The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the ''Risk Factors'' section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied, by these forward-looking statements. Overview We are a genetic medicines company dedicated to transforming the lives of patients suffering from rare genetic diseases with significant unmet medical needs by curing the underlying cause of the disease. Our proprietary platform is designed to utilize our human hematopoietic stem cell derived adeno-associated virus vectors, or AAVHSCs, to precisely and efficiently deliver single administration genetic medicines in vivo either through gene therapy or nuclease-free gene editing across a broad range of genetic disorders. Our diverse set of AAVHSCs allows us to precisely target, via a single injection, a wide range of disease-relevant tissues, including the liver, central nervous system, or CNS, peripheral nervous system, or PNS, bone marrow, muscle and eye. Our genetic medicines platform is designed to provide us the flexibility to choose the method we believe is best suited from either gene therapy or gene editing for each disease we pursue, based on such factors as the targeted disease biology, the biodistribution of our AAVHSCs to key tissues, and the rate of cell division the tissues exhibit. Our product development strategy is to continue to develop in parallel both gene therapy and gene editing, while initially leveraging the experience from our gene therapy product candidates to further advance our gene editing. We believe our dual technology platform will allow us to provide transformative cures using either modality. The unique properties of our proprietary suite of 15 novel AAVHSCs enable us to focus on a method of gene editing called gene integration, through the replacement of an entire diseased gene in the genome with a whole functional copy by harnessing the naturally occurring deoxyribonucleic acid, or DNA, repair process of homologous recombination, or HR. We believe our HR-driven gene editing approach will allow us to efficiently perform gene editing at therapeutic levels without unwanted on- and off-target modifications, and to directly measure and confirm those modifications in an unbiased manner to ensure only the intended changes are made. By utilizing the body's natural mechanism of correcting gene defects, we also avoid the need for exogenous nucleases, or bacteria-derived enzymes used in other gene editing approaches to cut DNA, that are known to significantly increase the risk of unwanted modifications.
HMI-102 for Treatment of PKU in Adult Patients
InJune 2019 , we commenced enrollment of our Phase 1/2 pheNIX clinical trial with our first and lead product candidate, HMI-102, a gene therapy for the treatment of adults with phenylketonuria, or PKU. The pheNIX trial is designed to evaluate the safety and efficacy of HMI-102 in a dose-escalation, randomized, concurrently-controlled study in adult patients with PKU. During the dose-escalation portion of the trial, we evaluated safety and efficacy and sought to determine a dose to bring forward to the expansion phase. As of the data cutoff date ofOctober 19, 2020 , six patients in the dose-escalation phase of the pheNIX trial had received HMI-102 across three dose cohorts (low-dose Cohort 1, n=2; mid-dose Cohort 2, n=2; high-dose Cohort 3, n=2). Cohorts included males and females, with an age range of 21-49 and time in study ranging from 13 weeks to 52 weeks (end of study). Safety data from these six patients as of the cutoff date showed HMI-102 was generally well-tolerated, and there were no treatment-related serious adverse events. There was one serious adverse event of Herpes zoster (shingles) assessed by a principal investigator of the pheNIX trial as not related to treatment with HMI-102. There were no clinically significant changes in electrocardiogram or vital signs and no clinical signs of complement activation. In Cohorts 2 and 3, Grade 1 and 3 alanine aminotransferases, or ALTs, (ALT Grades based on Common Terminology Criteria for Adverse Events Version 5), which are common in adeno-associated virus-based gene therapy, were observed and managed with increased steroids when necessary. Each of the two patients who experienced Grade 3 ALTs had pre-existing underlying immune conditions. An independent data monitoring committee, which provided guidance throughout the pheNIX clinical trial, supported the conclusion that there were no safety concerns related to bilirubin, and that ALT elevations may be associated with reduced therapeutic activity. 24
-------------------------------------------------------------------------------- Efficacy data from the two patients in Cohort 1 did not show any meaningful reductions in plasma phenylalanine, or Phe, throughout the study, which they have completed. We believe this first and lowest dose in this dose-escalation study was insufficient to impact Phe levels. [[Image Removed]]
Figure 1. Preliminary data from Cohort 1 (low-dose) in the dose-escalation phase
of the pheNIX clinical trial as of the data cutoff date of
In Cohort 2, one patient experienced a marked Phe reduction from baseline level of 1,010 ?mol/L, and recorded five plasma Phe values <360 ?mol/L, and many of <600 ?mol/L. The mean percentage change from baseline for this patient are reported in three categories: Phe; tyrosine, or Tyr, and the Phe/Tyr ratio. For patients with PKU, the goal for a therapy is to lower Phe values, increase Tyr values and lower the overall Phe/Tyr ratio. As of the cutoff date, this patient's mean percentage change from baseline showed a 48.6% reduction in plasma Phe, an 81.1% increase in Tyr and a 70.8% decrease in the Phe/Tyr ratio. We believe these results are consistent with an increase in phenylalanine hydroxylase enzymatic activity and increased Phe metabolism. These results were observed even while the patient self-liberalized diet, including a mean percent change from baseline of more than a 100% increase in dietary Phe intake. 25 -------------------------------------------------------------------------------- The other patient in Cohort 2 did not experience a similar reduction in plasma Phe, but this patient had pre-existing immune conditions and experienced Grade 3 ALT elevation, which we believe may have affected the results. As of the cutoff date, this patient had a mean percentage change from baseline of 13% increase in plasma Phe, with a 131.1% increase in Tyr and a 45.5% decrease in the Phe/Tyr ratio. This also occurred while the patient self-liberalized diet with a mean percent change from baseline of 140.5% more dietary intact protein, 289% more dietary Phe intake and 75.6% decreased dietary Tyr intake. We believe the findings in this patient may be suggestive of phenylalanine hydroxylase enzymatic activity sufficient to increase the patient's tyrosine concentration from its low baseline, but not sufficient to reduce this patient's Phe. [[Image Removed]]
