Generation Bio Co. - Quarter Report: 2020 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 001-39319

GENERATION BIO CO.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		81-4301284
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
301 Binney Street Cambridge, Massachusetts		02142
(Address of principal executive offices)		(Zip Code)

(617) 655-7500

(Registrant’s telephone number, including area code)

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, $0.0001 Par Value		GBIO		Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ☒    No  ☐

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

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of October 31, 2020 there were 46,516,475 shares of Common Stock, $0.0001 par value per share, outstanding.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report, 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,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or the negative of these words or other 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 include, among other things, statements about:

 

●

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

●

the impact of the COVID-19 pandemic and our reponse to the pandemic;

●

our estimates regarding expenses, future revenue, capital requirements, need for additional financing and the period over which we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements;

●

our plans to develop and, if approved, subsequently commercialize any product candidates we may develop;

●

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

●

the potential advantages of our non-viral gene therapy platform;

●

our estimates regarding the potential addressable patient populations for our programs;

●

our commercialization, marketing and manufacturing capabilities and strategy;

●

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

●

our intellectual property position;

●

our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

●

the impact of government laws and regulations;

●

our competitive position and expectations regarding developments and projections relating to our competitors and any competing therapies that are or become available;

●

developments and expectations regarding developments and projections relating to our competitors and our industry;

●

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

●

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startup Act 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, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Moreover, we operate in a competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures, or investments we may make or enter into.

You should read this Quarterly Report and the documents that we file with the Securities and Exchange Commission 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 are made as of the date of this Quarterly Report, 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.

 

2

Generation Bio Co.

INDEX

 

		Page(s)
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)			4
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Operations and Comprehensive Loss			5
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)			6
Condensed Consolidated Statements of Cash Flows			8
Notes to Condensed Consolidated Financial Statements			9
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			25
Item 4. Controls and Procedures			26
PART II – OTHER INFORMATION
Item 1. Legal Proceedings			26
Item 1A. Risk Factors			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			76
Item 6. Exhibits			76
Signatures			77

 

3

PART I—FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

Generation Bio Co.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

						September 30, 2020				December 31, 2019
Assets
Current assets:
Cash and cash equivalents						$	58,605			$	15,076
Marketable securities							221,761				—
Tenant receivable							—				448
Prepaid expenses and other current assets							5,447				2,577
Restricted cash							—				55
Total current assets							285,813				18,156
Property and equipment, net							22,888				21,845
Restricted cash, noncurrent							2,052				2,052
Deferred offering costs							—				87
Other long-term assets							169				—
Total assets						$	310,922			$	42,140
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable						$	418			$	2,251
Accrued expenses and other current liabilities							8,745				6,907
Total current liabilities							9,163				9,158
Deferred rent, net of current portion							15,220				15,981
Total liabilities							24,383				25,139
Commitments and contingencies (Note 9)
Convertible preferred stock (Series A, B and C), $0.0001 par value; no shares and 26,425,664 shares authorized at September 30, 2020 and December 31, 2019, respectively; no shares and 26,425,664 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively							—				115,593
Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value; 5,000,000 and no shares authorized at September 30, 2020 and December 31, 2019, respectively; no shares issued or outstanding							—				—
Common stock, $0.0001 par value; 150,000,000 and 46,750,000 shares authorized at September 30, 2020 and December 31, 2019, respectively; 46,516,475 and 6,976,077 shares issued at September 30, 2020 and December 31, 2019, respectively; 45,559,757 and 5,270,889 shares outstanding at September 30, 2020 and December 31, 2019, respectively							5				1
Additional paid-in capital							451,257				9,859
Accumulated other comprehensive income							26				—
Accumulated deficit							(164,749	)			(108,452	)
Total stockholders’ equity (deficit)							286,539				(98,592	)
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)						$	310,922			$	42,140

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

 

4

Generation Bio Co.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

																										Three Months Ended September 30,								Nine Months Ended September 30,
																										2020				2019				2020				2019
Operating expenses:
Research and development																										$	15,308			$	13,447			$	42,158			$	37,403
General and administrative																											5,661				2,886				14,611				8,741
Total operating expenses																											20,969				16,333				56,769				46,144
Loss from operations																											(20,969	)			(16,333	)			(56,769	)			(46,144	)
Other income (expense):
Interest income and other income (expense), net																											120				205				472				890
Net loss and net loss attributable to common stockholders																										$	(20,849	)		$	(16,128	)		$	(56,297	)		$	(45,254	)
Net loss per share attributable to common stockholders, basic and diluted																										$	(0.46	)		$	(3.31	)		$	(2.68	)		$	(9.90	)
Weighted average common shares outstanding, basic and diluted																											45,468,838				4,866,830				21,011,439				4,571,641
Comprehensive loss:
Net loss																										$	(20,849	)		$	(16,128	)		$	(56,297	)		$	(45,254	)
Other comprehensive income (loss):
Unrealized gains (losses) on marketable securities																											30				(9	)			26				11
Comprehensive loss																										$	(20,819	)		$	(16,137	)		$	(56,271	)		$	(45,243	)

