Dianthus Therapeutics, Inc. /DE/ 10-Q

Item 1. Financial Statements. Magenta Therapeutics, Inc. Consolidated Balance Sheets (In thousands, except share and per share data) (Unaudited) September 30, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 141,680 $ 65,071 Marketable securities 20,052 80,658 Prepaid expenses and other current assets 2,535 4,114 Total current assets 164,267 149,843 Restricted cash 1,780 1,780 Property and equipment, net 8,594 9,891 Total assets $ 174,641 $ 161,514 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 2,389 $ 2,812 Accrued expenses and other current liabilities 7,475 11,303 Total current liabilities 9,864 14,115 Deferred rent 6,211 6,206 Total liabilities 16,075 20,321 Commitments and contingencies (Note 6) Stockholders’ Equity: Preferred stock, $ 0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding — — Common stock, $ 0.001 par value; 150,000,000 shares authorized; 48,325,192 shares and 39,466,254 shares issued and 48,293,469 shares and 39,260,532 shares outstanding as of September 30, 2020 and December 31, 2019, respectively 48 39 Additional paid-in capital 394,742 320,641 Accumulated other comprehensive income 39 8 Accumulated deficit ( 236,263 ) ( 179,495 ) Total stockholders’ equity 158,566 141,193 Total liabilities and stockholders’ equity $ 174,641 $ 161,514 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents Magenta Therapeutics, Inc. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except share and per share data) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue $ — $ — $ — $ — Operating expenses: Research and development 11,786 16,524 38,359 40,494 General and administrative 6,595 6,120 21,278 17,838 Total operating expenses 18,381 22,644 59,637 58,332 Loss from operations ( 18,381 ) ( 22,644 ) ( 59,637 ) ( 58,332 ) Interest and other income, net 703 1,654 2,869 4,800 Net loss $ ( 17,678 ) $ ( 20,990 ) $ ( 56,768 ) $ ( 53,532 ) Net loss per share, basic and diluted $ ( 0.37 ) $ ( 0.54 ) $ ( 1.34 ) $ ( 1.47 ) Weighted average common shares outstanding, basic and diluted 48,255,353 38,824,209 42,431,874 36,322,804 Comprehensive loss: Net loss $ ( 17,678 ) $ ( 20,990 ) $ ( 56,768 ) $ ( 53,532 ) Other comprehensive income (loss): Unrealized gains (losses) on marketable securities ( 114 ) ( 56 ) 31 91 Total other comprehensive income (loss) ( 114 ) ( 56 ) 31 91 Total comprehensive loss $ ( 17,792 ) $ ( 21,046 ) $ ( 56,737 ) $ ( 53,441 ) The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents Magenta Therapeutics, Inc. Consolidated Statements of Stockholders’ Equity (In thousands, except share data) (Unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income (Loss) Deficit Equity Three Months Ended September 30, 2020 Balances at June 30, 2020 48,241,212 $ 48 $ 392,298 $ 153 $ ( 218,585 ) $ 173,914 Vesting of restricted stock 36,522 — — — — — Issuance of common stock upon exercise of stock options 15,735 — 78 — — 78 Stock-based compensation expense — — 2,366 — — 2,366 Unrealized losses on marketable securities — — — ( 114 ) — ( 114 ) Net loss — — — — ( 17,678 ) ( 17,678 ) Balances at September 30, 2020 48,293,469 $ 48 $ 394,742 $ 39 $ ( 236,263 ) $ 158,566 Three Months Ended September 30, 2019 Balances at June 30, 2019 38,710,858 $ 39 $ 314,646 $ 139 $ ( 135,268 ) $ 179,556 Vesting of restricted stock 197,570 — — — — — Issuance of common stock upon exercise of stock options 34,291 — 257 — — 257 Stock-based compensation expense — — 2,762 — — 2,762 Unrealized losses on marketable securities — — — ( 56 ) — ( 56 ) Net loss — — — — ( 20,990 ) ( 20,990 ) Balances at September 30, 2019 38,942,719 $ 39 $ 317,665 $ 83 $ ( 156,258 ) $ 161,529 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents Magenta Therapeutics, Inc. Consolidated Statements of Stockholders’ Equity (Continued) (In thousands, except share data) (Unaudited) Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income (Loss) Deficit Equity Nine Months Ended September 30, 2020 Balances at December 31, 2019 39,260,532 $ 39 $ 320,641 $ 8 $ ( 179,495 ) $ 141,193 Issuance of common stock upon public offering net of underwriting discounts, commissions and offering costs 8,625,000 9 64,554 — — 64,563 Vesting of restricted stock 162,195 — — — — — Issuance of common stock upon exercise of stock options 240,089 — 1,895 — — 1,895 Issuance of common stock under Employee Stock Purchase Plan 5,653 — 42 — — 42 Stock-based compensation expense — — 7,610 — — 7,610 Unrealized gains on marketable securities — — — 31 — 31 Net loss — — — — ( 56,768 ) ( 56,768 ) Balances at September 30, 2020 48,293,469 $ 48 $ 394,742 $ 39 $ ( 236,263 ) $ 158,566 Nine Months Ended September 30, 2019 Balances at December 31, 2018 33,305,033 $ 33 $ 248,349 $ ( 8 ) $ ( 102,726 ) $ 145,648 Issuance of common stock upon public offering net of underwriting discounts, commissions and offering costs 4,887,500 5 60,271 — — 60,276 Vesting of restricted