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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 September 30, 2023

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: 001-39536

 

Taysha Gene Therapies, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-3199512

( State or other jurisdiction of

incorporation or organization)

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

3000 Pegasus Park Drive Ste 1430

Dallas, Texas

75247

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (214) 612-0000

 

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, par value $0.00001 per share

 

TSHA

 

The Nasdaq Stock Market LLC

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

As of November 14, 2023, the registrant had 186,960,193 shares of common stock, $0.00001 par value per share, outstanding.

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

Balance Sheets

1

Statements of Operations

2

Statements of Stockholders’ (Deficit) Equity

3

Statements of Cash Flows

5

Notes to Financial Statements

6

Item 2.

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

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4.

Controls and Procedures

51

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

53

Item 1A.

Risk Factors

53

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3.

Defaults Upon Senior Securities

55

Item 4.

Mine Safety Disclosures

55

Item 5.

Other Information

55

Item 6.

Exhibits

57

Signatures

58

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Taysha Gene Therapies, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

September 30,
2023

 

 

December 31,
2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

164,278

 

 

$

87,880

 

Prepaid expenses and other current assets

 

 

5,529

 

 

 

8,537

 

Assets held for sale

 

 

2,000

 

 

 

 

Total current assets

 

 

171,807

 

 

 

96,417

 

Restricted cash

 

 

2,637

 

 

 

2,637

 

Property, plant and equipment, net

 

 

11,169

 

 

 

14,963

 

Operating lease right-of-use assets

 

 

9,852

 

 

 

10,943

 

Other non-current assets

 

 

304

 

 

 

1,316

 

Total assets

 

$

195,769

 

 

$

126,276

 

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

7,520

 

 

$

10,946

 

Accrued expenses and other current liabilities

 

 

13,638

 

 

 

18,287

 

Deferred revenue

 

 

18,759

 

 

 

33,557

 

Warrant liability

 

 

140,534

 

 

 

 

Total current liabilities

 

 

180,451

 

 

 

62,790

 

Deferred revenue, net of current portion

 

 

2,951

 

 

 

 

Term loan, net

 

 

38,548

 

 

 

37,967

 

Operating lease liability, net of current portion

 

 

19,101

 

 

 

20,440

 

Other non-current liabilities

 

 

3,832

 

 

 

4,130

 

Total liabilities

 

 

244,883

 

 

 

125,327

 

Commitments and contingencies - Note 13

 

 

 

 

 

 

Stockholders' (deficit) equity

 

 

 

 

 

 

Preferred stock, $0.00001 par value per share; 10,000,000 shares authorized and no shares issued and outstanding as of September 30, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.00001 par value per share; 200,000,000 shares authorized and 186,960,193 and 63,207,507 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

2

 

 

 

1

 

Additional paid-in capital

 

 

511,632

 

 

 

402,389

 

Accumulated deficit

 

 

(560,748

)

 

 

(401,441

)

Total stockholders’ (deficit) equity

 

 

(49,114

)

 

 

949

 

Total liabilities and stockholders' (deficit) equity

 

$

195,769

 

 

$

126,276

 

 

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

1


 

Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(Unaudited)

 

 

 

 

For the Three Months
Ended September 30,

 

 

For the Nine Months
Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

$

4,746

 

 

$

 

 

$

11,847

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

11,791

 

 

 

16,774

 

 

 

44,096

 

 

 

78,462

 

General and administrative

 

 

8,589

 

 

 

8,683

 

 

 

23,328

 

 

 

30,019

 

Impairment of long-lived assets

 

 

616

 

 

 

 

 

 

616

 

 

 

 

Total operating expenses

 

 

20,996

 

 

 

25,457

 

 

 

68,040

 

 

 

108,481

 

Loss from operations

 

 

(16,250

)

 

 

(25,457

)

 

 

(56,193

)

 

 

(108,481

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

(100,456

)

 

 

 

 

 

(100,456

)

 

 

 

Interest income

 

 

1,109

 

 

 

9

 

 

 

1,651

 

 

 

50

 

Interest expense

 

 

(1,471

)

 

 

(1,078

)

 

 

(4,285

)

 

 

(2,493

)

Other expense

 

 

(19

)

 

 

(1

)

 

 

(24

)

 

 

(12

)

Total other income (expense), net

 

 

(100,837

)

 

 

(1,070

)

 

 

(103,114

)

 

 

(2,455

)

Net loss

 

$

(117,087

)

 

$

(26,527

)

 

$

(159,307

)

 

$

(110,936

)

Net loss per common share, basic and diluted

 

$

(0.93

)

 

$

(0.65

)

 

$

(1.88

)

 

$

(2.79

)

Weighted average common shares outstanding, basic and diluted

 

 

125,700,799

 

 

 

40,937,808

 

 

 

84,630,796

 

 

 

39,761,764

 

 

