RUBIUS THERAPEUTICS 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 and our Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theSecurities and Exchange Commission , orSEC , onMarch 12, 2020 . 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 factors, including those factors 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, the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage biopharmaceutical company that is genetically engineering red blood cells to create an entirely new class of cellular medicines called Red Cell Therapeutics (RCTs). Based on our vision that human red blood cells are the foundation of the next significant innovation in medicine, we have designed a proprietary and highly versatile platform, called the RED PLATFORM, to genetically engineer and culture RCTs that are selective, potent and ready-to-use cellular therapies. We believe that our RCTs can provide life-changing or life-saving benefits for patients with cancer and autoimmune diseases. We have demonstrated strong execution across our pipeline of Red Cell Therapeutics for the treatment of cancer and autoimmune diseases. During the course of the year, we have filed two Investigational New Drug (IND) applications for our two lead oncology programs, RTX-240 and RTX-321. We have dosed patients in two Phase 1 arms of the RTX-240 Phase 1/2 clinical trial in relapsed/refractory or locally advanced solid tumors and relapsed/refractory acute myeloid leukemia (AML). We believe that by demonstrating that RTX-240 is working as intended to induce anti-tumor innate and adaptive immunity, we expect to unlock the potential of the RED PLATFORM across our entire pipeline of cancer and autoimmune programs. Additionally, we operationalized our manufacturing facility inSmithfield, RI , which is currently providing cGMP supply for these two ongoing clinical trials. Finally, we continue to advance our earlier-stage autoimmune program in Type I diabetes and explore ways in which to apply the RED PLATFORM across the remainder of our pipeline.
Highlights of our most advanced product candidates, RTX-240 and RTX-321, are described further below.
RTX-240 We are currently enrolling patients in a Phase 1/2 clinical trial evaluating RTX-240. The study contains two Phase 1 dose escalation arms: one in patients with relapsed/refractory or locally advanced solid tumors and another in patients with relapsed/refractory AML. RTX-240 is an allogeneic, off-the-shelf cellular therapy product candidate that is engineered to replicate human immune system function by stimulating adaptive and innate immunity to generate an anti-tumor immune response. As shown in preclinical studies, RTX-240 expresses hundreds of thousands of copies of the costimulatory molecule 4-1BB ligand (4-1BBL) and the cytokine IL-15TP (a fusion of IL-15 and IL-15 receptor alpha) on the cell surface in their native forms. By activating existing agonist pathways, RTX-240 has the potential to enhance potency and improve anti-tumor activity, overcome resistance to immunotherapy and have a reduced toxicity profile given its biodistribution in the vasculature. OnNovember 9, 2020 , we announced that we have completed dosing of the fourth dose cohort in the solid tumor clinical trial. As we continue to dose escalate, we are assessing the safety profile and biological effects of RTX-240 on innate and adaptive immunity by measuring biomarkers associated with activation and proliferation of NK and T cells in peripheral blood and matched tumor biopsy samples. Additionally, onNovember 5, 2020 , we announced that we dosed the first patient in a second Phase 1 arm of the ongoing Phase 1/2 RTX-240 clinical trial for the treatment of relapsed/refractory AML. NK cells can exhibit potent anti-tumor activity against AML, but tumor-associated mechanisms often suppress the proper function of NK cells leading to 17
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disease progression. When NK cells are restored to their full anti-tumor potential, their cytolytic activity predicts a better long-term outcome for patients with AML. RTX-240 is designed to induce NK and T cell activation and proliferation, leading to the killing of AML cells.
