UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021
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: 001-39103
CABALETTA BIO, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
82-1685768 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
2929 Arch Street, Suite 600 |
19104 |
Philadelphia, PA |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (267) 759-3100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common Stock, par value $0.00001 per share |
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CABA |
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The 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, 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 |
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☐ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☒ |
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Smaller reporting company |
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☒ |
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Emerging growth company |
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☒ |
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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 April 29, 2021, the registrant had 24,928,333 shares of common stock, $0.00001 par value per share, outstanding.
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Page |
PART I. |
3 |
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Item 1. |
3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
Item 3. |
26 |
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Item 4. |
26 |
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PART II. |
27 |
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Item 1. |
27 |
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Item 1A. |
27 |
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Item 2. |
87 |
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Item 3. |
87 |
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Item 4. |
87 |
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Item 5. |
87 |
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Item 6. |
88 |
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89 |
i
Summary of the Material and Other Risks Associated with Our Business
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• |
We are a clinical-stage company with a limited operating history, have incurred significant losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. |
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• |
We are highly dependent on our relationship with University of Pennsylvania, or Penn, for our preclinical research and development activities, key technology and our current manufacturing needs for our clinical trial of DSG3-CAART, or the DesCAARTesTM trial, and if Penn’s manufacturing capacity is reduced or otherwise delayed or limited, this could adversely impact enrollment in our DesCAARTesTM trial. |
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• |
We are reliant on intellectual property licensed to us by Penn and termination of our license agreement with Penn would result in the loss of significant rights, which would have a material adverse effect on our business. |
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• |
If we are unable to obtain and maintain sufficient intellectual property protection for DSG3-CAART, our other product candidates and technologies or any future product candidates, we may not be able to compete effectively in our markets. |
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• |
We will need to raise substantial additional funding before we can expect to complete development of any of our product candidates or generate any revenues from product sales. |
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• |
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability. |
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• |
If we are unable to successfully develop our current programs into a portfolio of product candidates, or experience significant delays in doing so, we may not realize the full commercial potential of our current and future product candidates. |
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• |
If we encounter difficulties enrolling patients in our DesCAARTesTM trial or future clinical trials, these clinical development activities could be delayed or otherwise adversely affected. |
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• |
If we are unable to advance our product candidates through clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed. |
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• |
Results of earlier studies may not be predictive of future study or trial results, and we may fail to establish an adequate safety and efficacy profile to conduct clinical trials or obtain regulatory approval for our product candidates. |
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If serious adverse events, undesirable side effects or unexpected characteristics are identified during the development of any of our product candidates, we may need to delay, abandon or limit our further clinical development of those product candidates. |
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• |
The COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases could seriously harm our research, development and potential future commercialization efforts, increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations. |
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• |
Manufacturing and administering our product candidates is complex and we may encounter difficulties in technology transfer from Penn to a contract manufacturing organization. |
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• |
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do. |
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We may establish our own manufacturing facility and infrastructure in addition to or in lieu of relying on third parties for the manufacture of our product candidates, which will be costly and time-consuming, and which may not be successful. |
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Our future success depends in part upon our ability to retain our key employees, consultants and advisors and to attract, retain and motivate other qualified personnel. |
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors, including, without limitation, risks, uncertainties and assumptions regarding the impact of the COVID-19 pandemic on our business, operations, strategy, goals and anticipated timelines, our ongoing and planned preclinical activities, our ability to initiate, enroll, conduct or complete ongoing and planned clinical trials, our timelines for regulatory submissions and our financial position that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
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• |
the success, cost and timing and conduct of our clinical trial program, including our clinical trial of DSG3-CAART, or the DesCAARTesTM trial, and our other product candidates, including statements regarding the timing of initiation and completion of the clinical trials and the period during which the results of the clinical trials will become available; |
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• |
the timing of and our ability to obtain and maintain regulatory approval of our product candidates, including DSG3-CAART, MuSK-CAART, FVIII-CAART, DSG3/1-CAART and PLA2R-CAART, in any of the indications for which we plan to develop them, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate; |
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• |
the impact of any business interruptions to our operations, including the timing and enrollment of patients in our ongoing and planned clinical trials and our planned Investigational New Drug application submissions, or to those of our clinical sites, manufacturers, suppliers, or other vendors resulting from the coronavirus disease (COVID-19) pandemic or similar public health crisis; |
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our expected use of proceeds from the initial public offering and the period over which such proceeds, together with cash, will be sufficient to meet our operating needs; |
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our plans to pursue research and development of other product candidates; |
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• |
our plan to infuse our DSG3-CAART product candidate without lymphodepletion or other preconditioning agents initially in our DesCAARTesTM trial; |
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• |
the potential advantages of our proprietary Cabaletta Approach for selective B cell Ablation platform, called our CABATM platform, and our product candidates; |
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• |
the extent to which our scientific approach and CABATM platform may potentially address a broad range of diseases; |
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the potential benefits and success of our arrangements and our expanded sponsored research agreement with the Trustees of the University of Pennsylvania, or Penn, and the Children’s Hospital of Philadelphia, or CHOP, and our scientific co-founders, Drs. Milone and Payne; |
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our ability to successfully commercialize our product candidates, including DSG3-CAART and our other product candidates; |
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the potential receipt of revenue from future sales of DSG3-CAART and our other product candidates; |
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the rate and degree of market acceptance and clinical utility of DSG3-CAART and our other product candidates; |
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our estimates regarding the potential market opportunity for DSG3-CAART and our other product candidates, and our ability to serve those markets; |
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our sales, marketing and distribution capabilities and strategy, whether alone or with potential future collaborators; |
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• |
our ability to establish and maintain arrangements or a facility for manufacture of DSG3-CAART and our other product candidates; |
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our ability to obtain funding for our operations, including funding necessary to initiate and complete our DesCAARTesTM trial and our ongoing preclinical studies of MuSK-CAART, DSG3/1-CAART, FVIII-CAART and PLA2R-CAART; |
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• |
the potential achievement of milestones and receipt of payments under our collaborations; |
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our ability to enter into additional collaborations with existing collaborators or other third parties; |
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• |
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and our ability to operate our business without infringing on the intellectual property rights of others; |
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• |
the success of competing therapies that are or become available, and our competitive position; |
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• |
the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; |
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• |
the impact of government laws and regulations in the United States and foreign countries; and |
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• |
our ability to attract and retain key scientific or management personnel. |
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligations to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
2
CABALETTA BIO, INC.
