You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed consolidated financial
statements and related notes thereto appearing elsewhere in this Quarterly
Report on Form 10-Q, or Quarterly Report, and our audited financial statements
and related notes for the year ended December 31, 2020 included in our Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March
29, 2021, which we refer to as the 2020 Annual Report on Form 10-K. Some of the
information contained in this discussion and analysis includes forward-looking
statements that involve risks and uncertainties. As a result of many factors,
including those factors set forth in the section entitled "Risk Factors," our
actual results could differ materially from the results described in or implied
by the forward-looking statements contained in the following discussion and
analysis. Please also see the section entitled "Cautionary Note Regarding
Forward-Looking Statements and Industry Data" of this Quarterly Report.

Overview



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

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

We are also using our platform to design and develop a pipeline of gene
therapies for hair cell regeneration within the inner ear. We are engineering
gene therapies to convert supporting cells, the cells adjacent to hair cells,
into both cochlear and vestibular hair cells in order to restore hearing and
balance function. These gene therapies are designed to express the developmental
or reprogramming factors that regulate cell fate and use our proprietary,
cell-selective promoters to control expression spatially and temporally. Our
DB-ATO and AAV.201 programs aim to restore balance by promoting regeneration of
hair cells in the vestibular system, the sensory system responsible for balance.
They are being developed for the treatment of BVP, a debilitating, acquired
condition that significantly impairs balance, mobility and stability of vision.
DB-ATO is an AAV-based gene therapy that utilizes a proprietary supporting
cell-selective promoter to express ATOH1, a transcription factor required for
hair cell formation during ear development. In preclinical studies, selective
expression of ATOH1 in vestibular supporting cells following treatment with
DB-ATO led to conversion of supporting cells into vestibular hair cell-like
cells but did not result in significant functional recovery in the in vivo
behavioral assays employed in in our preclinical studies. We are continuing to
evaluate whether ATOH1 expression alone might be sufficient to restore lost
vestibular function. In parallel, we are developing AAV.201, which combines
ATOH1 with another

                                       22

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



In addition to our gene therapy product candidate and programs, we are
developing a clinical-stage product candidate, DB-020, for the prevention of
cisplatin-induced hearing loss. DB-020 is a novel formulation of sodium
thiosulfate, or STS, that we have optimized for local delivery to the ear. STS
inactivates cisplatin, a widely used chemotherapy that often leads to hearing
loss and related complications in patients being treated for cancer. We are
developing DB-020 to prevent cisplatin-induced hearing loss without impacting
the beneficial, anti-tumor effect of cisplatin. In 2019, we completed a
randomized, double-blind, placebo-controlled Phase 1 clinical trial of DB-020 in
healthy volunteers, in which DB-020 was well tolerated. Following the Phase 1
clinical trial, we initiated a randomized, double-blind, placebo-controlled,
multicenter Phase 1b clinical trial in 2020 to evaluate the safety and efficacy
of DB-020 for the prevention of cisplatin-induced hearing loss. The report of an
interim analysis of our Phase 1b clinical trial of DB-020 was previously delayed
due to the impact of the COVID-19 pandemic on the pace of patient screening and
enrollment, including delays in site start-up and withdrawal of some sites in
the United States. We expect to report results from an interim analysis of the
ongoing Phase 1b clinical trial of DB-020 in the first half of 2022. All
remaining sites in the United States and Australia are now open. The FDA has
granted fast track designation for DB-020 for the prevention of
cisplatin-related ototoxicity.

