10-Q
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`

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, 2023

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.)

 

 

 

500 Rutherford Avenue, Third Floor

Charlestown, MA

 

02129

(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, a 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 7, 2023, the registrant had 19,601,539 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, 2023 and December 31, 2022

2

Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022

3

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2023 and 2022

4

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022

5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

6

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

PART II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

84

Item 5.

Other Information

84

Item 6.

Exhibits

85

Signatures

86

 

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,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

164,649

 

 

$

155,384

 

Available-for-sale securities

 

 

20,860

 

 

 

58,338

 

Prepaid expenses and other current assets

 

 

5,095

 

 

 

5,916

 

Total current assets

 

 

190,604

 

 

 

219,638

 

Operating lease, right-of-use assets

 

 

28,306

 

 

 

28,949

 

Property and equipment, net

 

 

8,607

 

 

 

9,657

 

Other non-current assets

 

 

238

 

 

 

175

 

Restricted cash

 

 

1,833

 

 

 

1,833

 

Total assets

 

$

229,588

 

 

$

260,252

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,595

 

 

$

3,238

 

Accrued expenses

 

 

12,384

 

 

 

16,691

 

Operating lease liabilities

 

 

1,863

 

 

 

1,897

 

Finance liabilities and finance lease liabilities

 

 

396

 

 

 

668

 

Other current liabilities

 

 

55

 

 

 

14

 

Total current liabilities

 

 

20,293

 

 

 

22,508

 

Operating lease liabilities, excluding current portion

 

 

23,912

 

 

 

24,279

 

Finance liabilities and finance lease liabilities, excluding current portion

 

 

1,596

 

 

 

1,703

 

Other non-current liabilities

 

 

 

 

 

96

 

Total liabilities

 

 

45,801

 

 

 

48,586

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized
   at March 31, 2023 and December 31, 2022;
no shares issued and
   outstanding at March 31, 2023 and December 31, 2022

 

 

 

 

 

Common stock, $0.001 par value; 60,000,000 shares authorized at
   March 31, 2023 and December 31, 2022;
19,573,132 shares
    issued and outstanding at March 31, 2023 and
19,556,732 
   shares issued and outstanding at December 31, 2022

 

 

20

 

 

 

20

 

Additional paid-in capital

 

 

776,570

 

 

 

774,452

 

Accumulated other comprehensive income (loss)

 

 

5

 

 

 

(68

)

Accumulated deficit

 

 

(592,808

)

 

 

(562,738

)

Total stockholders’ equity

 

 

183,787

 

 

 

211,666

 

Total liabilities and stockholders’ equity

 

$

229,588

 

 

$

260,252

 

 

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,

 

 

 

2023

 

 

2022

 

Collaboration revenue - related party

 

$

 

 

$

1,925

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

24,631

 

 

 

19,945

 

General and administrative

 

 

7,399

 

 

 

7,352

 

Total operating expenses

 

 

32,030

 

 

 

27,297

 

Loss from operations

 

 

(32,030

)

 

 

(25,372

)

Other income, net:

 

 

 

 

 

 

Interest income, net

 

 

1,678

 

 

 

54

 

Other income (loss), net

 

 

282

 

 

 

(10

)

Total other income, net

 

 

1,960

 

 

 

44

 

Net loss

 

$

(30,070

)

 

$

(25,328

)

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

 

$

(1.54

)

 

$

(3.37

)

Weighted average shares of common stock outstanding,
   basic and diluted

 

 

19,567,635

 

 

 

7,507,155

 

 

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,

 

 

 

2023

 

 

2022

 

Net loss

 

$

(30,070

)

 

$

(25,328

)

Other comprehensive loss:

 

 

 

 

 

 

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

 

 

73

 

 

 

(6

)

Comprehensive loss

 

$

(29,997

)

 

$

(25,334

)

 

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 data) re

 

 

 

 

For the Three Months Ended March 31, 2023

 

 

 

Common
Stock

 

 

Amount

 