(in thousands, except share and per share amounts)
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March 31, 2021 |
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December 31, 2020 |
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Assets |
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(unaudited) |
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Current assets: |
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Cash and cash equivalents |
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$ |
97,277 |
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$ |
101,429 |
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Short-term investments |
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4,751 |
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7,233 |
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Prepaid expenses and other current assets |
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3,728 |
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4,873 |
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Total current assets |
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105,756 |
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113,535 |
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Property and equipment, net |
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1,227 |
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|
890 |
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Other assets |
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300 |
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|
299 |
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Total Assets |
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$ |
107,283 |
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$ |
114,724 |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
1,270 |
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$ |
1,243 |
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Accrued and other current liabilities |
|
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2,699 |
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|
3,937 |
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Total current liabilities |
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3,969 |
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5,180 |
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Commitments and Contingencies (see Note 6) |
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Stockholders’ equity: |
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Preferred stock, $0.00001 par value: 10,000,000 shares authorized as of March 31, 2021 and December 31, 2020, respectively; no shares issued or outstanding at March 31, 2021 and December 31, 2020 |
|
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— |
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|
|
— |
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Voting and non-voting common stock, $0.00001 par value: 150,000,000 (143,590,481 voting and 6,409,519 non-voting) shares authorized as of March 31, 2021 and December 31, 2020, respectively; 24,256,964 (19,944,464 voting and 4,312,500 non-voting) and 24,062,775 (19,387,160 voting and 4,675,615 non-voting) shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively |
|
|
— |
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— |
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Additional paid-in capital |
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|
179,311 |
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|
175,836 |
|
Accumulated other comprehensive income |
|
|
3 |
|
|
|
6 |
|
Accumulated deficit |
|
|
(76,000 |
) |
|
|
(66,298 |
) |
Total stockholders’ equity |
|
|
103,314 |
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|
|
109,544 |
|
Total liabilities and stockholders’ equity |
|
$ |
107,283 |
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|
$ |
114,724 |
|
The accompanying notes are an integral part of these financial statements.
3
Condensed Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Operating expenses: |
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Research and development |
|
$ |
6,556 |
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$ |
4,620 |
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General and administrative |
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3,156 |
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|
3,275 |
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Total operating expenses |
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9,712 |
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7,895 |
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Loss from operations |
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(9,712 |
) |
|
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(7,895 |
) |
Other income: |
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|
|
|
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Interest income |
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10 |
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|
410 |
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Net loss |
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$ |
(9,702 |
) |
|
$ |
(7,485 |
) |
Other comprehensive income: |
|
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Net unrealized loss on available-for-sale investments, net of tax |
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|
(3 |
) |
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— |
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Net comprehensive loss |
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$ |
(9,705 |
) |
|
$ |
(7,485 |
) |
Net loss per share of voting and non-voting common stock, basic and diluted |
|
$ |
(0.41 |
) |
|
$ |
(0.33 |
) |
The accompanying notes are an integral part of these financial statements.
4
Condensed Statements of Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)
|
Common Stock |
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|||||
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Shares |
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Amount |
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Additional Paid-in Capital |
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Accumulated Other Comprehensive Income |
|
|
Accumulated Deficit |
|
|
Total Stockholders’ Equity |
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Balance—December 31, 2019 |
|
24,034,022 |
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$ |
— |
|
|
$ |
171,280 |
|
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$ |
— |
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|
$ |
(32,959 |
) |
|
$ |
138,321 |
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
873 |
|
|
|
— |
|
|
|
— |
|
|
|
873 |
|
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,485 |
) |
|
|
(7,485 |
) |
Balance—March 31, 2020 |
|
24,034,022 |
|
|
$ |
— |
|
|
$ |
172,153 |
|
|
$ |
— |
|
|
$ |
(40,444 |
) |
|
$ |
131,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
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Shares |
|
|
Amount |
|
|
Additional Paid-in Capital |
|
|
Accumulated Other Comprehensive Income |
|
|
Accumulated Deficit |
|
|
Total Stockholders’ Equity |
|
||||||
Balance—December 31, 2020 |
|
24,062,775 |
|
|
$ |
— |
|
|
$ |
175,836 |
|
|
$ |
6 |
|
|
$ |
(66,298 |
) |
|
$ |
109,544 |
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
1,310 |
|
|
|
— |
|
|
|
— |
|
|
|
1,310 |
|
Common stock issuance, net of $67 of issuance costs |
|
194,189 |
|
|
|
— |
|
|
|
2,165 |
|
|
|
— |
|
|
|
— |
|
|
|
2,165 |
|
Net unrealized losses on available-for-sale securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
— |
|
|
|
(3 |
) |
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,702 |
) |
|
|
(9,702 |
) |
Balance—March 31, 2021 |
|
24,256,964 |
|
|
$ |
— |
|
|
$ |
179,311 |
|
|
$ |
3 |
|
|
$ |
(76,000 |
) |
|
$ |
103,314 |
|
The accompanying notes are an integral part of these financial statements.
