sldb-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-38360

 

Solid Biosciences Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

90-0943402

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

141 Portland Street, Fifth Floor

Cambridge, MA

 

02139

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 337-4680

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock $0.001 par value per share

SLDB

The Nasdaq Global Select Market

 

As of May 1, 2019, the registrant had 35,405,649 shares of common stock, $0.001 par value per share, outstanding.

  

 

 

 


 

Table of Contents

 

 

 

Page

PART  I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018

2

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

3

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2019 and 2018

4

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2019 and 2018

5

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

6

 

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

Item 6.

Exhibits

70

 

Signatures

71

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

SOLID BIOSCIENCES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,994

 

 

$

86,366

 

Available-for-sale-securities

 

 

40,750

 

 

 

36,098

 

Prepaid expenses and other current assets

 

 

7,043

 

 

 

6,175

 

Total current assets

 

 

101,787

 

 

 

128,639

 

Property and equipment, net

 

 

11,995

 

 

 

10,422

 

Operating lease, right-of-use assets

 

 

5,916

 

 

 

 

Other non-current assets

 

 

209

 

 

 

209

 

Restricted cash

 

 

327

 

 

 

327

 

Total assets

 

$

120,234

 

 

$

139,597

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,352

 

 

$

3,691

 

Accrued expenses and other current liabilities

 

 

7,409

 

 

 

8,235

 

Operating lease liabilities

 

 

1,278

 

 

 

 

Finance lease liabilities

 

 

178

 

 

 

173

 

Other current liabilities

 

 

355

 

 

 

382

 

Total current liabilities

 

 

14,572

 

 

 

12,481

 

Operating lease liabilities, excluding current portion

 

 

5,736

 

 

 

 

Finance lease liabilities, excluding current portion

 

 

813

 

 

 

859

 

Other non-current liabilities

 

 

 

 

 

1,074

 

Total liabilities

 

 

21,121

 

 

 

14,414

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized

   at March 31, 2019 and December 31, 2018; no shares issued and

   outstanding at March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.001 par value; 300,000,000 shares authorized at

   March 31, 2019 and December 31, 2018; 35,414,914 shares issued and

   outstanding at March 31, 2019 and 35,432,460 shares issued and outstanding

    at December 31, 2018

 

 

35

 

 

 

35

 

Additional paid-in capital

 

 

327,709

 

 

 

324,209

 

Accumulated other comprehensive gain (loss)

 

 

7

 

 

 

(5

)

Accumulated deficit

 

 

(228,638

)

 

 

(199,056

)

Total stockholders’ equity

 

 

99,113

 

 

 

125,183

 

Total liabilities and stockholders’ equity

 

$

120,234

 

 

$

139,597

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


 

SOLID BIOSCIENCES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

23,269

 

 

 

11,929

 

General and administrative

 

 

7,033

 

 

 

4,044

 

Total operating expenses

 

 

30,302

 

 

 

15,973

 

Loss from operations

 

 

(30,302

)

 

 

(15,973

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

508

 

 

 

65

 

Other income

 

 

212

 

 

 

31

 

Total other income (expense), net

 

 

720

 

 

 

96

 

Net loss

 

$

(29,582

)

 

$

(15,877

)

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.85

)

 

$

(0.54

)

Weighted average shares of common stock outstanding, basic and diluted

 

 

34,776,488

 

 

 

29,354,650

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

SOLID BIOSCIENCES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited, in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(29,582

)

 

$

(15,877

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

12

 

 

 

(10

)

Comprehensive loss

 

$

(29,570

)

 

$

(15,887

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

4


 

SOLID BIOSCIENCES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited, in thousands, except share / unit data)

 

 

 

For the Three Months Ended March 31, 2019

 

 

 

Series 2

Senior

Preferred

Units

 

 

Amount

 

 

Series 1

Senior

Preferred

Units

 

 

Amount

 

 

Junior

Preferred

Units

 

 

Amount

 

 

Series

A, B, C

and D

Common

Units

 

 

Amount

 

 

Common

Stock

 

 

Amount

 

 

Additional

paid

in capital

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balance at December 31, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

35,432,460

 

 

$

35

 

 

$

324,209

 

 

$

(5

)

 

$

(199,056

)

 

$

125,183

 

Activity in Three-Month Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,500

 

 

 