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

2


 

Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

(in thousands, except share data)

(Unaudited)

 

For the Three Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balance as of June 30, 2023

 

 

64,432,637

 

 

$

1

 

 

$

406,546

 

 

$

(443,661

)

 

$

(37,114

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,040

 

 

 

 

 

 

2,040

 

Issuance of common stock in private placement, net of placement agent commission and offering costs of $7,098

 

 

122,412,376

 

 

 

1

 

 

 

103,028

 

 

 

 

 

 

103,029

 

Issuance of common stock upon vesting and settlement of restricted stock units

 

 

82,780

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP

 

 

32,400

 

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(117,087

)

 

 

(117,087

)

Balance as of September 30, 2023

 

 

186,960,193

 

 

$

2

 

 

$

511,632

 

 

$

(560,748

)

 

$

(49,114

)

 

 

For the Three Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of June 30, 2022

 

 

41,020,086

 

 

$

1

 

 

$

352,342

 

 

$

(319,836

)

 

$

32,507

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,470

 

 

 

 

 

 

4,470

 

Issuance of common stock upon vesting and settlement of restricted stock units

 

 

82,780

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP

 

 

73,073

 

 

 

 

 

 

253

 

 

 

 

 

 

253

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(26,527

)

 

 

(26,527

)

Balance as of September 30, 2022

 

 

41,175,939

 

 

$

1

 

 

$

357,065

 

 

$

(346,363

)

 

$

10,703

 

 

 

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

 

 

 

3


 

Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

(in thousands, except share data)

(Unaudited)

 

 

 

For the Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance as of December 31, 2022

 

 

63,207,507

 

 

$

1

 

 

$

402,389

 

 

$

(401,441

)

 

$

949

 

Stock-based compensation

 

 

 

 

 

 

 

 

5,937

 

 

 

 

 

 

5,937

 

Issuance of common stock in private placement, net of placement agent commission and offering costs of $7,138

 

 

123,117,594

 

 

 

1

 

 

 

103,238

 

 

 

 

 

 

103,239

 

Issuance of common stock upon vesting and settlement of restricted stock units, net

 

 

566,772

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ESPP

 

 

68,320

 

 

 

 

 

 

68

 

 

 

 

 

 

68

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(159,307

)

 

 

(159,307

)

Balance as of September 30, 2023

 

 

186,960,193

 

 

$

2

 

 

$

511,632

 

 

$

(560,748

)

 

$

(49,114

)

 

 

 

For the Nine Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance as of December 31, 2021

 

 

38,473,945

 

 

$

 

 

$

331,032

 

 

$

(235,649

)

 

$

95,383

 

Adjustment to beginning accumulated deficit from the adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

222

 

 

 

222

 

Stock-based compensation

 

 

 

 

 

 

 

 

14,172

 

 

 

 

 

 

14,172

 

Issuance of common stock upon vesting and settlement of restricted stock units

 

 

628,921

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock, net of sales commissions and other offering costs of $392

 

 

2,000,000

 

 

 

1

 

 

 

11,608

 

 

 

 

 

 

11,609

 

Issuance of common stock under ESPP

 

 

73,073

 

 

 

 

 

 

253

 

 

 

 

 

 

253

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(110,936

)

 

 

(110,936

)

Balance as of September 30, 2022

 

 

41,175,939

 

 

$

1

 

 

$

357,065

 

 

$

(346,363

)

 

$

10,703

 

 

 

 

 

 

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

4


 

Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

For the Nine Months
Ended September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(159,307

)

 

$

(110,936

)

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

 

 

 

 

 

 

Depreciation expense

 

 

1,005

 

 

 

810

 

Research and development license expense

 

 

3,500

 

 

 

1,250

 

Stock-based compensation

 

 

5,937

 

 

 

13,940

 

Change in fair value of warrant liability

 

 

100,456

 

 

 

 

Issuance costs for pre-funded warrant liability

 

 

2,567

 

 

 

 

Impairment of long-lived assets

 

 

616

 

 

 

 

Non-cash lease expense

 

 

908

 

 

 

1,031

 

Other

 

 

581

 

 

 

616

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

4,008

 

 

 

1,980

 

Accounts payable

 

 

(1,065

)

 

 

(3,217

)

Accrued expenses and other liabilities

 

 

(4,260

)

 

 

(8,576

)

Deferred revenue

 

 

(11,847

)

 

 

 

Net cash used in operating activities

 

 

(56,901

)

 

 

(103,102

)

Cash flows from investing activities

 

 

 

 

 

 

Purchase of research and development license

 

 

(3,500

)

 

 

(4,250

)

Purchase of property, plant and equipment

 

 

(3,852

)

 

 

(18,310

)

Other

 

 

10

 

 

 

 

Net cash used in investing activities

 

 

(7,342

)

 

 

(22,560

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock, net of sales commissions