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

 

5

Generation Bio Co.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(Unaudited)

 

												Series A, B and C Convertible Preferred Stock								Common Stock								Additional  Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders’ Equity (Deficit)
												Shares				Amount				Shares				Amount
												Three Months Ended September 30, 2020
Balances at June 30, 2020													—			$	—				45,028,024			$	5			$	448,052			$	(4	)		$	(143,900	)		$	304,153
Issuance of common stock upon exercise of stock options													—				—				279,379				—				1,044				—				—				1,044
Vesting of restricted common stock													—				—				252,354				—				—				—				—				—
Stock-based compensation expense													—				—				—				—				2,161				—				—				2,161
Unrealized gains on marketable securities													—				—				—				—				—				30				—				30
Net loss													—				—				—				—				—				—				(20,849	)			(20,849	)
Balances at September 30, 2020													—			$	—				45,559,757			$	5			$	451,257			$	26			$	(164,749	)		$	286,539
												Three Months Ended September 30, 2019
Balances at June 30, 2019													26,425,664				115,593				4,615,383			$	1			$	7,603			$	11			$	(76,261	)		$	(68,646	)
Issuance of common stock for license													—				—				125,677				—				—				—				—				—
Vesting of restricted common stock													—				—				248,386				—				—				—				—				—
Stock-based compensation expense													—				—				—				—				1,080				—				—				1,080
Unrealized losses on marketable securities													—				—				—				—				—				(9	)			—				(9	)
Net loss													—				—				—				—				—				—				(16,128	)			(16,128	)
Balances at September 30, 2019													26,425,664			$	115,593				4,989,446			$	1			$	8,683			$	2			$	(92,389	)		$	(83,703	)

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

 

6

Generation Bio Co.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(Unaudited)

 

										Convertible Preferred Stock								Common Stock								Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit				Total Stockholders’ Equity (Deficit)
										Shares				Amount				Shares				Amount
										Nine Months Ended September 30, 2020
Balances at December 31, 2019											26,425,664			$	115,593				5,270,889			$	1			$	9,859			$	—			$	(108,452	)		$	(98,592	)
Issuance of Series C convertible preferred stock, net of issuance costs of $2,640											19,936,296				108,832				—				—				—				—				—				—
Conversion of convertible preferred stock into common stock upon initial public offering											(46,361,960	)			(224,425	)			27,094,085				3				224,422				—				—				224,425
Issuance of common stock upon initial public offering, net of issuance costs of $3,185											—				—				12,105,263				1				210,714				—				—				210,715
Issuance of common stock upon exercise of stock options											—				—				319,642				—				1,229				—				—				1,229
Vesting of restricted common stock											—				—				769,878				—				—				—				—				—
Stock-based compensation expense											—				—				—				—				5,033				—				—				5,033
Unrealized gains on marketable securities											—				—				—				—				—				26				—				26
Net loss											—				—				—				—				—				—				(56,297	)			(56,297	)
Balances at September 30, 2020											—			$	—				45,559,757			$	5			$	451,257			$	26			$	(164,749	)		$	286,539
										Nine Months Ended September 30, 2019
Balances at December 31, 2018											26,425,664			$	115,593				4,054,475			$	1			$	5,552			$	(9	)		$	(47,135	)		$	(41,591	)
Issuance of common stock for license											—				—				125,677				—				—				—				—				—
Issuance of common stock upon exercise of stock options											—				—				14,861				—				9				—				—				9
Vesting of restricted common stock											—				—				794,433				—				—				—				—				—
Stock-based compensation expense											—				—				—				—				3,122				—				—				3,122
Unrealized gains on marketable securities											—				—				—				—				—				11				—				11
Net loss											—				—				—				—				—				—				(45,254	)			(45,254	)
Balances at September 30, 2019											26,425,664			$	115,593				4,989,446			$	1			$	8,683			$	2			$	(92,389	)		$	(83,703	)

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

 

7

Generation Bio Co.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

		Nine Months Ended September 30,
		2020				2019
Cash flows from operating activities:
Net loss		$	(56,297	)		$	(45,254	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense			5,033				3,122
Depreciation and amortization expense			2,441				1,185
Amortization (accretion) of premium (discount) on marketable securities			88				(335	)
Changes in operating assets and liabilities:
Tenant receivable			448				(1,297	)
Prepaid expenses and other current assets			(2,870	)			(1,078	)
Other noncurrent assets			(169	)			—
Accounts payable			(1,321	)			(132	)
Accrued expenses and other current liabilities			1,631				2,284
Deferred rent			(761	)			12,966
Net cash used in operating activities			(51,777	)			(28,539	)
Cash flows from investing activities:
Purchases of property and equipment			(3,724	)			(18,828	)
Purchases of marketable securities			(221,823	)			(20,789	)
Sales and maturities of marketable securities			—				82,680
Net cash provided by (used in) investing activities			(225,547	)			43,063
Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock, net of issuance costs incurred and paid in current period			108,854				—
Proceeds from initial public offering of common stock, net of underwriting discounts and commissions			213,900				—
Proceeds from exercise of stock options			1,229				9
Payment of initial public offering costs			(3,185	)			—
Net cash provided by financing activities			320,798				9
Net increase in cash, cash equivalents and restricted cash			43,474				14,533
Cash, cash equivalents and restricted cash at beginning of period			17,183				9,466
Cash, cash equivalents and restricted cash at end of period		$	60,657			$	23,999
Supplemental disclosure of noncash investing and financing information:
Conversion of convertible preferred stock to common stock		$	224,425			$	—
Purchases of property and equipment included in accounts payable and accrued expenses		$	404			$	895

