sldb-10q_20200331.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, 2020

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

 

 

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

 

 

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  

 

As of May 1, 2020, the registrant had 46,070,724 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, 2020 and December 31, 2019

2

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

3

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019

4

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019

5

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

6

 

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

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

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 6.

Exhibits

69

 

Signatures

70

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

SOLID BIOSCIENCES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,187

 

 

$

76,043

 

Available-for-sale-securities

 

 

400

 

 

 

7,481

 

Prepaid expenses and other current assets

 

 

4,316

 

 

 

2,778

 

Total current assets

 

 

57,903

 

 

 

86,302

 

Property and equipment, net

 

 

10,866

 

 

 

11,645

 

Operating lease, right-of-use assets

 

 

4,655

 

 

 

4,988

 

Other non-current assets

 

 

209

 

 

 

209

 

Restricted cash

 

 

327

 

 

 

327

 

Total assets

 

$

73,960

 

 

$

103,471

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,383

 

 

$

7,124

 

Accrued expenses

 

 

8,507

 

 

 

9,178

 

Operating lease liabilities

 

 

1,799

 

 

 

1,736

 

Finance lease liabilities

 

 

191

 

 

 

186

 

Other current liabilities

 

 

 

 

 

52

 

Total current liabilities

 

 

12,880

 

 

 

18,276

 

Operating lease liabilities, excluding current portion

 

 

3,941

 

 

 

4,414

 

Finance lease liabilities, excluding current portion

 

 

683

 

 

 

733

 

Total liabilities

 

 

17,504

 

 

 

23,423

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

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

   at March 31, 2020 and December 31, 2019; no shares issued and

   outstanding at March 31, 2020 and December 31, 2019

 

 

 

 

 

 

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

   March 31, 2020 and December 31, 2019; 46,070,724 shares issued and

   outstanding at March 31, 2020 and 45,987,571 shares issued and

   outstanding at December 31, 2019; 2,295,699 pre-funded warrants outstanding at

   March 31, 2020 and December 31, 2019

 

 

48

 

 

 

48

 

Additional paid-in capital

 

 

399,382

 

 

 

396,278

 

Accumulated other comprehensive (loss) gain

 

 

(1

)

 

 

1

 

Accumulated deficit

 

 

(342,973

)

 

 

(316,279

)

Total stockholders’ equity

 

 

56,456

 

 

 

80,048

 

Total liabilities and stockholders’ equity

 

$

73,960

 

 

$

103,471

 

 

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,

 

 

 

2020

 

 

2019

 

Revenue

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

19,665

 

 

 

23,269

 

General and administrative

 

 

5,250

 

 

 

7,033

 

Restructuring charges

 

 

1,944

 

 

 

 

Total operating expenses

 

 

26,859

 

 

 

30,302

 

Loss from operations

 

 

(26,859

)

 

 

(30,302

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

164

 

 

 

508

 

Other income

 

 

1

 

 

 

212

 

Total other income (expense), net

 

 

165

 

 

 

720

 

Net loss

 

$

(26,694

)

 

$

(29,582

)

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(0.56

)

 

$

(0.85

)

Weighted average shares of common stock outstanding,

   basic and diluted

 

 

48,059,279

 

 

 

34,776,488

 

 

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,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(26,694

)

 

$

(29,582

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

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

 

 

(2

)

 

 

12

 

Comprehensive loss

 

$

(26,696

)

 

$

(29,570

)

 

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, 2020

 

 

 

Common

Stock

 

 

Amount

 

 

Additional

paid

in capital

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity

 

Balance at December 31, 2019

 

 

48,283,270

 

 

$

48

 

 

$

396,278

 

 

$

1

 

 

$

(316,279

)

 

$

80,048

 

Equity-based compensation

 

 

 

 

 

 

 

 

3,104

 

 

 

 

 

 

 

 

 

3,104

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,694

)

 

 

(26,694

)

Vesting of restricted stock units

 