InNovember 2020 , we presented preclinical data from our lead clinical oncology product candidate, RTX-240, at theSociety for Immunotherapy of Cancer's Annual Meeting, demonstrating the following:
RTX-240 increased CD8 T cell and NK cell expansion and activation in vitro when ? compared to a 4-1BB agonist antibody and recombinant IL-15, which was directly
correlated with the percentage of 4-1BBL and IL-15TP expressed on the cell
surface;
? RTX-240 expanded CD56dim NK cells, a cell population with known cytotoxicity;
? RTX-240 promoted NK cell-killing of a myeloid leukemia cell line, K562, which
was accompanied by increased NK cell degranulation and activation;
? A murine surrogate for RTX-240, mRBC-240, promoted significant expansion of CD8
T cells and NK cells in vivo in a murine model of CT26 colorectal cancer; and
mRBC-240 demonstrated potent antitumor activity in a B16F10 melanoma model that ? was directly correlated with the expansion of terminally differentiated NK
cells in the tumors. RTX-321 We have filed an IND application for RTX-321 for the treatment of patients with human papillomavirus (HPV) 16-positive cancers. RTX-321 is an allogeneic, off-the-shelf artificial antigen-presenting cell (aAPC) therapy product candidate that is engineered to induce a tumor-specific immune response by expanding antigen-specific T cells. RTX-321 expresses hundreds of thousands of copies of an HPV peptide antigen bound to major histocompatibility complex (MHC) class I proteins, the costimulatory molecule 4-1BBL and the cytokine IL-12 on the cell surface to mimic human T cell-APC interactions. As part of our IND filing, we included frozen drug substance for the first time as part of the manufacturing process, allowing a truly off-the-shelf cellular therapy product candidate with a potential shelf life of several years based on preliminary stability data. HPV 16 is associated with approximately 70% of cervical cancers, approximately 40% of head and neck squamous cell carcinoma (HNSCC) arising in the oropharynx, approximately 25%-40% of HNSCC arising in other locations and approximately 80%-85% of anal cancers. A critical need remains for better treatment options for advanced HPV 16 associated cancers. The prognosis remains poor for patients with metastatic disease with few treatment options beyond the first-line setting. InNovember 2020 , we presented preclinical data at theFederation of Clinical Immunology Societies Annual Meeting and theAmerican Association of Cancer Research Tumor Immunology and Immunotherapy Conference , from our lead aAPC program, RTX-321, for the treatment of HPV 16-positive tumors, and demonstrating the following:
? RTX-321 and its mouse surrogates demonstrated a dual mechanism of action in
vivo and in vitro:
o Functions as an aAPC to boost HPV 16 E7-specific CD8+ T-cell responses; and
o Promotes HPV 16-independent stimulation of innate (NK cells) and adaptive
immune (non-HPV antigen-specific CD8+ T cells) responses;
? Mouse surrogates of RTX-321 promote tumor control, memory formation and epitope
spreading in tumor models in vivo;
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? Treatment with the RTX-321 mouse surrogate results in minimal, reversible
effects in vivo (body weight change, IFN? and ALT levels);
? RTX-321 functions as an aAPC to boost HPV 16 antigen-specific T cells in vitro;
and
? RTX-321 promotes HPV 16-independent adaptive and innate immune responses in
vitro.
Taken together, we believe these findings support the potential of RTX-321 as an effective therapy for the treatment of HPV 16+ cancers.
Manufacturing
We have generated hundreds of RCTs using our RED PLATFORM and are utilizing our universal engineering and manufacturing processes to advance a broad pipeline of RCT product candidates into clinical trials in cancer and autoimmune diseases. Common design and manufacturing elements of our RCTs should enable us to achieve significant advantages in product development. Recognizing the importance of controlling our own manufacturing capabilities to produce consistent and reproducible product at greater scale, we acquired, renovated and operationalized a manufacturing facility inSmithfield, RI , that is are currently providing cGMP supply for our two Phase 1 arms in the ongoing RTX-240 clinical trial in advanced solid tumors and in relapsed/refractory AML. We are conducting manufacturing in support of planned GMP clinical supply needs for the RTX-321 clinical trial for HPV-16-positive cancers. We believe we have the potential to significantly expand our manufacturing capabilities in the future and plan to stage additional investments based on future supply needs. Since our inception, we have focused substantially all of our resources on building our proprietary RED PLATFORM, establishing and protecting our intellectual property portfolio, conducting research and development activities, developing our manufacturing process and manufacturing drug product material, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations with proceeds from the sale of preferred stock and issuance of debt and with proceeds from our initial public offering, or IPO. OnJuly 20, 2018 , we completed our IPO pursuant to which we issued and sold 12,055,450 shares of common stock, inclusive of 1,572,450 shares pursuant to the full exercise of the underwriters' option to purchase additional shares. We received proceeds of$254.3 million after deducting underwriting discounts and commissions and other offering costs. InAugust 2019 , we entered into a Distribution Agreement withJ.P. Morgan Securities LLC ,Jefferies LLC andSVB Leerink LLC with respect to an at-the-market, or ATM, offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having aggregate gross proceeds of up to$100.0 million . We have not yet sold any shares of our common stock under the ATM offering program. Since our inception, we have incurred significant operating losses. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. We reported net losses of$127.2 million for the nine months endedSeptember 30, 2020 and$163.5 million for the year endedDecember 31, 2019 . As ofSeptember 30, 2020 , we had an accumulated deficit of$439.9 million . We expect to continue to incur significant expenses and operating losses for at least the next several years. We expect that our expenses and capital requirements will increase in connection with our ongoing activities, particularly if, and as, we:
