proceeds from the sale of redeemable convertible preferred stock and the sale of bridge units, which ultimately converted into shares of the Company’s common stock, the proceeds from the IPO and the upfront payment received under the Sanofi Agreement. The Company has incurred recurring losses and cash outflows from operations since its inception, including net losses of $33.2 million and $21.2 million for the three months ended March 31, 2019 and 2018, respectively. In addition, the Company had an accumulated deficit of $279.4 million as of March 31, 2019. The Company expects to continue to generate operating losses for the foreseeable future.

7


As of May 9, 2019, the date of issuance of these unaudited interim condensed consolidated financial statements, the Company expects that its cash, cash equivalents and short-term investments of $122.6 million as of March 31, 2019, together with the net proceeds of approximately $44.3 million from the private placement in May 2019, will be sufficient to fund its operating expenses and capital expenditure requirements into the second half of 2020. The future viability of the Company beyond that point is dependent on the Company’s ability to raise additional capital to finance its operations.

 

Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. The Company expects that its expenses will increase in connection with its ongoing business activities. As a result, the Company will need substantial additional funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If the Company is unable to obtain funding, the Company will be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

 

2. Summary of Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. During the three months ended March 31, 2019, there were no material changes to the Company’s significant accounting policies, except for the adoption of ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as described more fully under the heading “Recently Adopted Accounting Pronouncements”.  

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, which requires lessees to recognize most leases on their balance sheet as a right-of-use asset (“ROU”) and a lease liability. The Company adopted ASU 2016-02 as of the required effective date of January 1, 2019 using the cumulative-effect adjustment on the effective date of the standard, with comparative periods presented in accordance with the previous guidance in ASC 840. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as “ASC 842”.

 

The Company elected the permitted practical expedients within ASC 842, which allowed the Company to not reassess previous accounting conclusions around whether arrangements are or contain leases, and carried forward both the historical classification of leases and the treatment of initial direct costs. In addition, the Company elected to exclude leases with an initial term of one year or less in the recognized ROU assets and lease liabilities.

 

Adoption of the new standard resulted in the recording of ROU assets and related lease liabilities of approximately $10.9 million and $13.0 million, respectively, as of January 1, 2019. The standard did not materially impact the Company’s consolidated net earnings and had no impact on cash flows. Refer to Note 12 for the additional disclosures required by ASC 842.

 

The Company determines if an arrangement is a lease at inception. For leases where the Company is the lessee, ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate, which are the rates incurred to borrow on a collateralized basis over a term equal to the lease payments in a similar economic environment, in determining the present value of lease payments. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. The Company has lease agreements which require payments for lease and non-lease components and has elected to account for these as a single lease component.

8


In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). Part I applies to entities that issue financial instruments, such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. The Company adopted ASU 2017-11 as of the required effective date for annual periods beginning after December 15, 2018, and its adoption had no impact on the Company’s financial position, results of operations or cash flows.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718) (“ASU 2018-07”), which aligns the accounting for share-based payment awards issued to employees and non-employees. Under the new guidance, the existing employee guidance will apply to non-employee share-based transactions. The Company adopted ASU 2018-07 as of the required effective date on January 1, 2019. Upon, adoption the Company remeasured the fair value of a grant previously awarded to a non-employee which did not have a material impact on the Company’s financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued guidance on the Measurement of Credit Losses on Financial Instruments. The guidance requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This standard will be effective for the Company on January 1, 2020. The Company is currently evaluating the potential impact that the adoption of this standard may have on the Company’s consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment (Topic 350) (“ASU 2017-04”), which provides for the elimination of Step 2 from the goodwill impairment test. If impairment charges are recognized, the amount recorded will be the amount by which the carrying amount exceeds the reporting unit’s fair value with certain limitations. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact that the adoption of ASU 2017-04 may have on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This new standard modifies certain disclosure requirements on fair value measurements. This new standard will be effective on January 1, 2020. Early adoption, of the entire amendments or on the provisions that eliminate or modify the requirements, is permitted. The Company does not expect that the adoption of this new standard will have a material impact on its disclosures.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808) (“ASU 2018-18”). This update provides clarification on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics. This update is effective in fiscal years, including interim periods, beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the potential impact that the adoption of ASU 2018-18 may have on its consolidated financial statements.