 

121,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock awards

 

 

(38,822

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available for sale

   securities

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Balance at March 31, 2020

 

 

48,366,423

 

 

$

48

 

 

$

399,382

 

 

$

(1

)

 

$

(342,973

)

 

$

56,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2019

 

 

 

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

 

Equity-based compensation

 

 

 

 

 

 

 

 

3,500

 

 

 

 

 

 

 

 

 

3,500

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,582

)

 

 

(29,582

)

Forfeiture of restricted stock awards

 

 

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(26,694

)

 

$

(29,582

)

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

 

 

 

 

 

 

 

 

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

 

 

(21

)

 

 

(148

)

Equity-based compensation expense

 

 

3,104

 

 

 

3,500

 

Depreciation expense

 

 

1,026

 

 

 

596

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current and non-current assets

 

 

(1,205

)

 

 

(707

)

Accounts payable

 

 

(4,309

)

 

 

1,666

 

Accrued expenses and other current and non-current liabilities

 

 

(1,175

)

 

 

(1,252

)

Net cash used in operating activities

 

 

(29,274

)

 

 

(25,927

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(681

)

 

 

(1,953

)

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

 

 

7,500

 

 

 

10,924

 

Purchases of marketable investments

 

 

(401

)

 

 

(15,416

)

Net cash provided by (used in) investing activities

 

 

6,418

 

 

 

(6,445

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

 

 

 

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(22,856

)

 

 

(32,372

)

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

 

 

76,370

 

 

 

86,693

 

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

 

$

53,514

 

 

$

54,321

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

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

 

$

 

 

$

1,629

 

Property and equipment included in accounts payable and accruals

 

$

55

 

 

$

1,043

 

 

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

6


 

SOLID BIOSCIENCES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, 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. 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. (the “Company”). In addition, entities formed solely for the purpose of holding membership interests in the Company’s limited liability company were merged with and into the Company. As a result of the Corporate Conversion, all of the Series 1 and 2 Senior Preferred, 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 (“Duchenne”), 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 candidate under investigation for its ability to drive functional dystrophin protein expression in patients’ muscles and improve the course of the disease. 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. In November 2019, IGNITE DMD was placed on clinical hold by the U.S. Food and Drug Administration (“FDA”).  In April 2020, the Company submitted a response to the FDA that included changes to the clinical protocol designed to enhance patient safety, as well as information related to improvements to its manufacturing process. The FDA has responded by maintaining the clinical hold and requesting further data and analyses relating to this manufacturing process.  The Company is in the process of generating these data and expects to submit this information to the FDA before the end of the third quarter of 2020.  

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, 2020, the Company has funded its operations primarily with the proceeds from the sale of redeemable preferred units and member units as well as the sale of common stock and prefunded warrants to purchase shares of its common stock in private placements and the sale of common stock in its initial public offering.

 

 

7


 

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, 2020, the Company had an accumulated deficit of $342,973. During the three months ended March 31, 2020, the Company incurred a net loss of $26,694 and used $29,274 of cash in operations. The Company expects to continue to generate operating losses in the foreseeable future. Based upon its current operating plan, the Company expects that its cash, cash equivalents and available-for-sale securities of $53,587 as of March 31, 2020 will be sufficient to fund its operating expenses and capital requirements into 2021. 

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 Solid Biosciences Inc. 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 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, 2019. 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, 2020 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

The Company’s accounting policies are described in the “Notes to Consolidated Financial Statements” in its 2019 Form 10-K and updated, as necessary, in this report.

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. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including clinical trials and employee-related amounts, will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and the actions taken to contain it or treat its impact. The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods. 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.

