Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and belief. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below.
Overview and Pipeline
We are a genetic medicines company focused on developing transformative therapies for rare, monogenic central nervous system, or CNS, disorders with limited or no approved treatment options. Our vision is to become the premier genetic medicines company by developing and ultimately commercializing therapies that dramatically and positively transform the lives of patients suffering from these life-threatening disorders. To achieve our vision, we have assembled a world-class team whose members have decades of collective experience in genetic medicines and rare disease drug development and commercialization. The field of genetic medicine is rapidly expanding and we believe we have a differentiated approach to developing treatments for rare, monogenic CNS disorders that enables us to select and advance product candidates with a higher probability of technical and regulatory success. We have a strategic research collaboration with the Trustees of the University of Pennsylvania’s, or Penn’s, Gene Therapy Program, or GTP, headed by Dr. James Wilson, a leader in the genetic medicines field. We leverage our close working relationship with the Orphan Disease Center, or the ODC, at Penn to develop historical and prospective external data for each disease for use in building comparable patient profiles of participants in interventional trials. Through these collaborations we have assembled a deep portfolio of genetic medicine product candidates all of which we retain global rights to, the details of which are outlined in the below table:
(1) Program includes ongoing natural history study of infantile and juvenile GM1 gangliosidosis patients.
19
Table of Contents
PBGM01 for the Treatment of GM1
We are currently developing PBGM01 for the treatment of GM1 gangliosidosis, or GM1, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GLB1 gene encoding lysosomal acid beta-galactosidase, or b -gal, for infantile GM1. Currently, there are no disease-modifying therapies approved for the treatment of GM1. Infantile GM1, the population being studied, is the most severe and common form of the disease. Early onset infantile GM1 is characterized by onset in the first 6 months of life, while late onset infantile GM1 is characterized by onset between 6-24 months. We believe PBGM01 could provide patients with significantly improved outcomes. In preclinical models, we have observed meaningful transduction of both the CNS and critical peripheral organs for GM1 patients using the intra cisterna magna, or ICM, method of administration, which involves an injection at the craniocervical junction.
In June 2020, we submitted our investigational new drug application, or IND, to the U. S. Food and Drug Administration, or FDA, for PBGM01 for the treatment of infantile GM1. In July 2020, the FDA notified us that the IND was placed on clinical hold pending additional biocompatibility risk assessments and/or testing of the proposed ICM delivery device. We are currently evaluating options for conducting additional biocompatibility risk assessments while we await official written feedback from the FDA. While we await the official clinical hold letter from FDA, we are working with external medical device and regulatory experts to evaluate options for additional risk assessment and testing that could be conducted to further demonstrate the compatibility of the device with the ICM injection procedure. Based on our own internal assessment, we are confident that we can respond rapidly to FDA regarding the biocompatibility risk of our ICM delivery device, and that our device will ultimately clear FDA’s biocompatibility requirements.
During the IND review, we addressed specific clinical and protocol questions raised by the FDA, and the agency confirmed that there are no further clinical information requests. Based on the discussions with FDA, we have changed the design to specifically study early and late infantile patients in separate, smaller cohorts. We will now be enrolling a total of four cohorts of 2 patients each, with separate dose-escalation cohorts for late onset infantile GM1 and early onset infantile GM1. This will test a low dose that exceeds the minimum effective dose, or MED, as determined in our preclinical studies, and a 3-fold greater high dose. The first cohort will be in patients diagnosed with late infantile GM1 with low dose treatment. There will be a 60-day interval between subjects dosed within a cohort to allow review of biomarker and safety data before dosing the next subject. Following the completion of this first cohort and review of safety outcomes, we will simultaneously commence recruitment for both the high dose late infantile GM1 and the low dose early infantile GM1 cohorts. Upon completion of the low dose early infantile cohort, a high dose cohort will be enrolled. Following these dose-escalation cohorts, each patient population will be enrolled into a confirmatory cohort. Patients will be evaluated over two years for safety and efficacy, followed by an additional 36 months of long-term follow up. We have manufactured the PBGM01 clinical supply and have established a global clinical supply chain to support clinical trial initiation.
As a result of the clinical hold, we now expect to initiate a multi-center, open-label, single-arm Phase 1/2 clinical trial of PBGM01 in patients with a diagnosis of early and late infantile GM1 beginning late in 2020 or early in 2021, and we reiterate our guidance to report initial 30-day safety and biomarker data late in the first half of 2021.
