Decibel Therapeutics, Inc. - Quarter Report: 2022 June (Form 10-Q)

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 June 30, 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: 001-40030

Decibel Therapeutics, Inc.

(Exact name of Registrant as specified in its Charter)


Delaware	46-4198709
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1325 Boylston Street, Suite 500 Boston, Massachusetts	02215
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 370-8701

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 $0.001 per share	DBTX	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 August 1, 2022, the registrant had 24,964,502 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income	6
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 3.	Defaults Upon Senior Securities	90
Item 4.	Mine Safety Disclosures	90
Item 5.	Other Information	90
Item 6.	Exhibits	91
Signatures		92

Cautionary Note Regarding Forward-Looking Statements and Industry Data

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

•

the initiation, timing, progress and results of our current research and development programs, preclinical studies and clinical trials;

•

our estimates regarding expenses, future revenue, capital requirements and need for additional financing;

•

our plans to develop our product candidates and programs;

•

the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for our product candidates;

•

our estimates regarding the potential patient populations for our product candidates and programs;

•

our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents and available-for-sale securities;

•

the potential advantages of our product candidates and programs;

•

the potential advantages of our platform;

•

the rate and degree of market acceptance and clinical utility of our product candidates and programs;

•

our estimates regarding the potential market opportunity for our product candidates and programs;

•

our commercialization, marketing and manufacturing capabilities and strategy;

•

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

•

the impact of government laws and regulations;

•

our competitive position;

•

developments relating to our competitors and our industry;

•

our ability to maintain and establish collaborations or obtain additional funding;

•

the potential direct or indirect impact of the COVID-19 pandemic on our business; and

•

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart our Business Startup Acts of 2012.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factor Summary” below and in Part II, Item 1A. “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed or incorporated by reference hereto completely and with the understanding that our actual future results may be materially different from what we expect. 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 do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates of potential market opportunities. The market data used in this Quarterly Report on Form 10-Q involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. Although we are responsible for the disclosure contained in this Quarterly Report on Form 10-Q and we believe the information from industry publications and other third-party sources included in this Quarterly Report on Form 10-Q is reliable, such information is inherently imprecise. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.

Risk Factor Summary

Our business is subject to a number of risks of which you should be aware before making an investment decision. Below we summarize what we believe to be the principal risks facing our business, in addition to the risks described more fully in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q and other information included in this report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.

If any of the following risks occur, our business, financial condition and results of operations and future growth prospects could be materially and adversely affected, and the actual outcomes of matters as to which forward-looking statements are made in this report could be materially different from those anticipated in such forward-looking statements.

•

We have incurred significant losses since our inception, have no products approved for sale and we expect to incur substantial losses for the foreseeable future and may never achieve or maintain profitability;

•

We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our research and development programs or commercialization efforts;

•

The COVID-19 pandemic disrupted our ongoing Phase 1b clinical trial of DB-020 and has affected and may in the future affect our ability to initiate and complete preclinical studies, delay the initiation of our planned clinical trials or future clinical trials, disrupt regulatory activities, disrupt our manufacturing and supply chain or have other adverse effects on our business and operations. In addition, this pandemic has caused substantial disruption to global supply chains and may adversely impact economies worldwide, both of which could result in adverse effects on our business, operations and ability to raise capital;

•

Our limited operating history may make it difficult for stockholders to evaluate the success of our business to date and to assess our future viability;

•

We are very early in our development efforts. Our business is dependent on our ability to advance our lead gene therapy product candidate, DB-OTO, and our other current and future product candidates through preclinical studies and clinical trials, obtain marketing approval and ultimately commercialize them. If we are unable to complete preclinical and clinical development, obtain regulatory approval for or commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed;

•

Clinical development involves a lengthy and expensive process with uncertain outcomes, and results of earlier studies and trials may not be predictive of future clinical trial results. If our preclinical studies and clinical trials are not sufficient to support regulatory approval of any of our product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such product candidate;

•

Gene therapy is an emerging field of drug development that poses many risks. We have only limited prior experience in gene therapy research and no prior experience in gene therapy clinical development. Our lack of experience and the limited patient populations for our gene therapy programs may limit our ability to be successful or may delay our development efforts;

•

If we experience delays or difficulties in participant enrollment for clinical trials, our research and development efforts and the receipt of necessary regulatory approvals could be significantly delayed or prevented;

•

Our product candidates or the process for administering our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval;

•

The manufacture of gene therapy products is complex and difficult and is subject to a number of scientific and technical risks, some of which are common to the manufacture of drugs and biologics and others of which are unique to the manufacture of gene therapies. We could experience manufacturing problems that result in delays in our gene therapy development or commercialization programs;

•

We rely, and expect to continue to rely, on third parties to conduct some or all aspects of our product manufacturing, research, preclinical and clinical testing, and these third parties may not perform satisfactorily;

•

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

•

Our rights to develop and commercialize any product candidates are subject and may in the future be subject, in part, to the terms and conditions of licenses granted to us by third parties. If we fail to comply with our obligations under our current or future intellectual property license agreements, including applicable diligence milestones, or otherwise experience disruptions to our business relationships with our current or any future licensors, we could lose intellectual property rights that are important to our business.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DECIBEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	June 30, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	56,451		$	36,455
Available-for-sale securities		69,198			112,292
Accounts receivable from related party		10,000			11,402
Prepaid expenses and other current assets		5,757			4,042
Total current assets		141,406			164,191
Available-for-sale securities, long-term		—			13,547
Property and equipment, net		4,867			5,611
Right-of-use asset, operating		10,707			—
Right-of-use asset, finance		134			—
Other assets		1,164			1,128
Total assets	$	158,278		$	184,477
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,915		$	4,012
Accrued expenses and other current liabilities		8,186			7,712
Deferred collaboration liability, current		9,123			8,118
Deferred rent and lease incentive obligation, current		—			696
Operating lease liability, current		3,523			—
Finance lease liability, current		127			—
Total current liabilities		22,874			20,538
Long-term liabilities:
Deferred collaboration liability, long-term		10,204			16,431
Deferred rent and lease incentive obligation, long-term		—			4,208
Operating lease liability, long-term		11,727			—
Other long-term liabilities		1,615			1,611
Total liabilities		46,420			42,788
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2022 and December 31, 2021		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized, 24,964,502 shares issued and 24,959,848 shares outstanding at June 30, 2022; 200,000,000 shares authorized, 24,964,520 shares issued and 24,951,983 shares outstanding at December 31, 2021		25			25
Additional paid-in capital		357,995			356,308
Accumulated other comprehensive loss		(588	)		(132	)
Accumulated deficit		(245,574	)		(214,512	)
Total stockholders’ equity		111,858			141,689
Total liabilities and stockholders’ equity	$	158,278		$	184,477

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

DECIBEL THERAPEUTICS, INC.

CONDENSED conSOLIDATED Statements of Operations and Comprehensive (Loss) INCOME

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Operating expenses:
Research and development	$	11,241		$	6,827		$	18,707		$	12,847
General and administrative		5,862			4,899			12,415			9,782
Total operating expenses		17,103			11,726			31,122			22,629
Loss from operations		(17,103	)		(11,726	)		(31,122	)		(22,629	)
Other income:
Interest income		95			75			158			108
Total other income, net		95			75			158			108
Net loss before provision for income taxes		(17,008	)		(11,651	)		(30,964	)		(22,521	)
Provision for income taxes		(38	)		—			(98	)		—
Net loss	$	(17,046	)	$	(11,651	)	$	(31,062	)	$	(22,521	)
Cumulative dividends on convertible preferred stock		—			—			—			(2,309	)
Net loss attributable to common stockholders	$	(17,046	)	$	(11,651	)	$	(31,062	)	$	(24,830	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.68	)	$	(0.47	)	$	(1.24	)	$	(1.34	)
Weighted average shares of common stock outstanding, basic and diluted		24,958,678			24,865,112			24,956,932			18,520,536

Comprehensive loss:
Net loss	$	(17,046	)	$	(11,651	)	$	(31,062	)	$	(22,521	)
Other comprehensive loss:
Unrealized (loss) gain on available-for-sale securities, net of tax of $0		(61	)		26			(456	)		6
Total other comprehensive (loss) income		(61	)		26			(456	)		6
Comprehensive loss	$	(17,107	)	$	(11,625	)	$	(31,518	)	$	(22,515	)

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

DECIBEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED Statements of CONVERTIBLE PREFERRED STOCK AND Stockholders’ (Deficit) EQUITY

(Unaudited)

(In thousands, except share data)


	Series A Convertible Preferred Stock						Series B Convertible Preferred Stock						Series C Convertible Preferred Stock						Series D Convertible Preferred Stock						Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’ (Deficit)
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares		Amount		Capital		(Loss) Income			Deficit			Equity
Balance at December 31, 2020		57,758,734		$	16,176			12,500,000		$	5,700			37,528,581		$	16,759			31,740,554		$	54,456			521,052	$	1	$	107,908	$	(1	)	$	(162,689	)	$	(54,781	)
Issuance of common stock upon exercise of stock options		—			—			—			—			—			—			—			—			3,773		—		17		—			—			17
Vesting of restricted common stock		—			—			—			—			—			—			—			—			10,202		—		4		—			—			4
Stock-based compensation expense		—			—			—			—			—			—			—			—			—		—		646		—			—			646
Issuance of Series D convertible preferred stock		—			—			—			—			—			—			15,870,209			27,400			—		—		—		—			—			—
Conversion of convertible preferred stock into common stock upon completion of initial public offering		(57,758,734	)		(16,176	)		(12,500,000	)		(5,700	)		(37,528,581	)		(16,759	)		(47,610,763	)		(81,856	)		16,662,011		17		120,474		—			—			120,491
Issuance of common stock upon completion of initial public offering, net of commissions, underwriting discounts and offering costs of $13,137		—			—			—			—			—			—			—			—			7,662,000		7		124,772		—			—			124,779
Unrealized loss on available-for-sale securities		—			—			—			—			—			—			—			—			—		—		—		(20	)		—			(20	)
Net loss		—			—			—			—			—			—			—			—			—		—		—		—			(10,870	)		(10,870	)
Balance at March 31, 2021		—		$	—			—		$	—			—		$	—			—		$	—			24,859,038	$	25	$	353,821	$	(21	)	$	(173,559	)	$	180,266
Issuance of common stock upon exercise of stock options		—			—			—			—			—			—			—			—			354		—		1		—			—			1
Vesting of restricted common stock		—			—			—			—			—			—			—			—			9,425		—		5		—			—			5
Stock-based compensation expense		—			—			—			—			—			—			—			—			—		—		764		—			—			764
Unrealized gain on available-for-sale securities		—			—			—			—			—			—			—			—			—		—		—		26			—			26
Net loss		—			—			—			—			—			—			—			—			—		—		—		—			(11,651	)		(11,651	)
Balance at June 30, 2021		—		$	—			—		$	—			—		$	—			—		$	—			24,868,817	$	25	$	354,591	$	5		$	(185,210	)	$	169,411

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


	Series A Convertible Preferred Stock				Series B Convertible Preferred Stock				Series C Convertible Preferred Stock				Series D Convertible Preferred Stock				Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’ (Deficit)
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		(Loss) Income			Deficit			Equity
Balance at December 31, 2021		—		—		—		—		—		—		—		—		24,951,983		25		356,308		(132	)		(214,512	)		141,689
Vesting of restricted common stock		—		—		—		—		—		—		—		—		4,573		—		—		—			—			—
Stock-based compensation expense		—		—		—		—		—		—		—		—		—		—		842		—			—			842
Unrealized loss on available-for-sale securities		—		—		—		—		—		—		—		—		—		—		—		(395	)		—			(395	)
Net loss		—		—		—		—		—		—		—		—		—		—		—		—			(14,016	)		(14,016	)
Balance at March 31, 2022		—	$	—		—	$	—		—	$	—		—	$	—		24,956,556	$	25	$	357,150	$	(527	)	$	(228,528	)	$	128,120
Vesting of restricted common stock		—		—		—		—		—		—		—		—		3,292		—		—		—			—			—
Stock-based compensation expense		—		—		—		—		—		—		—		—		—		—		845		—			—			845
Unrealized loss on available-for-sale securities		—		—		—		—		—		—		—		—		—		—		—		(61	)		—			(61	)
Net loss		—		—		—		—		—		—		—		—		—		—		—		—			(17,046	)		(17,046	)
Balance at June 30, 2022		—	$	—		—	$	—		—	$	—		—	$	—		24,959,848	$	25	$	357,995	$	(588	)	$	(245,574	)	$	111,858

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

Decibel Therapeutics, Inc.