5
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
|
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Three Months Ended March 31, |
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2021 |
|
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2020 |
|
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Cash flows from operating activities: |
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|
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Net loss |
|
$ |
(9,702 |
) |
|
$ |
(7,485 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
1,310 |
|
|
|
873 |
|
Amortization of premium on investments |
|
|
29 |
|
|
|
— |
|
Depreciation |
|
|
116 |
|
|
|
76 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
1,145 |
|
|
|
1,230 |
|
Other assets |
|
|
(1 |
) |
|
|
(4 |
) |
Accounts payable |
|
|
(329 |
) |
|
|
1,176 |
|
Accrued and other current liabilities |
|
|
(1,238 |
) |
|
|
(797 |
) |
Net cash used in operating activities |
|
|
(8,670 |
) |
|
|
(4,931 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(97 |
) |
|
|
(226 |
) |
Proceeds from maturities of investments |
|
|
2,450 |
|
|
|
— |
|
Net cash provided by (used in) investing activities |
|
|
2,353 |
|
|
|
(226 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of issuance costs |
|
|
2,165 |
|
|
|
(44 |
) |
Net cash provided by (used in) financing activities |
|
|
2,165 |
|
|
|
(44 |
) |
Net decrease in cash and cash equivalents |
|
|
(4,152 |
) |
|
|
(5,201 |
) |
Cash and cash equivalents—beginning of period |
|
|
101,429 |
|
|
|
136,204 |
|
Cash and cash equivalents—end of period |
|
$ |
97,277 |
|
|
$ |
131,003 |
|
Supplemental disclosures of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Issuance costs included in accounts payable |
|
$ |
— |
|
|
$ |
147 |
|
Property and equipment purchases included in accounts payable |
|
$ |
376 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these financial statements.
6
Notes to Unaudited Condensed Financial Statements
(in thousands, except share and per share amounts)
1. Basis of Presentation
Cabaletta Bio, Inc. (the Company or Cabaletta) was incorporated in April 2017 in the State of Delaware as Tycho Therapeutics, Inc. and, in August 2018, changed its name to Cabaletta Bio, Inc. The Company is headquartered in Philadelphia, Pennsylvania. Cabaletta is a clinical-stage biotechnology company focused on the discovery and development of engineered T cell therapies for B cell-mediated autoimmune diseases.
Principal operations commenced in April 2018, when the Company executed sponsored research agreements with the Trustees of the University of Pennsylvania (Penn).
On October 29, 2019, the Company completed its initial public offering (IPO) of 6,800,000 shares of common stock at an offering price of $11.00 per share. The Company received net proceeds of $66,156 after deducting underwriting discounts, commissions and estimated offering expenses. In connection with the IPO, the Company’s outstanding shares of Convertible Preferred Stock were automatically converted into 12,904,534 shares of common stock. In November 2019, the underwriters partially exercised their option and purchased an additional 475,501 shares of common stock resulting in net proceeds to the Company of approximately $4,864, after deducting underwriting discounts and commissions.
Risks and Uncertainties
The Company does not expect to generate revenue from sales of engineered T cell therapies for B cell-mediated autoimmune diseases or any other revenue unless and until the Company completes preclinical and clinical development and obtains regulatory approval for one or more product candidates. If the Company seeks to obtain regulatory approval for any of its product candidates, the Company expects to incur significant commercialization expenses.
The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. As a result, the Company is unable to predict the timing or amount of increased expenses or when or if the Company will be able to achieve or maintain profitability. Further, the Company is currently dependent on the University of Pennsylvania (Penn) for much of its preclinical research, clinical research and development activities and initial manufacturing activities (Note 5). Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. Even if the Company is able to generate revenues from the sale of its product candidates, if approved, it may not become profitable. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations.
In December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan, China and has since reached multiple other regions and countries. The COVID-19 pandemic is evolving and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures, which have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. The extent to which COVID-19 impacts the Company’s operations or those of its third party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including new information that may emerge concerning the severity of COVID-19, the impact of new strains of the virus, the effectiveness and availability of vaccines and the actions to contain COVID-19 or treat its impact, among others. The Company’s financial results to date have not been significantly impacted by COVID-19, however, the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its financial condition, operations, and business plans, including its ability to raise additional capital, the timing and enrollment of patients in its ongoing and planned clinical trials, future financings and other expected milestones of its product candidates.
7
The Company has sustained annual operating losses since inception and expects to continue to generate operating losses for the foreseeable future. The Company’s ultimate success depends on the outcome of its research and development activities. The Company had cash and cash equivalents and investments of $102,028 as of March 31, 2021. Through March 31, 2021, the Company has incurred an accumulated deficit of $76,000. Management expects to incur additional losses in the future as it continues its research and development and will need to raise additional capital to fully implement its business plan and to fund its operations.
The Company intends to raise such additional capital through a combination of equity offerings, debt financings, government funding arrangements, strategic alliances or other sources. However, if such financing is not available at adequate levels and on a timely basis, or such agreements are not available on favorable terms, or at all, as and when needed, the Company will need to reevaluate its operating plan and may be required to delay or discontinue the development of one or more of its product candidates or operational initiatives. The Company expects that its cash and cash equivalents as of March 31, 2021, will be sufficient to fund its projected operations for at least 12 months following the date the Company files this Quarterly Report on Form 10-Q with the Securities and Exchange Commission (SEC).
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying unaudited interim financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) and the applicable rules and regulations of the SEC regarding interim financial reporting. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB). As permitted under these rules, certain footnotes and other financial information that are normally required by GAAP have been condensed or omitted.
In the opinion of management, the accompanying unaudited interim financial statements include all normal and recurring adjustments (which consist primarily of accruals and estimates that impact the financial statements) considered necessary to present fairly the Company’s financial position as of March 31, 2021 and the results of its operations and its cash flows for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. The balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date. The unaudited interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements, which are included in the Company’s 2020 Annual Report on Form 10-K, filed with the SEC on March 16, 2021 (2020 Annual Report).
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 as of the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to, the fair value of stock-based compensation, the valuation allowance on the Company’s deferred tax assets and certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.
Off-Balance Sheet Risk and Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents, which are primarily invested in U.S. treasury-based money market funds, and available-for-sale debt securities, which are invested in investment grade corporate bonds with high credit quality issuers. These investments have maturities in 2021. A portion of the Company’s cash is maintained at a federally insured financial institution. The deposits held at this institution are in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institution in which those deposits are held. The cash in this account is swept daily into U.S. treasury-based and U.S. government-based money market funds. The Company has no off‑balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.
