CARTESIAN THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which we filed with theSEC onMarch 12, 2021 . In addition, you should read the "Risk Factors" and "Information Regarding Forward-Looking Statements" sections of this Quarterly Report and our Annual Report on Form 10-K for the year endedDecember 31, 2020 for a discussion of important factors that could cause actual results to 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 leveraging our ImmTOR™ immune
tolerance platform with the goals of amplifying the efficacy of biologics,
including enabling the re-dosing of life-saving gene therapies, and restoring
self-tolerance in autoimmune diseases. Our ImmTOR platform encapsulates
rapamycin, also known as sirolimus, an immunomodulator, in biodegradable
nanoparticles and is designed to induce antigen-specific immune tolerance.
We believe ImmTOR has the potential to enhance the efficacy without compromising
the safety of biologic therapies, improve product candidates under development,
and enable novel therapeutic modalities. We have developed a portfolio of
proprietary and collaboration-driven applications of ImmTOR, and we plan to
continue to develop proprietary compounds and pursue collaboration-driven
development in certain disease areas, which could include strategic
collaborations, out-licensing, and in-licensing transactions.
We believe our ImmTOR platform has a broad range of potential applications.
Enzyme therapies. Enzyme therapies are a class of biologic drugs frequently used
to treat rare diseases. Through our analysis of biologic drugs, including in our
preclinical studies, we have observed that enzymes are especially prone to
causing undesired immune responses. Our product candidate, SEL-212, which is
currently in Phase 3 clinical development, includes pegadricase, a pegylated
uricase enzyme, which is an example of an immunogenic enzyme for which we are
applying ImmTOR with the intention of improving the enzyme's efficacy and
safety. We are also combining ImmTOR with an immunoglobulin A, or IgA, protease
for the treatment of IgA nephropathy. We intend to seek, if appropriate,
licenses to other enzymes that we would evaluate in combination with ImmTOR.
Gene therapies. We believe gene therapies have the potential to address key
unmet medical needs for many rare genetic diseases, but undesired immune
responses to the viral vectors used for gene replacement, augmentation and
editing may be restricting their broader use. Through our analysis of genetic
diseases, we have identified applications and patient segments that we believe
would benefit from our ImmTOR platform. We intend to develop ImmTOR-enabled
non-immunogenic gene therapy candidates which are designed to be utilized with
adeno-associated virus, or AAV, vectors. We believe our product candidates have
the potential to increase transgene expression and to prevent undesired immune
responses to the vector and transgene product that can occur with the first dose
of gene therapy by using our ImmTOR platform. Our initial area of focus is on
genetic metabolic diseases but may also include lysosomal storage diseases and
genetic muscular diseases. We believe we are the first company to systematically
pursue the development of AAV gene therapy product candidates with the goal of
enabling repeat administration. We have engaged third parties with experience in
gene therapy and rare diseases to support the development of our products. We
also have licensed our ImmTOR platform to AskBio, Sarepta, and Spark for certain
pre-specified targets.
Restoring self-tolerance to auto-antigens. We believe that ImmTOR has the
potential to restore self-tolerance in autoimmune diseases. Our first program in
autoimmune diseases is in primary biliary cholangitis, or PBC. PBC has a
significant unmet medical need and a well-defined target antigen, known as
PDC-E2.
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Other products and product candidates affected by undesired immune responses. We
have generated preclinical data which we believe suggests a broad potential
benefit of ImmTOR for immune tolerance. For many biologic drugs, undesired
immune responses limit efficacy and cause safety concerns. We intend to
strategically out-license ImmTOR for use with other products that are outside
our focus to larger biopharmaceutical companies. We believe our ImmTOR platform
may also be of interest to biopharmaceutical companies with novel biologic
development concepts or product candidates in clinical development that have
demonstrated initial efficacy but are experiencing issues with safety or
sustained efficacy due to inhibitory ADAs.
Our Current Programs
Amplifying the Efficacy of Biologics: Enzyme therapy - Chronic Refractory Gout
SEL-212 is designed to be a monthly treatment for chronic refractory gout, a
debilitating rare disease with an unmet medical need. SEL-212 consists of a
combination of our ImmTOR platform co-administered with pegadricase. Pegadricase
is an investigational recombinant pegylated uricase (urate oxidase), an enzyme
not naturally found in humans, and is therefore highly immunogenic. This enzyme
is designed to treat patients with symptomatic gout, refractory to standard uric
acid lowering treatment, by breaking down the excess uric acid to the more
soluble allantoin. In preclinical studies, we observed that ImmTOR, when
co-administered with pegadricase, induced antigen-specific immune tolerance to
pegadricase and substantially reduced the formation of associated ADAs. Based on
our clinical data, we believe that SEL-212 has the potential to control serum
uric acid, or SUA levels and mitigate the formation of ADAs in response to the
therapeutic enzyme. Additionally, we believe that SEL-212 serves as proof of
concept for the ImmTOR platform in ameliorating the unwanted immune response to
an immunogenic biologic. SEL-212 has been licensed (except as to Greater China )
to Sobi, pursuant to our license and development agreement dated June 11, 2020
with Sobi, or the Sobi License.