CONDENSED CONSOLIDATED Statements of Cash Flows

(Unaudited)

(In thousands)


	Six Months Ended June 30,
	2022			2021
Operating activities
Net loss	$	(31,062	)	$	(22,521	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		1,687			1,410
Depreciation		729			764
Non-cash lease expense		880			—
Amortization of available-for-sale securities		517			357
Changes in operating assets and liabilities:
Accounts receivable from related party		1,402			(482	)
Prepaid expenses and other current assets		(1,715	)		(1,534	)
Other long-term assets		(104	)		—
Accounts payable		(2,097	)		10
Accrued expenses and other current liabilities		686			1,356
Deferred collaboration liability		(5,222	)		(948	)
Deferred rent and lease incentive		—			(288	)
Operating lease liability		(1,139	)		—
Other long-term liabilities		23			(79	)
Net cash used in operating activities		(35,415	)		(21,955	)
Investing activities
Purchases of available-for-sale securities		(39,250	)		(147,223	)
Proceeds from maturities and redemptions of available-for-sale securities		94,918			26,530
Proceeds from sale of property and equipment		—			42
Purchases of property and equipment		(221	)		(102	)
Net cash provided by (used in) investing activities		55,447			(120,753	)
Financing activities
Proceeds from the issuance of Series D convertible preferred stock		—			27,400
Proceeds from issuance of common stock upon completion of initial public offering net of commissions and underwriting discounts		—			128,240
Payment of initial public offering costs		—			(3,255	)
Proceeds from the exercise of stock options		—			18
Principal payments on finance lease liability		(104	)		(94	)
Repurchases of early exercised restricted stock		—			(1	)
Net cash (used in) provided by financing activities		(104	)		152,308
Net increase in cash, cash equivalents and restricted cash		19,928			9,600
Cash, cash equivalents and restricted cash at beginning of period		37,583			29,218
Cash, cash equivalents and restricted cash at end of period	$	57,511		$	38,818
Supplemental disclosure of non-cash activities:
Operating lease right-of-use asset recognized upon adoption of ASC 842	$	11,485		$	—
Vesting of early exercised restricted stock	$	—		$	(9	)

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

Decibel Therapeutics, Inc.

(Unaudited)

Notes to CONDENSED CONSOLIDATED Financial Statements

1. Nature of the Business

Decibel Therapeutics, Inc. (the “Company”) was formed on November 26, 2013. The Company is a clinical-stage biotechnology company dedicated to discovering and developing transformative treatments for hearing and balance disorders, one of the largest areas of unmet need in medicine. The Company aims to restore and improve hearing and balance through the restoration and regeneration of functional hair cells and non-sensory support cells within the inner ear.

On February 5, 2021, the Company’s board of directors approved a 1-for-5.3 reverse stock split of the Company’s common stock. All share and per share amounts in the condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the reverse stock split.

On February 17, 2021, the Company completed an initial public offering (“IPO”), issuing and selling 7,062,000 shares of common stock at a public offering price of $18.00 per share, and on February 24, 2021, the Company issued and sold an additional 600,000 shares pursuant to the underwriters’ partial exercise of their option to purchase additional shares. The aggregate net proceeds received by the Company from the offering were $125.0 million. Upon closing of the Company’s IPO, all outstanding shares of convertible preferred stock automatically converted into shares of common stock.

In March 2022, the Company filed a universal shelf registration on Form S-3 to register for sale from time to time up to $200.0 million of common stock, preferred stock, debt securities, warrants and/or units in one or more offerings. Further, in March 2022, the Company entered into an Open Market Sale AgreementSM (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which, from time to time, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $20.0 million. Sales of common stock through Jefferies may be made by any method that is deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. Jefferies is entitled to compensation at a rate equal to 3.0% of the gross proceeds from any shares of common stock sold under the Sales Agreement. As of June 30, 2022, the Company had not sold any shares of common stock pursuant to the Sales Agreement.

Liquidity

Since its inception, the Company’s operations have been focused on organizing and staffing, business planning, raising capital, establishing the Company’s intellectual property portfolio and performing research and development of its product candidates, programs and platform.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, obtaining regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Programs currently under development will require significant additional research and development efforts, including preclinical and clinical testing and will need to obtain regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

As of June 30, 2022, the Company had cash, cash equivalents and available-for-sale securities of $125.6 million. The Company has determined that its existing capital resources will be sufficient to meet its projected operating expenses and capital expenditure requirements for at least twelve months from the date of issuance of these condensed consolidated financial statements. The Company expects to experience negative cash flows from operations and net losses for the foreseeable future as it continues to invest significantly in research and development of its product candidates, preclinical and clinical development and platform. Management’s conclusion with respect to its ability to fund its operations is based on estimates that are subject to risks and uncertainties that may prove to be incorrect. If actual results differ from management’s estimates, the Company may be required to seek additional funding or curtail planned activities to reduce operating expenses, which may have an adverse impact on the Company’s ability to achieve its business objectives.

Impact of the COVID-19 Pandemic

The worldwide COVID-19 pandemic has affected and may affect in the future the Company’s ability to initiate and complete preclinical studies, delay the initiation and completion of the Company’s current and planned clinical trials, disrupt regulatory

activities or have other adverse effects on the Company’s business, results of operations, financial condition and prospects. In addition, the pandemic has caused substantial disruption to global supply chains and may adversely impact economies worldwide, both of which could adversely affect the Company’s business, operations and ability to raise funds to support its operations.

The Company is following, and plans to continue to follow, recommendations from federal, state and local governments regarding workplace policies, practices and procedures. In response to the COVID-19 pandemic and in accordance with direction from state and local governmental authorities, the Company previously restricted access to its facility to those individuals who must perform critical research, translational medicine and laboratory support activities that must be completed on site, limited the number of such people that can be present at its facility at any one time, and required that most of its employees work remotely. In February 2022, the Company re-opened its facility to all of its employees. Screening and enrollment in the Company’s ongoing Phase 1b clinical trial of DB-020 in Australia and the United States had been adversely impacted by the COVID-19 pandemic. Patient screening and enrollment were paused in the second quarter of 2020 in both Australia and the United States, and screening for enrollment did not resume until early in the third quarter of 2020 in Australia and early in the fourth quarter of 2020 in the United States. The Company has also experienced delays in site start-up and the withdrawal of some sites in the United States. In addition, the Company and the third-party manufacturers, contract research organizations (“CROs”), and academic collaborators that it engages have faced in the past and may face in the future disruptions that could affect its ability to initiate and complete preclinical studies or clinical trials. This includes disruptions in procuring items and providing adequate resources that are essential for its research and development activities, such as, for example, raw materials used in the manufacture of its product candidates, laboratory supplies for its preclinical studies and clinical trials, or animals that are used for preclinical testing, in each case, for which there may be shortages because of ongoing efforts to address the COVID-19 pandemic, including supply chain disruptions. Due to recent increased quarantine mandates in China, the receipt of shipments and data from some of the Company's vendors had been more difficult and unpredictable. This caused some delays in preclinical studies for the Company's gene therapy programs. The quarantine mandates have been largely resolved as of June 2022. The Company has been working with its CROs to assess the impact of the increased mandates on its activities, and contingency planning is on-going.

The Company cannot be certain what the overall impact of the COVID-19 pandemic will be on its business. The extent of the impact of COVID-19 on its business will depend on the length and severity of the pandemic, including the extent there is any resurgence of the COVID-19 virus or any variant strains of the virus, the availability and effectiveness of vaccines and the impact of the foregoing on its preclinical studies, current and planned clinical trials, employees and vendors, which is uncertain and cannot be predicted. The pandemic has the potential to adversely affect its business, financial condition, results of operations and prospects.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Decibel Securities Corporation and Decibel Therapeutics Australia Pty. All intercompany balances and transactions have been eliminated in consolidation.

These condensed consolidated financial statements have been prepared in conformity with the rules and regulations of the Securities and Exchange Commission for interim consolidated financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).

Unaudited Interim Condensed Consolidated Financial Information

The accompanying condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations and comprehensive (loss) income for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statements of convertible preferred stock and stockholders’ (deficit) equity for the six months ended June 30, 2022 and 2021 and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 are unaudited. The financial data and other information contained in the notes thereto as of and for the three and six months ended June 30, 2022 and 2021 are also unaudited. The condensed consolidated balance sheet data as of December 31, 2021 were derived from the Company’s audited consolidated financial statements for the year ended December 31, 2021.

With the exception of the adoption of FASB ASU No. 2016-02, Leases (“ASC 842”), the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair

presentation of the Company’s financial position as of June 30, 2022, the results of its operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2021 and the notes thereto.

The results for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, or any other interim periods, or any future year or period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these condensed consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to the estimated cost to perform research which is an input into the measurement of research and development expenses recognized under the Company’s license and collaboration agreement (the “Regeneron Agreement”) with Regeneron Pharmaceuticals, Inc. (“Regeneron”) as described below, the accrual of research and development expenses, stock-based compensation expenses, leases and income taxes. Estimates are periodically reviewed considering changes in circumstances, facts and historical experience. Actual results may differ from the Company’s estimates.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents are short-term, highly liquid investments that are readily convertible into cash, with original maturities of three months or less. Cash equivalents are mainly comprised of money market accounts invested in U.S. Treasury securities.

Restricted cash is comprised of deposits with a financial institution used to collateralize letters of credit related to the Company’s lease arrangements. Restricted cash is presented as a component of other assets on the condensed consolidated balance sheets.

Cash, cash equivalents and restricted cash consisted of the following (in thousands):


	June 30,
	2022		2021
Cash and cash equivalents	$	56,451	$	37,690
Restricted cash		1,060		1,128
Total cash, cash equivalents and restricted cash as shown on the statement of cash flows	$	57,511	$	38,818

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under GAAP. The fair values of the Company’s financial assets and liabilities reflect the Company’s estimate of the exchange price that would be received for an asset or paid to transfer a liability (an exit price) 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. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•

Level 1—Quoted prices in active markets for identical assets or liabilities.

•

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•

Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts reflected in the condensed consolidated balance sheets for cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. Items measured at fair value on a recurring basis include cash equivalents and available-for-sales securities as of June 30, 2022 and December 31, 2021.

Stock-Based Compensation

The Company issues stock-based awards to employees, directors and non-employee consultants, generally in the form of stock options, restricted stock and restricted stock units. The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires stock-based payments to employees, qualifying directors and non-employees to be recognized as expense based on the fair value determined on the date of grant.

The Company issues equity awards with service-based and performance-based vesting conditions. Compensation expense related to awards to employees, directors and non-employees with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated requisite service period of the award, which is generally the vesting term. Compensation expense related to awards to employees, directors and non-employees with performance-based vesting conditions is recognized when it becomes probable that the performance conditions will be met using the accelerated attribution method. The Company has no awards with market-based conditions. The Company recognizes forfeitures as they occur.

The Company classifies stock-based compensation expense in the condensed consolidated statements of operations and comprehensive (loss) income in the same manner in which the award recipient’s salary and related costs are classified or in which the award recipient’s service payments are classified, as applicable.

The Company determines the fair value of restricted stock in reference to the fair value of its common stock less any applicable purchase price. The Company estimates the fair value of its stock options using the Black-Scholes option pricing model, which requires inputs of subjective assumptions, including: (i) the expected volatility of its common stock, (ii) the expected term of the award, (iii) the risk-free interest rate, (iv) expected dividends and (v) the fair value of its common stock. Due to the lack of a public market for the trading of its common stock prior to the completion of its IPO and a lack of company-specific historical and implied volatility data, the Company bases the estimate of expected volatility on the historical volatilities of a representative group of publicly traded companies. For these analyses, the Company selects companies with comparable characteristics and with historical share price information that approximates the expected term of the stock-based awards. The Company computes the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period that approximates the calculated expected term of its stock options. The Company will continue to apply this method until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. The Company estimates the expected term of its stock options granted to employees and directors using the simplified method, whereby the expected term equals the average of the vesting term and the original contractual term of the option. The Company utilizes this method as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The expected dividend yield is assumed to be zero, as the Company has no current plans to pay any dividends on its common stock. The Company has elected to use the expected term for stock options granted to non-employees, using the simplified method, as the basis for the expected term assumption. However, the Company may elect to use either the contractual term or the expected term for stock options granted to non-employees on an award-by-award basis.

The fair value of the Company’s common stock in connection with its accounting for granted stock options, restricted stock and restricted stock units, is based on the trading price of its common stock on the Nasdaq Global Select Market.

Leases

The Company adopted ASC 842 effective January 1, 2022 using the required modified retrospective approach and utilizing the effective date as its date of initial application. Prior periods are presented in accordance with previous guidance in FASB ASC Topic 840, Leases.

The Company evaluates whether an arrangement is or contains a lease at contract inception. If a contract is or contains a lease, lease classification is determined at lease commencement, which represents the date at which the underlying asset is made available for use by the Company. The Company’s lease terms are generally measured as the respective lease’s noncancelable term and exclude any optional extension terms as the Company is not reasonably certain to exercise such options. The Company elected the short-term lease exemption and therefore does not recognize lease liabilities and right-of-use assets for lease arrangements with original lease terms of twelve months or less.

Lease liabilities represent the Company’s obligation to make lease payments under a lease arrangement. Lease liabilities are measured as the present value of fixed lease payments, discounted using an incremental borrowing rate, as interest rates implicit in the Company’s lease arrangements are generally not readily determinable. The Company elected the practical expedient to not separate lease and non-lease components for its real estate leases and therefore both are considered when determining the lease payments in a lease arrangement. Variable lease costs are expensed as incurred.