Since inception, we have devoted substantially all of our resources on
organizing and staffing, business planning, raising capital, establishing our
intellectual property portfolio and performing research and development of our
product candidates, programs and platform. On February 5, 2021, we issued and
sold 15,870,209 shares of our Series D convertible preferred stock for $27.4
million of aggregate cash proceeds, net of issuance costs. On February 17, 2021,
we completed an initial public offering, or IPO, of our common stock in which we
issued and sold 7,062,000 shares of our common stock at a public offering price
of $18.00 per share, and on February 24, 2021, we issued and sold an additional
600,000 shares of common stock pursuant to the underwriters' partial exercise of
their option to purchase additional shares of common stock, for aggregate net
proceeds of $124.8 million. Upon the closing of our IPO, all of our outstanding
shares of convertible preferred stock automatically converted into 16,662,011
shares of common stock. Subsequent to the closing of our IPO, there were no
shares of preferred stock outstanding. To date, we have financed our operations
primarily with proceeds from sales of our convertible preferred stock (including
borrowings under convertible promissory notes, which converted into convertible
preferred stock in 2015), payments under our license and collaboration agreement
with Regeneron Pharmaceuticals, Inc., or Regeneron, and, most recently, from the
sale of common stock in our IPO.

We have not generated any revenue from product sales, and do not expect to
generate any revenue from product sales for at least the next several years. All
of our programs are still in preclinical and early-stage clinical development.
Our ability to generate product revenue sufficient to achieve profitability will
depend heavily on the successful development and eventual commercialization of
one or more of our product candidates, if approved. Since inception, we have
incurred significant operating losses. Our net losses were $38.9 million for the
nine months ended September 30, 2021, and $39.3 million and $42.7 million for
the years ended December 31, 2020 and 2019, respectively. As of September 30,
2021, we had an accumulated deficit of $201.6 million. We expect to incur
significant expenses and operating losses for the foreseeable future. We
anticipate that our expenses will increase substantially if and as we:

•


submit an IND or CTA, and initiate a planned Phase 1/2 clinical trial of DB-OTO
for the treatment of profound hearing loss due to mutation of the OTOF gene;
•
continue our current research programs and our preclinical development of
DB-OTO, AAV.103, AAV.104, AAV.201 and DB-ATO and any product candidates that may
arise from our current or future research programs;
•
continue our clinical development of DB-020, including our ongoing Phase 1b
clinical trial;
•
advance additional product candidates into preclinical and clinical development;
•
expand the capabilities of and invest in our platform;
•
seek marketing approvals for any product candidates that successfully complete
clinical trials;
•
ultimately establish a sales, marketing and distribution infrastructure to
commercialize any products for which we may obtain marketing approval;
•
expand, maintain and protect our intellectual property portfolio;
•
hire additional clinical, research, development, scientific, regulatory, and
quality control personnel;
•
establish and maintain agreements with manufacturers for our product candidates;
and

                                       23


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•


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

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

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

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

As of September 30, 2021, we had cash, cash equivalents and available-for-sale
securities of $172.4 million. We believe that our cash, cash equivalents and
available-for-sale securities as of September 30, 2021 will enable us to fund
our operating expenses and capital expenditure requirements into 2024. We have
based this estimate on assumptions that may prove to be wrong, and we could
exhaust our available capital resources sooner than we anticipate.

Impact of COVID-19 on Our Business



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

We are following, and plan to continue to follow recommendations from federal,
state and local governments regarding workplace policies, practices and
procedures. Screening and enrollment in our ongoing Phase 1b clinical trial of
DB-020 in Australia and the United States have been adversely impacted by the
COVID-19 pandemic. Patient screening and enrollment were paused in the second
quarter of 2020 in both Australia and the United States, and screening for
enrollment did not resume until early in the third quarter of 2020 in Australia
and early in the fourth quarter of 2020 in the United States. We have also
experienced delays in site start-up and the withdrawal of some sites in the
United States. In addition, we and the third-party manufacturers, contract
research organizations and academic collaborators that we engage have faced in
the past and may face in the future disruptions that could affect our ability to
initiate and complete preclinical studies or clinical trials, including
disruptions in procuring items that are essential for our research and
development activities, such as, for example, raw materials used in the
manufacture of our product candidates, laboratory supplies for our preclinical
studies and clinical trials, or animals that are used for preclinical testing,
in each case, for which there may be shortages because of ongoing efforts to
address the COVID-19 pandemic and supply chain disruptions.