 

Additional
Paid
in Capital

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Accumulated
Deficit

 

 

Total
Stockholders'
Equity

 

Balance at December 31, 2022

 

 

19,556,732

 

 

$

20

 

 

$

774,452

 

 

$

(68

)

 

$

(562,738

)

 

 

211,666

 

Equity-based compensation

 

 

 

 

 

 

 

 

2,118

 

 

 

 

 

 

 

 

 

2,118

 

Vesting of restricted stock units

 

 

16,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale
   securities

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

 

 

 

73

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,070

)

 

 

(30,070

)

Balance at March 31, 2023

 

 

19,573,132

 

 

$

20

 

 

$

776,570

 

 

$

5

 

 

$

(592,808

)

 

$

183,787

 

 

 

 

For the Three Months Ended March 31, 2022

 

 

 

Common
Stock

 

 

Amount

 

 

Additional
Paid
in Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Accumulated
Deficit

 

 

Total
Stockholders'
Equity

 

Balance December 31, 2021

 

 

7,499,905

 

 

$

7

 

 

$

685,006

 

 

$

(45

)

 

$

(476,757

)

 

$

208,211

 

Equity-based compensation

 

 

 

 

 

 

 

 

2,612

 

 

 

 

 

 

 

 

 

2,612

 

Vesting of restricted stock units

 

 

18,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of pre-funded warrants

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

(6

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,328

)

 

 

(25,328

)

Balance at March 31, 2022

 

 

7,518,750

 

 

$

7

 

 

$

687,640

 

 

$

(51

)

 

$

(502,085

)

 

$

185,511

 

 

 

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,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(30,070

)

 

$

(25,328

)

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

 

 

 

 

 

 

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

 

 

(215

)

 

 

371

 

Equity-based compensation expense

 

 

2,118

 

 

 

2,612

 

Depreciation and impairment expense

 

 

1,077

 

 

 

709

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current and non-current assets

 

 

1,261

 

 

 

(3,366

)

Accounts receivable - related party

 

 

 

 

 

96

 

Accounts payable

 

 

2,745

 

 

 

71

 

Accrued expenses and other current and non-current liabilities

 

 

(4,911

)

 

 

(445

)

Deferred revenue- related party, current and non-current

 

 

 

 

 

(1,910

)

Net cash used in operating activities

 

 

(27,995

)

 

 

(27,190

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(506

)

 

 

(184

)

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

 

 

37,766

 

 

 

46,808

 

Purchases of available-for-sale securities

 

 

 

 

 

(8,881

)

Net cash provided in investing activities

 

 

37,260

 

 

 

37,743

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of warrants

 

 

 

 

 

22

 

Net cash provided by financing activities

 

 

 

 

 

22

 

Net increase in cash, cash equivalents and restricted cash

 

 

9,265

 

 

 

10,575

 

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

 

 

157,217

 

 

 

121,206

 

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

 

$

166,482

 

 

$

131,781

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Property and equipment included in accounts payable and accruals

 

$

 

 

$

264

 

 

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 and per share 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 and operated as a Delaware limited liability company 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 and changed its name to Solid Biosciences Inc. (the “Company”). On December 2, 2022, the Company completed its acquisition of AavantiBio, Inc. (“AavantiBio”), a privately held gene therapy company focused on transforming the lives of patients with Friedreich’s ataxia ("FA") and rare cardiomyopathies (the “Acquisition”). Upon the consummation of the Acquisition, the Company acquired AavantiBio’s candidates, AVB-202-TT and AVB-401, as well as additional assets for the treatment of undisclosed cardiac diseases, platform technologies and know-how related thereto. AavantiBio is a wholly owned subsidiary of the Company.

