TRANSLATE BIO, INC. 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 endedDecember 31, 2019 , or the 2019 Annual Report, that was filed with theSecurities and Exchange Commission , orSEC , onMarch 12, 2020 . This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates, forecasts and projections, and the beliefs and assumptions of our management, and include, without limitation, statements with respect to our expectations regarding our research, development and commercialization plans and prospects, results of operations, selling, general and administrative expenses, research and development expenses, the sufficiency of our cash, cash equivalents and short-term investments for future operations and business activity disruption due to the COVID-19 pandemic. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "project," "should," "target," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. You are cautioned that these forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by our forward-looking statements are those discussed under the heading "Risk Factors" in Part II, Item 1A. and elsewhere in this report, and in the 2019 Annual Report. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with theSEC and should not be relied upon as of any subsequent date. We disclaim any obligation, except as specifically required by law and the rules of theSEC , to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. 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 are also pursuing the applicability of our MRT platform for the development of mRNA vaccines for infectious diseases under a collaboration withSanofi Pasteur Inc. , or Sanofi, the vaccines global business unit ofSanofi S.A. We 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 for infectious diseases and other diseases. We are developing MRT5005 for the treatment of cystic fibrosis, or 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 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. TheU.S. Food and Drug Administration , or FDA, has granted orphan drug designation, fast track designation and rare pediatric disease designation for MRT5005 for the treatment of CF. 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 ppFEV 1 , which is a well-defined and accepted endpoint measuring lung function, is also being measured at pre-defined timepoints throughout the trial. InApril 2019 , we completed dosing of patients in the single-ascending dose, or SAD, portion of the Phase 1/2 clinical trial and inJuly 2019 , we reported interim data from the SAD portion of the clinical trial through one-month follow up post dosing. MRT5005 was generally well-tolerated at low and mid-dose levels with no serious adverse 24 -------------------------------------------------------------------------------- Table of Contents events reported at any dose level. Marked increases in ppFEV 1 were observed after a single dose of MRT5005, primarily at the mid-dose level. Based on the analysis of the interim results, we have amended the clinical trial protocol to include one additional SAD dose group and two additional dose groups in the ongoing multiple-ascending dose, or MAD, portion of this trial. We began dosing patients in the MAD portion of this trial in early 2019. InApril 2020 , we announced that enrollment and dosing have been paused in the ongoing Phase 1/2 clinical trial in patients with CF as a consequence of the response to the coronavirus disease, or COVID-19, pandemic. We and the clinical trial sites are assessing the potential for patients to safely return to the clinic for study enrollment and dosing. At this time we are unable to predict the timing for reporting data. 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 Sanofi to develop infectious disease vaccines using our mRNA technology. Under the collaboration, we will jointly conduct research and development activities to advance vaccines targeting up to seven infectious disease pathogens. As part of the ongoing vaccine development program, comprehensive in vivo studies have been conducted across several infectious disease targets. Multiple development candidates were evaluated against distinct pathogens, all of which were well tolerated across all species tested. Multiple antigens were tested with all demonstrating robust neutralization titers. Two of the target pathogens under development are a novel strain of coronavirus named SARS-CoV-2 (severe acute respiratory syndrome 2), which causes COVID-19, and influenza. Multiple COVID-19 vaccine candidates are being evaluated in vivo for immunogenicity and neutralizing antibody activity to support lead candidate selection with the goal to initiate a first-in-human clinical trial in the fourth quarter of 2020. Assuming an accelerated development pathway due to the COVID-19 pandemic and successful completion of clinical studies demonstrating safety and efficacy, earliest approval of a vaccine from this program could occur in the second half of 2021. For information on risks related to our successful development of a vaccine against COVID-19, please see Part II, Item 1A - "Risk Factors - Risks Related to COVID-19," included elsewhere in this Quarterly Report on Form 10-Q. Additionally, we are conducting preclinical studies with a lead candidate for influenza from our vaccine programs to support an anticipated investigational new drug, or IND, filing with clinical trial initiation anticipated mid-year 2021. Preclinical studies are ongoing for targets against additional viral and bacterial pathogens. 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. 