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OFFON

SIGILON THERAPEUTICS, INC.

(SGTX)
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SIGILON THERAPEUTICS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/10/2021 | 07:33am EDT
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 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
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
immunosuppression.

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, convertible preferred stock, payments received under our collaboration
agreement with Lilly and proceeds from borrowings under our credit facilities.

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 $20.4 million and $39.4
million for the three months and six ended June 30, 2021. As of June 30, 2021,
we had an accumulated deficit of $175.3 million and cash totaling
$162.4 million. Based on our current operating plans, we believe our cash will
be sufficient to fund our anticipated level of operations, capital expenditures
and satisfy debt repayments for a period of at least 12 months from the issuance
date of this Quarterly Report. We expect to generate operating losses for the
foreseeable future. Accordingly, we will seek additional funding through equity
financings, debt financing, or additional collaboration agreements. If we are
unable to raise additional funds through equity financing, debt financings or
additional collaboration agreements we may be required to delay, limit, reduce
or terminate product development or future commercialization efforts or grant
rights to develop and market products or product candidates that we would
otherwise prefer to develop and market itself.

Our Shielded Living Therapeutics Platform and Product Candidates


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 conjugated with a novel, proprietary anti-fibrotic
small molecule, which was derived from 10 years of work in the MIT labs of
Professors Robert Langer and Daniel Anderson. We developed an inner compartment
consisting of a proprietary conjugation of alginate and peptide molecules to
enhance cell survival and productivity.

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 over the last four years 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, from raw materials to processing steps,
are shared across our development programs, enabling a potentially streamlined
path from discovery

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to clinical trials. With our modular platform, the only significant change among
our internal product candidates is the expression cassette used in the cells,
which we customize to express the desired therapeutic molecule. This modularity
has created an efficient engine for generation of product candidates, allowing
us to build a diverse pipeline.

Leveraging the modularity of our platform and our scientific and preclinical
work to date, we are able to advance programs in distinct therapeutic areas,
including rare blood disorders, lysosomal diseases and endocrine and other
chronic disorders. Our initial clinical trials for our product candidates will
be in patients with the relevant disease for such products, rather than healthy
volunteers. As a result, if the results from such clinical trials are positive,
we expect to be able to proceed with Phase 3 trials studying the effectiveness
of each product candidate after the completion of its initial clinical trial for
each product candidate and approval by the applicable regulatory agencies.

Our programs and most advanced clinical-stage and pre-clinical product candidates are outlined below:

Rare Blood Disorders


SIG-001 is our most advanced SLTx product candidate, and is an investigational
therapy in development for the prevention of bleeding episodes in patients with
moderately severe to severe Hemophilia A. For this indication, we designed human
cells to express high levels of FVIII. We were granted Orphan Drug designation
for SIG-001 for the treatment of Hemophilia A by the FDA in August 2019 and by
the EMA in November 2020. We initiated enrollment and dosed three patients for
our multicenter Phase 1/2 clinical study of SIG 001 in Hemophilia A in the
United Kingdom and United States. In July 2021, in light of a serious adverse
event, or an SAE, reported in our Phase 1/2 study of SIG-001 in Hemophilia A,
the FDA placed our study of SIG-001 on a clinical hold. While we continue to
investigate the SAE, all three patients enrolled in this study will continue to
be followed per study protocol with such data reviewed by the Safety Review
Committee for SIG-001.

Moreover, we are extending our reach within rare blood disorders. We are developing SIG-009 for patients with Factor VII deficiency and SIG-003 for patients with Hemophilia B.

Lysosomal Diseases


SIG-005 is our product candidate that contains a cell line genetically modified
with a non-viral vector designed to express human a-L-iduronidase, or IDUA,
encapsulated within our spheres. SIG-005 is being developed for patients with a
confirmed diagnosis of MPS-1 to treat the non-neurological manifestations of the
disease. We were granted Orphan Drug designation for SIG-005 for the treatment
of MPS-1 by the FDA in December 2020. We have completed pre-IND and scientific
advisory meetings with the FDA, MHRA and ANVISA. We submitted a Clinical Trial
Application, or CTA, for SIG-005 in the United Kingdom and Brazil in the second
and third quarters of 2021, respectively.

