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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 September 30, 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: 001-38822
_____________________
KALEIDO BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
_____________________
Delaware47-3048279
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
65 Hayden AvenueLexingtonMA02421
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 Par ValueKLDONASDAQ 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 October 29, 2019, there were 30,062,545 shares of registrant’s common shares outstanding.



Table of Contents
FORWARD-LOOKING STATEMENTS
In this Quarterly Report on Form 10-Q, we use the following defined terms.

We utilize our human-centric discovery and development platform to study Microbiome Metabolic Therapies, or MMTs, in microbiome samples in an ex vivo setting, followed by advancing MMT candidates rapidly into clinical studies in healthy subjects and patients. “Clinical studies” are conducted under regulations supporting research with food, evaluating safety, tolerability and potential markers of effect. For MMT candidates that are further developed as therapeutics, we conduct clinical trials under an Investigational New Drug, or IND, or comparable foreign regulatory equivalents outside the U.S., and in Phase 2 or later development.
This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, 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:
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, and 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 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 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 product candidates 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, commercialization, or other relevant expertise; 
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; 
regulatory developments in the United States and foreign countries; 
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 and regulations or the adoption of new laws and regulations; and 
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and other technologies.
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q 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 on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.


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KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page Number



Table of Contents
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
September 30
2019
December 31
2018
Assets
Current assets:
  Cash and cash equivalents$81,272  $76,086  
  Prepaid expenses and other current assets1,942  157  
    Total current assets83,214  76,243  
Property and equipment, net5,811  4,693  
Restricted cash2,187  2,180  
Deferred issuance costs  2,209  
    Total assets$91,212  $85,325  
Liabilities, Redeemable Convertible Preferred Stock and Shareholders’ Equity (Deficit)
Current liabilities:
  Accounts payable$1,657  $3,442  
  Accrued expenses and other current liabilities8,599  7,859  
    Total current liabilities10,256  11,301  
Long term debt, net of unamortized debt discount14,868  14,831  
Restricted shares repurchase liability48  720  
Other liabilities  278  
Warrant liability  1,213  
    Total liabilities25,172  28,343  
Redeemable convertible preferred stock, $0.001 par value, no shares and 37,171,832 shares
authorized; no shares and 37,034,802 shares issued and outstanding at September 30, 2019
and December 31, 2018, respectively
  153,226  
Commitments and contingencies (Note 7)
Shareholders’ equity:
Preferred shares, $0.001 par value, 10,000,000 and no shares authorized;
no shares issued or outstanding at September 30, 2019 and December 31, 2018, respectively
    
Common shares, $0.001 par value, 150,000,000 and 66,000,000 shares authorized;
30,077,386 and 6,115,535 shares issued; 30,055,668 and 5,786,911 shares
outstanding at September 30, 2019 and December 31, 2018, respectively
30  6  
Additional paid-in capital239,057  9,978  
Accumulated deficit(173,047) (106,228) 
    Total shareholders' equity (deficit)66,040  (96,244) 
    Total liabilities, redeemable convertible preferred stock and shareholders’ equity (deficit) $91,212  $85,325  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2

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KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Operating expenses:
Research and development$16,188  $10,168  $50,145  $26,854  
General and administrative5,930  7,144  17,544  13,024  
Total operating expenses22,118  17,312  67,689  39,878  
Loss from operations(22,118) (17,312) (67,689) (39,878) 
Other (expense) income:
Interest income429  375  1,419  716  
Interest expense(258) (243) (776) (745) 
Change in fair value of warrant liability  (56) 252  (405) 
Other expense(14) (170) (25) (202) 
Total other expense, net157  (94) 870  (636) 
Net loss$(21,961) $(17,406) $(66,819) $(40,514) 
Net loss per share —basic and diluted$(0.74) $(3.38) $(2.76) $(8.22) 
Weighted-average common shares outstanding used in net loss per share —basic and diluted29,856,2335,146,30124,224,3594,931,183
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2