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. ThroughJune 30, 2020 , we have funded our operations primarily through sales of equity securities and research and collaboration agreements and we have received proceeds of approximately$629.1 million from such transactions. InJuly 2019 , we entered into an Open Market Sale Agreement SM , or Sales Agreement, withJefferies LLC , or Jefferies, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to$50.0 million . OnMarch 13, 2020 , we amended the Sales Agreement to increase the aggregate dollar amount of shares of common stock that may be sold pursuant to the Sales Agreement from$50.0 million to$100.0 million , which became effective when our universal shelf registration statement on Form S-3 (File No. 333-237159), or the 2020 Shelf, was declared effective. As ofJune 30, 2020 , we have issued and sold an aggregate of 2,863,163 shares of our common stock pursuant to the Sales Agreement, resulting in gross proceeds of 25 -------------------------------------------------------------------------------- Table of Contents$37.9 million , before deducting commissions of$1.1 million and other offering expenses of$0.2 million . In the future,$62.1 million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under the 2020 Shelf. OnJune 30, 2020 , we issued and sold 5,681,819 shares of our common stock through a public offering under a Registration Statement on Form S-ASR, which became automatically effective onJune 24, 2020 , at a price per share of$22.00 , resulting in gross proceeds of$125.0 million , before deducting underwriting discounts and commissions of$7.5 million and other offering expenses of$0.5 million . 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$36.3 million and$27.8 million for the three months endedJune 30, 2020 and 2019, respectively, and$50.6 million and$61.0 million for the six months endedJune 30, 2020 and 2019, respectively. As ofJune 30, 2020 , we had an accumulated deficit of$410.1 million . We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates. 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 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 ofJune 30, 2020 , we had cash, cash equivalents and short-term investments of$292.2 million . We believe that our existing cash, cash equivalents and short-term investments, together with the upfront payment of$300.0 million from Sanofi under an amendment to our collaboration and license agreement, as further described below, and the aggregate purchase price of approximately$125.0 million from Sanofi, a French corporation, an affiliate of Sanofi, or the Investor, under a securities purchase agreement, as further described below, both received as ofAugust 6, 2020 , will enable us to fund our operating expenses and capital expenditure requirements for at least the next 36 months. Sanofi Pasteur Collaboration and Licensing Agreement 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. OnMarch 26, 2020 , we and Sanofi amended the Original Sanofi Agreement, or the First Sanofi Amendment, to include vaccines against SARS-CoV-2 as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six. OnJune 22, 2020 , we and Sanofi agreed to further amend the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi, or the Second Sanofi Amendment, which closed onJuly 20, 2020 , the effective date. The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is referred to as the Amended Sanofi Agreement. Pursuant to the Amended Sanofi Agreement, we and Sanofi have agreed to jointly conduct research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens. The term of the collaboration expires inJune 2022 , with an option for Sanofi to extend for one additional year. If Sanofi elects to so extend, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens , bringing the total to ten pathogens. Under the terms of the Amended 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 infectious disease pathogens, with certain specified exceptions. 26 -------------------------------------------------------------------------------- Table of Contents Pursuant to the Second Sanofi Amendment, Sanofi agreed to pay us an additional upfront payment of$300.0 million , which was received inAugust 2020 . Additionally, in connection with the execution of the Second Sanofi Amendment, we and the Investor entered into a securities purchase agreement, or the Securities Purchase Agreement, for the sale and issuance of 4,884,434 shares of our common stock at a price of$25.59 per share representing a 50 percent premium to the 20-day moving average share price prior to signing, for an aggregate purchase price of approximately$125.0 million , which was received inJuly 2020 . The closing of the transaction contemplated by the Securities Purchase Agreement was consummated onJuly 20, 2020 . Business Impact of the COVID-19 Pandemic The outbreak of SARS-CoV-2 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 theU.S. economy and financial markets. While we have progressed certain of our preclinical programs, specifically in therapeutics for pulmonary diseases and in vaccine development under our collaboration with Sanofi, as further discussed above, enrollment and dosing has been paused in our Phase 1/2 clinical trial in patients with CF as a consequence of the response to the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken in an effort to contain it or to potentially treat or vaccinate against COVID-19 and the economic impact on local, regional, national and international markets. Management is actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, industry and workforce. For additional information on risks posed by the COVID-19 pandemic, please see Part II, Item 1A - "Risk Factors - Risks Related to COVID-19," included elsewhere in this Quarterly Report on Form 10-Q. 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. 27 -------------------------------------------------------------------------------- Table of Contents 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 our collaboration with Sanofi;
• 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 Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(in thousands)
Vaccine program $ 9,387 $ 288 $ 11,976 $ 545
MRT5005 program 3,350 5,263 9,444 11,884
Discovery program 2,033 1,500 5,807 3,543
MRT5201 program - 2,217 - 4,087
Oligonucleotide program - 62 - 95Unallocated research and development expenses 14,232 7,295
23,215 13,894
Total research and development expenses$ 29,002 $ 16,625
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.