8


 

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, 2020 and December 31, 2019. The Company has included restricted cash of $327 as a non-current asset as of March 31, 2020 and December 31, 2019. 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,

2020

 

 

December 31,

2019

 

Cash and cash equivalents as presented on balance sheet

 

$

53,187

 

 

$

76,043

 

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

 

 

327

 

 

 

327

 

Cash and cash equivalents and restricted cash as presented on

   cash flow statement

 

$

53,514

 

 

$

76,370

 

 

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 Duchenne. All of the Company’s tangible assets are held in the United States.

Recently Adopted 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 became effective for the Company on January 1, 2020. The adoption of this new standard did not have a material impact on the Company’s disclosures.

Recently Issued Accounting Pronouncements  

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (‘‘ASU 2016-13’’), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (‘‘ASU 2019-05’’). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are Securities and Exchange Commission filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. This standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that this standard may have on its financial statements and related 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, 2020

Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

 

$

14,053

 

 

$

 

 

$

14,053

 

Available-for-sale securities

 

 

 

 

 

400

 

 

 

 

 

 

400

 

 

 

$

 

 

$

14,453

 

 

$

 

 

$

14,453

 

9


 

 

 

 

Fair Value Measurements as of December 31, 2019

Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

 

$

50,037

 

 

$

 

 

$

50,037

 

Available-for-sale securities

 

 

 

 

 

7,481

 

 

 

 

 

 

7,481

 

 

 

$

 

 

$

57,518

 

 

$

 

 

$

57,518

 

 

As of March 31, 2020 and December 31, 2019, the fair values of the Company’s available-for-sale debt securities were determined using Level 2 inputs.  At March 31, 2020, the Company’s portfolio of available-for-sale securities consisted of corporate bond securities. At December 31, 2019, the Company’s portfolio of available-for-sale securities consisted of corporate bond securities and commercial paper. During the three months ended March 31, 2020 and the year ended December 31, 2019, 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, 2020 and December 31, 2019, the fair value of available-for-sale securities by type of security was as follows:

 

 

 

March 31, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bond securities

 

$

401

 

 

$

 

 

$

(1

)

 

$

400

 

 

 

$

401

 

 

$

 

 

$

(1

)

 

$

400

 

 

 

 

December 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bond securities

 

 

1,502

 

 

 

1

 

 

 

 

 

 

1,503

 

Commercial paper

 

 

5,978

 

 

 

 

 

 

 

 

 

5,978

 

 

 

$

7,480

 

 

$

1

 

 

$

 

 

$

7,481

 

 

 

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

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

 

Amortized

Cost

 

 

Fair

Value

 

 

Amortized

Cost

 

 

Fair

Value

 

Due in one year or less

 

$

401

 

 

$

400

 

 

$

7,480

 

 

$

7,481

 

Total available-for-sale securities

 

$

401

 

 

$

400

 

 

$

7,480

 

 

$

7,481

 

 

The weighted average maturity of the Company’s available-for-sale securities as of March 31, 2020 and December 31, 2019 was approximately 0.2 years and 0.2 years, respectively.

10


 

5. Property and Equipment

Property and equipment consists of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Furniture and fixtures

 

$

203

 

 

$

203

 

Laboratory equipment

 

 

9,529

 

 

 

9,425

 

Leasehold improvements

 

 

4,686

 

 

 

4,686

 

Computer equipment

 

 

436

 

 

 

428

 

Computer software

 

 

541

 

 

 

372

 

Construction in process

 

 

1,288

 

 

 

1,322

 

 

 

 

16,683

 

 

 

16,436

 

Less accumulated depreciation

 

 

5,817

 

 

 

4,791

 

 

 

$

10,866

 

 

$

11,645

 

 

Depreciation expense was $1,026 and $596 for the three months ended March 31, 2020 and 2019,  respectively.