8
Significant Accounting Policies
There have been no significant changes to the Company’s accounting policies during the three months ended March 31, 2021, as compared to the significant accounting policies described in Note 2 of the “Notes to the Financial Statements” in the Company’s audited financial statements included in its 2020 Annual Report.
Fair Value Measurement
Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
9
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with guidance regarding the accounting for and disclosure of leases. The update requires lessees to recognize the liabilities related all leases, including operating leases, with a term greater than 12 months on the balance sheet. This update also requires lessees and lessors to disclose key information about their leasing transactions. This guidance is effective for public companies for annual and interim periods beginning after December 15, 2018. In June 2020, the FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842), which granted a one-year effective date delay for certain companies to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. As an Emerging Growth Company, the Company expects to adopt Topic 842 in 2022 and has not yet finalized the assessment of the impact that Topic 842 will have on its financial statements or financial statement disclosures.
3. Fair Value Measurements
Fair value of financial instruments
At March 31, 2021 and December 31, 2020, the Company’s financial instruments included cash and cash equivalents, accounts payable and accrued expenses. The carrying amounts reported in the Company's financial statements for these instruments approximate their respective fair values because of the short-term nature of these instruments.
The following tables present financial information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:
|
|
March 31, 2021 |
|
|||||||||||||
|
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
97,277 |
|
|
$ |
97,277 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
4,751 |
|
|
|
— |
|
|
|
4,751 |
|
|
|
— |
|
Total |
|
$ |
102,028 |
|
|
$ |
97,277 |
|
|
$ |
4,751 |
|
|
$ |
— |
|
|
|
December 31, 2020 |
|
|||||||||||||
|
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
101,429 |
|
|
$ |
101,429 |
|
|
$ |
— |
|
|
$ |
— |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
7,233 |
|
|
|
— |
|
|
|
7,233 |
|
|
|
— |
|
Total |
|
$ |
108,662 |
|
|
$ |
101,429 |
|
|
$ |
7,233 |
|
|
$ |
— |
|
Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1 inputs. Investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classified as Level 2 inputs. There were no transfers of assets between the fair value measurement levels during the three months ended March 31, 2021 or 2020.
For debt securities classified as available-for-sale investments, the Company records unrealized gains or losses resulting from changes in fair value between measurement dates as a component of other comprehensive income.
10
|
March 31, 2021 |
|
||||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair value |
|
||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in cash and cash equivalents |
|
$ |
97,277 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
97,277 |
|
Corporate bonds - due in one year or less |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in short-term investments |
|
|
4,748 |
|
|
|
3 |
|
|
|
— |
|
|
|
4,751 |
|
Total |
|
$ |
102,025 |
|
|
$ |
3 |
|
|
$ |
— |
|
|
$ |
102,028 |
|
|
|
December 31, 2020 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair value |
|
||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in cash and cash equivalents |
|
$ |
101,429 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
101,429 |
|
Corporate bonds - due in one year or less |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in short-term investments |
|
|
7,227 |
|
|
|
6 |
|
|
|
— |
|
|
|
7,233 |
|
Total |
|
$ |
108,656 |
|
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
108,662 |
|
4. Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following:
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
Research and development services |
|
$ |
1,765 |
|
|
$ |
1,294 |
|
General and administrative services |
|
|
200 |
|
|
|
160 |
|
Compensation expense |
|
|
651 |
|
|
|
2,445 |
|
Other |
|
|
83 |
|
|
|
38 |
|
|
|
$ |
2,699 |
|
|
$ |
3,937 |
|
5. Collaborations, Licensing Agreements and Other Agreements
Research Service Agreement
In February 2021, the Company entered into a research service agreement with the Children’s Hospital of Philadelphia (CHOP) for vector manufacturing. Research and development expense related to this research service agreement with CHOP recognized in the accompanying statements of operations was $222 and $0 for the three months ended March 31, 2021 and 2020, respectively. There was $222 due under this agreement as of March 31, 2021. This agreement has a remaining cost of $448, expected to be incurred in 2021.
Amended and Restated License Agreement with the Trustees of the University of Pennsylvania and Children’s Hospital of Philadelphia
In August 2018, the Company entered into a license agreement with Penn, as amended and restated in July 2019 to include CHOP as a party, and as amended in May 2020 (the License Agreement) pursuant to which the Company obtained (a) a non-exclusive, non-sublicensable worldwide license to certain of Penn’s intellectual property to conduct research, product development, clinical trials, cell manufacturing and other activities, and (b) an exclusive, worldwide, royalty-bearing right and license, with a right to sublicense, on a target-by-target basis, under certain of Penn’s intellectual property to make, use, sell, offer for sale, import, and otherwise commercialize products for the treatment of autoimmune and alloimmune diseases.
Unless earlier terminated, the License Agreement expires on the expiration or abandonment or other termination of the last valid claim in Penn’s intellectual property licensed by the Company. The Company may terminate the License Agreement at any time
11
for convenience upon 60 days written notice. In the event of an uncured, material breach, Penn may terminate the License Agreement upon 60 days written notice.
Under the terms of the License Agreement, the Company was obligated to pay $2,000 annually for three years beginning August 2018 for funding to the laboratories of each of Drs. Milone and Payne (see Sponsored Research Agreements). During the term of the License Agreement until the first commercial sale of the first product, the Company is obligated to pay Penn a non-refundable, non-creditable annual license maintenance fee of $10.