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KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders Equity (Deficit) (Unaudited)
(in thousands, except share data)
Redeemable Convertible
Preferred Stock
Common Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
Balance at January 1, 201937,034,802  $153,226  5,786,911  $6  $9,978  $(106,228) $(96,244) 
  Conversion of redeemable convertible preferred stock into common stock(37,034,802) (153,226) 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  
Issuance of common stock, net of issuance costs of $644—  —  —  —  —  
Exercise of stock options—  —  248,349  —  420  —  420  
Stock-based compensation—  —  —  —  2,909  —  2,909  
Vesting of restricted shares—  —  20,469  —  46  —  46  
Net loss—  —  —  —  —  (21,961) (21,961) 
Balance at Balance at September 30, 2019  $  30,055,668  $30  $239,057  $(173,047) $66,040  

3

Table of Contents
Redeemable Convertible
Preferred Stock
Common Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Stockholders’
Equity (Deficit)
SharesAmountSharesAmount
Balance at January 1, 201826,927,398  $52,494  4,711,963  $5  $800  $(44,484) $(43,679) 
  Issuance of Series C convertible preferred stock (net of issuance costs of $168)7,116,414  70,925  —  —  —  —  —  
  Exercise of stock options—  —  9,944  —  2  —  2  
  Stock-based compensation—  —  —  —  234  —  234  
  Vesting of restricted shares—  —  72,656  —  158  —  158  
  Net loss—  —  —  —  —  (10,760) (10,760) 
Balance at March 31, 201834,043,812  $123,419  4,794,563  $5  $1,194  $(55,244) $(54,045) 
Issuance of Series C convertible preferred stock (net of issuance costs of $67)2,990,990  29,813  —  —  —  —  —  
Exercise of stock options—  —  843  —  4  —  4  
Stock-based compensation—  —  —  —  503  —  503  
Vesting of restricted shares—  —  254,252  —  555  —  555  
Net loss—  —  —  —  —  (12,348) (12348) 
Balance at June 30, 201837,034,802  $153,232  5,049,658  $5  $2,256  $(67,592) $(65,331) 
Issuance of Series C convertible preferred stock (net of issuance costs of $67)—  —  —  —  —  —  —  
Exercise of stock options—  —  94,686  —  84  —  84  
Stock-based compensation—  —  —  —  3,822  —  3,822  
Vesting of restricted shares—  —  371,380  1  808  —  809  
Net loss—  —  —  —  —  (17,406) (17,406) 
Balance at September 30, 201837,034,802  $153,232  5,515,724  $6  $6,970  $(84,998) $(78,022) 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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KALEIDO BIOSCIENCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Nine Months Ended September 30,
20192018
Operating activities:
Net loss$(66,819) $(40,514) 
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization964  529  
Equity-based compensation7,837  4,559  
Non-cash interest expense37  45  
Change in fair value of warrant liability(252) 555  
Changes in:
Prepaid expenses and other assets(1,660) (470) 
Accounts payable(1,137) 827  
Accrued expense and other liabilities881  2,306  
Net cash used in operating activities(60,149) (32,163) 
Investing activities:
Purchase of property and equipment(2,588) (1,943) 
Net cash and restricted cash used in investing activities(2,588) (1,943) 
Financing activities:
Payments for deferred issuance costs  (457) 
Payments from issuance costs related to debt  (25) 
Proceeds from preferred stock financing, net of issuance costs  100,730  
Proceeds from exercise of stock options538  90  
Payments related to capital lease(69) (78) 
Issuance of common stock, net of issuance costs67,761    
Settlement of derivative liability(300)   
Net cash provided by financing activities67,930  100,260  
Net increase in cash, cash equivalents, and restricted cash5,193  66,154  
Cash, cash equivalents, and restricted cash, beginning of period78,266  28,677  
Cash, cash equivalents, and restricted cash, end of period$83,459  $94,831  
Supplemental cash flow information
Interest paid$739  $700  
Supplemental disclosure of non-cash investing and financing activities
Vesting of restricted stock$672  $1,522  
Reclassification of warrants to additional paid-in capital$871  $  
Derivative liability related to debt$  $15  
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$  $1,000  
Purchase of property and equipment in accounts payable and accrued expenses$99  $54  
Settlement from Exercise of Stock Options$14  $  
Other Assets, non-cash$112  $  
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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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 and Basis of Presentation
Kaleido Biosciences, Inc. and its wholly owned subsidiaries, Cadena Bio, Inc. and Kaleido Biosciences Securities Corporation (collectively referred to as 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 ("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.
The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has financed its operations through private placements of its equity securities, borrowings of long-term debt and most recently, through a public offering. As of September 30, 2019, the Company had an accumulated deficit of $173,047. The Company expects to continue to generate operating losses in the foreseeable future. As of the issuance date of the consolidated financial statements, the Company expects that its cash and cash equivalents, will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of the interim consolidated financial statements. The Company will require substantial additional capital to fund its research and development and ongoing operating expenses. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
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 Prospectus that forms a part of the Company’s Registration Statement on Form S-1 (File No. 333-229204), which was filed with the SEC pursuant to Rule 424(b)(4) on March 1, 2019 (the “Prospectus”).
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.
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Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Prospectus. There have been no material changes to the significant accounting policies during the period ended September 30, 2019.
Accounting Pronouncements Issued and Not Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which applies to all leases and will require lessees to record most leases on the balance sheet but recognize expense in a manner similar to the current standard. The Company will use a modified retrospective approach of adoption for leases. The Company will adopt this standard on January 1, 2020 and is currently evaluating the impact that the adoption of ASU 2016-02 and ASU No. 2018-11 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 and liabilities carried at fair value on a recurring basis:
Fair Value Measurement as of September 30, 2019
Level 1Level 2Level 3Total
Assets:
Money market funds included within cash and cash equivalents$80,724      $80,724  
Total$80,724      80,724  