conduct clinical trials for our product candidates and if we experience any ? delays, setbacks or disruptions to our preclinical studies, clinical trials or
clinical supply chain due to the COVID-19 pandemic;
? further develop our RED PLATFORM;
? continue to discover and develop additional product candidates;
? maintain, expand and protect our intellectual property portfolio;
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? hire additional clinical, scientific manufacturing and commercial personnel;
? expand in-house manufacturing capabilities, including through the operation and
any future renovation or expansion of our manufacturing facility;
establish a commercial manufacturing source and secure supply chain capacity ? sufficient to provide commercial quantities of any product candidates for which
we may obtain regulatory approval;
? acquire or in-license other product candidates and technologies;
? seek regulatory approvals for any product candidates that successfully complete
clinical trials;
? establish a sales, marketing and distribution infrastructure to commercialize
any products for which we may obtain regulatory approval; and
add operational, financial and management information systems and personnel, ? including personnel to support our product development and planned future
commercialization efforts, as well as to continue to support the requirements
of a public company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution. Further, we expect to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As ofSeptember 30, 2020 , we had cash, cash equivalents and investments of$207.9 million . We believe that our existing cash, cash equivalents and investments will enable us to fund our operating expenses, capital expenditure requirements and debt service payments into 2022. See "-Liquidity and Capital Resources." Recent Developments InMarch 2020 , we began precautionary measures to protect the health and safety of our employees, partners and prospective clinical trial participants during the novel coronavirus, or COVID-19, pandemic. Because COVID-19 infections have been reported throughoutthe United States and worldwide, certain national, state and local governmental authorities have issued orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive orders, proclamations and/or directives may be issued in the future. As a result, we have eliminated business travel and substantially reduced the number of employees working on-site at any one time at each of our facilities by shifting to remote work wherever possible and implementing rotating laboratory work schedules. In addition, the conduct of our clinical studies with our external partners has been adjusted to institute virtual clinical trial site training and 20 Table of Contents site monitoring, along with partnering with sites to minimize patient visits and institute telemedicine to minimize patient exposure. We expect these precautionary measures to continue to be in place throughout the remainder
of 2020 and likely into 2021. While the COVID-19 pandemic did not significantly impact our results of operations during the first nine months of 2020, the ultimate impact on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or we, may direct, which may result in an extended period of continued business disruption, reduced patient traffic and reduced operations. In particular, the speed of the continued spread of COVID-19 globally, and the magnitude of interventions to contain the spread of the virus, such as government-imposed quarantines, including shelter-in-place mandates, sweeping restrictions on travel, mandatory shutdowns for non-essential businesses, requirements regarding social distancing, and other public health safety measures, will determine the impact of the pandemic on our business. We are continuing to monitor the latest developments regarding the COVID-19 pandemic and its impact on our business, financial condition, results of operations and prospects. However, any resulting financial impact cannot be reasonably estimated at this time and may have a material adverse impact on our business, financial condition and results of operations. During the third quarter of 2020, we strengthened our leadership team by appointingJose "Pepe" Carmona as Chief Financial Officer.Mr. Carmona brings extensive experience in global finance and operations to Rubius, as well as a track record of financing clinical-stage and commercial biotech companies.
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 near future. If our development efforts for our product candidates are successful and result in regulatory approval or license or collaboration agreements with third parties, we may generate revenue in the future from product sales, payments from collaboration or license agreements that we may enter into with third parties, or any combination thereof. Operating Expenses
Research and Development Expenses
Research and development expenses consist of costs incurred for our research activities, including our drug discovery efforts, and the development and manufacturing of our product candidates, which include:
employee-related expenses, including salaries, related benefits and stock-based ? compensation expense for employees engaged in research and development
functions;
expenses incurred in connection with the preclinical and clinical development ? of our product candidates and research programs, including under agreements
with third parties, such as consultants, contractors and contract research
organizations, or CROs;
the cost of developing and scaling our manufacturing process and manufacturing
drug products for use in our preclinical studies and clinical trials, including ? under agreements with third parties, such as consultants, contractors and any
contract manufacturing organizations, or CMOs, that we may engage, as well as
in our manufacturing facility;
? laboratory supplies and research materials;
21
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expenses for rent and maintenance of facilities and insurance; and
? payments made under third-party licensing agreements.