 

 

 

 

 

11,640

 

Proceeds from issuance of common stock and pre-funded warrants from private placement, net of placement agent commissions and other offering costs

 

 

140,713

 

 

 

 

Proceeds from issuance of common stock from private placement, net of sales commissions

 

 

500

 

 

 

 

Payment of shelf registration costs

 

 

(387

)

 

 

(319

)

Proceeds from common stock issuances under ESPP

 

 

68

 

 

 

253

 

Other

 

 

(253

)

 

 

(709

)

Net cash provided by financing activities

 

 

140,641

 

 

 

10,865

 

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

 

 

76,398

 

 

 

(114,797

)

Cash, cash equivalents and restricted cash at the beginning of the period

 

 

90,517

 

 

 

151,740

 

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

 

$

166,915

 

 

$

36,943

 

Cash and cash equivalents

 

 

164,278

 

 

 

34,306

 

Restricted cash

 

 

2,637

 

 

 

2,637

 

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

 

$

166,915

 

 

$

36,943

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

3,665

 

 

$

1,758

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

Property, plant and equipment in accounts payable and accrued expenses

 

 

45

 

 

 

3,366

 

Right-of-use assets obtained in exchange for lease liabilities

 

 

 

 

 

23,035

 

Offering costs not yet paid

 

 

423

 

 

 

40

 

Issuance of warrants in connection with private placement

 

 

252

 

 

 

 

 

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

 

 

5


 

Note 1—Organization and Description of Business Operations

Taysha Gene Therapies, Inc. (the “Company” or “Taysha”) was originally formed under the laws of the State of Texas on September 20, 2019 (“Inception”). Taysha converted to a Delaware corporation on February 13, 2020, which had no impact to the Company’s par value or issued and authorized capital structure.

Taysha is a patient-centric gene therapy company focused on developing and commercializing AAV-based gene therapies for the treatment of monogenic diseases of the central nervous system in both rare and large patient populations.

Sales Agreement

On October 5, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with SVB Securities LLC (f/k/a SVB Leerink LLC) and Wells Fargo Securities, LLC (collectively, the “Sales Agents”), pursuant to which the Company may issue and sell, from time to time in its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through the Sales Agents. In March 2022, the Company amended the Sales Agreement to, among other things, include Goldman Sachs & Co. LLC as an additional Sales Agent. The Sales Agents may sell common stock by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the Nasdaq Global Select Market or any other existing trade market for the common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law. Any shares of the Company’s common stock will be issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-260069) (the “Shelf Registration Statement”), which the Securities and Exchange Commission (“SEC”) declared effective on October 14, 2021; however the Company’s use of the Shelf Registration Statement will be limited for so long as the Company is subject to General Instruction I.B.6 of Form S-3, which limits the amounts that the Company may sell under the Shelf Registration Statement and in accordance with the Sales Agreement. The Sales Agents are entitled to receive 3.0% of the gross sales price per share of common stock sold under the Sales Agreement. In April 2022, the Company sold 2,000,000 shares of common stock under the Sales Agreement and received $11.6 million in net proceeds. No other shares of common stock have been issued and sold pursuant to the Sales Agreement as of September 30, 2023.

Liquidity and Capital Resources

The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Pursuant to ASC 205, Presentation of Financial Statements, the Company is required to and does evaluate at each annual and interim period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. In its Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, the Company concluded that due to inherent uncertainties in the Company’s forecast, and after considering both quantitative and qualitative factors that were known or reasonably knowable as of the date that such condensed consolidated financial statements were issued, there were conditions present in the aggregate that raised substantial doubt about the Company’s ability to continue as a going concern.

Following the closing of the Private Placement (as defined below) in August 2023 (see Note 10), the Company has concluded that after considering both qualitative and quantitative factors, there are no longer conditions present in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern. The Company has sufficient liquidity to satisfy its obligations for at least twelve months following the date of the issuance of these condensed consolidated financial statements. Accordingly, the Company has concluded that there is no longer substantial doubt about the Company’s ability to continue as a going concern.

The Company has incurred operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2023, the Company had an accumulated deficit of $560.7 million. Losses are expected to continue as the Company continues to invest in its research and development activities. Future capital requirements will depend on many factors, including the timing and extent of spending on research and development and the market acceptance of the Company’s products. As of September 30, 2023, the Company had cash and cash equivalents of $164.3 million which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months from the date of issuance of these condensed consolidated financial statements.

6


 

 

Note 2—Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X and are consistent in all material respects with those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 28, 2023 (the “2022 Annual Report”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. The consolidated balance sheet as of December 31, 2022, is derived from audited financial statements, however, it does not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s 2022 Annual Report.