Fair Value Measurement as of December 31, 2018
Level 1Level 2Level 3Total
Assets:
Money market funds included within cash and cash equivalents$74,145      $74,145  
Total$74,145      $74,145  
Liabilities:
Warrant liability$    1,213  $1,213  
       Derivative liability    210  $210  
$    1,423  $1,423  
The fair value of money market funds was measured by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.
The convertible preferred stock warrant liability consisted of the fair value of warrants to purchase Series A and Series B convertible preferred stock and was based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the convertible preferred stock warrants utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the convertible preferred stock warrants. The Company assessed these assumptions and estimates on a quarterly basis as additional information impacting the assumptions was obtained. Changes in the fair value of the convertible preferred stock warrants were recognized as other income (expense) in the consolidated statements of operations.
The quantitative elements associated with the Company’s Level 3 inputs that impact the fair value measurement of the convertible preferred stock warrant liability included the fair value per share of the underlying Series A and Series B convertible preferred stock, the remaining contractual term of the warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying convertible preferred stock. The most significant assumption in the Black-Scholes option-pricing model that impacts the fair value of the convertible preferred stock warrants was the fair value of the Company’s convertible preferred stock as of each re-measurement date. The Company determined the fair value per share of the underlying convertible preferred stock by taking into consideration its most recent sales of its convertible preferred stock as well as additional factors that the
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Company deems relevant. The Company historically has been a private company and lacked company-specific historical and implied volatility information of its stock. Therefore, it estimates its expected stock volatility based on the historical volatility of publicly-traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company has estimated a 0% dividend yield based on the expected dividend yield and the fact that the Company has never paid or declared dividends.
Upon the closing of the IPO, the warrants for the purchase of convertible preferred stock automatically became warrants for the purchase of common stock and the Company reclassified the carrying value of the warrants from a liability to additional paid-in capital in the consolidated balance sheet. The warrants were subsequently exercised.
The fair value of the derivative liability recognized in connection with the contingent success fee associated with the amended term loan agreement (see Note 6) was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the derivative liability was determined using the probability-weighted expected return method (“PWERM”), which considered as inputs the probability of occurrence of an event (as defined), the expected timing of a liquidity event, the amount of the success fee and a risk-adjusted discount rate. As of December 31, 2018, the assumed probability of occurrence of the event that was most probable of triggering the payment was 70%, the expected timing of such an event was estimated to be less than one year, the amount of the success fee was $300 and the discount rate was assessed to be 0%. As of March 4, 2019, the closing date of the IPO, the assumed probability of occurrence of the event that was most probable of triggering the payment increased to 100% and the discount rate was assessed to be 0%. Based on these inputs, the Company determined that the fair value of the derivative liability was $210 as of December 31, 2018 and $300 as of March 4, 2019. Upon completion of the IPO, the success fee of $300 was paid in March 2019.
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 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 amendment to the term loan agreement.
4. Property and Equipment, net
Property and equipment consist of the following:
As of
September 30, 2019December 31, 2018
Laboratory equipment$4,263  $3,226  
Office and computer equipment1,418  1,337  
Leasehold improvements687  653  
Construction in process1,629  698  
Property and equipment – at cost7,997  5,914  
Less accumulated depreciation and amortization(2,186) (1,221) 
Property and equipment – net5,811  $4,693  
Depreciation and amortization expense for the three and nine months ended September 30, 2019 was $340 and $964, respectively. Depreciation and amortization expense for the three and nine months ended September 30, 2018 was $194 and $529, respectively.
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
As of
September 30, 2019December 31, 2018
Payroll and benefits$3,021  $3,297  
Consulting service472  243  
Legal service80  90  
Research and development4,258  3,718  
Capital lease payable – short term90  91  
Other678  420  
$8,599  $7,859  