The Company is required to pay certain milestone payments upon the achievement of specified clinical and commercial milestones. Milestone payments are reduced by a certain percentage for the second product that achieves a milestone, by an additional percentage for the third product that achieves a milestone, and so on, for each subsequent product that achieves a milestone. In the event that the Company is able to successfully develop and launch multiple products under the License Agreement, total milestone payments could be approximately $21,000. Penn is also eligible to receive tiered royalties at percentage rates in the low single-digits, subject to an annual minimum royalty, on annual worldwide net sales of any products that are commercialized by the Company or its sublicensees that contain or incorporate, or are covered by, the intellectual property licensed by the Company. To the extent the Company sublicenses its license rights under the License Agreement, Penn would be eligible to receive tiered sublicense income at percentage rates in the mid-single to low double-digits. There were no amounts due under the License Agreement as of March 31, 2021.
Sponsored Research Agreements
The Company has sponsored research agreements with two faculty members at Penn, who are also scientific co-founders of the Company and members of the Company’s scientific advisory board. In May 2020, one of the agreements was amended to expand the scope of sponsored research. In August 2020, this agreement was further amended to extend the term of the original research plan. In April 2021, the other sponsored research agreement was amended to extend the term of the original research plan.
Under the amended agreements, the Company has committed to funding a defined research plan through February 2023. The total estimated cost of $11,781 under the agreements satisfies the Company’s annual obligation under the License Agreement (see Amended and Restated License Agreement with the Trustees of the University of Pennsylvania above). As of March 31, 2021, $7,927 of cost has been incurred pursuant to these agreements. Research and development expense related to these research agreements recognized in the accompanying statements of operations was $837 and $603 for the three months ended March 31, 2021 and 2020, respectively. Advance payments under these research agreements included in prepaid expenses and other current assets in the accompanying balance sheets were $1,379 and $1,851 as of March 31, 2021 and December 31, 2020, respectively. There was $0 and $217 included in Accrued and other current liabilities in the accompanying balance sheets as of March 31, 2021 and December 31, 2020, respectively.
Master Translational Research Services Agreement
In October 2018, the Company entered into a services agreement (the Services Agreement) with Penn for additional research and development services from various laboratories within Penn. The research and development activities are detailed in separately executed Penn organization-specific addenda. In May 2020, the Company amended its Addendum with the Center for Advanced Retinal and Ocular Therapeutics (CAROT) to expand access to vector manufacturing.
Research and development expense related to executed addenda under the master translational research service agreement with Penn recognized in the accompanying statements of operations for the three months ended March 31, 2021 and 2020 was $395 and $711, respectively. The Company may incur additional expenses up to $1,360 through the remaining term of the CAROT Amended Addendum.
Subscription and Technology Transfer Agreement
In July 2019, the Company entered into a subscription and technology transfer agreement pursuant to which the Company owed Penn an upfront subscription fee, which was paid in the third quarter of 2019, and a nominal non-refundable royalty on the net sales of products, a portion of which will be credited toward milestone payments and royalties, respectively, under the Amended License Agreement. Technology transfer activities will be at the Company’s cost and subject to agreement as to the technology to be transferred. Expense recognized under this agreement was $150 and $0 during the three months ended March 31, 2021 and March 31, 2020, respectively.
Collaboration and License Agreement
12
In July 2020, the Company entered into a collaboration and license agreement with Artisan Bio, Inc. (Artisan), wherein the Company and Artisan agreed to collaborate to potentially enhance certain pipeline products of the Company at specific targets using Artisan’s gene editing and engineering technology. If the Artisan technology is applied to any of the Company’s products, the Company will be responsible for the development, manufacturing, and commercialization of any such products. Under the terms of the agreement, the Company was required to pay Artisan a nominal upfront fee, as well as costs associated with research and development activities. Artisan is eligible to receive future research, development and regulatory milestones, and is also eligible to receive sales milestones and tiered royalties on net sales of products that incorporate the Artisan technology. The Company can terminate the agreement at will upon advance written notice with payment of a nominal cancellation fee.
Manufacturing Agreement
In January 2021, the Company entered into a Development and Manufacturing Services Agreement (WuXi Agreement) with WuXi Advanced Therapies, Inc. (WuXi) to serve as the Company’s cell processing manufacturing partner for the anticipated MuSK-CAART Phase 1 clinical trial. The Company has the right to terminate the WuXi Agreement for convenience or other reasons specified in the WuXi Agreement upon prior written notice. If the Company terminates the WuXi Agreement, it will be obligated to pay an early termination fee of $1,500.
6. Commitments and Contingencies
Operating Lease Agreement
In February 2019, the Company entered into an operating lease agreement for new office space in Philadelphia, Pennsylvania. The lease term commenced in May 2019 and will expire in July 2022. The initial annual base rent is $261, and such amount will increase by 2% annually on each anniversary of the commencement date. The Company records rent expense on a straight-line basis over the lease term. Rent expense related to this lease agreement recognized in the accompanying statements of operations was $68 and $67 for the three months ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, the future minimum payments for operating leases are as follows:
April 1, 2021 to December 31, 2021 |
|
$ |
202 |
|
2022 |
|
|
158 |
|
|
|
$ |
360 |
|
In the normal course of business, the Company enters into various purchase commitments with third-party contract manufacturers for the manufacture and processing of its product candidates and related raw materials, contracts with contract research organizations for clinical trials and agreements with vendors for other services and products for operating purposes. These agreements generally provide for termination or cancellation, other than for costs already incurred.
Indemnification
The Company enters into certain types of contracts that contingently require the Company to indemnify various parties against claims from third parties. These contracts primarily relate to (i) the Company’s Amended and Restated Bylaws (bylaws) under which the Company must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship, (ii) contracts under which the Company must indemnify directors and certain officers and consultants for liabilities arising out of their relationship, (iii) contracts under which the Company may be required to indemnify partners against certain claims, including claims from third parties asserting, among other things, infringement of their intellectual property rights, and (iv) procurement, consulting, or license agreements under which the Company may be required to indemnify vendors, consultants or licensors for certain claims, including claims that may be brought against them arising from the Company’s acts or omissions with respect to the supplied products, technology or services. From time to time, the Company may receive indemnification claims under these contracts in the normal course of business. In addition, under these contracts, the Company may have to modify the accused infringing intellectual property and/or refund amounts received.