stock 592,849 1 ( 1 ) — — — Issuance of common stock upon exercise of stock options 157,337 — 1,107 — — 1,107 Stock-based compensation expense — — 7,939 — — 7,939 Unrealized gains on marketable securities — — — 91 — 91 Net loss — — — — ( 53,532 ) ( 53,532 ) Balances at September 30, 2019 38,942,719 $ 39 $ 317,665 $ 83 $ ( 156,258 ) $ 161,529 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents Magenta Therapeutics, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine months ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ ( 56,768 ) $ ( 53,532 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 7,610 7,939 Loss on disposal of property and equipment 1 — Depreciation and amortization expense 1,483 1,358 Net amortization (accretion) of premiums (discounts) on marketable securities 111 ( 909 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets 1,579 ( 1,909 ) Accounts payable ( 423 ) ( 629 ) Accrued expenses and other current liabilities ( 3,888 ) 1,377 Deferred rent 5 4,829 Net cash used in operating activities ( 50,290 ) ( 41,476 ) Cash flows from investing activities: Purchases of property and equipment ( 187 ) ( 2,907 ) Purchases of marketable securities ( 4,974 ) ( 94,176 ) Maturities of marketable securities 65,500 104,338 Net cash provided by investing activities 60,339 7,255 Cash flows from financing activities: Proceeds from public offerings, net of underwriting discounts and commissions 64,860 60,874 Payments of public offering costs ( 237 ) ( 598 ) Proceeds from exercise of common stock options 1,895 1,107 Proceeds from issuance of common stock under Employee Stock Purchase Plan 42 — Net cash provided by financing activities 66,560 61,383 Net increase in cash, cash equivalents and restricted cash 76,609 27,162 Cash, cash equivalents and restricted cash at beginning of period 66,851 60,125 Cash, cash equivalents and restricted cash at end of period $ 143,460 $ 87,287 Supplemental disclosure of non-cash investing and financing activities: Offering costs included in accounts payable and accrued expenses $ 60 $ — The accompanying notes are an integral part of these consolidated financial statements. 7 Table of Contents Magenta Therapeutics, Inc. Notes to Consolidated Financial Statements (Unaudited) 1. Nature of the Business and Basis of Presentation Magenta Therapeutics, Inc. (the “Company”) is a clinical-stage biotechnology company developing novel medicines to bring the curative power of immune reset to more patients with autoimmune diseases, blood cancers and genetic diseases. The Company was incorporated under the laws of the State of Delaware in June 2015 as HSCTCo Therapeutics, Inc. In February 2016, the Company changed its name to Magenta Therapeutics, Inc. and in June 2018 the Company completed its initial public offering. 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 key personnel, protection of proprietary technology, compliance with government regulations, the continuing impact of the novel coronavirus (“COVID-19”) pandemic and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. In June 2020, the Company issued and sold 8,625,000 shares of its common stock, including the underwriters’ exercise in full of their option to purchase additional shares of common stock, in a follow-on public offering at a public offering price of $ 8.00 per share, resulting in net proceeds of $ 64.6 million after underwriting discounts and commissions and other offering expenses. In May 2019, the Company issued and sold 4,887,500 shares of its common stock, including the underwriters’ exercise in full of their option to purchase additional shares of common stock, in a follow-on public offering at a public offering price of $ 13.25 per share, resulting in net proceeds of $ 60.3 million after underwriting discounts and commissions and other offering expenses. The Company has a shelf registration statement on Form S-3 (the “Shelf”) on file with the Securities and Exchange Commission (the “SEC”), which covers the offering, issuance and sale of up to an aggregate of $ 350.0 million of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. The Company simultaneously entered into a sales agreement with Cowen and Company, LLC, as sales agent, to provide for the issuance and sale by the Company of up to $ 100.0 million of common stock from time to time in “at-the-market” offerings under the Shelf (the “ATM Program”). The Shelf was declared effective by the SEC on August 19, 2019. As of September 30, 2020, no sales have been made pursuant to the ATM Program. The Company has incurred recurring losses since inception, including net losses of $ 56.8 million and $ 76.8 million for the nine months ended September 30, 2020 and the year ended December 31, 2019, respectively. As of September 30, 2020, the Company had an accumulated deficit of $ 236.3 million. The Company expects to continue to generate operating losses for the