SIG-007 is being developed for patients with a confirmed diagnosis of Fabry
disease. SIG-007 cells are genetically modified with a non-viral vector designed
to express human alpha-galactosidase A, or AGAL, and encapsulated within our
alginate spheres. We were granted Orphan Drug designation for SIG-007 for the
treatment of Fabry disease by the FDA in March 2021. We have completed pre-IND
and scientific advisory meetings with both FDA and MHRA.

We believe our SLTx platform has significant applicability to treat a broad
range of other lysosomal diseases. We are developing SIG-018 for patients with
mucopolysaccharidosis type 2, or MPS-2, and SIG-020 for patients with
mucopolysaccharidosis type 6, or MPS-6. Similar to other lysosomal enzymes, we
expect lysosomal enzymes produced by our spheres to be taken up by tissues via
mannose 6-phosphate receptors.

Endocrine and Other Chronic Diseases


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, which results in insulin deficiency and dysregulation of glucose
metabolism. In April 2018, we partnered with Lilly to develop cell therapies for
the treatment of T1D, including SIG-002. We are currently working through the
IND-enabling

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preclinical studies described above in collaboration with Lilly. Lilly is responsible for the clinical development of SIG-002, including the clinical development plan.


We are developing SIG-015 for patients with immune mediated diseases. We intend
to apply the modularity of our SLTx platform to develop more product candidates
and explore delivery of different molecules and alternative routes of
administration.

Impact of COVID-19

The COVID-19 pandemic has impacted and may continue to impact the clinical sites
and startup activities for our Phase 1/2 clinical trial, including third-party
manufacturing and logistics providers, which would disrupt our clinical supply
chain or the availability or cost of materials, and it may affect our ability to
timely complete our clinical trials and 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 planned and 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 April 2018, we entered into a License and Collaboration Agreement with Lilly,
or the 2018 Lilly Agreement. Under the 2018 Lilly Agreement, we granted Lilly an
exclusive worldwide, royalty-bearing license, including the right to grant
sublicenses, to our encapsulation technology applied to islet cells. We are
responsible for our own costs and expenses associated with pre-clinical
development of a product candidate, and completion of the studies and other
criteria required for filing the first IND, up to $47.5 million. Lilly is
responsible for filing the first IND, all subsequent clinical development and
commercialization, all research, development and commercialization for any
subsequent product candidates, as well as reimbursing us for research and
development costs required for filing the first IND related to the first
developed product candidate that exceed $47.5 million.

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

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$62.5 million upfront payment represents the entirety of the consideration to be
included in the transaction price as of the outset of the arrangement. We
allocated $56.6 million of the transaction price to the Combined Performance
Obligation and $5.9 million of the transaction price to the Phase 1 Supply at
the outset of the arrangement. We recognize revenue for the Combined Performance
Obligation as the research and development services are provided using an input
method, based on the cumulative costs incurred compared to the total estimated
costs expected to be incurred to satisfy the Combined Performance Obligation.
The transfer of control to the customer occurs over the time period that the
research and development services are to be provided by us, and this
cost-to-cost method is, in management's judgment, the best measure of progress
toward satisfying this performance obligation. We have determined that the
Phase 1 Supply will be satisfied at a point in time when the customer obtains
control of each unit of product. Therefore, we will recognize revenue as
shipments of the Phase 1 Supply are made to Lilly.

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 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.

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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:

? resolution of the clinical hold on our Phase 1/2 clinical trial of SIG-001 in

Hemophilia A;

? 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 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 the United States and internationally;

? our ability to protect our rights in our intellectual property portfolio;

? the commercialization of our product candidates, if and when approved;

? obtaining and maintaining third-party insurance coverage and adequate

   reimbursement;


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? 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 as we increase our headcount to support our continued research activities
and development of our product candidates. We also anticipate that we will incur
significantly increased 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 balances.

Interest Expense


Interest expense consists of interest expense on outstanding borrowings under
our loan and security agreements as well as amortization of debt discount and
deferred financing costs.