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;
• the success of our collaboration with Sanofi;
• our ability to establish new licensing or collaboration arrangements;
• 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;
• obtaining, maintaining, defending and enforcing patent claims and other
intellectual property rights;
• launching commercial sales of our product candidates, if approved,
whether alone or in collaboration with others; and
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• maintaining a continued acceptable safety profile of the product
candidates following approval.
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 September 2019 , we
announced our decision to discontinue the development of MRT5201. In addition,
if the FDA or another regulatory authority were to delay our planned start of
clinical trials or require us to conduct clinical trials or other testing beyond
those that we currently expect, or if we experience significant delays in
enrollment in any of our planned clinical trials, such as the pause in
enrollment in our ongoing Phase 1/2 clinical trial in patients with CF as a
consequence of the response to the
COVID-19
pandemic that we announced in April 2020 , we could be required to expend
significant additional financial resources and time to complete clinical
development of that product candidate. We may never obtain regulatory approval
for any of our product candidates. Drug commercialization will take several
years and millions of dollars in development costs.
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 Shire Human Genetic Therapies, Inc. , or Shire, a subsidiary of
Takeda Pharmaceutical Company Ltd., we recognized contingent consideration
liabilities for future potential milestone and earnout payment obligations, and
prior to the IPO, anti-dilution rights with respect to common stock issued to
Shire. The contingent consideration was initially recorded at fair value on the
acquisition date and is subsequently remeasured to fair value at each reporting
date. Any changes in the fair value of the contingent consideration liabilities
are recognized as operating income or expenses.
Interest Income
Interest income consists of income recognized in connection with our investments
in money market funds and U.S. government agency bonds.
Income Taxes
We recognized an income tax benefit of $0 and $0.5 million during the
six months ended June 30, 2020 and 2019, respectively. There was no income tax
benefit recognized during the three months ended June 30, 2020 and 2019. The
income tax benefits recognized during the six months ended June 30, 2019
resulted from a reduction in the deferred tax liabilities recorded as part of
our acquisition of the MRT Program as well as deferred tax assets recorded for
net operating losses generated that have an unlimited carryforward period. Net
operating losses generated in 2018 and years thereafter can be carried forward
indefinitely.
As of December 31, 2019 , we had U.S. federal net operating loss carryforwards of
$229.3 million , of which $122.1 million will, if not utilized, begin to expire
in 2031. As of December 31, 2019 , we had U.S. state net operating loss
carryforwards of $210.6 million , which will, if not utilized, begin to expire in
2031. As of December 31, 2019 , we also had U.S. federal and state research and
development tax credit carryforwards of $6.5 million and $2.7 million ,
respectively, which will, if not utilized, begin to expire in 2032 and 2028,
respectively, and orphan drug tax credit carryforwards of $13.0 million , which
begin to expire in 2037. We also have state investment tax credit carryforwards
of $0.3 million , which will, if not utilized, begin to expire in 2020. As of
December 31, 2019 , we recorded a full valuation allowance against our deferred
tax assets, except for the deferred tax asset associated with our alternative
minimum tax credit carryforwards, which will be fully refundable.
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Results of Operations
Comparison of the Three Months Ended June 30, 2020 and 2019
The following table summarizes our results of operations for the
three months ended June 30, 2020 and 2019:
Three Months Ended
June 30,
2020 2019 Change
(in thousands)
Collaboration revenue $ 16,319 $ 1,174 $ 15,145
Operating expenses:
Research and development 29,002 16,625 12,377
General and administrative 8,601 7,850 751
Change in fair value of contingent consideration 15,347 4,889 10,458
Total operating expenses 52,950 29,364 23,586
Loss from operations (36,631 ) (28,190 ) (8,441 )
Interest income 343 358 (15 )
Loss before benefit from income taxes (36,288 ) (27,832 ) (8,456 )
Benefit from income taxes - - -
Net loss $ (36,288 ) $ (27,832 ) $ (8,456 )
Collaboration Revenue
Collaboration revenue was $16.3 million and $1.2 million for the three months
ended June 30, 2020 and 2019, respectively, which was derived from the Sanofi
collaboration. The increase of $15.1 million was related to increased activities
for the vaccine program in the three months ended June 30, 2020 compared to the
same period in 2019.