Figure 2. Interim data from Cohort 2 (mid-dose) in the dose-escalation phase of
the pheNIX clinical trial as of the data cutoff date of
26 -------------------------------------------------------------------------------- In Cohort 3, one patient showed a marked reduction in Phe from baseline level of 1,060 ?mol/L, and recorded one plasma Phe value <360 ?mol/L and several plasma Phe values <600 ?mol/L through the 13 weeks of observation as of the cutoff date. The mean percentage change from baseline was a 31.4% reduction in plasma Phe, a 40.3% increase in Tyr and a 52.4% decrease in the Phe/Tyr ratio. These results were observed while the patient self-liberalized diet, including a mean percent change from baseline of more than 45.4% increase in dietary intact protein and a 41.8% increase in dietary Phe. In contrast, the other patient in Cohort 3 did not experience a similar reduction in plasma Phe, but similar to the second patient in Cohort 2, had pre-existing underlying immune conditions and experienced Grade 3 ALT elevation, which we believe may have affected the results. As of the cutoff date, this patient experienced an increase in the mean percentage change from baseline in Tyr of 22.6% and a reduction in the mean percentage change from baseline in the Phe/Tyr ratio of 25.4%. We believe the findings in this patient may also be suggestive of phenylalanine hydroxylase enzymatic activity, which was enough to improve Tyr, but not enough to reduce Phe. [[Image Removed]]
Figure 3. Interim data from Cohort 3 (high-dose) in the dose-escalation phase of
the pheNIX clinical trial as of the data cutoff date of
Based on the safety and efficacy results observed in the dose-escalation phase as of the cutoff date, we intend to advance to the randomized, concurrently controlled, expansion phase of the pheNIX trial in early 2021, which has the potential to be converted to a registrational trial. We have selected two doses for the expansion phase: the mid-dose from Cohort 2 and a dose between the doses in Cohorts 2 and 3, which we believe has the potential to improve Phe reductions while reducing overall steroid exposure. 27 --------------------------------------------------------------------------------
Other Product Candidate Updates
We are in later-stage IND-enabling studies with HMI-202, our lead gene therapy CNS product development candidate for the treatment of metachromatic leukodystrophy, or MLD. This represents our first CNS program and we have generated preclinical data that demonstrates that a single I.V. administration of HMI-202 crossed the blood-brain-barrier and blood-nerve-barrier and led to durable reduction of sulfatides in all brain regions of the disease model. HMI-202 was superior to an AAV9-based MLD gene therapy construct in terms of human ARSA enzyme activity, vector genome copies and biodistribution in the peripheral and central nervous systems of the disease model. InOctober 2020 , we announced a new in vivo gene therapy development program for the treatment of mucopolysaccharidosis type II (MPS II, or Hunter syndrome). Development candidate HMI-203 is a potential one-time AAVHSC treatment designed to deliver functional copies of the IDS gene to multiple target organs, including the PNS and CNS, following a single I.V. administration. We have initiated IND-enabling studies and scaled the new construct up to 500 liters by leveraging our commercial manufacturing platform. We are in later-stage IND-enabling studies with HMI-103, our lead gene editing product development candidate for the treatment of PKU in pediatric patients. We have generated in vivo preclinical data, using quantitative molecular methods, that demonstrated achievement of gene integration efficiencies in the liver that corresponded with Phe correction in a PKU murine model, are significantly greater than other adeno-associated virus, or AAV, based approaches and we believe are at a therapeutic level in the preclinical model. These findings were peer-reviewed and published in PLOS ONE inMay 2020 . InNovember 2017 , we entered into a collaboration and license agreement with Novartis, pursuant to which we agreed to collaborate on researching, developing, and commercializing novel genome editing products that modulate certain gene targets. InMay 2020 , based on positive preclinical gene editing data in retinal cells, Novartis confirmed an ophthalmic target for a therapeutic editing program. Together, we are working on advancing this program to development candidate selection. We also continue to work with Novartis on identifying new targets for the collaboration based on the exploratory research component of the agreement, which was extended for an additional six months pursuant to an amendment to the agreement executed inOctober 2020 , with such obligations now concluding inMay 2021 . We have fully integrated process development and Good Manufacturing Practice, or GMP, manufacturing capabilities that support the full breadth and flexibility of our AAVHSC capsid library. Our process development expertise covers all classical gene development functions and incorporates deep characterization and understanding of vector design and their consequences. Our manufacturing process is a versatile system that rapidly delivers high quality vector at scale. The manufacturing capacity within our 25,000 square foot GMP manufacturing facility includes multi-suite and multi-product capabilities to support our clinical development programs in both gene therapy and gene editing. Our platform process is a commercial manufacturing process that has successfully produced several of our product candidates. We are currently operating three 500-liter bioreactors in our internal manufacturing facility and have successfully produced GMP material at the 500-liter scale for multiple pipeline candidates. Additionally, we have executed our manufacturing platform with multiple product candidates at the 2,000-liter bioreactor scale. Our management team has a successful track record of discovering, developing and commercializing therapeutics with a particular focus on rare diseases. We have a robust intellectual property portfolio with issued composition of matter patents inthe United States for our suite of 15 AAVHSCs and we believe the breadth and depth of our intellectual property is a strategic asset that has the potential to provide us with a significant competitive advantage. We continue to build on our intellectual property estate through our ongoing product and platform development efforts. Since our inception in 2015 throughSeptember 30, 2020 , we have raised approximately$444.2 million in aggregate net proceeds through our initial public offering, or IPO, inApril 2018 , a follow-on public offering of common stock inApril 2019 , proceeds from the sale of common stock