SIGILON THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Some of the numbers included herein have been rounded for the convenience of presentation. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.
Overview
We are a clinical stage biotechnology company pioneering a new class of therapeutics and seeking to develop functional cures for patients with a wide range of diseases by providing stable and durable levels of therapeutic molecules to patients. We have developed our Shielded Living Therapeutics, or SLTx, platform, which combines advanced cell engineering with cutting-edge innovations in biocompatible materials and enables our product candidates to produce a wide range of therapeutic molecules that may be missing or deficient, such as proteins (including therapeutic proteins and antibodies) and hormones. We are designing our product candidates to be off-the-shelf, durable, controllable and redosable, without requiring modification of the patient's genes or complete suppression of the patient's immune system.
Since our inception, we have devoted substantially all of our efforts to raising
capital, obtaining financing, filing and prosecuting patent applications,
organizing and staffing our company and incurring research and development costs
related to advancing our biomedical platform. 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 primarily with proceeds from sales of common
stock and convertible preferred stock, payments received under our collaboration
agreement with Lilly and proceeds from borrowings under our credit facilities.
Through
We have incurred significant operating losses since our inception. Our ability
to generate any 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 a net loss of
Our Shielded Living Therapeutics Platform and Prioritized Areas of Development
Our SLTx platform is comprised of two primary elements: the cells and the sphere. We engineered cells to express the therapeutic molecule of choice, which are subsequently encapsulated in our proprietary spheres. Our human cell line for our internal product candidates was selected for its safety, durability, scalability and engineerability, which has been extensively tested in preclinical and clinical settings. The spheres are composed of an Afibromer outer layer, an alginate
22
Table of Contents
conjugated with a novel, proprietary anti-fibrotic small molecule, which was
derived from 10 years of work in the
Modularity, a key attribute of our SLTx platform, is comprised of three pillars: the cells, the sphere and the manufacturing process. In addition to the cells and the sphere described above, we have also spent significant time and resources to create a state-of-the-art modular manufacturing platform for all potential product candidates developed using our cell and sphere components. This manufacturing platform is designed to enable us to streamline future product development by changing only the cells, while keeping all other components and manufacturing steps unchanged across all products. This modular approach is expected to result in reduced timelines from discovery to investigational new drug, or IND. Furthermore, this manufacturing platform can be scaled to provide a true cost-effective "off-the-shelf" product for patients.
In
Diabetes: SIG-002 is our product candidate designed to replace islet cells for
the treatment of Type 1 Diabetes, or T1D. In T1D, the immune system attacks and
destroys the insulin-producing beta cells within the endocrine islets of the
pancreas. Insulin deficiency results in dysregulation of glucose metabolism. In
MPS-1: Our program for MPS-1, a lysosomal disease, consists of product candidates that contain a cell line genetically modified with a non-viral vector to express human ?-L-iduronidase, or IDUA, encapsulated within our spheres. We are designing our product candidates to address the manifestations of MPS-1, using a functional moiety of the transporter molecules designed to penetrate the blood brain barrier for purposes of addressing the neurological manifestations of MPS-1 and moiety designed to extend plasma half-life for purposes of addressing the non-neurological manifestations. We expect to initiate IND-enabling studies for this optimized MPS-1 program in the second half of 2023 and we are targeting an IND submission for this optimized program in 2024.
We believe our product candidates for lysosomal diseases, including MPS-1, can leverage the well understood mechanism of enzyme replacement therapies, or ERTs, by using engineered cells to express functional human enzyme or other proteins in a continuous manner that more closely resemble normal physiology. We expect to expand our pipeline of product candidates in 2023 to include certain expansion areas of development in lysosomal disease.
Platform optimization: We are continuing to optimize our Shielded Living
Therapeutics, or SLTx, platform, which combines advanced cell engineering with
cutting-edge innovations in biocompatible materials to pioneer a new class of
therapeutics. In
Impact of COVID-19
The COVID-19 pandemic has impacted and may continue to impact the clinical sites and startup activities for clinical trials, third-party manufacturing and logistics providers, which would disrupt our supply chain or the availability
23
Table of Contents
or cost of materials, and it may delay the initiation and/or enrollment of any future clinical trials, disrupt regulatory activities or have other adverse effects on our business and operations.
We are monitoring the potential impact of the COVID-19 pandemic on our business and financial statements. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and prospects. The extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, financial condition and liquidity, including future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, the effects of any variants as new strains evolve, vaccination efforts, and the duration and intensity of the related effects.
Components of 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. Substantially all of our revenue to date has been derived from the collaboration agreement with Lilly, which we entered into in 2018.
If our development efforts for our product candidates are successful and result in regulatory approval or if we enter into license or collaboration agreements with third parties, we may generate revenue in the future from product sales, payments from license or collaboration agreements that we may enter into with third parties, or any combination thereof. We expect that our revenue for the next several years will be derived primarily from our collaboration agreement with Lilly as well as any additional collaborations that we may enter into in the future. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all.