We are currently funding a GM1 natural history study being conducted by the ODC to collect prospective data on clinical disease progression in infantile and juvenile GM1. This data will be used to construct natural history patient profiles for use as matched case controls for comparison to the profiles of treated participants in our planned Phase 1/2 clinical trial. In April 2020, the FDA, granted Orphan Drug Designation, or ODD, and in May 2020, the FDA granted Rare Pediatric Disease Designation, RPDD, to PBGM01. These designations represent an important recognition of the dire need for an effective treatment option for those suffering from GM1. The ODD grants us financial incentives to support clinical development and the potential for up to seven years of market exclusivity in the U.S. upon regulatory
20
Table of Contents
approval, while the under the RPDD program, a sponsor who receives approval for a drug or biologic for a “rare pediatric disease” may qualify for a priority review voucher that may be sold or transferred.
PBFT02 for the Treatment of FTD-GRN
We are currently developing PBFT02 for the treatment of frontotemporal dementia, of FTD, which utilizes an AAV1 capsid to deliver to the brain a functional granulin, or GRN , gene encoding progranulin, for the treatment of FTD caused by a deficiency of progranulin, or FTD-GRN. Currently, there are no disease-modifying therapies approved for the treatment of FTD-GRN. We believe PBFT02 may provide patients with significantly improved outcomes. In a non-human primate, or NHP model, we observed superior transduction results of the CNS using our ICM method of administration and an AAV1 capsid compared to other AAV capsids. We expect to submit an IND in the fourth quarter of 2020 and initiate a Phase 1/2 trial in the first half of 2021 and anticipate clinical data to be available in the second half of 2021.
PBKR03 for the Treatment of Krabbe disease
We are currently developing PBKR03, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GALC gene encoding the hydrolytic enzyme galactosylceramidase, for infantile Krabbe disease. Currently, there are no disease-modifying therapies approved for the treatment of Krabbe disease. We believe PBKR03 may provide patients with significantly improved outcomes. In preclinical models, we have observed meaningful transduction of both the CNS and critical peripheral organs for Krabbe patients using our ICM method of administration in combination with our next-generation AAVhu68 capsid. We expect to submit an IND in the fourth quarter of 2020 and initiate a Phase 1/2 trial in the first half of 2021 and anticipate clinical data to be available in the second half of 2021.
Discovery Programs
We have three programs in the discovery or candidate selection stage for which we have exercised our options under our license agreement with Penn: PBML04 for metachromatic leukodystrophy, or MLD, PBAL05 for amyotrophic lateral sclerosis, or ALS, and PBCM06 for Charcot-Marie-Tooth Type 2A, or CMT2A. We also have eleven additional options available to us to license programs for rare, monogenic CNS indications, along with rights and licenses to new gene therapy technologies developed by Penn.
Business Overview
We were incorporated in July 2017 under the laws of the State of Delaware. Since inception, we have devoted substantially all of our resources to acquiring and developing product and technology rights, conducting research and development, organizing and staffing our company, business planning and raising capital. We have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations. Historically, we have funded our operations through the sale of convertible preferred stock and then, in the first quarter of 2020, we closed our IPO and received net proceeds of $227.5 million. Our net loss was $27.2 million and $44.8 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2020, we had an accumulated deficit of $103.4 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. 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 current or future product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.
21
Table of Contents
We will need to raise substantial additional capital 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 plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to secure adequate additional funding, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.
As of June 30, 2020, we had cash and cash equivalents of $353.4 million. We expect our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023.
COVID-19 Impact
We are continuing to proactively monitor and assess the current coronavirus disease 2019, or COVID-19, global pandemic. Since early March we have activated a management team taskforce to assess the potential impact on our business that may result from this rapidly evolving crisis and to avoid any unnecessary potential delays to our programs. At this time, our lead programs and research activities remain on track. The safety and well-being of employees, patients and partners is our highest priority.
Financial Operations Overview
License Agreement
University of Pennsylvania
In May 2020, we entered into an amended and restated research, collaboration and licensing agreement, or the Penn Agreement, with Penn, for research and development collaborations and exclusive license rights to patents for certain products and technologies, which superseded the sponsored research, collaboration and licensing agreement we entered into with Penn in September 2018 . Under the Penn Agreement, we will fund discovery research conducted by Penn for five years, beginning in May 2020, and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery program for Passage Bio products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements. Our funding commitment is $5.0 million a year for five years, with quarterly payments of $1.3 million. Under the Penn Agreement we have eleven options available to us to commence additional licensed programs for rare, monogenic CNS indications until May 2025. If we were to exercise any of these eleven options, we would owe Penn a non-refundable upfront fee of $1.0 million per product indication.