under an "at-the-market" sales agreement and preferred stock financings. We received$50.0 million from Novartis, our collaboration partner, including an up-front payment of$35.0 million and a$15.0 million equity investment. We will require additional capital in order to advance HMI-102 and our other product candidates through clinical development and commercialization. We believe that our compelling preclinical data, positive clinical data with HMI-102, scientific expertise, product development strategy, manufacturing capabilities, and robust intellectual property position us as a leader in the development of genetic medicines. OnNovember 9, 2020 , we entered into a stock purchase agreement, or the Stock Purchase Agreement, with Pfizer Inc., or Pfizer, pursuant to which Pfizer has agreed to purchase 5,000,000 shares of our common stock through a private placement transaction at a purchase price of$12.00 per share, for an aggregate purchase price of$60.0 million . Under the Stock Purchase Agreement, Pfizer was granted an exclusive right of first refusal, or ROFR, for a 30-month period beginning on the date of the closing of the private placement to negotiate a potential collaboration on the development and commercialization of HMI-102 and HMI-103. Pfizermay 28
-------------------------------------------------------------------------------- exercise its right of first refusal under the ROFR one time for each of HMI-102 and HMI-103 during the ROFR period. Additionally during the ROFR period, Pfizer has the right to designate a member to join ourScientific Advisory Board to participate in matters related to the development of these programs. See "Liquidity and Capital Resources." We were incorporated and commenced operations in 2015. Since our incorporation, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, developing our technology platform, advancing our lead product candidate, HMI-102 for the treatment of PKU, through IND-enabling studies and into a Phase 1/2 clinical trial, advancing HMI-103, HMI-202 and HMI-203 into IND-enabling studies, researching and identifying additional product candidates, developing and implementing manufacturing processes and internal manufacturing capabilities, building out our manufacturing and research and development space, enhancing our intellectual property portfolio, and providing general and administrative support for these operations. To date, we have financed our operations primarily through the sale of common stock, through the sales of preferred stock, and through funding from our collaboration partner. To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future, if at all. We recognized$0.6 million and$1.7 million in collaboration revenue for the three and nine months endedSeptember 30, 2020 , respectively, and$0.4 million and$1.1 million for the three and nine months endedSeptember 30, 2019 , respectively. Since inception, we have incurred significant operating losses. Our net losses for the three and nine months endedSeptember 30, 2020 were$28.2 million and$98.9 million , respectively. Our net losses for the three and nine months endedSeptember 30, 2019 were$29.6 million and$79.7 million , respectively. As ofSeptember 30, 2020 andDecember 31, 2019 , we had an accumulated deficit of$298.6 million and$199.7 million , respectively. Our total operating expenses were$28.8 million and$102.2 million for the three and nine months endedSeptember 30, 2020 , respectively, and$31.7 million and$85.5 million for the three and nine months endedSeptember 30, 2019 , respectively. Our operating expenses for the nine months endedSeptember 30, 2020 included substantial advance purchases of raw materials procured for future manufacturing needs to mitigate any possible supply chain interruptions as a result of the COVID-19 pandemic. We expect our operating expenses to continue to increase in connection with our ongoing development activities related to our product candidates. Specifically, we anticipate that our expenses will increase substantially due to costs associated with our Phase 1/2 pheNIX clinical trial with HMI-102, development activities including IND-enabling studies associated with our other product candidates, including HMI-202, our gene therapy product candidate for MLD, HMI-203, our gene therapy product candidate for Hunter syndrome, and HMI-103, our gene editing product candidate for PKU, research activities in additional therapeutic areas to expand our pipeline, hiring additional personnel in manufacturing, research, clinical and regulatory, quality and other functional areas, increased expenses incurred with contract manufacturing organizations, or CMOs, to supply us with product for our clinical studies, costs to manufacture product for preclinical and clinical studies in our internal manufacturing facility and other costs including the maintenance and expansion of our intellectual property portfolio. In addition, we expect to continue to incur additional costs associated with operating as a public company. We have incurred significant capital expenditures for the buildout of a facility we have leased, including research and development labs, office space and manufacturing suites and the procurement of equipment and furniture for this facility and in support of our product development candidates and research initiatives. We expect to incur additional capital expenditures in support of our research and development activities and our manufacturing facility. Because of the numerous risks and uncertainties associated with the development of our current and any future product candidates and our platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown, we are unable to predict the timing and amount of increased operating expenses and capital expenditures associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including:
• the costs, timing, and results of our ongoing research and development
efforts, including clinical trials, for HMI-102;
• the costs, timing, and results of our ongoing research and development
efforts for HMI-103, HMI-202 and HMI-203, all of which are in IND-enabling studies;
• the costs, timing, and results of our research and development efforts
for current and future product candidates in our gene therapy and gene editing pipeline;
• the costs and timing of process development and manufacturing scale-up
activities, and the adequacy of supply of our product candidates for preclinical studies and clinical trials through CMOs and internal manufacturing;
• the costs and timing of capital expenditures for potential additional
manufacturing capacity and related equipment and furniture; 29
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• the costs and timing of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims, including any
claims by third parties that we are infringing upon their intellectual