 

 

 

 

 

 

3,500

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,582

)

 

 

(29,582

)

Repurchase of shares of common

   stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,546

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available for

   sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Balance at March 31 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

35,414,914

 

 

$

35

 

 

$

327,709

 

 

$

7

 

 

$

(228,638

)

 

$

99,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2018

 

 

 

Series 2

Senior

Preferred

Units

 

 

Amount

 

 

Series 1

Senior

Preferred

Units

 

 

Amount

 

 

Junior

Preferred

Units

 

 

Amount

 

 

Series

A, B, C

and D

Common

Units

 

 

Amount

 

 

Common

Stock

 

 

Amount

 

 

Additional

paid

in capital

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balance at December 31, 2017

 

 

4,886,000

 

 

$

55,002

 

 

 

2,500,000

 

 

$

25,000

 

 

 

4,414,356

 

 

$

44,177

 

 

 

19,438,552

 

 

$

65,014

 

 

 

 

 

$

 

 

$

 

 

$

(13

)

 

$

(124,258

)

 

$

(59,257

)

Activity in Three-Month Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of units into shares

   of common stock

 

 

(4,886,000

)

 

 

(55,002

)

 

 

(2,500,000

)

 

 

(25,000

)

 

 

(4,414,356

)

 

 

(44,177

)

 

 

(19,429,620

)

 

 

(65,180

)

 

 

26,498,559

 

 

 

26

 

 

 

189,333

 

 

 

 

 

 

 

 

$

124,179

 

Issuance of common stock upon

   initial public offering, net of

   issuance costs of $4,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,984,375

 

 

$

9

 

 

 

129,087

 

 

 

 

 

 

 

 

$

129,096

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

166

 

 

 

 

 

 

 

 

 

 

 

653

 

 

 

 

 

 

 

 

$

819

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,877

)

 

$

(15,877

)

Repurchase of common units/

   shares of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,932

)

 

 

 

 

 

(6,042

)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 

Unrealized loss on available

   for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

 

 

$

(10

)

Balance at March 31 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

35,476,892

 

 

$

35

 

 

$

319,073

 

 

$

(23

)

 

$

(140,135

)

 

$

178,950

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

5


 

SOLID BIOSCIENCES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(29,582

)

 

$

(15,877

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Amortization of (discount)/premium on available-for-sale securities

 

 

(148

)

 

 

5

 

Equity-based compensation expense

 

 

3,500

 

 

 

819

 

Depreciation expense

 

 

596

 

 

 

227

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current and non-current assets

 

 

(707

)

 

 

(641

)

Accounts payable

 

 

1,666

 

 

 

(354

)

Accrued expenses and other current and non-current liabilities

 

 

(1,252

)

 

 

(1,351

)

Net cash used in operating activities

 

 

(25,927

)

 

 

(17,172

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,953

)

 

 

(1,001

)

Proceeds from sale and maturities of available-for-sale securities

 

 

10,924

 

 

 

8,509

 

Purchases of available-for-sale securities

 

 

(15,416

)

 

 

(9,119

)

Net cash used in investing activities

 

 

(6,445

)

 

 

(1,611

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from initial public offering of common stock, net of commissions

   and underwriting discounts

 

 

 

 

 

133,688

 

Payment of deferred offering costs

 

 

 

 

 

(1,975

)

Net cash provided by financing activities

 

 

 

 

 

131,713

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(32,372

)

 

 

112,930

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

86,693

 

 

 

52,145

 

Cash, cash equivalents, and restricted cash at end of period

 

$

54,321

 

 

$

165,075

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Conversion of Series A, B, C and D common units into shares of common stock

 

$

 

 

$

65,180

 

Conversion of Series 2 Senior Preferred units into shares of common stock

 

$

 

 

$

55,002

 

Conversion of Series 1 Senior Preferred units into shares of common stock

 

$

 

 

$

25,000

 

Conversion of Junior Preferred units into shares of common stock

 

$

 

 

$

44,177

 

Deferred offering costs included in accounts payable

 

$

 

 

$

193

 

Property and equipment included in accounts payable and accruals

 

$

1,043

 

 

$

1,479

 

Operating lease liabilities arising from obtaining right-of-use asset

 

$

1,629

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

SOLID BIOSCIENCES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share / unit and per share / unit data)

1. Nature of the Business and Basis of Presentation

Nature of Business

Solid Biosciences Inc. (the “Company”) was organized in March 2013 under the name SOLID Ventures Management, LLC. In October 2013, the Company changed its name to Solid Ventures, LLC and in June 2015, the Company changed its name to Solid Biosciences, LLC.