In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may have a material adverse effect on the Company’s future business, operating results or financial condition.
13
It is not possible to determine the maximum potential amount under these contracts due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.
7. Common Stock
Common Stock
Pursuant to the Company’s Third Amended and Restated Certificate of Incorporation (the amended and restated certificate of incorporation) filed in October 2019, the Company is authorized to issue 143,590,481 shares of voting common stock and 6,409,519 shares of non-voting common stock. Holders of voting common stock shall have the exclusive right to vote for the election of directors of the Company and on all other matters requiring stockholder action. Each share of the Company’s non-voting common stock may be converted at any time into one share of common stock at the option of its holder by providing 61 days written notice to the Company, subject to certain limitations, as described in the amended and restated certificate of incorporation.
2018 Stock Option and Grant Plan
In September 2018, the Company adopted the 2018 Stock Option and Grant Plan (the 2018 Plan), which provided for the Company to sell or issue common stock, or other stock-based awards, to employees, members of the board of directors and consultants of the Company. The Company generally granted stock-based awards with service conditions only (service-based awards), although there was one grant with performance conditions. As of March 31, 2021, there were no unvested options with performance conditions. Stock options granted under the 2018 Plan generally vest over three to four years. There were 1,959,411 options granted under the 2018 Plan prior to the Company’s IPO in October 2019. No further grants may be made under the 2018 Plan subsequent to the IPO.
2019 Stock Option and Incentive Plan
The 2019 Stock Option and Incentive Plan (2019 Plan) was approved by the Company’s board of directors on October 14, 2019, and became effective on October 23, 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 was 2,342,288, and such number of shares will be increased 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. On January 1, 2021, the total number of shares under the 2019 Plan was increased by 962,511 shares. As of March 31, 2021, there were 2,173,804 shares remaining available for issuance.
A summary of stock option activity is presented below:
|
|
Number of Shares |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term (years) |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding as of January 1, 2021 |
|
|
2,900,479 |
|
|
$ |
7.33 |
|
|
|
8.5 |
|
|
$ |
16,303 |
|
Granted |
|
|
1,108,233 |
|
|
|
11.54 |
|
|
|
|
|
|
|
|
|
Forfeited/Cancelled |
|
|
(5,223 |
) |
|
|
6.30 |
|
|
|
|
|
|
|
|
|
Outstanding as of March 31, 2021 |
|
|
4,003,489 |
|
|
$ |
8.50 |
|
|
|
8.7 |
|
|
$ |
13,104 |
|
Options Exercisable at March 31, 2021 |
|
|
1,328,565 |
|
|
$ |
5.28 |
|
|
|
8.0 |
|
|
$ |
8,297 |
|
The aggregate intrinsic value of options granted is calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock. The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2021 and 2020 was $7.93 and $9.44, respectively.
14
The fair value of each award is estimated using Black-Scholes based on the following assumptions:
|
|
Three Months Ended March 31, |
||
|
|
2021 |
|
2020 |
Risk-free interest rate |
|
0.63%—1.01% |
|
0.93%—1.48% |
Expected term |
|
6.1 years |
|
5.7—6.1 years |
Expected volatility |
|
79%—80% |
|
70%—73% |
Expected dividend yield |
|
0% |
|
0% |
Black-Scholes requires the use of subjective assumptions which determine the fair value of stock-based awards. These assumptions include:
Fair value of common stock—Prior to the Company’s IPO in October 2019, the fair value of the Company’s common stock underlying stock-based awards was estimated on each grant date by the Company’s board of directors. In order to determine the fair value of the Company’s common stock underlying stock-based awards, the Company’s board of directors considered, among other things, a valuation of the Company’s common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
Expected term—The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method, which is the midpoint between the vesting period and the contractual term of the option.
Expected volatility—As a privately held company prior to the Company’s IPO in October 2019, the Company has limited trading history for its common stock and, as such, the expected volatility is estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock-based awards. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.
Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of a stock-based award.
Expected dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.
Stock-based Compensation
The Company has recorded stock-based compensation in the accompanying statements of operations as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Research and development |
|
$ |
619 |
|
|
$ |
419 |
|
General and administrative |
|
|
691 |
|
|
|
454 |
|
Total |
|
$ |
1,310 |
|
|
$ |
873 |
|
As of March 31, 2021, there was $17,450 of unrecognized compensation cost related to unvested option awards, which is expected to be recognized over a weighted-average period of 3.2 years.
2019 Employee Stock Purchase Plan
The 2019 Employee Stock Purchase Plan (2019 ESPP) was approved by the Company’s board of directors on October 14, 2019, and became effective on October 23, 2019. A total of 234,229 shares of common stock were initially reserved for issuance under the 2019 ESPP, and such number of shares will be increased each January 1 thereafter through January 1, 2029 by the least of (i) 234,229 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 determined by the 2019 ESPP’s administrator. On January 1, 2021, the total number of shares under the 2019 ESPP was increased by 234,229 shares.
Employee contributions are made through payroll deductions of up to 15% of eligible compensation over the offering period. A participant may not accrue rights to purchase more than $25 worth of the Company’s common stock for each calendar year in which
15
such right is outstanding. At the end of each offering period, shares of the Company’s common stock may be purchased at 85% of the lesser of the Company’s common stock on (i) the first trading day of the relevant offering period and (ii) the last trading day of the relevant offering period. The first offering period commenced on July 1, 2020 and ended on November 30, 2020. Thereafter, offerings will be six months in duration and will commence on each December 1 and June 1.
8. Income Taxes
The Company did not record an income tax benefit in its statements of operations for the three months ended March 31, 2021 and 2020 as it is more likely than not that the Company will not recognize the federal and state deferred tax benefits generated by its losses. The Company has provided a valuation allowance for the full amount of its net deferred tax assets and liabilities as of March 31, 2021 and December 31, 2020, as management has determined it is more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized. The Company has not recorded any amounts for unrecognized tax benefits as of March 31, 2021 and December 31, 2020.