property rights; • the effect of competitors and market developments; and
• our ability to establish and maintain strategic collaborations, licensing
or other agreements and the financial terms of such agreements for our product candidates. We now believe that our existing cash and cash equivalents, together with the anticipated proceeds of$60.0 million from the Pfizer private placement, will enable us to fund our current projected operating expenses and capital expenditure requirements into the third quarter of 2022 including, subject to the impact of the COVID-19 pandemic on our business, additional development activities related to our Phase 1/2 pheNIX clinical trial with HMI-102, the advancement of HMI-103, our lead gene editing product candidate for PKU, HMI-203, our newly announced gene therapy product candidate for Hunter syndrome, and HMI-202, our lead CNS gene therapy product candidate, the scale-up of our manufacturing processes and the expansion of our intellectual property portfolio. We have based these estimates on assumptions that may prove to be imprecise, and we may use our available capital resources sooner than we currently expect. See "Liquidity and Capital Resources." Adequate additional funds may not be available to us on acceptable terms, or at all. For example, the trading prices for our and other biopharmaceutical companies' stock have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock and any such sales may be on unfavorable terms. See "Risk Factors-The COVID-19 pandemic caused by the novel strain of coronavirus could adversely impact our business, including our preclinical studies and clinical trials." in Part II, Item 1A of this Quarterly Report on Form 10-Q. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights as a shareholder. Any future debt financing or preferred equity or other financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute the ownership interests of our shareholders. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Because of the numerous risks and uncertainties associated with drug development, we are unable to predict when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. Impact of COVID-19 Pandemic We are closely monitoring how the spread of the COVID-19 pandemic is affecting our employees, Phase 1/2 pheNIX clinical trial, preclinical studies, manufacturing and overall operations. In response to the spread of COVID-19, we have taken steps to minimize the impact on our operations. Operations - To protect the health of our employees and the third parties with whom we interact, most office-based employees continue to work from home, while essential staffing levels in our operations remain in place, including key personnel in our laboratories and manufacturing facility. For those employees on-site, we have developed shift schedules for our laboratories and manufacturing facility and a modified office layout and traffic flow pattern to increase spacing capabilities, reduce inter-office risks and allow for business continuity. We have increased cleaning protocols throughout our entire facility, limited visitors to only those who are critical to our ongoing operations and have cancelled all business travel. In addition, we have developed our own on-site COVID-19 surveillance testing for employees to help promote health and safety. Phase 1/2 pheNIX clinical trial - We are currently continuing our Phase 1/2 pheNIX clinical trial and are working with trial sites to mitigate potential COVID-19-related disruptions in order to help ensure the safety of patients and healthcare professionals. In addition, we have deployed home-health services which include home visits for patient monitoring and reporting, as well as the utilization of a centralized laboratory for testing enrolled patients. Despite our best efforts, disruptions caused by the COVID-19 pandemic have resulted, and may continue to result, in delays in enrolling our Phase 1/2 pheNIX clinical trial. In addition, we could experience additional disruptions in conducting or completing this trial or other planned clinical trials and the incurrence of unforeseen costs as a result of these delays. We will continue to evaluate the impact of the ongoing global pandemic on the pheNIX trial and will make adjustments, as needed. 30 -------------------------------------------------------------------------------- Preclinical studies - IND-enabling studies are continuing in support of our HMI-103, HMI-202 and HMI-203 programs and we have made operational changes to mitigate the risk of potential disruptions caused by the COVID-19 pandemic. All of our ongoing and planned preclinical studies at external CROs are progressing and we have accelerated shipments of reagents and supplies to avoid any disruption of activities. However, it is possible that the COVID-19 pandemic may have an impact in the future on our CROs' ability to complete critical studies required for the progression of these programs. In addition, any planned or potential meetings with the FDA or other regulatory authorities about any of our development programs could be delayed as these regulatory bodies respond to the ongoing pandemic. Manufacturing - We continue to operate our manufacturing facility at or near normal levels. We have on-hand all of the drug product needed for the expansion phase of the pheNIX clinical trial. In addition, during the first quarter of 2020, we accelerated the procurement of raw materials for future manufacturing, research and development needs to minimize potential supply chain interruptions. While we currently do not anticipate any interruptions in our manufacturing process, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on our and/or our third-party suppliers and CMOs' ability to manufacture our product candidates or materials needed for our preclinical studies and clinical trials. At this time, there is significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses and as a result, we expect that the COVID-19 pandemic may impact our business, revenues, results of operations and financial condition. The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, travel restrictions and social distancing inthe United States and other countries, business closures or business disruptions, the ultimate impact of COVID-19 on financial markets and the global economy, and the effectiveness of actions taken inthe United States and other countries to contain and treat the disease. See "Risk Factors- The COVID-19 pandemic caused by the novel strain of coronavirus could adversely impact our business, including our preclinical studies and clinical trials." in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. We recorded$1.7 million in collaboration revenue for the nine months endedSeptember 30, 2020 (see Note 10 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding Novartis revenue recognition discussion).