We and Sobi commenced the Phase 3 DISSOLVE clinical program of SEL-212 in
September 2020 . The Phase 3 clinical program consists of two double blinded,
placebo-controlled trials of SEL-212, DISSOLVE I and DISSOLVE II. Each trial is
expected to enroll 105 patients, with 35 patients receiving 0.1 mg/kg of ImmTOR
and 0.2 mg/kg of pegadricase, 35 patients receiving 0.15 mg/kg of ImmTOR and 0.2
mg/kg of pegadricase, and 35 patients receiving placebo. DISSOLVE I and DISSOLVE
II both have a six-month primary endpoint with a six-month safety extension for
DISSOLVE I. The primary endpoint of the DISSOLVE program is the maintenance of
SUA levels below 6 mg/dL at six months. Secondary endpoints include tender and
swollen joint counts, tophus burden, patient reported outcomes of activity
limitation and quality of life and gout flare incidence. Topline data from the
Phase 3 DISSOLVE clinical program is expected in the second half of 2022. The
Phase 3 DISSOLVE clinical program is being conducted by Selecta and funded by
Sobi.
Amplifying the Efficacy of Biologics: Enzyme therapy - IgA Nephropathy
The second indication in our enzyme therapy program is IgA nephropathy, an
autoimmune kidney disease that occurs when immune complexes of a subclass of
antibodies called immunoglobulin A1 (IgA1) accumulates in the kidneys.
In October 2020 , we entered into an Option and License Agreement, or the IGAN
Agreement, with IGAN Biosciences, Inc. , or IGAN. Pursuant to the IGAN Agreement,
IGAN has granted us an exclusive license to research, evaluate, and conduct
pre-clinical development activities on IGAN's proprietary IgA proteases.
Previous studies in animal models conducted at independent laboratories
demonstrated that IgA protease removed injurious IgA immune complexes from
kidneys and reduced inflammation, fibrosis, and hematuria. These results suggest
that it is an excellent candidate to potentially decrease the rate of disease
progression and possibly even reverse the disease. The barrier to IgA protease
commercialization is the bacterial origin of the protease, which makes it
immunogenic. Our ImmTOR platform has shown in clinical studies the ability to
mitigate the formation of ADAs to immunogenic enzymes, which has been observed
with SEL-212. We intend to combine IgA protease with our ImmTOR platform to
develop a novel combination product candidate for the treatment of IgA
nephropathy and IgA-mediated diseases. We will have an option term of 24 months,
during which we can elect to obtain an exclusive license to further develop and
commercialize the product candidate to treat all IgA-mediated diseases,
including IgA nephropathy, Linear IgA bullous dermatitis, IgA pemphigus, and
Henoch-Schonlein purpura (also known as IgA vasculitis).
We expect to file an Investigational New Drug, or IND, application, for this
program in 2022.
Amplifying the Efficacy of Biologics: Gene Therapies
When used in combination with AAV gene therapy vectors, ImmTOR has been observed
to inhibit the immune response to the vector and enable successful redosing in
mice and non-human primates, or NHPs. Currently, the ability to re-administer
systemic AAV gene therapy is limited by the development of neutralizing
antibodies. The ability to safely re-dose AAV may help achieve therapeutic
benefit in patients who are under-dosed; it may also help restore transgene
expression in patients, particularly pediatric patients, who may lose gene
expression over time as they grow. In addition, a study conducted in NHPs showed
that co-administration of AAV vector and ImmTOR in NHPs enabled higher and more
durable transgene expression after the first dose of gene therapy as well as
robust inhibition of anti-AAV8 immunoglobulin G, or IgG, and neutralizing
antibodies. The observation that co-administration of AAV vector and ImmTOR
leads to higher transgene expression demonstrates the potential for dosing lower
levels of AAV gene therapies when combined with ImmTOR. Thus, integrating
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ImmTOR into a gene therapy protocol has the potential to provide a first dose
benefit by enhancing liver-directed transgene expression and durability, as well
as the potential for enabling re-dosing.
Our lead therapeutic gene therapy program is in methylmalonic acidemia, or MMA,
an inherited disorder in which the body is unable to process certain proteins
and fats (lipids) properly. This program was previously being conducted under
our collaboration with AskBio. In April 2021 , we were notified by AskBio that it
intended to opt-out of development of the MMA indication. The feasibility study
and license agreement with AskBio, or AskBio Collaboration Agreement, otherwise
remains in effect. The previously disclosed MMA-101 manufacturing issue was
resolved. Manufacturing of a new lot has been completed and is currently
undergoing final release testing. We expect to file an IND for this product
candidate, SEL-302, in the third quarter of 2021. ImmTOR manufacturing,
controlled by us, continues to proceed in accordance with our expectations, and
we have not observed any impact to any of our ImmTOR programs. In October and
November 2020 , we and AskBio received rare pediatric disease designation and
orphan drug designation, respectively, from the FDA for MMA-101, for the
treatment of MMA due to methylmalonyl-CoA mutase, or MMUT gene mutations.