3. Sanofi Collaboration and License Agreement

In 2018, the Company entered into the Sanofi Agreement, a collaboration and license agreement with Sanofi to develop mRNA vaccines and mRNA vaccine platform development for up to five infectious disease pathogens (the “Licensed Fields”).

Under the Sanofi Agreement, the Company and Sanofi have agreed to collaborate to perform certain research and development activities to advance mRNA vaccines and mRNA vaccine platform development during a three-year research term, which may be extended by mutual agreement. Following the research term, the Company is obligated to manufacture clinical product for Sanofi, which the Company estimates may take up to eight years to complete. The collaboration activities will be subject to a collaboration plan to be updated annually. Under the terms of the Sanofi Agreement, the Company received an upfront payment of $45.0 million and is eligible for certain potential milestone and option payments, each as further described below. In addition, the Company is eligible to receive from Sanofi tiered royalty payments on worldwide net sales of mRNA vaccines.

9


Under the Sanofi Agreement, the Company and Sanofi created a governance structure, including committees and working groups, to manage the activities under the collaboration. If the Company and Sanofi do not mutually agree on certain decisions, Sanofi would be able to break a deadlock without the Company’s consent. The collaboration includes an estimated budget. Sanofi is responsible for paying reimbursable development costs including the Company’s employee costs, out-of-pocket costs paid to third parties and manufacturing costs, up to a specified amount. Any reimbursable development costs are payable by Sanofi within 60 days of invoicing.

Under the terms of the Sanofi Agreement, the Company has granted to Sanofi exclusive, worldwide licenses under applicable patents, patent applications, know-how and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any of three of the Licensed Fields. In addition, pursuant to the terms of the Sanofi Agreement and subject to certain limitations, Sanofi has options to add up to two additional infectious disease pathogens within the granted licenses to the Licensed Fields by exercising either option or both options during a specified option term and paying the Company a $5.0 million fee per added pathogen. If, prior to the exercise of the options by Sanofi, the Company receives a bona fide third-party offer to acquire rights to the field to which an option relates, the Company must notify Sanofi of such offer, and if Sanofi does not exercise its option as to the applicable field, such field will no longer be subject to the option.

The Company and Sanofi retain the rights to perform their respective obligations and exercise their respective rights under the Sanofi Agreement, and Sanofi may grant sublicenses to affiliates or third parties. Sanofi has also granted the Company non-exclusive, sublicensable licenses under patent rights claiming certain improvements that Sanofi may make to the technology the Company has licensed to it or claiming certain technology arising from the collaboration and owned by Sanofi. The Company may exercise such licenses to develop, manufacture and commercialize products, other than products that use a vaccine to prevent, treat or cure a disease, disorder or condition in humans caused by an infectious disease pathogen. If the Company commercializes any product covered by such a Sanofi patent right, the Company would pay Sanofi a royalty of a low single-digit percentage. Sanofi may terminate these licenses to the Company if the Company materially breaches the terms of the license and the breach remains uncured for a specified period, which may be extended in certain circumstances.

Sanofi has sole responsibility for all commercialization activities for mRNA vaccines in the Licensed Fields and is obligated to bear all costs in connection with any such commercialization. The Company and Sanofi intend to enter into a supply agreement pursuant to which the Company would be responsible for manufacturing certain non-clinical and clinical mRNA vaccines and materials containing mRNA until the Company transfers such manufacturing capabilities to Sanofi. The Company would be entitled to receive payments for manufacturing mRNA vaccines under the supply agreement.

The Sanofi Agreement provides that the Company is eligible to receive aggregate potential payments of up to $805.0 million from Sanofi, which includes an upfront payment, potential milestone payments and potential option exercise payments. In 2018, Sanofi paid the Company a $45.0 million upfront payment in respect of the licenses and options granted to Sanofi. Sanofi will also pay the Company $5.0 million with respect to each additional Licensed Field for which it exercises an option. Sanofi has also agreed to pay the Company milestone payments upon the achievement of specified development, regulatory and commercialization milestones. In particular, the Company is entitled to receive development and regulatory milestone payments of up to $63.0 million per Licensed Field and sales milestone payments of up to $85.0 million per Licensed Field. In addition, the Company is entitled to receive a $10.0 million milestone payment from Sanofi following completion of the technology and process transfer.

