Dianthus Therapeutics, Inc. /DE/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This Quarterly Report on Form 10-Q of Magenta Therapeutics, Inc. (the “Company”) contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any express or implied statements that do not relate to historical or current facts or matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “seeks,” “endeavor,” “potential,” “continue” or the negative of these terms or other comparable terminology. Forward-looking statements appear in a number of places in this Quarterly Report on Form 10-Q and include, but are not limited to, statements about: • the timing and the success of clinical trials of MGTA-145, MGTA-456 and any other product candidates; • the outcomes of our preclinical studies, including of MGTA-117; • our ability to enroll patients in our clinical trials at the pace that we project; • whether the results of our trials will be sufficient to support domestic or foreign regulatory approvals for MGTA-145, MGTA-456 or any other product candidates we may develop; • our ability to establish clinical programs moving forward in multiple indications, with an advancing portfolio and sustainable platform; • regulatory actions with respect to our product candidates or our competitors’ products and product candidates; • our ability to obtain, including on an expedited basis, and maintain regulatory approval of MGTA-145, MGTA-456 or any other product candidates we may develop; • the level of expenses related to any of our product candidates or clinical development programs; • our expectation that our existing capital resources will be sufficient to enable us to fund our planned development of MGTA-145, MGTA-456 and any other product candidates we may identify and pursue for a given period; • our ability to obtain funding for our operations, including funding necessary to develop and commercialize our product candidates; • the benefits of the use of MGTA-145, MGTA-456 or any other product candidate, if approved; • our ability to successfully commercialize MGTA-145, MGTA-456 or any other product candidates we may identify and pursue, if approved; • our ability to successfully find collaborators for E478 or any of our current and future programs and product candidates; • the rate and degree of market acceptance of MGTA-145, MGTA-456 or any other product candidates we may identify and pursue; • our ability to obtain orphan drug designation for any of our product candidates we may identify and pursue; • our expectations regarding government and third-party payor coverage and reimbursement; • our ability to manufacture MGTA-145, MGTA-456 or any other product candidate in conformity with the U.S. Food and Drug Administration’s requirements and to scale up manufacturing of our product candidates to commercial scale, if approved; • our ability to successfully build a specialty sales force and commercial infrastructure; • our ability to compete with companies currently producing or engaged in the clinical development of treatments for the disease indications that we pursue and treatment modalities that we develop; • our reliance on third parties to conduct our clinical trials; • our reliance on third-party contract manufacturers to manufacture and supply our product candidates for us; • our ability to retain and recruit key personnel; • our ability to obtain and maintain intellectual property protection for MGTA-145, MGTA-456 or any other product candidates we may identify and pursue; 16 Table of Contents • our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing; • our expectations regarding the time during which we will continue to be an emerging growth company or smaller reporting company as defined in federal securities regulations; • our financial performance; and • developments and projections relating to our competitors or our industry. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, and involve known and unknown risks, uncertainties and other factors including without limitation, risks, uncertainties and assumptions regarding the continuing impact of the novel coronavirus, or COVID-19, pandemic on our business, operations, strategy, goals and anticipated timelines, our ongoing and planned preclinical activities, our ability to initiate, enroll, conduct or complete ongoing and planned clinical trials, our timelines for regulatory submissions and our financial position that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You are urged to carefully review the disclosures we make concerning these risks and other factors that may affect our business and operating results under “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q, as well as our other reports filed with the Securities and Exchange Commission, or the SEC, which disclosures are incorporated herein by reference. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so. Overview We are 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. Resetting the immune system through stem cell transplant is a well-established and often curative medical procedure involving a two-step process: (i) removing the disease-causing cells and (ii) replacing them with healthy cells to rebuild the immune system. As it exists today, stem cell transplant is a large market opportunity, but currently only approximately 40 percent of eligible patients receive a stem cell transplant because of the risks and toxicities associated with the transplant procedure. New approaches are needed to extend immune reset to more patients, including drugs to: collect sufficient stem cells to rebuild a healthy immune system, remove disease-causing cells and prevent complications in rebuilding the new immune system. At Magenta, we believe we are uniquely positioned to address these opportunities and to lead a new era in immune reset. Our portfolio of product candidates includes biologics, small molecules and a cell therapy designed as new approaches to extend the curative power of immune reset through transplant to more patients across many diseases. Currently, only a fraction of eligible patients with these diseases receive a transplant because the risks and challenges outweigh the potential for a cure. These include diseases where transplant is a standard of care (e.g., blood cancers such as acute myelogenous leukemia, myelodysplastic syndromes, multiple myeloma, and non-Hodgkin lymphoma), diseases where transplant is performed but limited in use (e.g., hemoglobinopathies such as sickle cell disease and beta-thalassemia) and autoimmune diseases (e.g., multiple sclerosis and systemic sclerosis). Emerging clinical data suggest that immune reset through stem cell transplant may represent a breakthrough approach with curative potential for patients with severe autoimmune diseases. For example, recent results from multiple clinical trials show that patients with autoimmune diseases, including multiple sclerosis and systemic sclerosis, can be cured with a transplant. However, based on our epidemiology analyses, currently only approximately 1 to 2% of eligible patients with these autoimmune diseases in the U.S. and Europe receive a stem cell transplant. We intend to become a fully integrated discovery, development and commercial company in the field of immune reset. We believe that our product portfolio will offer significant commercial synergies. We are developing our products so that they can be used individually or in combination with each other. As a result, our portfolio could be utilized in a manner tailored to the patient’s disease, such that a patient may receive more than one Magenta therapy as part of their individual immune reset journey. To harness the curative power of immune reset through stem cell transplant for more patients, we have created a new stem cell biology discovery platform and are developing a comprehensive portfolio of novel therapeutics. We believe our conditioning, mobilization and cell therapy programs will allow more patients to benefit through a more precise stem cell transplant process. Our conditioning programs, including MGTA-117, our most advanced conditioning program, are designed to selectively remove disease- 17 Table of Contents causing stem and/or immune cells from a patient prior to transplant, and to be far less toxic than the decades-old radiation and chemotherapy-based approaches, which are still the only available options. Within our mobilization program, MGTA-145 is our first-line stem cell mobilization product candidate, and it is designed to enable physicians to more easily collect a greater number of functional blood stem cells, known as hematopoietic stem cells or HSCs, from patients and donors to improve patient outcomes and scale the capacity of transplant and apheresis centers. MGTA-456 is a cell therapy designed to provide a high dose of stem cells that are well-matched to the patient, and it has the potential to allow more patients to have a better chance for a successful stem cell transplant. Our post-transplant complications program is designed to target the donor immune cells within the patient that cause Graft vs. Host Disease, or GvHD, in order to allow safe rebuilding of a healthy immune system. Our goal is to advance our medicines through registration trials and commercialize them. We expect to continue to advance our portfolio and innovate through our sustainable platform. We are experiencing operational and other challenges as a result of the novel coronavirus, or COVID-19, global pandemic, which could delay or halt the development of our product candidates. See “—Recent Developments” and “Item 1A. Risk Factors” for further discussion of the current and expected impact on our business and product candidates. Since our inception in 2015, we have focused substantially all of our efforts and financial resources on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying potential product candidates, and undertaking preclinical studies, and in the case of MGTA-456 and MGTA-145, clinical trials. We do not have any products approved for sale and have not generated any revenue from product sales. In June 2018, we completed an initial public offering, or IPO, of our common stock, pursuant to which we issued and sold 6,666,667 shares of common stock at a public offering price of $15.00 per share, resulting in net proceeds of $89.9 million after deducting underwriting discounts and commissions and other offering expenses. In May 2019, we issued and sold 4,887,500 shares of our 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. In June 2020, we issued and sold 8,625,000 shares of our 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. Prior to our common stock offerings, we funded our operations primarily with proceeds from the sales of redeemable convertible preferred stock and issuance of convertible notes. Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Our net loss was $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, we had an accumulated deficit of $236.3 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect our expenses and capital requirements will increase in connection with our ongoing activities, particularly as we: • initiate and enroll new Phase 2 clinical trials for MGTA-145; • initiate and conduct preclinical studies and clinical trials of our product candidates, including MGTA-117; • develop any other future product candidates we may choose to pursue; • seek marketing approval for any of our product candidates that successfully complete clinical development, if any; • maintain compliance with applicable regulatory requirements; • develop and scale up our capabilities to support our ongoing preclinical activities and clinical trials for our product candidates and commercialization of any of our product candidates for which we obtain marketing approval, if any; • maintain, expand, protect and enforce our intellectual property portfolio; • develop and expand our sales, marketing and distribution capabilities for our product candidates for which we obtain marketing approval, if any; and • expand our operational, financial and management systems and increase personnel, including to support our clinical development and commercialization efforts and our operations as a public company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution. Further, we expect to incur additional costs associated with operating as a public company. 18 Table of Contents As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing and distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or 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 and commercialization of one or more of our product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate 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. As of September 30, 2020, we had cash, cash equivalents and marketable securities of $161.7 million. Based on our updated operating plan, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2022. See “—Liquidity and Capital Resources.” Recent Developments Conditioning Updates MGTA-117 In May 2020, we announced a research and clinical collaboration agreement with AVROBIO, Inc., or AVROBIO, to evaluate the potential utility of MGTA-117 for conditioning patients before they receive one of AVROBIO’s investigational lentiviral gene therapies. In June 2020, we announced a non-exclusive research and clinical collaboration agreement with Beam Therapeutics Inc., or Beam, to evaluate the potential utility of MGTA-117 for conditioning of patients with sickle cell disease and beta-thalassemia receiving Beam’s base editing therapies. CD45-ADC We have identified a lead antibody for this program, and preclinical work on CD45-ADC is progressing in 2020. Mobilization Updates MGTA-145 We recently completed a Phase 1 trial in healthy donors that showed that MGTA-145, in combination with plerixafor, was well tolerated and enabled same-day dosing, mobilization and collection of sufficient functional HSCs for transplant. Based on the results of the Phase 1 trial and subsequent meetings with the U.S. Food and Drug Administration, or FDA, we intend to initiate multiple Phase 2 trials of MGTA-145 to include both allogeneic and autologous transplant settings. There is potential to generate initial Phase 2 data on MGTA-145 in 2020. In May 2020, the FDA’s Office of Orphan Products and Development granted Orphan Drug Designation to MGTA-145 for the mobilization of HSCs to the peripheral blood for collection and subsequent transplant. In June 2020, we announced a clinical collaboration agreement with the National Marrow Donor Program/Be The Match, or NMDP/Be The Match, to evaluate the potential utility of MGTA-145 for mobilizing and collecting HSCs from donors in a single day and then using them for allogeneic transplants in patients. 19 Table of Contents Cell Therapy Updates MGTA-456 In June 2020, we announced that we would discontinue enrollment in our Phase 2 trial in inherited metabolic diseases. This decision was the result of several factors, including enrollment challenges common to rare disease populations, which were heightened as a result of the COVID-19 pandemic; a growing understanding in the transplant field of the current challenges of allogeneic stem cell transplant in patients with non-malignant diseases, including inherited metabolic diseases; and feedback from the FDA on endpoints and clinical trial design for registration. Enrollment in our Phase 2 investigator-initiated trial in patients with blood cancers has been completed. We plan to use these data, when available, to inform a decision regarding future program development in blood cancers. Impact of the COVID-19 Pandemic On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19. The U.S. federal government subsequently issued initial 15-day social distancing guidelines which were in effect through April 30, 2020 as a measure to reduce the escalation of the spread of COVID-19 in the U.S. More than 40 states and certain U.S. territories, including the Commonwealth of Massachusetts where our operations are located, followed suit and instituted quarantines, restrictions on travel, “stay at home” rules, restrictions on types of businesses that may continue to operate and restrictions on the types of construction projects that may continue. As a result, the COVID-19 pandemic has caused significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets. We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of our employees and their families and to reduce the spread of COVID-19 in the Cambridge community. We have established a work-from-home policy for all employees, other than those who are performing or supporting business-critical research and development operations, such as certain members of our laboratory and facilities staff. For those employees, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We have also maintained efficient communication with our partners and clinical sites as the COVID-19 pandemic has progressed. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs. The future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations and financial condition will, however, depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, as well as the effect of any relaxation of current restrictions within the Cambridge community or regions in which our partners and clinical sites are located, and the direct and indirect economic effects of the pandemic and containment measures, among others. See “Item 1A. Risk Factors” for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition. Components of Our Results of Operations Revenue To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. If we enter into license or collaboration agreements for any of our product candidates or intellectual property, we may generate revenue in the future from payments as a result of such license or collaboration agreements. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates. 20 Table of Contents Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include: • employee-related expenses, including salaries and related costs, and stock-based compensation expense, for employees engaged in research and development functions; • expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with contract research organizations, or CROs; • the cost of consultants and contract manufacturing organizations, or CMOs, that manufacture drug products for use in our preclinical studies and clinical trials; • facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies; and • payments made under third-party licensing agreements. We expense research and development costs to operations as incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to consultants, central laboratories, contractors, CMOs and CROs in connection with our preclinical and clinical development activities. We do not allocate employee costs, costs associated with our platform technology or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following: • the continuing impact of the COVID-19 pandemic on our industry, the healthcare system, and our current and future operations; • successful completion of preclinical studies and clinical trials; • receipt and related terms of marketing approvals from applicable regulatory authorities; • raising additional funds necessary to complete clinical development of and commercialize our product candidates; • obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates; • making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of our product candidates; • developing and implementing marketing and reimbursement strategies; • establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in collaboration with others; • acceptance of our products, if and when approved, by patients, the medical community and third-party payors; • effectively competing with other therapies; • obtaining and maintaining third-party coverage and adequate reimbursement; • protecting and enforcing our rights in our intellectual property portfolio; and • maintaining a continued acceptable safety profile of the products following approval. 21 Table of Contents A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates. 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 research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs, and stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs and insurance costs, as well as professional fees for legal, patent, consulting, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased costs associated with continuing to operate as a growing public company. Interest and Other Income, Net Interest and other income, net, consists of interest income and miscellaneous income and expense unrelated to our core operations. Income Taxes Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and orphan drug tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2019, we had net operating loss carryforwards for federal income tax purposes of $75.7 million, of which $17.5 million begin to expire in 2035 and $58.2 million can be carried forward indefinitely. As of December 31, 2019, we had net operating loss carryforwards for state income tax purposes of $78.1 million which begin to expire in 2035. As of December 31, 2019, we also had available research and orphan drug tax credit carryforwards for federal and state income tax purposes of $6.2 million and $1.6 million, respectively, which begin to expire in 2035 and 2030, respectively. Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are 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, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that of our critical accounting policies described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2019, on file with the SEC, the following involve the most judgment and complexity: • accrued research and development expenses; and • stock-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. 