The Company operated as a Delaware limited liability company under the name Solid Biosciences, LLC until immediately prior to the effectiveness of its registration statement on Form S-1 on January 25, 2018, at which time it completed a statutory corporate conversion into a Delaware corporation (the “Corporate Conversion”) and changed its name to Solid Biosciences Inc. As a result of the Corporate Conversion, all of the Series 1 and 2 Senior Preferred Units, Junior Preferred Units, Series A, B, C and D Common Units of Solid Biosciences, LLC converted into shares of common stock of Solid Biosciences Inc. on a one-for-0.8485 basis and all of the unit holders of Solid Biosciences, LLC became holders of common stock of Solid Biosciences Inc.

The Company’s mission is to cure Duchenne muscular dystrophy (“DMD”), a genetic muscle-wasting disease predominantly affecting boys. It is caused by mutations in the dystrophin gene, which result in the absence or near-absence of dystrophin protein. Dystrophin protein works to strengthen muscle fibers and protect them from daily wear and tear. Without functioning dystrophin and certain associated proteins, muscles suffer excessive damage from normal daily activities and are unable to regenerate, leading to the build-up of fibrotic, or scar, and fat tissue. The Company’s lead product candidate, SGT-001, is a gene transfer under development to restore functional dystrophin protein expression in patients’ muscles. SGT-001 has been granted Rare Pediatric Disease Designation and Fast Track in the United States and Orphan Drug Designations in both the United States and European Union.  The Company filed an Investigational New Drug application (“IND”) in September 2017 and initiated a Phase I/II clinical trial for SGT-001 in the United States during the fourth quarter of 2017, which is called IGNITE DMD.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on licenses, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical studies and clinical trials and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from, among others, other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, partners and consultants.

Liquidity

The accompanying condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Through March 31, 2019, the Company has funded its operations primarily with the proceeds from the sale of redeemable preferred units and member units in private placements and its initial public offering.    

 

In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. As of March 31, 2019, the Company had an accumulated deficit of $228,638. During the three months ended March 31, 2019, the Company incurred a net loss of $29,582 and used $25,927 of cash in operations. The Company has incurred recurring losses from operations since inception.  The Company expects to continue to generate operating losses in the foreseeable future. The Company currently expects that its cash, cash equivalents and available-for-sale securities of $94,744 as of March 31, 2019 will be sufficient to fund its operating expenses and capital requirements, based upon its current operating plan, into early 2020. 

7


 

In accordance with the requirements of ASC 205-40, the Company determined that there is substantial doubt about the Company’s ability to continue as a going concern within twelve months of the issuance date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all, nor is it considered probable under the accounting standards. As such, under the requirements of ASC 205-40, management may not consider the potential for future capital raises or management plans to reduce costs that are not considered probable in its assessment of the Company’s ability to meet its obligations for the next twelve months. If the Company is unable to obtain funding, the Company would be forced to delay, reduce or eliminate some or all of its research and development programs, pre-clinical and clinical testing or commercialization efforts, which could adversely affect its business prospects.   

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned or controlled subsidiaries. All intercompany accounts and transactions have been eliminated.

In the opinion of management, the Company’s accompanying unaudited condensed consolidated financial statements (condensed consolidated financial statements) include all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the Company’s financial statements for interim periods in accordance with GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from the Company’s audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the recognition of research and development expenses and equity-based compensation. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from the Company’s estimates.

Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents.

Restricted Cash

The Company held restricted cash of $327 in separate restricted bank accounts as security deposits for leases of the Company’s facilities as of March 31, 2019 and December 31, 2018. The Company has included restricted cash of $327 as a non-current asset as of March 31, 2019 and December 31, 2018. A reconciliation of the amounts of cash and cash equivalents and restricted cash from the cash flow statement to the balance sheet is as follows:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Cash and cash equivalents as presented on balance sheet

 

$

53,994

 

 

$

86,366

 

Restricted cash, non-current, as presented on balance sheet

 

 

327

 

 

 

327

 

Cash and cash equivalents and restricted cash as presented on

   cash flow statement

 

$

54,321

 

 

$

86,693

 

  

8


 

Available-for-Sale Securities

Available-for-sale securities consist of investments with original maturities greater than 90 days at acquisition date. The Company has classified its investments with maturities beyond one year as short term, based on their highly liquid nature and because such available-for-sale securities represent the investment of cash that is available for current operations.