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

License and Collaboration Agreement with Regeneron



In November 2017, we entered into a license and collaboration agreement with
Regeneron, or the Regeneron Agreement. The Regeneron Agreement has a research
term of five years, and Regeneron has the right to extend the research term for
up to two years in one-year intervals. The Regeneron Agreement is focused on the
discovery and development of new potential therapies directed to a set of
defined collaboration targets. We are currently developing DB-OTO, AAV.103 and
AAV.104 in collaboration with Regeneron under the Regeneron Agreement. In
October 2020, we entered into an amendment to the Regeneron Agreement pursuant
to which,

                                       24


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among other things, ATOH1, the target of our DB-ATO program, was removed as a
collaboration target and the terms and plans for the DB-OTO and AAV.103 programs
were modified. We issued 10,000,000 shares of our Series C convertible preferred
stock to Regeneron in consideration for its entry into the amendment.

Pursuant to the Regeneron Agreement, Regeneron paid us an upfront fee of $25.0
million and purchased 12,500,000 shares of our Series B convertible preferred
stock at a price per share of $2.00. If Regeneron elects to extend the term of
the research program, it will be obligated to pay us $10.0 million for each of
up to two one-year extensions. On a
collaboration-product-by-collaboration-product basis, upon achievement of
pre-defined milestones which began at initiation of manufacturing to support GLP
toxicology studies and conclude at initiation of a Phase 2 clinical trial,
Regeneron is obligated to pay us milestone payments of up to $35.5 million in
aggregate if the collaboration product is a biologic or up to $33.5 million in
aggregate if the collaboration product is a small molecule, which is intended to
reflect approximately half of the total cost needed to achieve the next
milestone. From and after the initiation of a registration-enabling trial,
unless Regeneron decides to opt-out, we have agreed to split development and
regulatory costs with Regeneron on an equal basis through the
registration-enabling trials.

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

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

In November 2020 and October 2021, we achieved our first pre-IND milestone of
$4.4 million and our second pre-IND milestone of $1.1 million, respectively. For
a more detailed description of the Regeneron Agreement and the amendment, see
"Business - License and Collaboration Agreements - License and Collaboration
Agreement with Regeneron Pharmaceuticals, Inc." in our Annual Report on Form
10-K as filed with the SEC on March 29, 2021.

Because we consider Regeneron a collaborative partner that is subject to the
significant risks and rewards under the Regeneron Agreement, we have accounted
for the Regeneron Agreement under FASB ASC Topic 808, Collaborative
Arrangements, or ASC 808. Under ASC 808, we view the $25.0 million upfront
payment and any milestone payments as reimbursement of our costs under the
Regeneron Agreement. These costs are accounted for as research and development
expenses in our condensed consolidated statements of operations and
comprehensive loss. As such, we are recognizing the upfront payment, the
additional payment of $0.3 million received from Regeneron pursuant to the
amendment, the expected reimbursement of $10.5 million of third-party costs
related to the GLP toxicology studies of DB-OTO, and the $4.4 million milestone
payment received, net of the $4.4 million in fair value of the Series C
convertible preferred stock issued to Regeneron, over the research term as a
reduction to research and development expenses (contra-research and development
expense) in our condensed consolidated statements of operations and
comprehensive loss based on our progress toward completion of our research
activities under the research plan. Any future milestone payments will be
included in the measurement of contra-research and development expense if and
when achieved. We recognized $2.4 million and $0.5 million as contra-research
and development expenses during the three months ended September 30, 2021 and
2020, respectively. We recognized $8.1 million and $2.4 million as
contra-research and development expenses during the nine months ended September
30, 2021 and 2020, respectively. As of September 30, 2021 and December 31, 2020,
we had $3.1 million and $1.2 million of accounts receivable due from Regeneron,
respectively. As of September 30, 2021, we had deferred collaboration
liabilities of $14.9 million on our condensed consolidated balance sheet, which
consisted of $6.5 million classified as current deferred collaboration
liabilities and $8.5 million classified as long-term collaboration liabilities.
See Note 12 to our condensed consolidated financial statements appearing
elsewhere in this Quarterly Report on Form 10-Q.