Operating Expenses
Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, and include:
• salaries, benefits and other related costs, including stock-based
compensation expense, for personnel engaged in research and development
functions;
• expenses incurred under agreements with third parties, including contract
research organizations, or CROs, and other third parties that conduct
research, preclinical activities and clinical trials on our behalf as
well as CMOs and our internal technical operations team that manufacture
our product candidates for use in our preclinical testing, our Phase 1/2
pheNIX clinical trial and additional potential future clinical trials; • costs of outside consultants, including their fees and related travel expenses; • the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; and
• facility-related expenses, which include direct depreciation costs and
allocated expenses for rent and maintenance of facilities and other operating costs.
We expense research and development costs as incurred.
31 -------------------------------------------------------------------------------- We typically use our employee and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates. These costs are included in other research and development expenses in the table below.
The following table summarizes our research and development expenses by product candidate or development program:
Three months ended Nine months ended September 30, September 30, (in thousands) 2020 2019 Change 2020 2019 Change HMI-102 external development costs$ 5,317 $ 9,912 $ (4,595 ) $ 28,139 $ 26,234 $ 1,905 Other development-stage programs' external development costs 5,101 3,785 1,316 18,325 9,890 8,435 Employee-related costs 9,515 7,355 2,160 29,038 20,812 8,226 Other research and development costs 484 4,639 (4,155 ) 1,695 12,120 (10,425 ) Total research and development expenses$ 20,417 $ 25,691 $ (5,274 ) $ 77,197 $ 69,056 $ 8,141 Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we advance clinical trials of HMI-102 for the treatment of PKU, including our Phase 1/2 pheNIX clinical trial, continue to advance HMI-103, HMI-202 and HMI-203 through IND-enabling studies and into clinical trials and continue to discover and develop additional product candidates. We cannot determine with certainty the duration and costs of future clinical trials of HMI-102 and IND-enabling studies and future clinical trials of our other product candidates in development or any other future product candidate we may develop or if, when, or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of HMI-102, our other product candidates in development and any other future product candidate we may develop will depend on a variety of factors, including:
• the scope, rate of progress, expense and results of clinical trials of
HMI-102, HMI-103, HMI-202 and HMI-203, as well as of any future clinical
trials of other product candidates and other research and development
activities that we may conduct; • uncertainties in clinical trial design and patient enrollment rates; • any delays in clinical trials as a result of the COVID-19 pandemic;
• the actual probability of success for our product candidates, including
the safety and efficacy results, early clinical data, competition, manufacturing capability and commercial viability;
• significant and changing government regulation and regulatory guidance;
• the timing and receipt of any marketing approvals; and
• the expense of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development. 32 --------------------------------------------------------------------------------
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, human resources, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs, rent expense, maintenance of facilities and other operating costs. We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support increased research and development activities relating to HMI-102, HMI-103, HMI-202, HMI-203 and any other product candidate we may develop. We also have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, compliance with the Sarbanes-Oxley Act of 2002, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq andSEC requirements; director and officer insurance costs; and investor and public relations costs.
Interest Income
Interest income consists of interest income earned on our cash, cash equivalents and short-term investments. Our interest income has decreased due to lower yields on invested funds as well as lower invested balances during the nine months endedSeptember 30, 2020 as compared to the same period in 2019. Market volatility resulting from the COVID-19 pandemic has and may continue to adversely impact our interest income.