9. Net Loss Per Share
The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. As of March 31, 2021 and 2020, the Company had voting and non-voting common stock outstanding. Since the rights of the voting and non-voting common stock are identical, except with respect to voting, the undistributed losses of the Company have been allocated on a proportionate basis to the two classes. Diluted net loss per share is calculated using the if-converted method, which assumes conversion of all non-voting common stock to voting common stock.
|
|
Three months ended March 31, 2021 |
|
|||||
|
|
Voting common stock |
|
|
Non-voting common stock |
|
||
Basic net loss per share: |
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
Allocation of undistributed losses attributable to common stockholders |
|
$ |
(7,834 |
) |
|
$ |
(1,868 |
) |
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
Weighted average number of shares used in basic per share computation |
|
|
19,188,122 |
|
|
|
4,573,176 |
|
Net loss per share, basic |
|
$ |
(0.41 |
) |
|
$ |
(0.41 |
) |
|
|
|
|
|
|
|
|
|
Diluted net loss per share: |
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
Allocation of undistributed losses for basic computation |
|
$ |
(7,834 |
) |
|
$ |
(1,868 |
) |
Reallocation of undistributed losses as a result of conversion of non-voting to voting common shares |
|
|
(1,868 |
) |
|
|
— |
|
Allocation of undistributed losses |
|
$ |
(9,702 |
) |
|
$ |
(1,868 |
) |
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
Weighted average number of shares used in basic per share computation |
|
|
19,188,122 |
|
|
|
4,573,176 |
|
Add: conversion of non-voting to voting common shares outstanding |
|
|
4,573,176 |
|
|
|
— |
|
Weighted average number of shares used in diluted per share computation |
|
|
23,761,298 |
|
|
|
4,573,176 |
|
Net loss per share, diluted |
|
$ |
(0.41 |
) |
|
$ |
(0.41 |
) |
16
|
Three months ended March 31, 2020 |
|
||||||
|
|
Voting common stock |
|
|
Non-voting common stock |
|
||
Basic net loss per share: |
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
Allocation of undistributed losses attributable to common stockholders |
|
$ |
(5,380 |
) |
|
$ |
(2,105 |
) |
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
Weighted average number of shares used in basic per share computation |
|
|
16,379,788 |
|
|
|
6,409,519 |
|
Net loss per share, basic |
|
$ |
(0.33 |
) |
|
$ |
(0.33 |
) |
|
|
|
|
|
|
|
|
|
Diluted net loss per share: |
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
Allocation of undistributed losses for basic computation |
|
$ |
(5,380 |
) |
|
$ |
(2,105 |
) |
Reallocation of undistributed losses as a result of conversion of non-voting to voting common shares |
|
|
(2,105 |
) |
|
|
— |
|
Allocation of undistributed losses |
|
$ |
(7,485 |
) |
|
$ |
(2,105 |
) |
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
Weighted average number of shares used in basic per share computation |
|
|
16,379,788 |
|
|
|
6,409,519 |
|
Add: conversion of non-voting to voting common shares outstanding |
|
|
6,409,519 |
|
|
|
— |
|
Weighted average number of shares used in diluted per share computation |
|
|
22,789,307 |
|
|
|
6,409,519 |
|
Net loss per share, diluted |
|
$ |
(0.33 |
) |
|
$ |
(0.33 |
) |
The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive:
|
|
As of March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Stock options to purchase common stock |
|
|
4,003,489 |
|
|
|
2,657,704 |
|
Non-vested common stock |
|
|
235,007 |
|
|
|
1,158,185 |
|
|
|
|
4,238,496 |
|
|
|
3,815,889 |
|
|
|
|
|
|
|
|
|
|
10. Subsequent Event
In April 2021, the Company sold 671,369 shares under its at-the-market offering program (the ATM Program) for gross proceeds of $7,557, or net proceeds of $7,330, after deducting sales commissions of $227. In 2021, the Company has sold a total of 865,558 shares for gross proceeds of $9,789, or net proceeds of $9,495, after deducting sales commissions of $294 under the ATM Program.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Risk Factors” and our unaudited interim condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and the notes thereto for the year ended December 31, 2020 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors,” our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.
Overview
We are a clinical-stage biotechnology company focused on the discovery and development of engineered T cell therapies, and aiming to provide a deep and durable, perhaps curative, treatment, for patients with B cell-mediated autoimmune diseases. Our proprietary technology utilizes Chimeric AutoAntibody Receptor, or CAAR, T cells that are designed to selectively bind and eliminate only specific B cells that produce disease-causing autoantibodies, or pathogenic B cells, while sparing normal B cells. Our lead CAAR T cell product candidate was designed based on the clinically validated and commercially approved Chimeric Antigen Receptor, or CAR, T cell technology that is marketed for the treatment of B cell cancers. By harnessing the power of targeted cell therapy, we believe our CAAR T product candidates have the potential to provide responses that may be a safer and more effective option than current treatments. We believe our technology, in combination with our proprietary Cabaletta Approach for selective B cell Ablation platform, called our CABATM platform, has applicability across over two dozen B cell-mediated autoimmune diseases that we have identified, evaluated and prioritized. In order to accelerate product development for our lead program and to access a proven cell therapy manufacturing platform, we have entered into a collaboration with the University of Pennsylvania, or Penn. We hold multiple agreements with Penn to develop CAAR T cell therapies for the treatment of these diseases. Our goal is to leverage our team’s expertise in autoimmunity and engineered T cell therapy and our collaboration with Penn to rapidly discover and develop our portfolio of CAAR T product candidates. Our initial focus is mucosal pemphigus vulgaris, or mPV, which is an autoimmune blistering disease. We submitted an Investigational New Drug, or IND, application for our lead product candidate, DSG3-CAART, to the U.S. Food and Drug Administration, or the FDA, in August 2019 and our IND was cleared in September 2019. The FDA granted DSG3-CAART orphan drug designation for the treatment of PV in January 2020, and fast track designation for improving healing of mucosal blisters in patients with mucosal pemphigus vulgaris, or mPV, in May 2020. DSG3-CAART is being evaluated in a Phase 1 trial, or the DesCAARTesTM trial, that is currently enrolling patients. In May 2021, we reported the acute safety data from the first cohort of patients in the DesCAARTesTM trial, where no dose-limiting toxicities had been observed eight days after infusion in the first three patients who received DSG3-CAART. We expect to report acute safety data for the second and third cohorts during the third and fourth quarters of 2021, respectively. We also plan to announce topline target engagement data on the first patient cohort in the second half of 2021. Our lead preclinical product candidate is designed for the treatment of muscle-specific kinase myasthenia gravis, or MuSK MG, and is currently in IND enabling studies, with an IND submission planned in the second half of 2021. We are also advancing additional product candidates currently in discovery-stage or preclinical development for the treatment of mucocutaneous PV, or mcPV, PLA2R-associated membranous nephropathy, or PLA2R MN, and Hemophilia A with Factor VIII, or FVIII, alloantibodies in addition to two undisclosed targets.