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Financial Operations Overview

Revenue

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

Operating Expenses

Research and Development Expenses

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

•


personnel-related expenses, including salaries, benefits and stock-based
compensation expense for employees engaged in research and development
functions;
•
expenses incurred under agreements with third parties, such as consultants and
investigative sites that conduct our preclinical studies and clinical trials and
in-licensing arrangements;
•
costs incurred to maintain compliance with regulatory requirements;
•
costs incurred with third-party contract development and manufacturing
organizations, or CDMOs, to acquire, develop and manufacture materials for
preclinical and clinical studies;
•
costs associated with our technology and our intellectual property portfolio;
•
expenses incurred for the procurement of materials, laboratory supplies and
non-capital equipment used in the research and development process; and
•
depreciation, amortization and other direct and allocated expenses, including
rent, insurance and other operating costs, incurred as a result of our research
and development activities.

We use our employee and infrastructure resources for the advancement of our
platform and for discovering and developing programs and product candidates. We
track direct research and development costs, consisting primarily of external
costs, such as fees paid to CDMOs, CROs and consultants in connection with our
preclinical studies, clinical trials and experiments by program after a
development candidate has been identified. Due to the number of ongoing programs
and our ability to use resources across several projects, personnel-related
expenses and indirect or shared operating costs incurred for our research and
development programs are not recorded or maintained on a program-by-program
basis, nor are our external program costs incurred for our programs prior to the
identification of a development candidate for such program.

Additionally, consideration we receive under our license and collaboration
agreement with Regeneron is being recognized as a reduction to research and
development expense (contra-research and development expense) in our condensed
consolidated statements of operations and comprehensive income (loss) based on
our progress towards completion of our research activities under the research
plan for the collaboration. The following table reflects our research and
development expense, including direct program-specific expense summarized by
program, personnel-related expenses and indirect or shared operating costs
recognized during each period presented (in thousands):



                                                                                            Nine Months Ended
                                               Three Months Ended September 30,               September 30,
                                                 2021                     2020              2021          2020
DB-020                                     $            922         $              8     $    2,257     $   2,470
Personnel-related (including stock-based
compensation)                                         2,703                    2,344          7,249         8,756
Other indirect research and development
expenses                                              5,395                    2,339         12,361         6,200
Total research and development expenses    $          9,020         $          4,691     $   21,867     $  17,426




Research and development activities are central to our business model. Product
candidates in later stages of clinical development generally have higher costs
than those in earlier stages of clinical development, primarily due to the
increased size and duration of later-stage clinical trials. We expect that our
research and development expenses will continue to increase for the foreseeable
future as we advance our programs and product candidates into and through the
development phase, and as we continue to develop additional product candidates.
We also expect our discovery research efforts and our related personnel costs
will increase and,

                                       26


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as a result, we expect our research and development expenses, including costs
associated with stock-based compensation, will increase above historical levels.
In addition, we may incur additional expenses related to milestone and royalty
payments payable to third parties with whom we may enter into license,
acquisition and option agreements to acquire the rights to future product
candidates.

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

•


the timing and progress of preclinical and clinical development activities;
•
the number and scope of preclinical and clinical programs we decide to pursue;
•
our ability to successfully complete clinical trials with safety, potency and
purity profiles that are satisfactory to the FDA or any comparable foreign
regulatory authority;
•
our ability to successfully develop, obtain regulatory approval for, and then
successfully commercialize, our product candidates;
•
our ability to hire and retain key research and development personnel;
•
our successful enrollment in and completion of clinical trials;
•
the costs associated with the development of any additional product candidates
we develop or acquire through collaborations;
•
our ability to establish and maintain agreements with third-party manufacturers
for clinical supply for our clinical trials and commercial manufacturing, if our
product candidates are approved;
•
the terms and timing of any collaboration, license or other arrangement,
including the terms and timing of any milestone payments thereunder;
•
our ability to obtain and maintain patent, trade secret and other intellectual
property protection and regulatory exclusivity for our product candidates if and
when approved;
•
our receipt of marketing approvals from applicable regulatory authorities;
•
our ability to commercialize products, if and when approved, whether alone or in
collaboration with others;
•
the continued acceptable safety profiles of the product candidates following
approval; and
•
the effects of COVID-19 pandemic on our research and development employees,
contractors and those who may participate in our studies.