The Company is a life sciences company focused on advancing a portfolio of neuromuscular and cardiac programs, including SGT-003, a differentiated gene therapy candidate, for the treatment of Duchenne muscular dystrophy ("Duchenne"); AVB-202-TT, a gene therapy program for the treatment of FA; AVB-401, a gene therapy program for the treatment of BAG3-mediated dilated cardiomyopathy; and additional assets for the treatment of undisclosed cardiac diseases. The Company aims to be a center of excellence, bringing together those with expertise in science, technology, disease management and care. Patient-focused and founded by those directly impacted by Duchenne, the Company's mandate is to improve the daily lives of patients living with these devastating diseases.

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 preclinical 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 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.

On October 27, 2022, the Company effected a reverse stock split of its outstanding shares of common stock at a ratio of one-for-15 pursuant to a certificate of amendment to its certificate of incorporation filed with the Secretary of State of the State of Delaware. The reverse stock split was reflected on the Nasdaq Stock Market ("Nasdaq") beginning with the opening of trading on October 28, 2022. Pursuant to the reverse stock split, every 15 shares of the Company's issued and outstanding shares of common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share of the common stock. The reverse stock split reduced the authorized number of shares of common stock from 300,000,000 to 20,000,000 and, pursuant to the certificate of amendment, such reduced authorized number of shares of common stock was subsequently multiplied by three, such that following the reverse stock split the Company has 60,000,000 shares of common stock authorized. The reverse stock split affected all issued and outstanding shares of the Company's common stock, and the respective numbers of shares of common stock underlying the Company’s outstanding stock options, outstanding restricted stock units, outstanding warrants and the Company's equity incentive plans were proportionately adjusted. All share and per share amounts of the common stock included in the accompanying condensed consolidated financial statements have been retrospectively adjusted to give effect to the reverse stock split for all periods presented, including reclassifying an amount equal to the reduction in par value to additional paid-in capital.

7


 

Basis of Presentation

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, 2023, 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, follow-on public offering in March 2021 and under its at-the-market sales agreement.

On September 29, 2022, the Company entered into a securities purchase agreement, pursuant to which, on December 2, 2022, the Company issued an aggregate of 10,638,290 shares of the Company’s common stock in a private placement. The private placement closed immediately following the closing of the Acquisition on December 2, 2022. The Company received net proceeds from the private placement of $72,551.

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, 2023, the Company had an accumulated deficit of $592,808. During the three months ended March 31, 2023, the Company incurred a net loss of $30,070 and the Company used $27,995 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 $185,509, excluding restricted cash of $1,833, as of March 31, 2023, will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of issuance of these financial statements. However, the Company has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it. As a result, the Company could deplete its capital resources sooner than it currently expects. The Company expects to finance its future cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances or licensing arrangements. 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, preclinical 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 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, 2022. 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, 2023 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 Annual Report on Form 10-K for the year ended December 31, 2022 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 revenues and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, estimates related to revenue recognition, 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.

8


 

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.

Restricted Cash

The Company held restricted cash of $1,833 in a restricted bank account as a security deposit for a lease of the Company’s facilities as of March 31, 2023 and December 31, 2022. The Company has included restricted cash of $1,833 classified as non-current assets as of March 31, 2023 and December 31, 2022. 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,
2023

 

 

December 31,
2022

 

 

March 31,
2022

 

 

December 31,
2021

 

Cash and cash equivalents as presented on balance sheet

 

$

164,649

 

 

$

155,384

 

 

$

129,711

 

 

$

119,136

 

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

 

 

1,833

 

 

 

1,833

 

 

 

2,070

 

 

 

2,070

 

Cash and cash equivalents and restricted cash as presented on
   cash flow statement

 

$

166,482

 

 

$

157,217

 

 

$

131,781

 

 

$

121,206

 

Leases

In June 2021, the Company entered into a lease with Hood Park LLC (“Landlord”), pursuant to which the Company leases approximately 49,869 square feet of office, laboratory, research and development and manufacturing space located in Charlestown, Massachusetts (“Premises”). The Company relocated its corporate headquarters to the Premises in June 2022. The initial term of the lease commenced in June 2022 when the construction of the lessor assets was substantially completed and continues for a ten-year period, unless earlier terminated. The lease provides the Company with an option to extend the lease for an additional five-year term. The Company and the Landlord were each obligated to undertake certain improvements prior to the commencement of the lease, and significant improvements were completed as of June 2022. The monthly lease payment is approximately $305 with annual escalation of approximately 3%. The lease includes a $10,223 construction allowance. The Company was required to post a customary letter of credit in the amount of $1,833, subject to decrease on a set schedule, as a security deposit pursuant to the lease.