Other Expense
Other expense consists primarily of losses on the disposal of fixed assets, net
foreign exchange losses and net sublease income from subleasing a portion of our
facilities.

Change in Fair Value of Preferred Stock Warrant Liability

In connection with our 2020 and 2019 Credit Facilities, we issued warrants to
purchase Series A, Series B and Series B-1 convertible preferred stock, which
subsequently converted to common stock in conjunction with the IPO. We
classified these warrants as a liability on our balance sheet that we remeasure
to fair value at each reporting date, and we recognize changes in the fair value
of the warrant liability as a component of other income (expense) in our
statements of operations and comprehensive loss. We recognized changes in the
fair value of the warrant liability until the warrants became equity classified,
which occurred when the warrants converted into warrants to purchase common
stock.

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  Table of Contents

Income Taxes
Since our inception in 2015, we have not recorded any U.S. federal or state
income tax benefits for the net losses we have incurred in each year or our
earned research and development tax credits, due to our uncertainty of realizing
a benefit from those items. We did not provide for any income taxes in the three
and six months ended June 30, 2021 or 2020.

Critical Accounting Policies and Significant Judgments and Estimates

Our condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these condensed consolidated financial statements requires the application of
appropriate technical accounting rules and guidance, as well as the use of
estimates. The application of these policies necessarily involves judgments
regarding future events. These estimates and judgments, in and of themselves,
could materially impact the condensed consolidated financial statements and
disclosures based on varying assumptions. The accounting policies discussed in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,
filed with the SEC on March 18, 2021, or the Annual Report, are considered by
management to be the most important to an understanding of the consolidated
financial statements because of their significance to the portrayal of our
financial condition and results of operations. There have been no material
changes to that information disclosed in our Annual Report on Form 10-K for the
year ended December 31, 2020 filed with the SEC on March 18, 2021

Results of Operations

Comparison of the Three Months ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020:


                                                                Three Months Ended
                                                                    June 30,               Increase
                                                                2021          2020        (Decrease)

                                                                  (in thousands)
Revenue
Collaboration revenue                                        $    2,704    $    1,951    $        753
Operating expenses:
Research and development                                         17,751        12,452           5,299
General and administrative                                        4,992         2,818           2,174
Total operating expenses                                         22,743        15,270           7,473
Loss from operations                                           (20,039)      (13,319)         (6,720)
Other income (expense):
Interest income                                                      71            35              36
Interest expense                                                  (494)         (196)           (298)
Other expense                                                        25          (11)              36
Change in fair value of preferred stock warrant liability             -             1             (1)
Total other expense, net                                          (398)         (171)           (227)
Net loss and comprehensive loss                              $ (20,437)   
$ (13,490)    $    (6,947)




Revenue
Revenue was $2.7 million for the three months ended June 30, 2021, compared to
$2.0 million for the three months ended June 30, 2020. The increase in revenue
of $0.7 million was due to an increase in collaboration revenue from our
collaboration agreement with Lilly, primarily related to the research and
development activities performed under this agreement. In June 2020, a revised
estimate of total costs to complete the activities under the 2018 Lilly
Agreement was presented to the JRC, which considered an extension in the
expected timeline to complete the research and development activities and
anticipated increased material costs given our experiences to date. This
resulted in an increase to total estimated costs expected to be incurred of
$11.7 million. This increase in total estimated costs impacted both our
estimated transaction price for the 2018 Lilly Agreement, as Lilly is obligated
to reimburse us for the costs in excess of $47.5 million

                                       27

Table of Contents

to complete the activities, and our input method used to recognize revenue, as
this measure compares our cumulative costs incurred to our total estimated costs
expected to be incurred. The transaction price for the Combined Performance
Obligation increased by $10.6 million based on the allocation of total
transaction price to each performance obligation under the 2018 Lilly Agreement.
The remainder of the increase to total estimated costs was allocated to the
transaction price for the Phase 1 Supply performance obligation. As a result,
revenue recognized for the three months ended June 30, 2020, using the input
measure, was lower as compared to revenue recognized for the three months ended
June 30, 2021 as the percentage of costs incurred to total costs expected to be
incurred decreased as a result of the increased total estimated costs.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended June 30, 2021 and 2020:


                                                             Three Months Ended
                                                                 June 30,             Increase
                                                              2021         2020      (Decrease)

                                                               (in thousands)
Direct research and development expenses by program:
SIG­001                                                    $    1,545    $  2,014    $     (469)
SIG­002                                                         2,137       2,771          (634)
SIG­005                                                         1,777           -          1,777
SIG­007                                                           938           -            938
Platform and pipeline development                               5,876       4,082          1,794
Unallocated expenses
Personnel expenses (including stock­based compensation)         4,370       2,988          1,382
Facility related and other                                      1,108         597            511
Total research and development expenses                    $   17,751    $
12,452    $     5,299




Research and development expenses were $17.8 million for the three months ended
June 30, 2021, compared to $12.5 million for three months ended June 30, 2020.
The increase in research and development expenses was primarily related to
ongoing platform and pipeline development activities and advances in our SIG-005
and SIG-007 programs which received orphan drug designation in December 2020 and
March 2021, respectively. Prior to December 31, 2020, the costs associated with
SIG-005 and SIG-007 were included within platform and pipeline development.
Platform and pipeline development increased primarily due to further development
of device and delivery engineering for our platform, which was partially offset
by SIG-005 and SIG-007 being presented separately. Personnel expenses increased
by $1.4 million primarily as a result of the increase in headcount in our
research and development function and increases in stock-based compensation.
Stock-based compensation expense increased to $0.9 million from $0.3 million for
the three months ended June 30, 2021 and 2020, respectively. These increases in
research and development were offset by decreases in our SIG-001 and SIG-002
programs. The decrease in SIG-001 of $0.5 million was due to timing of
manufacturing activities. The decrease of $0.6 million related to program
SIG-002 was due the revision of the estimated timeline for the completion of
certain activities under the 2018 Lilly Agreement during the first quarter of
2021.

General and Administrative Expenses


General and administrative expenses for the three months ended June 30, 2021
were $5.0 million, compared to $2.8 million for the three months ended June 30,
2020. General and administrative expenses for the three months ended June 30,
2021 versus June 30, 2020 increased by $0.8 million as a result of the costs of
operating as a publicly traded company. Personnel expenses increased by
$1.0 million primarily as a result of the increase in headcount in our general
and administrative function and increases in stock-based compensation.
Stock-based compensation expense increased to $1.1 million from $0.4 million for
the three months ended June 30, 2021 and 2020, respectively. The remaining
increase in general and administrative expenses of $0.1 million was primarily
due to an increase in rent expense.

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Other expense, net

Other expense, net, for the three months ended June 30, 2021 and 2020 was $0.4
million and $0.2 million, respectively. The increase was primarily due to the
increase in interest expense on the outstanding borrowings under our 2020 Credit
Facility and 2019 Credit Facility. This increase was partially offset by an
increase in interest income.

Comparison of the Six Months ended June 30, 2021 and 2020

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:


                                                                 Six Months Ended
                                                                    June 30,              Increase
                                                                2021          2020       (Decrease)

                                                                  (in thousands)
Revenue
Collaboration revenue                                        $    5,662    $    5,417    $       245
Operating expenses:
Research and development                                         33,736        25,726          8,010
General and administrative                                       10,532         5,689          4,843
Total operating expenses                                         44,268        31,415         12,853
Loss from operations                                           (38,606)      (25,998)       (12,608)
Other income (expense):
Interest income                                                     157           238           (81)
Interest expense                                                  (982)         (404)          (578)
Other expense                                                        21          (27)             48
Change in fair value of preferred stock warrant liability             -          (34)             34
Total other expense, net                                          (804)         (227)          (577)
Net loss and comprehensive loss                              $ (39,410)   
$ (26,225)    $  (13,185)