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

General and Administrative Expense



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

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

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Interest Income

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

Income Taxes



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

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

Restructuring

In January and May 2020, we had a reduction in force that included 45 full-time
employees, which represented approximately 52% of our full-time employee
workforce. The reduction in force was primarily comprised of positions related
to research and general and administrative services and was implemented in
connection with our determination to focus and reprioritize our resources on
gene therapy programs for hearing and balance disorders and to eliminate our
research efforts on other discovery programs for hearing loss. As a result of
the reduction, we incurred expenses of approximately $2.9 million during the
first quarter of 2020 and $0.6 million during the second quarter of 2020,
comprised of termination benefits including severance, benefits and other
payroll-related charges. During the first quarter of 2020, we established
retention agreements with certain key employees, including one of our executive
officers. Under the terms of these agreements, we agreed to make three retention
payments to each key employee totaling $1.6 million in the aggregate if they
remained employed at the Company through specified milestones. The first
payments of $0.7 million in the aggregate were paid upon execution of the
retention agreements. The second payments of $0.4 million in the aggregate were
paid to the key employees upon the closing of the Series D financing in November
2020. The third payments of $0.5 million in the aggregate were paid in January
2021, including payments to certain employees who are required to remain
employed through January 1, 2022 in order to retain the first and third
payments. These prepayments are being amortized over the remaining employee
service terms under the retention agreements.

During the second quarter of 2020, we established additional employee bonuses in
the aggregate amount of $0.4 million for the majority of employees who were not
party to a retention agreement. The bonuses became due upon the closing of the
Series D financing in November 2020. All amounts owed related to the additional
employee bonuses were paid prior to December 31, 2020.

Restructuring expenses are classified as research and development expenses or
general and administrative expenses in the condensed consolidated statements of
operations and comprehensive loss in the manner in which the respective
employee's salary and related costs were classified.

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Results of Operations

Comparison of the Three Months Ended September 30, 2021 and 2020



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



                                                Three Months Ended September 30,
                                                   2021                2020             Change
Operating expenses:
Research and development                        $     9,020       $         4,691     $    4,329
General and administrative                            5,680                 2,397          3,283
Total operating expenses                             14,700                 7,088          7,612
Loss from operations                                (14,700 )              (7,088 )       (7,612 )
Other income:
Interest income                                          33                     2             31
Other income, net                                         -                   (25 )           25
Total other income, net                                  33                   (23 )           56
Net loss before provision for income taxes          (14,667 )              (7,111 )       (7,556 )
Provision for income taxes                           (1,732 )                   -         (1,732 )
Net loss                                        $   (16,399 )     $        (7,111 )   $   (9,288 )

Research and Development Expenses

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





                                                    Three Months Ended September 30,
                                                      2021                     2020             Change
DB-020                                          $            922         $              8     $      914
Personnel-related (including stock-based
compensation)                                              2,703                    2,344            359
Other indirect research and development
expenses                                                   5,395                    2,339          3,056
Total research and development expenses         $          9,020         $          4,691     $    4,329




Research and development expenses for the three months ended September 30, 2021
were $9.0 million, compared to $4.7 million for the three months ended September
30, 2020. The increase of $4.3 million was primarily attributable to the
following:

•

$3.1 million net increase in other indirect research and development expenses in
the three months ended September 30, 2021, driven primarily by an increase in
manufacturing costs related to IND-enabling activities. Included as reductions
to other indirect research and development expenses were $2.4 million and $0.5
million of contra-research and development expenses for the three months ended
September 30, 2021 and 2020, respectively, recognized pursuant to our
collaboration agreement with Regeneron;
•
$0.9 million increase in expenses incurred in the three months ended September
30, 2021 to advance our DB-020 program, driven primarily by lower clinical
activity primarily driven by reduced enrollment in our clinical program as a
result of delays due to the COVID-19 pandemic in the three months ended
September 30, 2020; and
•
$0.4 million increase in personnel-related costs in the three months ended
September 30, 2021 due to an increase in stock compensation expense.