We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Our direct research, manufacturing and development expenses are tracked on a program-by-program basis for clinical candidates. These consist mostly of fees, reimbursed materials, testing and other costs paid to consultants, contractors, CMOs and CROs as well as the cost of materials incurred for internal manufacturing. In addition, starting in the first quarter of 2020, we allocate the cost of operating our manufacturing facility to research and development program costs, consisting of associated personnel costs, other than stock-based compensation expense, and manufacturing facility costs, including depreciation. We do not allocate costs associated with our platform development, early stage research and shared research and development, including associated personnel costs, laboratory supplies, non-manufacturing facilities expenses and other indirect costs, to research and development programs, because these costs are deployed across multiple programs and our technology platform and, as such, are not separately classified. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:
? the timing and progress of preclinical and clinical development activities;
? the number and scope of preclinical and clinical programs we decide to pursue;
? raising additional funds necessary to complete preclinical and clinical
development of and commercialize our drug candidates;
? the progress of the development efforts of parties with whom we may enter into
collaboration arrangements;
? our ability to maintain our current research and development programs and to
establish new ones;
? our ability to establish new licensing or collaboration arrangements;
the successful initiation and completion of clinical trials with safety,
? tolerability and efficacy profiles that are satisfactory to the
? the impact of the COVID-19 pandemic on our operations;
? the receipt and related terms of regulatory approvals from applicable
regulatory authorities;
? the availability of specialty raw materials for use in production of our
product candidates;
? our ability to consistently manufacture our product candidates for use in
clinical trials;
? our ability to operate a manufacturing facility, or secure manufacturing supply
through relationships with third parties;
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? our ability to obtain and maintain patents, trade secret protection and
regulatory exclusivity, both in the United States and internationally;
? our ability to protect our rights in our intellectual property portfolio;? the commercialization of our product candidates, if and when approved;
? obtaining and maintaining third-party insurance coverage and adequate
reimbursement;
? the acceptance of our product candidates, if approved, by patients, the medical
community and third-party payors;
? competition with other products; and
? a continued acceptable safety profile of our therapies following approval.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.
General and Administrative Expenses
General and administrative expenses include salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We anticipate that our general and administrative expenses may increase in the future as we continue to build infrastructure to support the expansion of our research activities, development of our product candidates and any expanded compliance requirements.
Other Income (Expense)
Interest Income
Interest income consists of interest earned on our invested cash balances.
Interest Expense
Interest expense consists of interest expense on outstanding borrowings under our loan and security agreements, as well as amortization of debt discount
and debt issuance costs. Other Income, Net
Other income, net consists of income earned under a sublease agreement and miscellaneous income and expense unrelated to our core operations.