Revenue

Revenue was $5.7 million for the six months ended June 30, 2021, compared to
$5.4 million for the six months ended June 30, 2020. The increase in revenue of
$0.3 million was due to an increase in collaboration revenue from our
collaboration agreement with Lilly, primarily related to the research and
development activities performed under this agreement. In June 2020, a revised
estimate of total costs to complete the activities under the 2018 Lilly
Agreement was presented to the JRC, which considered an extension in the
expected timeline to complete the research and development activities and
anticipated increased material costs given our experiences to date. This
resulted in an increase to total estimated costs expected to be incurred of
$11.7 million. This increase in total estimated costs impacted both our
estimated transaction price for the 2018 Lilly Agreement, as Lilly is obligated
to reimburse us for the costs in excess of $47.5 million to complete the
activities, and our input method used to recognize revenue, as this measure
compares our cumulative costs incurred to our total estimated costs expected to
be incurred. The transaction price for the Combined Performance Obligation
increased by $10.6 million based on the allocation of total transaction price to
each performance obligation under the 2018 Lilly Agreement. The remainder of the
increase to total estimated costs was allocated to the transaction price for the
Phase 1 Supply performance obligation. As a result, revenue recognized for the
six months ended June 30, 2020, using the input measure, was lower as compared
to revenue recognized for the six months ended June 30, 2021 as the percentage
of costs incurred to total costs expected to be incurred decreased as a result
of the increased total estimated costs.

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Table of Contents

Research and Development Expenses

The following table summarizes our research and development expenses for the six months ended June 30, 2021 and 2020:


                                                             Six Months Ended
                                                                June 30,             Increase
                                                             2021        2020       (Decrease)

                                                              (in thousands)
Direct research and development expenses by program:
SIG­001                                                    $  3,126    $  4,325    $    (1,199)
SIG­002                                                       4,753       4,860           (107)
SIG­005                                                       3,341           -           3,341
SIG­007                                                       1,633           -           1,633
Platform and pipeline development                            10,336       8,963           1,373

Unallocated expenses Personnel expenses (including stock­based compensation) 8,400 6,303

           2,097
Facility related and other                                    2,147       1,275             872
Total research and development expenses                    $ 33,736    $ 25,726    $      8,010




Research and development expenses were $33.7 million for the six months ended
June 30, 2021, compared to $25.7 million for six months ended June 30, 2020. The
increase in research and development expenses was primarily related to ongoing
platform and pipeline development activities and advances in our SIG-005 and
SIG-007 programs which received orphan drug designation in December 2020 and
March 2021, respectively. Prior to December 31, 2020, the costs associated with
SIG-005 and SIG-007 were included within platform and pipeline development.
Platform and pipeline development increased primarily due to further development
of device and delivery engineering for our platform, which was partially offset
by SIG-005 and SIG-007 being presented separately. Personnel expenses increased
by $2.1 million primarily as a result of the increase in headcount in our
research and development function and increases in stock-based compensation.
Stock-based compensation expense increased to $1.7 million from $0.5 million for
the six months ended June 30, 2021 and 2020, respectively. Facility related and
other increased to $2.1 million from $1.3 million primarily due to an increase
in rent expense. These increases in research and development were offset by
decreases in our SIG-001 program. The decrease in SIG-001 of $1.2 million was
due to timing of manufacturing activities.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2021 were
$10.5 million, compared to $5.7 million for the six months ended June 30, 2020.
General and administrative expenses for the six months ended June 30, 2021
versus June 30, 2020 increased by $1.7 million as a result of the costs of
operating as a publicly traded company. Personnel expenses increased by
$2.2 million primarily as a result of the increase in headcount in our general
and administrative function and increases in stock-based compensation.
Stock-based compensation expense increased to $2.0 million from $0.8 million for
the six months ended June 30, 2021 and 2020, respectively. The remaining
increase in general and administrative expenses was due to an increase of $0.5
million for professional costs and $0.3 million in increased rent expense.

Other expense, net


Other expense, net, for the six months ended June 30, 2021 and 2020 was $0.8
million and $0.2 million, respectively. The change was primarily due to the
increase in interest expense on the outstanding borrowings under our 2020 Credit
Facility and 2019 Credit Facility and a decrease in interest income.

