UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2020

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: 001-38822

KALEIDO BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

Delaware	47-3048279
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
65 Hayden Avenue, Lexington, MA	02421
(Address of principal executive offices)	(Zip Code)

(617) 674-9000

(Registrant’s telephone number, including area code)

Not Applicable

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

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	KLDO	NASDAQ Global Select Market

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, a smaller reporting company, or an emerging growth company. See 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of July 31, 2020, there were 35,546,629 shares of registrant’s common shares outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. We make such forward looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plan, objectives of management and expected market growth are forward-looking statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under “Risk Factors” and include, among other things:

• our ability to continue as a going concern, including without limitation our ability to continue to advance the clinical development of our MMT candidates;

• the success, cost and timing of our research and development activities, including statements regarding the timing of initiation and completion of clinical studies or clinical trials and related preparatory work, the period during which the results of the clinical studies or clinical trials will become available; 

• our ability to advance any product candidate into or successfully complete any clinical trial or identify an alternative commercial pathway for such product candidate; 

• our ability or the potential to successfully manufacture our product candidates for clinical studies, clinical trials or for commercial use, if approved; 

• our ability to obtain funding for our operations, when needed, including funding necessary to complete further development and commercialization of our product candidates, if approved, and to further expand our propriety product platform;

• the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

• the potential for our identified research priorities to advance our product candidates or allow us to identify new product candidates; 

• our expectations regarding the timing for proposed submissions of regulatory filings, including but not limited to any Investigational New Drug application filing or any New Drug Applications;

• our ability to maintain regulatory approval, if obtained, of any of our current or future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate; 

• our ability to commercialize our products in light of the intellectual property rights of others; 

• our plans to research, develop and commercialize our product candidates; 

• our ability to attract collaborators with development, regulatory and commercialization expertise; 

• the expected results pursuant to collaboration arrangements including the receipts of future payments that may arise pursuant to collaboration agreements;

• existing and future agreements with third parties in connection with the research and development or commercialization of our product candidates;

• the size and growth potential of the markets for our product candidates, and our ability to serve those markets either alone or in collaboration with others; 

• the rate and degree of market acceptance of our product candidates; 

• the success of competing therapies that are or become available

• our ability to contract with third-party suppliers and manufacturers and their ability to perform their obligations adequately;

• our ability to attract and retain key scientific or management personnel;

• the impact of changes in existing laws, regulations and guidance or the adoption of new laws, regulations and guidance;

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

• the impact of the COVID-19 outbreak on our clinical trial programs and business generally, as well as our plans and expectations with respect to the timing and resumption of any development activities that may be temporarily paused as a result of the COVID-19 outbreak;

• the ultimate impact of the current coronavirus pandemic, or any other health epidemic, on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole; and

• other risks and uncertainties, including those discussed in Part II, Item 1A, “Risk Factors” in this Quarterly Report.

All of our forward-looking statements are as of the date of this Quarterly Report only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report that modify or impact any of the forward-looking statements contained in this Quarterly Report will be deemed to modify or supersede such statements in this Quarterly Report.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page Number
PART I: FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Stockholders' Equity (Deficit)	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	22
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
Signatures		26

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

	As of
	June 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	71,032		$	71,241
Prepaid expenses and other current assets		6,203			2,038
Total current assets		77,235			73,279
Property and equipment, net		7,583			6,742
Restricted cash		2,161			2,285
Total assets	$	86,979		$	82,306
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,544		$	2,016
Accrued expenses and other current liabilities		7,954			8,361
Total current liabilities		11,498			10,377
Long term debt, net of unamortized debt discount		20,654			20,391
Other liabilities		3,505			2,655
Total liabilities		35,657			33,423
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 and no shares authorized;    no shares issued or outstanding		—			—
Common stock, $0.001 par value, 150,000,000 shares    authorized; 35,356,629 and 30,129,096 shares issued; 35,356,629    and 30,127,846 shares outstanding at June 30, 2020 and December 31, 2019,    respectively		35			30
Additional paid-in capital		282,319			241,412
Accumulated deficit		(231,032	)		(192,559	)
Total stockholders' equity		51,322			48,883
Total liabilities and stockholders’ equity	$	86,979		$	82,306