The incremental borrowing rate represents the interest rate at which the Company could borrow a fully collateralized amount equal to the lease payments, over a similar term, in a similar economic environment. The Company determines the incremental borrowing rate at lease commencement, generally using a synthetic credit rating based on the Company’s financial position and negative cash flows, factoring in adjustments for additional risks based on the Company’s economic condition, a survey of comparable companies with similar credit and financial profiles, as well as additional market risks, as may be applicable.

Right-of-use assets represent the Company’s right to use an underlying asset over its lease term. Right-of-use assets are initially measured as the associated lease liability, adjusted for prepaid rent and tenant incentives. The Company remeasures right-of-use assets and lease liabilities when a lease is modified, and the modification is not accounted for as a separate contract. A modification is accounted for as a separate contract if the modification grants the Company an additional right of use not included in the original lease agreement and the increase in lease payments is commensurate with the additional right of use. The Company assesses its right-of-use assets for impairment consistent with its policy for impairment of long-lived assets held and used in operations.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASC 842, which replaces the existing guidance for leases. ASC 842 requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve-month term, these arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASC 842, a right-of-use asset and a lease liability will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASC 842 must be calculated using the applicable incremental borrowing rate at the date of adoption. The guidance is effective for annual reporting periods beginning after December 15, 2021 and interim periods beginning after December 15, 2022, and early adoption is permitted. The Company adopted ASC 842 using the modified retrospective approach effective January 1, 2022. The Company elected the package of practical expedients which allows entities to not reassess (i) whether an arrangement is or contains a lease, (ii) the classification of its leases, and (iii) the accounting for initial direct costs. Further, the Company elected, by class of underlying asset, the short-term lease exception for leases with terms of twelve months or less. In doing so, the Company will not recognize a lease liability or right-of-use asset on its balance sheets for such short-term leases. Finally, the Company elected, by class of underlying asset, the practical expedient to not separate lease and non-lease components. The impact of adoption is summarized as follows (in thousands):


	As Reported December 31, 2021		Impact of Adoption			As Adopted January 1, 2022
Operating lease right-of-use assets		—		11,485			11,485
Finance lease right-of-use assets		—		235			235
Property and equipment, net		5,611		(235	)		5,376
Accrued expenses and other current liabilities		7,712		(213	)		7,499
Deferred rent and lease incentive obligation, current		696		(696	)		—
Operating lease liabilities, current		—		3,484			3,484
Finance lease liabilities, current		—		213			213
Deferred rent and lease incentive obligation, long-term		4,208		(4,208	)		—
Operating lease liabilities, long-term		—		12,905			12,905
Finance lease liabilities, long-term		—		19			19
Other long-term liabilities		1,611		(19	)		1,592

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of accounting for income

taxes. The Company adopted ASU 2019-12 on January 1, 2022. The adoption did not have a material effect on the Company’s condensed consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”). ASU 2021-04 will have an effective and transition date of January 1, 2022. ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options, including warrants, that remain equity-classified after modification or exchange. ASU 2021-04 requires an entity to treat a modification or an exchange of a freestanding equity-classified written call option that remains equity-classified after the modification or exchange as an exchange of the original instrument for a new instrument and provides guidance on measuring and recognizing the effect of a modification or an exchange. The Company adopted ASU 2021-04 on January 1, 2022. The adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance (“ASU 2021-10”). ASU 2021-10 increases the transparency of transactions with the government that are accounted for by applying a grant or contribution accounting model, and it aims to reduce diversity that currently exists in the recognition, measurement, presentation, and disclosure of government assistance received by business entities due to the lack of specific authoritative guidance in GAAP. ASU 2021-10 requires an entity to provide information regarding the nature of the transaction with a government and the related accounting policy used to account for this transaction, the line item on the condensed consolidated balance sheet and condensed consolidated statement of operations and comprehensive loss that are affected by the transaction and the amounts applicable to each financial statement line item, and the significant terms and conditions of the transaction, including commitments and contingencies. The Company adopted ASU 2021-10 on January 1, 2022 using the prospective approach. The adoption did not have a material effect on the Company’s condensed consolidated financial statements and related disclosures.

Refer to Note 2 of the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for the Company’s summary of recently issued accounting pronouncements that have not yet been adopted.

3. Fair Value Measurements

The Company measures the following financial assets at fair value on a recurring basis. The fair value of these assets was determined as follows (in thousands):


	Balance at June 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market mutual funds	$	56,098	$	56,098	$	—	$	—
Total cash equivalents	$	56,098	$	56,098	$	—	$	—
Available-for-sale securities:
U.S. Treasury securities	$	59,301	$	—	$	59,301	$	—
Agency bonds		9,897		—		9,897		—
Total available-for-sale securities	$	69,198	$	—	$	69,198	$	—


	Balance at December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents:
Money market mutual funds	$	31,726	$	31,726	$	—	$	—
Total cash equivalents	$	31,726	$	31,726	$	—	$	—
Available-for-sale securities:
U.S. Treasury securities	$	61,373	$	—	$	61,373	$	—
Corporate debt securities		33,806		—		33,806		—
Agency bonds		15,114		—		15,114		—
Commercial paper		1,999		—		1,999		—
Total available-for-sale securities	$	112,292	$	—	$	112,292	$	—
Available-for-sale securities, long-term:
U.S. Treasury securities	$	13,547	$	—	$	13,547	$	—
Total available-for-sale securities, long-term	$	13,547	$	—	$	13,547	$	—

Money market funds were valued by the Company using quoted prices in active markets for identical securities, which represent a Level 1 measurement within the fair value hierarchy. During the three and six months ended June 30, 2022 and the year ended December 31, 2021 there were no transfers between Level 1, Level 2 and Level 3.

4. Available-For-Sale Securities

The following table summarizes the Company’s available-for-sale securities (in thousands):


	June 30, 2022
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Available-for-sale securities:
U.S. Treasury securities	$	59,874	$	—	$	(573	)	$	59,301
Agency bonds		9,912		—		(15	)		9,897
Total available-for-sale securities	$	69,786	$	—	$	(588	)	$	69,198


	December 31, 2021
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value

Available-for-sale securities:
U.S. Treasury securities	$	61,450	$	—	$	(77	)	$	61,373
Corporate debt securities		33,814		—		(8	)		33,806
Agency bonds		15,123		—		(9	)		15,114
Commercial paper		1,999		—		—			1,999
Total available-for-sale securities	$	112,386	$	—	$	(94	)	$	112,292
Available-for-sale securities, long-term:
U.S. Treasury securities	$	13,585	$	—	$	(38	)	$	13,547
Total available-for-sale securities	$	13,585	$	—	$	(38	)	$	13,547

The Company had 31 investments in available-for-sale securities in an unrealized loss position as of June 30, 2022 with a fair value of $69.2 million. The Company had 43 investments in available-for-sale securities in an unrealized loss position as of December 31, 2021 with a fair value of $120.3 million. These investments were in a loss position for less than 12 months and the Company considered the loss to be temporary in nature. The Company considered the decline in market value for these securities to be primarily attributable to economic and market conditions. As of June 30, 2022 and December 31, 2021, the Company did not intend to sell, and it was not more likely than not that the Company would be required to sell the investments that were in an unrealized loss position before recovery of their amortized cost basis. Accordingly, the Company did not recognize any other-than-temporary impairments related to its available-for-sale securities in an unrealized loss position. During the three and six months ended June 30,

2022 and the year ended December 31, 2021, the Company did not sell any available-for-sale securities and therefore did not recognize any realized gains or losses.

5. Accrued Expenses and Other Current Liabilities:

Accrued expenses and other current liabilities consisted of the following (in thousands):


	June 30, 2022		December 31, 2021
Accrued research and development expense	$	4,622	$	3,152
Accrued payroll and related expenses		1,747		2,932
Accrued professional fees		1,128		380
Accrued other and other current liabilities		689		1,035
Equipment financing, current		—		213
	$	8,186	$	7,712

6. Leases

Operating Leases

In July 2016, the Company entered into an operating lease for its facility in Boston, Massachusetts. Under the terms of the lease agreement, rent payments commenced in June 2017 with base rent in the first lease year of $2.1 million, subject to annual increases of 3.0% over the lease term through June 2027. The Company is also obligated to pay its ratable portion of operating expenses and taxes. The Company has the right to extend the lease for one additional five-year period at a market rental rate as determined by the landlord and agreed to by the Company. The lease is secured by a letter of credit in the amount of $0.5 million. In conjunction with the lease, the landlord provided the Company with a $5.3 million tenant improvement allowance.

In September 2019, the Company entered into an operating lease under which the Company leased additional office space from a third-party tenant under a sublease agreement at its existing facility. Under the terms of the lease agreement, rent payments commenced in December 2019 with base rent in the first lease year of $1.2 million, subject to annual rent escalation over the lease term through January 2027. The sublease is secured by a letter of credit in the amount of $0.4 million.

In January 2020, the Company entered into a sublease agreement to sublease a portion of its existing office and laboratory space to a third-party. The lease term commenced in March 2020 with an original term of 24 months. Annual base rent was $1.1 million for each year during the sublease term. The sublessee is obligated to pay its ratable portion of operating expenses during the sublease term. Subject to the Company’s consent, the sublease provided the sublessee one option to extend for up to one year, subject to a 3.0% rent increase. In May 2021, the sublessee exercised its right to extend the sublease term through October 31, 2022. Pursuant to the extension, base rent is $1.7 million for each year during the extension. The sublessee provided a security deposit of $0.2 million in cash which is presented as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets. Payments received under the sublease are recorded as a reduction to rent expense in the condensed consolidated statements of operations and comprehensive (loss) income.

In January 2022, the Company entered into a sublease agreement to sublease a portion of its existing office space to a third-party. The lease term commenced in February 2022 with an original term of six months. Base rent over the term will total $0.5 million. The sublease grants the sublessee the right to extend for two terms of three months each at the same base rent per month. The sublessee prepaid the last month’s rent of $0.1 million, which is presented as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheet. In June 2022, the subtenant exercised its first right to extend the sublease term. The extended sublease term expires in October 2022. Payments received under the sublease are recorded as a reduction to rent expense in the condensed consolidated statements of operations and comprehensive (loss) income.

Finance Leases

In July 2020, the Company entered into a financing transaction with a third-party leasing company. Pursuant to the transaction, the Company transferred title and interest in certain laboratory equipment to the third party in exchange for a one-time cash payment of $0.5 million and agreed to lease the laboratory equipment back from the third party for $0.2 million per year for 2.5 years. The Company concluded the lease was a capital lease under ASC 840 and a finance lease after the Company’s adoption of ASC 842.

The components of lease cost for the six months ended June 30, 2022 were as follows (in thousands):


Operating lease cost	$	1,458
Variable lease cost		391
Short-term lease cost		8
Finance lease cost:
Amortization of right-of-use assets		101
Interest expense on lease liabilities		9
Sublease income		(1,358	)
Total lease cost	$	609

Supplemental cash flow information related to operating leases for the six months ended June 30, 2022 were as follow (in thousands):


Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases			1,791
Operating cash flows from finance leases			9
Financing cash flows from finance leases			104

Future minimum lease payments under the Company’s noncancelable leases as of June 30, 2022 were as follows (in thousands):


	Operating Leases			Finance Leases
2022 (excluding the six months ended June 30, 2022)	$	1,825		$	113
2023		3,705			19
2024		3,796			—
2025		3,889			—
2026		3,984			—
2027		1,350			—
Total lease payments		18,549			132
Present value adjustment		(3,299	)		(5	)
Present value of lease payments	$	15,250		$	127

As of June 30, 2022, the Company’s operating leases had a weighted-average remaining lease term of 4.8 years and weighted average incremental borrowing rate of 8.7%. As of June 30, 2022, the Company’s finance lease had a weighted average remaining lease term of 0.6 years and weighted average incremental borrowing rate of 10.0%.

7. Commitments and Contingencies

License Agreements

The Company is a party to a number of license agreements related to certain patent rights used in developing its product candidates. Under such license agreements, the Company paid nominal upfront fees and is obligated to pay certain nominal annual license maintenance fees. The Company is also obligated to make certain payments based on specified clinical and regulatory milestones and royalty payments based on sales volume and milestones. The Company may terminate these agreements by providing prior written notice to the respective counterparty. All payments made have been expensed as research and development expenses in the condensed consolidated statements of operations and comprehensive (loss) income. The condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 do not include liabilities with respect to these license agreements as the Company has not yet generated revenue and the achievement of the milestones is not probable.

Indemnification Agreements

The Company enters into standard indemnification agreements and/or indemnification sections in other agreements in the ordinary course of business. Pursuant to the agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of

future payments the Company could be required to make under these indemnification agreements and/or sections is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements and/or sections. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it had not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of June 30, 2022 or December 31, 2021.

Legal Proceedings

From time to time, the Company may become party to litigation or other legal proceedings as part of its ordinary course of business. As of June 30, 2022, the Company was not party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of losses is probable and reasonably estimable under the provisions of FASB ASC Topic 450, Contingencies.

8. Stockholders’ Equity

As of June 30, 2022 and December 31, 2021, the Company’s Certificate of Incorporation authorized the Company to issue 200,000,000 shares of common stock, $0.001 par value per share and 5,000,000 shares of undesignated preferred stock, $0.001 par value per share.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. The holders of shares of common stock are not entitled to receive dividends, unless declared by the Company’s board of directors. No dividends have been declared or paid by the Company since its inception.