Critical Accounting Policies and Use of Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgements that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations- Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 and the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. There were no material changes to our critical accounting policies during the three months endedSeptember 30, 2020 from those discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Results of Operations
Comparison of Three Months Ended
The following table summarizes our results of operations for the periods presented: Three months ended September 30, (in thousands) 2020 2019 Change Collaboration revenue $ 567 $ 441 126 Operating expenses: Research and development 20,417 25,691 (5,274 ) General and administrative 8,423 6,038 2,385 Total operating expenses 28,840 31,729 (2,889 ) Loss from operations (28,273 ) (31,288 ) 3,015 Other income: Interest income 41 1,661 (1,620 ) Net loss$ (28,232 ) $ (29,627 ) $ 1,395 33
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Collaboration Revenue Collaboration revenue for the three months endedSeptember 30, 2020 was$0.6 million , compared to$0.4 million for the three months endedSeptember 30, 2019 . The increase of$0.1 million is attributable to increased activities under our collaboration agreement with Novartis. We recognize revenues consistent with the pattern of performance of our research and development activities under this agreement, taking into consideration all upfront payments and research funding payments under this arrangement together as a single performance obligation. We expect the level of effort to substantially increase when and if we begin manufacturing during the development term of the collaboration agreement, which is dependent on the success of the research and Novartis' decision to take a candidate into development. Collaboration revenue recognized in a given period is based on actual costs incurred during that period as a percentage of total estimated costs to complete the single performance obligation under the arrangement. We would not expect collaboration revenue to be consistent period to period as it will fluctuate as we perform the research, development and manufacturing services over the term of our collaboration agreement with Novartis.
Research and Development Expenses
Three months ended September 30, (in thousands) 2020 2019 Change HMI-102 external development costs $ 5,317 $ 9,912$ (4,595 ) Other development-stage programs' external development costs 5,101 3,785 1,316 Employee-related costs 9,515 7,355 2,160 Other research and development costs 484 4,639 (4,155 ) Total research and development expenses$ 20,417 $
25,691
Research and development expenses for the three months endedSeptember 30, 2020 were$20.4 million , compared to$25.7 million for the three months endedSeptember 30, 2019 . The decrease of$5.3 million was due to a decrease of$4.6 million in direct research expenses for HMI-102 related to the transition of the manufacturing of clinical trial materials for our Phase 1/2 pheNIX trial from a CMO to our internal GMP facility in 2020, which reduced costs with our CMOs compared to the prior year period. Additionally, there was a$4.2 million decrease in other research and development costs related to laboratory supplies and research materials for our early-stage research programs. Partially offsetting these decreases was a$2.2 million increase in employee-related costs due to additional employee headcount to support our ongoing development programs, research initiatives, technology platform and manufacturing capabilities resulting in increases in salaries, payroll taxes, stock-based compensation expense and recruiting costs, as well as a$1.3 million increase in direct research expenses related to our newly announced HMI-203 program for Hunters syndrome.
General and Administrative Expenses
General and administrative expenses for the three months endedSeptember 30, 2020 were$8.4 million , compared to$6.0 million for the three months endedSeptember 30, 2019 . The increase of$2.4 million was primarily due to an increase in employee-related expenses of$1.5 million , which included$0.9 million of increased stock-based compensation expense, an increase in audit and legal costs of$0.3 million , an increase in market research costs of$0.3 million , an increase in facility costs of$0.2 million and an increase in taxes of$0.2 million . Interest Income Interest income for the three months endedSeptember 30, 2020 was less than$0.1 million , compared to$1.7 million for the three months endedSeptember 30, 2019 . The decrease was the result of lower invested balances in cash, cash equivalents and short-term investments for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , as well as lower yields on invested funds. 34
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Net Loss
Net loss for the three months ended
Comparison of Nine Months Ended
The following table summarizes our results of operations for the periods presented: Nine months ended September 30, (in thousands) 2020 2019 Change Collaboration revenue $ 1,722 $ 1,103 619 Operating expenses: Research and development 77,197 69,056 8,141 General and administrative 24,986 16,431 8,555 Total operating expenses 102,183 85,487 16,696 Loss from operations (100,461 ) (84,384 ) (16,077 ) Other income: Interest income 1,558 4,635 (3,077 ) Net loss $ (98,903 )$ (79,749 ) $ (19,154 ) Collaboration Revenue Collaboration revenue for the nine months endedSeptember 30, 2020 was$1.7 million , compared to$1.1 million for the nine months endedSeptember 30, 2019 . The increase of$0.6 million is attributable to increased activities under our collaboration agreement with Novartis. See "Comparison of Three Months EndedSeptember 30, 2020 and 2019-Collaboration Revenue" for additional information.
Research and Development Expenses
Nine months ended September 30, (in thousands) 2020 2019 Change HMI-102 external development costs$ 28,139 $ 26,234 $ 1,905 Other development-stage programs' external development costs 18,325 9,890 8,435 Employee-related costs 29,038 20,812 8,226 Other research and development costs 1,695 12,120 (10,425 ) Total research and development expenses$ 77,197 $
69,056
Research and development expenses for the nine months endedSeptember 30, 2020 were$77.2 million , compared to$69.1 million for the nine months endedSeptember 30, 2019 . The increase of$8.1 million was primarily due to an increase of$1.9 million in direct research expenses, including costs related to manufacturing clinical trial materials, as well as costs incurred with our CRO to conduct and manage our Phase 1/2 pheNIX clinical trial, an$8.4 million increase in direct research expenses related to HMI-202, HMI-203 and HMI-103 external development costs as we advance through IND-enabling studies and an$8.2 million increase in employee-related costs due to additional employee headcount to support our ongoing development programs, research initiatives, technology platform and manufacturing capabilities resulting in increases in salaries, payroll taxes, stock-based compensation expense and recruiting costs. Partially offsetting these increases was a$10.4 million decrease in other research and development costs related to laboratory supplies, research materials and services for our early-stage research programs. 35 --------------------------------------------------------------------------------
General and Administrative Expenses
General and administrative expenses for the nine months endedSeptember 30, 2020 were$25.0 million , compared to$16.4 million for the nine months endedSeptember 30, 2019 . The increase of$8.6 million was due to an increase in employee-related expenses of$3.9 million , which included$2.6 million of increased stock-based compensation expense, an increase in consulting expense of$1.4 million , an increase in facility costs of$1.1 million , an increase in market research costs of$0.8 million , an increase in insurance costs of$0.4 million , an increase in recruiting costs of$0.5 million and an increase in software expense of$0.3 million .