The Penn Agreement requires that we make payments of up to $16.5 million per product candidate in aggregate upon the achievement of specific development milestone events by such licensed product for a first indication, reduced development milestone payments for the second and third indications and no development milestone payments for subsequent indications. In addition, on a product by product basis, we are obligated to make up to $55.0 million in sales milestone payments on each licensed product based on annual sales of the licensed product in excess of defined thresholds.
Upon successful commercialization of a product using the licensed technology, we are obligated to pay to Penn, on a licensed product-by-licensed product and country-by-country basis, tiered royalties (subject to customary reductions) in the mid-single digits on annual worldwide net sales of such licensed product. In addition, we are obligated to pay to Penn a percentage of sublicensing income, ranging from the mid-single digits to low double digits, for sublicenses under the Penn Agreement.
22
Table of Contents
Collaboration and Manufacturing and Supply Agreements
Catalent
We have a collaboration agreement with Catalent Maryland, Inc. or Catalent (formerly Paragon Bioservices, Inc.) , or the Catalent Collaboration Agreement. As part of the Catalent Collaboration Agreement, we paid Catalent an upfront fee for the commissioning, qualification, validation and equipping of a clean room suite. Subject to validation of the clean room suite, which is expected to occur by the end of 2020, we will pay an annual fee for five years for the use of the clean room suite.
In April 2020, we entered into a development services and clinical supply agreement, or the Manufacturing and Supply Agreement, with Catalent to secure clinical scale manufacturing capacity for batches of active pharmaceutical ingredients for our gene therapy product candidates. The Manufacturing and Supply Agreement provides for a term of five years which period may be extended once, at our option, for an additional five year-period. In consideration for the use of the clean room suite, we have agreed to a minimum amount of purchase commitments for each year in the term, subject to adjustments for inflation.
Components of Results of Operations
Research and Development and Acquired In-Process Research and Development
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. These expenses include:
● expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval, including payments to Penn for preclinical development;
● costs incurred in obtaining technology licenses related to technology that has not reached technological feasibility and has no alternative future use;
● personnel expenses, including salaries, benefits and share-based compensation expense for employees engaged in research and development functions;
● costs of funding research performed by third parties, including pursuant to agreements with CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;
● expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials;
● fees paid to consultants who assist with research and development activities;
● expenses related to regulatory activities, including filing fees paid to regulatory agencies; and
● allocated expenses for facility costs, including rent, utilities, depreciation and maintenance.
We track outsourced development costs and other external research and development costs to specific product candidates on a program-by-program basis, such as expenses incurred under our collaboration with Penn, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other costs which are deployed across multiple projects under development.
23
Table of Contents
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 our research and development expenses to increase significantly over the next several years as we increase personnel costs, including share-based compensation, conduct our clinical trials, including later-stage clinical trials, for current and future product candidates and prepare regulatory filings for our product candidates.
Costs incurred in obtaining technology licenses are charged to research and development expense as acquired in-process research and development if the technology licensed has not reached technological feasibility and has no alternative future use.
General and Administrative Expenses
General and administrative expense consists primarily of personnel expenses, including salaries, benefits and share-based compensation expense, for employees and consultants in executive, finance, accounting, legal, and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expense, as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting services.
We expect that our general and administrative expense will increase in the future to support our continued research and development activities, potential commercialization efforts and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of The Nasdaq Stock Market, LLC and the SEC, insurance and investor relations costs. If any of our current or future product candidates obtains U.S. regulatory approval, we expect that we would incur significantly increased expenses associated with building a sales and marketing team.
Change in Fair Value of Future Tranche Right Liability
Our Series A-1 convertible preferred stock issued in September 2018 included a future tranche participation right permitting investors to purchase 22,209,301 shares of Series A-2 convertible preferred stock at a fixed purchase price of $2.15 per share through December 31, 2019. The future tranche right was recorded at fair value using a Black-Scholes option pricing model and was re-measured at each reporting period until the redemption feature was exercised in May 2019, at which time the then estimated fair value was reclassified to convertible preferred stock.