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

 

8

Generation Bio Co.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of the Business and Basis of Presentation

The Company was incorporated on October 21, 2016 as Torus Therapeutics, Inc. and subsequently changed its name to Generation Bio Co. (the “Company” or “Generation Bio”). The Company is an innovative genetic medicines company creating a new class of gene therapy utilizing its proprietary non-viral gene therapy platform to provide durable, redosable treatments for millions of patients living with rare and prevalent diseases. The Company’s non-viral gene therapy platform incorporates its high-capacity DNA construct called closed-ended DNA (“ceDNA”), its cell-targeted lipid nanoparticle delivery system (“ctLNP”) and its established, scalable capsid-free manufacturing process. Using its approach, the Company is developing novel gene therapies to provide targeted delivery of genetic payloads that include large and multiple genes to a range of tissues across a broad array of diseases. The Company is also engineering its gene therapies to be redosable, which may enable individualized patient titration to reach the desired therapeutic expression and to maintain efficacy throughout a patient’s life. The Company is headquartered in Cambridge, Massachusetts.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, the ability to establish clinical- and commercial-scale manufacturing processes, the impact of the COVID-19 pandemic and the ability to secure additional capital to fund operations. Programs currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization of a product. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

On June 16, 2020, the Company completed its initial public offering (“IPO”) pursuant to which it issued and sold 12,105,263 shares of its common stock, including 1,578,947 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $19.00 per share, resulting in net proceeds of $210.7 million, after deducting underwriting discounts and commissions and other offering expenses. Upon the closing of the IPO, all of the Company’s outstanding convertible preferred stock automatically converted into shares of common stock.

The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has funded its operations with proceeds from the sales of instruments convertible into convertible preferred stock (which converted into convertible preferred stock in 2017), the sale of convertible preferred stock, and most recently, with proceeds from the sale of common stock in the IPO completed in June 2020. The Company has incurred recurring losses, including net losses of $56.3 million for the nine months ended September 30, 2020 and $61.3 million for the year ended December 31, 2019. As of September 30, 2020, the Company had an accumulated deficit of $164.7 million. The Company expects to continue to generate operating losses in the foreseeable future. As of November 10, 2020, the issuance date of these interim condensed consolidated financial statements, the Company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months.

The Company will need to obtain additional funding through public or private equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborations or strategic alliances or licensing arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. Arrangements with collaborators or others may require the Company to relinquish rights to certain of its technologies or programs. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, pipeline expansion or commercialization efforts, which could adversely affect its business prospects. Although management will continue to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations when needed or at all.

The accompanying consolidated financial statements reflect the operations of the Company and the Company’s wholly owned subsidiary, Generation Bio Securities Corporation. Intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles

 

9

Generation Bio Co.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

(“GAAP”) in the United States of America. 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 Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

2. Summary of Significant Accounting Policies

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses and stock-based compensation expense. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.

Unaudited interim financial information

The balance sheet at December 31, 2019 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Registration Statement on Form S-1 (File No. 333-238608) on file with SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the Company’s financial position as of September 30, 2020, the results of operations for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30, 2020 and 2019 have been made. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020 or any other period.

Concentrations of credit risk and of significant suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and marketable securities. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash and cash equivalents are held. The Company maintains its cash equivalents in money market funds that invest in U.S. treasury securities. The Company’s marketable securities as of September 30, 2020 consisted of U.S government treasury securities, U.S. government agency bonds, commercial paper and corporate debt securities. The Company has adopted an investment policy that limits the amounts the Company may invest in the securities of single issuer with the exclusion of the U.S. government. The Company has not experienced any credit losses and does not believe that it is subject to significant credit risk.

The Company is dependent on a small number of third-party suppliers for its drug substance and drug product. In particular, the Company relies, and expects to continue to rely, on third-party suppliers for certain materials and components required for the production of any product candidates it may develop for its programs. These programs could be adversely affected by a significant interruption in the supply process.

Fair value measurements

Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as 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 financial 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.

 

10

Generation Bio Co.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

•

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 and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.