foreseeable future. The Company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance date of these consolidated financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to fund its operations. The Company expects its expenses to increase substantially in connection with ongoing activities, particularly as the Company advances its preclinical activities and clinical trials for its product candidates in development. Accordingly, the Company will need to obtain substantial additional funding in connection with continuing operations. If the Company is unable to raise capital when needed, or on attractive terms, it could be forced to delay, reduce or eliminate its research or drug development programs or any future commercialization efforts. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 8 Table of Contents Magenta Therapeutics, Inc. Notes to Consolidated Financial Statements (Unaudited) 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual for research and development expenses and the valuation of stock-based awards. 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 those estimates. Unaudited Interim Financial Information The consolidated balance sheet at December 31, 2019 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited consolidated financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K, on file with SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s consolidated financial position as of September 30, 2020 and consolidated results of operations for the three and nine months ended September 30, 2020 and 2019 and consolidated cash flows for the nine months ended September 30, 2020 and 2019 have been made. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020 or any other interim period. Fair Value Measurements Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. Income Taxes The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available 9 Table of Contents Magenta Therapeutics, Inc. Notes to Consolidated Financial Statements (Unaudited) evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes recognized in its consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For the three and nine months ended September 30, 2020 and 2019, the Company’s only element of other comprehensive income (loss) was unrealized gains (losses) on marketable securities. Net Loss per Share Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options. For periods in which the Company has reported net losses, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their affect is anti-dilutive. The Company reported a net loss for the three and nine months ended September 30, 2020 and 2019. The following potential dilutive securities, presented based on amounts outstanding at each period end, have been excluded from the calculation of diluted net loss per share because including them would have had an anti-dilutive impact: September 30, 2020 2019 Stock options to purchase common stock 5,782,911 4,903,047 Unvested restricted common stock and units 251,723 427,857 Shares of common stock issuable under Employee Stock Purchase Plan 8,213 — 6,042,847 5,330,904 Recently Adopted Accounting Pronouncements In December 2019, the Financing Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 includes several provisions to simplify the accounting for income taxes and removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2020 and for interim periods within those fiscal years. For nonpublic entities and emerging growth companies that choose to take advantage of the extended transition period, the guidance is effective for annual reporting periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for all entities. The Company early adopted ASU 2019-12 prospectively effective January 1, 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 will require lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases will be classified as either operating or finance, 10 Table of Contents Magenta Therapeutics, Inc. Notes to Consolidated Financial Statements (Unaudited) and classification will be based on criteria similar to current lease accounting, but without explicit bright lines. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years. For nonpublic entities and emerging growth companies that choose to take advantage of the extended transition period, the guidance was effective for annual reporting periods beginning after December 15, 2019. In June 2020, the FASB issued ASU No. 2020-05, which further deferred the effective date for nonpublic entities to annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for all entities. ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presented in the financial statements would be prepared under the revised guidance. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) Targeted Improvements , which added an optional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effective adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. The Company expects that the adoption of the new leasing standards will result in the recognition of material right-of-use assets and lease liabilities on the consolidated balance sheets but does not expect it to have a material impact on its results of operations or cash flows. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) . The new standard adjusts the accounting for assets held at amortized costs basis, including marketable securities accounted for as available for sale. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. For nonpublic entities and emerging growth companies that choose to take advantage of the extended transition period, the guidance is effective for annual reporting periods beginning after December 15, 2020. Early adoption is permitted for all entities. In November 2019, the FASB issued ASU No. 2019-10, which deferred the effective date for nonpublic entities to annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not believe the guidance will have a material impact on its consolidated financial statements. 3. Fair Value of Financial Assets As of September 30, 2020, marketable securities by security type consisted of (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value United States treasury notes (due within one year) $ 20,013 $ 39 $ — $ 20,052 Total $ 20,013 $ 39 $ — $ 20,052 As of December 31, 2019, marketable securities by security type consisted of (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value United States treasury notes (due within one year) $ 78,656 $ 25 $ ( 21 ) $ 78,660 Agency bonds (due within one year) 1,994 4 — 1,998 Total $ 80,650 $ 29 $ ( 21 ) $ 80,658 11 Table of Contents Magenta Therapeutics, Inc. Notes to Consolidated Financial Statements (Unaudited) The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands): Fair Value Measurements at September 30, 2020 Using: Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 141,632 $ — $ — $ 141,632 Marketable securities: United States treasury notes — 20,052 — 20,052 Total $ 141,632 $ 20,052 $ — $ 161,684 Fair Value Measurements at December 31, 2019 Using: Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 64,796 $ — $ — $ 64,796 Marketable securities: United States treasury notes — 78,660 — 78,660 Agency bonds — 1,998 — 1,998 Total $ 64,796 $ 80,658 $ — $ 145,454 During the three and nine months ended September 30, 2020 and 2019, there were no transfers between Level 1, Level 2 and Level 3. 4. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): September 30, 2020 December 31, 2019 Accrued external research and development expenses $ 2,783 $ 6,516 Accrued payroll and related expenses 2,992 3,247 Deferred rent, current portion 555 601 Accrued professional fees 810 660 Accrued other 335 279 $ 7,475 $ 11,303 5. Stock-Based Awards 2018 Stock Option and Incentive Plan The Company grants stock-based awards under the Magenta Therapeutics, Inc. 2018 Stock Option and Incentive Plan (the “2018 Plan”). The Company also has outstanding stock options under the Magenta Therapeutics, Inc. 2016 Stock Option and Grant Plan, as amended (the “2016 Plan”), but is no longer granting awards under the 2016 Plan. As of September 30, 2020, 2,623,984 shares of common stock were available for issuance under the 2018 Plan. 2019 Employee Stock Purchase Plan The Magenta Therapeutics, Inc. 2019 Employee Stock Purchase Plan (the “ESPP”) became effective in June 2019. The offering periods begin in December and June of each year. The initial offering period commenced on December 1, 2019 and ended on May 29, 12 Table of Contents Magenta Therapeutics, Inc. Notes to Consolidated Financial Statements (Unaudited) 2020. The purchase price of common stock under the ESPP is equal to 85 % of the lower of the fair market value of the common stock on the offering date or the exercise date. During the nine months ended September 30, 2020, 5,653 shares of common stock were purchased under the ESPP at a purchase price per share of $ 7.51 . As of September 30, 2020, 160,872 shares remained available for issuance under the ESPP. Grant of Stock Options During the nine months ended September 30, 2020, the Company granted options to certain employees, directors and consultants with service-based vesting conditions for the purchase of 2,084,796 shares of common stock with a weighted average grant date fair value of $ 7.62 per share. Grant of Restricted Stock Units During the nine months ended September 30, 2020, the Company granted 220,000 restricted stock units to certain employees with a weighted average grant date fair value of $ 6.80 per share calculated using the intrinsic value of the stock on the date of grant. Stock-based compensation expense is being recognized over the requisite service period of three years . Stock-Based Compensation Stock-based compensation expense was classified in the statements of operations and comprehensive loss as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Research and development expenses $ 878 $ 1,293 $ 2,680 $ 3,817 General and administrative expenses 1,488 1,469 4,930 4,122 $ 2,366 $ 2,762 $ 7,610 $ 7,939 As of September 30, 2020, total unrecognized compensation expense related to unvested share-based awards was $ 20.8 million, which is expected to be recognized over a weighted average period of 2.5 years. 