Income Taxes
Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each year or for our research and development tax credits generated, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss, or NOL, carryforwards and tax credits will not be realized. As ofDecember 31, 2019 , we hadU.S. federal and state net operating loss carryforwards of$222.9 million and$227.0 million , respectively, which may be available to offset future taxable income. The federal NOLs include$37.2 million , which expire at various dates through 2037, and$185.7 million , which carryforward indefinitely. The state NOLs expire at various dates through 2039. As ofDecember 31, 2019 , we also hadU.S. federal and state research and development tax credit carryforwards of$9.5 million and$5.1 million , respectively, which may be available to offset future tax liabilities 23
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and begin to expire in 2034 and 2026, respectively. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Revenue $ - $ - $ -
Operating expenses:
Research and development 28,209 33,530 (5,321)
General and administrative 11,976 14,952 (2,976)
Total operating expenses 40,185 48,482 (8,297)
Loss from operations (40,185) (48,482) 8,297
Other income (expense):
Interest income 223 2,002 (1,779)
Interest expense (1,174) (835) (339)
Other income, net 284 300 (16)Total other income (expense), net (667)
1,467 (2,134)
Net loss $ (40,852) $ (47,015) $ 6,163 Research and Development Expenses
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Research and development program expenses:
Rare disease $ 299 $ 7,783 $ (7,484)
Cancer 13,424 3,846 9,578
Platform development, early-stage research and
unallocated expenses:
Personnel-related 5,514 7,864 (2,350)
Stock-based compensation expense 1,996 2,195 (199)
Contract research and development 1,579 3,774 (2,195)
Laboratory supplies and research materials 1,769 3,868 (2,099)
Facility related and other 3,628 4,200 (572)
Total research and development expenses $ 28,209 $ 33,530$ (5,321) Research and development expenses were$28.2 million for the three months endedSeptember 30, 2020 , compared to$33.5 million for the three months endedSeptember 30, 2019 . The decrease in direct costs related to our rare disease program of$7.5 million was due to the decision inMarch 2020 to deprioritize development of our rare disease programs and discontinue the RTX-134 Phase 1b clinical trial. The increase in direct costs of$9.6 million in our lead cancer programs, including RTX-240 and RTX-321, was principally related to costs incurred for our Phase 1/2 clinical trial of RTX-240 for the treatment of solid tumors, including clinical CRO and internal manufacturing costs, as well as to costs incurred for preclinical and IND-enabling activities for RTX-321. The decline in laboratory supplies and research materials of$2.1 million was mostly due to the shift in pilot-scale manufacturing activities to support the technical development of clinical candidates. Similarly, the decrease in contract research and development of$2.2 million was due to the advancement of discovery research to support IND-enabling activities. The reduction in stock-compensation expense of$0.2 million was driven by a reduction in the market price of our common stock resulting in a lower valuation of options granted during 2020. The decrease in personnel-related costs and facility related and other costs of$2.9 million was principally due to the allocation of the costs to operate our manufacturing facility to research and 24
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development program costs starting in the first quarter of 2020, as well as a reduction in onsite activities in connection with our response to the COVID-19 pandemic.
General and Administrative Expenses
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Personnel-related $ 3,094 $ 2,942 $ 152 Stock-based compensation expense 5,989 8,163 (2,174) Professional and consultant fees 1,546 1,898 (352) Facility related and other 1,347 1,949 (602) Total general and administrative expenses $ 11,976
$ 14,952$ (2,976)
General and administrative expenses were$12.0 million for the three months endedSeptember 30, 2020 , compared to$15.0 million for the three months endedSeptember 30, 2019 . The decrease in general and administrative expenses of$3.0 million was primarily due to a reduction in stock-based compensation expense of$2.2 million due principally to restricted stock awards that fully vested inJanuary 2020 . Additional decreases in professional and consultant fees and facility related and other costs of$1.0 million were largely driven by decreased spending as compared to the third quarter of 2019 due to the commencement of our lease of additional office and laboratory space inAugust 2019 and decreased spending for business support initiatives and a reduction in onsite activities in connection with our response to the COVID-19 pandemic.
Interest Income
Interest income was$0.2 million for the three months endedSeptember 30, 2020 , compared to$2.0 million for the three months endedSeptember 30, 2019 . Interest income decreased due to reduced invested balances as cash was used to fund operations, as well as reduced interest rates.