Recently adopted accounting pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Requirements for Fair Value Measurement. The new standard added, modified or removed disclosure requirements under Topic 820 for clarity and consistency. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-03 on January 1, 2020 and the adoption did not have a material impact on its consolidated financial statements.

Recently issued accounting pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company can adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. In July 2018, the FASB issued ASU 2018-11, which provides entities with an additional transition method to adopt Topic 842. Under the new transition method, an entity initially applies the new lease requirements at the adoption date, not the earliest period presented, and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years. For nonpublic entities, the guidance was effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted for all entities. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date for nonpublic entities to annual reporting periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. In June 2020, the FASB issued ASU 2020-05, which grants a one-year effective-date delay for nonpublic entities to annual reporting periods beginning after December 15, 2021 and to interim periods within fiscal years beginning after December 15, 2022. Early adoption continues to be allowed. The Company plans to adopt ASU 2016-02 on January 1, 2021 using the modified retrospective approach transition method as of the date of adoption such that prior periods will not be restated. The Company will also elect a package of practical expedients, under which an entity need not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, or initial direct costs for any existing leases. The adoption of the new standard is expected to result in the recognition of material liabilities and right-of-use assets, however, the Company has not completed its assessment.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The new standard adjusts the accounting for assets held at amortized costs basis, including marketable securities accounted for as available-for-sale. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. For nonpublic entities, the guidance was effective for annual reporting periods beginning after December 15, 2020. Early adoption is permitted for all entities. In November 2019, the FASB issued

 

11

Generation Bio Co.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

ASU 2019-10, which deferred the effective date for nonpublic entities to annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating when to adopt the guidance and the impact the guidance will have on its consolidated financial statements.

3. Fair Value of Financial Assets

As of September 30, 2020, marketable securities by security type consisted of the following:

 

		Amortized           Cost				Gross           Unrealized           Gains				Gross           Unrealized           Losses				Estimated           Fair Value
		(in thousands)
U.S. treasury securities		$	132,184			$	16			$	—			$	132,200
U.S. government agency bonds			11,995				2				—				11,997
Commercial paper			59,891				—				—				59,891
Corporate debt securities			17,665				8				—				17,673
Totals		$	221,735			$	26			$	—			$	221,761
As of September 30, 2020, marketable securities consisted of investments that mature within one year. The Company did not have marketable securities at December 31, 2019.   The following tables present the Company’s assets that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value, which is described further within Note 2, Summary of Significant Accounting Policies:
		Fair Value Measurements at September 30, 2020 Using:
		Level 1				Level 2				Level 3				Total
		(in thousands)
Cash equivalents:
Money market funds		$	57,394			$	—			$	—			$	57,394
Marketable securities:
U.S. treasury securities			—				132,200				—				132,200
U.S. government agency bonds			—				11,997				—				11,997
Commercial paper			—				59,891				—				59,891
Corporate debt securities			—				17,673				—				17,673
Totals		$	57,394			$	221,761			$	—			$	279,155
		Fair Value Measurements at December 31, 2019 Using:
		Level 1				Level 2				Level 3				Total
		(in thousands)
Cash equivalents:
Money market funds		$	15,076			$	—			$	—			$	15,076
Totals		$	15,076			$	—			$	—			$	15,076

Money market funds were valued based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. The Company’s marketable securities, which consisted of U.S. treasury securities, U.S. government agency bonds, commercial paper and corporate debt securities were valued using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy.

 

12

Generation Bio Co.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

4. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

												September 30, 2020				December 31, 2019
												(in thousands)
Accrued employee compensation and benefits												$	3,798			$	3,255
Accrued external research and development expenses													2,037				1,344
Accrued professional fees													890				619
Deferred rent													1,380				1,370
Other													640				319
												$	8,745			$	6,907

5. Convertible Preferred Stock

The Company had issued Series A convertible preferred stock (the “Series A”), Series B convertible preferred stock (the “Series B”) and Series C convertible preferred stock (the “Series C”). Collectively the Series A, Series B and Series C are referred to as the Preferred Stock.

On January 9, 2020, the Company issued and sold 19,936,296 shares of Series C at a price of $5.5914 per share for gross proceeds of $111.5 million. The Company incurred issuance costs in connection with this transaction of $2.6 million.

Upon the closing of the IPO in June 2020, the Company’s Preferred Stock automatically converted into 27,094,085 shares of common stock.

6. Equity

As of September 30, 2020, the Company’s amended and restated certificate of incorporation authorizes the Company to issue 150,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share, all of which preferred stock is undesignated.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are not entitled to receive dividends, unless declared by the board of directors.

7. Stock-Based Awards

Stock incentive plans

The Company’s 2017 Stock Incentive Plan (the “2017 Plan”) provided for the Company to grant incentive stock options or nonstatutory stock options, restricted stock, restricted stock units and other equity awards to employees, directors and consultants of the Company. In January 2020, the number of shares of common stock authorized for issuance under the 2017 Plan was increased from 8,407,405 shares to 10,275,717 shares.