6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Prepaid research and development expenses

 

$

1,036

 

 

$

1,290

 

Prepaid expenses and other assets

 

 

3,280

 

 

 

1,488

 

 

 

$

4,316

 

 

$

2,778

 

 

 

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Accrued research and development

 

$

4,427

 

 

$

3,742

 

Accrued compensation

 

 

2,459

 

 

 

3,583

 

Accrued other

 

 

1,621

 

 

 

1,853

 

 

 

$

8,507

 

 

$

9,178

 

 

 

 

8. Stockholders’ Equity

 

On July 30, 2019, the Company issued and sold in a private placement (i) 10,607,525 shares of its common stock at a price per share of $4.65 and (ii) 2,295,699 pre-funded warrants to purchase shares of its common stock at a price per warrant of $4.64.  Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.01 and the pre-funded warrants have no expiration date.  The Company received gross proceeds from the private placement of $59,977, before deducting offering costs of $2,079.

              

No warrants were exercised during the three months ended March 31, 2020 and no warrants were outstanding during the three months ended March 31, 2019.

 

11


 

9. Equity-Based Compensation

In connection with the closing of the Company’s initial public offering, the board of directors and stockholders approved the 2018 Omnibus Incentive Plan, which provides for the reservation of 5,001,000 shares of common stock for equity awards. During the three months ended March 31, 2020 and March 31, 2019, the Company granted options for the purchase of 816,116 and 1,543,421 shares of common stock, respectively. During the three months ended March 31, 2020, the Company granted 957,655 restricted stock units.

The Company recorded equity-based compensation expense related to all of its share-based awards to employees and non-employees in the following captions within its condensed consolidated statements of operations:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

1,239

 

 

$

1,819

 

General and administrative

 

 

1,014

 

 

 

1,681

 

Restructuring

 

 

851

 

 

 

 

Total

 

$

3,104

 

 

$

3,500

 

 

10. Income Taxes

During the three months ended March 31, 2020 and 2019, the Company recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits and orphan drug credits generated in each year due to its uncertainty of realizing a benefit from those items. The Company has provided a valuation allowance for the full amounts of its net deferred tax assets because, at March 31, 2020 and December 31, 2019, it was more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would not be realized.

As of March 31, 2020, and December 31, 2019, the Company had not recorded any amounts for unrecognized tax benefits. The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s C-Corporation tax years beginning with the year ended December 31, 2018 are open under statute. Any tax credit or net operating loss carryforward can be adjusted in future periods after the respective year of generation’s statute of limitation has closed.

 

11. Commitments and Contingencies

Legal Proceedings

 

The Company may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities, including claims or disputes related to patents that have been issued or that are pending in the field of research on which the Company is focused. The Company is not aware of any material claims as of March 31, 2020.

12. Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders were calculated as follows:

The numerator for basic and diluted net loss per share attributable to common stockholders is as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net loss attributable to common stockholders

 

$

(26,694

)

 

$

(29,582

)

 

The denominator is as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Weighted average shares of common stock outstanding,

   basic and diluted

 

$

48,059,279

 

 

$

34,776,488

 

 

12


 

Net loss per share attributable to common stockholders, basic and diluted is as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net loss per share attributable to common stockholders

 

$

(0.56

)

 

$

(0.85

)

 

 

The following potential common stock equivalents, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect for the three months ended March 31:

 

 

 

2020

 

 

2019

 

Options to purchase shares of common stock

 

 

3,099,758

 

 

 

2,681,071

 

Unvested shares of common stock

 

 

219,284

 

 

 

599,426

 

Unvested restricted stock units

 

 

1,011,955

 

 

 

 

 

 

 

4,330,997

 

 

 

3,280,497

 

 

 

13. Restructuring

 

In January 2020, the Company’s board of directors approved a restructuring plan to reduce operating costs and better align the Company’s workforce with the needs of its business following the Company’s November 2019 announcement that the SGT-001 IGNITE DMD trial was placed on clinical hold by the U.S. Food and Drug Administration.

