Q32 BIO INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, 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 important factors, including those set forth in the ''Risk Factors'' section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.
Overview
We are a genetic medicines company dedicated to transforming the lives of patients suffering from rare genetic diseases with significant unmet medical needs by curing the underlying cause of the disease. Our proprietary platform is designed to utilize our human hematopoietic stem cell derived adeno-associated virus vectors, or AAVHSCs, to precisely and efficiently deliver single administration genetic medicines in vivo either through gene therapy or nuclease-free gene editing across a broad range of genetic disorders. Our diverse set of AAVHSCs allows us to precisely target, via a single injection, a wide range of disease-relevant tissues, including the liver, central nervous system, or CNS, bone marrow, muscle and eye. Our genetic medicines platform is designed to provide us the flexibility to choose the method we believe is best suited from either gene therapy or gene editing for each disease we pursue, based on such factors as the targeted disease biology, the biodistribution of our AAVHSCs to key tissues, and the rate of cell division the tissues exhibit. Our product development strategy is to continue to develop in parallel both gene therapy and gene editing, while initially leveraging the experience from our gene therapy product candidates to further advance our gene editing. We believe our dual technology platform will allow us to provide transformative cures using either modality.
The unique properties of our proprietary suite of 15 novel AAVHSCs enable us to focus on a method of gene editing called gene integration, through the replacement of an entire diseased gene in the genome with a whole functional copy by harnessing the naturally occurring deoxyribonucleic acid, or DNA, repair process of homologous recombination, or HR. We believe our HR-driven gene editing approach will allow us to efficiently perform gene editing at therapeutic levels without unwanted on- and off-target modifications, and to directly measure and confirm those modifications in an unbiased manner to ensure only the intended changes are made. By utilizing the body's natural mechanism of correcting gene defects, we also avoid the need for exogenous nucleases, or bacteria-derived enzymes used in other gene editing approaches to cut DNA, that are known to significantly increase the risk of unwanted modifications.
We are currently in the dose-escalation portion of our Phase 1/2 pheNIX clinical
trial with our first and lead product candidate, HMI-102, a gene therapy for the
treatment of phenylketonuria, or PKU. Once a dose is chosen, we plan to initiate
the randomized, concurrently controlled Part B of the trial, which has the
potential to be converted to a registrational trial. In
We are in IND-enabling studies with HMI-202, our lead gene therapy CNS product development candidate for the treatment of metachromatic leukodystrophy, or MLD. This represents our first CNS program as we are leveraging the ability of our AAVHSCs to cross the blood-brain-barrier as well as the blood-nerve-barrier.
We are in IND-enabling studies with HMI-103, our lead gene editing product development candidate for the treatment of PKU in pediatric patients. We have generated in vivo preclinical data demonstrating achievement of gene integration efficiencies in the liver that correspond with Phe correction in a PKU murine model, are significantly greater than other adeno-associated virus, or AAV, based approaches and we believe are at a therapeutic level in the preclinical model.
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We have internal process development and Good Manufacturing Practices, or GMP, manufacturing capabilities, including a 25,000 square foot GMP manufacturing facility to support our clinical development programs in both gene therapy and gene editing. We have a commercial manufacturing process. We are currently operating three 500-liter bioreactors in our internal manufacturing facility and have successfully produced GMP material at the 500-liter scale for multiple pipeline candidates. Additionally, we have executed our manufacturing platform at the 2,000-liter bioreactor scale.
Our management team has a successful track record of discovering, developing and
commercializing therapeutics with a particular focus on rare diseases. We have a
robust intellectual property portfolio with issued composition of matter patents
in
Since our inception in 2015, we have raised approximately
We were incorporated and commenced operations in 2015. Since our incorporation, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, developing our technology platform, advancing our lead product candidate, HMI-102 for the treatment of PKU, through IND-enabling studies and into a Phase 1/2 clinical trial, advancing HMI-103 and HMI-202 into IND-enabling studies, researching and identifying additional product candidates, developing and implementing manufacturing processes and internal manufacturing capabilities, building out our manufacturing and research and development space, enhancing our intellectual property portfolio, and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sale of common stock, through the sales of preferred stock, and through funding from our collaboration partner.
To date, we have not generated any revenue from product sales and do not expect
to generate any revenue from the sale of products in the foreseeable future, if
at all. We recognized
Our total operating expenses were
We have incurred significant capital expenditures for the buildout of a facility we have leased, including research and development labs, office space and manufacturing suites and the procurement of equipment and furniture for this facility and in support of our product development candidates and research initiatives. We expect to incur additional capital expenditures in 2020 and beyond in support of our research and development activities and our manufacturing facility.