Our proprietary gene therapy product candidate, SEL-313, is being developed to
treat ornithine transcarbamylase, or OTC deficiency, and is currently in
preclinical development. OTC deficiency is a rare genetic disorder that causes
ammonia to accumulate in the blood due to mutations in the OTC gene, which is
critical for proper function of the urea cycle. The most severe form of the
disorder presents within the first few days of life. Severe symptoms include
inability to control body temperature and breathing rate, seizures, coma,
developmental delays and intellectual disability. Less severe forms of the
disorder are characterized by delirium, erratic behavior, aversion to high
protein foods, vomiting and seizures. We expect to file an IND and/or Clinical
Trial Application for SEL-313 in 2022.
SEL-399 combines an empty AAV capsid (EMC -101), which is an AAV capsid
containing no transgene, with ImmTOR and is being conducted in partnership with
AskBio. Building on the preclinical data we have generated showing ImmTOR's
effect on mitigating or reducing the formation of neutralizing antibodies to AAV
gene therapies, we have commenced a clinical trial of SEL-399 in healthy adult
volunteers in Belgium . The goal of the SEL-399 clinical trial is to demonstrate
the appropriate dose of ImmTOR in humans to mitigate the formation of antibodies
to AAV capsids used in gene therapies. An initial control cohort of healthy
volunteers received a single dose of EMC -101 in December 2020 and dose
escalating cohorts of EMC -101 plus ImmTOR were initiated in February 2021 .
Topline results are expected in the fourth quarter of 2021.
Restoring Self-tolerance in Autoimmune Diseases
Our lead autoimmune diseases indication is PBC, a T-cell driven autoimmune
disease that causes progressive destruction of the bile ducts. Patients with PBC
are in need of a highly targeted, liver-directed approach to treating the root
cause of the disorder. We believe PBC has a well-defined target antigen,
significant unmet medical need, and is well suited to the application of our
ImmTOR immune tolerance platform, as preclinical data suggest that ImmTOR has
the potential to enhance the tolerogenic environment in the liver and provide a
hepatoprotective benefit. We expect to file an IND for our PBC program in the
second half of 2022.
Licenses and Collaborations
Swedish Orphan Biovitrum
In June 2020 , we announced that we had entered into the Sobi License, pursuant
to which we agreed to grant Sobi an exclusive, worldwide (except as to Greater
China ) license to develop, manufacture and commercialize SEL-212, which is
currently in development for the treatment of chronic refractory gout. In
September 2020 , pursuant to the Sobi License, Sobi paid us a one-time, up-front
payment of $75 million . Sobi has also agreed to make milestone payments totaling
up to $630 million to us upon the achievement of various development and
regulatory milestones and sales thresholds for annual net sales of SEL-212, and
tiered royalty payments ranging from the low double digits on the lowest sales
tier to the high teens on the highest sales tier.
Additionally, Sobi purchased an aggregate of 5,416,390 shares of our common
stock at $4.6156 for aggregate gross proceeds of $25 million , which we refer to
as the Sobi Private Placement. The closing of the Sobi Private Placement
occurred on July 31, 2020 .
Under the Sobi License, we will have operational oversight of the Phase 3
DISSOLVE clinical program of SEL-212 (DISSOLVE I and DISSOLVE II) that commenced
in September 2020 , at Sobi's expense.
IGAN Biosciences
In October 2020 , we entered into the IGAN Agreement. Pursuant to the IGAN
Agreement, IGAN granted us an exclusive license to research, evaluate, and
conduct pre-clinical development activities on IGAN's proprietary IgA proteases.
We have an option term of 24 months, during which we can elect to obtain an
exclusive license to further develop and commercialize the product to treat all
IgA-mediated diseases, including IgA nephropathy, Linear IgA bullous dermatitis,
IgA pemphigus, and Henoch-Schonlein purpura (also known as IgA vasculitis).