Research and Development Expenses
Three Months Ended
June 30,
2020 2019 Change
(in thousands)
Direct external research and development expenses by program:
Vaccine program $ 9,387 $ 288 $ 9,099
MRT5005 program 3,350 5,263 (1,913 )
Discovery program 2,033 1,500 533
MRT5201 program - 2,217 (2,217 )
Oligonucleotide program - 62 (62 )
Unallocated research and development expenses:
Personnel related (including stock-based compensation) 8,791 4,701 4,090
Other 5,441 2,594 2,847
Total research and development expenses$ 29,002 $
16,625
Research and development expenses were$29.0 million for the three months endedJune 30, 2020 , compared to$16.6 million for the three months endedJune 30, 2019 . The increase of$12.4 million was primarily due to continued development of our vaccine and discovery programs as well as an increase in personnel-related costs, partially offset by a decrease in our MRT5201 and MRT5005 programs. Direct external expenses of our vaccine program increased by$9.1 million during the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 primarily due to increased costs related to the increased activities of the vaccine program. Direct external expenses of our MRT5005 program decreased by$1.9 million during the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 primarily due to decreased manufacturing costs and clinical trial costs. Expenses incurred in the three months endedJune 30, 2019 related to manufacturing costs in preparation of our Phase 1/2 clinical trial of MRT5005 for the treatment of patients with CF, for which there were no comparable manufacturing expenses in the same period in 2020. The decrease in clinical trial costs was due to a pause in enrollment and dosing in our ongoing Phase 1/2 clinical trial in patients with CF, as a consequence of the response to the COVID-19 pandemic. 31 -------------------------------------------------------------------------------- Table of Contents Direct external expenses of our discovery program increased by$0.5 million during the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 primarily due to increased costs related to our ongoing exploratory research and discovery efforts to identify next-generation CF candidates and identify lead product candidates in additional pulmonary diseases, such as PCD, IPF and PAH. Direct external expenses of our MRT5201 program decreased by$2.2 million in the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 due to the decision in 2019 to discontinue development of this program. Unallocated research and development expenses increased by$6.9 million during the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 . The increase of$4.1 million in personnel-related costs was primarily related to an increase in stock-based compensation due to a stock option modification in the three months endedJune 30, 2020 as well as an increase in headcount in the three months endedJune 30, 2020 compared to the same period in 2019. The increase of$2.8 million in other unallocated research and development expenses was primarily due to an increase of$3.3 million in amortization expense related to the definite-lived MRT intangible asset, partially offset by a decrease of$0.4 million in professional fees. General and Administrative Expenses General and administrative expenses were$8.6 million for the three months endedJune 30, 2020 , compared to$7.9 million for the three months endedJune 30, 2019 . The increase of$0.8 million was primarily due to an increase in legal fees. Change in Fair Value of Contingent Consideration During the three months endedJune 30, 2020 and 2019, we recognized operating expenses of$ 15 . 3 million and$4.9 million , respectively, for changes in the fair value of the contingent consideration liabilities we recorded in connection with our acquisition of the MRT Program inDecember 2016 . The contingent consideration liabilities relate to future potential milestone and earnout payment obligations and, prior to the IPO, anti-dilution rights with respect to common stock issued to Shire. The expense recognized during the three months endedJune 30, 2020 was attributed primarily to an increase in the fair value of the contingent consideration liability for future earnout payments that could become due. This increase was primarily due to the time value of money due to the passage of time and a decrease in the discount rate. Comparison of the Six Months EndedJune 30, 2020 and 2019 The following table summarizes our results of operations for the six months endedJune 30, 2020 and 2019: Six Months Ended June 30, 2020 2019 Change (in thousands) Collaboration revenue$ 20,974 $ 2,648 $ 18,326 Operating expenses: Research and development 50,442 34,048 16,394 General and administrative 16,060 14,403 1,657 Change in fair value of contingent consideration 5,895 16,591 (10,696 ) Total operating expenses 72,397 65,042 7,355 Loss from operations (51,423 ) (62,394 ) 10,971 Interest income 853 878 (25 ) Loss before benefit from income taxes (50,570 ) (61,516 ) 10,946 Benefit from income taxes - 486 (486 ) Net loss$ (50,570 ) $ (61,030 ) $ 10,460 Collaboration Revenue Collaboration revenue was$21.0 million and$2.6 million for the six months endedJune 30, 2020 and 2019, respectively, which was derived from the Sanofi collaboration. The increase of$18.3 million was related to increased activities for the vaccine program in the six months endedJune 30, 2020 compared to the same period in 2019. 32 -------------------------------------------------------------------------------- Table of Contents Research and Development Expenses Six Months Ended June 30, 2020 2019 Change (in thousands) Direct external research and development expenses by program: Vaccine program$ 11,976 $ 545$ 11,431 MRT5005 program 9,444 11,884 (2,440 ) Discovery program 5,807 3,543 2,264 MRT5201 program - 4,087 (4,087 ) Oligonucleotide program - 95 (95 ) Unallocated research and development expenses: Personnel related (including stock-based compensation) 14,777 8,986 5,791 Other 8,438 4,908 3,530 Total research and development expenses$ 50,442 $
