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 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 endedJune 30, 2021 . As ofJune 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 theMIT labs of ProfessorsRobert Langer andDaniel 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 21 Table of Contents
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 inAugust 2019 and by the EMA inNovember 2020 . We initiated enrollment and dosed three patients for our multicenter Phase 1/2 clinical study of SIG 001 in Hemophilia A in theUnited Kingdom andUnited States . InJuly 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 theSafety 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 inDecember 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 theUnited Kingdom andBrazil 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 inMarch 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. InApril 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 22 Table of Contents
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
InApril 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
? 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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Income Taxes
Since our inception in 2015, we have not recorded anyU.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 endedJune 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 inthe 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 endedDecember 31, 2020 , filed with theSEC onMarch 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 endedDecember 31, 2020 filed with theSEC onMarch 18, 2021
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
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) 36Change 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 endedJune 30, 2021 , compared to$2.0 million for the three months endedJune 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. InJune 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
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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 endedJune 30, 2020 , using the input measure, was lower as compared to revenue recognized for the three months endedJune 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
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 - 938Platform 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 endedJune 30, 2021 , compared to$12.5 million for three months endedJune 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 inDecember 2020 andMarch 2021 , respectively. Prior toDecember 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 endedJune 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 endedJune 30, 2021 were$5.0 million , compared to$2.8 million for the three months endedJune 30, 2020 . General and administrative expenses for the three months endedJune 30, 2021 versusJune 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 endedJune 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. 28 Table of Contents Other expense, net Other expense, net, for the three months endedJune 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
The following table summarizes our results of operations for the six months
ended
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) 48Change 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 endedJune 30, 2021 , compared to$5.4 million for the six months endedJune 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. InJune 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 endedJune 30, 2020 , using the input measure, was lower as compared to revenue recognized for the six months endedJune 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. 29
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Research and Development Expenses
The following table summarizes our research and development expenses for the six
months ended
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 endedJune 30, 2021 were$10.5 million , compared to$5.7 million for the six months endedJune 30, 2020 . General and administrative expenses for the six months endedJune 30, 2021 versusJune 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 endedJune 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 endedJune 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. 30
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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. ThroughJune 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 withPacific Western Bank , as amended and restated, or the 2019Credit Facility andOxford 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 ofJune 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
(997) (256)
Net cash provided by financing activities 9 27,068
Net increase in cash and restricted cash
Operating Activities
During the six months endedJune 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 endedJune 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. 31
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During the six months endedJune 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 endedJune 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 endedJune 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 endedJune 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
Loan and security agreement
InJanuary 2018 , we entered into a loan and security agreement or the 2018 Credit Facility, withPacific 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 inJanuary 2018 and an additional$5.0 million inFebruary 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 throughAugust 2019 and in equal monthly payments of principal plus accrued interest fromSeptember 2019 until the maturity date inFebruary 2022 . InNovember 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 throughMay 2021 and equal monthly payments of principal plus accrued interest fromJune 2021 until the maturity date inNovember 2023 . InSeptember 2020 , we entered into a loan and security agreement, or the 2020 Credit Facility, withOxford 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 ofU.S. Dollar LIBOR rate reported on theWall 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. 32
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As ofJune 30, 2021 , the interest rate applicable to borrowings under the 2020 Credit Facility was 8.40%. As ofJune 30, 2020 , the interest rate applicable to borrowings under the 2019 Credit Facility was 5.0%.
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 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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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 ofJune 30, 2021 , we did not have any off-balance sheet arrangements, as defined in the rules and regulations of theSecurities and Exchange Commission .
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