In May 2020 the Company’s board of directors adopted, and in June 2020 the Company’s stockholders approved, the 2020 Stock Incentive Plan (the “2020 Plan” and, together with the 2017 Plan the “Plans”), which became effective on June 11, 2020. The 2020 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. Upon effectiveness of the 2020 Plan, the number of shares of common stock reserved for issuance under the 2020 Plan was the sum of (1) 2,547,698 shares; plus (2) the number of shares (up to a maximum of 7,173,014 shares) as was equal to the sum of (x) the number of shares of common stock reserved for issuance under the 2017 Plan that remained available for grant under the 2017 Plan on June 11, 2020 and (y) the number of shares of common stock subject to outstanding awards granted under the 2017 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right; plus (3) an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2021 and continuing until, and including, the fiscal year ending December 31, 2030, equal to the lesser of (i) 4% of the number of shares of common stock outstanding on such date, and (ii) an amount determined by the board of directors. Upon the effectiveness of the 2020 Plan, the Company ceased granting additional awards under the 2017 Plan.

 

13

Generation Bio Co.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The Plans are administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions on any award under the Plans are determined at the discretion of the board of directors, or its committee if so delegated. Stock options granted under the Plans with service-based vesting conditions generally vest over four years and expire after ten years. The exercise price for stock options granted is not less than the fair value of common stock as of the date of grant. Prior to the Company’s IPO, fair value of common stock was determined by the board of directors. Subsequent to the IPO, fair value of common stock will be based on quoted market prices.

As of September 30, 2020, 2,640,244 shares remained available for future issuance under the 2020 Plan. Shares subject to outstanding awards granted under the Plans that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right will be available for future awards under the 2020 Plan.

Grant of stock options

During the nine months ended September 30, 2020, the Company granted service-based options to certain employees, directors and consultants for the purchase of 2,114,361 shares of common stock with a weighted average grant date fair value of $8.71 per share that vest over approximately four years.

During the nine months ended September 30, 2020, the Company granted performance-based options to certain employees, directors and consultants for the purchase of 717,154 shares of common stock with a weighted average grant date fair value of $3.26 per share that vest upon the achievement of specified milestones.

Employee stock purchase plan

In May 2020 the Company’s board of directors adopted, and in June 2020 the Company’s stockholders approved, the 2020 Employee Stock Purchase Plan (the “2020 ESPP”), which became effective June 11, 2020. The 2020 ESPP will be administered by the Company’s board of directors or by a committee appointed by the board of directors. The 2020 ESPP initially provides participating employees with the opportunity to purchase up to an aggregate of 481,231 shares of common stock. The number of shares of common stock reserved for issuance under the 2020 ESPP will automatically increase on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2021 and continuing for each fiscal year until, and including the fiscal year commencing on, January 1, 2030, in an amount equal to the lowest of (1) 1,302,157 shares of common stock, (2) 1% of the number of shares of common stock outstanding on such date, and (3) an amount determined by the board of directors. No offering periods have commenced under the 2020 ESPP and 481,231 shares remain available for issuance.

Stock-based compensation

Stock-based compensation expense was classified in the statements of operations and comprehensive loss as follows:

 

												Three Months Ended September 30,								Nine Months Ended September 30,
												2020				2019				2020				2019
												(in thousands)
Research and development expenses												$	1,204			$	688			$	2,967			$	2,039
General and administrative expenses													957				392				2,066				1,083
												$	2,161			$	1,080			$	5,033			$	3,122

As of September 30, 2020, total unrecognized compensation cost related to unvested stock-based awards was $23.6 million, which is expected to be recognized over a weighted average period of 3.2 years. Additionally, as of September 30, 2020, the Company has unrecognized compensation cost related to unvested stock-based awards with performance-based vesting conditions for which performance has not been deemed probable of $2.3 million.

 

14

Generation Bio Co.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

8. Net Loss per Share

The following potential dilutive securities, presented based on amounts outstanding at each period end, have been excluded from the calculation of diluted net loss per share because including them would have had an anti-dilutive impact:

 

												September 30,
												2020				2019
Convertible preferred stock (as converted to common stock)													—				14,961,027
Unvested restricted common stock													956,718				1,970,209
Stock options to purchase common stock													5,581,717				3,171,498
													6,538,435				20,102,734

9. Commitments and Contingencies

The Company leases its office and laboratory space under a noncancelable operating lease that was entered into in August 2018, as amended in June 2020, and expires in 2029. The Company has an option to extend for one additional term of five years at the greater of the then-current base rent, or the then-current fair market value. The lease agreement includes provisions for a free-rent period and annual rent increases, which are accrued or deferred as appropriate such that rent expense for the lease is recognized on a straight-line basis over the lease term. The Company is responsible for real estate taxes, maintenance, and other operating expenses applicable to the leased premises. The lease provides for a tenant improvement allowance, at the cost of the lessor, not to exceed $14.7 million. Costs incurred by the Company for tenant improvements but not yet reimbursed by the landlord are presented on the accompanying consolidated balance sheets as tenant receivable. The Company posted a customary letter of credit in the amount of approximately $2.1 million as a security deposit. The letter of credit is subject to increase if the Company were to sublease any portion of the leased premises.