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Sarepta Therapeutics
In June 2020 , we entered into a research license and option agreement with
Sarepta, or the Sarepta Agreement. Pursuant to the agreement, we granted Sarepta
a license to research and evaluate ImmTOR in combination with Sarepta's AAV gene
therapy or gene editing technology, using viral or non-viral delivery, or the
Sarepta Product, to treat Duchenne Muscular Dystrophy and certain Limb-Girdle
Muscular Dystrophy subtypes, or the Sarepta Indications. Sarepta will have an
option term of 24 months during which it can opt-in to obtain an exclusive
license to further develop and commercialize the Sarepta Product to treat at
least one Sarepta Indication, with a potential to extend the option term if
Sarepta pays an additional fee to us. Sarepta made an up-front payment to us
upon signing of the agreement, and we are eligible to receive additional
payments under the option term. If Sarepta opts-in to an exclusive license
agreement, we could receive option exercise payments per indication, we would be
entitled to significant development and commercial milestone payments and tiered
royalties ranging from the mid-to-high single digits based on net sales.
AskBio
In August 2019 , we entered into the AskBio Collaboration Agreement. The initial
proof-of-concept study being conducted under this collaboration is in SEL-399,
which combines an empty AAV capsid (EMC -101), an AAV capsid containing no
transgene, with ImmTOR, and is being conducted in partnership with AskBio.
Building on the preclinical data we have generated showing ImmTOR's effect on
mitigating or reducing the formation of neutralizing antibodies to AAV gene
therapies, we have commenced a clinical trial of SEL-399 in healthy adult
volunteers in Belgium . The goal of the SEL-399 clinical trial is to demonstrate
the appropriate dose of ImmTOR in humans to mitigate the formation of antibodies
to AAV capsids used in gene therapies, which currently precludes re-dosing. An
initial control cohort of healthy volunteers received a single dose of EMC -101
in December 2020 and dose escalating cohorts of EMC -101 plus ImmTOR were
initiated in February 2021 . Topline results are expected in the fourth quarter
of 2021.
Previously, we and AskBio were developing a gene therapy for MMA, which can
cause severe developmental defects and premature death as a result of an
accumulation of toxic metabolites. We conducted preclinical studies for this
product candidate and will leverage that work within the collaboration. In April
2021 , we were notified by AskBio that it intended to opt-out of development of
the MMA indication. The AskBio Collaboration Agreement otherwise remains in
effect and we intend to continue to develop SEL-302 through clinical
development.
Additionally, in December 2019 , we entered into a License Agreement with AskBio,
or the AskBio License Agreement, which provides AskBio with exclusive worldwide
rights to our ImmTOR platform to research, develop and commercialize certain
AAV-gene therapy products targeting the GAA gene, or derivatives thereof, to
treat Pompe Disease.
Spark Therapeutics
In December 2016 , we entered into a license and option agreement with Spark
Therapeutics, or the Spark License Agreement, which provides Spark with
exclusive worldwide rights to our ImmTOR platform to research, develop and
commercialize gene therapies for Factor VIII, an essential blood clotting
protein relevant to the treatment of hemophilia A.
Impact of COVID-19
We are closely monitoring how COVID-19 is affecting our employees, business,
preclinical studies and clinical trials. In response to the spread of COVID-19,
we have continued to have our administrative employees work outside of our
offices and limited the number of staff in any given research and development
laboratory. Disruptions caused by the COVID-19 pandemic may result in
difficulties or delays in initiating, enrolling, conducting or completing our
planned and ongoing clinical trials, and the incurrence of unforeseen costs as a
result of preclinical study or clinical trial delays.
While the COVID-19 pandemic has not had a material impact on our clinical
programs as of the date of this Quarterly Report, it could have an impact on our
ability to complete the Phase 3 DISSOLVE clinical program of SEL-212, our
ability to commence preclinical and clinical studies of our IgA nephropathy,
gene therapy, and autoimmune disease programs, and our ability to obtain supply
of both active drug substances and finished drug product as well as efficient
execution of the overall supply chain for SEL-212 and our other programs. We
have been proactively working with our CRO, clinical sites, and principal
investigators to provide patients with more convenient locations to have their
SUA measured for the primary endpoint of the study, such as at local
laboratories or their homes, as well as alternative sites to receive infusions
of study drug. We are also working with our primary and back-up suppliers for
SEL-037 (pegadricase) and SEL-110 (ImmTOR) to ensure that we have adequate
supply of our materials for both our clinical and preclinical programs. We
believe we will have adequate supply of all material necessary to conduct our
Phase 3 DISSOLVE clinical program of SEL-212 in chronic refractory gout and to
complete our clinical trial for SEL-399 in gene therapy under our collaboration
with AskBio.
At this time, any impact of COVID-19 on the Company's business, revenues,
results of operations and financial condition 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 in the United States and other countries, business closures or
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business disruptions, supply chain disruptions, the ultimate impact on financial
markets and the global economy, and the effectiveness of actions taken in the
United States and other countries to contain and treat the disease.
Financial Operations
To date, we have financed our operations primarily through public offerings and
private placements of our securities, funding received from research grants and
collaboration arrangements and our credit facility. We do not have any products
approved for sale and have not generated any product sales. All of our revenue
to date has been collaboration and grant revenue.