Principles of Consolidation

The accompanying interim condensed consolidated financial statements include the accounts of Taysha and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity 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 financial statements and the reported amounts of expenses during the reporting period. The most significant estimates and assumptions in the Company’s financial statements relate to the determination of the fair value of the common stock prior to the initial public offering ("IPO") (as an input into stock-based compensation), estimating manufacturing accruals and accrued or prepaid research and development expenses, the measurement of impairment of long-lived assets, the fair value of the warrant liability, and the allocation of consideration received in connection with the Astellas Transactions (as defined below) at contract inception. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Significant Accounting Policies

There have been no changes in the Company’s significant accounting policies as disclosed in Note 2 to the audited consolidated financial statements included in the 2022 Annual Report, except as described below.

Cash and Cash Equivalents

Cash and cash equivalents consist of funds held in a standard checking account, a standard savings account and a money market fund. The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Assets Held for Sale

Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets and liabilities are classified as held for sale in the balance sheet. Assets classified as held for sale are reported at the lower of their carrying value or fair value less costs to sell. The Company recorded a partial impairment of $0.6 million during the three months ended September 30, 2023 in connection with the classification of certain assets to assets held for sale. Depreciation and amortization of assets ceases upon designation as held for sale.

7


 

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. The Company classifies the warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to remeasurement at each balance sheet date until the warrants are exercised or expire, and any change in fair value is recognized in the Company’s condensed consolidated statement of operations.

Comprehensive Loss

Comprehensive loss is equal to net loss as presented in the accompanying condensed consolidated statements of operations.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended, with guidance regarding the accounting for and disclosure of leases. This update requires lessees to recognize the liabilities related to all leases, including operating leases, with a term greater than 12 months on the balance sheets. This update also requires lessees and lessors to disclose key information about their leasing transactions.

On December 31, 2022, the Company adopted ASU 2016-02 using the modified retrospective approach and utilizing the effective date as its date of initial application. The Company has retrospectively changed its previously issued condensed consolidated financial statements as of September 30, 2022 as presented within the Company’s September 30, 2022 Quarterly Report on Form 10-Q to reflect the adoption of ASC 842 on January 1, 2022. The condensed consolidated financial statements for the three and nine months ended September 30, 2022 presented herein differ from the Company’s condensed consolidated financial statements included in the Company’s September 30, 2022 Quarterly Report on Form 10-Q as those condensed consolidated financial statements were prepared using the former accounting standard referred to as ASC Topic 840, Leases.

The Company elected the following practical expedients, which must be elected as a package and applied consistently to all of its leases at the transition date (including those for which the entity is a lessee or a lessor): i) the Company did not reassess whether any expired or existing contracts are or contain leases; ii) the Company did not reassess the lease classification for any expired or existing leases (that is, all existing leases that were classified as operating leases in accordance with ASC 840 are classified as operating leases, and all existing leases that were classified as capital leases in accordance with ASC 840 are classified as finance leases); and iii) the Company did not reassess initial direct costs for any existing leases. For leases that existed prior to the date of initial application of ASC 842 (which were previously classified as operating leases), a lessee may elect to use either the total lease term measured at lease inception under ASC 840 or the remaining lease term as of the date of initial application of ASC 842 in determining the period for which to measure its incremental borrowing rate. In transition to ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates.

The adoption of this standard resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of $18.4 million and $19.1 million, respectively, on the Company’s condensed consolidated balance sheet at adoption relating to its operating leases. The lease liabilities were determined based on the present value of the remaining minimum lease payments. Upon adoption of ASC 842, the Company also (i) derecognized the build-to-suit lease asset of $26.3 million previously presented in property, plant and equipment, (ii) derecognized the build-to-suit lease liability of $26.5 million, and (iii) eliminated $0.7 million of deferred rent liabilities and tenant improvement allowances as of January 1, 2022, as these liabilities are reflected in the operating lease right-of-use assets. In adopting ASU 2016-02, the Company recorded a total one-time adjustment of $0.2 million to the opening balance of accumulated deficit as of January 1, 2022, related to the de-recognition of the build-to-suit lease asset and related build-to-suit lease obligation. The adoption did not have a material impact on accumulated deficit and on the condensed consolidated statements of operations and cash flows.

8


 

The following table summarizes the effect of the adoption of ASC 842 on the condensed consolidated statement of operations and statement of cash flows for the nine months ended September 30, 2022 (in thousands):

 

 

 

Pre ASC 842 Nine Months Ended
September 30, 2022

 

 

ASC 842 Adjustments

 

 

After ASC 842 Nine Months Ended
September 30, 2022

 

Condensed Consolidated Statement of Operations

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

$

77,308

 

 

$

1,154

 

 

$

78,462

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(3,002

)

 

 

509

 

 

 

(2,493

)

Net loss

 

 

(110,291

)

 

 

(645

)

 

 

(110,936

)

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Depreciation expense

 

$

808

 

 

$

2

 

 

$

810

 

Non-cash lease expense