caba-10q_20220331.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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, 2022

☐	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

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.00001 per share

CABA

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.

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 May 6, 2022, the registrant had 28,977,129 shares of common stock, $0.00001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Balance Sheets	3
	Condensed Statements of Operations and Comprehensive Loss	4
	Condensed Statements of Stockholders’ Equity	5
	Condensed Statements of Cash Flows	6
	Notes to Unaudited Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II.	OTHER INFORMATION	29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92
Item 3.	Defaults Upon Senior Securities	92
Item 4.	Mine Safety Disclosures	92
Item 5.	Other Information	92
Item 6.	Exhibits	93
Signatures		94

Summary of the Material and Other Risks Associated with Our Business

•

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.

•

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 DesCAARTes^TM trial, and if Penn’s manufacturing capacity is reduced or otherwise delayed or limited, this could adversely impact enrollment in our DesCAARTes^TM trial.

•

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.

•

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.

•

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.

•

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.

•

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.

•

If we encounter difficulties enrolling patients in our DesCAARTes^TM trial, our planned Phase 1 clinical trial for MuSK-CAART, or the MusCAARTes^TM trial, or future clinical trials, these clinical development activities could be delayed or otherwise adversely affected.

•

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.

•

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.

•

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.

•

The ongoing coronavirus disease, or 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.

•

Manufacturing and administering our product candidates is complex and we may encounter difficulties in technology transfer from Penn to a contract manufacturing organization.

•

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

•

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.

•

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.

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:

•

the success, cost and timing and conduct of our clinical trial program, including our clinical trial of DSG3-CAART, or the DesCAARTes^TM trial, our planned Phase 1 clinical trial of MuSK-CAART, or the MusCAARTes^TM 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;

•

the expected timing and significance around the announcement of safety, biologic activity and/or any additional clinical data from our DesCAARTes^TM trial;

•

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;

•

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 COVID-19 pandemic or similar public health crisis;

•

our expected use of proceeds from the initial public offering and from sales of our common stock in “at-the-market” offerings and the period over which such proceeds, together with existing cash, will be sufficient to meet our operating needs;

•

our plans to pursue research and development of other product candidates;

•

our plan to infuse our DSG3-CAART product candidate without lymphodepletion or other preconditioning agents initially in our DesCAARTes^TM trial, and our plan to evaluate the use of such agents in the future in the DesCAARTes^TM trial;

•

the potential advantages of our proprietary Cabaletta Approach for selective B cell Ablation platform, called our CABA^TM platform, and our product candidates;

•

the extent to which our scientific approach and CABA^TM platform may potentially address a broad range of diseases;

•

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;

•

our ability to successfully commercialize our product candidates, including DSG3-CAART and our other product candidates;

•

the potential receipt of revenue from future sales of DSG3-CAART and our other product candidates;

•

the rate and degree of market acceptance and clinical utility of DSG3-CAART and our other product candidates;

•

our estimates regarding the potential market opportunity for DSG3-CAART and our other product candidates, and our ability to serve those markets;

•

our sales, marketing and distribution capabilities and strategy, whether alone or with potential future collaborators;

•

our ability to establish and maintain arrangements or a facility for manufacture of DSG3-CAART and our other product candidates;

•

our ability to obtain funding for our operations, including funding necessary to initiate and complete our DesCAARTes^TM trial, our planned MusCAARTes^TM trial, our ongoing preclinical studies of DSG3/1-CAART, FVIII-CAART and PLA2R-CAART;

•

the potential achievement of milestones and receipt of payments under our collaborations;

•

our ability to enter into additional collaborations with existing collaborators or other third parties;

•

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;

•

the success of competing therapies that are or become available, and our competitive position;

•

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

•

the impact of government laws and regulations in the United States and foreign countries; and

•

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. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CABALETTA BIO, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

	March 31, 2022			December 31, 2021
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	59,553		$	122,222
Short-term investments		49,660			—
Prepaid expenses and other current assets		2,226			2,319
Total current assets		111,439			124,541
Property and equipment, net		1,231			1,438
Other assets		985			357
Total Assets	$	113,655		$	126,336
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,910		$	2,333
Accrued and other current liabilities		3,025			6,047
Total current liabilities		6,935			8,380
Commitments and Contingencies (see Note 6)
Stockholders’ equity:
Preferred stock, $0.00001 par value: 10,000,000 shares authorized as of March 31, 2022 and December 31, 2021; no shares issued or outstanding at March 31, 2022 and December 31, 2021		—			—
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, 2022 and December 31, 2021; 28,977,129 (25,064,629 voting and 3,912,500 non-voting) shares issued and outstanding as of March 31, 2022 and 28,927,129 (24,614,629 voting and 4,312,500 non-voting) shares issued and outstanding as of December 31, 2021		—			—
Additional paid-in capital		232,405			230,543
Accumulated other comprehensive loss		(152	)		—
Accumulated deficit		(125,533	)		(112,587	)
Total stockholders’ equity		106,720			117,956
Total liabilities and stockholders’ equity	$	113,655		$	126,336

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

CABALETTA BIO, INC.