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Because of the numerous risks and uncertainties associated with the development of our current and any future product candidates and our platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown, we are unable to predict the timing and amount of increased operating expenses and capital expenditures associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including:
• the costs, timing, and results of our ongoing research and development
efforts, including clinical trials, for HMI-102;
• the costs, timing, and results of our ongoing research and development
efforts for HMI-103 and HMI-202, both of which are in IND-enabling
studies;
• the costs, timing, and results of our research and development efforts
for current and future product candidates in our gene therapy and gene
editing pipeline;
• the costs and timing of process development and manufacturing scale-up
activities, and the adequacy of supply of our product candidates for
preclinical studies and clinical trials through CMOs and internal
manufacturing;
• the costs and timing of capital expenditures for potential additional
manufacturing capacity and related equipment and furniture;
• the costs and timing of preparing, filing, and prosecuting patent
applications, maintaining and enforcing our intellectual property rights
and defending any intellectual property-related claims, including any
claims by third parties that we are infringing upon their intellectual
property rights;
• the effect of competitors and market developments; and
• our ability to establish and maintain strategic collaborations, licensing
or other agreements and the financial terms of such agreements for our
product candidates.
We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our current projected operating expenses and capital expenditures into the fourth quarter of 2021. We have based these estimates on assumptions that may prove to be imprecise, and we may use our available capital resources sooner than we currently expect. See "Liquidity and Capital Resources." Adequate additional funds may not be available to us on acceptable terms, or at all. For example, the trading prices for our and other biopharmaceutical companies' stock have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock and any such sales may be on unfavorable terms. See "Risk Factors-The COVID-19 pandemic caused by the novel strain of coronavirus could adversely impact our business, including our preclinical studies and clinical trials." in Part II, Item 1A of this Quarterly Report on Form 10-Q. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights as a shareholder. Any future debt financing or preferred equity or other 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 our shareholders.
If we raise additional funds through collaborations, strategic alliances, 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 when needed, we may be required to delay, limit, reduce, or terminate our product 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.
Because of the numerous risks and uncertainties associated with drug development, we are unable to predict when or if we will be able to achieve or maintain 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.
Impact of COVID-19 Pandemic
We are closely monitoring how the spread of the COVID-19 pandemic is affecting our employees, Phase 1/2 pheNIX clinical trial, preclinical studies, manufacturing and overall operations. In response to the spread of COVID-19, we have taken steps to minimize the impact on our operations.
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Operations - To protect the health of our employees and the third parties with whom we interact, we have instructed all office-based employees to work from home, while ensuring essential staffing levels in our operations remain in place, including maintaining key personnel in our laboratories and manufacturing facility. For those employees on-site, we have developed a modified office layout and traffic flow pattern to increase spacing capabilities, reduce inter-office risks and allow for business continuity. We have increased cleaning protocols throughout our entire facility, limited visitors to only those who are critical to our ongoing operations and have cancelled all business travel.
Phase 1/2 pheNIX clinical trial - We are currently continuing our Phase 1/2 pheNIX clinical trial and are working with trial sites to mitigate potential COVID-19-related disruptions in order to help ensure the safety of patients and healthcare professionals. In addition, we have deployed home-health services which include home visits for patient monitoring and reporting, as well as the utilization of a centralized laboratory for testing enrolled patients. Despite our best efforts, disruptions caused by the COVID-19 pandemic may result in difficulties or delays in enrolling, conducting or completing this trial and the incurrence of unforeseen costs as a result of clinical trial delays. We will continue to evaluate the impact of the ongoing global pandemic on the pheNIX trial and will make adjustments, as needed.
Preclinical studies - IND-enabling studies are continuing in support of our HMI-202 and HMI-103 programs and we have made operational changes to mitigate the risk of potential disruptions caused by the COVID-19 pandemic. All of our ongoing and planned preclinical studies at external CROs are progressing and we have accelerated shipments of reagents and supplies to avoid any disruption of activities. However, it is possible that the COVID-19 pandemic may have an impact in the future on our CROs' ability to complete critical studies required for the progression of these programs. In addition, any planned or potential meetings with the FDA or other regulatory authorities about any of our development programs could be delayed as these regulatory bodies respond to the ongoing pandemic.
Manufacturing - We continue to operate our manufacturing facility at or near normal levels. We have on-hand all of the drug product needed for the ongoing dose-escalation and planned Part B expansion phases of the pheNIX clinical trial. In addition, during the first quarter of 2020, we accelerated the procurement of raw materials for future manufacturing, research and development needs to minimize potential supply chain interruptions. While we currently do not anticipate any interruptions in our manufacturing process, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on our and/or our third-party suppliers and CMOs' ability to manufacture our product candidates or materials needed for our preclinical studies and clinical trials.