Common Stock Reserved

The Company had the following shares of common stock reserved for future issuance:


	June 30, 2022		December 31, 2021
Shares reserved for exercise of outstanding stock options under the 2015 Stock Incentive Plan		2,479,762		2,540,963
Shares reserved for exercise of outstanding stock options under the 2021 Stock Incentive Plan		1,346,313		496,500
Shares reserved for vesting of restricted stock units granted under the 2021 Stock Incentive Plan		307,076		—
Shares reserved for future awards under the 2021 Stock Incentive Plan		1,124,002		1,221,593
Shares reserved for issuance under the 2021 Employee Stock Purchase Plan		815,556		566,037
Total shares of common stock reserved		6,072,709		4,825,093

9. Convertible Preferred Stock

Immediately prior to the closing of its IPO, the Company had an aggregate of 155,398,078 shares of convertible preferred stock issued and outstanding which automatically converted into 16,662,011 shares of common stock upon the closing of its IPO. During the six months ended June 30, 2021, in the period prior to the Company’s IPO, $2.3 million of cumulative dividends were accrued and unpaid on the Company’s convertible preferred stock. In connection with the completion of the Company’s IPO and the conversion of the outstanding convertible preferred stock into common stock, the $2.3 million of accrued and unpaid dividends were eliminated. Subsequent to the closing of the Company’s IPO, no shares of convertible preferred stock were issued or outstanding, and no dividends were accrued.

10. Stock-Based Compensation

2015 Stock Incentive Plan

Prior to the pricing of the Company’s IPO on February 11, 2021, the Company granted equity awards to eligible employees, officers, directors, consultants and advisors under the 2015 Stock Incentive Plan (the “2015 Plan”). Subsequent to the pricing of the Company’s IPO, no further awards can be made under the 2015 Plan; however, awards outstanding under the 2015 Plan continue to be governed by the 2015 Plan.

2021 Stock Incentive Plan

In connection with its IPO, the Company adopted the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective on February 11, 2021. As of December 31, 2021, there were 1,718,093 shares of common stock authorized for issuance under the 2021 Plan. On January 1, 2022, the number of shares of common stock authorized for issuance under the 2021 Plan automatically increased by 998,079 shares. As of June 30, 2022, 1,653,389 shares were reserved for outstanding awards granted under the 2021 Plan and 1,124,002 shares remained available for issuance.

2021 Employee Stock Purchase Plan

As of December 31, 2021, there were 566,037 shares of common stock authorized for issuance under the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). Under the 2021 ESPP, eligible employees are able to purchase shares of common stock at a specified discount. On January 1, 2022, the number of shares of common stock authorized for issuance under the 2021 ESPP automatically increased by 249,519 shares. As of June 30, 2022, no shares have been issued under the 2021 ESPP and as such, 815,556 shares remained available for issuance under the 2021 ESPP.

Restricted Stock Awards

A summary of the Company’s restricted stock activity and related information is as follows:


	Number of Shares of Restricted Stock Awards			Weighted Average Grant Date Fair Value
Unvested as of December 31, 2021		12,537		$	24.79
Vested		(7,865	)		24.12
Canceled/Forfeited		(18	)		15.37
Unvested as of June 30, 2022		4,654		$	25.97

The aggregate fair value of restricted stock awards that vested during the six months ended June 30, 2022 and 2021 was less than $0.1 million and $0.2 million, respectively. As of June 30, 2022, total unrecognized compensation cost related to unvested restricted stock awards was approximately $0.1 million, which is expected to be recognized over a weighted-average period of 0.3 years.

Restricted Stock Units

A summary of the Company’s restricted stock unit activity and related information is as follows:


	Number of Restricted Stock Units			Weighted Average Grant Date Fair Value
Unvested as of December 31, 2021		—		$	—
Granted		313,185			3.50
Vested		—			—
Canceled/Forfeited		(6,109	)		3.50
Unvested as of June 30, 2022		307,076		$	3.50

The Company has granted restricted stock units (“RSUs”) to certain of its employees under the 2021 Plan, as part of its equity compensation program. Pursuant to the terms of the applicable award agreements, each RSU represents the right to receive one share of the Company’s common stock. All restricted stock units outstanding as of June 30, 2022 will vest, if at all, upon the achievement of specified development milestones associated with the Company’s DB-OTO program, provided the applicable employee remains continuously employed with the Company on the vesting date. Upon vesting, shares of the Company’s common stock will be delivered to the employee, subject to the payment of applicable withholding taxes. As of June 30, 2022, total unrecognized compensation cost related to the unvested restricted stock units was approximately $1.1 million, which will not be recognized until it becomes probable that the performance conditions will be met.

Stock Options

A summary of the Company’s stock option activity and related information is as follows:


	Number of Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(In years)		(In thousands)
Outstanding as of December 31, 2021		3,037,463		$	5.34		8.9	$	629
Granted		920,000			3.36
Exercised		—			—
Cancelled/forfeited		(131,388	)		7.62
Outstanding as of June 30, 2022		3,826,075		$	4.78		8.8	$	767
Exercisable as of June 30, 2022		1,428,394		$	5.06		8.4	$	4
Vested and expected to vest as of June 30, 2022		3,826,075		$	4.78		8.8	$	767

As of June 30, 2022, total unrecognized compensation cost related to unvested stock options was approximately $8.3 million, which is expected to be recognized over a weighted-average period of 2.7 years. The weighted-average grant-date fair value per share of stock options granted during the six months ended June 30, 2022 and 2021 was $2.51 and $9.83, respectively.

Stock-Based Compensation Expense

The following table presents the components and classification of stock-based compensation expense (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	390	$	312	$	774	$	583
General and administrative		456		452		913		827
Total stock-based compensation expense	$	846	$	764	$	1,687	$	1,410

11. Net Loss per Share

The following table sets forth the outstanding shares of common stock equivalents, presented based on amounts outstanding at each period end, that were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have been anti-dilutive:


	Three and Six Months Ended June 30,
	2022		2021
Outstanding stock options		3,826,075		2,933,393
Unvested restricted stock units		307,076		—
Unvested restricted stock awards		4,654		29,517
		4,137,805		2,962,910

12. License and Collaboration Agreement with Regeneron

Agreement Overview

In November 2017, the Company entered into the Regeneron Agreement with Regeneron under which Regeneron made an upfront, nonrefundable $25.0 million payment to the Company. The parties were to undertake specified activities with respect to the discovery or development of new potential therapies directed to a set of defined collaboration targets. Each party was responsible for its own respective costs and agreed to use commercially reasonable efforts to complete the activities as designated in the agreed-upon research plan. The Company was primarily responsible for the direction and conduct of the research program whereas Regeneron was primarily responsible for the contribution of various technologies and expertise of its own as well as contribution of employees and research services.

In October 2020, the parties amended the Regeneron Agreement pursuant to which, among other things, ATOH1, the target of the DB-ATO program, was removed as a collaboration target and the terms and plans for the DB-OTO and AAV.103 programs were modified. The primary responsibilities of each party remained consistent with those prior to the amendment. In connection with the amendment, the Company issued 10,000,000 shares of Series C convertible preferred stock to Regeneron in consideration for its entry into the amendment. Pursuant to the amendment, Regeneron agreed to pay the Company $0.3 million to fund the Company’s ongoing research plan and $0.5 million to help secure the services of a contract development and manufacturing organization. The $0.5 million payment was creditable against the milestone associated with the initiation of manufacturing to support Good Laboratory Practices toxicology studies of DB-OTO. Additionally, Regeneron agreed to reimburse the Company for up to $10.5 million of third-party costs related to investigational new drug (“IND”) enabling studies for DB-OTO as such costs are incurred. The Company achieved its first pre-IND milestone of $4.4 million and its second pre-IND milestone of $1.1 million in November 2020 and October 2021, respectively.

In November 2021, Regeneron elected to extend the research term of the collaboration. The research term was extended to November 15, 2023 and Regeneron is obligated to pay the Company an extension fee of $10.0 million in the fourth quarter of 2022. As of June 30, 2022 and December 31, 2021, the Company had unbilled receivables of $10.0 million and $11.4 million, respectively, due from Regeneron. Through June 30, 2022, the Company had received an aggregate of $5.5 million in milestone payments from Regeneron pursuant to the collaboration. As of June 30, 2022, the next milestone that the Company was eligible to receive was in relation to the initiation of manufacturing for its AAV.103 program, or the initiation of a Phase 1 clinical trial of DB-OTO.

Accounting Analysis

The Company accounts for its collaboration with Regeneron in accordance with FASB ASC Topic ASC 808, Collaborative Arrangements, and applies FASB ASC Topic 606, Revenue from Contracts with Customers, by analogy to determine the measurement and recognition of the consideration received from Regeneron. All research activities under the collaboration are considered a single performance obligation. The transaction price of $46.9 million consists of (i) $25.0 million received upfront, (ii) $0.3 million received to fund the ongoing research plan, (iii) $5.5 million of aggregate milestones achieved, (iv) $10.5 million in reimbursements for third-party costs related to IND-enabling studies for DB-OTO, and (v) $10.0 million as consideration for Regeneron’s election to extend the research term, partially offset by the fair value of the Series C convertible preferred stock issued to Regeneron of approximately $4.4 million. Future milestones are considered variable consideration and are fully constrained until such time as achievement is considered probable. The Company satisfies its performance obligation over time and measures progress towards completion using an input method based on costs incurred.

There are significant judgments and estimates inherent in the determination of the costs to be incurred for the research and development activities related to the collaboration with Regeneron. These estimates and assumptions include a number of objective

and subjective factors, including the likelihood that a target will be successfully developed through its IND filing and the estimated costs associated with such development, including the potential third-party costs related to each target’s IND-enabling study.

The Company concluded the consideration received from Regeneron represents reimbursements of the Company’s cost incurred and should therefore be accounted for as contra-research and development in the Company’s condensed consolidated statements of operations and comprehensive (loss) income. Deferred collaboration liability is classified in the condensed consolidated balance sheets based on the expected timing of when the costs will be recognized in the future.

The Company recognized $2.2 million and $3.8 million as contra-research and development expenses for the three months ended June 30, 2022 and 2021, respectively. The Company recognized $5.2 million and $5.7 million as contra-research and development expenses for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, there was deferred collaboration liability classified in current liabilities of $9.1 million and $8.1 million, respectively, and classified in long-term liabilities of $10.2 million and $16.4 million, respectively. As of June 30, 2022 and December 31, 2021, the Company had $10.0 million and $11.4 million of unbilled accounts receivable due from Regeneron, respectively, which are classified in accounts receivable from related party.

13. Related Party Transactions

As of June 30, 2022, Regeneron held 2,097,314 shares of common stock. During the three months ended June 30, 2022 and 2021, the Company recognized $2.2 million and $3.8 million as contra-research and development expense, respectively, in its condensed consolidated statements of operations and comprehensive (loss) income based on its progress towards completion of its research activities under the research plan for the Company’s collaboration with Regeneron. During the six months ended June 30, 2022 and 2021, the Company recognized $5.2 million and $5.7 million as contra-research and development expense, respectively, in its condensed consolidated statements of operations and comprehensive (loss) income based on its progress towards completion of its research activities under the research plan for the Company’s collaboration with Regeneron. As of June 30, 2022 and December 31, 2021, the Company had $10.0 million and $11.4 million, respectively, of unbilled accounts receivable due from Regeneron. As of June 30, 2022 and December 31, 2021, the Company did not have any amounts due to Regeneron.

For the three months ended June 30, 2022 and 2021, the Company recorded no expenses and $0.1 million of expenses, respectively, relating to consulting services provided by an entity affiliated with a stockholder of the Company and a member of the Company’s board of directors. For the six months ended June 30, 2022 and 2021, the Company recorded no expenses and $0.2 million of expenses, respectively, relating to consulting services provided by an entity affiliated with a shareholder of the Company and a member of the Company’s board of directors. The Company terminated this arrangement effective December 31, 2021. As of June 30, 2022, the Company had no further amounts due to this entity. As of December 31, 2021, the Company had $0.1 million due to this entity, which was subsequently paid during the three months ended March 31, 2022.

14. Tax Provision

The Company’s income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items arising during that interim period. The Company’s effective tax rate differs from the U.S. statutory tax rate primarily due to the recording of a tax expense related to its Australian subsidiary. The Company continues to maintain a full valuation allowance for its U.S. federal and state deferred tax assets. The Company’s effective tax rate for the three and six months ended June 30, 2022 was (0.42%) and (0.37%), respectively. During the three and six months ended June 30, 2022, the Company recorded an income tax expense of an insignificant amount and $0.1 million, respectively. There was no income tax expense for the three and six months ended June 30, 2021.

The Company recognized in prior periods a reserve related to an uncertain tax position. For the three and six months ended June 30, 2022 the Company recorded an insignificant amount of interest expense as a component of income tax expense related to this uncertain tax position.

Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. The Company’s income tax provision may be significantly affected by changes to its estimates.

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 our condensed consolidated financial statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our audited financial statements and related notes for the year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 18, 2022, which we refer to as the 2021 Annual Report on Form 10-K. Some of the information contained in this discussion and analysis 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. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements and Industry Data” of this Quarterly Report.