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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 June 30, 2021, we had received
net proceeds of $131.8 million from the sale of common stock in the IPO, $141.9
million from the net sales of our convertible preferred stock and net proceeds
of $19.8 million through borrowings under our loan and security agreements with
Pacific Western Bank, as amended and restated, or the 2019 Credit Facility and
Oxford Finance LLC, or the 2020 Credit Facility. We have also partnered one of
our encapsulation technology programs with Lilly. Under the terms of the
partnership, we received an upfront payment of $62.5 million and we are eligible
to receive additional milestone payments of up to $165.0 million upon
achievement of certain regulatory milestones and sales-based milestones of up to
$250.0 million for SIG-002. We are also eligible to receive tiered royalty
payments in the mid-single digit to low-double digit percentages based on
certain sales thresholds. Finally, Lilly is obligated to reimburse us for costs
incurred to perform the research and development activities for the first
developed product candidate that exceed $47.5 million. We are also eligible to
receive additional payments upon the achievement of specified regulatory and
sales milestones and royalty payments. As of June 30, 2021, we had cash of
$162.4 million.

Cash Flows


The following table summarizes our sources and uses of cash for each of the
periods presented:


                                                 Six Months Ended
                                                    June 30,
                                                2021          2020

                                                  (in thousands)

Net cash used in operating activities $ (38,660) $ (31,509) Net cash used in investing activities

             (997)         (256)
Net cash provided by financing activities             9        27,068

Net increase in cash and restricted cash $ (39,648) $ (4,697)




Operating Activities
During the six months ended June 30, 2021, operating activities used $38.7
million of cash, primarily resulting from our net loss of $39.4 million and net
cash used in changes in our operating assets and liabilities of $6.0 million,
partially offset by non-cash charges of $6.7 million. Net changes in our
operating assets and liabilities for the six months ended June 30, 2021
consisted primarily of a $5.5 million decrease in deferred revenue, a $2.5
million decrease in lease liabilities and a $1.9 million increase in prepaid
expenses and other current assets, partially offset by a $3.0 million increase
in accounts payable and a $0.9 million increase in accrued expenses and other
current liabilities. The decrease in deferred revenue was due to recognition of
revenue related to our collaboration agreement. The increases in prepaid
expenses and other current assets were the result of timing of payments for
services to be performed in future periods. The increase in accounts payables
and accrued expenses and other current liabilities was the result of timing of
payments for services performed by our vendors. The decrease in lease
liabilities was primarily due to payment of rent for our leased property.

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Table of Contents

During the six months ended June 30, 2020, operating activities used $31.5
million of cash, primarily resulting from our net loss of $26.2 million and net
cash used in changes in our operating assets and liabilities of $8.6 million,
partially offset by non-cash charges of $3.3 million. Net cash used in changes
in our operating assets and liabilities for the six months ended June 30, 2020
consisted primarily of a $5.2 million decrease in deferred revenue, a $1.6
million decrease in lease liabilities, a $1.6 million increase in prepaid
expenses and other current assets and a $0.9 million decrease in accrued
expenses and other current liabilities, partially offset by a $0.6 million
increase in accounts payable. The decrease in deferred revenue was due to
recognition of revenue related to our collaboration agreement. The decrease in
accrued expenses and other current liabilities and increase in accounts payable
were primarily due to the timing of vendor invoicing and payments.

Investing Activities


During the six months ended June 30, 2021 and 2020, net cash used in investing
activities was $1.0 million and $0.3 million, respectively, and consisted of
purchases of laboratory equipment and furniture and fixtures.

Financing Activities


During the six months ended June 30, 2021, net cash provided by financing
activities was less than $0.1 million. The cash provided by financing activities
consisted of $0.6 million of proceeds from the exercise of common stock options
and was offset by $0.6 million for the payment of deferred offering costs
associated with our initial public offering.

During the six months ended June 30, 2020, net cash provided by financing activities was $27.1 million, consisting primarily of net proceeds of $26.9 million from our issuance of Series B preferred stock.