At this time, there is significant uncertainty relating to the trajectory of the
COVID-19 pandemic and impact of related responses and as a result, we expect
that the COVID-19 pandemic may impact our business, revenues, results of
operations and financial condition. The impact of COVID-19 on our future results
will largely depend on future developments, which are highly uncertain and
cannot be predicted with confidence, such as the ultimate geographic spread of
the disease, the duration of the pandemic, travel restrictions and social
distancing in
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect
to generate any revenue from the sale of products in the foreseeable future. We
recorded
Operating Expenses
Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs.
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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 product candidates, and include:
• salaries, benefits and other related costs, including stock-based
compensation expense, for personnel engaged in research and development
functions;
• expenses incurred under agreements with third parties, including contract
research organizations, or CROs, and other third parties that conduct
research, preclinical activities and clinical trials on our behalf as
well as CMOs and our internal technical operations team that manufacture
our product candidates for use in our preclinical testing, our Phase 1/2
pheNIX clinical trial and additional potential future clinical trials;
• costs of outside consultants, including their fees and related travel
expenses;
• the costs of laboratory supplies and acquiring, developing and
manufacturing preclinical study and clinical trial materials; and
• facility-related expenses, which include direct depreciation costs and
allocated expenses for rent and maintenance of facilities and other
operating costs.
We expense research and development costs as incurred.
We typically use our employee and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates. These costs are included in other research and development expenses in the table below.
The following table summarizes our research and development expenses by product candidate or development program:
Three months ended March 31,
(in thousands) 2020 2019 Change
HMI-102 external development costs $ 11,433 $ 8,153 $ 3,280 Other development-stage programs' external
development costs 5,814 2,662 3,152 Employee-related costs 10,158 6,459 3,699 Other research and development costs 1,905 3,262 (1,357 )
Total research and development expenses
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we advance clinical trials of HMI-102 for the treatment of PKU, including our Phase 1/2 pheNIX clinical trial, continue to advance both HMI-103 and HMI-202 through IND-enabling studies and into clinical trials and continue to discover and develop additional product candidates.
We cannot determine with certainty the duration and costs of future clinical trials of HMI-102 and IND-enabling studies and future clinical trials of our other product candidates in development or any other future product candidate we may develop or if, when, or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of HMI-102, our other product candidates in development and any other future product candidate we may develop will depend on a variety of factors, including:
• the scope, rate of progress, expense and results of clinical trials of
HMI-102, HMI-103, HMI-202, as well as of any future clinical trials of
other product candidates and other research and development activities
that we may conduct;
• uncertainties in clinical trial design and patient enrollment rates;
• any delays in clinical trials as a result of the COVID-19 pandemic;
• the actual probability of success for our product candidates, including
the safety and efficacy results, early clinical data, competition,
manufacturing capability and commercial viability;
• significant and changing government regulation and regulatory guidance;
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• the timing and receipt of any marketing approvals; and
• the expense of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, human resources, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs, rent expense, maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will increase in the
future as we increase our personnel headcount to support increased research and
development activities relating to HMI-102, HMI-103, HMI-202, and any other
product candidate we may develop. We also have incurred and expect to continue
to incur increased expenses associated with being a public company, including
costs of accounting, audit, compliance with the Sarbanes-Oxley Act of 2002,
legal, regulatory and tax-related services associated with maintaining
compliance with Nasdaq and
Interest Income
Interest income consists of interest income earned on our cash, cash equivalents
and short-term investments. Our interest income has decreased due to lower
yields on invested funds during the three months ended
Critical Accounting Policies and Use of Estimates
This discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in
Our critical accounting policies are described under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Critical Accounting Policies and Significant Judgments and Estimates" in our
Annual Report on Form 10-K for the year ended
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Results of Operations
Comparison of Three Months Ended
The following table summarizes our results of operations for the periods
presented:
Three months ended March 31,
(in thousands) 2020 2019 Change
Collaboration revenue $ 588 $ 270 318
Operating expenses:
Research and development 29,310 20,536 8,774
General and administrative 7,770 4,857 2,913
Total operating expenses 37,080 25,393 11,687
Loss from operations (36,492 ) (25,123 ) (11,369 )
Other income:
Interest income 1,161 1,271 (110 )
Net loss $ (35,331 ) $ (23,852 ) $ (11,479 )
Collaboration Revenue
Collaboration revenue for the three months ended
Research and Development Expenses
Three months ended March 31,
(in thousands) 2020 2019 Change
HMI-102 external development costs $ 11,433 $ 8,153 $ 3,280 Other development-stage programs' external
development costs 5,814 2,662 3,152 Employee-related costs 10,158 6,459 3,699 Other research and development costs 1,905 3,262 (1,357 )
Total research and development expenses
Research and development expenses for the three months ended
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General and Administrative Expenses
General and administrative expenses for the three months ended
Interest Income
Interest income for the three months ended
Net Loss
Net loss for the three months ended
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs and our capital expenditures will increase in connection with conducting preclinical studies and clinical trials for our product candidates, contracting with CMOs and producing material in our internal manufacturing facility to support preclinical studies and clinical trials, expanding our research and development laboratories, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.