Since inception, we have incurred significant operating losses. We incurred net
losses of $20.0 million and $43.7 million for the six months ended June 30, 2021
and 2020, respectively. As of June 30, 2021 , we had an accumulated deficit of
$424.7 million . We expect to continue to incur significant expenses and
operating losses for at least the next several years as we:
•continue the research and development of our other product candidates as well
as product candidates that we may be developing jointly with collaboration
partners;
•seek to enhance our ImmTOR platform and discover and develop additional product
candidates;
•seek to enter into collaboration, licensing and other agreements, including,
but not limited to research and development, and/or commercialization
agreements;
•seek regulatory approvals for any product candidates that successfully complete
clinical trials;
•potentially establish a sales, marketing and distribution infrastructure and
scales-up external manufacturing capabilities to commercialize any products for
which we may obtain regulatory approval;
•maintain, expand and protect our intellectual property portfolio, including
through licensing arrangements; and
•add clinical, scientific, operational, financial and management information
systems and personnel, including personnel to support our product development
and potential future commercialization efforts and to support our operations as
a public company.
Until such time, if ever, as we can generate substantial product revenues, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, license and collaboration agreements, and research grants. We may be
unable to raise capital when needed or on reasonable terms, if at all, which
would force us to delay, limit, reduce or terminate our product development or
future commercialization efforts. We will need to generate significant revenues
to achieve profitability, and we may never do so.
We believe that our existing cash, cash equivalents, marketable securities, and
restricted cash as of June 30, 2021 will enable us to fund our operating
expenses and capital expenditure requirements into the third quarter of 2023. We
have based this estimate on assumptions that may prove to be wrong, and we could
use our capital resources sooner than we currently expect.
The consolidated financial information presented below includes the accounts of
Selecta Biosciences, Inc. and our wholly owned subsidiaries, Selecta (RUS) LLC ,
a Russian limited liability company, or Selecta (RUS), and Selecta Biosciences
Security Corporation , a Massachusetts securities corporation. All intercompany
accounts and transactions have been eliminated.
Collaboration and grant revenue
To date, we have not generated any product sales. Our revenue consists of
collaboration and grant revenue, which includes amounts recognized related to
upfront and milestone payments for research and development funding under
collaboration and license agreements. In addition, we earn revenue under the
terms of government contracts or grants, which require the performance of
certain research and development activities. We expect that any revenue we
generate will fluctuate from quarter to quarter because of the timing and amount
of fees, research and development reimbursements and other payments from
collaborators. We do not expect to generate revenue from product sales for at
least the next several years. If we or our collaborators fail to complete the
development of our product candidates in a timely manner or fail to obtain
regulatory approval as needed, our ability to generate future revenue will be
harmed, and will affect the results of our operations and financial position.
For a further description of the agreements underlying our collaboration and
grant-based revenue, see Notes 2 and 12 to our unaudited consolidated financial
statements included elsewhere in this Quarterly Report.
Research and development
Our research and development expenses consist of external research and
development costs, which we track on a program-by-program basis and primarily
include CMO-related costs, fees paid to CROs and internal research and
development costs, which are primarily compensation expenses for our research
and development employees, lab supplies, analytical testing,
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allocated overhead costs and other related expenses. Our internal research and
development costs are often devoted to expanding our programs and are not
necessarily allocable to a specific target.
We have incurred a total of $322.8 million in research and development expenses
from inception through June 30, 2021 , with a majority of the expenses being
spent on the development of SEL-212 and a prior nicotine vaccine candidate, and
the remainder being spent on our various discovery and preclinical stage product
candidate programs and the general expansion of our technology.
We expense research and development costs as incurred. Conducting a significant
amount of research and development is central to our business model. Product
candidates in clinical development generally have higher development costs than
those in earlier stages of development, primarily due to the size, duration and
cost of clinical trials. The successful development of our clinical and
preclinical product candidates is highly uncertain. Clinical development
timelines, the probability of success and development costs can differ
materially from our expectations. For example, if the FDA or another regulatory
authority were to require us to conduct clinical trials beyond those which we
currently expect will be required for the completion of clinical development of
a product candidate, or if we experience significant delays in enrollment in any
of our clinical trials, we could be required to expend significant additional
financial resources and time to complete any clinical development.