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

2

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Income:
Collaboration revenue	$	250		$	—		$	250		$	—
Operating expenses:
Research and development		12,833			18,775			25,970			33,957
General and administrative		5,559			6,181			11,476			11,614
Total operating expenses		18,392			24,956			37,446			45,571
Loss from operations		(18,142	)		(24,956	)		(37,196	)		(45,571	)
Other (expense) income:
Interest income		30			584			223			991
Interest expense		(683	)		(260	)		(1,371	)		(518	)
Change in fair value of warrant liability		—			—			—			252
Other expense		(127	)		(7	)		(129	)		(12	)
Total other (expense) income, net		(780	)		317			(1,277	)		713
Net loss	$	(18,922	)	$	(24,639	)	$	(38,473	)	$	(44,858	)
Net loss per share —basic and diluted	$	(0.59	)	$	(0.83	)	$	(1.24	)	$	(2.10	)
Weighted-average common shares outstanding —basic and diluted		31,880,672			29,667,221			31,106,977			21,361,749

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

3

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

(in thousands, except share data)

	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Stockholders’ Equity (Deficit)
Balance at January 1, 2020		30,127,846	$	30	$	241,412		$	(192,559	)	$	48,883
Exercise of stock options		334,444		—		1,561			—			1,561
Stock-based compensation		—		—		2,725			—			2,725
Vesting of restricted shares		1,250		—		3			—			3
Net loss		—		—		—			(19,551	)		(19,551	)
Balance at March 31, 2020		30,463,540	$	30	$	245,701		$	(212,110	)	$	33,621
Issuance of common stock, net of issuance costs $306		4,750,000		5		33,182						33,187
Exercise of stock options		143,089		—		620			—			620
Stock-based compensation		—		—		2,816			—			2,816
Vesting of restricted shares		—		—		—			—			—
Net loss		—		—		—			(18,922	)		(18,922	)
Balance at June 30, 2020		35,356,629	$	35	$	282,319		$	(231,032	)	$	51,322
	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Stockholders’ Equity (Deficit)
Balance at January 1, 2019		5,786,911	$	6	$	9,978		$	(106,228	)	$	(96,244	)
Conversion of redeemable convertible    preferred stock into common stock		18,517,386		19		153,207			—			153,226
Conversion of preferred stock warrant to    common stock warrant upon closing of    initial public offering		—		—		871			—			871
Issuance of common stock, net of issuance    costs of $8,411		5,000,000		5		66,584			—			66,589
Exercise of common stock warrant		51,015		—		—			—			—
Exercise of stock options		75,313		—		60			—			60
Stock-based compensation		—		—		2,528			—			2,528
Vesting of restricted shares		148,843		—		325			—			325
Net loss		—		—		—			(20,219	)		(20,219	)
Balance at March 31, 2019		29,579,468	$	30	$	233,553		$	(126,447	)	$	107,136
Issuance of common stock, net of issuance    costs of $644		—		—		(644	)		—			(644	)
Exercise of stock options		69,788		—		72			—			72
Stock-based compensation		—		—		2,400			—			2,400
Vesting of restricted shares		137,594		—		301			—			301
Net loss		—		—		—			(24,639	)		(24,639	)
Balance at June 30, 2019		29,786,850	$	30	$	235,682		$	(151,086	)	$	84,626

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

4

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Six Months Ended June 30,
	2020			2019
Operating activities:
Net loss	$	(38,473	)	$	(44,858	)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization		809			624
Equity-based compensation		5,541			4,928
Amortization of debt discount		263			—
Non-cash interest expense		172			25
Loss on disposal of fixed assets		114			—
Change in fair value of warrant liability		—			(252	)
Changes in:
Prepaid expenses and other assets		(4,165	)		(1,801	)
Accounts payable		1,274			123
Accrued expense and other liabilities		710			(1,250	)
Net cash used in operating activities		(33,755	)		(42,461	)
Investing activities:
Purchase of property and equipment		(1,896	)		(1,869	)
Net cash and restricted cash used in investing activities		(1,896	)		(1,869	)
Financing activities:
Proceeds from exercise of stock options		2,181			132
Payments related to capital lease		(45	)		(47	)
Issuance of common stock, net of issuance costs		33,182			68,422
Settlement of derivative liability		—			(300	)
Net cash provided by financing activities		35,318			68,207
Net (decrease) increase in cash, cash equivalents, and restricted cash		(333	)		23,877
Cash, cash equivalents, and restricted cash, beginning of period		73,526			78,266
Cash, cash equivalents, and restricted cash, end of period	$	73,193		$	102,143
Supplemental cash flow information
Interest paid	$	859		$	493
Supplemental disclosure of non-cash investing and financing activities
Purchase of property and equipment in accounts payable and accrued expenses	$	254		$	562
Offering costs incurred but unpaid at period end	$	277		$	—
Vesting of restricted stock	$	3		$	626
Reclassification of warrants to additional paid-in capital	$	—		$	871
Conversion of preferred stock to common stock upon closing of the initial    public offering	$	—		$	153,226
Initial public offering costs incurred but unpaid at period end	$	—		$	661