Under the restructuring plan, the Company made changes to its management team and reduced headcount by approximately 30 percent.  Affected employees were eligible to receive severance payments and outplacement services in connection with the restructuring plan. In the three months ended March 31, 2020, the Company recorded aggregate restructuring charges of $1,944 related to severance payments and other employee-related costs. The Company does not expect to incur any additional significant costs associated with this restructuring. During the three months ended March 31, 2020, $963 of the estimated restructuring charges were paid. The Company expects the remaining accrued restructuring costs of $981 will be paid in the next 12 months.

The following table shows the total amount expected to be incurred and the liability related to the 2020 restructuring as of March 31, 2020:

 

 

 

One-Time Employee

Termination Benefits

 

Accrued restructuring costs beginning balance

 

$

-

 

Restructuring charges incurred during the period

 

 

1,944

 

Amounts paid during the period

 

 

(963

)

Accrued restructuring costs as of March 31, 2020

 

$

981

 

 

 

13


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q and our audited financial statements and related notes for the year ended December 31, 2019 included in our annual report filed on Form 10-K on March 12, 2020.

Some of the statements contained in this discussion and analysis or set forth elsewhere in this quarterly report on Form 10-Q, including information with respect to our plans and strategy for our business, constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this quarterly report on Form 10-Q particularly including those risks identified in Part II, Item 1A “Risk Factors” and our other filings with the Securities and Exchange Commission, or the SEC.

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this quarterly report on Form 10-Q. Statements made herein are made as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this quarterly report on Form 10-Q, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.

Overview

Our mission is to cure Duchenne muscular dystrophy, or Duchenne, a genetic muscle-wasting disease predominantly affecting boys, with symptoms that usually manifest between three and five years of age. Duchenne is a progressive, irreversible and ultimately fatal disease that affects approximately one in every 3,500 to 5,000 live male births and has an estimated prevalence of 10,000 to 15,000 cases in the United States alone. Duchenne 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. There is no cure for Duchenne and, for the vast majority of patients, there are no satisfactory symptomatic or disease-modifying treatments. Our efforts are focused on our lead product candidate, SGT-001, a gene transfer candidate under investigation for its ability to drive functional dystrophin protein expression in patients’ muscles and improve the course of the disease. Based on our preclinical program that included multiple animal species of different phenotypes and genetic variations, as well as preliminary biomarker results, we believe that SGT-001, has the potential to slow or even halt the progression of Duchenne, regardless of the type of genetic mutation or stage of the disease. SGT-001 has been granted Rare Pediatric Disease Designation and Fast Track Designation in the United States and Orphan Drug Designations in both the United States and European Union.  The safety and efficacy of SGT-001 are currently being evaluated in a Phase I/II clinical trial called IGNITE DMD, which is currently on clinical hold.

In the fourth quarter of 2017, we initiated IGNITE DMD, a randomized, controlled, open-label, single-ascending dose Phase I/II clinical trial, to evaluate SGT-001 in ambulatory and non-ambulatory males with Duchenne aged four to 17 years. The primary objectives of IGNITE DMD are to assess the safety and tolerability of SGT-001, as well as efficacy as defined by SGT-001 microdystrophin protein expression. The clinical trial is also designed to assess other parameters of muscle function and mass, respiratory and cardiovascular function, serum and muscle biomarkers associated with SGT-001 microdystrophin production, SGT-001 microdystrophin associated biochemical properties (e.g., neuronal nitric oxide synthase, or nNOS, binding) and patient and parent reported outcomes and quality of life measures, among other endpoints.

In February 2019, we announced preliminary findings based on three-month biopsy data from the first three patients dosed with 5E13 vg/kg of SGT-001, the lowest dose outlined in the IGNITE DMD protocol and our intention to dose escalate.

14


 

In May 2019, we announced that two patients were randomized in the second cohort of the IGNITE DMD study, including one patient dosed with 2E14 vg/kg of SGT-001 and another added to the control group.

In August 2019, we announced that we amended the IGNITE DMD clinical trial protocol. The changes to the protocol included adding an upper weight limit of 25 kg for at least the next patient dosed in the second cohort and removing the matched patient control arm for the rest of the second cohort. We also announced that a patient was dosed under this amended protocol.