General and Administrative Expense



General and administrative expenses for the three months ended September 30,
2021 were $5.7 million, compared to $2.4 million for the three months ended
September 30, 2020. The increase of $3.3 million was primarily attributable to
the following:

•

$1.1 million increase in professional fees in the three months ended September
30, 2021, driven primarily by expenses related to consulting, accounting
advisory and audit services;
•
$1.2 million increase in personnel-related costs in the three months ended
September 30, 2021 due to an increase in headcount and stock compensation
expense;
•
$0.6 million increase in other general expenses in the three months ended
September 30, 2021, driven primarily by our director's and officer's insurance
policy effective upon our initial public offering; and
•
$0.4 million increase due to reclassification of certain tax credits from
general and administrative expense to research and development expense during
the three months ended September 30, 2021.

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Interest Income



The increase in interest income in the three months ended September 30, 2021 was
primarily due to an increase in our holdings following receipt of the proceeds
from the issuance and sale of our Series D convertible preferred stock and from
our IPO.



Provision for Income Taxes

The provision for income taxes in the three months ended September 30, 2021, was
due to the recognition of an income tax expense of $1.7 million related to a
foreign uncertain tax position and a foreign tax provision.

Comparison of the Nine Months Ended September 30, 2021 and 2020

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





                                                    Nine Months Ended September 30,
                                                      2021                   2020             Change
Operating expenses:
Research and development                        $         21,867       $         17,426     $    4,441
General and administrative                                15,462                  9,130          6,332
Total operating expenses                                  37,329                 26,556         10,773
Loss from operations                                     (37,329 )              (26,556 )      (10,773 )
Other income:
Interest income                                              141                    103             38
Total other income, net                                      141                    103             38
Net loss before provision for income taxes               (37,188 )              (26,453 )      (10,735 )
Provision for income taxes                                (1,732 )                    -         (1,732 )
Net loss                                        $        (38,920 )     $        (26,453 )   $  (12,467 )

Research and Development Expenses

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





                                                   Nine Months Ended September 30,
                                                     2021                  2020             Change
DB-020                                          $         2,257       $         2,470     $     (213 )
Personnel-related (including stock-based
compensation)                                             7,249                 8,756         (1,507 )
Other indirect research and development
expenses                                                 12,361                 6,200          6,161
Total research and development expenses         $        21,867       $        17,426     $    4,441




Research and development expenses for the nine months ended September 30, 2021
were $21.9 million, compared to $17.4 million for the nine months ended
September 30, 2020. The increase of $4.4 million was primarily attributable to
the following:

•

$6.2 million net increase in other indirect research and development expenses in
the nine months ended September 30, 2021, driven primarily by an increase in
manufacturing costs related to IND-enabling activities. Included as reductions
to other indirect research and development expenses were $8.1 million and $2.4
million of contra-research and development expenses for the nine months ended
September 30, 2021 and 2020, respectively, recognized pursuant to our
collaboration agreement with Regeneron;
•
$1.5 million decrease in personnel-related costs in the nine months ended
September 30, 2021, due to reduced research and development headcount, driven
primarily by the reduction in force conducted in January 2020 and May 2020; and
•
$0.2 million decrease in expenses incurred in the nine months ended September
30, 2021 to advance our DB-020 program, driven primarily by lower expenses due
to continuing impact of the COVID-19 pandemic on enrollment in our clinical
program in the first half of 2021;

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General and Administrative Expense