We were incorporated in April 2017. In August 2018, we entered into multiple agreements with Penn to develop the CAAR T technology to treat B cell-mediated autoimmune diseases. Our operations to date have been financed primarily by net proceeds of $86.4 million from the sale of convertible notes and convertible preferred stock and net proceeds of $71.0 million from the sale of common stock in our initial public offering, or IPO, in October 2019. As of March 31, 2021, we had $102.0 million in cash and cash equivalents and investments.
Impact of the COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan, China and has since reached multiple other regions and countries. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures, which have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions.
We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19 community-wide. We have established a work-from-home policy for all employees, other than those performing or supporting business-critical operations, such as certain members of our laboratory staff. For those employees, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We have also maintained
18
efficient communication with our partners and potential clinical sites as the COVID-19 situation has progressed. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs.
The extent to which COVID-19 impacts our operations or those of our third party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including new information that may emerge concerning the severity of COVID-19, the impact of new strains of the virus, the effectiveness and availability of vaccines and the actions to contain COVID-19 or treat its impact, among others. Our financial results through the period ending March 31, 2021 have not been significantly impacted by COVID-19, however, we cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on our financial condition, operations, and business plans, including our ability to raise additional capital, the timing and enrollment of patients in our ongoing and planned clinical trials, future financings and other expected milestones of our product candidates.
Key Agreements
Amended and Restated License Agreement with the Trustees of the University of Pennsylvania and the Children’s Hospital of Philadelphia
In August 2018, we entered into a license agreement with Penn, which was amended and restated in July 2019 to include the Children’s Hospital of Philadelphia, or CHOP, collectively, the Institutions, and collectively with such amendment, as amended in May 2020, the License Agreement, pursuant to which we obtained (a) a non-exclusive, non-sublicensable, worldwide research license to make, have made and use products in two subfields of use, (b) effective as of October 2018, an exclusive, worldwide, royalty-bearing license, with the right to sublicense, under certain of the Institutions’ intellectual property to make, use, sell, offer for sale and import products in the same two subfields of use, and (c) effective as of October 2018, a non-exclusive, worldwide, royalty-bearing license, with limited rights to sublicense, under certain of Penn’s know-how to make, have made, use, sell, offer for sale, import and have imported products in the same two subfields of use. Our rights are subject to the rights of the U.S. government and certain rights retained by the Institutions.
Unless earlier terminated, the License Agreement expires on the expiration or abandonment or other termination of the last valid claim in Penn’s intellectual property licensed by us. We may terminate the License Agreement at any time for convenience upon 60 days written notice. In the event of an uncured, material breach, Penn may terminate the License Agreement upon 60 days written notice.
Sponsored Research Agreements
We have two sponsored research agreements, or SRAs, with Penn for the laboratories of Drs. Payne and Milone, who are also our scientific co-founders and members of our scientific advisory board. In May 2020, the agreement with Dr. Payne, or the Payne SRA, was expanded to include CAAR design and optimization efforts in three additional B cell-mediated autoimmune diseases. In August 2020, the Payne SRA was further amended to extend the term of the original research plan. In April 2021, the agreement with Dr. Milone was amended to extend the term of the original research plan. Under the amended agreements, we are committed to funding a defined research plan through February 2023. The total estimated cost of the agreements is $11.8 million, which satisfies the $2.0 million annual obligation under the License Agreement. As of March 31, 2021, $7.9 million of cost has been incurred pursuant to these agreements.
Master Translational Research Services Agreement
In October 2018, we entered into a Master Translational Services Agreement with Penn, or the Services Agreement, pursuant to which Penn agreed to perform certain services related to the research and development of the technology licensed to us under the License Agreement, as well as certain clinical, regulatory and manufacturing services. The Services Agreement will expire on the later of (i) October 19, 2021 or (ii) completion of the services for which we have engaged Penn under the Services Agreement. Either party may terminate this agreement with or without cause upon a certain number of days’ prior written notice. The services encompassed by the Services Agreement are performed by different organizations at Penn pursuant to certain addenda to the Services Agreement, including the Center for Advanced Retinal and Ocular Therapeutics, or CAROT, Addendum, as amended in May 2020, and the CVPF Addendum.
Components of Operating Results
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sales of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in
19
marketing approval, we may generate revenue in the future from product sales. We cannot predict if, when or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
We may also in the future enter into license or collaboration agreements for our product candidates or intellectual property, and we may generate revenue in the future from payments as a result of such license or collaboration agreements.
Operating Expenses
Research and Development
Our research and development expenses include:
|
• |
personnel costs, which include salaries, benefits and stock-based compensation expense; |
|
• |
expenses incurred under agreements with consultants and third-party contract organizations that conduct research and development activities on our behalf; |
|
• |
costs related to sponsored research service agreements; |
|