In November 2019, we announced that the third patient in the 2E14 vg/kg cohort of IGNITE DMD, dosed in late October 2019, experienced a serious adverse event, or SAE, deemed related to the study drug and that IGNITE DMD was placed on clinical hold by the U.S. Food and Drug Administration, or FDA, as a result of the SAE. The SAE was characterized by complement activation, thrombocytopenia, a decrease in red blood cell count, acute kidney injury, and cardio-pulmonary insufficiency. Neither cytokine- nor coagulopathy-related abnormalities were observed. In December 2019, we reported that the SAE had fully resolved and the patient had resumed his normal activities. In April 2020, we submitted a response to the FDA that included changes to the clinical protocol designed to enhance patient safety, as well as information related to improvements to our manufacturing process. The FDA has responded by maintaining the clinical hold and requesting further data and analyses relating to this manufacturing process.  We are in the process of generating these data and expect to submit this information to the FDA before the end of the third quarter of 2020.

In December 2019, we announced preliminary findings based on three-month biopsy data from the first two patients dosed with 2E14 vg/kg of SGT-001. Using two independent immunofluorescence assays, 10% to 20% of microdystrophin positive muscle fibers were determined to express SGT-001 microdystrophin in the fourth patient and 50% to 70% of microdystrophin positive muscle fibers in the fifth patient. Immunofluorescence also showed clear stabilization and co-localization of nNOS and beta-sarcoglycan with SGT-001 microdystrophin in both patients. Using western blot, the expression levels for the fourth patient were detectable and estimated to be near the assay’s level of quantification which is 5% of non-dystrophic control samples, with one assay replicate at 5.5%. Expression for the fifth patient was 17.5% of normal control samples. The levels of serum creatine kinase, a highly variable biochemical marker of muscle damage, declined from baseline in both patients.

In March 2020, we announced data from the third patient dosed in the 2E14 vg/kg dose cohort of IGNITE DMD, including three-month biopsy data. Using immunofluorescence assays, 50% to70% of the muscle fibers were determined to express SGT-001 microdystrophin. Immunofluorescence also showed stabilization and co-localization of nNOS and beta-sarcoglycan with SGT-001 microdystrophin. Using western blot, microdystrophin expression was 8% of normal control samples. In addition, the level of serum creatine kinase decreased from baseline.

In January 2020, we announced a reduction in workforce by approximately one third as part of a strategic plan designed to create a leaner company focused on advancing SGT-001.

Since our inception, we have devoted substantial resources to identifying and developing SGT-001 and other product candidates, developing our manufacturing processes, organizing and staffing our company and providing general and administrative support for these operations. We do not have any products approved for sale. To date, we have not generated any revenue. Our ability to eventually generate any product revenue sufficient to achieve profitability will depend on the successful development, approval and eventual commercialization of SGT-001 and other product candidates. If successfully developed and approved, we intend to commercialize SGT-001 and we may enter into licensing agreements or strategic collaborations in select markets. If we generate product sales or enter into licensing agreements or strategic collaborations, we expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of any product sales, license fees, milestone payments and other payments. If we fail to complete the development of SGT-001 and other product candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

We have never been profitable, and since our inception, we have incurred significant operating losses. Our net losses were $26.7 million and $29.6 million for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, we had an accumulated deficit of $343.0 million. We expect to incur significant expenses and increasing operating losses for the foreseeable future.

As we seek to develop and commercialize SGT-001 and other product candidates, we anticipate that our expenses will increase significantly and that we will need substantial additional funding to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity financings, debt financings or other sources, which may include licensing agreements or strategic collaborations. We may be unable to raise additional funds or enter into such agreements or arrangements when needed on favorable terms, if at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of SGT-001 or other product candidates.