Rent expense for the three months ended September 30, 2020 and 2019 was $1.8 million and $2.5 million, respectively. Rent expense for the nine months ended September 30, 2020 and 2019 was $5.5 million and $6.0 million, respectively.

Future minimum lease payments as of September 30, 2020 are as follows:

 

Year Ending December 31,		(in thousands)
2020 (remaining 3 months)		$	1,745
2021			7,053
2022			7,251
2023			7,441
2024			7,679
Thereafter			35,451
		$	66,620

401(k) Plan

The Company has a defined-contribution plan under Section 401(k) of the Internal Revenue Code of 1986 (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. In September 2020, the Company adopted a match program for employee contributions to the 401(k) Plan up to a maximum of four percent of the employee’s salary for the year ended December 31, 2021.

Indemnification agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, contract research organizations, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. The Company has not incurred any material costs as a result of such indemnifications and is not currently aware of any indemnification claims.

 

15

Generation Bio Co.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Legal proceedings

The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the three and nine months ended September 30, 2020.

 

16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our final prospectus for our initial public offering, or IPO, filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange Commission, or SEC. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, 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.

Overview

We are an innovative genetic medicines company creating a new class of gene therapy utilizing our proprietary non-viral gene therapy platform to provide durable, redosable treatments for millions of patients living with rare and prevalent diseases. Our non-viral gene therapy platform incorporates our high-capacity DNA construct called closed-ended DNA, or ceDNA; our cell-targeted lipid nanoparticle delivery system, or ctLNP; and our established, scalable capsid-free manufacturing process. Using our approach, we are developing novel gene therapies to provide targeted delivery of genetic payloads that include large and multiple genes to a range of tissues across a broad array of diseases. We are also engineering our gene therapies to be redosable, which may enable individualized patient titration to reach the desired level of therapeutic expression and to maintain efficacy throughout a patient’s life.

We are advancing a broad and expansive portfolio including rare and prevalent diseases of the liver and retina, as well as in skeletal muscle, oncology and the central nervous system by developing discrete ctLNPs, each engineered to reach a different tissue. In parallel, we are developing the constructs and manufacturing capacity to rapidly advance new disease programs in a tissue or therapeutic area once human proof of concept is established.

Our most advanced programs are in the liver and retina. In the liver, we have programs for phenylketonuria, or PKU, and hemophilia A, which are in preclinical development, during which we conduct in vivo studies to identify development candidates and assess these candidates in studies to enable an investigational new drug, or IND, application. In the retina, we have programs for Leber’s Congenital Amaurosis 10, or LCA10, and Stargardt disease, which are in lead optimization, during which we seek to identify ceDNA constructs that provide disease relevant expression in an animal model.

We expect to select the final development candidate for each of our PKU and hemophilia A programs and to initiate IND-enabling studies for these programs in 2021, followed by IND applications for these programs in 2022. We anticipate submitting IND applications for additional programs in 2023 and beyond.

Since our inception in October 2016, we have focused substantially all of our resources on building our non-viral gene therapy platform, establishing and protecting our intellectual property portfolio, conducting research and development activities, developing our manufacturing process, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations with proceeds from instruments convertible into convertible preferred stock (which converted into convertible preferred stock in 2017), the sales of convertible preferred stock and, most recently, with proceeds from the sale of common stock in our IPO. On June 16, 2020, we completed our IPO, pursuant to which we issued and sold 12,105,263 shares of our common stock, including 1,578,947 shares sold by us pursuant to the full exercise of the underwriters’ option to purchase additional shares. We received net proceeds of $210.7 million, after deducting underwriting discounts and commissions and other offering expenses.

Since our inception, we have incurred significant operating losses. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more product candidates we may develop. For the nine months ended September 30, 2020, we reported net losses of $56.3 million, and for the year ended December 31, 2019, we reported net losses of $61.3 million. As of September 30, 2020, we had an accumulated deficit of $164.7 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

 

•

continue our current research programs and conduct additional research programs;

 

•

advance any product candidates we identify into preclinical and clinical development;

 

•

expand the capabilities of our proprietary non-viral gene therapy platform;

 

17

•

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

 

•

obtain, expand, maintain, defend and enforce our intellectual property portfolio;

 

•

hire additional clinical, regulatory and scientific personnel;

 

•

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

 

•

establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval; and

 

•

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

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for any product candidates we may develop. If we obtain regulatory approval for any product candidates we may develop, we expect to incur significant expenses related to developing our commercial capability to support product sales, marketing and distribution. Further, we expect to incur additional costs associated with operating as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth 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, collaborations, strategic alliances and/or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements when needed or on terms acceptable to us, we would be required to delay, limit, reduce or terminate our product development or future commercialization of one or more of our product candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate 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.