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

5

KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Amounts in thousands, except share and per share amounts)

1. Nature of the Business, Basis of Presentation, and Going Concern

Kaleido Biosciences, Inc. and its wholly owned subsidiaries (collectively, the “Company”) is a clinical-stage healthcare company that was incorporated in Delaware on January 27, 2015 and has a principal place of business in Lexington, Massachusetts. The Company was formed to use its differentiated, chemistry-driven approach to leverage the potential of the microbiome organ to treat disease and improve human health.

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, successful development of technology, obtaining additional funding, protection of proprietary technology, compliance with government regulations, risks of failure of preclinical studies (including ex vivo assays), clinical studies and clinical trials, the need to obtain marketing approval for its drug candidates and if applicable, its consumer products, fluctuations in operating results, economic pressure impacting therapeutic pricing, dependence on key personnel, risks associated with changes in technologies, development by competitors of technological innovations and the ability to supply sufficient amounts of Microbiome Metabolic Therapies, (“MMT” or “MMTs”) at an acceptable quality level.

On March 4, 2019, the Company completed its initial public offering (the "IPO"), pursuant to which it issued and sold 5,000,000 shares of common stock. The aggregate net proceeds received by the Company from the IPO were $69,750, after deducting underwriting discounts and commissions, but before deducting offering costs payable by the Company, which totaled $3,805 . Upon the closing of the IPO, all outstanding shares of convertible preferred stock converted into 18,517,386 shares of common stock.

On June 4, 2020, the Company completed a public offering (the “Offering”), pursuant to which it issued and sold 4,750,000 shares of the common stock.  The aggregate net proceeds received by the Company from the Offering were $33,138. Pursuant to the terms of the Underwriting Agreement, the Company also granted the Underwriters an option exercisable for 30 days to purchase up to an additional 712,500 shares of Common Stock at the same price per share less underwriting discounts and commissions. On July 1, 2020, 185,000 shares were exercised for net proceeds of $1,304.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2020, the Company had an accumulated deficit of $231,032. The Company expects to continue to generate operating losses and use cash in operations in the foreseeable future. As of June 30, 2020, the Company had cash and cash equivalents of $71,032, and management expects that the cash and cash equivalents at June 30, 2020 will be sufficient to fund its operating expenses and capital expenditure requirements into the second half of 2021. Based on its recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and need to raise additional capital to finance its future operations, the Company has concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company will require substantial additional capital to fund its research and development and ongoing operating expenses. These capital requirements are expected to be funded through debt and equity offerings as well as possible strategic collaborations with other companies. If the Company is unable to raise additional funds when needed, it may be required to delay, reduce or eliminate its product development or future commercialization efforts, or grant rights to develop and market product candidates that the Company would otherwise prefer to develop and market itself. While there can be no assurance the Company will be able to successfully reduce operating expenses or raise additional capital, management believes the historical success in managing cash flows and obtaining capital will continue in the foreseeable future.

A novel strain of coronavirus (COVID-19) was first identified in late 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served.  The Company has instituted some and may take additional temporary precautionary measures intended to help minimize the risk of the virus to its employees, including implementing a work-at-home policy, providing flexibility for working parents and suspending all business-related travel. The full extent of the future impacts of COVID-19 on our operations, including the timing and ability of the Company to complete certain clinical trials and other efforts to advance the development of our MMTs, is uncertain.

6

2. Summary of Significant Accounting Policies

Unaudited interim financial information

The consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K filed with the SEC on March 2, 2020.

All intercompany transactions and balances of the subsidiaries have been eliminated in consolidation. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair representation of the results for the reported interim periods.