During the year ended December 31, 2022, the Company recorded a failed sales-leaseback transaction related to certain lab equipment. The related financing liabilities are recorded on the Company's consolidated balance sheets within financing labilities. In connection with this transaction, the Company also recorded a cash inflow within financing activities under proceeds from financing liabilities of $2,143.

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 neuromuscular and cardiac diseases. All of the Company’s tangible assets are held in the United States.

Related Parties

In November 2020, the Company entered into a consulting agreement with Danforth Advisors, LLC ("Danforth"), an affiliate of Stephen DiPalma, who previously served as the Company’s interim chief financial officer. Pursuant to the consulting agreement, Danforth provided the Company with the chief financial officer services of Mr. DiPalma, and other services, including financial planning, offering support and accounting services, in exchange for fees payable to Danforth based on hourly rates. The Company has paid Danforth $517 and $235 for the three months ended March 31, 2023 and 2022, respectively. In accordance with the consulting agreement, in November 2020, the Company issued to Danforth a warrant to purchase 2,000 shares of the Company’s common stock at an exercise price per share of $49.35. As of December 31, 2022, the shares had vested in full.

 

9


 

3. Collaborations

Ultragenyx Collaboration

Collaboration Agreement

On October 22, 2020 (the “Effective Date”), the Company entered into the Collaboration Agreement with Ultragenyx to focus on the development and commercialization of new gene therapies for Duchenne. The Company granted Ultragenyx an exclusive worldwide license for any pharmaceutical product that expresses the Company’s proprietary microdystrophin construct from AAV8 and variants thereof in clade E for the treatment of Duchenne and other diseases resulting from the lack of functional dystrophin (the “Licensed Products”). The Company retains exclusive rights to all other uses of its microdystrophin proteins, including under its existing SGT-001 and SGT-003 programs.

The Company has conducted certain research and development activities with respect to the development of the Licensed Products, and concluded such activities as were contemplated under the Collaboration Agreement during the second quarter of 2022, resulting in the recognition of the remaining deferred revenue recorded at the time the Collaboration Agreement was executed, related to the upfront payment received from Ultragenyx. The Company may conduct additional research and development activities in collaboration with Ultragenyx from time to time in the future. Ultragenyx reimbursed the Company for personnel and out-of-pocket costs that the Company incurred in conducting such activities.

In addition, Ultragenyx granted to the Company an exclusive Development Option or Income Share Option (each as defined and described below) exercisable in the Company’s sole discretion one time per Licensed Product. After the date of first achievement of clinical proof of concept, Ultragenyx will provide to the Company a data package with respect to the relevant Licensed Product. The Company will use the data package to determine whether to exercise the corresponding Development Option or Income Share Option with respect to such Licensed Product.

With respect to each Licensed Product for which the Company has not exercised the Development Option or Income Share Option the Company will be entitled to milestone payments of up to $25,000 in the aggregate for each such Licensed Product that achieves specified development milestones and $65,000 in the aggregate for each such Licensed Product that achieves specified regulatory milestones. With respect to each Licensed Product for which the Company has not exercised the Income Share Option, the Company will also be entitled to milestone payments of up to $165,000 in the aggregate for each Licensed Product that achieves specified annual worldwide net sales milestones. For Licensed Products for which the Company has not exercised the Development Option or Income Share Option, Ultragenyx will pay the Company tiered royalties on a Licensed Product-by-Licensed Product and country-by-country basis ranging from a low double-digit percentage to a mid-teens percentage based on Ultragenyx’s annual worldwide net sales of such Licensed Products.