The Company classifies all of its investments as available-for-sale securities. The Company’s investments are measured and reported at fair value using quoted prices in active markets for similar securities. Unrealized gains and losses on available-for-sale debt securities are reported as a separate component of stockholders’ equity. The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other income (expense) within the condensed consolidated statement of operations. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the condensed consolidated statement of operations. No such adjustments were necessary during the periods presented.

Concentration of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company maintains each of its cash balances with high-quality and accredited financial institutions and accordingly, such funds are not exposed to significant credit risk. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on third-party manufacturers to supply products for research and development activities of its programs, including clinical and pre-clinical testing. These programs could be adversely affected by a significant interruption in the supply of such drug substance products.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data.

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and available-for-sale securities are carried at fair value, determined according to the fair value hierarchy described above. See Note 3, Fair Value of Financial Assets and Liabilities, for additional information. The carrying values of the Company’s accounts payable and accrued expenses and other current liabilities approximate their fair value due to the short-term nature of these liabilities.

Leases

At inception of a contract, the Company determines if a contract meets the definition of a lease. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company determines if the contract conveys the right to control the use of an identified asset for a period of time. The Company assesses throughout the period of use whether the Company has both of the following: (1) the right to obtain substantially all of the economic benefits from use of the identified asset and (2) the right to direct the use of the identified asset. This determination is reassessed if the terms of the contract are changed. Leases are classified as operating or finance leases based on the terms of the lease agreement and certain characteristics of the identified asset. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of the minimum future lease payments. The Company’s policy is to not record leases with an original term of twelve months or less on the condensed consolidated balance sheets. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. Certain lease agreements include

9


 

rental payments that are adjusted periodically for inflation or other variables. In addition to rent, the leases may require the Company to pay additional amounts for taxes, insurance, maintenance and other expenses, which are generally referred to as non-lease components. Such adjustments to rental payments and variable non-lease components are treated as variable lease payments and recognized in the period in which the obligation for these payments was incurred. Variable lease components and variable non-lease components are not measured as part of the right of use asset and liability. Only when lease components and their associated non-lease components are fixed are they accounted for as a single lease component and recognized as part of a right of use asset and liability. Total contract consideration is allocated to the combined fixed lease and non-lease components.

Equity-Based Compensation

In connection with the completion of the Company’s initial public offering, the Company adopted the 2018 Omnibus Incentive Plan, which provides for the issuance of share-based awards, including options to purchase common stock. The 2018 Omnibus Incentive Plan provides for the awarding of up to 5,001,000 shares of common stock for equity awards.

The Company measures all stock options and other stock-based awards granted to employees, directors and non-employees based on the fair value on the date of the grant and recognizes compensation expense of those awards, over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are accounted for as they occur. The Company applies the straight-line method of expense recognition to all awards with only service-based vesting conditions. The Company has not issued any awards with performance-based vesting conditions. For stock-based awards granted to non-employees, compensation expense is recognized over the period during which services are rendered by such non-employees until completed.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The Company classifies stock-based compensation expense in its condensed consolidated statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Income Taxes

Income taxes are accounted for under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records valuation allowances to reduce deferred income tax assets to the amount that is more likely than not to be realized. The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, no amount of benefit attributable to the position is recognized. The tax benefit to be recognized of any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency.

Segment Data

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is on developing treatments through gene therapy and other means for patients with DMD. All of the Company’s tangible assets are held in the United States.

10


 

Comprehensive Loss

Comprehensive loss includes net loss, as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders and members. The Company’s only element of other comprehensive loss in all periods presented was unrealized gains (losses) from available-for-sale securities.

Net Loss per Share

The Company follows the two-class method when computing net loss per share, as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive shares of common stock assuming the dilutive effect of common stock equivalents.

The Company’s participating securities contractually entitle the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive.