We believe that our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditures into 2023. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong. We could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. See “—Liquidity and Capital Resources.”

COVID-19

In March 2020, COVID-19 was declared a global pandemic by the World Health Organization and to date, the COVID-19 pandemic continues to present a substantial public health and economic challenge around the world. The length of time and full extent to which the COVID-19 pandemic may directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and are difficult to predict. We, our contract development and manufacturing organizations, or CDMOs, and our contract research organizations, or CROs, experienced temporary reductions in the capacity to undertake research-scale production and to execute some preclinical studies. While these operations have since normalized, we, together with our CDMOs and CROs, are closely monitoring the impact of the COVID-19 pandemic on these operations.

We also plan to continue to closely monitor the ongoing impact of the COVID-19 pandemic on our employees and our other business operations. In an effort to provide a safe work environment for our employees, we have, among other things, limited employees in our office and lab facilities to those where on-site presence is needed for their job activities, increased the cadence of sanitization of our office and lab facilities, implemented various social distancing measures in our office and labs including replacing all in-person meetings with virtual interactions, and are providing personal protective equipment for our employees present in our office and lab facilities. We expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees and other business partners in light of the pandemic.

 

18

Components of Our Results of Operations

Operating expenses

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our programs, which include:

 

•

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

 

•

expenses incurred in connection with our research programs, including under agreements with third parties, such as consultants and contractors and CROs;

 

•

the cost of developing and scaling our manufacturing process and manufacturing drug substance and drug product for use in our research and preclinical studies, including under agreements with third parties, such as consultants and contractors and CDMOs;

 

•

laboratory supplies and research materials;

 

•

facilities, depreciation and amortization and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and

 

•

payments made under third-party licensing agreements.

We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Our external research and development expenses consist of costs that include fees and other costs paid to consultants, contractors, CDMOs and CROs in connection with our preclinical and manufacturing activities. We do not allocate our research and development costs to specific programs because costs are deployed across multiple programs and our platform and, as such, are not separately classified. We expect that our research and development expenses will increase substantially as we advance our programs into clinical development and expand our discovery, research and preclinical activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates we may develop. The successful development of any of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development, including the following:

 

•

the timing and progress of preclinical studies, including IND-enabling studies;

 

•

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

 

•

raising additional funds necessary to complete preclinical and clinical development of our product candidates;

 

•

the timing of filing and acceptance of INDs or comparable foreign applications that allow commencement of future clinical trials for our product candidates;

 

•

the successful initiation, enrollment and completion of clinical trials, including under current good clinical practices;

 

•

our ability to achieve positive results from our future clinical programs that support a finding of safety and effectiveness and an acceptable risk-benefit profile in the intended patient populations of any product candidates we may develop;

•

the availability of specialty raw materials for use in production of our product candidates;

 

•

our ability to establish arrangements with third-party manufacturers for clinical supply;

 

•

our ability to establish new licensing or collaboration arrangements;

 

•

the receipt and related terms of regulatory approvals from the U.S. Food and Drug Administration and other applicable regulatory authorities;

 

•

our ability to establish, obtain, maintain, enforce and defend patent, trademark, trade secret protection and other intellectual property rights or regulatory exclusivity for any product candidates we may develop and our technology; and

 

•

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

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

 

19

General and administrative expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for employees engaged in executive, legal, finance and accounting and other administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, investor and public relations and accounting and audit services as well as direct and allocated facility-related costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our programs and platform. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs and investor and public relations expenses associated with operating as a public company.

Other income (expense)

Interest income and other income (expense), net

Interest income consists of interest earned on our invested cash balances. We expect our interest income to be lower in 2020 than 2019 as a result of lower interest rates.

Other income (expense) consists of miscellaneous income and expense unrelated to our core operations.

Income taxes

Since our inception, we have not recorded any income tax benefits for the net losses we have incurred or for the research and development tax credits earned in each year, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credit carryforwards will not be realized.

As of December 31, 2019, we had federal net operating loss carryforwards of $91.9 million, which may be available to offset future taxable income, of which $8.2 million of the total net operating loss carryforwards begin to expire in 2036, while the remaining $83.7 million do not expire but may be limited in their usage to an annual deduction equal to 80% of annual taxable income. In addition, as of December 31, 2019, we had state net operating loss carryforwards of $90.6 million, which may be available to offset future taxable income and expire at various dates beginning in 2036. As of December 31, 2019, we also had federal and state research and development tax credit carryforwards of $4.0 million and $2.5 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2036 and 2032, respectively. Due to our history of cumulative net losses since inception and uncertainties surrounding our ability to generate future taxable income, we have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Results of Operations

Comparison of the three months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019:

 