Interest Expense
Interest expense was
Other Income, Net
The change in other income, net was not significant during the three months
ended
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Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30,
2020 2019 Change
(in thousands)
Revenue $ - $ - $ -
Operating expenses:
Research and development 90,491 81,919 8,572
General and administrative 36,241 42,254 (6,013)
Total operating expenses 126,732 124,173 2,559
Loss from operations (126,732) (124,173) (2,559)
Other income (expense):
Interest income 1,682 6,492 (4,810)
Interest expense (2,987) (1,957) (1,030)
Other income, net 845 652 193
Total other income, net (460) 5,187 (5,647)
Net loss $ (127,192) $ (118,986) $ (8,206) Research and Development Expenses
Nine Months Ended September 30,
2020 2019 Change
(in thousands)
Research and development program expenses:
Rare disease $ 7,221 $ 20,028 $ (12,807)
Cancer 34,060 5,784 28,276
Platform development, early-stage research and
unallocated expenses:
Personnel-related 19,372 19,231 141
Stock-based compensation expense 6,165 6,798 (633)
Contract research and development 5,853 7,094 (1,241)
Laboratory supplies and research materials 7,156 11,543 (4,387)
Facility related and other 10,664 11,441 (777)
Total research and development expenses $ 90,491 Research and development expenses were$90.5 million for the nine months endedSeptember 30, 2020 , compared to$81.9 million for the nine months endedSeptember 30, 2019 . The decrease in direct costs related to our rare disease program of$12.8 million was due to the decision inMarch 2020 to deprioritize development of our rare disease programs and discontinue the RTX-134 Phase 1b clinical trial. The increase in direct costs of$28.3 million in our lead cancer programs, including RTX-240 and RTX-321, was principally related to costs incurred for our Phase 1/2 clinical trial of RTX-240 for the treatment of solid tumors, including clinical CRO and internal manufacturing costs, as well as to costs incurred for preclinical and IND-enabling activities for RTX-321. The decrease in contract research and development of$1.2 million was due to the advancement of discovery research to support IND-enabling activities. The decline in laboratory supplies and research materials of$4.4 million was mostly due to the shift in pilot-scale manufacturing activities to support the technical development of clinical candidates. The reduction in stock-compensation expense of$0.6 million was driven by a reduction in the market price of our common stock resulting in a lower valuation of options granted during 2020. The decrease in facility related and other costs of$0.8 million was principally due to the allocation of the costs to operate our manufacturing facility to research and development program costs starting in the first quarter of 2020, as well as a reduction in onsite activities in connection with our response to the COVID-19 pandemic. 26 Table of Contents
General and Administrative Expenses
Nine Months Ended September 30,
2020 2019 Change
(in thousands)
Personnel-related $ 8,593 $ 7,796 $ 797 Stock-based compensation expense 18,560 23,642 (5,082) Professional and consultant fees 5,159 6,390 (1,231) Facility related and other 3,929 4,426 (497) Total general and administrative expenses$ 36,241
$ 42,254 $ (6,013)
General and administrative expenses were$36.2 million for the nine months endedSeptember 30, 2020 , compared to$42.3 million for the nine months endedSeptember 30, 2019 . The decrease in general and administrative expenses of$6.0 million was primarily due to a reduction in stock-based compensation expense of$5.1 million due principally to restricted stock awards that fully vested inJanuary 2020 . In addition, the decrease in professional and consultant fees of$1.2 million was driven by reduced spending on business support initiatives, and the decrease in facility related and other costs was due primarily to a reduction in onsite activities in connection with our response to the COVID-19 pandemic. These decreases were offset by an increase in personnel-related costs of$0.8 million due to an increase in executive recruiting and compensation costs.
Interest Income
Interest income was$1.7 million for the nine months endedSeptember 30, 2020 , compared to$6.5 million for the nine months endedSeptember 30, 2019 . Interest income decreased due to reduced invested balances as cash was used to fund operations as well as reduced interest rates.
Interest Expense
Interest expense was
Other Income, Net
Other income, net was$0.8 million for the nine months endedSeptember 30, 2020 , compared to$0.7 million for the nine months endedSeptember 30, 2019 . The increase of other income, net was principally a result of income earned from a sublease agreement that commenced inFebruary 2019 .
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. To date, we have funded our operations with proceeds from the sale of preferred stock and issuance of debt and, most recently, with proceeds from our IPO. As ofSeptember 30, 2020 , we had cash, cash equivalents and investments of$207.9 million . InJuly 2018 , we completed our IPO, pursuant to which we issued and sold 12,055,450 shares of common stock, inclusive of 1,572,450 shares pursuant to the full exercise of the underwriters' option to purchase additional shares. We received proceeds of$254.3 million , after deducting underwriting discounts and commissions and other offering costs. InDecember 2018 , we entered into a loan and security agreement which provides for aggregate borrowings of up to$75.0 million , all of which were outstanding as ofSeptember 30, 2020 . 27 Table of Contents Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2020 2019 (in thousands) Cash used in operating activities$ (97,100) $ (81,459) Cash provided by (used in) investing activities 53,964 (143,337) Cash provided by financing activities 26,412 26,721
Net decrease in cash, cash equivalents and restricted cash
Operating Activities
