You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed financial
statements and related notes appearing elsewhere in this Quarterly Report on
Form 10-Q and our audited financial statements and related notes included in our
Annual Report on Form 10-K for the year ended
Business Impact of the COVID-19 Pandemic
The outbreak of a novel strain of virus named SARS-CoV-2 (severe acute
respiratory syndrome 2), which causes coronavirus disease, or COVID-19,
has presented a substantial public health and economic challenge around the
world and is affecting our employees, patients, communities and business
operations, as well as the
Overview
We are a clinical-stage messenger RNA, or mRNA, therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction. Using our proprietary mRNA therapeutic platform, or MRT platform, we create mRNA that encodes functional proteins. Our mRNA is designed to be delivered to the target cell where the cell's own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. We believe that the mRNA design, delivery and manufacturing capabilities of our MRT platform provide us with the most advanced platform for developing product candidates that deliver mRNA encoding functional proteins for therapeutic uses. We believe that our MRT platform is broadly applicable across multiple diseases in which the production of a desirable protein can have a therapeutic effect, with the potential to transform life-threatening illnesses into manageable chronic conditions. We are primarily focused on applying our MRT platform to treat pulmonary diseases caused by insufficient protein production or where production of proteins can modify disease. We also believe our technology is applicable to a broad range of diseases, including diseases that affect the liver. Additionally, our MRT platform may be applied to produce various classes of treatments, such as therapeutic antibodies or vaccines in areas such as infectious disease and oncology.
We are developing MRT5005 for the treatment of CF. We believe MRT5005 is the first clinical-stage mRNA product candidate designed to deliver mRNA encoding fully functional cystic fibrosis transmembrane conductance regulator, or CFTR, protein to the lung. We have designed MRT5005 to be inhaled via a handheld nebulizer and to be administered in a once-weekly dose. Once the inhaled MRT5005 has entered the epithelial cells lining the patient's lungs, our therapeutic mRNA uses the cells' own machinery for
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translation and expression of fully functional CFTR protein, thereby restoring
this essential ion channel, which we believe will address the pathology of CF
directly. Currently approved CFTR modulating therapies are limited to patients
with specific genetic mutations; therefore, there remains a significant unmet
medical need for patients with CF who have genetic mutations non-amenable to
currently approved CFTR modulating therapies. Additionally, patients treated
with these current therapies still suffer from a long-term decline in lung
function and exacerbations that require hospitalization. MRT5005 is being
developed to treat the underlying cause of CF, regardless of the specific
genetic mutation, including in patients with limited or no CFTR protein. The
We are conducting a Phase 1/2 clinical trial to evaluate the safety and
tolerability of MRT5005. Percent predicted forced expiratory volume in one
second, or ppFEV1, which is a well-defined and accepted endpoint measuring lung
function, is also being measured at pre-defined timepoints throughout the trial.
In
We are leveraging our lung delivery platform and focusing our preclinical research efforts on identifying lead product candidates for a next-generation CF program, as well as beyond CF in additional pulmonary diseases with unmet medical need. Building upon the MRT5005 program's success to date, we are exploring innovation in the MRT platform including novel lipid nanoparticles, protein engineering approaches and manufacturing process enhancements to identify next-generation CF candidates that can support expansion of our pipeline opportunities. Beyond CF, we have discovery efforts underway to identify lead product candidates in additional pulmonary diseases, including primary ciliary dyskinesia, or PCD, idiopathic pulmonary fibrosis, or IPF, and pulmonary arterial hypertension, or PAH.
We have also begun to explore ways to leverage our delivery platform and expertise to apply different modalities to diseases where the knock-down or degradation of a protein would lead to therapeutic benefit, including small interfering RNA, or siRNA, or biological protein degradation. For example, in IPF, we are conducting preclinical studies to evaluate the delivery of siRNA and the resulting knock-down effect of a specific target of interest.