Sanofi has agreed to pay the Company a tiered royalty on worldwide net sales of all mRNA vaccines within each Licensed Field ranging from a high single-digit percentage to a low teens percentage, depending on quarterly net sales by Sanofi, its affiliates and its sublicensees. The royalty paid to the Company can be reduced with respect to a product once the relevant licensed patent rights expire or if additional licensed technology is required, but the royalty payments generally may not fall below the Company’s royalty obligations to third parties plus a royalty of a low single-digit percentage. Royalty payments under the Sanofi Agreement are payable on a product-by-product and country-by-country basis beginning on the launch of the product in the country until the later of the expiration of the last valid claim covering such product or 10 years after the launch of such product in such country.

The Sanofi Agreement provides that it will remain in effect until terminated in accordance with its terms. Either the Company or Sanofi may terminate the Sanofi Agreement in its entirety if the other party is subject to certain insolvency proceedings. Either party may terminate the Sanofi Agreement in its entirety or with respect to a particular Licensed Field, country or product if the other party materially breaches the Sanofi Agreement and the breach remains uncured for a specified period, which may be extended in certain circumstances. Sanofi may also terminate the Sanofi Agreement in its entirety or with respect to a particular Licensed Field, country or product for safety reasons or for convenience, in each case after a specified notice period. After termination of the Sanofi Agreement, Sanofi may continue to manufacture and commercialize the terminated products for a specified period of time, subject to Sanofi’s payment obligations.

10


Accounting Under ASC 606

In determining the appropriate amount of revenue to be recognized under Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company identified the following promised goods or services contained in the Sanofi Agreement: (i) the license it conveyed to Sanofi with respect to the Licensed Fields, (ii) the licensed know-how to be conveyed to Sanofi with respect to the Licensed Fields, (iii) its obligation to perform research and development on the Licensed Fields, (iv) its obligation to transfer licensed materials to Sanofi, (v) its obligation to manufacture and supply certain non-clinical and clinical mRNA vaccines and materials containing mRNA until the Company transfers such manufacturing capabilities to Sanofi and (vi) the technology and process transfer. The Company assessed whether each of these promised goods or services are distinct performance obligations on their own or if they need to be combined with other promises to create a bundle that is a distinct performance obligation. The Company determined that the promised goods and services do not have standalone value and are highly interrelated. Accordingly, the promised goods and services represent one performance obligation. Sanofi’s right to exercise options for up to two additional infectious disease pathogens within the granted licenses to the Licensed Fields are accounted for separately as they do not represent material rights, based on the criteria of ASC 606. Upon the exercise of any option by Sanofi, the contract promises associated with an option target would use a separate proportional performance model for purposes of revenue recognition under ASC 606. There was no significant financing component or non-cash consideration included in the Sanofi Agreement.

Under ASC 606, at the end of each reporting period, the Company re-evaluates the probability that the consideration associated with each milestone or reimbursement will not be subject to a significant reversal in the cumulative amount of revenue recognized, and, if necessary, adjusts the estimate of the overall transaction price. During the three months ended March 31, 2019, the Company reduced the overall transaction price by $10.0 million. The transaction price includes the upfront, non-refundable payment of $45.0 million for the transfer of the combined license, supply and development obligations under the Sanofi Agreement, an estimated $32.6 million in reimbursable employee costs, an estimated $54.5 million in reimbursable development costs including out-of-pocket costs paid to third parties and manufacturing costs and an estimated $19.0 million in milestone payments.

Under ASC 606, the Company recognized revenue using the cost-to-cost input method, which it believes best depicts the transfer of control to the customer. Under the cost-to-cost input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. The estimate of the Company’s measure of progress and estimate of variable consideration to be included in the transaction price will be updated at each reporting date as a change in estimate. The amount related to the unsatisfied portion will be recognized as that portion is satisfied over time.