34,048
Research and development expenses were$50.4 million for the six months endedJune 30, 2020 , compared to$34.0 million for the six months endedJune 30, 2019 . The increase of$16.4 million was primarily due to continued development of our vaccine and discovery programs as well as an increase in personnel-related costs, partially offset by a decrease in our MRT5201 and MRT5005 programs. Direct external expenses of our vaccine program increased by$11.4 million during the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to increased costs related to the increased activities of the vaccine program. Direct external expenses of our MRT5005 program decreased by$2.4 million during the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to decreased manufacturing costs and clinical trial costs. Expenses incurred in the six months endedJune 30, 2019 related to manufacturing costs in preparation of our Phase 1/2 clinical trial of MRT5005 for the treatment of patients with CF, for which there were no comparable manufacturing expenses in the same period in 2020. The decrease in clinical trial costs is due to a pause in enrollment and dosing in our ongoing Phase 1/2 clinical trial in patients with CF, as a consequence of the response to the COVID-19 pandemic. Direct external expenses of our discovery program increased by$2.3 million during the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 primarily due to increased costs related to our ongoing exploratory research and discovery efforts to identify next-generation CF candidates and identify lead product candidates in additional pulmonary diseases, such as PCD, IPF and PAH. Direct external expenses of our MRT5201 program decreased by$4.1 million in the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 due to the decision in 2019 to discontinue development of this program. Unallocated research and development expenses increased by$9.3 million during the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 . The increase of$5.8 million in personnel-related costs was primarily related to an increase in stock-based compensation due to a stock option modification in the six months endedJune 30, 2020 as well as an increase in headcount in the six months endedJune 30, 2020 compared to the same period in 2019. The increase of$3.5 million in other unallocated research and development expenses was primarily due to an increase in amortization expense related to the definite-lived MRT intangible asset. General and Administrative Expenses General and administrative expenses were$16.1 million for the six months endedJune 30, 2020 , compared to$14.4 million for the six months endedJune 30, 2019 . The increase of$1.7 million was due to an increase of$0.8 million in legal fees and an increase of$0.6 million in personnel-related costs primarily due to an increase in stock-based compensation expense. Change in Fair Value of Contingent Consideration During the six months endedJune 30, 2020 and 2019, we recognized operating expenses of$ 5.9 million and$16.6 million , respectively, for changes in the fair value of the contingent consideration liabilities we recorded in connection with our acquisition of the MRT Program inDecember 2016 . The contingent consideration liabilities relate to future potential milestone and earnout payment obligations and, prior to the IPO, anti-dilution rights with respect to common stock issued to Shire. The expense recognized during the six months endedJune 30, 2020 was attributed primarily to an increase in the fair value of the contingent consideration liability for future earnout payments that could become due. This increase was primarily due to the time value of money due to the passage of time. 33 -------------------------------------------------------------------------------- Table of Contents Benefit from Income Taxes During the six months endedJune 30, 2020 and 2019, we recognized an income tax benefit of$0 and$0.5 million , respectively. The income tax benefit recognized during the six months endedJune 30, 2019 resulted from a reduction in the deferred tax liabilities recorded as part of our acquisition of the MRT Program as well as deferred tax assets recorded for net operating losses generated that have an unlimited carryforward period. Net operating losses generated in 2018 and years thereafter can be carried forward indefinitely. Liquidity and Capital Resources Since our inception throughJune 30, 2020 , 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. ThroughJune 30, 2020 , we have funded our operations primarily through sales of equity securities and research and collaboration agreements and we have received proceeds