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6. Debt Financing
The Company is party to a loan and security agreement, as amended (the “2015 Credit Facility”), under which the Company has borrowed an aggregate of $15,000. Borrowings under the 2015 Credit Facility bear interest at an annual rate equal to the lender’s prime rate plus 1.00%, subject to a floor of 5.75%, and are repayable in monthly interest-only payments through April 2020 and in equal monthly payments of principal plus accrued interest from May 2020 until the maturity date in April 2022. As of September 30, 2019, the interest rate applicable to borrowings under the 2015 Credit Facility was 6.50%.
Borrowings under the 2015 Credit Facility are collateralized by substantially all of the Company’s personal property, other than its intellectual property. There are no financial covenants associated with the 2015 Credit Facility; however, the Company is subject to certain affirmative and negative covenants restricting the Company’s activities, including limitations on dispositions, mergers or acquisitions; encumbering its intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. The obligations under the 2015 Credit Facility is subject to acceleration upon the occurrence of specified events of default, including a material adverse change in the Company’s business, operations or financial or other condition.
The scheduled principal maturity of the 2015 Credit Facility is $5,000 in 2020, $7,500 in 2021 and $2,500 in 2022.
As part of an amendment to the 2015 Credit Facility in June 2018, a success fee of $300 was required in the event of a liquidation event, including an IPO. The success fee represented an embedded derivative which the Company bifurcated from the debt arrangement and carried at fair value. In March 2019, the Company completed its IPO and paid the success fee of $300.

7. Commitments and contingencies
Facilities Leases
Lexington, MA Lease
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 premises (the “Expansion Premises”) comprised of 54,468 square feet of space on the second floor of the building. Under the terms of the option, the Company will not gain access to the additional space until December 1, 2019 at the earliest.
Rent expense for the three and nine months ended September 30, 2019 was $1,023 and $3,068, respectively. Rent expense for the three and nine months ended September 30, 2018 was $299 and $783, respectively. Future minimum lease payments under the non-cancelable operating leases consisted of the following as of September 30, 2019:
Year Ending December 31,
2019$943  
20205,757  
20215,922  
20226,100  
20236,283  
Thereafter37,155  
$62,160  