Collaboration Revenue
In
We evaluated the 2018 Lilly Agreement under ASC 606 and concluded at the outset
that there were two performance obligations under the arrangement: (1) exclusive
license to research, develop, manufacture and commercialize licensed products,
initial technology transfer, research activities (including pre-IND supply),
cell line development and supply and product trademark election, or the Combined
Performance Obligation; and (2) requirement to supply Lilly with the licensed
product related to Phase 1 clinical trial, or Phase 1 Supply. We determined that
the
24
Table of Contents
We reevaluate the transaction price and our total estimated costs expected to be incurred at the end of each reporting period and as uncertain events, such as changes to the expected timing and cost of certain research, development and manufacturing activities that we are responsible for, are resolved or other changes in circumstances occur, and, if necessary, we will adjust our estimate of the transaction price or our total estimated costs expected to be incurred.
Additional information regarding the 2018 Lilly Agreement can be found in Note 8 to our financial statements in this Quarterly Report on Form 10-Q.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of our platform and product candidates. We expense research and development costs as incurred, which include:
employee-related expenses, including salaries, bonuses, benefits, stock-based
? compensation, other related costs for those employees involved in research and
development efforts;
expenses incurred in connection with the clinical and preclinical development
? of our product candidates and research programs, including under agreements
with third parties, such as consultants, contractors, and CROs;
the cost of raw materials and developing and scaling our manufacturing process
? and manufacturing product candidates for use in our research and preclinical
studies, including under agreements with third parties, such as consultants,
contractors, and CMOs;
? laboratory supplies and research materials;
? facilities, depreciation, and other expenses, which include direct and
allocated 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. Non-refundable 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, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
Our direct external research and development expenses are tracked on a program-by-program basis, including our early-stage programs, and consist of costs that include fees, reimbursed materials, and other costs paid to consultants, contractors, contract manufacturing organizations or CMOs, and contract research organizations or CROs, in connection with our preclinical and manufacturing activities. Except for personnel expenses related to SIG-002, we do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified. The personnel expenses allocated to SIG-002 do not include stock-based compensation expense.
25
Table of Contents
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and 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 product 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 FDA, or any
comparable foreign regulatory authority;
? the receipt and related terms of regulatory approvals from applicable
regulatory authorities;
? the availability of raw materials for use in the production of our product
candidates;
? our ability to consistently manufacture our product candidates for use in
clinical trials;
? our ability to establish and operate a manufacturing facility, or secure
manufacturing supply through relationships with third parties;
? our ability to obtain and maintain patents, trade secret protection and
regulatory exclusivity, both in
? 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.
26
Table of Contents
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 these product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and personnel expenses, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees paid for accounting, auditing, consulting, and tax services; insurance costs; travel expenses; and facility costs not otherwise included in research and development expenses.
We anticipate that our general and administrative expenses will increase in the future if we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will continue to incur significant accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of that product candidate.
Other Income (Expense) Interest Income
Interest income consists of interest earned on our cash, cash equivalents and marketable securities balances. We expect our interest income will fluctuate based on the timing and ability to raise additional funds as well as the amount of expenditures for our platform development and ongoing business operations.
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 deferred financing costs.
Other Income (Expense)
Other expense consists primarily of losses on the disposal of fixed assets, net foreign exchange gains (losses) and net sublease income from subleasing a portion of our facilities.