 

The following table summarizes the Company’s collaboration revenue (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Collaboration revenue

 

$

1,474

 

 

$

 

 

The following table presents the balance of the Company’s contract liabilities (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Contract liabilities

 

 

 

 

 

 

 

 

Deferred revenue

 

$

43,725

 

 

$

44,413

 

 

The Company considers the total consideration expected to be earned in the next 12 months for services to be performed as short-term deferred revenue, and consideration that is expected to be earned subsequent to 12 months from the balance sheet date as long-term deferred revenue. The Company expects to complete its obligations and recognize all net revenues from the collaboration over eight years. Revenue recognized from contract liabilities as of December 31, 2018 during the three months ended March 31, 2019 was $0.7 million.

11


4. Intangible Assets and Goodwill

Intangible Assets, Net

The acquisition of Shire’s MRT Program was accounted for in accordance with the acquisition method of accounting for business combinations. The total purchase consideration transferred was allocated to the tangible and identifiable intangible assets acquired based on their estimated fair values. The tables below present the Company’s definite-lived intangible assets that are subject to amortization and indefinite-lived intangible assets:

 

 

 

 

March 31, 2019

 

 

Estimated Life

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

 

(In thousands)

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

IPR&D - MRT

8 years

 

$

45,992

 

 

$

(862

)

 

$

45,130

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

IPR&D - CF

Indefinite

 

 

42,291

 

 

 

 

 

 

42,291

 

IPR&D - OTC

Indefinite

 

 

18,559

 

 

 

 

 

 

18,559

 

Total intangible assets, net

 

 

$

106,842

 

 

$

(862

)

 

$

105,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Estimated Life

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

 

(In thousands)

 

Definite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

IPR&D - MRT

8 years

 

$

45,992

 

 

$

(397

)

 

$

45,595

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

IPR&D - CF

Indefinite

 

 

42,291

 

 

 

 

 

 

42,291

 

IPR&D - OTC

Indefinite

 

 

18,559

 

 

 

 

 

 

18,559

 

Total intangible assets, net

 

 

$

106,842

 

 

$

(397

)

 

$

106,445

 

 

Identifiable intangible assets acquired in the acquisition of Shire’s MRT Program consisted of in-process research and development (“IPR&D”), which included ongoing projects that could further the Company’s preclinical and clinical development activities related to CF, OTC deficiency and other potential rare diseases. As of the date of acquisition, the IPR&D was determined to be indefinite-lived. Upon commencement of the Sanofi Agreement, the IPR&D - MRT intangible asset was reclassified from indefinite-lived to definite-lived intangible assets and the Company began amortization of this intangible asset. Amortization will be recorded over an estimated eight-year period based on an economic consumption model. For the three months ended March 31, 2019, the Company recorded amortization expense of $0.5 million related to the definite-lived IPR&D – MRT intangible asset. The estimated aggregate amortization expense for each of the five succeeding fiscal years is $3.6 million, $9.0 million, $9.9 million, $4.2 million, and $2.3 million for the years ended December 31, 2019, 2020, 2021, 2022 and 2023, respectively.

Indefinite-lived IPR&D is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company tests its indefinite-lived IPR&D annually for impairment on October 1st. In December 2018, the Company submitted an IND to the FDA to support the initiation of a Phase 1/2 clinical trial for MRT5201 in patients with OTC deficiency. In January 2019, the FDA notified the Company that its IND for MRT5201 was placed on clinical hold. The Company determined this clinical hold was an indicator of impairment and as a result, retested the indefinite-lived IPR&D related to the OTC deficiency program for impairment. The Company performed a quantitative impairment analysis whereby the Company forecasted the net cash flows expected to be generated by the indefinite-lived IPR&D related to the OTC deficiency program over its estimated useful life. The net cash flows reflected the program’s stage of completion, the probability of technical success, the projected costs to complete, the expected market competition and an assessment of the program’s life-cycle. The net cash flows were then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Following this retest the Company determined the indefinite-lived IPR&D related to the OTC deficiency program was not impaired. Therefore, the Company did not recognize an impairment charge.