Overview

We are a clinical-stage biotechnology company dedicated to discovering and developing transformative treatments for hearing and balance disorders, one of the largest areas of unmet need in medicine. We aim to restore and improve hearing and balance through the restoration and regeneration of functional hair cells and non-sensory support cells within the inner ear. We have built a proprietary platform that integrates single-cell genomics and bioinformatics analyses, precision gene therapy technologies and our expertise in inner ear biology. We are leveraging our platform to advance our pipeline of preclinical gene therapy programs that are designed to selectively replace genes for the treatment of congenital, monogenic hearing loss and to regenerate inner ear hair cells for the treatment of acquired hearing and balance disorders. We are developing our lead gene therapy product candidate, DB-OTO, to provide hearing to individuals born with profound hearing loss due to mutation of the otoferlin, or OTOF, gene. In addition to DB-OTO, we are advancing AAV.103 to restore hearing in individuals with mutations in the gap junction beta-2, or GJB2, gene and AAV.104 to restore hearing in individuals with mutations in the stereocilin, or STRC, gene. We also have additional gene therapy programs to convert supporting cells, the cells adjacent to hair cells, into either cochlear or vestibular hair cells in order to restore hearing or balance function. In addition to our gene therapy programs, we are developing DB-020 for the prevention of cisplatin-induced hearing loss, which we are currently evaluating in patients in a Phase 1b clinical trial.

We are developing our lead gene therapy product candidate, DB-OTO, to provide hearing to individuals born with profound hearing loss due to an OTOF deficiency. OTOF is a protein expressed in the inner hair cells of the cochlea that enables communication between sensory cells of the inner ear and the auditory nerve by regulating synaptic transmission. We have designed DB-OTO utilizing a proprietary, cell-selective promoter to provide expression of OTOF that is limited to hair cells. In our preclinical studies, the hair cell-selective expression of OTOF provided by DB-OTO enabled restoration of hearing in mice that was more durable than when OTOF was expressed under the control of a ubiquitous promoter, which is designed to drive expression in all cells. In addition to the loss of durability, we observed that use of a ubiquitous promoter in mice resulted in the loss of inner hair cells throughout the cochlea. DB-OTO is an adeno-associated virus, or AAV, based gene therapy intended to be delivered to patients using the surgical approach employed by neurotologists and pediatric otolaryngologists during a standard cochlear implantation procedure. We believe the cell-selective expression of DB-OTO and its delivery by this established surgical procedure will provide a core competitive advantage important to the success of DB-OTO. Based on feedback from the U.S. Food and Drug Administration, or FDA, we are currently conducting preclinical studies of DB-OTO to support our planned submission of an investigational new drug application, or IND, to the FDA. We have also completed scientific advice meetings with multiple European regulatory authorities to support our planned submission of a clinical trial application, or CTA, within Europe. We plan to submit an IND and/or CTA in the second half of 2022. We have commenced trial site startup activities, and subject to clearance of our IND or CTA, we expect to initiate a Phase 1/2 clinical trial of DB-OTO in the first half of 2023. The FDA has granted orphan drug designation and rare pediatric disease designation for DB-OTO for the treatment of OTOF-related, congenital hearing loss. In addition to DB-OTO, we are advancing AAV.103 and AAV.104, gene therapy programs targeting hearing loss resulting from other single gene mutations, or monogenic forms of hearing loss. AAV.103 aims to restore hearing in individuals with mutations in the GJB2 gene and AAV.104 aims to restore hearing in individuals with mutations in the STRC gene. We anticipate that we will identify a product candidate for our AAV.103 program in 2022.

We are also using our platform to design and develop a pipeline of gene therapies for hair cell regeneration within the inner ear. We are engineering gene therapies to convert supporting cells, the cells adjacent to hair cells, into either cochlear or vestibular hair cells in order to restore hearing or balance function. These gene therapy programs are designed to express the developmental or reprogramming factors that regulate cell fate and use our proprietary, cell-selective promoters to control expression spatially and temporally. Our DB-ATO and AAV.201 gene therapy programs aim to restore balance by promoting regeneration of hair cells in the vestibular system, the sensory system responsible for balance. In these programs, we are focused on the development of a treatment for bilateral vestibulopathy, or BVP, a debilitating, acquired condition that significantly impairs balance, mobility and stability of vision. DB-ATO is an AAV-based gene therapy that utilizes a proprietary, supporting cell-selective promoter to express ATOH1, a transcription factor required for hair cell differentiation. We are also developing AAV.201, which combines ATOH1 with another

reprogramming factor to promote further differentiation of the regenerated cells. In addition, we are advancing our cochlear hair cell regeneration program to treat acquired hearing loss by regenerating cochlear outer hair cells. We plan to announce the targets for AAV.201 and our cochlear hair cell regeneration program in 2022.

In addition to our gene therapy product candidates and programs, we are developing a clinical-stage product candidate, DB-020, for the prevention of cisplatin-induced hearing loss. DB-020 is a novel formulation of sodium thiosulfate, or STS, that we have optimized for local delivery to the ear. STS inactivates cisplatin, a widely used chemotherapy that often leads to hearing loss and related complications in patients being treated for cancer. We are developing DB-020 to prevent cisplatin-induced hearing loss without impacting the beneficial, anti-tumor effect of cisplatin. In 2019, we completed a randomized, double-blind, placebo-controlled Phase 1 clinical trial of DB-020 in healthy volunteers, in which DB-020 was well tolerated. Following the Phase 1 clinical trial, we initiated a randomized, double-blind, placebo-controlled, multicenter Phase 1b clinical trial in 2020 to evaluate the safety and efficacy of DB-020 for the prevention of cisplatin-induced hearing loss. In June 2022, we reported topline data from an interim analysis of the ongoing Phase 1b clinical trial.

Patients enrolled in the Phase 1b clinical trial were randomized to receive one of two doses of DB-020 in one ear while the contralateral ear received placebo, enabling each patient to serve as their own control. Patients were administered DB-020 and placebo up to three hours prior to each cisplatin infusion. Consistent with the results of the Phase 1 clinical trial, data from the interim analysis demonstrated that DB-020 was well tolerated, with mostly mild to moderate adverse events and no significant safety issues observed. In the data from the interim analysis, 88% of patients experienced ototoxicity in their placebo-treated ear, and of these patients, 87% were partially or completely protected from ototoxicity in their DB-020-treated ears. The interim analysis included data collected as of February 4, 2022 from 19 cisplatin-naïve cancer patients being treated with high doses of cisplatin every 21 or 28 days. Of the 19 patients in the interim analysis, 17 patients had evaluable audiograms at baseline and after being dosed with DB-020 in one ear and placebo in the contralateral ear in conjunction with their prescribed infusion of cisplatin chemotherapy. Ototoxicity was defined according to the American Speech-Language-Hearing-Association criteria for significant ototoxic change.

We have ceased enrolling patients in the clinical trial in response to the positive interim analysis results from the first 19 patients enrolled. We are working with key opinion leaders to integrate learnings from the interim analysis into an updated clinical development plan and may consult with regulatory agencies as part of that planning. We are considering a range of potential approaches by which to advance DB-020, including entering into strategic collaborations for the further development and commercialization of DB-020. The FDA has granted fast track designation for DB-020 for the prevention of cisplatin-related ototoxicity.

Since inception, we have devoted substantially all of our resources on organizing and staffing, business planning, raising capital, establishing our intellectual property portfolio and performing research and development of our product candidates, programs and platform. On February 5, 2021, we issued and sold 15,870,209 shares of our Series D convertible preferred stock for $27.4 million of aggregate cash proceeds, net of issuance costs. On February 17, 2021, we completed an initial public offering, or IPO, of our common stock in which we issued and sold 7,062,000 shares of our common stock at a public offering price of $18.00 per share, and on February 24, 2021, we issued and sold an additional 600,000 shares of common stock pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, for aggregate net proceeds of $125.0 million. Upon the closing of our IPO, all of our outstanding shares of convertible preferred stock automatically converted into 16,662,011 shares of common stock. Subsequent to the closing of our IPO, there were no shares of preferred stock outstanding. To date, we have financed our operations primarily with proceeds from sales of our convertible preferred stock (including borrowings under convertible promissory notes, which converted into convertible preferred stock in 2015), payments under our license and collaboration agreement with Regeneron Pharmaceuticals, Inc., or Regeneron, and, most recently, from the sale of common stock in our IPO.

We have not generated any revenue from product sales, and do not expect to generate any revenue from product sales for at least the next several years. All of our programs are still in preclinical and early-stage clinical development. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. Since inception, we have incurred significant operating losses. Our net losses were $31.1 million for the six months ended June 30, 2022, and $51.8 million and $39.3 million for the years ended December 31, 2021 and 2020, respectively. As of June 30, 2022, we had an accumulated deficit of $245.6 million. We expect to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

•

submit an IND or CTA, and initiate a planned Phase 1/2 clinical trial of DB-OTO for the treatment of profound hearing loss due to mutation of the OTOF gene;

•

continue our current research programs and our preclinical development of DB-OTO, AAV.103, AAV.104, AAV.201, DB-ATO and any product candidates that may arise from our current or future research programs;

•

continue our clinical development of DB-020, including our ongoing Phase 1b clinical trial;

•

advance additional product candidates into preclinical and clinical development;

•

expand the capabilities of and invest in our platform;

•

seek marketing approvals for any product candidates that successfully complete clinical trials;

•

ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

•

expand, maintain and protect our intellectual property portfolio;

•

hire additional clinical, research, development, scientific, regulatory, and quality control personnel;

•

establish and maintain agreements with manufacturers for our product candidates; and

•

add operational, legal, compliance, financial and management information systems and personnel, including personnel to support our research, product development and future commercialization efforts and support our operations as a public company.

In addition, as we progress toward marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.

As a result, we will need substantial additional funding to support our continuing operations and pursue our strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and other sources of capital, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into other collaborations, strategic alliances or licensing arrangements with third parties when needed or on favorable terms, or at all. If we are unable to raise additional funds through equity or debt financings or enter into such other agreements when needed, we may have to significantly delay, reduce or eliminate some or all of our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of June 30, 2022, we had cash, cash equivalents and available-for-sale securities of $125.6 million. We believe that our cash, cash equivalents and available-for-sale securities as of June 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements into 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we anticipate.

Impact of COVID-19 on Our Business

The worldwide COVID-19 pandemic has affected and may affect in the future our ability to initiate and complete preclinical studies, delay the initiation and completion of our current and planned clinical trials, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects. In addition, the pandemic has caused substantial disruption to global supply chains and may adversely impact economies worldwide, both of which could adversely affect our business, operations and ability to raise funds to support our operations.

We are following, and plan to continue to follow recommendations from federal, state and local governments regarding workplace policies, practices and procedures. In response to the COVID-19 pandemic and in accordance with direction from state and local governmental authorities, we previously restricted access to our facility to those individuals who must perform critical research, translational medicine and laboratory support activities that must be completed on site, limited the number of such people that can be present at our facility at any one time, and required that most of our employees work remotely. In February 2022 we re-opened our facility to all of our employees. Screening and enrollment in our Phase 1b clinical trial of DB-020 in Australia and the United States had been adversely impacted by the COVID-19 pandemic. Patient screening and enrollment were paused in the second quarter of 2020 in both Australia and the United States, and screening for enrollment did not resume until early in the third quarter of 2020 in Australia and early in the fourth quarter of 2020 in the United States. We have also experienced delays in site start-up and the withdrawal of some sites in the United States. In addition, we and the third-party manufacturers, contract research organizations, or CROs, and academic collaborators that we engage have faced in the past and may face in the future disruptions that could affect our ability to initiate and complete preclinical studies or clinical trials. This includes disruptions in procuring items and providing adequate resources that are essential for our research and development activities, such as, for example, raw materials used in the manufacture of our product candidates, laboratory supplies for our preclinical studies and clinical trials, or animals that are used for

preclinical testing, in each case, for which there may be shortages because of ongoing efforts to address the COVID-19 pandemic, including supply chain disruptions. Due to recent increased quarantine mandates in China, the receipt of shipments and data from some of our vendors had been more difficult and unpredictable. This caused some delays in preclinical studies for our gene therapy programs. The quarantine mandates have been largely resolved as of June 2022. We have been working with our CROs to assess the impact of the increased mandates on our activities, and contingency planning is on-going.

We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business. The extent of the impact of COVID-19 on our business will depend on the length and severity of the pandemic, including the extent there is any resurgence of the COVID-19 virus or any variant strains of the virus, the availability and effectiveness of vaccines and the impact of the foregoing on our preclinical studies, current and planned clinical trials, employees and vendors, which is uncertain and cannot be predicted. The pandemic has the potential to adversely affect our business, financial condition, results of operations and prospects.