15


 

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or determine when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

 

Since our initial public offering, which we completed on January 30, 2018, we have primarily financed our operations through the sale of common stock. In our initial public offering we sold 8,984,375 shares of our common stock, including shares of common stock issued upon the exercise in full of the underwriters’ over-allotment option, at a public offering price of $16.00 per share, resulting in net proceeds of $129.1 million, after deducting underwriting discounts and commissions and offering expenses.  On July 30, 2019, we issued and sold in a private placement (i) 10,607,525 shares of our common stock at a price per share of $4.65 and (ii) 2,295,699 pre-funded warrants to purchase shares of our common stock at a price per warrant of $4.64. Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.01 and the pre-funded warrants have no expiration date. We received $57.9 million of net proceeds from the private placement after deducting offering costs.

As of March 31, 2020, we had cash, cash equivalents and available-for-sale securities of $53.6 million. We believe that our existing cash, cash equivalents and available-for-sale securities as of March 31, 2020, will enable us to fund our operating expenses and capital expenditure requirements into 2021. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently anticipate.

The ongoing novel coronavirus pandemic, commonly referred to as COVID-19, which began in December 2019, has spread worldwide, causing federal, state, and local governments to implement measure to slow the spread of the outbreak through quarantines, strict travel restriction and bans, heightened border scrutiny and other measure. We are following, and will continue to follow, recommendations from the U.S. Centers for Disease Control and Prevention (CDC) as well as federal, state, and local governments regarding working-from-home practices for non-essential employees. As a result, we have modified our business practices, including implementing a work from home policy for all employees who are able to perform their duties remotely and restricting all nonessential travel, and we expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees, and other business partners in light of COVID-19. The full extent of the impact of COVID-19 on our business, results of operations and financial condition will depend on future developments that are highly uncertain, including the length and severity of this pandemic, the actions taken to contain it or treat its impact and the impact on our clinical development, employees, vendors and suppliers, all of which are uncertain and cannot be predicted. We will continue to monitor the situation closely.

Financial operations overview

Revenue

We have not generated any revenue as we do not have any approved products and do not expect to generate any revenue from the sale of our products for the next few years, if ever. If our development efforts for SGT-001 or other product candidates are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from those collaboration or license agreements.

Operating expenses

Our operating expenses since inception have consisted primarily of research and development activities and general and administrative costs. Personnel costs, including salaries, benefits, bonuses and equity-based compensation expense, comprise a significant component of each of these expense categories. We allocate expenses associated with personnel costs based on the nature of work associated with these resources.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of SGT-001 and other product candidates and include:

 

expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical and clinical activities on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture SGT-001 and other product candidates for use in our preclinical studies and clinical trials;

 

salaries, benefits and other related costs, including equity-based compensation expense, for personnel engaged in research and development functions;

16


 

 

costs of outside consultants, engaged to assist in our research and development activities, including their fees, equity-based compensation and related travel expenses;

 

the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;

 

costs incurred in seeking regulatory approval of SGT-001 and other product candidates;

 

expenses incurred under our intellectual property licenses; and

 

facility-related research and development expenses, which include direct depreciation and rent costs as well as allocated expenses for rent and maintenance of facilities and other operating costs.

We expense research and development expenses as incurred. We recognize costs for certain development activities, such as preclinical research and development, based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financial statements as prepaid or accrued research and development expenses.

We typically use our employee and infrastructure resources across our product candidates. We track outsourced development costs and milestone payments made under our licensing arrangements by product candidates, but we do not allocate personnel costs, license payments made under our licensing arrangements and infrastructure costs, including facilities and lab operations to product candidates on a program-specific basis. These costs are included in unallocated research and development expenses in the table below.