The following table sets forth the components of our research and development
expenses during the periods indicated (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Research and development expenses (key projects
and initiatives):
SEL-212 $ 5,956 $ 5,969 $ 12,680 $ 14,933
AskBio collaboration 364 598 1,177 1,574
Discovery and preclinical stage product
candidate programs, collectively 2,821 195 3,392 480
Other internal research and development expenses 5,322 3,968 10,218
8,467
Total research and development expenses
$ 27,467
OnJune 11, 2020 , we and Sobi entered into the Sobi License. Pursuant to the Sobi License, clinical trial costs incurred to complete development of SEL-212, including but not limited to costs incurred while conducting and completing the Phase 3 DISSOLVE trials, will be reimbursed by Sobi. These costs, when reimbursed, will be recognized as revenue consistent with the revenue recognition methodology disclosed in Note 12 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report. The reimbursable costs exclude any costs of additional development activities required that are related to ImmTOR and that are unrelated to SEL-212. General and administrative General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, business development and support functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses, travel expenses for our general and administrative personnel and professional fees for auditing, tax and corporate legal services, including intellectual property-related legal services. Investment income Investment income consists primarily of interest income earned on our cash, cash equivalents and marketable securities. Interest expense Interest expense consists of interest expense on amounts borrowed under our credit facilities. Other income (expense) Other income was de minimis during the three and six months endedJune 30, 2021 and 2020. Change in fair value of warrant liabilities Common warrants classified as liabilities are remeasured at fair value, utilizing a Black-Scholes valuation methodology, quarterly with the change in fair value recognized as a component of earnings. Foreign currency transaction gain (loss) The functional currency of our Russian subsidiary is the Russian ruble. In addition to holding cash denominated in Russian rubles, our Russian bank accounts also hold cash balances denominated inU.S. dollars to facilitate payments to be settled inU.S. dollars or other currencies. As ofJune 30, 2021 andDecember 31, 2020 , we maintained cash of$0.3 million in Russian 33 -------------------------------------------------------------------------------- Table of Contents banks, all of which was denominated inU.S. dollars. The amounts denominated inU.S. dollars and used in transacting the day-to-day operations of our Russian subsidiary are subject to transaction gains and losses, which are reported as incurred. Results of Operations Comparison of the Three Months EndedJune 30, 2021 and 2020 Revenue The following is a comparison of revenue for the three months endedJune 30, 2021 and 2020 (in thousands, except percentages): Three Months Ended June 30, Increase 2021 2020 (decrease) Collaboration revenue $ 19,663 $ -$ 19,663 - During the three months endedJune 30, 2021 , collaboration revenue was$19.7 million , compared to no revenue recognition in 2020. During the three months endedJune 30, 2021 we recognized$19.5 million under the license agreement with Sobi which began inJuly 2020 resulting from the shipment of clinical supply and the reimbursement of costs incurred for the Phase 3 DISSOLVE clinical program. Additionally, during the second quarter, we recognized less than$0.1 million for shipments under the license agreement with Sarepta and$0.1 million resulting from the expiration of the contractual audit term under theSkolkovo Foundation grant. Research and development The following is a comparison of research and development expenses for the three months endedJune 30, 2021 and 2020 (in thousands, except percentages): Three Months Ended June 30, Increase 2021 2020 (decrease) Research and development$ 14,463 $ 10,730 $ 3,733 35 % During the three months endedJune 30, 2021 , our research and development expenses increased by$3.7 million , or 35%, as compared to 2020. The increase in cost was primarily the result of expenses incurred for consulting, salaries, and the discovery and preclinical programs, offset by a decrease of AskBio collaboration costs. General and administrative The following is a comparison of general and administrative expenses for the three months endedJune 30, 2021 and 2020 (in thousands, except percentages): Three Months Ended June 30, Increase 2021 2020 (decrease) General and administrative$ 4,748 $ 5,637
During the three months endedJune 30, 2021 , our general and administrative expenses decreased by$0.9 million , or 16%, as compared to 2020. The decrease in costs was primarily the result of reduced expense for salaries, professional fees and patent expense, offset by increased consulting and stock compensation expenses. Investment income Investment income was de minimis for each of the three months endedJune 30, 2021 and 2020, respectively. Foreign currency transaction gain (loss) We recognized minimal foreign currency fluctuations during each of the three months endedJune 30, 2021 and 2020, respectively. 34 -------------------------------------------------------------------------------- Table of Contents Interest expense Interest expense was$0.7 million and$0.2 million for the three months endedJune 30, 2021 and 2020, respectively, representing interest expense and amortization of the carrying costs of our credit facilities. Change in fair value of warrant liabilities For the three months endedJune 30, 2021 , we recognized a$4.8 million change in the fair value of warrant liabilities utilizing the Black-Scholes valuation methodology. The decrease in value was primarily driven by a decrease in the Company's share price (see Note 5). For the three months endedJune 30, 2020 , we recognized$7.5 million as a change in the fair value of warrant liabilities primarily driven by an increase in the Company's share price and volatility, offset by a decreased discount rate this quarter. Other income (expense) Other income was de minimis for each of the three months endedJune 30, 2021 and 2020. Net income (loss) Net income for the three months endedJune 30, 2021 was$4.6 million compared to a net loss of$24.1 million for the three