Interest Income
Interest income consists of interest earned on our cash equivalents, which consists of a commercial money market account. We expect our interest income to increase due to our investment of cash received from our IPO.
24
Table of Contents
Results of Operations
Comparison of the Three Months Ended June 30, 2020 and 2019
The following table sets forth our results of operations for the three months ended June 30, 2020 and 2019.
Three months ended
June 30,
(in thousands)
2020
2019
Change
Operating expenses:
Research and development
$
19,902
$
6,299
$
13,603
Acquired in‑process research and development
—
500
(500)
General and administrative
7,402
968
6,434
Loss from operations
(27,304)
(7,767)
19,537
Change in fair value of future tranche right liability
—
(5,659)
5,659
Interest income
132
—
132
Net loss
$
(27,172)
$
(13,426)
$
(13,746)
Research and Development Expenses
Research and development expenses increased by $13.6 million to $19.9 million for the three months ended June 30, 2020 from $6.3 million for the three months ended June 30, 2019. The increase was primarily due to an increase of $4.5 million in research and development costs incurred with Penn in preparation for several IND filings, an increase of $4.0 million in clinical manufacturing costs, a $1.4 million increase in clinical development costs and a $0.5 million increase in consulting expense as we prepare for our clinical trials to begin in the second half of 2020 and early 2021. We also had a $3.1 million increase in personnel-related costs, including share-based compensation, and a $0.1 million increase in facility and other costs due to increases in employee headcount in the research and development function.
We track outsourced development, outsourced personnel costs and other external research and development costs of specific programs. We do not track our internal research and development costs on a program-by-program basis. Research and development expenses are summarized by program in the table below:
Three months ended
June 30,
(in thousands)
2020
2019
GM1
$
5,098
$
908
FTD‑GRN
5,106
2,591
Krabbe
3,903
709
MLD
337
233
ALS
292
153
CMT2A
127
—
Internal costs, including personnel related
5,039
1,705
$
19,902
$
6,299
Acquired In-Process Research and Development Expenses
The Company incurred a license fee with Penn of $0.5 million during the three months ended June 30, 2019.
General and Administrative Expenses
General and administrative expenses increased by $6.4 million to $7.4 million for the three months ended June 30, 2020 from $1.0 million for the three months ended June 30, 2019. The increase was primarily due to a $4.7 million increase in personnel-related and share-based compensation expense due to increases in employee headcount. Our professional fees
25
Table of Contents
and facility costs also increased by $0.7 million and $1.0 million, respectively, as we expanded our operations to support our research and development efforts and incurred more costs associated with operating as a public company.
Change in Fair Value of Future Tranche Right Liability
The change in fair value of our future tranche right liability related to our Series A-1 preferred stock was primarily due to the increase in the estimated fair value of our Series A-2 convertible preferred stock. The future tranche right liability was settled in May 2019.
Interest Income
We recognized interest income of $0.1 million during the three months ended June 30, 2020, primarily due to the investment of cash proceeds from the IPO.
Comparison of the Six Months Ended June 30, 2020 and 2019
The following table sets forth our results of operations for the six months ended June 30, 2020 and 2019.
Six months ended
June 30,
(in thousands)
2020
2019
Change
Operating expenses:
Research and development
$
33,019
$
9,332
$
23,687
Acquired in‑process research and development
—
500
(500)
General and administrative
12,197
2,122
10,075
Loss from operations
(45,216)
(11,954)
33,262
Change in fair value of future tranche right liability
—
(9,141)
9,141
Interest income
459
—
459
Net loss
$
(44,757)
$
(21,095)
$
(23,662)
Research and Development Expenses
Research and development expenses increased by $23.7 million to $33.0 million for the six months ended June 30, 2020 from $9.3 million for the six months ended June 30, 2019. The increase was primarily due to an increase of $9.3 million in research and development costs incurred with Penn in preparation for several IND filings, an increase of $4.9 million in clinical manufacturing costs, a $2.9 million increase in clinical development costs and a $1.0 million increase in consulting expense as we prepare for our clinical trials to begin in the second half of 2020 and early 2021. We also had a $5.4 million increase in personnel-related costs, including share-based compensation, and a $0.2 million increase in facility and other costs due to increases in employee headcount in the research and development function.