For each Licensed Product for which Ultragenyx decides to initiate a registrational trial in humans, the Company will have the option to fund 30% of the development costs in the United States and European Union for such Licensed Product and forgo the development and regulatory milestones (the “Development Option”) and receive tiered royalties on a Licensed Product-by-Licensed Product and country-by-country basis ranging from a mid-teens percentage to a low twenties percentage based on Ultragenyx’s annual worldwide net sales of each such Licensed Product.

For each Licensed Product for which the Company exercises the Development Option, the Company may also elect to share 30% of the net income and net losses on net sales of such Licensed Product in the United States and European Union (the “Income Share Option”). For Licensed Products for which the Company has exercised the Income Share Option, the Company will not be entitled to milestone payments and Ultragenyx will pay the Company tiered royalties on a Licensed Product-by-Licensed Product and country-by-country basis ranging from a mid-teens percentage to a low twenties percentage based on Ultragenyx’s annual net sales of each such Licensed Product outside of the United States and European Union.

The Company may only exercise an Income Share Option if neither the Company nor any of its affiliates is then developing or commercializing a product that is competitive with the Licensed Product that is subject to such option. If the Company or any of its affiliates subsequently develops or commercializes a product that is competitive with a Licensed Product for which the Company has exercised an Income Share Option, then the Company and Ultragenyx will no longer share the net income and net losses on net sales of such Licensed Product and such Licensed Product will be treated as if the Company had exercised the Development Option with respect to such Licensed Product.

Following the Company’s exercise of the Development Option or Income Share Option with respect to a Licensed Product, the Company also has the right to cease participation in the sharing of development costs and sharing in net income and net losses on net sales, as applicable, for such Licensed Product by written notice to Ultragenyx. Upon such notice, the Company will no longer share in the development costs and net income and net losses on net sales of such Licensed Product, as applicable, and will be eligible to receive payments on milestones achieved after the opt-out for such Licensed Product and royalties at the rates applicable to Licensed Products for which the Company has not exercised the Development Option or Income Share Option, as described above.

10


 

The Collaboration Agreement continues on a country-by-country and Licensed Product-by-Licensed Product basis until the expiration of all payment obligations under the agreement. With respect to any Licensed Product for which the Company has exercised an Income Share Option, the Collaboration Agreement continues until there are no longer sales of such Licensed Product in the United States or Europe. Either party has the right to terminate the agreement if the other party has materially breached in the performance of its obligations under the agreement and such breach has not been cured within the applicable cure period. Ultragenyx may also terminate the Collaboration Agreement in its sole discretion upon 90 days’ prior written notice to the Company.

Stock Purchase Agreement

In connection with the execution of the Collaboration Agreement, Ultragenyx and the Company also entered into a stock purchase agreement (the “Stock Purchase Agreement”) on the Effective Date, pursuant to which the Company issued and sold 521,719 shares of its common stock (the “Shares”) to Ultragenyx at a price of $76.6695 per share for an aggregate purchase price of approximately $40,000. The Stock Purchase Agreement contains customary representations, warranties and covenants of each of the parties thereto. Following the sale of the Shares, Ultragenyx beneficially owned approximately 14.45% of the Company’s outstanding common stock. As of March 31, 2023, Ultragenyx beneficially owned approximately 2.7% of the Company’s outstanding common stock.

Investor Agreement

In connection with the consummation of the transactions contemplated by the Stock Purchase Agreement, the Company and Ultragenyx entered into an Investor Agreement (the “Investor Agreement”) on the Effective Date. Pursuant to the terms of the Investor Agreement, Ultragenyx agreed that, so long as it holds at least 10% of the Company’s outstanding common stock, the Shares will be subject to a voting agreement, such that until the earliest to occur of certain specified events, and subject to specified conditions, Ultragenyx will, and will cause its permitted transferees to, vote in accordance with the recommendation of the Company’s Board of Directors with respect to specified matters.