We do not currently have any approved products and have never generated any
revenue from product sales. To date, we have financed our operations primarily
through the sale of common stock, and the sale of preferred stock and through an
up-front payment from a collaboration partner. Since our inception in 2015, we
have raised approximately
In
In
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Cash Flows
Our cash, cash equivalents, short-term investments and restricted cash totaled
The following table summarizes our sources and uses of cash for each of the
periods presented:
Three months ended March 31,
(in thousands) 2020 2019
Net cash used in operating activities $ (25,846 ) $ (17,871 )
Net cash provided by investing activities 114,997 19,667
Net cash provided by financing activities 447 325
Net change in cash, cash equivalents and restricted cash
Cash Flows for the Three Months ended
Operating Activities
Net cash used in operating activities for the three months ended
Investing Activities
Net cash provided by investing activities for the three months ended
Financing Activities
Net cash provided by financing activities for the three months ended
Cash Flows for the Three Months ended
Operating Activities
Net cash used in operating activities for the three months ended
Investing Activities
Net cash provided by investing activities for the three months ended
Financing Activities
Net cash provided by financing activities for the three months ended
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Funding Requirements
Our operating expenses increased substantially in 2019 and in the first quarter of 2020 and are expected to increase substantially for the remainder of 2020 and in future years in connection with our ongoing activities, particularly as we advance our Phase 1/2 pheNIX clinical trial with HMI-102, advance our preclinical activities including IND enabling studies, scale-up manufacturing processes, engage with CMOs, manufacture materials for preclinical and clinical activities in our internal manufacturing facility and initiate additional human clinical trials. In addition, we have incurred, and expect to continue to incur additional costs associated with operating as a public company. We also expect our capital expenditures to increase substantially as we expand our operations.
Specifically, our operating expenses and capital expenditures will increase as
we:
• pursue the preclinical and clinical development of HMI-102 including the
ongoing pheNIX Phase 1/2 clinical trial, HMI-103 and HMI-202;
• pursue the preclinical and clinical development of other product
candidates based on our gene therapy and gene editing technology;
• further scale-up our internal manufacturing processes and capabilities,
manufacture materials in our internal manufacturing facility and contract
with CMOs to support our preclinical studies and clinical trials of our
product candidates;
• further expand our manufacturing capacity;
• operate our business in our facility with expanded research and
development labs and manufacturing suites and purchase additional
equipment for our operations;
• in-license or acquire the rights to other products, product candidates or
technologies;
• maintain, expand and protect our intellectual property portfolio;
• hire additional personnel in research, manufacturing and regulatory and
clinical development as well as management personnel; and
• expand our operational, financial and management systems and increase
personnel, including personnel to support our operations as a public
company.
We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2021. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical drugs, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:
• the progress, costs and results of our preclinical development and
initial clinical trials for HMI-102 including the pheNIX Phase 1/2
clinical trial, HMI-103 and HMI-202;
• the progress, costs and results of our additional research and
preclinical development programs in gene therapy and gene editing;
• the costs and timing of internal process development and manufacturing
scale-up activities, the production of materials in our internal
manufacturing facility, and outsourcing activities with CMOs associated
with our lead product development programs and other programs we advance
through preclinical and clinical development;
• our ability to establish and maintain strategic collaborations, licensing
or other agreements and the financial terms of such agreements;
• the scope, progress, results and costs of any product candidates that we
may derive from our platform technology or any other product candidates
that we may develop;
• the extent to which we in-license or acquire rights to other products,
product candidates or technologies; and
• the costs and timing of preparing, filing and prosecuting patent
applications, maintaining and protecting our intellectual property rights
and defending against any intellectual property-related claims.
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In addition, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this Quarterly Report on Form 10-Q, as the pandemic continues to evolve globally. See "Impact of COVID-19 Pandemic" above and "Risk Factors- The COVID-19 pandemic caused by the novel strain of coronavirus could adversely impact our business, including our preclinical studies and clinical trials." in Part II, Item 1A of this Quarterly Report on Form 10-Q for a further discussion of the possible impact of the COVID-19 pandemic on our business.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements and marketing and distribution arrangements.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders as common stockholders. 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. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, 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 when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves. We currently have no credit facility or committed sources of capital.
Contractual Obligations
There have been no material changes to our contractual obligations during the
three months ended
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
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