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 preclinical stage biotechnology company pioneering a new class of therapeutics and seeking to develop functional cures for patients with acute and chronic 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 cell differentiation and biocompatible materials, and enables our product candidates to provide a wide range of functions or therapeutic molecules that may be missing or dysfunctional in patients. We are designing our product candidates to be off-the-shelf, durable, controllable and redosable, without requiring modification of the patient's genes or chronic 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 differentiate stem cells into the appropriate cell types, such as islet cells in the case of our diabetes program, which both sense and respond. We also engineer cells to express a therapeutic molecule of choice in a continuous manner, which we refer to as constitutive expression. Our human cell lines are selected for each indication based on their safety, durability, scalability, functionality
20 Table of Contents
and engineerability. These cells are subsequently encapsulated in our
proprietary and biocompatible spheres. The spheres are composed of an Afibromer
outer layer, an alginate conjugated with a novel, proprietary small molecule,
which was derived from 10 years of work in the
Modularity, a key attribute of our SLTx platform, is comprised of three core 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 cost-effective manufacturing platform is designed to provide a true "off-the-shelf" product for patients. Furthermore, virtually all aspects of the platform for a specific cell line, from raw materials to processing steps, can be shared across our development programs using such cell line, enabling a potentially streamlined path from discovery to clinical trials. This modularity has created an efficient engine for generation of product candidates.
Our programs and most advanced product candidates are outlined below:
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: We are also developing product candidates for the treatment of lysosomal diseases. We believe our product candidates for lysosomal diseases, including mucopolysaccharidosis type 1, or 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 protein that more closely resemble normal physiology in a continuous manner. For example, our program for MPS-1 consists of product candidates that contain a cell line that is genetically modified with a nonviral vector to express human ?-L-iduronidase, or IDUA, encapsulated within our spheres. In addition, we are designing our product candidates to address the neurological manifestations of certain lysosomal diseases, using molecules designed to penetrate the blood brain barrier and molecules designed to extend plasma half-life. In the first quarter of 2023, we decreased our external spend relating to our MPS-1 program to preserve capital.
We expect to expand our pipeline of product candidates to include expansion areas of development, including liver disease and other validated targets, in the future.
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.
21 Table of Contents 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
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;
22 Table of Contents
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.
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;
23 Table of Contents
? 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.
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.
24 Table of Contents 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, net
Other income consists primarily of sublease income, gain on the disposal of fixed assets and net foreign exchange losses.
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
25 Table of Contents 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 March 31, Increase 2023 2022 (Decrease) (in thousands) Revenue Collaboration revenue$ 4,858 $ 3,165 $ 1,693 Operating expenses: Research and development 7,782 11,618 (3,836) General and administrative 4,323 5,024 (701) Total operating expenses 12,105 16,642 (4,537) Loss from operations (7,247) (13,477) 6,230 Other income (expense): Interest income 476 64 412 Interest expense (611) (491) (120) Other expense 4 45 (41) Total other expense, net (131) (382) 251
Net loss and comprehensive loss
Revenue
Revenue was
Research and Development Expenses
The following table summarizes our research and development expenses for
the three months ended
Three Months Ended March 31, Increase 2023 2022 (Decrease) (in thousands)
Direct research and development expenses by program: Diabetes program
$ 3,931 $ 2,727 $ 1,204 MPS-1 program 118 1,869 (1,751) Platform and other early stage programs 1,289 3,660 (2,371) Unallocated expenses Personnel expenses (including stockbased compensation) 1,811 2,513 (702) Facility related and other 633 849 (216) Total research and development expenses$ 7,782 $ 11,618 $ (3,836)
Research and development expenses were
26 Table of Contents
related and other expenses, which were partially offset by increased activities in our diabetes program. The decrease in platform and other early-stage programs, the MPS-1 program and personnel expenses is primarily due to our decrease in external spend relating to the MPS-1 program to preserve capital and the close out of the clinical trial for Hemophilia A.
General and Administrative Expenses
General and administrative expenses were
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
27 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:
Three Months Ended March 31, 2023 2022 (in thousands) Net cash used in operating activities$ (11,402) $ (19,488) Net cash provided by (used in) investing activities 12,238 (23,216) Net cash (used in) provided by financing activities (1,642) 48
Net decrease in cash, cash equivalents and restricted cash
Operating Activities
During the three months ended
During the three months ended
Investing Activities
During three months ended
During the three months ended
28 Table of Contents Financing Activities
During the three months ended
During the three 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 and the costs of any
additional preclinical studies we may conduct;
? 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 any other product
candidates; 29 Table of Contents
the costs of future activities, including product sales, medical affairs,
? marketing, manufacturing, distribution, coverage and reimbursement for any of
our product candidates for which we receive regulatory approval;
the cost of developing and expanding our manufacturing capabilities and
? advancing these manufacturing capabilities to manufacture product candidates
that are commercially viable;
? 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 2025, giving effect to our decreased external spend relating to our MPS-1 program beginning in the first quarter of 2023. 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