Accounting Treatment

The Company concluded that the Collaboration Agreement and the Stock Purchase Agreement should be combined and treated as a single arrangement for accounting purposes as the agreements were entered into contemporaneously and in contemplation of one another.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Ultragenyx, is a customer. The Company identified the following promises in the Collaboration Agreement that were evaluated under the scope of ASC 606: (1) an exclusive worldwide license to the Licensed Products; (2) an obligation to perform research and development services; and (3) an obligation to participate in a joint steering committee. The Company assessed the promised goods and services to determine if they are distinct. Based on this assessment, the Company determined that Ultragenyx cannot benefit from the promised goods and services separately from the others as they are highly interrelated and therefore not distinct. Due to the early stage of the Licensed Products, the research and development services could not be performed by another party. The Company’s skill-set, knowledge and expertise are required to conduct the research and development services and the research and development services are expected to involve significant further development of the Licensed Products. Accordingly, the promised goods and services represent one combined performance obligation and the entire transaction price will be allocated to that single combined performance obligation.

The Company determined the transaction price under ASC 606 at the inception of the Collaboration Agreement to be $22,513, which represents the excess proceeds from the equity investment under the Stock Purchase Agreement, when measured at fair value after taking into consideration a discount for lack of marketability, plus the estimated reimbursement of research and development costs, which represents variable consideration. The Company included the estimated reimbursement of research and development costs in the transaction price at the inception of the arrangement because the Company is required to perform research and development services and the contract requires Ultragenyx to reimburse the Company for costs incurred. Also, since the related revenue would be recognized only as the costs are incurred, the Company determined it is not probable that a significant reversal of cumulative revenue would occur. The Company evaluated how much variable consideration related to development and regulatory milestones, and the Company’s potential exercise of its Development Option or Income Share Option per Licensed Product, to include in the transaction price using the most likely amount approach and concluded that no amount should be included in the transaction price due to the high degree of uncertainty and risk associated with these potential payments. The Company also determined that royalties and sales milestones relate solely to the license of intellectual property and are therefore excluded from the transaction price under the sales- or usage-based royalty exception of ASC 606. Revenue related to these royalties and sales milestones will only be recognized when the associated sales occur, and relevant thresholds are met.

11


 

The Company determined that revenue under the Collaboration Agreement should be recognized over time as Ultragenyx simultaneously receives the benefit from the Company as the Company performs under the single performance obligation over time. The Company will recognize revenue for the single performance obligation using a cost-to-cost input method as the Company has concluded it best depicts the research and development and joint steering committee participation services performed. Under this method, the transaction price is recognized over the contract’s entire performance period, using costs incurred relative to total estimated costs to determine the extent of progress towards completion.

During the three months ended March 31, 2023 and March 31, 2022, the Company recognized $0 and $1,925 of related party collaboration revenue, respectively, associated with its collaboration with Ultragenyx related to research and development services performed during the period and the corresponding cost reimbursement receivable.

As of March 31, 2023 and December 31, 2022, there was $0 of deferred revenue related to the Collaboration Agreement. Additionally, as of March 31, 2023 and December 31, 2022, there was $0 of related party collaboration receivables related to reimbursable costs expected to be received from Ultragenyx for research and development services performed.

Costs incurred relating to the Collaboration Agreement consist of internal and external research and development costs, which primarily include salaries and benefits, lab supplies, preclinical research studies, clinical studies, consulting services, and commercial development. These costs are included in research and development expenses in the Company’s condensed consolidated statement of operations during the three months ended March 31, 2023 and three months ended March 31, 2022.

12


 

4. Acquisition

On September 29, 2022, the Company entered into an Agreement and Plan of Merger with AavantiBio. The Acquisition closed on December 2, 2022 and was announced on December 5, 2022. This acquisition allowed the Company to add to its pipeline of assets. The Company acquired AavantiBio for a total purchase price of $9,169, including (i) $1 in cash and (ii) 1,354,258 shares of its common stock, par value $0.001 per share, with a fair value of $9,168 to AavantiBio equityholders. The price per share of the Company’s common stock used in the calculation of the purchase price is based on the closing price of Solid’s common stock on the Nasdaq Global Select Market on December 2, 2022, which was $6.77.