Loan and security agreement

In January 2018, we entered into a loan and security agreement or the 2018
Credit Facility, with Pacific Western Bank. The 2018 Credit Facility initially
provided for borrowings of up to $5.0 million under one term loan, as well as
additional borrowings of up to an aggregate maximum of $5.0 million under one or
more additional term loans. Under the 2018 Credit Facility, we borrowed
$5.0 million in January 2018 and an additional $5.0 million in February 2019.
Borrowings under the 2018 Credit Facility bore interest at an annual rate equal
to the bank's prime rate plus 0.75%, subject to a floor of 5.0%, and were
repayable in monthly interest-only payments through August 2019 and in
equal monthly payments of principal plus accrued interest from September 2019
until the maturity date in February 2022.

In November 2019, the loan and security agreement was amended, or the 2019
Credit Facility, to increase the principal term loan amount to $15.0 million
while extending timelines. The amended term loan bore interest at an annual rate
equal to the bank's prime rate plus 0.75%, subject to a 5.0% floor and was
payable in monthly interest-only payments through May 2021 and equal monthly
payments of principal plus accrued interest from June 2021 until the maturity
date in November 2023.

In September 2020, we entered into a loan and security agreement, or the 2020
Credit Facility, with Oxford Finance LLC, or Oxford, and paid off in full our
borrowings under the 2019 Credit Facility with a portion of the proceeds from
the 2020 Credit Facility. The 2020 Credit Facility provided for an initial term
loan borrowing in an aggregate amount of $20.0 million. The Company elected to
not borrow any additional eligible borrowings under the 2020 Credit Facility.
Borrowings under the 2020 Credit Facility bear interest at an annual rate equal
to the greater of 8.40% and the sum of U.S. Dollar LIBOR rate reported on the
Wall Street Journal plus 8.23%.

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.

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Table of Contents


As of June 30, 2021, the interest rate applicable to borrowings under the 2020
Credit Facility was 8.40%. As of June 30, 2020, the interest rate applicable to
borrowings under the 2019 Credit Facility was 5.0%.

As of June 30, 2021, we were in compliance with all covenants pursuant to the 2020 Credit Facility. We cannot be assured that we will be able to obtain additional covenant waivers or amendments in the future which may have a material adverse effect on our results or operations or liquidity.

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
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 improve our SLTx platform;

the costs of our investigation of the SAE reported in our Phase 1/2 clinical

? trial for SIG-001 in Hemophilia A and the costs of additional pre-clinical or

clinical studies as may be requested by the FDA;

? the timing of resolution of the clinical hold on our Phase 1/2 clinical trial

of SIG-001 in Hemophilia A;

? 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 SIG-001, SIG-005 or any

other product candidates;

the costs of future activities, including product sales, medical affairs,

? marketing, manufacturing, distribution, coverage and reimbursement for SIG-001,

SIG-005 or any other 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;

? 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;

? the extent to which we acquire or in-license product candidates, intellectual

property and technologies; and

? the costs of operating as a public company.


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  Table of Contents

We believe that our existing cash will enable us to fund our operating expenses
and capital expenditure requirements into the fourth quarter of 2022. We have
based this estimate on assumptions that may prove to be wrong, and we could
utilize our available capital resources sooner than we expect.

Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our operations through a combination of equity offerings, debt
financings, collaborations, strategic alliances and marketing, distribution or
licensing arrangements. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, 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.

Contractual Obligations and Commitments

We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide this information.

Off-Balance Sheet Arrangements


During the periods presented in this Quarterly Report on Form 10-Q and as of
June 30, 2021, we did not have any off-balance sheet arrangements, as defined in
the rules and regulations of the Securities and Exchange Commission.

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Sales 2021 11,7 M - -
Net income 2021 -78,0 M - -
Net cash 2021 117 M - -
P/E ratio 2021 -2,34x
Yield 2021 -
Capitalization 186 M 186 M -
EV / Sales 2021 5,94x
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Rogério Vivaldi Coelho President, Chief Executive Officer & Director
Josias Pontes Vice President & Head-Finance
Douglas G. Cole Chairman
Deya Corzo Chief Medical Officer
Martha Rook Chief Technical Operations Officer
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