Contingencies

Loss contingency provisions are recorded if the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount can be reasonably estimated, or a range of loss can be determined. These accruals represent the Company’s best estimate of probable loss. Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. The Company reviews the status of each significant matter and assesses its potential financial exposure. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and may change its estimates. These changes in the estimates of the potential liabilities could have a material impact on the Company’s condensed consolidated results of operations and financial position.

Recently Adopted Accounting Pronouncements

 

The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as of January 1, 2019 using the modified retrospective transition approach with no restatement of prior periods or cumulative adjustment to accumulated deficit. Upon adoption, the Company elected the package of transition practical expedients, which allowed the Company to carry forward prior conclusions related to whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and initial direct costs for existing leases. The Company also made an accounting policy election not to recognize leases with an initial term of 12 months or less within its condensed consolidated balance sheets and to recognize those lease payments on a straight-line basis in its condensed consolidated statements of operations and comprehensive loss over the lease term. Upon adoption of ASU 2016-02, the Company recognized operating lease, right-of-use assets of approximately $4.6 million and a corresponding operating lease liability of approximately $5.9 million, which are included in the Company’s condensed consolidated balance sheet. The adoption of ASU 2016-02 did not have any impact on the Company’s condensed consolidated statements of operations and comprehensive loss.

11


 

Recently Issued Accounting Pronouncements

In August 2018 the Financial Accounting Standards Board issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This new standard modifies certain disclosure requirements on fair value measurements. This new standard will be effective for the Company on January 1, 2020. The Company does not expect that the adoption of this new standard will have a material impact on its disclosures.

3. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

Fair Value Measurements as of March 31, 2019

Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

 

$

24,751

 

 

$

 

 

$

24,751

 

Available-for-sale securities

 

 

 

 

 

40,750

 

 

 

 

 

 

40,750

 

 

 

$

 

 

$

65,501

 

 

$

 

 

$

65,501

 

 

 

 

Fair Value Measurements as of December 31, 2018

Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

 

$

54,423

 

 

$

 

 

$

54,423

 

Available-for-sale securities

 

 

 

 

 

36,098

 

 

 

 

 

 

36,098

 

 

 

$

 

 

$

90,521

 

 

$

 

 

$

90,521

 

 

As of March 31, 2019 and December 31, 2018, the fair values of the Company’s available-for-sale debt securities, which consisted of U.S. government agency securities, commercial paper and corporate bond securities, were determined using Level 2 inputs. During the three months ended March 31, 2019 and the year ended December 31, 2018, there were no transfers between Level 1, Level 2 and Level 3.

The fair value of the Company’s cash, restricted cash, accounts payable, and accrued expenses and other current liabilities approximate their carrying value due to their short-term maturities.

4. Available-for-Sale Securities

As of March 31, 2019 and December 31, 2018, the fair value of available-for-sale securities by type of security was as follows:

 

 

 

March 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

$

13,714

 

 

$

1

 

 

$

(1

)

 

$

13,714

 

Corporate bond securities

 

 

15,860

 

 

 

8

 

 

 

(1

)

 

 

15,867

 

Commercial paper

 

 

11,169

 

 

 

 

 

 

 

 

 

11,169

 

 

 

$

40,743

 

 

$

9

 

 

$

(2

)

 

$

40,750

 

12


 

 

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

$

13,543

 

 

$

 

 

$

(2

)

 

$

13,541

 

Corporate bond securities

 

 

12,860

 

 

 

2

 

 

 

(5

)

 

 

12,857

 

Commercial paper

 

 

9,700

 

 

 

 

 

 

 

 

 

9,700

 

 

 

$

36,103

 

 

$

2

 

 

$

(7

)

 

$

36,098

 

 

 

The estimated fair value and amortized cost of the Company’s available-for-sale securities by contractual maturity are summarized as follows:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Fair

Value

 

 

Amortized

Cost

 

 

Fair

Value

 

Due in one year or less

 

$

40,743

 

 

$

40,750

 

 

$

36,103

 

 

$

36,098

 

Total available-for-sale securities

 

$

40,743

 

 

$

40,750

 

 

$

36,103

 

 

$

36,098

 

 

The weighted average maturity of the Company’s available-for-sale securities as of March 31, 2019 and December 31, 2018 was approximately 0.2 years and 0.3 years, respectively.

5. Property and Equipment

Property and equipment consists of the following:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Furniture and fixtures

 

$

203