The following table summarizes our research and development expenses by product candidates for the respective periods:

 

 

 

Three Months Ended

March 31,

 

(In thousands)

 

2020

 

 

2019

 

SGT-001

 

$

10,176

 

 

$

11,341

 

Other product candidates

 

 

288

 

 

 

1,459

 

Unallocated research and development expenses

 

 

 

 

 

 

 

 

Personnel related expenses

 

 

5,951

 

 

 

6,832

 

External expenses

 

 

3,250

 

 

 

3,637

 

Total unallocated research and development expenses

 

 

9,201

 

 

 

10,469

 

Total research and development expenses

 

$

19,665

 

 

$

23,269

 

 

We cannot determine with certainty the duration, costs and timing of clinical trials of SGT-001 and other product candidates or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates for which we obtain marketing approval or our other research and development expenses. We may never succeed in obtaining marketing approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

 

the scope, rate of progress, expense and results of any clinical trials of SGT-001 or other product candidates and other research and development activities that we may conduct;

 

the imposition of regulatory restrictions on clinical trials, including full and partial clinical holds, such as the current clinical hold on IGNITE DMD, and the time and activities required to lift any such holds;

 

the impact of the COVID-19 outbreak on our ability to conduct clinical trials of SGT-001 and other product candidates;

 

uncertainties in clinical trial design and patient enrollment or drop out or discontinuation rates;

 

significant and changing government regulation and regulatory guidance;

 

potential additional studies requested by regulatory agencies; and

 

the timing and receipt of any marketing approvals.

Research and development activities are central to our business model. 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 decrease in calendar year 2020 as a result of the organizational changes we announced in January 2020, to create a leaner organization focused on advancing SGT-001.

17


 

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including equity-based compensation, for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include depreciation costs and allocated expenses for rent and maintenance of office facilities and other operating costs.

We expect that our general and administrative expenses will increase in the future as we incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs.

Restructuring charges

In January 2020, we implemented changes to our organizational structure to create a leaner company focused on advancing SGT-001. In connection with the restructuring, we made changes to our management team and reduced headcount by approximately 30 percent.  

 

Other income (expense)

Interest income

Interest income consists of interest income earned on our cash, cash equivalents and available-for-sale securities.

Other income

We have received funding from charitable organizations, which are not considered to be an ongoing major or central part of our business. The amounts received are recorded as other income as services are performed and research expenses are incurred in the condensed consolidated statements of operations.

Income taxes

We account for income taxes using an asset and liability approach. 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. We record valuation allowances to reduce deferred income tax assets to the amount that is more likely than not to be realized. We determine 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.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

During the three months ended March 31, 2020, there were no material changes to our critical accounting policies. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical accounting policies and use of estimates” in our Annual Report on Form 10-K for the year ended December 31, 2019 and the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements

18


 

(unaudited),” of this quarterly report on Form 10-Q. We believe that of our critical accounting policies, the following accounting policies involve the most judgment and complexity:

 

Accrued research and development expenses; and

 

Equity-based compensation.

Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected.

Results of operations

Comparison of the three months ended March 31, 2020 and 2019

The following table summarizes our results of operations for the three months ended March 31, 2020 and 2019:

 

 

 

Three Months Ended

March 31,

 

 

Increase

 

(in thousands)

 

2020

 

 

2019

 

 

(decrease)

 

Revenue

 

$

 

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

19,665

 

 

 

23,269

 

 

 

(3,604

)

General and administrative

 

 

5,250

 

 

 

7,033

 

 

 

(1,783

)

Restructuring charges

 

 

1,944

 

 

 

 

 

 

1,944

 

Total operating expenses

 

 

26,859

 

 

 

30,302

 

 

 

(3,443

)

Loss from operations

 

 

(26,859

)

 

 

(30,302

)

 

 

3,443

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

164

 

 

 

508

 

 

 

(344

)

Other income

 

 

1

 

 

 

212

 

 

 

(211

)

Total other income (expense)

 

 

165

 

 

 

720

 

 

 

(555

)

Net loss

 

$

(26,694

)

 

$

(29,582

)

 

$

2,888

 

 

Research and development expenses

 

 

 

Three Months Ended

March 31,

 

 

Increase

 

(in thousands)