Interest Income
Interest income for the nine months endedSeptember 30, 2020 was$1.6 million , compared to$4.6 million for the nine months endedSeptember 30, 2019 . The decrease was the result of lower invested balances in cash, cash equivalents and short-term investments for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , as well as lower yields on invested funds. Net Loss
Net loss for the nine months ended
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. We expect that our research and development and general and administrative costs and our capital expenditures will increase in connection with conducting preclinical studies and clinical trials for our product candidates, contracting with CMOs and producing material in our internal manufacturing facility to support preclinical studies and clinical trials, expanding our research and development laboratories, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources. We do not currently have any approved products and have never generated any revenue from product sales. To date, we have financed our operations primarily through the sale of common stock, and the sale of preferred stock and through an up-front payment from a collaboration partner. Since our inception in 2015 throughSeptember 30, 2020 , we have raised approximately$444.2 million in aggregate net proceeds through our IPO, a follow-on public offering of common stock inApril 2019 , proceeds from the sale of common stock under an "at-the-market" sales agreement and preferred stock financings. We received an up-front payment of$50.0 million from a collaboration partner, comprised of$35.0 million in cash and a$15.0 million equity investment, the latter of which is included in the proceeds from the sale of preferred stock. As ofSeptember 30, 2020 , we had$179.3 million in cash, cash equivalents and restricted cash and an accumulated deficit of$298.6 million . InApril 2019 , we completed a follow-on public offering of our common stock. We sold 5,555,556 shares of our common stock at a public offering price of$22.50 per share and received net proceeds of$116.9 million , after deducting underwriting discounts and commissions and offering expenses. In addition, in April andMay 2019 , in connection with the exercise in full of the underwriters' option to purchase additional shares, we issued an aggregate of 833,333 shares of our common stock at a public offering price of$22.50 per share and received net proceeds of$17.6 million , after deducting underwriting discounts and commissions. InMarch 2020 , we entered into a sales agreement, or the Sales Agreement, withCowen and Company, LLC , or Cowen, as sales agent, pursuant to which we may, from time to time, issue and sell common stock with an aggregate value of up to$150 million in "at-the-market" offerings, or the ATM, under our Registration Statement on Form S-3 (File No. 333-237131) filed with theSEC onMarch 12, 2020 . Sales of common stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an "at the market offering" as defined in Rule 415(a) of the Securities Act, including sales made directly through the Nasdaq Global Market or on any other existing trading market for our common stock. No securities were issued pursuant to the Sales Agreement during the nine months endedSeptember 30, 2020 . As ofSeptember 30, 2020 , there was$150.0 million of common stock remaining available for sale under the ATM. Simultaneous with the filing of the registration statement inMarch 2020 , our previous Registration Statement on Form S-3 (File No. 333-230664) filed with theSEC onApril 1, 2019 and our prior sales agreement with Cowen providing for the offering, issuance and sale of up to an aggregate$100.0 million of our common stock from time to time in "at-the-market" offerings were terminated. 36 -------------------------------------------------------------------------------- OnNovember 9, 2020 , we entered into the Stock Purchase Agreement with Pfizer, pursuant to which Pfizer has agreed to purchase 5,000,000 shares of our common stock through a private placement transaction at a purchase price of$12.00 per share, for an aggregate purchase price of$60.0 million . The closing of the private placement is expected to occur on or aboutNovember 10, 2020 , subject to the satisfaction of customary closing conditions.
Cash Flows
Our cash, cash equivalents and restricted cash totaled$179.3 million and$263.7 million as ofSeptember 30, 2020 andDecember 31, 2019 , respectively. We had no indebtedness as ofSeptember 30, 2020 andDecember 31, 2019 . The following table summarizes our sources and uses of cash for each of the periods presented: Nine months ended September 30, (in thousands) 2020 2019 Net cash used in operating activities$ (82,720 ) $ (65,025 ) Net cash provided by (used in) investing activities 205,851 (31,772 ) Net cash provided by financing activities 1,098 135,638
Net change in cash, cash equivalents and restricted cash
$ 38,841
Cash Flows for the Nine Months ended
Operating Activities
Net cash used in operating activities for the nine months endedSeptember 30, 2020 was$82.7 million , driven primarily by our net loss of$98.9 million as we incurred expenses associated with research and development activities on HMI-102, HMI-103, HMI-202 and HMI-203, including the Phase 1/2 pheNIX trial for our HMI-102 program, and research activities on other applications for our technology and a decrease in operating lease liabilities of$1.7 million . These items were partially offset by net non-cash expenses of$16.1 million , which includes$9.7 million of stock-based compensation expense and$5.9 million of depreciation expense, and a decrease in working capital of$2.3 million .