26
Table of Contents
We track outsourced development, outsourced personnel costs and other external research and development costs of specific programs. We do not track our internal research and development costs on a program-by-program basis. Research and development expenses are summarized by program in the table below:
Six months ended
June 30,
(in thousands)
2020
2019
GM1
$
7,509
$
1,522
FTD‑GRN
8,563
4,261
Krabbe
6,154
972
MLD
1,227
791
ALS
541
686
CMT2A
338
—
Internal costs, including personnel related
8,687
1,100
$
33,019
$
9,332
Acquired In-Process Research and Development Expenses
The Company incurred a license fee of $0.5 million with Penn during the six months ended June 30, 2019.
General and Administrative Expenses
General and administrative expenses increased by $10.1 million to $12.2 million for the six months ended June 30, 2020 from $2.1 million for the six months ended June 30, 2019. The increase was primarily due to a $6.9 million increase in personnel-related and share-based compensation expense due to increases in employee headcount. Our professional fees also increased by $1.3 million and our insurance and facility costs increased by $1.9 million as we expanded our operations to support our research and development efforts and incurred more costs associated with operating as a public company.
Change in Fair Value of Future Tranche Right Liability
The change in fair value of our future tranche right liability related to our Series A-1 preferred stock was primarily due to the increase in the estimated fair value of our Series A-2 convertible preferred stock. The future tranche right liability was settled in May 2019.
Interest Income
We recognized interest income of $0.5 million during the six months ended June 30, 2020, primarily due to the investment of cash proceeds from the IPO.
Liquidity and Capital Resources
Overview
From inception through December 31, 2019, we funded our operations through the sale of convertible preferred stock, receiving aggregate net proceeds of $222.1 million. Upon the completion of our IPO, we received net proceeds of $227.5 million. As of June 30, 2020, we had $353.4 million in cash and cash equivalents and had an accumulated deficit of $103.4 million. We expect our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023.
27
Table of Contents
Funding Requirements
Our primary use of cash is to fund operating expenses, most significantly research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
● the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
● the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;
● the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
● the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
● our ability to establish additional collaborations on favorable terms, if at all;
● the costs required to scale up our clinical, regulatory and manufacturing capabilities;
● the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and
● revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.
We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your 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 drug 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
28
Table of Contents
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.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated:
Six months ended
June 30,
(in thousands)
2020
2019
Cash used in operating activities
$
(33,566)
$
(10,994)
Cash used in investing activities
(193)
(1,541)
Cash provided by financing activities
228,308
66,463
Net increase in cash and cash equivalents
$
194,549
$
53,928
Net Cash Used in Operating Activities
During the six months ended June 30, 2020, we used $33.6 million of net cash in operating activities. Cash used in operating activities reflected a net loss of $44.8 million. The primary use of cash was to fund our operations related to the development of our product candidates. Cash used in operating activities was partially offset by noncash charges of $6.5 million related to share-based compensation, depreciation, and changes in deferred rent as well as a $4.7 million net increase in our operating assets and liabilities.
During the six months ended June 30, 2019, we used $11.0 million of net cash in operating activities. Cash used in operating activities reflected a net loss of $21.1 million as well as a $0.4 million net decrease in our operating assets and liabilities. Cash used was partially offset by noncash charges of $10.5 million, consisting of $9.1 million for the loss on the change in fair value of our future tranche right liability, $0.5 million related to an acquired in-process research and development charge, $0.3 million in share-based compensation, and a $0.5 million change in our deferred rent balance.
Net Cash Used in Investing Activities
During the six months ended June 30, 2020 and 2019, we used $0.2 million and $1.0 million, respectively, for the purchase of property and equipment. We also acquired an in-process research and development technology license from Penn for $0.5 million during the six months ended June 30, 2019.
Net Cash Provided by Financing Activities
During the six months ended June 30, 2020 and 2019, financing activities provided $228.3 million and $66.3 million, respectively, from the sale of our common stock and convertible preferred stock, respectively. During the six months ended June 30, 2020 and 2019, we received $46,000 and $0.2 million from the exercise of stock options, respectively.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
29
Table of Contents
Critical Accounting Policies and Estimates
During the six months ended June 30, 2020, there were no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Prospectus.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.
We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest of (1) the last day of our first fiscal year (a) in which we have total annual gross revenues of at least $1.07 billion, or (b) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30 th , (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period and (3) December 31, 2025.
Recent Accounting Pronouncements
See Note 2 to our interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
30
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.