During the nine months endedSeptember 30, 2020 , operating activities used$97.1 million of cash, primarily resulting from our net loss of$127.2 million , offset by net non-cash charges of$30.3 million , predominantly consisting of stock-based compensation expense. Net cash used in our operating assets and liabilities for the nine months endedSeptember 30, 2020 consisted of a$3.1 million decrease in accounts payable, accrued expenses and other current liabilities, other long-term liabilities and operating lease liabilities, offset by a decrease in prepaid expenses and other current assets, other assets and operating lease, right-of-use asset of$2.9 million . During the nine months endedSeptember 30, 2019 , operating activities used$81.5 million of cash, primarily resulting from our net loss of$119.0 million , offset by net non-cash charges of$31.1 million , primarily consisting of stock-based compensation expense. Net cash used in our operating assets and liabilities for the nine months endedSeptember 30, 2019 consisted primarily of a$5.5 million increase in accounts payable, accrued expenses and other current liabilities and operating lease liabilities, offset by a decrease in prepaid expenses and other current assets and operating lease, right-of-use asset of$1.2 million . Investing Activities During the nine months endedSeptember 30, 2020 , net cash provided by investing activities was$54.0 million , consisting of sales and maturities of investments of$181.1 million , offset by net purchases of investments of$122.7 million and purchases of property, plant and equipment of$4.5 million . Our cash purchases of property, plant and equipment consisted of$2.6 million for purchases related to our manufacturing facility inSmithfield, Rhode Island , largely related to payments for manufacturing equipment purchases and construction costs incurred in 2019, and$1.9 million for the purchase of computer and laboratory equipment installed in our manufacturing facility and our laboratory space inCambridge, Massachusetts . During the nine months endedSeptember 30, 2019 , net cash used in investing activities was$143.3 million , consisting of net purchases of investments of$116.0 million and purchases of property, plant and equipment of$27.4 million . Our cash purchases of property, plant and equipment primarily consisted of$11.5 million for the design, demolition and construction related to the renovation of our manufacturing facility inSmithfield, Rhode Island and$14.0 million for the purchase of laboratory equipment installed in our manufacturing facility and our expanded laboratory space inCambridge, Massachusetts .
Financing Activities
During the nine months endedSeptember 30, 2020 , net cash provided by financing activities of$26.4 million consisted of$25.0 million proceeds received from borrowings under a loan and security agreement and$1.4 million proceeds received from issuance of common stock upon exercise of stock options. During the nine months endedSeptember 30, 2019 , net cash provided by financing activities of$26.7 million consisted of$25.0 million proceeds received from borrowings under a loan and security agreement and$1.8 million proceeds received from issuance of common stock upon exercise of stock options. 28 Table of Contents Loan and Security Agreements
InDecember 2018 , or the Closing Date, we entered into a loan and security agreement, or the Loan Agreement, with Solar Capital Ltd. as collateral agent for the lenders party thereto for an aggregate principal amount of$75.0 million , or the 2018 Credit Facility. The aggregate principal amount will be funded in three tranches of term loans of$25.0 million each. On the Closing Date, we made an initial borrowing of$25.0 million . InJune 2019 , we made a second borrowing of$25.0 million . InJune 2020 , we made a third and final borrowing of$25.0 million . Interest on the outstanding loan balance accrues at a rate of the one-monthU.S. LIBOR rate plus 5.50%. Monthly principal payments will commence 36 months after the Closing Date and will be amortized over the following 24 months. The term loans are subject to a prepayment fee of 1.00% in the first year, 0.50% in the second year and 0.25% in the third year. In conjunction with 2018 Credit Facility, we incurred issuance costs of$0.8 million . The Loan Agreement contains financial covenants that require us to maintain either a certain minimum cash balance or a minimum market capitalization threshold. We were in compliance with all such covenants as ofSeptember 30, 2020 . The Loan Agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse change default. Upon the occurrence of an event of default, a default interest rate of an additional 4.00% per annum may be applied to the outstanding loan balances, and the lenders may declare all outstanding obligations immediately due and payable. Borrowings under the Loan Agreement are collateralized by substantially all of our assets, other than our intellectual property.
Common Stock Sales Agreement
OnAugust 1, 2019 , we entered into a Distribution Agreement (the "Distribution Agreement"), with multiple sales agents, pursuant to which the Company may offer and sell to or through the agents, from time to time, shares of the Company's common stock, par value$0.001 per share, having an aggregate gross sales price of up to$100.0 million . Sales, if any, of the Company's shares of common stock will be made primarily in "at-the-market" offerings, as defined in Rule 415 under the Securities Act. The shares of common stock will be offered and sold pursuant to our registration statement on Form S-3 and a related prospectus supplement, both filed with theSEC onAugust 1, 2019 . We intend to use substantially all of the net proceeds from any sale of shares of the Company's common stock for working capital and other general corporate purposes. There have been no shares of the Company's common stock sold under the Distribution Agreement as ofSeptember 30, 2020 .