of approximately$629.1 million from such transactions. InJuly 2019 , we filed a universal shelf registration statement on Form S-3 with theSEC , or the 2019 Shelf, to register for sale from time to time up to$250.0 million of our common stock, preferred stock, debt securities, warrants and/or units in one or more offerings, which became effective onJuly 19, 2019 (File No. 333-232543). InJuly 2019 , we entered into an Open Market Sale Agreement SM , or Sales Agreement, with Jefferies, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to$50.0 million . OnMarch 13, 2020 , we filed a universal shelf registration statement on Form S-3 with theSEC , or the 2020 Shelf, to register for sale from time to time up to$350.0 million of our common stock, preferred stock, debt securities, warrants and/or units in one of more offerings (File No. 333-237159). This registration statement was declared effective onMay 4, 2020 . Upon the effectiveness of the 2020 Shelf, we deregistered the 2019 Shelf and no more sales may be made pursuant to the 2019 Shelf. OnMarch 13, 2020 , we entered into Amendment No. 1 to the Open Market Sale Agreement SM with Jefferies, which increased the aggregate dollar amount of shares of common stock that we may issue and sell pursuant to the Sales Agreement from$50.0 million to$100.0 million , which became effective when the 2020 Shelf was declared effective. 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. As ofJune 30, 2020 , we have issued and sold an aggregate of 2,862,163 shares of our common stock, resulting in gross proceeds of$37.9 million , before deducting commissions of$1.1 million and other offering expenses of$0.2 million . In the future,$62.1 million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under the 2020 Shelf. OnJune 24, 2020 , we filed a registration statement on Form S-3ASR, which became automatically effective upon filing with theSEC (File No. 333-239405), referred to as theJune 2020 Registration Statement. TheJune 2020 Registration Statement registered for sale from time to time common stock, preferred stock, debt securities, warrants and/or units in one or more offerings. OnJune 30, 2020 , we issued and sold 5,681,819 shares of common stock and a stockholder sold 6,824,992 shares of common stock through a public offering pursuant to theJune 2020 Registration Statement. The price to the public was$22.00 per share, resulting in gross proceeds to us of$125.0 million , before deducting underwriting discounts and commissions of$7.5 million and other offering expenses of$0.5 million . We did not receive any proceeds from the sales of shares of common stock by the stockholder. 34 -------------------------------------------------------------------------------- Table of Contents Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Six Months Ended June 30, 2020 2019 (in thousands) Net cash used in operating activities$ (51,489 ) $ (41,445 ) Net cash provided by investing activities 79,422
15,525
Net cash provided by financing activities 159,680
45,550
Net increase in cash, cash equivalents and restricted cash
$ 19,630
Operating Activities
During the six months ended
million and net cash used in changes in our operating assets and liabilities of
million. Net cash used in changes in our operating assets and liabilities consisted of a$10.5 million increase in collaboration receivables, a$6.4 million decrease in deferred revenue, a$5.9 million increase in prepaid expenses and other assets and a$2.8 million decrease in accounts payable, partially offset by a$4.0 million increase in accrued expenses. Net non-cash charges for the six months endedJune 30, 2020 primarily consisted of a$9.2 million charge to stock-based compensation expense , a$5 . 9 million increase in the change in the fair value of contingent consideration which was primarily due to the time value of money due to the passage of time and a$5.6 million charge for depreciation and amortization expense . During the six months endedJune 30, 2019 , operating activities used$41.4 million of cash, resulting from our net loss of$61.0 million and net cash used in changes in our operating assets and liabilities of$4.0 million , partially offset by net non-cash charges of$23.6 million . Net cash used in changes in our operating assets and liabilities consisted of a$1.9 million decrease in accounts payable and a$1.8 million increase in prepaid expenses and other assets. Net non-cash charges for the six months endedJune 30, 2019 primarily consisted of a$16.6 million increase in the change in the fair value of contingent consideration which was primarily due to the continued progress of MRT5005 and MRT5201, the time value of money due to the passage of time and a decrease in the discount rate. Investing Activities During the six months endedJune 30, 2020 , net cash provided by investing activities was$79.4 million , consisting of$111.3 million of sales and maturities of short-term investments, partially offset by$27.4 million of purchases of short-term investments and$4.4 million of purchases of property and equipment. During the six months endedJune 30, 2019 , investing activities provided$15.5 million of cash, consisting of$55.8 million of sales and maturities of short-term investments, partially offset by$38.4 million of purchases of short-term investments and$1.8 million of purchases of property and equipment. Financing Activities During the six months endedJune 30, 2020 , net cash provided by financing activities was$159.7 million , consisting of net cash proceeds of$153.8 million from public offerings of our common stock and$5.8 million in proceeds from option exercises. During the six months endedJune 30, 2019 , net cash provided by financing activities was$45.6 million , consisting of net cash proceeds of$44.1 million from a private placement of our common stock and$1.4 million in proceeds from option exercises. 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; 35