License and Collaboration Agreement with Regeneron

In November 2017, we entered into a license and collaboration agreement with Regeneron, or the Regeneron Agreement. The Regeneron Agreement had an original research term of five years and granted Regeneron the right to extend the research term for up to two years in one-year intervals. In November 2021, Regeneron exercised its right to extend the research term and extended the research term by one year to November 2023. The Regeneron Agreement is focused on the discovery and development of new potential therapies directed to a set of defined collaboration targets. We are currently developing DB-OTO, AAV.103 and AAV.104 in collaboration with Regeneron under the Regeneron Agreement. In October 2020, we entered into an amendment to the Regeneron Agreement pursuant to which, among other things, ATOH1, the target of our DB-ATO program, was removed as a collaboration target and the terms and plans for the DB-OTO and AAV.103 programs were modified. We issued 10,000,000 shares of our Series C convertible preferred stock to Regeneron in consideration for its entry into the amendment.

Pursuant to the Regeneron Agreement, Regeneron paid us an upfront fee of $25.0 million and purchased 12,500,000 shares of our Series B convertible preferred stock at a price per share of $2.00. Regeneron is provided two options to extend the research term for a one-year period each and is obligated to pay us $10.0 million for each extension. The first option to extend the research term was exercised by Regeneron in November 2021. The $10.0 million fee is payable in the fourth quarter of 2022. On a collaboration-product-by-collaboration-product basis, upon achievement of pre-defined milestones which began at initiation of manufacturing to support Good Laboratory Practices, or GLP, toxicology studies and conclude at initiation of a Phase 2 clinical trial, Regeneron is obligated to pay us milestone payments of up to $35.5 million in aggregate if the collaboration product is a biologic or up to $33.5 million in aggregate if the collaboration product is a small molecule, which is intended to reflect approximately half of the total cost needed to achieve the next milestone. From and after the initiation of a registration-enabling trial, unless Regeneron decides to opt-out, we have agreed to split development and regulatory costs with Regeneron on an equal basis through the registration-enabling trials. Through June 30, 2022, we had received an aggregate of $5.5 million in milestone payments from Regeneron pursuant to the collaboration.

Under the Regeneron Agreement, we are required to pay Regeneron tiered royalties on the worldwide net sales of collaboration products at percentages which range from mid-single digit to mid-thirties, with the exact royalty rate depending on the extent to which Regeneron shared in the funding of the collaboration product, the level of net sales of the collaboration product, the nature of any intellectual property contributed by Regeneron included in the collaboration product and whether the product is sold inside or outside the field. In the case of collaboration products for which Regeneron does not opt-out, our obligation to pay tiered royalties on the worldwide net sales ranges from percentages in the mid-twenties to mid-thirties. In the case of collaboration products for which Regeneron opts-out, our obligation to pay tiered royalties on the worldwide net sales ranges from percentages in the mid-single digits to mid-twenties. Our obligation to make royalty payments to Regeneron on account of worldwide net sales of collaboration products continues so long as we, our affiliates, licensees or sublicensees sell collaboration products. To date, we have not made any royalty or other payments to Regeneron under the Regeneron Agreement.

Pursuant to the amendment to the Regeneron Agreement, Regeneron agreed to pay us $0.3 million to fund our ongoing research program and $0.5 million to help secure the services of a contract development and manufacturing organization, or CDMO. The $0.5 million payment was creditable against the milestone associated with the initiation of manufacturing to support GLP toxicology studies of DB-OTO. Additionally, Regeneron agreed to reimburse us for up to $10.5 million of third-party costs related to the GLP toxicology studies of DB-OTO as such costs are incurred, and we agreed that the aggregate potential milestone payments for DB-OTO would be reduced by $15.0 million. In addition, notwithstanding its removal from the collaboration, for DB-ATO, we agreed to pay to Regeneron a royalty calculated as a low-to mid-single digit percentage of net sales of DB-ATO, on a country-by-country basis, until the latest of the expiration of the last patent covering DB-ATO in such country, the expiration of all applicable regulatory exclusivities for DB-ATO in such country and the tenth anniversary of the first commercial sale of DB-ATO in such country.

As of June 30, 2022, we had unbilled receivables of $10.0 million due from Regeneron, relating to Regeneron exercising its right to extend the research term by one year to November 2023.

Because we consider Regeneron a collaborative partner that is subject to the significant risks and rewards under the Regeneron Agreement, we have accounted for the Regeneron Agreement under FASB ASC Topic 808, Collaborative Arrangements, or ASC 808. Under ASC 808, we view all consideration received from Regeneron as reimbursement of our costs under the Regeneron Agreement. These costs are accounted for as research and development expenses in our condensed consolidated statements of operations and comprehensive (loss) income. As such, we are recognizing total consideration of $46.9 million, comprised of the $25.0 million upfront payment, the additional payment of $0.3 million received from Regeneron pursuant to the amendment, the reimbursement of $10.5 million of third-party costs related to the GLP toxicology studies of DB-OTO, the $5.5 million of cumulative milestone payments received, and the $10.0 million extension payment due in the fourth quarter of 2022, net of the $4.4 million in fair value of the Series C convertible preferred stock issued to Regeneron, over the research term as a reduction to research and development expenses (contra-research and development expense) in our condensed consolidated statements of operations and comprehensive (loss) income based on our progress toward completion of our research activities under the research plan. Any future milestone payments will be included in the measurement of contra-research and development expense if and when achieved. For the three months ended June 30, 2022 and 2021, we recognized contra-research and development expense of approximately $2.2 million and $3.8 million, respectively, related to consideration received from Regeneron. We recognized $5.2 million and $5.7 million as contra-research and development expenses during the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had unbilled receivables of $10.0 million due from Regeneron, relating to Regeneron exercising its right to extend the research term by one year to November 2023. As of June 30, 2022, we had deferred collaboration liabilities of $19.3 million on our condensed consolidated balance sheet, which consisted of $9.1 million classified as current deferred collaboration liabilities and $10.2 million classified as long-term collaboration liabilities. See Note 12 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report.

Financial Operations Overview

Revenue

We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products for at least the next several years. If our development efforts for our current or future product candidates are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from third-party collaborators or licensors.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities and development of our programs and product candidates. These expenses include:

•

personnel-related expenses, including salaries, benefits and stock-based compensation expense for employees engaged in research and development functions;

•

expenses incurred under agreements with third parties, such as consultants and investigative sites that conduct our preclinical studies and clinical trials and in-licensing arrangements;

•

costs incurred to maintain compliance with regulatory requirements;

•

costs incurred with third-party CDMOs to acquire, develop and manufacture materials for preclinical and clinical studies;

•

costs associated with our technology and our intellectual property portfolio;

•

expenses incurred for the procurement of materials, laboratory supplies and non-capital equipment used in the research and development process; and

•

depreciation, amortization and other direct and allocated expenses, including rent, insurance and other operating costs, incurred as a result of our research and development activities.

We use our employee and infrastructure resources for the advancement of our platform and for discovering and developing programs and product candidates. We track direct research and development costs, consisting primarily of external costs, such as fees paid to CDMOs, CROs, and consultants in connection with our preclinical studies, clinical trials and experiments by program after a development candidate has been identified. Due to the number of ongoing programs and our ability to use resources across several projects, personnel-related expenses and indirect or shared operating costs incurred for our research and development programs are not

recorded or maintained on a program-by-program basis, nor are our external program costs incurred for our programs prior to the identification of a development candidate for such program.

The following table sets forth our research and development expense, including direct program-specific expense summarized by program, personnel-related expenses and indirect or shared operating costs recognized during each period presented (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021			2022		2021
DB-OTO	$	6,023	$	4,960		$	10,194	$	7,998
DB-020		343		1,040			941		1,335
Personnel-related (including stock-based compensation)		3,519		2,443			6,751		4,546
Other indirect research and development expenses		1,356		(1,616	)		821		(1,032	)
Total research and development expenses	$	11,241	$	6,827		$	18,707	$	12,847

Consideration we receive under the Regeneron Agreement is being recognized as a reduction to research and development expense (contra-research and development expense) in our condensed consolidated statements of operations and comprehensive (loss) income based on our progress towards completion of our research activities under the research plan for the collaboration. For purposes of the table above, recognition of consideration received from Regeneron is included as a reduction of other indirect research and development expenses. For the three months ended June 30, 2022 and 2021, we recognized contra-research and development expense of approximately $2.2 million and $3.8 million, respectively, related to consideration received from Regeneron. For the six months ended June 30, 2022 and 2021, we recognized contra-research and development expense of approximately $5.2 million and $5.7 million, respectively, related to consideration received from Regeneron.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as we advance our programs and product candidates into and through the development phase, and as we continue to develop additional product candidates. We also expect our discovery research efforts and our related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with stock-based compensation, will increase above historical levels. In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may enter into license, acquisition and option agreements to acquire the rights to future product candidates.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates or programs. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:

•

the timing and progress of preclinical and clinical development activities;

•

the number and scope of preclinical and clinical programs we decide to pursue;

•

our ability to successfully complete clinical trials with safety, potency and purity profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

•

our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates;

•

our ability to hire and retain key research and development personnel;

•

our successful enrollment in and completion of clinical trials;

•

the costs associated with the development of any additional product candidates we develop or acquire through collaborations;

•

our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved;

•

the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder;

•

our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved;

•

our receipt of marketing approvals from applicable regulatory authorities;

•

our ability to commercialize products, if and when approved, whether alone or in collaboration with others;

•

the continued acceptable safety profiles of the product candidates following approval; and

•

the effects of the COVID-19 pandemic on our research and development employees, contractors and those who may participate in our studies.

A change in any of these variables with respect to the progress of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidate we may develop.

General and Administrative Expense

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for personnel in our executive, finance, legal, business development, human resources and administrative functions. General and administrative expenses also include legal fees relating to corporate matters and costs to secure and defend our intellectual property; professional fees for accounting, auditing, tax, human resources and administrative consulting services; insurance costs; administrative travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for office rent and other operating costs. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates. We also expect to continue to incur increased expenses associated with being a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs. We also expect to incur additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities.

Interest Income

Interest income consists of interest income earned from our cash, cash equivalents and available-for-sale securities.

Income Taxes

Since our inception, we have not recorded any U.S. federal, foreign, or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits as it is more likely-than-not that these benefits will not be realized. We have U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards to offset future taxable income. We have recognized a reserve for a foreign uncertain tax position and recorded a foreign tax provision.

Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates.

Results of Operations

Comparison of the three months ended June 30, 2022 and 2021

The following tables summarizes our results of operations for each period presented (in thousands):


	Three Months Ended June 30,
	2022			2021			Change
Operating expenses:
Research and development	$	11,241		$	6,827		$	4,414
General and administrative		5,862			4,899			963
Total operating expenses		17,103			11,726			5,377
Loss from operations		(17,103	)		(11,726	)		(5,377	)
Other income:
Interest income		95			75			20
Total other income, net		95			75			20
Net loss before provision for income taxes		(17,008	)		(11,651	)		(5,357	)
Provision for income taxes		(38	)		—			(38	)
Net loss	$	(17,046	)	$	(11,651	)	$	(5,395	)

Research and Development Expenses

The following tables summarizes our research and development expenses for each period presented (in thousands):


	Three Months Ended June 30,
	2022		2021			Change
DB-OTO	$	6,023	$	4,960		$	1,063
DB-020		343		1,040			(697	)
Personnel-related (including stock-based compensation)		3,519		2,443			1,076
Other indirect research and development expenses		1,356		(1,616	)		2,972
Total research and development expenses	$	11,241	$	6,827		$	4,414

Research and development expenses for the three months ended June 30, 2022 were $11.2 million, compared to $6.8 million for the three months ended June 30, 2021. The increase of $4.4 million was primarily attributable to the following:

•

$1.1 million increase in expenses incurred to advance our DB-OTO program, primarily attributable to an increase of $0.7 million in preparation for clinical trials and translational research costs, an increase of $0.6 million related to internal research support, as well as an increase of $1.0 million related to other outside discovery costs and in vivo pharmacology costs, partially offset by a $1.5 million decrease in expenses related to manufacturing costs;

•

$0.7 million decrease in expenses related to our DB-020 program, driven primarily by decreased clinical trial costs due to ceasing enrollment in our Phase 1b clinical trial of DB-020 during the three months ended June 30, 2022;

•

$1.1 million increase in personnel-related costs due to increased headcount and wages within the research and development function, as well as increased stock-based compensation expense; and

•

$3.0 million net increase in other indirect research and development expenses, driven primarily by a $1.2 million increase in expenses relating to internal research, discovery efforts, and translational research around various other preclinical programs, as well as a $1.6 million decrease in contra-research and development expenses under the Regeneron Agreement. Included as reductions to other indirect research and development expenses were $2.2 million and $3.8 million of contra-research and development expenses for the three months ended June 30, 2022 and 2021, respectively, recognized pursuant to the Regeneron Agreement.

General and Administrative Expense

General and administrative expenses for the three months ended June 30, 2022 were $5.9 million, compared to $4.9 million for the three months ended June 30, 2021. The increase of $1.0 million was primarily attributable to the following:

•

$0.5 million increase in professional fees, driven primarily by expenses related to external legal services, as well as consulting, accounting advisory and audit services; and

•

$0.4 million increase in personnel-related costs primarily due to an increase in headcount and wages within the general and administrative function, as well as increased stock-based compensation expense.

Interest Income

The increase in interest income in the three months ended June 30, 2022 primarily consisted of increased interest income from our investments in available-for-sale securities.

Provision for Income Taxes

The provision for income taxes in the three months ended June 30, 2022, was due to the recognition of an insignificant amount related to a foreign tax provision and interest expense related to a previously established foreign uncertain tax position.