Funding Requirements
We expect our expenses to increase substantially in the future as we conduct the activities necessary to advance our product candidates through development. The timing and amount of our operating and capital expenditures will depend largely on:
? the timing and progress of preclinical and clinical development activities;
the commencement, enrollment or results of the planned clinical trials of our ? product candidates or any future clinical trials we may conduct, or changes in
the development status of our product candidates;
? the timing and outcome of regulatory review of our product candidates;
? the impact of the COVID-19 pandemic on our operations;
? our decision to initiate a clinical trial, not to initiate a clinical trial or
to terminate an existing clinical trial;
? changes in laws or regulations applicable to our product candidates, including
but not limited to clinical trial requirements for approvals;
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? developments concerning our CMOs;
? our ability to obtain materials to produce adequate product supply for any
approved product or inability to do so at acceptable prices;
the costs associated with the operation of our multi-suite manufacturing ? facility and the costs and timing of any future renovation or expansion of the
facility;
? our ability to establish collaborations if needed;
the costs and timing of future commercialization activities, including product ? manufacturing, marketing, sales and distribution, for any of our product
candidates for which we obtain marketing approval;
? the legal patent costs involved in prosecuting patent applications and
enforcing patent claims and other intellectual property claims;
? additions or departures of key scientific or management personnel;
? unanticipated serious safety concerns related to the use of our product
candidates; and
? the terms and timing of any collaboration, license or other arrangement,
including the terms and timing of any milestone payments thereunder.
We believe that our existing cash, cash equivalents and investments, will enable
us to fund our operating expenses, capital expenditure requirements and debt
service payments into 2022. We have based this estimate on assumptions that may
prove to be wrong, and we could utilize our available capital resources sooner
than we expect.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our operations through a combination of equity offerings, debt
financings, collaborations, strategic alliances and marketing, distribution or
licensing arrangements. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, investors' ownership interest
will be diluted, and the terms of these securities may include liquidation or
other preferences that adversely affect investors' rights as a common
stockholder. 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 acquisitions or
capital expenditures or declaring dividends. If we raise additional funds
through collaborations, strategic alliances or marketing, distribution or
licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or drug
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 or other
arrangements when needed, we may be required to delay, limit, reduce or
terminate our research, product development or future commercialization efforts,
or grant rights to develop and market drug candidates that we would otherwise
prefer to develop and market ourselves.
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Contractual Obligations and Commitments
The following table summarizes our contractual obligations as ofSeptember 30, 2020 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods: Payments Due by Period Less Than More Than Total 1 Year 1 to 3 Years 4 to 5 Years 5 Years (in thousands)
Operating lease commitments (1)$ 55,718 $ 9,721 $
14,475$ 7,548 $ 23,974 Debt obligations (2) 85,709 4,242 71,016 10,451 - Total$ 141,427 $ 13,963 $ 85,491 $ 17,999 $ 23,974 (1)Amounts in table reflect payments due for our leases of office and laboratory space inCambridge, Massachusetts under three operating lease agreements that expire inSeptember 2021 ,January 2027 andAugust 2028 . (2)Amounts in table reflect the contractually required principal and interest payments payable under the 2018 Credit Facility. For purposes of this table, the interest due under the 2018 Credit Facility was calculated using an assumed interest rate of 6.31% per annum, which was the interest rate in effect as ofSeptember 30, 2020 .
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States , or GAAP. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. 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 , filed with theSEC onMarch 12, 2020 . If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. There have been no significant changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the year endedDecember 31, 2019 filed with theSEC onMarch 12, 2020 .
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth
company" such as us to take advantage of an extended transition period to comply
with new or revised accounting standards applicable to public companies until
those standards would otherwise apply to private companies. We have 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 will adopt the new or revised standard at the time
private companies adopt the new or revised standard and will do so until such
time that we either (i) irrevocably elect to "opt out" of such extended
transition period
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or (ii) no longer qualify as an emerging growth company. While we have not made such an irrevocable election, we have not delayed the adoption of any applicable accounting standards.
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