Additionally, we intend to leverage the broad applicability of our platform
through a collaboration with
On
The successful development of our product candidates will require, among other things, our mRNA manufacturing capabilities. To date, we have established 100-gram single-batch production with our clinical-stage mRNA therapeutics platform. Build-out is underway of dedicated manufacturing space through a contract manufacturing partner, which has the potential to accommodate multiple 250-gram batches per month upon continued investments and third-party supplier arrangements. As it relates to development of a COVID-19 vaccine, depending on the final human COVID-19 vaccine dose, we estimate that we could have manufacturing capacity to produce 90-360 million doses annually by the first half of 2021. We plan to further expand our mRNA manufacturing capabilities to increase production capacity, and will need to work with raw material and other third-party suppliers to achieve this goal.
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In
Since our inception in 2011, we have devoted substantially all of our focus and financial resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for our programs. We do not have any products approved for sale and have not generated any revenue from product sales.
In 2018, we entered into a collaboration and license agreement with Sanofi, or
the Original Sanofi Agreement, to develop mRNA vaccines for up to five
infectious disease pathogens, or the Licensed Fields. On
Under the Amended Sanofi Agreement, we and Sanofi are jointly conducting
research and development activities to advance mRNA vaccines and mRNA vaccine
platform development during a three-year research term, which may be extended by
mutual agreement. We are eligible to receive up to
We and Sanofi also agreed that certain provisions of the Original Sanofi Agreement, including provisions related to milestone payments, royalties and royalty reductions, shall not apply to vaccine products for the prevention, treatment or cure of SARS-CoV-2 that are purchased by a governmental authority while SARS-CoV-2 is a declared pandemic. We and Sanofi agreed to negotiate in good faith the royalty terms applicable to such products, which terms shall reflect the economic conditions applicable to commercializing such products and shall not exceed the royalty terms for the existing Licensed Fields.
Through
In
Since our inception, we have incurred significant operating losses. Our ability
to achieve profitability will depend heavily on the successful development and
eventual commercialization of one or more of our current or future product
candidates. Our net losses were
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 the sale of equity, debt financings or other capital sources, including collaborations, strategic partnerships or marketing, distribution or
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licensing arrangements with third parties or grants from organizations and foundations. 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 as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve 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.
As of
There is no assurance that we will be successful in obtaining additional financing on terms acceptable to us, if at all, nor is it considered probable under the accounting standards. As such, under the requirements of ASC 205-40, management may not consider the potential for future capital raises or management plans to reduce costs that are not considered probable in their assessment of our ability to meet our obligations. If we are unable to obtain funding, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves, which could adversely affect our business prospects, and we may be unable to continue operations. See "-Liquidity and Capital Resources-Funding Requirements."
Components of Our Results of Operations
Revenue from Product Sales
To date, we have not generated any revenue from product sales, and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.
Collaboration Revenue
In 2018, we entered into the Original Sanofi Agreement to develop mRNA vaccines and an mRNA vaccine platform for up to five infectious disease pathogens.
Under the terms of the Original Sanofi Agreement, we have granted to Sanofi exclusive, worldwide licenses under applicable patents, patent applications, know-how and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any of three Licensed Fields. In addition, pursuant to the terms of the Original Sanofi Agreement and subject to certain limitations, Sanofi has the options to add up to two additional infectious disease pathogens within the granted licenses to the License Fields.
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Under revenue recognition guidance, we account for: (i) the license we conveyed to Sanofi with respect to the Licensed Fields, (ii) the licensed know-how to be conveyed to Sanofi with respect to the Licensed Fields, (iii) our obligations to perform research and development on the Licensed Fields, (iv) our obligation to transfer licensed materials to Sanofi, (v) our obligation to manufacture and supply certain non-clinical and clinical mRNA vaccines and materials containing mRNA until we transfer such manufacturing capabilities to Sanofi and (vi) the technology and process transfer as a single performance obligation. We recognize revenue using the cost-to-cost input method, which we believe best depicts the transfer of control to the customer. Under the cost-to-cost input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:
• employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions; • expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs; • the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs; • laboratory supplies; • facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance; • costs to fulfill our obligations under the Amended Sanofi Agreement; • costs related to compliance with regulatory requirements; and • payments made under third-party licensing agreements.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the services have been performed or the goods have been delivered, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments, milestone payments (other than those deemed contingent consideration in a business combination) and annual maintenance fees under license agreements are expensed in the period in which they are incurred.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include costs of laboratory supplies incurred for each program as well as fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery and to manage our preclinical development, process development, manufacturing and clinical development activities.