Comparison of the six months ended June 30, 2022 and 2021

The following tables summarize our results of operations for each period presented (in thousands):


	Six Months Ended June 30,
	2022			2021			Change
Operating expenses:
Research and development	$	18,707		$	12,847		$	5,860
General and administrative		12,415			9,782			2,633
Total operating expenses		31,122			22,629			8,493
Loss from operations		(31,122	)		(22,629	)		(8,493	)
Other income:
Interest income		158			108			50
Total other income, net		158			108			50
Net loss before provision for income taxes		(30,964	)		(22,521	)		(8,443	)
Provision for income taxes		(98	)		—			(98	)
Net loss	$	(31,062	)	$	(22,521	)	$	(8,541	)

Research and Development Expenses

The following tables summarize our research and development expenses for each period presented (in thousands):


	Six Months Ended June 30,
	2022		2021			Change
DB-OTO	$	10,194	$	7,998			2,196
DB-020		941		1,335			(394	)
Personnel-related (including stock-based compensation)		6,751		4,546			2,205
Other indirect research and development expenses		821		(1,032	)		1,853
Total research and development expenses	$	18,707	$	12,847		$	5,860

Research and development expenses for the six months ended June 30, 2022 were $18.7 million, compared to $12.8 million for the six months ended June 30, 2021. The increase of $5.9 million was primarily attributable to the following:

•

$2.2 million increase in expenses incurred to advance our DB-OTO program, primarily attributable to an increase of $1.3 million in preparation for clinical trials and translational research costs, as well as an increase of $0.8 million related to external support for research and development consultants;

•

$0.4 million decrease in expenses related to our DB-020 program, driven primarily by decreased clinical trial costs due to ceasing enrollment in our Phase 1b clinical trial of DB-020 during the six months ended June 30, 2022;

•

$2.2 million increase in personnel-related costs due to increased headcount and wages within the research and development function, as well as increased stock-based compensation expense; and

•

$1.9 million net increase in other indirect research and development expenses, driven primarily by a $1.1 million increase in expenses relating to internal research and discovery efforts around various other preclinical programs, as well as $0.5 million decrease in contra-research and development expenses under the Regeneron Agreement. Included as reductions to other indirect research and development expenses were $5.2 million and $5.7 million of contra-research and development

expenses for the six months ended June 30, 2022 and 2021, respectively, recognized pursuant to the Regeneron Agreement.

General and Administrative Expense

General and administrative expenses for the six months ended June 30, 2022 were $12.4 million, compared to $9.8 million for the six months ended June 30, 2021. The increase of $2.6 million was primarily attributable to the following:

•

$1.1 million increase in professional fees, driven primarily by expenses related to external legal services, as well as consulting, accounting advisory and audit services; and

•

$1.1 million increase in personnel-related costs primarily due to an increase in headcount and wages within the general and administrative function, as well as increased stock-based compensation expense.

Interest Income

The increase in interest income in the six months ended June 30, 2022 primarily consisted of increased interest income from our investments in available-for-sale securities.

Provision for Income Taxes

The provision for income taxes in the six months ended June 30, 2022, was due to the recognition of $0.1 million related to a foreign tax provision and interest expense related to a previously established foreign uncertain tax position.

Liquidity and Capital Resources

Sources of Liquidity and Capital

Since our inception, we have incurred significant operating losses and negative cash flows from operations. We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. Through June 30, 2022, we funded our operations primarily from net proceeds of $219.5 million from the issuance and sale of our convertible preferred stock, $41.3 million from the Regeneron Agreement and $125.0 million from the issuance and sale of our common stock in our IPO.

In March 2022, we filed a universal shelf registration on Form S-3 to register for sale from time to time up to $200.0 million of common stock, preferred stock, debt securities, warrants and/or units in one or more offerings. Further, in March 2022, we entered into an Open Market Sale AgreementSM, or the Sales Agreement, with Jefferies LLC, or Jefferies, pursuant to which, from time to time, we may offer and sell shares of our common stock having an aggregate offering price of up to $20.0 million. Sales of common stock through Jefferies may be made by any method that is deemed an “at-the-market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. Jefferies is entitled to compensation at a rate equal to 3.0% of the gross proceeds from any shares of common stock sold under the Sales Agreement. As of June 30, 2022, we had not sold any shares of common stock pursuant to the Sales Agreement.

Cash Flows

The following table provides information regarding our cash flows for each period presented (in thousands):


	Six Months Ended June 30,
	2022			2021
Net cash provided by (used in):
Operating activities	$	(35,415	)	$	(21,955	)
Investing activities		55,447			(120,753	)
Financing activities		(104	)		152,308
Net increase in cash, cash equivalents and restricted cash	$	19,928		$	9,600

Operating Activities

Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we invested in developing our pipeline, platform, drug discovery efforts and related infrastructure. The cash used in operating activities resulted

primarily from our net losses adjusted for non-cash charges, which are generally attributable to stock-based compensation, depreciation and amortization and accretion of discounts on available-for-sale securities, as well as changes in components of operating assets and liabilities, which are generally attributable to increased expenses, timing of vendor payments and performance under the Regeneron Agreement.

During the six months ended June 30, 2022, net cash used in operating activities of $35.4 million was primarily due to our net loss of $31.1 million as well as changes in operating assets and liabilities of $8.1 million, partially offset by net non-cash expenses of $3.8 million.

During the six months ended June 30, 2021, net cash used in operating activities of $22.0 million was primarily due to our net loss of $22.5 million and changes in operating assets and liabilities of $2.0 million, partially offset by net non-cash expenses of $2.5 million.

Investing Activities

During the six months ended June 30, 2022, net cash provided by investing activities of $55.4 million was primarily due to maturities and redemptions of available for sale securities of $94.9 million, partially offset by purchases of available-for-sale securities of $39.3 million and purchases of property and equipment of $0.2 million.

During the six months ended June 30, 2021, net cash used in investing activities of $120.8 million was primarily due to purchases of available-for-sale securities of $147.2 million and purchases of property and equipment of $0.1 million, partially offset by maturities of available-for-sale securities of $26.5 million.

Financing Activities

During the six months ended June 30, 2022, net cash used in financing activities of $0.1 million consisted of principal payments on our finance lease liability.

During the six months ended June 30, 2021, net cash provided by financing activities of $152.3 million consisted primarily of proceeds from the issuance and sale of common stock, net of cash paid for offering costs, in connection with our IPO of $125.0 million and proceeds from the issuance and sale of our Series D convertible preferred stock of $27.4 million, net of cash paid for offering costs.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. In addition, we expect to continue to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.

As of June 30, 2022, we had cash, cash equivalents and available-for-sale securities of $125.6 million. We believe that our cash, cash equivalents and available-for-sale securities will enable us to fund our operating expenses and capital expenditure requirements into 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we anticipate.

Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to:

•

the progress, costs and results of our ongoing preclinical development, our planned Phase 1/2 clinical trial of DB-OTO and any future clinical development of DB-OTO;

•

the approach we determine for the advancement of DB-020, including further potential clinical development;

•

the scope, progress, costs and results of preclinical and clinical development for our other product candidates and programs, including AAV.103, AAV.104, AAV.201 and DB-ATO;

•

the number of, and development requirements for, other product candidates that we may identify and develop;

•

the scope, costs, timing and outcome of regulatory review of our product candidates;

•

the cost and timing of completion of commercial-scale manufacturing activities;

•

the success of our collaboration with Regeneron;

•

the payment or receipt of milestones and of other collaboration-based revenues, if any;

•

our ability to establish and maintain additional strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;

•

the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

•

the amount and timing of revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

•

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims;

•

the extent to which we may acquire or in-license other products, product candidates and technologies;

•

the impacts of the COVID-19 pandemic;

•

the ability to receive additional non-dilutive funding, including grants from organizations and foundations; and

•

the costs of operating as a public company.

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.

Our expectation with respect to our ability to fund current planned operations is based on estimates that are subject to risks and uncertainties. Our operating plan may change as a result of many factors currently unknown to management and there can be no assurance that the current operating plan will be achieved in the time frame anticipated by us, and we may need to seek additional funds sooner than planned.

Adequate additional funds may not be available to us on acceptable terms, or at all. We do not have any committed external source of funds, other than amounts we are entitled to under the Regeneron Agreement. As of June 30, 2022, we had $10.0 million of unbilled receivables from Regeneron, reflecting the amount owed for Regeneron’s one-year extension of the research term under the Regeneron Agreement. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute the ownership interests of holders of our common stock.

We may be unable to raise additional funds or enter into other collaborations, strategic alliances or licensing arrangements with third parties when needed on favorable terms, or at all. If we are unable to raise additional funds through equity or debt financings or enter into such agreements when needed, we may have to significantly delay, reduce or eliminate some or all of our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves or on terms that may not be favorable to us.

Material Cash Requirements

There have been no material changes to our material cash requirements described in our 2021 Annual Report on Form 10-K.

Critical Accounting Estimates and Significant Judgments

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results

of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting estimates from those described in our 2021 Annual Report on Form 10-K.

Emerging Growth Company and Smaller Reporting Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April 2012. As a result, we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. In particular, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (1) irrevocably elect to “opt out” of such extended transition period or (2) no longer qualify as an emerging growth company.

We are also a “smaller reporting company” as defined in Rule 12b-2 under the Securities and Exchange Act of 1934, as amended. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Recently Issued Accounting Pronouncements

We have reviewed all recently issued accounting pronouncements and have determined that, other than as disclosed in Note 2 to our consolidated financial statements included in our 2021 Annual Report on Form 10-K, such standards will not have a material impact on our financial statements or do not otherwise apply to our current operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Fluctuation Risk

We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our cash equivalents are invested in short-term U.S. Treasury obligations and our available-for-sale securities are invested in corporate obligations. However, because of the short-term nature of the instruments in our portfolio, an immediate change in market interest rates of 100 basis points would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.

Foreign Currency Fluctuation Risk

We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.

Inflation Fluctuation Risk

Inflation generally affects us by increasing our cost of labor. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the three and six months ended June 30, 2022 and 2021.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal

executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our management, with the participation of our chief executive officer and chief financial officer, who serve as our principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. Based on such evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently subject to any material legal proceedings.

Item 1A. Risk Factors.

Our business is subject to a number of risks. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the condensed consolidated financial statements and the related notes thereto in evaluating our company. The risks described below are not the only risks facing us. The occurrence of any of the following risks, or of additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could cause our business, prospects, results of operations and financial condition to suffer materially.

Risks Related to Our Financial Position and Need for Additional Capital

Since inception, we have incurred significant operating losses. Our net losses were $31.1 million for the six months ended June 30, 2022, and $51.8 million and $39.3 million for the years ended December 31, 2021 and 2020, respectively. As of June 30, 2022, we had an accumulated deficit of $245.6 million. To date, we have financed our operations primarily with proceeds from sales of preferred stock (including borrowings under convertible promissory notes, which converted into preferred stock in 2015), payments under the license and collaboration agreement, or the Regeneron Agreement, to which we are a party with Regeneron Pharmaceuticals, Inc., or Regeneron, and, most recently, from the sale of common stock in our initial public offering, or IPO. Since inception, we have devoted substantially all of our resources on organizing and staffing, business planning, raising capital, establishing our intellectual property portfolio and performing research and development of our product candidates, programs and platform. We are still in the early stages of development of our product candidates, and we have not completed development of any product candidates. We expect to continue to incur significant expenses and operating losses over the next several years. Our operating expenses and net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses and capital expenditures will increase substantially if and as we:

•

submit an investigational new drug application, or IND, or clinical trial application, or CTA, and initiate a planned Phase 1/2 clinical trial of our lead gene therapy product candidate, DB-OTO, for the treatment of profound hearing loss due to mutation of the otoferlin, or OTOF, gene;

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continue our clinical development of DB-020, including our ongoing Phase 1b clinical trial;

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advance additional product candidates into preclinical and clinical development;

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expand the capabilities of and invest in our platform;

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seek marketing approvals for any product candidates that successfully complete clinical trials;

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ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

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expand, maintain and protect our intellectual property portfolio;

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hire additional clinical, research, development, scientific, regulatory and quality control personnel;

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establish and maintain agreements with manufacturers for our product candidates; and

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In addition, our expenses will increase if, among other things:

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we are required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory authorities to perform trials or studies in addition to, or different than, those expected;

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there are any delays in completing our clinical trials or the development of any of our product candidates; or

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there are any third-party challenges to our intellectual property or we need to defend against any intellectual property-related claim.

We have no products for which we have obtained marketing approval and have not generated any revenue from product sales. Even if we obtain marketing approval of and are successful in commercializing one or more of our product candidates, we expect to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.

We have never generated revenue from product sales and may never achieve or maintain profitability.

We have never generated revenue from product sales and our most advanced product candidate is in early clinical trials. We expect that it will be many years, if ever, before we have a product candidate ready for commercialization. To become and remain profitable, we must succeed in developing, and eventually commercializing, a product or products that generate significant revenue. The ability to achieve this success will require us to be effective in a range of challenging activities, including completing preclinical testing and clinical trials of our product candidates, discovering additional product candidates, obtaining marketing approval for these product candidates and manufacturing, marketing and selling any products for which we may obtain marketing approval. We are only in the preliminary stages of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability. Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately estimate or know the nature, timing or costs of the efforts that will be necessary to complete the preclinical and clinical development and commercialization of our product candidates or when, or if, we will be able to generate revenues or achieve profitability.