Investing Activities
Net cash provided by investing activities for the nine months endedSeptember 30, 2020 was$205.9 million , attributable to maturities of short-term investments of$228.6 million , partially offset by purchases of short-term investments of$20.0 million and purchases of property and equipment of$2.8 million . Financing Activities
Net cash provided by financing activities for the nine months ended
Cash Flows for the Nine Months ended
Operating Activities
Net cash used in operating activities for the nine months endedSeptember 30, 2019 was$65.0 million , driven primarily by our net loss of$79.7 million as we incurred expenses associated with research and development activities on HMI-102, HMI-103 and HMI-202, including the Phase 1/2 pheNIX trial for our HMI-102 program, and research activities on other applications for our technology. The funding of our net loss was partially offset by net non-cash expenses of$8.2 million , an increase in deferred rent of$0.7 million and an increase in working capital of$6.2 million . 37 --------------------------------------------------------------------------------
Investing Activities
Net cash used in investing activities for the nine months endedSeptember 30, 2019 was$31.8 million , attributable to purchases of short-term investments of$257.4 million and purchases of property and equipment of$18.1 million , partially offset by maturities of short-term investments of$243.7 million .
Financing Activities
Net cash provided by financing activities for the nine months endedSeptember 30, 2019 was$135.6 million , primarily due to the receipt of$134.5 million in net proceeds from the issuance of common stock in a public offering inApril 2019 . Funding Requirements Our operating expenses increased substantially in 2019 and during the first nine months of 2020 and are expected to increase for the remainder of 2020 and in future years in connection with our ongoing activities, particularly as we advance our Phase 1/2 pheNIX clinical trial with HMI-102, advance our preclinical activities including IND-enabling studies, scale-up manufacturing processes, engage with CMOs, manufacture materials for preclinical and clinical activities in our internal manufacturing facility and initiate additional human clinical trials. In addition, we have incurred, and expect to continue to incur additional costs associated with operating as a public company. We also expect our capital expenditures to increase substantially as we expand our operations.
Specifically, our operating expenses and capital expenditures will increase as we:
• pursue the preclinical and clinical development of HMI-102, including the
ongoing pheNIX Phase 1/2 clinical trial, HMI-103, HMI-202 and HMI-203;
• pursue the preclinical and clinical development of other product candidates based on our gene therapy and gene editing technology;
• further scale-up our internal manufacturing processes and capabilities,
manufacture materials in our internal manufacturing facility and contract
with CMOs to support our preclinical studies and clinical trials of our product candidates; • further expand our manufacturing capacity; • operate our business in our facility with expanded research and development labs and manufacturing suites and purchase additional equipment for our operations;
• in-license or acquire the rights to other products, product candidates or
technologies; • maintain, expand and protect our intellectual property portfolio;
• hire additional personnel in research, manufacturing and regulatory and
clinical development as well as management personnel; and
• expand our operational, financial and management systems and increase
personnel, including personnel to support our operations as a public
company.
We now believe that our existing cash and cash equivalents, together with the anticipated proceeds of$60.0 million from the Pfizer private placement, will enable us to fund our current projected operating expenses and capital expenditure requirements into the third quarter of 2022, including, subject to the impact of the COVID-19 pandemic on our business, additional development activities related to our Phase 1/2 pheNIX clinical trial with HMI-102, the advancement of our lead gene editing product candidate, HMI-103, our lead CNS gene therapy product candidate, HMI-202 and our newly announced gene therapy product candidate for Hunter syndrome, HMI-203, the scale-up of our manufacturing processes and the expansion of our intellectual property portfolio. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical drugs, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:
• the progress, costs and results of our preclinical development and initial clinical trials for HMI-102 including the pheNIX Phase 1/2 clinical trial, HMI-103, HMI-202 and HMI-203; 38
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• the progress, costs and results of our additional research and preclinical development programs in gene therapy and gene editing;
• the costs and timing of internal process development and manufacturing
scale-up activities, the production of materials in our internal
manufacturing facility, and outsourcing activities with CMOs associated
with our lead product development programs and other programs we advance through preclinical and clinical development;
• our ability to establish and maintain strategic collaborations, licensing
or other agreements and the financial terms of such agreements; • the scope, progress, results and costs of any product candidates that we
may derive from our platform technology or any other product candidates
that we may develop;
• the extent to which we in-license or acquire rights to other products,
product candidates or technologies; and • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims. In addition, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this Quarterly Report on Form 10-Q, as the pandemic continues to evolve globally. See "Impact of COVID-19 Pandemic" above and "Risk Factors- The COVID-19 pandemic caused by the novel strain of coronavirus could adversely impact our business, including our preclinical studies and clinical trials." in Part II, Item 1A of this Quarterly Report on Form 10-Q for a further discussion of the possible impact of the COVID-19 pandemic on our business. Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements and marketing and distribution arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders as common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves. We currently have no credit facility or committed sources of capital.
Contractual Obligations
There have been no material changes to our contractual obligations during the
nine months ended
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
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