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• continue the development of mRNA vaccine candidates against infectious
diseases;
• 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$292.2 million as ofJune 30, 2020 , together with the upfront payment of$300.0 million from Sanofi under the Amended Sanofi Agreement and the aggregate purchase price of approximately$125.0 million from the Investor under the Securities Purchase Agreement, both received as ofAugust 6, 2020 , will enable us to fund our operating expenses and capital expenditure requirements for at least the next 36 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. 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;
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• 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; and
• the timing, receipt and amount of sales of, or milestone payments related
to or royalties on, our current or future product candidates, if any.
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. 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 six months endedJune 30, 2020 , there were no material changes to our contractual obligations and commitments as ofDecember 31, 2019 described under Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report with the exception of the commitments as described below. OnMarch 26, 2020 , we and Sanofi entered into the First Sanofi Amendment to include vaccines against SARS-CoV-2 as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six. Pursuant to the First Sanofi Amendment, we and Sanofi agreed that no upfront fee is payable by Sanofi to us with respect to the addition of SARS-CoV-2 as a Licensed Field. 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. OnJune 22, 2020 , we and Sanofi entered into the Second Sanofi Amendment, which further amends the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi, which became effective onJuly 20, 2020 . In connection with the execution of the Second Sanofi Amendment, we and Sanofi also entered into the Supply Agreement with an effective date ofDecember 20, 2019 , governing the terms of the supply of products by us to Sanofi. Pursuant to the Supply Agreement, we have agreed to use commercially reasonable efforts to manufacture and supply Sanofi with non-clinical and clinical supply of products and other research materials in certain Licensed Fields, as set forth in the Second Sanofi Amendment. Under our license agreement withMIT , we are obligated to make milestone payments toMIT aggregating up to$1.375 million upon the achievement of specified clinical and regulatory milestones with respect to each licensed product and$1.250 million upon our first commercial sale of each licensed product, and to pay royalties of a low single-digit percentage toMIT based on our, and any of our affiliates' and sublicensees', net sales of licensed products. As a result of the Amended Sanofi Agreement, we will be required to payMIT a portion of the$300.0 million upfront payment and a portion of the 50 percent premium payment in consideration for the common stock purchased under the Securities Purchase Agreement as well as future option and milestone payments that we may 37 -------------------------------------------------------------------------------- Table of Contents receive pursuant to the Second Sanofi Amendment. The amounts that we may owe toMIT will depend upon the relative value of the patents we licensed fromMIT and sublicensed to Sanofi as compared to the other rights that we licensed to Sanofi. The determination of the relative value of such rights is subject to a process described in our license agreement withMIT . Critical Accounting Policies and Significant Judgments and Estimates Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in our finance statements. We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates-which also would have been reasonable-could have been used. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. 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. OnJune 30, 2020 , the market value of our stock held by non-affiliates was greater than$700 million . As a result, we will cease being an emerging growth company and a smaller reporting company effectiveDecember 31, 2020 and will no longer be able to take advantage of the various reporting and other exemptions available to emerging growth companies as of such date. As of the date we file our first Quarterly Report on Form 10-Q followingDecember 31, 2020 , we will no longer be able to take advantage of the various reporting and other exemptions available to smaller reporting 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 theSEC . Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item. 38
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