Condensed Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended March 31,
	2022			2021
Operating expenses:
Research and development	$	9,170		$	6,556
General and administrative		3,829			3,156
Total operating expenses		12,999			9,712
Loss from operations		(12,999	)		(9,712	)
Other income:
Interest income		53			10
Net loss	$	(12,946	)	$	(9,702	)
Other comprehensive income:
Net unrealized loss on available-for-sale investments, net of tax		(152	)		(3	)
Net comprehensive loss	$	(13,098	)	$	(9,705	)
Net loss per share of voting and non-voting common stock, basic and diluted	$	(0.45	)	$	(0.41	)

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

CABALETTA BIO, INC.

Condensed Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)

	Common Stock
	Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			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



	Common Stock
	Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity
Balance—December 31, 2021		28,927,129	$	—	$	230,543	$	—		$	(112,587	)	$	117,956
Stock-based compensation		—		—		1,811		—			—			1,811
Net unrealized losses on available-for-sale securities		—		—		—		(152	)		—			(152	)
Issuance of common stock in connection with exercise of stock options		50,000		—		51		—			—			51
Net loss		—		—		—		—			(12,946	)		(12,946	)
Balance—March 31, 2022		28,977,129	$	—	$	232,405	$	(152	)	$	(125,533	)	$	106,720

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

CABALETTA BIO, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(12,946	)	$	(9,702	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		1,811			1,310
Amortization of discount/premium on investments		(48	)		29
Depreciation		219			116
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		93			1,145
Other assets		(628	)		(1	)
Accounts payable		1,712			(329	)
Accrued and other current liabilities		(3,022	)		(1,238	)
Net cash used in operating activities		(12,809	)		(8,670	)
Cash flows from investing activities:
Purchases of property and equipment		(147	)		(97	)
Purchases of investments		(49,764	)		—
Proceeds from maturities of investments		—			2,450
Net cash (used in) provided by investing activities		(49,911	)		2,353
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		—			2,165
Proceeds from issuance of common stock in connection with the exercise of stock options		51			—
Net cash provided by financing activities		51			2,165
Net decrease in cash and cash equivalents		(62,669	)		(4,152	)
Cash and cash equivalents—beginning of period		122,222			101,429
Cash and cash equivalents—end of period	$	59,553		$	97,277
Supplemental disclosures of non-cash investing and financing activities:
Property and equipment purchases included in accounts payable	$	—		$	376

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

CABALETTA BIO, INC.

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).

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 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 proceeded to spread globally. The COVID-19 pandemic has continued to evolve as new variants of COVID-19 have been identified and spread, which has led to various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which COVID-19 will continue to impact 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 the duration of the COVID-19 pandemic, new information that may emerge concerning the severity of COVID-19, the impact of new strains of the virus, the effectiveness, availability and utilization 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 ongoing 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.

Liquidity

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 $109,213 as of March 31, 2022. Through March 31, 2022, the Company has incurred an accumulated deficit of $125,533. 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, 2022, 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, 2022 and the results of its operations and its cash flows for the three months ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period. The balance sheet as of December 31, 2021 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 2021 Annual Report on Form 10-K, filed with the SEC on March 17, 2022 (2021 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 U.S. government securities. 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.

Significant Accounting Policies

There have been no significant changes to the Company’s accounting policies during the three months ended March 31, 2022, 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 2021 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.

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. As permitted for emerging growth companies, the Company will adopt Topic 842 under the private company transition guidance for the annual period ending December 31, 2022. The Company 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, 2022 and December 31, 2021, 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, 2022
	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	$	59,553	$	59,553	$	—	$	—
Short-term investments:
U.S. Government securities		49,660		—		49,660		—
Total	$	109,213	$	59,553	$	49,660	$	—

	December 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	$	122,222	$	122,222	$	—	$	—
Total	$	122,222	$	122,222	$	—	$	—

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.

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. The Company did not hold any available-for-sale securities as of December 31, 2021.