												Three Months Ended September 30,
												2020				2019				Change
												(in thousands)
Operating expenses:
Research and development												$	15,308			$	13,447			$	1,861
General and administrative													5,661				2,886				2,775
Total operating expenses													20,969				16,333				4,636
Loss from operations													(20,969	)			(16,333	)			(4,636	)
Other income (expense):
Interest income and other income (expense), net													120				205				(85	)
Net loss												$	(20,849	)		$	(16,128	)		$	(4,721	)

 

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Research and development expenses

The following table summarizes our research and development expenses for the three months ended September 30, 2020 and 2019:

 

												Three Months Ended September 30,
												2020				2019				Change
												(in thousands)
Personnel-related												$	4,434			$	3,130			$	1,304
Stock-based compensation													1,204				688				516
Preclinical and manufacturing													4,955				4,379				576
Facilities													2,355				3,144				(789	)
Lab supplies													1,086				1,091				(5	)
Consulting and professional services													356				349				7
Other													918				666				252
Total research and development expenses												$	15,308			$	13,447			$	1,861

Research and development expenses were $15.3 million for the three months ended September 30, 2020 compared to $13.4 million for the three months ended September 30, 2019. The increases in personnel-related costs and stock-based compensation costs of $1.3 million and $0.5 million, respectively, were primarily due to increased headcount in our research and development function. The increase in preclinical and manufacturing expense of $0.6 million was due primarily to increased preclinical activities. The decrease in facility-related expenses of $0.8 million was primarily due to decreased rent expense.

General and administrative expenses

The following table summarizes our general and administrative expenses for the three months ended September 30, 2020 and 2019:

 

												Three Months Ended September 30,
												2020				2019				Change
												(in thousands)
Personnel-related												$	2,160			$	1,143			$	1,017
Stock-based compensation													957				392				565
Professional and consultant fees													1,905				872				1,033
Facilities													379				401				(22	)
Other													260				78				182
Total general and administrative expenses												$	5,661			$	2,886			$	2,775

General and administrative expenses were $5.7 million for the three months ended September 30, 2020 compared to $2.9 million for the three months ended September 30, 2019. The increases in personnel-related costs and stock-based compensation costs of $1.0 million and $0.6 million, respectively, were primarily a result of an increase in headcount in our general and administrative function. Professional and consultant fees increased by $1.0 million primarily due to professional fees relating to accounting, audit and legal services as well as costs associated with ongoing business activities and our preparations to operate as a public company.

Other income and expense, net

Other income and expense, net for the three months ended September 30, 2020 was $0.1 million compared to $0.2 million for the three months ended September 30, 2019. Other income consisted primarily of interest earned on invested cash balances.

 

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Comparison of the nine months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019:

 

		Nine Months Ended September 30,
		2020				2019				Change
		(in thousands)
Operating expenses:
Research and development		$	42,158			$	37,403			$	4,755
General and administrative			14,611				8,741				5,870
Total operating expenses			56,769				46,144				10,625
Loss from operations			(56,769	)			(46,144	)			(10,625	)
Other income (expense):
Interest income and other income (expense), net			472				890				(418	)
Net loss		$	(56,297	)		$	(45,254	)		$	(11,043	)
Research and development expenses   The following table summarizes our research and development expenses for the nine months ended September 30, 2020 and 2019:
		Nine Months Ended September 30,
		2020				2019				Change
		(in thousands)
Personnel-related		$	12,546			$	9,602			$	2,944
Stock-based compensation			2,967				2,039				928
Preclinical and manufacturing			11,718				11,494				224
Facilities			7,099				7,024				75
Lab supplies			2,936				3,198				(262	)
Consulting and professional services			2,494				1,760				734
Other			2,398				2,286				112
Total research and development expenses		$	42,158			$	37,403			$	4,755
Research and development expenses were $42.2 million for the nine months ended September 30, 2020, compared to $37.4 million for the nine months ended September 30, 2019. The increases in personnel-related costs and stock-based compensation costs of $2.9 million and 0.9 million, respectively, were primarily due to increased headcount in our research and development function. The increase in consulting and professional services of $0.7 million was primarily due to consulting services to develop and scale our manufacturing process.   General and administrative expenses   The following table summarizes our general and administrative expenses for the nine months ended September 30, 2020 and 2019:
		Nine Months Ended September 30,
		2020				2019				Change
		(in thousands)
Personnel-related		$	5,555			$	3,121			$	2,434
Stock-based compensation			2,066				1,083				983
Professional and consultant fees			5,293				2,974				2,319
Facilities			1,120				850				270
Other			577				713				(136	)
Total general and administrative expenses		$	14,611			$	8,741			$	5,870

General and administrative expenses were $14.6 million for the nine months ended September 30, 2020, compared to $8.7 million for the nine months ended September 30, 2019. The increases in personnel-related costs and stock-based compensation costs of $2.4 million and $1.0 million, respectively, were primarily a result of an increase in headcount in our general and administrative function.

Professional and consultant fees increased by $2.3 million primarily due to professional fees relating to accounting, audit and legal services as well as costs associated with ongoing business activities and our preparations to operate as a public company.

 

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