12


Goodwill

The excess of the fair value of the consideration transferred over the fair value of identifiable assets acquired in the acquisition of Shire’s MRT Program was allocated to goodwill in the amount of $21.4 million. There have been no changes to the carrying amount of goodwill during the three months ended March 31, 2019. Goodwill is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company tests its goodwill annually for impairment on October 1st and concluded that goodwill was not impaired on October 1, 2018.

5. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):

 

 

 

Fair Value Measurements

as of March 31, 2019 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

 

 

$

52,787

 

 

$

 

 

$

52,787

 

U.S. government agency bonds

 

 

 

 

 

60,154

 

 

 

 

 

 

60,154

 

 

 

$

 

 

$

112,941

 

 

$

 

 

$

112,941

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

 

$

 

 

$

115,344

 

 

$

115,344

 

 

 

$

 

 

$

 

 

$

115,344

 

 

$

115,344

 

 

 

 

Fair Value Measurements

as of December 31, 2018 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

 

 

$

23,318

 

 

$

 

 

$

23,318

 

U.S. government agency bonds

 

 

 

 

 

88,904

 

 

 

 

 

 

88,904

 

 

 

$

 

 

$

112,222

 

 

$

 

 

$

112,222

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

 

$

 

 

$

103,642

 

 

$

103,642

 

 

 

$

 

 

$

 

 

$

103,642

 

 

$

103,642

 

 

During the three months ended March 31, 2019 and the year ended December 31, 2018, there were no transfers between Level 1, Level 2 and Level 3.

Cash equivalents as of March 31, 2019 and December 31, 2018 consisted of money market funds totaling $52.8 million and $23.3 million, respectively. The money market funds were valued using inputs observable in active markets for similar securities, which represent a Level 2 measurement in the fair value hierarchy. The Company’s short-term investments as of March 31, 2019 and December 31, 2018 consisted of U.S. government agency bonds and were classified as available-for-sale securities. The U.S. government agency bonds were valued using inputs observable in active markets for similar securities, which represent a Level 2 measurement in the fair value hierarchy. As of March 31, 2019, the Company’s short-term investments had an amortized cost of $59.9 million, an unrealized loss of $0.3 million and a fair value of $60.2 million. All of these securities have a maturity of one year or less.

Valuation of Contingent Consideration

The contingent consideration liability related to the acquisition of Shire’s MRT Program in 2016 was classified as Level 3 measurement within the fair value hierarchy. The Company may be required to pay future consideration contingent upon the achievement of potential future milestones and earnout payments that may be due by the Company to Shire.

The fair value of the liability to make potential future milestone and earnout payments was estimated by the Company at each reporting date based, in part, on the results of a third-party valuation 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 earnout payments are payable and the conditions triggering the milestone payments are met. The actual settlement of contingent consideration could differ from current estimates based on the actual occurrence of these specified events.

13


The following table presents the unobservable inputs and fair value of the components of the contingent consideration (dollar amounts in thousands):

 

 

 

Unobservable Inputs at

March 31, 2019 and December 31, 2018

 

Fair Value at

 

 

 

Projected Year of Payment

 

March 31,

 

 

December 31,

 

 

 

 

 

2019

 

 

2018

 

Earnout payments

 

2025 - 2039

 

$

106,289

 

 

$

94,999

 

Milestone payments

 

2025 - 2030

 

 

9,055

 

 

 

8,643

 

 

 

 

 

 

 

$

115,344

 

 

$

103,642

 

 

The discount rate used in the third-party valuation was 13.5% and 14.5% as of March 31, 2019 and December 31, 2018, respectively.

 

The following table presents a roll-forward of the total acquisition-related contingent consideration liability (in thousands):

 

 

 

Fair Value

 

Balance as of December 31, 2018

 

$

103,642

 

Change in fair value of contingent consideration

 

 

11,702

 

Balance as of March 31, 2019

 

$

115,344

 

 

The increase in the fair value of contingent consideration during the three months ended March 31, 2019 was primarily due to the continued progress of MRT5005, the time value of money due to the passage of time and a decrease in the discount rate.

6. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Laboratory equipment

 

$

7,757

 

 

$

7,012

 

Computer equipment

 

 

731

 

 

 

686

 

Office equipment

 

 

836

 

 

 

836

 

Leasehold improvements

 

 

5,634

 

 

 

5,635

 

Construction in progress

 

 

1,255

 

 

 

959

 

 

 

 

16,213

 

 

 

15,128

 

Less: Accumulated depreciation and amortization

 

 

(5,442

)

 

 

(4,883

)

 

 

$

10,771

 

 

$

10,245

 

 

Depreciation and amortization expense related to property and equipment was $0.6 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively.

14


7. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued external research and development expenses

 

$

3,247

 

 

$

1,901

 

Accrued employee compensation and benefits

 

 

1,775

 

 

 

2,933

 

Accrued consultant and professional fees

 

 

1,299

 

 

 

977

 

Other

 

 

131

 

 

 

736

 

 

 

$

6,452

 

 

$

6,547

 

 

8. Redeemable Convertible Preferred Stock

As of December 31, 2017, the Company had 142,288,292 shares of redeemable convertible preferred stock issued and outstanding which were redeemable and convertible by the holders under specified conditions. The redeemable convertible preferred stock was classified outside of stockholders’ equity (deficit) because the shares contained redemption features that were not solely within the control of the Company.

Upon the closing of the Company’s IPO on July 2, 2018, all then-outstanding shares of redeemable convertible preferred stock converted into an aggregate of 25,612,109 shares of common stock according to their terms. As of March 31, 2019 and December 31, 2018, there were no shares of redeemable convertible preferred stock authorized, issued or outstanding.

 

9. Incentive Stock Options and Restricted Stock

2018 Equity Incentive Plan

On March 7, 2018, the Company’s board of directors, subject to stockholder approval, adopted, and on June 15, 2018, its stockholders approved, the 2018 Equity Incentive Plan (the “2018 Plan”), which became effective on June 27, 2018. The 2018 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards.

The number of shares initially reserved for issuance under the 2018 Plan is the sum of 2,512,187, plus the number of shares (up to 1,013,167 shares) equal to the sum of (i) the number of shares remaining available for issuance under the 2016 Stock Incentive Plan, as amended, (the “2016 Plan”), upon the effectiveness of the 2018 Plan, which was 360,514 shares, and (ii) the number of shares of common stock subject to outstanding awards under the 2016 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right. The number of shares of common stock that may be issued under the 2018 Plan will automatically increase on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2028, equal to the lowest of (i) 3,349,582 shares, (ii) 4% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors. Accordingly, on January 1, 2019, the number of shares of common stock that may be issued under the 2018 Plan increased by 1,805,598 shares for a total of 4,718,733 shares of common stock reserved for issuance under this plan. The shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by the Company under the 2018 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan.

The 2018 Plan is administered by the board of directors. The exercise prices, vesting periods and other restrictions are determined at the discretion of the board of directors, except that the exercise price per share of options may not be less than 100% of the fair market value of the common stock on the date of grant. Stock options awarded under the 2018 Plan expire 10 years after the grant date, unless the board of directors sets a shorter term. Awards granted to employees, officers, members of the board of directors and consultants typically vest over a period of one to four years.

Typically, unvested stock options are forfeited upon the recipient ceasing to provide services to the Company.

2018 Employee Stock Purchase Plan

On March 7, 2018, the Company’s board of directors, subject to stockholder approval, adopted, and on June 15, 2018, its stockholders approved the 2018 Employee Stock Purchase Plan (the “2018 ESPP”), which became effective on June 27, 2018. A total of 418,697 shares of common stock were initially reserved for issuance under this plan. The number of shares of common stock that

15


may be issued under the 2018 ESPP will automatically increase on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2019 and continuing for each fiscal year until, and including, the fiscal year commencing on January 1, 2029, equal to the lowest of (i) 837,395 shares, (ii) 1% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors. Accordingly, on January 1, 2019, the number of shares of common stock that may be iss