	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair value
Financial assets
Money market funds
Included in cash and cash equivalents	$	59,553	$	—	$	—		$	59,553
U.S. Government securities - due in one year or less
Included in short-term investments		49,812				(152	)		49,660
Total	$	109,365	$	—	$	(152	)	$	109,213

4. Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following:

	March 31, 2022		December 31, 2021
Research and development services	$	1,803	$	2,836
General and administrative services		273		180
Compensation expense		891		2,977
Other		58		54
	$	3,025	$	6,047

5. Collaborations, Licensing Agreements and Other Agreements

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 the Children’s Hospital of Philadelphia (CHOP) as a party, and as amended in May 2020 and October 2021 (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 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, 2022.

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 December 2021, the Company further amended this SRA to extend the term and expand the workplan to include additional correlative studies related to the DesCAARTes^TM trial. In April 2021 and October 2021, the other SRA was amended to extend the term of the original research plan.

Under the amended SRAs, the Company has committed to funding defined research plans through December 2024 and November 2022, respectively. The total estimated cost of $12,483 under the SRAs 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, 2022, $10,831 of cost has been incurred pursuant to these SRAs. For the three months ended March 31, 2022 and 2021, the Company recognized research and development expense of $900 and $837, respectively, related to these SRAs in the accompanying statements of operations. As of March 31, 2022 and December 31, 2021, $173 and $346 respectively, of advance payments are included in Prepaid expenses and other current assets in the accompanying balance sheets and there was $764 and $36 included in Accrued and other current liabilities in the accompanying balance sheets as of March 31, 2022 and December 31, 2021.

In December 2021, the Company entered into a SRA with Penn for the laboratory of Dr. Drew Weissman, or the Weissman SRA. Under the Weissman SRA, discovery-stage proof of concept studies for lipid nanoparticle mRNA for the delivery and/or enhancement of CAAR technology is being conducted. Under the Weissman SRA, Penn granted the Company a non-transferable, non-exclusive license to use certain intellectual property for specific internal research purposes and further grants the Company the first option to negotiate to acquire, subject to agreement on commercial terms, an exclusive or non-exclusive worldwide license to certain patent rights for specific CAAR products developed under the Weissman SRA. Unless earlier terminated, the Weissman SRA will expire in December 2023. Pursuant to the Weissman SRA, the Company also entered into an Option Agreement with Penn, or the Weissman Option, which grants the Company the option to negotiate to acquire a non-exclusive worldwide license to certain patent rights in connection with the Weissman SRA. This SRA has a remaining cost of approximately $400.

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, 2022 and 2021 was $635 and $395, 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 $0 and $150 during the three months ended March 31, 2022 and 2021, respectively.

Collaboration and License Agreement

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.

Licence and Supply Agreement with Oxford Biomedica

In December 2021, the Company entered into a Licence and Supply agreement (LSA) with Oxford Biomedica (UK) Limited, wherein the LSA grants the Company a non-exclusive license to Oxford’s LentiVector® platform for its application in the Company’s DSG3-CAART program and puts in place a multi-year vector supply agreement. Under the terms of the agreement, the Company is required to pay Oxford an upfront fee, as well as costs associated with initial vector manufacturing activities for a total cost of up to approximately $4,000, of which $1,100 was recognized in 2021. Oxford is eligible to receive regulatory and sales milestones in the low tens of millions and royalties in the low single digits on net sales of products that incorporate the Oxford technology. The Company can terminate the agreement at will upon advance written notice and subject to certain manufacturing slot cancellation fees. No expense was recognized under this LSA in the three months ended March 31, 2022.

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 was set to expire in July 2022. The initial annual base rent was $261, and increased by 2% annually on each anniversary of the commencement date. In February 2022, the Company amended this lease for an additional 35 months, through June 30, 2025. The annual base rent is $279, starting on January 1, 2023 and such amount will increase by 2.5% annually. The Company records rent expense on a straight-line basis over the lease term.

The Company’s lease for expanded lab space in Philadelphia, Pennsylvania commenced in the first quarter of 2022. This lease can be terminated by the Company with 90 days’ notice. The Company expects to utilize this space through June 30, 2025.

Rent expense related to these leases is recorded on a straight-line basis over the lease term. Rent expense recognized in the accompanying statements of operations was $170 and $68 for the three months ended March 31, 2022 and 2021, respectively.

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 planned MuSK-CAART Phase 1 clinical trial, or MusCAARTes^TMtrial. The Company concluded the WuXi Agreement has an embedded lease as a dedicated manufacturing suite is used for the Company’s cell processing manufacturing. The monthly fee of $125 for this suite is included in the minimum lease payment table below. The Company recognized rent expense of $310 related to this lease in the accompanying statements of operations for the three months ended March 31, 2022. No rent expense was recognized for the three months ended March 31, 2021. The WuXi Agreement will expire the later of January 2024, or upon completion of WuXi’s services related to the MusCAARTes^TM 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 up to $1,500.