Use of Estimates 

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Collaboration Revenue

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company will assess whether aspects of the arrangement between it and their collaboration partner are within the scope of other accounting literature. If the Company concludes that some or all aspects of the arrangement represent a transaction with a customer, it will account for those aspects of the arrangement within the scope of ASC 606, the Company applies the five-step model described below. If the Company concludes that some or all aspects of the arrangement are within the scope of ASC 808 and do not represent a transaction with a customer, the Company will recognize its allocation of the shared costs incurred with respect to the jointly conducted activities as a component of the related expense in the period incurred.

The Company recognizes revenue after applying the following five steps:

1)	Identification of the contract, or contracts, with a customer,
2)	Identification of the performance obligations in the contract, including whether they are distinct within the context of the contract
3)	Determination of the transaction price, including the constraint on variable consideration
4)	Allocation of the transaction price to the performance obligations in the contract
5)	Recognition of revenue when, or as, performance obligations are satisfied

If a contract is determined to be within the scope of ASC 606 at inception, the Company assesses the goods or services promised within such contract, determines which of those goods and services are performance obligations, and assesses whether each promised good or service is distinct.  Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, an entity is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

The Company may provide options to additional goods or services in such arrangements exercisable at a customer’s discretion. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The identification of material rights requires judgments related to the determination of the value of the underlying good and services to the option exercise price. 

The Company determines transaction price based on the amount of consideration the Company expects to receive for transferring the

7

promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. The Company then allocates the transaction price to each performance obligation based on the relative standalone selling prices (“SSP”). SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. In developing the SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs.

If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied, either at a point in time or over time, and if over time recognition is based on the use of an output or input method.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities. Amounts recognized as revenue prior to receipt are recorded as other current assets in the Company's balance sheets. If the Company expects to have an unconditional right to receive the consideration in the next twelve months, this will be classified in other current assets.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which applies to all leases and will require the Company to record most leases on the balance sheet. The Company will use a modified retrospective approach of adoption for ASU 2016-02. As an emerging growth company, this standard is required to be adopted on January 1, 2022, and the Company is evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements. The Company expects to recognize a significant lease obligation and right to use asset upon adoption.

3. Fair Value Measurements

The following tables set forth by level, within the fair value hierarchy, the assets carried at fair value on a recurring basis:

	Fair Value Measurements as of June 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds included within cash and cash    equivalents	$	45,397		—		—	$	45,397
Total	$	45,397		—		—	$	45,397

	Fair Value Measurements as of December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds included within cash and cash    equivalents	$	25,304		—		—	$	25,304
Total	$	25,304		—		—	$	25,304

The fair value of money market funds was measured by the Company based on quoted market prices.

Financial Instruments Not Recorded at Fair Value – The carrying value of cash, cash equivalents, restricted cash, accounts payable and accrued expenses that are reported on the condensed consolidated balance sheets approximate their fair value due to the short-term nature of these assets and liabilities. The carrying value of the long-term debt approximates fair value as evidenced by the recent refinancings.

8

4. Property and Equipment, net

Property and equipment consist of the following:

	As of
	June 30, 2020			December 31, 2019
Laboratory equipment	$	5,790		$	4,526
Office and computer equipment		1,302			1,418
Leasehold improvements		539			687
Construction in process		2,379			2,650
Property and equipment – at cost		10,010			9,281
Less accumulated depreciation and amortization		(2,427	)		(2,539	)
Property and equipment – net	$	7,583		$	6,742

Depreciation and amortization expense for the three months ended June 30, 2020 and 2019 was $388 and $331, respectively. Depreciation and amortization expense for six months ended June 30, 2020 and 2019 was $757 and $624, respectively.

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

	As of
	June 30, 2020		December 31, 2019
Payroll and benefits	$	1,792	$	2,426
Consulting service		642		230
Legal service		148		171
Research and development		3,740		4,259
Capital lease payable – short term		23		68
Interest expense		172		—
Deferred revenue		556		—
Other		881		1,207
	$	7,954	$	8,361

6. Debt Financing

On December 31, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”) with Hercules Capital, Inc. (the “Lender”). Under the Credit Agreement, the Company borrowed $22,500, and the Company has the option to draw down an additional $12,500 if certain milestones and conditions are met. The Company incurred fees of $410, which was paid to the Lender on the closing date. These amounts were recorded as a debt discount and are being amortized as interest expense using the effective interest method over the life of the Credit Agreement. The Credit Agreement also includes an end of term charge equal to 7.55% of the aggregate principal amount of all advances. The end of term charge, totaling $1,698 at December 31, 2019, was recognized as a debt discount and is reflected as a reduction in the carrying value of the debt and recorded in other long-term liabilities. The debt discount created by the end of term charge is being accreted and will be recognized as additional interest expense over the term of the Credit Agreement using the effective interest method.