6. Commitments and Contingencies Leases In May 2018, the Company entered into a sublease for up to approximately 69,000 square feet of office and laboratory space in Cambridge, Massachusetts. The sublease was amended effective March 2019 to increase the lease payments over the lease term and to increase the sublandlord-funded tenant improvements. The sublease is subject and subordinate to a prime lease between the sublandlord and the prime landlord. The term of the sublease commenced in June 2018 and expires in February 2028 . The sublandlord has the right to terminate the sublease after five years . The Company is also obligated to pay real estate taxes and other costs related to the premises, including costs of operations and management of the leased premises. In connection with the sublease, as amended, the sublandlord funded $ 5.2 million in tenant improvements to the leased facility during 2019. The Company is required to maintain a cash balance of $ 1.8 million to secure a letter of credit associated with the sublease. This amount was classified as noncurrent restricted cash in the consolidated balance sheets at September 30, 2020 and December 31, 2019. As of September 30, 2020 and December 31, 2019, the Company had long-term deferred rent of $ 6.2 million for each period related to lease incentives and payment escalations. As of September 30, 2020 and December 31, 2019, the short-term portion of deferred rent of $ 0.6 million for each period was included in accrued expenses and other current liabilities. The Company recorded rent expense of $ 1.5 million during each of the three months ended September 30, 2020 and 2019 and $ 4.6 million during each of the nine months ended September 30, 2020 and 2019. 13 Table of Contents Magenta Therapeutics, Inc. Notes to Consolidated Financial Statements (Unaudited) As of September 30, 2020, the future minimum lease payments due under the noncancelable operating lease is as follows (in thousands): Remainder of 2020 (three months) $ 1,475 2021 6,072 2022 6,375 2023 6,734 2024 7,100 Thereafter 24,899 $ 52,655 In the fourth quarter of 2018, the Company entered into two two -year sub-subleases of approximately 27,000 square feet of office space in Cambridge, Massachusetts which were both set to expire in the fourth quarter of 2020. In the third quarter of 2020, the Company amended each of the sub-subleases to extend the ir expiration s to July 2021 and April 2022, respectively. As of September 30, 2020, the remaining rent payments due to the Company under the amended sub-subleases was $ 2.9 million. The Company recorded other income of $ 0.6 million and $ 0.7 million, respectively, during the three months ended September 30, 2020 and 2019 and $ 2.0 million and $ 2.1 million, respectively, during the nine months ended September 30, 2020 and 2019 related to these sub-subleases. Collaboration Agreement In March 2018, the Company entered into a collaboration agreement with Heidelberg Pharma Research GmbH (“HDPR”) whereby the parties agreed to combine the Company’s stem cell platform with proprietary antibodies across up to four exclusive targets with HDPR’s proprietary Antibody Targeted Amanitin Conjugates platform. Under the agreement, the Company may pay upfront technology access fees, research exclusivity fees and payment for research support. Additionally, upon the exercise of certain license rights, the Company may be obligated to pay HDPR development, regulatory and commercial milestone payments of up to $ 83.5 million per target as well as royalties on net sales of products licensed under the agreement. During the three months ended September 30, 2020 and 2019, the Company recorded $ 0.3 million and $ 0.5 million, respectively, of research and development expense related to this agreement for upfront technology access fees, research exclusivity fees and research support. During the nine months ended September 30, 2020 and 2019, the Company recorded $ 0.6 million and $ 0.9 million, respectively, of research and development expense related to this agreement for upfront technology access fees, research exclusivity fees and research support. Intellectual Property Licenses The Company has a license agreement with the President and Fellows of Harvard College (“Harvard”), entered into in November 2016, for an exclusive, worldwide, royalty-bearing license for certain technologies related to conditioning and mobilization. The Company is obligated to pay Harvard maintenance fees