As of March 31, 2022, the future minimum payments for operating leases are as follows:

April 1, 2022 to December 31, 2022	$	2,391
2023		3,543
2024		3,550
2025		1,029
Thereafter		—
	$	10,513

Research Service Agreement

In February 2021, the Company entered into a research service agreement with CHOP for vector manufacturing. In May 2021, this agreement was amended to provide additional vector manufacturing services. Research and development expense related to this research service agreement with CHOP recognized in the accompanying statements of operations was $166 and $222 for the three months ended March 31, 2022 and 2021, respectively. There was $333 due under this agreement as of March 31, 2022 included in Accounts payable in the accompanying balance sheets. This agreement has a remaining cost of $480, expected to be incurred in the first half of 2023.

Other Purchase Commitments

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, as amended, (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. 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.

Pending Litigation

On February 28, 2022, a purported stockholder of the Company filed a complaint against the Company and certain of the Company’s current officers and certain of the Company’s current and former directors in the United States District Court for the Eastern District of Pennsylvania captioned Patterson v. Cabaletta Bio, Inc., et al.. No. 2:22-cv-00737 (E.D. Pa.). The complaint was filed on behalf of a putative class of persons and entities who purchased or otherwise acquired (a) Cabaletta common stock pursuant and/or traceable to the offering documents issued in connection with the Company’s October 24, 2019 initial public offering; and/or (b) Cabaletta securities between October 24, 2019 and December 13, 2021 both dates inclusive. The complaint alleges claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder and under Sections 11 and 15 of the Securities Act based upon allegedly false or misleading statements and omissions regarding our DesCAARTes^TM Phase 1 clinical trial of DSG3-CAART, clinical data for the DesCAARTes^TM trial, the efficacy of DSG3-CAART, and the clinical and/or commercial prospects for DSG3-CAART. The complaint seeks damages, prejudgment and post-judgment interest, and reasonable attorneys’ fees, expert fees and other costs. The Company may also become subject to additional securities class action lawsuits in the future. The Company intends to vigorously defend the lawsuit. At this time, no assessment can be made as to its likely outcome or whether the outcome will be material to the Company. No information is available to indicate that it is probable that a loss has been incurred and can be reasonably estimated as of the date of the financial statements and, as such, no accrual for the loss has been recorded within the financial statements.

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.

The Company has a Sales Agreement with Cowen and Company, LLC, to provide for the offering, issuance and sale of up to an aggregate amount of $75.0 million of common stock from time to time in “at-the-market” offerings (the ATM Program) pursuant to its shelf registration statement on Form S-3 (File No. 333-250006) and subject to the limitations thereof. During the three months ended March 31, 2022, the Company did not sell any shares pursuant to the ATM Program.

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. There are 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, 2022, the total number of shares under the 2019 Plan was increased by 1,157,085 shares. As of March 31, 2022, there were 1,133,673 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, 2022		4,257,213		$	8.49		8.2	$	2,367
Granted		1,885,600			3.20
Exercised		(50,000	)		1.01				101
Forfeited/Cancelled		(6,400	)		14.37
Outstanding as of March 31, 2022		6,086,413		$	6.91		8.5	$	819
Options Exercisable at March 31, 2022		2,114,852		$	6.87		7.4	$	727

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, 2022 and 2021 was $2.20 and $7.93, respectively.

The fair value of each award is estimated using Black-Scholes based on the following assumptions:

	Three Months Ended March 31,
	2022	2021
Risk-free interest rate	1.47%—2.12%	0.63%—1.01%
Expected term	6.1 years	6.1 years
Expected volatility	79%—81%	79%—80%
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:

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,
	2022		2021
Research and development	$	872	$	619
General and administrative		939		691
Total	$	1,811	$	1,310

As of March 31, 2022, there was $17,183 of unrecognized compensation cost related to unvested option awards, which is expected to be recognized over a weighted-average period of 2.7 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. There was no increase to the total number of shares available under the 2019 ESPP on January 1, 2022.

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 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. Each offering period 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, 2022 and 2021 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, 2022 and December 31, 2021, 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, 2022 and December 31, 2021.

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, 2022 and 2021, 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, 2022
	Voting common stock	Non-voting common stock
Basic net loss per share:
Numerator
Allocation of undistributed losses attributable to common stockholders	$