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The table below summarizes our direct research and development expenses incurred by program: Three Months Ended March 31, 2020 2019 (in thousands) MRT5005 program$ 6,094 $ 6,622 Discovery program 3,775 2,042 Vaccine program 2,589 257 MRT5201 program - 1,869 Oligonucleotide program - 34 Unallocated research and development expenses 8,981 6,599 Total research and development expenses$ 21,439 $ 17,423
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we conduct our clinical trials of MRT5005 for the treatment of patients with CF; expand our manufacturing capabilities; conduct research and development activities to advance mRNA vaccines and develop an mRNA vaccine platform under the Amended Sanofi Agreement; prepare regulatory filings for our product candidates; continue to discover and develop additional product candidates; and potentially advance product candidates from our discovery program into later stages of clinical development. We expect to continue to devote a substantial portion of our resources to our discovery program for the foreseeable future.
In
The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
• the timing and progress of preclinical and clinical development activities, including delays resulting from the COVID-19 pandemic; • the number and scope of preclinical and clinical programs we decide to pursue; • our ability to maintain our current research and development programs and to establish new ones; • establishing an appropriate safety profile with IND enabling studies; • successful patient enrollment in, and the initiation and completion of, clinical trials; • the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority; • the receipt of regulatory approvals from applicable regulatory authorities; • the timing, receipt and terms of any marketing approvals from applicable regulatory authorities; • our ability to establish new licensing or collaboration arrangements; • the success of our collaboration with Sanofi; • the performance of our future collaborators, if any; • establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; • development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch; 28
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Any changes in the outcome of any of these variables with respect to the
development of our product candidates in preclinical and clinical development
could mean a significant change in the costs and timing associated with the
development of these product candidates. For example, in
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, related benefits and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance, as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services.
We anticipate that our general and administrative expenses will increase over the next several years as we anticipate increased accounting, audit, legal, regulatory, compliance, director and officer insurance and investor and public relations costs associated with being a public company.
Change in Fair Value of Contingent Consideration
In connection with our acquisition of the messenger RNA therapeutic platform, or
MRT Program, from
Other Income (Expense), Net
Interest Income
Interest income consists of income recognized in connection with our investments
in money market funds and
Other Income (Expense), Net
Other income (expense), net consists of miscellaneous income and expense unrelated to our core operations.