of $ 0.1 million annually to reimburse qualified expenses related to the patents. The Company is also obligated to pay milestone payments of up to $ 7.4 million for the first two licensed products upon the achievement of certain development and regulatory milestones and to pay royalties on a product-by-product and country-by-country basis on net sales of products licensed under the agreement. During the three and nine months ended September 30, 2020 and the three months ended September 30, 2019 , the Company did no t incur any expense related to the achievement of these milestones. During the nine months ended September 30, 2019, the Company recorded $ 0.1 million of expense related to the achievement of one of these milestones. The Company has a license agreement with Novartis International Pharmaceutical Ltd. (“Novartis”), entered into in April 2017, to use and develop certain patent rights (the “Novartis License”). Under the Novartis License, the Company was granted an exclusive, worldwide, sublicensable license to research, develop and commercialize certain licensed products that contain Novartis compounds for the expansion of cord blood derived non-gene-edited/-modified hematopoietic stem cells. The Company is obligated to make payments of up to $ 177.0 million upon the achievement of specified clinical and regulatory milestones and up to $ 125.0 million upon the achievement of specified commercial milestones and to pay tiered royalties, on a product-by-product and country-by-country basis, up to a maximum of 20 % on net sales of products licensed under the agreement. As of September 30, 2020, no milestones related to the Novartis License have been met. The Company has agreements with third parties in the normal course of business, under which it can license certain developed technologies. If the Company exercises its rights to license the respective technologies, it may be subject to additional fees and milestone payments. During the three and nine months ended September 30, 2020 and 2019, the Company did no t exercise its rights to the license of certain developed technologies under these agreements. 14 Table of Contents Magenta Therapeutics, Inc. Notes to Consolidated Financial Statements (Unaudited) Indemnification Agreements In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and senior management that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations as of September 30, 2020. Legal Proceedings The Company is not currently a party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses the costs related to its legal proceedings as they are incurred. 7. 401(k) Savings Plan The Company has a 401(k) available for participating employees who meet certain eligibility requirements. Eligible employees may defer a portion of their salary as defined by the plan. Company contributions to the plan may be made at the discretion of the board of directors of the Company. To date, the Company has not made any contributions to the plan. 8. Related Parties National Marrow Donor Program (as successor in interest to Be The Match BioTherapies, LLC) Effective March 2018, the President of Be The Match BioTherapies, LLC became a member of the Company’s board of directors and subsequently was appointed Chief Executive Officer of the National Marrow Donor Program/Be The Match, or NMDP/Be The Match, organization in June 2020. The Company has collaboration agreements with the National Marrow Donor Program (as successor in interest to Be The Match BioTherapies, LLC) and a research agreement with an affiliated organization, Center for International Blood and Marrow Transplant Research. In addition, in June 2020, the Company entered into a clinical collaboration agreement with NMDP/Be The Match to evaluate the potential utility of MGTA-145 for mobilizing and collecting hematopoietic stem cells from donors in a single day and then using them for allogeneic transplants in patients. Under the terms of this agreement, the Company shall fund up to fifty percent of NMDP/Be The Match clinical trial costs and provide the trial drugs which will be included in research and development expense. For the three months ended September 30, 2020 and 2019, the Company recorded expense of $ 0.1 million and less than $ 0.1 million, respectively, related to these agreements. For the nine months ended September 30, 2020 and 2019, the Company recorded expense of $ 0.3 million and $ 0.1 million, respectively, related to these agreements. As of September 30, 2020 and December 31, 2019, amounts on the balance sheet related to these agreements were less than $ 0.1 million and $ 0.2 million, respectively, which amounts were included in accounts payable and accrued expenses and other current liabilities and less than $ 0.1 million as of September 30, 2020 and December 31, 2019, which amounts were included in prepaid expenses and other current assets. 15 Table of Contents