The Credit Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including, among others, covenants that limit or restrict the Company’s ability to, among other things, incur additional indebtedness, merge or consolidate, make acquisitions, pay dividends or other distributions or repurchase equity, make investments, dispose of assets and enter into certain transactions with affiliates, in each case subject to certain exceptions. As security for its obligations under the Credit Agreement, the Company granted the Lender a first priority security interest on substantially all of the Company’s assets (other than intellectual property), and subject to certain exceptions.

The outstanding principal under the Credit Agreement has a 48-month term with interest only payments for the first 15 months, which period can be extended to up to 24 months, depending on the achievement of certain performance milestones. The outstanding principal bears interest at a rate equal to the greater of (i) 8.95% plus the prime rate minus 4.75% and (ii) 8.95%. The Credit Agreement includes mandatory prepayment provisions that require prepayment upon the occurrence of a change in control event.

On June 15, 2020, the Company entered into a Second Amendment to Loan and Security Agreement (the “Amendment”).  The Amendment was entered into for the primary purpose of amending the Agreement as follows: (i) the second tranche of the term loan (the “Term Loan”) is terminated and the $5,000 that was available as the second tranche is now available under the third tranche (the “tranche 3”); (ii) amounts available under Tranche 3 of the Term Loan is increased to $12,500 from the previous $7,500 availability amount and its availability period is extended through December 15, 2021, subject to future approval by the Agent’s investment committee; (iii) the

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interest-only period is extended through July 31, 2021; (iv) the interest rate on borrowings is increased by 0.4%, such that the per annum interest rate on outstanding borrowings will be the greater of (a) 9.35% and (b) 9.35% plus the Wall Street Journal prime rate minus 3.25%; (v) Performance Milestone I in the Agreement is removed from the Agreement; (vi) a new COVID-19 product candidate is added as the candidate of Performance Milestone II in the Agreement; (vii) the amounts of financing proceeds required by Performance Milestone II and Performance Milestone III in the Agreement are increased; and (viii) the variable amount and duration of a minimum cash covenant in the Agreement are amended. The Amendment has been accounted for as a modification under ASC 740-50, Modifications and Extinguishments, and the Company incurred fees of $79, which was paid to the lender on the closing date. These amounts were recorded as a debt discount and are being amortized as interest expense using the effective interest method over the life of the Amendment.

Future principal payments under the Credit Agreement as of June 30, 2020 are as follows (in thousands):

2021		5,454
2022		8,182
2023		8,182
2024		682
Total future principal payments		22,500
Less unamortized debt discount		1,846
Total balance	$	20,654

7. Commitments and contingencies

Facilities Leases

In March 2018, the Company entered into a non-cancelable ten-year lease agreement for laboratory and office space in Lexington, Massachusetts. In March 2019, the Company exercised its option to lease additional space in the building. The lease expires in 2029, subject to one option to extend the lease for 10 years.

Rent expense for the three months ended June 30, 2020 and 2019 totaled $1,871 and $1,023, respectively. Rent expense for the six months ended June 30, 2020 and 2019 totaled $3,650 and $2,045. Future minimum lease payments under the non-cancelable operating leases consisted of the following as of June 30, 2020:

Year Ending December 31,
2020	$	2,950
2021		6,026
2022		6,207
2023		6,393
2024		6,584
Thereafter		32,284
	$	60,444

8. Net Loss per Share

Basic and diluted net loss per common share is determined by dividing net loss by the weighted-average common shares outstanding during the period. The Company has computed diluted net loss per common share after giving consideration to all potentially dilutive common shares, including options to purchase common stock and unvested restricted common stock, outstanding during the period determined using the treasury stock method, except where the effect of including such securities would be anti-dilutive. Because the Company has reported net losses since inception, these potential common shares have been anti-dilutive and therefore basic and diluted net loss per share have been equivalent.

The following table presents securities that have been excluded from the computations of diluted weighted-average shares outstanding as they would be anti-dilutive:

	As of June 30,
	2020		2019
Options to purchase common stock		6,913,830		6,622,370
Unvested restricted common stock		—		42,187
Restricted stock units