Income Taxes
We recognized an income tax benefit of
As of
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development tax credit carryforwards of
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the
three months ended
Three Months Ended March 31, 2020 2019 Change (in thousands) Collaboration revenue$ 4,654 $ 1,474 $ 3,180 Operating expenses: Research and development 21,439 17,423 4,016 General and administrative 7,458 6,554 904
Change in fair value of contingent consideration (9,452 ) 11,702 (21,154 )
Total operating expenses 19,445 35,679 (16,234 ) Loss from operations (14,791 ) (34,205 ) 19,414 Interest income, net 509 521 (12 ) Loss before benefit from income taxes (14,282 ) (33,684 ) 19,402 Benefit from income taxes - 486 (486 ) Net loss$ (14,282 ) $ (33,198 ) $ 18,916 Collaboration Revenue
Collaboration revenue was
Research and Development Expenses
Three Months Ended March 31, 2020 2019 Change (in thousands) Direct external research and development expenses by program: MRT5005 program$ 6,094 $ 6,622 $ (528 ) Discovery program 3,775 2,042 1,733 Vaccine program 2,589 257 2,332 MRT5201 program - 1,869 (1,869 ) Oligonucleotide program - 34 (34 )
Unallocated research and development expenses: Personnel related (including stock-based compensation) 5,985 4,285 1,700 Other
2,996 2,314 682 Total research and development expenses$ 21,439 $ 17,423 $ 4,016
Research and development expenses were
Direct external expenses of our MRT5005 program decreased by
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Direct external expenses of our discovery program increased by
Direct external expenses of our vaccine program increased by
Direct external expenses of our MRT5201 program decreased by
Unallocated research and development expenses increased by
General and Administrative Expenses
General and administrative expenses were
Change in Fair Value of Contingent Consideration
During the three months ended
Benefit from Income Taxes
During the three months ended
Liquidity and Capital Resources
Since our inception, we have not generated any revenue from product sales, have generated only limited revenue from the Original Sanofi Agreement and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates, and we do not expect to generate revenue from sales of any product candidates for several years, if at all. See "-Funding Requirements" and Note 1 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a further discussion of our liquidity and the conditions and events that raise substantial doubt regarding our ability to continue as a going concern.
Through
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In
In
Sales of common stock through Jefferies may be made by any method that is deemed
an "at the market" offering as defined in Rule 415 promulgated under the
Securities Act of 1933, as amended. Jefferies has agreed to use its commercially
reasonable efforts consistent with its normal trading and sales practices to
sell shares of our common stock based upon our instructions. We are not
obligated to make any sales of our common stock under the Sales Agreement.
Between
On
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented: Three Months Ended March 31, 2020 2019 (in thousands) Net cash used in operating activities$ (31,447 ) $ (21,531 ) Net cash provided by investing activities 44,260 27,866 Net cash provided by financing activities 75 897 Net increase in cash, cash equivalents and restricted cash$ 12,888 $ 7,232 Operating Activities
During the three months ended
During the three months ended
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Investing Activities
During the three months ended
During the three months ended
Financing Activities
During the three months ended
During the three months ended
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue ongoing and initiate new clinical trials of and seek marketing approval for our product candidates. In addition, we expect to incur additional costs associated with operating as a public company. Our expenses will also increase if, and as, we:
• continue the clinical development of MRT5005; • leverage our programs to advance our other product candidates into preclinical and clinical development; • seek regulatory approvals for any product candidates that successfully complete clinical trials; • seek to discover and develop additional product candidates; • establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly; • hire additional clinical, quality control and scientific personnel; • expand our manufacturing, operational, financial and management systems; • increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company; • maintain, expand and protect our intellectual property portfolio; • acquire or in-license other product candidates and technologies; and • incur additional legal, accounting and other expenses in operating as a public company.
We believe that our existing cash, cash equivalents and short-term investments
of
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We will need to raise additional capital or incur indebtedness to continue to fund our operations in the future. Our ability to raise additional funds will depend on financial, economic and market conditions, many of which are outside of our control, and we may be unable to raise financing when needed, or on terms favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves, which could adversely affect our business prospects, and we may be unable to continue our operations. Because of numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Factors that may affect our planned future capital requirements and accelerate our need for additional working capital include the following:
• the impacts of the COVID-19 pandemic and our response to it; • the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials; • the costs, timing and outcome of regulatory review of our product candidates; • the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval; • the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch; • the ability to receive additional non-dilutive funding, including grants from organizations and foundations; • the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval; • the cost and timing of hiring new employees to support our continued growth; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; • the ability to establish and maintain collaborations on favorable terms, if at all; • the extent to which we acquire or in-license other product candidates and technologies; • the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any; and • our ability to continue as a going concern.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
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Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties and grants from organizations and foundations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that could adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in increased fixed payment obligations.
If we raise funds through collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.
Contractual Obligations and Commitments
During the three months ended
On
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed consolidated financial statements are prepared in accordance with
generally accepted accounting principles in
There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Annual Report.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
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