Our ability to generate revenue from product sales and achieve profitability depends on our ability to successfully develop and obtain the marketing approvals necessary to commercialize our product candidates. We do not have any products approved for sale and do not anticipate generating revenue from product sales for the next several years, if ever. Our ability to generate future revenue from product sales depends heavily on our success in:

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completing preclinical and clinical development of our product candidates in a timely manner and identifying and developing new product candidates;

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seeking and obtaining marketing approvals for any of our product candidates;

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commercializing product candidates for which we obtain marketing approval by establishing a sales force, marketing, medical affairs and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

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achieving formulary status in hospitals and adequate coverage and reimbursement by government and third-party payors for our product candidates, if approved;

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establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate products and services, in both amount and quality, to support clinical development and the market demand for our product candidates, if approved;

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obtaining market acceptance of our product candidates, if approved, as viable treatment options;

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addressing any competing technological and market developments;

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negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations in such collaborations;

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maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how;

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defending against third-party interference or infringement claims, if any; and

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attracting, hiring and retaining qualified personnel.

Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs in commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, EMA or other regulatory agencies to perform clinical trials or studies in addition to those that we currently anticipate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis as we expect to continue to engage in substantial research and development activities and to incur substantial expenses to develop and commercialize product candidates.

Our failure to become and remain profitable would depress our market value and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product candidates or even continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.

Since inception, we have used substantial amounts of cash. The development of biopharmaceutical product candidates is capital intensive and we expect that we will continue to expend substantial resources for the foreseeable future in connection with our ongoing activities. In particular, substantial resources will be required as we continue to conduct additional preclinical studies and prepare for and initiate our planned Phase 1/2 clinical trial of DB-OTO, continue research and development of AAV.103, AAV.104, AAV.201, DB-ATO and any product candidates that may arise from our current or future research programs, advance our platform and if and as we continue the clinical development of DB-020. Identifying potential product candidates, conducting preclinical testing and clinical trials and potentially submitting approvals of our product candidates is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we have incurred and expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital or obtain adequate funds when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our research and development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We believe that our cash, cash equivalents and available-for-sale securities as of June 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements into 2024. However, we have based this estimate on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us. As a result, we could deplete our capital resources sooner than we currently expect.

Our future capital requirements will depend on many factors, including:

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the progress, costs and results of our ongoing preclinical development, our planned Phase 1/2 clinical trial of DB-OTO and any future clinical development of DB-OTO;

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the approach we determine for the advancement of DB-020, including further potential clinical development;

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the scope, progress, costs and results of preclinical and clinical development for our other product candidates and programs, including AAV.103, AAV.104, AAV.201 and DB-ATO;

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the number of, and development requirements for, other product candidates that we may identify and develop;

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the scope, costs, timing and outcome of regulatory review of our product candidates;

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the cost and timing of completion of commercial-scale manufacturing activities;

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the success of our collaboration with Regeneron;

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the payment or receipt of milestones and of other collaboration-based revenues, if any;

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our ability to establish and maintain additional strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;

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the amount and timing of revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

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the extent to which we may acquire or in-license other products, product candidates and technologies;

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the impacts of the COVID-19 pandemic;

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the ability to receive additional non-dilutive funding, including grants from organizations and foundations; and

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the costs of operating as a public company.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial revenues from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not have any committed external source of funds, other than the funds to which we are entitled under the Regeneron Agreement. As of June 30, 2022 we had $10.0 million of unbilled receivables from Regeneron, reflecting the amount owed for Regeneron’s one-year extension of the research term under the Regeneron Agreement. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect their rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, selling or licensing our assets, making capital expenditures or declaring dividends. Such restrictions could adversely impact our ability to conduct our operations and execute our business plan. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed or on terms acceptable to us, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our limited operating history may make it difficult for stockholders to evaluate the success of our business to date and to assess our future viability.

We commenced operations in 2013, and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, conducting research and development activities, identifying potential product candidates, soliciting input from regulators regarding development of these product candidates, securing intellectual property rights and undertaking preclinical studies and clinical trials. All of our gene therapy product candidates are still in the research or preclinical stage of development. We have not yet demonstrated our ability to successfully develop any product candidate, obtain marketing approvals, manufacture a commercial scale product, arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing products.

In addition, as our business grows, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

We expect our financial condition and operating results to fluctuate significantly from quarter-to-quarter and year-to-year due to a variety of factors, many of which are beyond our control. Accordingly, stockholders should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

Our ability to use our NOLs and research and development tax credit carryforwards to offset future taxable income may be subject to certain limitations.

As of December 31, 2021, we had U.S. federal net operating loss carryforwards of approximately $196.3 million to offset future federal taxable income. Federal net operating losses, or NOLs, of $41.7 million will expire beginning in 2033. As of December 31, 2021, we had NOLs of $154.6 million which had an indefinite life. As of December 31, 2021, we had state net operating loss carryforwards of $187.9 million to offset future state taxable income, which will begin to expire in 2035. As of December 31, 2021, we had foreign net operating loss carryforwards of approximately $3.0 million to offset future foreign taxable income, which do not expire. As of December 31, 2021, we had federal research and development tax credit carryforwards of $1.2 million, which expire beginning in 2033, and state research and development tax credit carryforwards of $0.8 million, which expire beginning in 2032. These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities.

We have a history of cumulative losses and anticipate that we will continue to incur significant losses in the foreseeable future; thus, we do not know whether or when we will generate taxable income necessary to utilize our NOLs or research and development tax credit carryforwards.

In general, under Section 382 of the Code and corresponding provisions of state law, a corporation that undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, is subject to limitations on its ability to utilize its pre-change NOLs and research and development tax credit carryforwards to offset future taxable income. We have not conducted a study to assess whether any such ownership changes have occurred. We may have experienced such ownership changes in the past and may experience such ownership changes in the future as a result of subsequent changes in our stock ownership (which may be outside our control). As a result, if, and to the extent that, we earn net taxable income, our ability to use our pre-change NOLs and research and development tax credit carryforwards to offset such taxable income may be subject to limitations. Our NOLs or credits may also be impaired under state law.

There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise become unavailable to offset future income tax liabilities. As described below in “Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition,” the Tax Cuts and Jobs Act of 2017, or TCJA, includes changes to U.S. federal tax rates and the rules governing NOL carryforwards that may significantly impact our ability to utilize our NOLs to offset taxable income in the future. For these reasons, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes.

Risks Related to Discovery and Development

We are very early in our development efforts. Our business is dependent on our ability to advance our lead gene therapy product candidate, DB-OTO, and our other current and future product candidates through preclinical studies and clinical trials, obtain marketing approval and ultimately commercialize them. If we are unable to complete clinical development, obtain regulatory approval for or commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

We are very early in our development efforts. We have advanced only one product candidate, DB-020, into clinical trials, and it is still in early clinical trials. In addition, we have identified only one gene therapy product candidate, DB-OTO, which is in preclinical development. We plan to submit an IND and/or CTA in the second half of 2022. We have commenced trial site startup activities and, subject to the clearance of our IND or CTA, we expect to initiate a Phase 1/2 clinical trial in the first half of 2023. Additionally, we have a portfolio of programs that are in earlier stages of preclinical development and may never identify another gene therapy product candidate or advance a gene therapy product candidate to clinical-stage development. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development, marketing approval and eventual commercialization of our product candidates, which may never occur. We have not sought regulatory approval for DB-OTO or any other product candidate and do not expect to be in a position to do so for the foreseeable future. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.

The clinical and commercial success of our product candidates will depend on several factors, including the following:

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timely and successful completion of preclinical studies, including IND-enabling studies;

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effective INDs or comparable foreign applications that allow commencement of our planned clinical trials or future clinical trials for our product candidates;

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successful enrollment and completion of clinical trials, including under the FDA’s Good Clinical Practices, or GCPs, Good Laboratory Practices, or GLPs, and any additional regulatory requirements from foreign regulatory authorities;

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positive results from our future clinical programs that support a finding of safety and effectiveness and an acceptable risk-benefit profile of our product candidates in the intended populations;

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receipt of marketing approvals from the FDA and other applicable regulatory authorities;

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establishment of arrangements for clinical supply and, where applicable, commercial manufacturing capabilities, including with third-party manufacturers;

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commercial launch of our product candidates, if approved, whether alone or in collaboration with others;

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acceptance of the benefits and use of our product candidates, including method of administration, if and when approved, by patients, the medical community and third-party payors;

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effective competition with other therapies;

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establishment and maintenance of healthcare coverage and adequate reimbursement and patients’ willingness to pay out-of-pocket in the absence of such coverage and adequate reimbursement;

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procurement of intellectual property protection and regulatory exclusivity for our product candidates, and enforcement and defense of intellectual property rights and claims; and

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maintenance of a continued acceptable safety, tolerability and efficacy profile of our product candidates following approval.

Many of these factors are beyond our control, including preclinical and clinical outcomes, the regulatory review process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any collaborator. If we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully develop and commercialize our product candidates, which would materially harm our business. If we are unable to advance our gene therapy product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed. Our limited experience in conducting clinical development activities, including with respect to gene therapies, may adversely impact the likelihood that we will be successful in advancing our product candidates or programs.

We are heavily dependent on the success of our lead gene therapy product candidate, DB-OTO.

We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We expect that a substantial portion of our efforts and expenditures for the foreseeable future will be devoted to DB-OTO. Accordingly, our business currently depends heavily on the successful development, regulatory approval and commercialization of DB-OTO. We cannot be certain that DB-OTO will receive regulatory approval or be successfully commercialized even if we receive regulatory approval. If we were required to discontinue development of DB-OTO, or if DB-OTO does not receive regulatory approval, fails to achieve significant market acceptance or fails to receive reimbursement, we would be delayed in our ability to achieve profitability, if ever.

All of our product candidates are in preclinical development or early clinical trials and their risk of failure is high. Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. We cannot guarantee that any of our clinical trials will be conducted as planned or completed on schedule, or at all. A failure of one or more clinical trials can occur at any stage of testing, which may result from a multitude of factors, including, but not limited to, flaws in trial design, dose selection issues, participant enrollment criteria and failure to demonstrate favorable safety or efficacy traits.

Our preclinical programs are in the early stage, and we may not identify development candidates for IND-enabling studies or product candidates for clinical development when anticipated or at all. In addition, even if we identify a product candidate for a program, before we can commence clinical trials for such product candidate, we must complete extensive preclinical testing and studies that support our planned INDs and other regulatory filings in the United States and abroad. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further advancement of any product candidates. We cannot be sure that we will be able to submit INDs for our preclinical product candidates on the timelines we expect, if at all, and we cannot be sure that submission of INDs will result in the FDA or other regulatory authorities allowing clinical trials to begin or to continue once commenced. Furthermore, product candidates are subject to continued preclinical safety studies and

testing with respect to chemistry, manufacturing and controls data, which may be conducted concurrently with our clinical testing. The outcomes of these safety studies and other testing may delay the launch of or enrollment in future clinical trials and could impact our ability to continue to conduct our clinical trials.

The time required to obtain approval from the FDA, EMA or other comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of regulatory authorities. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. We have not yet completed a clinical trial of any of our product candidates other than the Phase 1 clinical trial of DB-020 in healthy volunteers. Clinical trials may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. Even if the clinical trials are successful, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application.

Furthermore, product candidates are subject to continued preclinical safety studies, which may be conducted concurrently with our clinical testing. The outcomes of these safety studies may delay the launch of or enrollment in future clinical trials and could impact our ability to continue to conduct our clinical trials.

Other events that may prevent successful or timely completion of clinical development include:

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inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of clinical trials;

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delays in reaching a consensus with regulatory authorities on trial design;

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delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites;

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delays related to COVID-19 disruptions at CROs, contract development and manufacturing organizations, or CDMOs, and/or clinical trial sites;

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delays in opening clinical trial sites or obtaining required institutional review board, or IRB, or institutional biosafety committee, or IBC, approval, or the equivalent review groups for sites outside the United States, at each clinical trial site;

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imposition of a clinical hold by regulatory authorities, including as a result of a serious adverse event or after an inspection of our clinical trial operations or trial sites;

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failure by us, any CROs we engage or any other third parties to adhere to clinical trial requirements;

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failure to perform in accordance with GCPs;

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failure by investigators and clinical sites to adhere to protocols leading to variable results;

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failure of our delivery approach in humans;

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delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites, including delays by third parties with whom we have contracted to perform certain of those functions;

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failure of our third-party contractors to comply with regulatory requirements or to meet their contractual obligations to us in a timely manner, or at all;

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inability to enroll participants or delays in having enrolled participants complete their participation in a trial or return for post-administration follow-up;

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clinical trial sites or participants dropping out of a trial;

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selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data;

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clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon development programs;

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occurrence of serious adverse events associated with the product candidate or administration of the product candidate that are viewed to outweigh its potential benefits;

•