General and administrative expenses for the nine months ended September 30, 2021
were $15.5 million, compared to $9.1 million for the nine months ended September
30, 2020. The increase of $6.3 million was primarily attributable to the
following:

•

$3.0 million increase in professional fees in the nine months ended September
30, 2021, driven primarily by expenses related to consulting, accounting
advisory and audit services incurred as a result of becoming a public company;
•
$2.0 million increase in other general expenses in the nine months ended
September 30, 2021, driven primarily by our director's and officer's insurance
policy effective upon our initial public offering; and
•
$1.3 million increase in personnel-related costs driven primarily by an increase
in share-based compensation expense.

Interest Income



The increase in interest income in the nine months ended September 30, 2021 was
primarily due to an increase in our holdings following receipt of the proceeds
from the issuance and sale of our Series D convertible preferred stock and from
our IPO.

Provision for Income Taxes

The provision for income taxes in the nine months ended September 30, 2021, was
due to the recognition of an income tax expense of $1.7 million related to a
foreign uncertain tax position and a foreign tax provision.

Liquidity and Capital Resources

Sources of Liquidity and Capital



Since our inception, we have incurred significant operating losses and negative
cash flows from operations. We have not yet commercialized any of our product
candidates, which are in various phases of preclinical and clinical development,
and we do not expect to generate revenue from sales of any products for several
years, if at all. Through September 30, 2021, we funded our operations primarily
from net proceeds of $219.5 million from the issuance and sale of our
convertible preferred stock, $35.6 million from our collaboration agreement with
Regeneron and $124.8 million from the issuance and sale of our common stock in
our IPO.

Cash Flows

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





                                                            Nine Months Ended September 30,
                                                              2021                   2020
Net cash provided by (used in):
Operating activities                                    $        (33,605 )     $        (27,512 )
Investing activities                                             (95,431 )               13,681
Financing activities                                             152,359                    466
Net increase (decrease) in cash, cash equivalents and
restricted cash                                         $         23,323       $        (13,365 )




Operating Activities

Our cash flows from operating activities are greatly influenced by our use of
cash for operating expenses and working capital requirements to support the
business. We have historically experienced negative cash flows from operating
activities as we invested in developing our pipeline, platform, drug discovery
efforts and related infrastructure. The cash used in operating activities
resulted primarily from our net losses adjusted for non-cash charges, which are
generally attributable to stock-based compensation, depreciation and
amortization and accretion of discounts on available-for-sale securities, as
well as changes in components of operating assets and liabilities, which are
generally attributable to increased expenses, timing of vendor payments and
performance under our collaboration agreement.

During the nine months ended September 30, 2021, net cash used in operating activities of $33.6 million was primarily due to our net loss of $38.9 million, partially offset by net non-cash expenses of $4.2 million and changes in operating assets and liabilities of $1.1 million.


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During the nine months ended September 30, 2020, net cash used in operating activities of $27.5 million was primarily due to our net loss of $26.5 million and changes in operating assets and liabilities of $2.9 million, partially offset by net non-cash expenses of $1.9 million.

Investing Activities



During the nine months ended September 30, 2021, net cash used in investing
activities of $95.4 million was primarily due to purchases of available-for-sale
securities of $165.7 million and purchases of property and equipment of $0.4
million, partially offset by maturities of available-for-sale securities of
$70.7 million.

During the nine months ended September 30, 2020, net cash provided by investing
activities of $13.7 million was primarily due to maturities of
available-for-sale securities of $13.8 million and proceeds from the sale of
property and equipment of $0.1 million, partially offset by purchases of
property and equipment of $0.2 million.

Financing Activities



During the nine months ended September 30, 2021, net cash provided by financing
activities of $152.4 million consisted primarily of proceeds from the issuance
and sale of common stock, net of cash paid for offering costs, in connection
with our IPO of $125.0 million and proceeds from the issuance and sale of our
Series D convertible preferred stock of $27.4 million, net of cash paid for
offering costs.