The Acquisition was accounted for as a business combination in which the Company, as the accounting acquirer, recorded the assets acquired and liabilities assumed from AavantiBio at their fair values as of the acquisition date. The Company recognized a gain on the purchase of AavantiBio of $18,236 as the net assets acquired of $27,405 were greater than the purchase price of $9,169. Prior to recognizing the gain, the Company reassessed the measurement and recognition of identifiable assets acquired, and liabilities assumed and concluded that the valuation procedures and resulting measures were appropriate, in all material respects. The Company believes that its ability to negotiate a purchase price lower than the fair market value of the acquired net assets was due to a combination of factors, including the then prevailing market conditions and the uncertain future macroeconomic environment. The Company believes the seller, as a smaller, less well capitalized company, was motivated to complete the transaction under the terms described above as growing economic uncertainty and a rising interest rate environment negatively impacted their ability to raise additional capital.

The Company incurred acquisition related costs of $0 for three months ended March 31, 2023.

The fair value was determined utilizing the fair value hierarchy as described in Note 2 and Note 5 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

The following table summarizes the fair values of the assets acquired and liabilities assumed from AavantiBio at the acquisition date.

 

December 2, 2022

 

Assets

 

 

Current assets:

 

 

Cash and cash equivalents

$

31,524

 

Prepaid expenses and other current assets

 

403

 

Total current assets

 

31,927

 

Operating lease, right-of-use asset

 

1,027

 

Property and equipment

 

2,765

 

Other non-current assets

 

23

 

Total assets

$

35,742

 

Liabilities

 

 

Current liabilities:

 

 

Accounts payable

$

3,575

 

Accrued expenses

 

3,634

 

Operating lease liabilities

 

778

 

Total current liabilities

 

7,987

 

Operating lease liabilities, excluding current portion

 

350

 

Total liabilities

 

8,337

 

Net assets acquired

 

27,405

 

Total consideration paid

 

9,169

 

Gain on acquisition of business

$

18,236

 

For the period from December 3, 2022 to December 31, 2022, AavantiBio's revenue and net loss before taxes included within the consolidated statement of operations subsequent to the closing of the Acquisition was $0 and $6,041, respectively.

13


 

5. 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, 2023
Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

 

$

110,937

 

 

$

 

 

$

110,937

 

Available-for-sale securities

 

 

 

 

 

20,860

 

 

 

 

 

 

20,860

 

 

$

 

 

$

131,797

 

 

$

 

 

$

131,797

 

 

 

 

Fair Value Measurements as of December 31, 2022
Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

 

 

$

69,374

 

 

$

 

 

$

69,374

 

Available-for-sale securities

 

 

 

 

 

58,338

 

 

 

 

 

 

58,338

 

 

 

$

 

 

$

127,712

 

 

$

 

 

$

127,712

 

 

As of March 31, 2023 and December 31, 2022, the fair values of the Company’s cash equivalents and available-for-sale securities were determined using Level 2 inputs. During the three months ended March 31, 2023 and the year ended December 31, 2022, 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.

 

6. Available-for-Sale Securities

As of March 31, 2023, the fair value of available-for-sale securities by type of security was as follows:

 

 

 

March 31, 2023

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gain

 

 

Gross
Unrealized
Loss

 

 

Fair
Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

Treasury bills

 

$

19,989

 

 

$

5

 

 

$

 

 

$

19,994

 

Corporate bond securities

 

 

866

 

 

 

 

 

 

 

 

 

866

 

 

$

20,855

 

 

$

5

 

 

$

 

 

$

20,860

 

 

As of December 31, 2022, the fair value of available-for-sale securities by type of security was as follows:

 

 

 

December 31, 2022

 

 

 

Amortized
Cost