Income Taxes
Since our inception in 2015, we have not recorded any
Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in
27
Table of Contents
10-K for the fiscal year ended
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, Increase
2022 2021 (Decrease)
(in thousands)
Revenue
Collaboration revenue $ 4,252 $ 1,947 $ 2,305
Operating expenses:
Research and development 8,280 16,645 (8,365)
General and administrative 4,395 5,041 (646)
Total operating expenses 12,675 21,686 (9,011)
Loss from operations (8,423) (19,739) 11,316
Other income (expense):
Interest income 300 56 244
Interest expense (606) (499) (107)
Other expense 58 26 32
Total other expense, net (248) (417) 169
Net loss and comprehensive loss
Revenue
Revenue was
28
Table of Contents
Research and Development Expenses
The following table summarizes our research and development expenses for
the three months ended
Three Months Ended
September 30, Increase
2022 2021 (Decrease)
(in thousands)Direct research and development expenses by program: Diabetes program
$ 2,718 $ 1,886 $ 832 MPS-1 program 317 2,532 (2,215) Platform and other early stage-programs 2,323 7,338 (5,015)
Unallocated expenses Personnel expenses (including stockbased compensation) 2,223 3,735 (1,512) Facility related and other
699 1,154 (455)
Total research and development expenses $ 8,280 $ 16,645 $ (8,365) Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
Other expense, net
Other expense, net, was
29
Table of Contents
Comparison of the Nine Months ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30, Increase
2022 2021 (Decrease)
(in thousands)
Revenue
Collaboration revenue $ 10,300 $ 7,609 $ 2,691
Operating expenses:
Research and development 31,775 50,381 (18,606)
General and administrative 14,461 15,572 (1,111)
Total operating expenses 46,236 65,953 (19,717)
Loss from operations (35,936) (58,344) 22,408
Other income (expense):
Interest income 542 212 330
Interest expense (1,640) (1,481) (159)
Other income (expense): 158 47 111
Total other expense, net (940) (1,222) 282
Net loss $ (36,876) $ (59,566) $ 22,690
Revenue
Revenue was
Research and Development Expenses
The following table summarizes our research and development expenses for
the nine months ended
Nine Months Ended
September 30, Increase
2022 2021 (Decrease)
(in thousands)Direct research and development expenses by program: Diabetes program
$ 8,094 $ 6,639 $ 1,455 MPS-1 program 4,739 5,873 (1,134) Platform and other early-stage programs 9,431 22,433 (13,002)
Unallocated expenses Personnel expenses (including stockbased compensation) 7,298 12,135 (4,837) Facility related and other
2,213 3,301 (1,088)
Total research and development expenses $ 31,775 $ 50,381 $ (18,606) Research and development expenses were
30
Table of Contents
and other and personnel expenses, which were offset by increases in our diabetes
program. The decrease in platform and pipeline development, the MPS-1 program,
personnel expenses, and the increase in the diabetes program is primarily due to
our reprioritization of the development of MPS-1, diabetes and platform
optimization following the Company's restructuring activities in
General and Administrative Expenses
General and administrative expenses for the nine months ended
Other expense, net
Other expense, net, was
Liquidity and Capital Resources
Sources of Liquidity
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 the foreseeable
future, if at all. To date, we have funded our operations primarily with
proceeds from sales of common stock, convertible preferred stock, payments
received under our collaboration agreement with Lilly and proceeds from
borrowings under our credit facilities. Through
On
31
Table of Contents
Cash Flows
The following table summarizes our sources and uses of cash, cash equivalents and restricted cash for each of the periods presented:
Nine Months Ended
September 30,
2022 2021
(in thousands)
Net cash used in operating activities $ (44,257) $ (61,026)
Net cash used in investing activities (30,109) (1,532)
Net cash provided by financing activities 61 897
Net decrease in cash, cash equivalents and restricted cash
Operating Activities
During the nine months ended
During the nine months ended
Investing Activities
During the nine months ended
During the nine months ended
Financing Activities
During the nine months ended
32
Table of Contents
During the nine months ended
Loan and security agreement
In
Borrowings under the 2020 Credit Facility are collateralized by substantially all of our personal property, other than our intellectual property. There are no financial covenants associated with the 2020 Credit Facility; however, we are subject to certain affirmative and negative covenants to which we will remain subject until maturity. These covenants include limitations on dispositions, mergers or acquisitions; encumbering our intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. Obligations under the 2020 Credit Facility are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in our business, operations or financial or other condition.
As of
As of
Funding requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. In addition, we expect to continue to incur additional cost associated with operating as a public company. The timing and amount of our operating and capital expenditures will depend largely on:
? the costs of continuing to develop our SLTx platform, including the cost of any
changes to our cells, spheres or manufacturing processes;
? the costs of acquiring licenses for the components and engineered cell lines
that will be used with our current and future product candidates;
the scope, progress, results, and costs of discovery, preclinical development,
? formulation development, and clinical trials for our current and future product
candidates;
the costs of preparing, filing, and prosecuting patent applications,
? maintaining and enforcing our intellectual property and proprietary rights, and
defending intellectual property-related claims;
? the costs, timing, and outcome of regulatory review of the MPS-1 program or any
other product candidates;
the costs of future activities, including product sales, medical affairs,
? marketing, manufacturing, distribution, coverage and reimbursement MPS-1
program or any other product candidates for which we receive regulatory
approval;
33
Table of Contents
the cost of developing and expanding our manufacturing capabilities and
? advancing these manufacturing capabilities to manufacture product candidates
that are commercially viable;
? the potential additional expenses attributable to adjusting our development
plans (including any supply-related matters) due to the COVID-19 pandemic;
? our ability to establish and maintain additional collaborations on favorable
terms, if at all;
? the success of any collaborations that we may establish and of our license
agreements;
? the achievement of milestones or occurrence of other developments that trigger
payments under any additional collaboration agreements we obtain; and
? the extent to which we acquire or in-license product candidates, intellectual
property and technologies.
We believe that our existing cash will enable us to fund our operating expenses and capital expenditure requirements into 2024. We have based this estimate on assumptions that may prove to be wrong, and we could 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, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through additional 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 product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings 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 product candidates that we would otherwise prefer to develop and market ourselves.
© Edgar Online, source