During the nine months ended September 30, 2020, net cash provided by financing activities of $0.5 million consisted primarily of proceeds from equipment financing.

Funding Requirements



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

As of September 30, 2021, our cash, cash equivalents and available-for-sale
securities totaled $172.4 million. We believe that our cash, cash equivalents
and available-for-sale securities as of September 30, 2021 will enable us to
fund our operating expenses and capital expenditure requirements into 2024. We
have based this estimate on assumptions that may prove to be wrong, and we could
exhaust our available capital resources sooner than we anticipate.

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

•


the progress, costs and results of our ongoing preclinical development, our
planned Phase 1/2 clinical trial of DB-OTO and any future clinical development
of DB-OTO;
•
the progress, costs and results of clinical development of DB-020, including our
ongoing Phase 1b clinical trial;
•
the scope, progress, costs and results of preclinical and clinical development
for our other product candidates and programs, including AAV.103, AAV.104,
AAV.201 and DB-ATO;
•
the number of, and development requirements for, other product candidates that
we may identify and develop;
•
the scope, costs, timing and outcome of regulatory review of our product
candidates;
•
the cost and timing of completion of commercial-scale manufacturing activities;
•
the success of our collaboration with Regeneron;
•
the payment or receipt of milestones and of other collaboration-based revenues,
if any;
•
our ability to establish and maintain additional strategic collaborations,
licensing or other arrangements and the financial terms of such arrangements;
•
the costs and timing of future commercialization activities, including product
manufacturing, marketing, sales and distribution, for any of our product
candidates for which we receive marketing approval;

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•


the amount and timing of revenue, if any, received from commercial sales of our
product candidates for which we receive marketing approval;
•
the costs and timing of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property and proprietary rights and
defending any intellectual property-related claims;
•
the extent to which we may acquire or in-license other products, product
candidates and technologies;
•
the impacts of the COVID-19 pandemic;
•
the ability to receive additional non-dilutive funding, including grants from
organizations and foundations; and
•
the costs of operating as a public company.

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

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

Adequate additional funds may not be available to us on acceptable terms, or at
all. We do not currently have any committed external source of funds, other than
the reimbursements to which we are entitled under the Regeneron Agreement for up
to $1.5 million of third-party costs related to the GLP toxicology studies of
DB-OTO. Market volatility resulting from the COVID-19 pandemic or other factors
could also adversely impact our ability to access capital as and when needed. To
the extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interests of our stockholders will be
diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of holders of our common stock.
Additional debt financing and preferred equity financing, if available, may
involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends and may require the issuance of warrants,
which could potentially dilute the ownership interests of holders of our common
stock.

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

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
U.S. Securities and Exchange Commission.

Critical Accounting Policies and Significant Judgement and Estimates



Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these condensed
consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, as well as the reported expenses incurred during the reporting
periods. Our estimates are based on our historical experience and on various
other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

We define our critical accounting policies as those accounting principles
generally accepted in the United States of America that are most critical to the
judgments and estimates used in the preparation of our condensed consolidated
financial statements. While our significant accounting policies are described in
more detail in Note 2 to our consolidated financial statements in our 2020
Annual Report on Form 10-K, we believe that our most critical accounting
policies are those relating to Collaboration Agreements, Research and
Development Expenses and Related Accruals and Stock-Based Compensation, which
are described under the heading

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"Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Judgement and Estimates" in our 2020 Annual Report on Form 10-K.

There have been no material changes to our critical accounting policies from those described in our 2020 Annual Report on Form 10-K.

Emerging Growth Company and Smaller Reporting Company Status



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

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

Recently Issued Accounting Pronouncements



We have reviewed all recently issued accounting pronouncements and have
determined that, other than as disclosed in Note 2 to our consolidated financial
statements included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2020 as filed with the SEC on March 29, 2021, such standards will
not have a material impact on our financial statements or do not otherwise apply
to our current operations. For further details over upcoming standards to be
adopted by the Company, please refer to Note 2 in our consolidated financial
statements above.

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