months endedJune 30, 2020 . Comparison of the Six Months EndedJune 30, 2021 and 2020 Revenue The following is a comparison of revenue for the six months endedJune 30, 2021 and 2020 (in thousands, except percentages): Six Months Ended June 30, Increase 2021 2020 (decrease) Collaboration revenue $ 30,713 $ -$ 30,713 - % During the six months endedJune 30, 2021 , we recognized$30.6 million under the license agreement with Sobi which began inJuly 2020 resulting from the shipment of clinical supply and the reimbursement of costs incurred for the Phase 3 DISSOLVE clinical program, less than$0.1 million for shipments under the license agreement with Sarepta, and$0.1 million resulting from the expiration of the contractual audit term under theSkolkovo Foundation grant. During the six months endedJune 30, 2020 , we did not recognize revenue. Research and development The following is a comparison of research and development expenses for the six months endedJune 30, 2021 and 2020 (in thousands, except percentages): Six Months Ended June 30, Increase 2021 2020 (decrease) Research and development$ 27,467 $ 25,454 $ 2,013 8 % During the six months endedJune 30, 2021 , our research and development expenses increased by$2.0 million , or 8%, as compared to 2020. The increase in cost was primarily the result of expenses incurred for the discovery and preclinical programs, offset by a decrease of clinical supply expense for the SEL-212 clinical programs and AskBio collaboration costs. General and administrative The following is a comparison of general and administrative expenses for the six months endedJune 30, 2021 and 2020 (in thousands, except percentages): Six Months Ended June 30, Increase 2021 2020 (decrease) General and administrative$ 9,952 $ 9,735 $
217 2 %
During the six months ended
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Investment income
Investment income was less than $0.1 million and $0.3 million , respectively
during the six months ended June 30, 2021 as compared to 2020. The decrease
reflects reduced interest rates.
Foreign currency transaction gain (loss)
We recognized minimal foreign currency fluctuations during each of the six
months ended June 30, 2021 and 2020, respectively.
Interest expense
Interest expense was $1.4 million and $0.5 million for the six months ended
June 30, 2021 and 2020, respectively, representing interest expense and
amortization of the carrying costs of our credit facilities.
Change in fair value of warrant liabilities
For the six months ended June 30, 2021 , we recognized a $11.9 million charge for
the increase in the fair value of warrant liabilities utilizing a Black-Scholes
valuation methodology. The increase in value was primarily driven by an increase
in the Company's share price and a small increase in the discount rate this
quarter (see Note 5). For the six months ended June 30, 2020 , we recognized $8.4
million as a change in the fair value of warrant liabilities primarily driven by
an increase in the Company's share price and volatility, offset by a decreased
discount rate this quarter.
Other income (expense)
Other income was de minimis for each of the six months ended June 30, 2021 and
2020.
Net loss
Net loss for the six months ended June 30, 2021 was $20.0 million compared to
$43.7 million for the six months ended June 30, 2020 .
Liquidity and Capital Resources
Since our inception, we have incurred recurring net losses. We expect that we
will continue to incur losses and that such losses will increase for the
foreseeable future. We expect that our research and development and general and
administrative expenses will continue to increase and, as a result, we will need
additional capital to fund our operations, which we may raise through a
combination of equity offerings, debt financings, third-party funding and other
collaborations and strategic alliances.
From our inception through June 30, 2021 , we have raised an aggregate of $596.8
million to fund our operations, which includes $118.5 million from the sale of
preferred stock, $11.1 million in government grant funding, $36.7 million from
borrowings under our credit facility, $184.1 million from our collaborations and
license agreements, $64.5 million in combined net proceeds from our initial
public offering, $149.3 million in combined net proceeds from private placements
and follow-on offerings of our common stock, and $32.6 million in aggregate net
proceeds from "at-the-market" offerings of our common stock.
As of June 30, 2021 , our cash, cash equivalents, restricted cash, and marketable
securities were $151.5 million , of which $1.4 million was restricted cash
related to lease commitments and $0.3 million was held by our Russian subsidiary
designated solely for use in its operations. Our Russian subsidiary cash is
consolidated for financial reporting purposes.
In addition to our existing cash equivalents, we receive research and
development funding pursuant to our collaboration agreements. Currently, funding
from payments under our collaboration agreements represent our only source of
committed external funds.
Indebtedness
On August 31, 2020 , we entered into a term loan of up to $35.0 million ,
consisting of term loans in an aggregate amount of $25.0 million , or the Term A
Loan, and term loans in an aggregate amount of $10.0 million , or the Term B
Loan, governed by a loan and security agreement among us and Oxford Finance LLC ,
or Oxford, as collateral agent and a lender, and Silicon Valley Bank , or SVB, as
a lender. The Term A Loan was funded in full on August 31, 2020 , the proceeds of
which were used to repay our previously existing 2017 Term Loan and for general
corporate and working capital purposes. The Term B Loan will be available,
subject to the collateral agent's discretion and customary terms and conditions,
during the period commencing on the date we have delivered to Oxford and SVB
evidence: (i) we or one of the our collaboration partners has enrolled its first
patient for a Phase 1 clinical trial evaluating the treatment of MMA, and (ii)
we have enrolled the first patient in each of two Phase 3 pivotal trials
evaluating SEL-212, or the Second Draw Period Milestone, and ending on the
earliest of (i) the date which is 30 days following the date the Second Draw
Period Milestone is achieved, (ii) September 30, 2021 (iii) and the occurrence
of an event of default, other than an event of default that has been waived in
writing by Oxford and SVB in their sole discretion.