22 Table of Contents Results of Operations Comparison of the Three Months Ended September 30, 2020 and 2019 The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019: Three Months Ended September 30, 2020 2019 Change (in thousands) Revenue $ — $ — $ — Operating expenses: Research and development 11,786 16,524 (4,738 ) General and administrative 6,595 6,120 475 Total operating expenses 18,381 22,644 (4,263 ) Loss from operations (18,381 ) (22,644 ) 4,263 Interest and other income, net 703 1,654 (951 ) Net loss $ (17,678 ) $ (20,990 ) $ 3,312 Research and Development Expenses Three Months Ended September 30, 2020 2019 Change (in thousands) Direct research and development expenses by program: Conditioning $ 3,907 $ 5,197 $ (1,290 ) Mobilization 1,029 2,666 (1,637 ) Cell Therapy 417 1,468 (1,051 ) Post-Transplant Complications 19 145 (126 ) Unallocated expenses: Personnel related (including stock-based compensation) 3,704 3,799 (95 ) Consultant (including stock-based compensation) 320 704 (384 ) Facility related and other 2,390 2,545 (155 ) Total research and development expenses $ 11,786 $ 16,524 $ (4,738 ) Expenses related to our conditioning program decreased primarily due to the timing of preclinical costs for manufacturing. The decrease in expenses related to our mobilization program was primarily due to a decrease in clinical trial costs for our MGTA-145 Phase 1 clinical trials which were completed in the first quarter of 2020. Expenses related to our cell therapy program decreased primarily due to lower manufacturing and clinical trial costs following the discontinuance of enrollment in our Phase 2 trial in inherited metabolic diseases in June 2020. The decrease in consultant costs was primarily due to a decrease in stock-based compensation. Consultant costs for the three months ended September 30, 2020 and 2019 included stock-based compensation expense of $0.1 million and $0.5 million, respectively. General and Administrative Expenses Three Months Ended September 30, 2020 2019 Change (in thousands) Personnel related (including stock-based compensation) $ 3,539 $ 3,052 $ 487 Professional and consultant 1,524 1,540 (16 ) Facility related and other 1,532 1,528 4 Total general and administrative expenses $ 6,595 $ 6,120 $ 475 23 Table of Contents The increase in personnel related costs was due primarily to an increase in headcount to support our business. Interest and Other Income, Net The decrease in interest and other income, net was primarily due to a decrease in interest income of $0.8 million resulting from lower interest rates on invested balances. Comparison of the Nine Months Ended September 30, 2020 and 2019 The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019: Nine Months Ended September 30, 2020 2019 Change (in thousands) Revenue $ — $ — $ — Operating expenses: Research and development 38,359 40,494 (2,135 ) General and administrative 21,278 17,838 3,440 Total operating expenses 59,637 58,332 1,305 Loss from operations (59,637 ) (58,332 ) (1,305 ) Interest and other income, net 2,869 4,800 (1,931 ) Net loss $ (56,768 ) $ (53,532 ) $ (3,236 ) Research and Development Expenses Nine Months Ended September 30, 2020 2019 Change (in thousands) Direct research and development expenses by program: Conditioning $ 11,815 $ 10,557 $ 1,258 Mobilization 3,049 5,087 (2,038 ) Cell Therapy 4,016 4,370 (354 ) Post-Transplant Complications 61 646 (585 ) Unallocated expenses: Personnel related (including stock-based compensation) 11,120 10,451 669 Consultant (including stock-based compensation) 960 1,907 (947 ) Facility related and other 7,338 7,476 (138 ) Total research and development expenses $ 38,359 $ 40,494 $ (2,135 ) Expenses related to our conditioning program increased primarily due to higher preclinical costs for manufacturing to support our IND-enabling studies and future clinical trials. The decrease in expenses related to our mobilization program was primarily due to a decrease in clinical trial costs for our MGTA-145 Phase 1 clinical trials which were completed in the first quarter of 2020. Expenses related to our cell therapy program decreased primarily due to lower manufacturing costs to support the investigator-initiated Phase 2 clinical trial of MGTA-456 in patients with blood cancers, which was completed in the second quarter of 2020, and the Phase 2 trial in inherited metabolic diseases, which was discontinued in June 2020, partially offset by increased costs related to manufacturing process development. The decrease in consultant costs was primarily due to a decrease in stock-based compensation. Consultant costs for the nine months ended September 30, 2020 and 2019 included stock-based compensation expense of $0.4 million and $1.3 million, respectively. 24 Table of Contents General and Administrative Expenses Nine Months Ended September 30, 2020 2019 Change (in thousands) Personnel related (including stock-based compensation) $ 11,097 $ 8,921 $ 2,176 Professional and consultant 5,412 4,701 711 Facility related and other 4,769 4,216 553 Total general and administrative expenses $ 21,278 $ 17,838 $ 3,440 The increase in personnel related costs was due primarily to an increase in headcount to support our business and stock-based compensation expenses. Personnel related costs for the nine months ended September 30, 2020 and 2019 included stock-based compensation expense of $4.9 million and $4.1 million, respectively. The increase in professional and consultant costs was primarily due to patent costs. Interest and Other Income, Net The decrease in interest and other income, net was primarily due to a decrease in interest income of $1.8 million resulting from lower interest rates on invested balances. Liquidity and Capital Resources Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. In June 2018, we completed the IPO of our common stock, pursuant to which we issued and sold 6,666,667 shares of common stock at a public offering price of $15.00 per share, resulting in net proceeds of $89.9 million after deducting underwriting discounts and commissions and other offering expenses. In May 2019, we issued and sold 4,887,500 shares of our 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. In June 2020, we issued and sold 8,625,000 shares of our 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 commission and other offering expenses. On August 8, 2019, we filed a shelf registration statement on Form S-3, or Shelf, with the Securities and Exchange Commission, or SEC, which covers the offering, issuance and sale by us of up to an aggregate of $350.0 million of our common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We 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 our common stock from time to time in “at-the-market” offerings under the Shelf, which we refer to as 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. Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2020 2019 (in thousands) Cash used in operating activities $ (50,290 ) $ (41,476 ) Cash provided by investing activities 60,339 7,255 Cash provided by financing activities 66,560 61,383 Net increase in cash, cash equivalents and restricted cash $ 76,609 $ 27,162 Operating Activities During the nine months ended September 30, 2020, operating activities used $50.3 million of cash, primarily resulting from our net loss of $56.8 million and net cash used by changes in our operating assets and liabilities of $2.7 million, partially offset by non- 25 Table of Contents cash charges of $9.2 million. Net cash used by changes in our operating assets and liabilities for the nine months ended September 30, 2020 consisted of a decrease of $4.3 million in accounts payable and accrued expenses and other current liabilities, partially offset by a decrease of $1.6 million in prepaid expenses and other current assets. During the nine months ended September 30, 2019, operating activities used $41.5 million of cash, primarily resulting from our net loss of $53.5 million, partially offset by non-cash charges of $8.4 million and cash provided by changes in our operating assets and liabilities of $3.7 million. Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2019 consisted primarily of a $4.8 million increase in deferred rent and a $0.7 million increase in accounts payable and accrued expenses and other current liabilities, partially offset by an increase of $1.9 million in prepaid expenses and other current assets. Changes in accounts payable, accrued expenses and other current liabilities and prepaid expenses and other current assets in both periods were generally due to growth in our business and the timing of vendor invoicing and payments. Investing Activities During the nine months ended September 30, 2020, net cash provided by investing activities was primarily attributable to net maturities of marketable securities of $60.5 million. During the nine months ended September 30, 2019, net cash provided by investing activities was primarily attributable to net maturities of marketable securities of $10.2 million, partially offset by purchases of property and equipment of $2.9 million, consisting primarily of lab equipment and leasehold improvements. Financing Activities During the nine months ended September 30, 2020, net cash provided by financing activities was $66.6 million, consisting of proceeds from our follow-on public offering, net of underwriting discounts and commissions, of $64.9 million and proceeds from the exercise of stock options of $1.9 million, partially offset by $0.2 million of payments of offering costs. During the nine months ended September 30, 2019, net cash provided by financing activities was $61.4 million, consisting of proceeds from our follow-on public offering, net of underwriting discounts and commissions, of $60.9 million and proceeds from the exercise of stock options of $1.1 million, partially offset by $0.6 million of payments of offering costs. Funding Requirements We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. In addition, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on: • the initiation, progress, timing, costs and results of current and future preclinical studies and clinical trials for our product candidates, including the continuing impact of the COVID-19 pandemic on our operations; • the clinical development plans we establish for these product candidates; • the number and characteristics of product candidates that we develop or may in-license; • the terms of any collaboration agreements we may choose to conclude; • the outcome, timing and cost of meeting and maintaining compliance with regulatory requirements established by the Food and Drug Administration, the European Medical Agency and other comparable foreign regulatory authorities; • the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; • the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us; • the effect of existing or new competing technological and market developments; • the cost and timing of completion of commercial-scale outsourced manufacturing activities; and • the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own. As of September 30, 2020, we had cash, cash equivalents and marketable securities of $161.7 million. We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2022. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with 26 Table of Contents research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including those listed above. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, including sales under our ATM Program, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all. Contractual Obligations and Commitments During the nine months ended September 30, 2020, there were no material changes to our contractual obligations and commitments described in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Recently Issued and Adopted Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.