8. Common stock
Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are not entitled to receive dividends, unless declared by the board of directors.
Upon the closing of the IPO in March 2019, all of the shares of the Company’s outstanding convertible preferred stock automatically converted into 18,517,386 shares of common stock.
In March 2019, the Company filed an amended and restated certificate of incorporation in the State of Delaware, which, among other things, restated the number of shares of all classes of stock that the Company has authority to issue to 160,000,000 shares,
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consisting of (i) 150,000,000 shares of common stock, $0.001 par value per share, and (ii) 10,000,000 shares of preferred stock, $0.001 par value per share. The shares of preferred stock are currently undesignated.
9. Stock-based compensation
2015 Stock Incentive Plan
The Company’s 2015 Stock Incentive Plan (the “2015 Plan”) provided for the Company to sell or issue incentive stock options or nonqualified stock options, restricted stock, and other equity awards to employees, directors and consultants of the Company. The 2015 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or its committee if so delegated.
The total number of shares of common stock that could have been issued under the 2015 Plan was 8,395,974 shares, of which 10,558 shares remained available for future issuance prior to the effectiveness of the Company’s 2019 Stock Option and Incentive Plan (the “2019 Plan”). Upon effectiveness of the 2019 Plan, the remaining shares available under the 2015 Plan ceased to be available for issuance and no future issuances will be made under the 2015 Plan. The shares of common stock underlying outstanding awards under the 2015 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added to the shares of common stock available for issuance under the 2019 Plan.
2019 Stock Option and Incentive Plan
The 2019 Plan was adopted by the Company’s board of directors on January 23, 2019, and approved by stockholders on February 19, 2019, and became effective on February 27, 2019. The 2019 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, directors and consultants. The number of shares initially reserved for issuance under the 2019 Plan is 2,168,976, which shall be cumulatively increased on January 1, 2020 and each January 1 thereafter by 4% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s board of directors or compensation committee of the board of directors.
2019 Employee Stock Purchase Plan
The 2019 Employee Stock Purchase Plan (the “2019 ESPP”) was adopted by the Company’s board of directors on January 23, 2019, and adopted by stockholders on February 19, 2019, and became effective on February 27, 2019. A total of 180,748 shares of common stock were reserved for issuance under this plan. In addition, the number of shares of common stock that may be issued under the ESPP will automatically increase on January 1, 2020, and each January 1 thereafter, by the lesser of (i) 542,244 shares of common stock, (ii) 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or (iii) such lesser number of shares as determined by the administrator of the 2019 ESPP.
Stock Option Valuation
The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The assumptions that the Company used to determine the grant-date fair value of options granted were as follows:
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Nine Months Ended September 30,
20192018
Expected volatility66.1%-83%  50%-55%  
Risk-free interest rate1.41%-2.54%  2.75%-2.82%  
Expected term (in years)6.0-6.255.81-6.60
Expected dividend yield  
Stock Options Activity
A summary of the Company’s stock option activity and related information is as follows:
OptionsWeighted
Average
Exercise
Price
Weighted
Average
Remaining
Life (in Years)
Aggregate
Intrinsic
Value
Outstanding as of January 1, 2019
6,686,267  $7.50  9.268,167  
Granted
1,186,107  10.91  
Exercised
(400,518) 1.38  
Canceled
(543,842) 7.17  
Outstanding as of September 30, 2019
6,928,014  $8.47  8.7
Options exercisable as of September 30, 2019
1,416,811  8.1
Options vested or expected to vest as of September 30, 20196,928,014  8.7
The weighted-average grant date fair value of the options granted during the nine months ended September 30, 2019 was $6.99 per share. As of September 30, 2019 there was $29,297 of unrecognized compensation expense, which the Company expects to recognize over the weighted-average remaining term of 2.78 years.
Restricted Common Stock
During the year ended December 31, 2017, the Company signed agreements with seven employees to early exercise stock options covering 1,295,699 shares to convert such options to restricted common stock prior to the vesting of the underlying shares of common stock. The vesting conditions did not change. The consideration received due to the early exercises from the seven employees was recorded as a restricted share repurchase liability. As of September 30, 2019 and December 31, 2018, the outstanding balance of the restricted share repurchase liability was $48 and $720, respectively.
The following table summarizes the Company’s restricted common stock activity for the nine months ended September 30, 2019:
Number of Restricted SharesWeighted-Average Grant Date Fair Value
Issued and unvested as of January 1, 2019328,624  $2.19  
Vested(306,906) 
Issued and unvested as of September 30, 201921,718  $2.22  
Stock- Based Compensation Expense
The Company recorded stock-based compensation expense in the following expense categories of its consolidated statements of operations:
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Research and development
$929  $311  $2,610  $662  
General and administrative
1,980  3,511  5,227  3,897