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The 2020 Term Loan is secured by a lien on substantially all of our assets,
other than intellectual property, provided that such lien on substantially all
assets includes any rights to payments and proceeds from the sale, licensing or
disposition of intellectual property. We also granted Oxford a negative pledge
with respect to our intellectual property.
The 2020 Term Loan contains customary covenants and representations, including
but not limited to financial reporting obligations and limitations on dividends,
indebtedness, collateral, investments, distributions, transfers, mergers or
acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries. The
2020 Term Loan also contains other customary provisions, such as expense
reimbursement, non-disclosure obligations as well as indemnification rights.
The events of default under the 2020 Term Loan include, but are not limited to,
our failure to make any payments of principal or interest under the 2020 Term
Loan or other transaction documents, our breach or default in the performance of
any covenant under the 2020 Term Loan or other transaction documents, the
occurrence of a material adverse event, making a false or misleading
representation or warranty in any material respect under the 2020 Term Loan, our
insolvency or bankruptcy, any attachment or judgment on our assets of at least
approximately $0.5 million , or the occurrence of any default under any of our
agreements or obligations involving indebtedness in excess of approximately $0.5
million . If an event of default occurs, Oxford and SVB are entitled to take
enforcement action, including acceleration of amounts due under the 2020 Term
Loan. If we raise any additional debt financing, the terms of such additional
debt could further restrict our operating and financial flexibility.
For a further description of the 2020 Term Loan, see Note 9 to our unaudited
consolidated financial statements included elsewhere in this Quarterly Report.
Plan of operations and future funding requirements
As of the date of this Quarterly Report, we have not generated any product
sales. We do not know when, or if, we will generate revenue from product sales.
We will not generate significant revenue from product sales unless and until we
obtain regulatory approval and commercialize one of our current or future
product candidates. Our primary uses of capital are, and we expect will continue
to be, compensation and related expenses, third-party clinical research and
development services, laboratory and related supplies, clinical costs, legal and
other regulatory expenses, and general overhead costs. We expect that we will
continue to generate losses for the foreseeable future, and we expect the losses
to increase as we continue the development of, and seek regulatory approvals
for, our product candidates, and begin to commercialize any approved products.
We are subject to risks in the development of our products, and we may encounter
unforeseen expenses, difficulties, complications, delays and other unknown
factors that may adversely affect our business. We expect that we will need
substantial additional funding to support our continuing operations.
As of June 30, 2021 , we had an accumulated deficit of $424.7 million . We
anticipate operating losses to continue for the foreseeable future due to, among
other things, costs related to research, development of our product candidates,
conducting preclinical studies and clinical trials, and our administrative
organization. We will require substantial additional financing to fund our
operations and to continue to execute our strategy, and we will pursue a range
of options to secure additional capital.
We are exploring various sources of funding such as strategic collaborations and
the issuance of equity to fund our operations. If we raise additional funds
through strategic collaborations and alliances, which may include existing
collaboration partners, we may have to relinquish valuable rights to our
technologies or product candidates, or grant licenses on terms that are not
favorable to us. To the extent that we raise additional capital through the sale
of equity, the ownership interest of our existing shareholders will be diluted
and other preferences may be necessary that adversely affect the rights of
existing shareholders.
We believe that our existing cash, cash equivalents, marketable securities and
restricted cash as of June 30, 2021 will enable us to fund our operating
expenses and capital expenditure requirements into the third quarter of 2023.
Additionally, while the potential economic impact brought by and the duration of
the COVID-19 pandemic may be difficult to assess or predict, the widespread
pandemic has resulted in, and may continue to result in, significant disruption
of global financial markets, reducing our ability to access capital as and when
needed. We have based this estimate on assumptions that may prove to be wrong,
and we could use our capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
•the number of product candidates that we pursue;
•our collaboration agreements remaining in effect, our entering into additional
collaboration agreements and our ability to achieve milestones under these
agreements;
•the cost of manufacturing clinical supplies of our product candidates;
•our headcount growth and associated costs;
•the scope, progress, results and costs of preclinical development, laboratory
testing and clinical trials for our other product candidates;
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Table of Contents •the costs, timing and outcome of regulatory review of our product candidates; •the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; •the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; •the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; •the effect of competing technological and market developments; and •the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates. As noted above, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity future funding requirements is uncertain as of the filing date of this Quarterly Report as this continues to evolve globally.
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