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 and analysis 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 and analysis contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and beliefs. 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 clinical stage genetic medicines company focused on developing transformative therapies for central nervous system, or CNS, disorders with limited or no approved treatment options. Our vision is to finally fulfill the promise of gene therapy by developing groundbreaking therapies that transform the lives of patients with CNS diseases. The field of genetic medicine is rapidly expanding and we believe we have a differentiated approach to developing treatments for CNS disorders that enables us to select and advance product candidates with a higher probability of technical and regulatory success. We have entered into 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 also leverage our close working relationship with Penn’s Orphan Disease Center, or ODC, to develop historical and prospective comparable natural history patient profiles for comparison to participants in interventional trials. Through this collaboration we have assembled a deep portfolio of genetic medicine product candidates, for which we retain global rights, the details of which are outlined in the below table:
* 8 additional CNS pipeline license options; 3 license options were previously exercised, and rights were subsequently returned to the University of Pennsylvania.
† Program includes ongoing natural history study of infantile and juvenile GM1 gangliosidosis patients.
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PBGM01 for the Treatment of GM1
We are currently developing PBGM01, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GLB1 gene encoding β-gal for infantile GM1. Infantile GM1 is the most common and severe form of GM1, in which patients have mutations in the GLB1 gene that results in production of little or no residual β-gal enzyme activity. β-gal is an enzyme that catalyzes the first step in the natural degradation of GM1 ganglioside. Reduced β-gal activity results in the accumulation of toxic levels of GM1 ganglioside in neurons throughout the brain, causing rapidly progressive neurodegeneration, with a life expectancy of two to ten years. Currently, there are no disease-modifying therapies approved for the treatment of GM1. 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 and 24 months. We believe PBGM01 could provide patients with significantly improved outcomes. In preclinical studies we observed meaningful transgene expression in both the CNS and in peripheral organs affected in GM1. We are conducting clinical trials using an intra-cisterna magna, or ICM, method of administration, which involves an injection at the craniocervical junction.
We have an active IND, or Investigational New Drug application, from the U.S. Food and Drug Administration, or FDA, and approved clinical trial authorizations, or CTAs, in multiple countries for PBGM01, and we are actively proceeding with our Imagine-1 Trial, an international, multi-center, open-label, single-arm Phase 1/2 clinical trial of PBGM01 in patients with a diagnosis of early and late infantile GM1.
In March 2021, we dosed the first patient in our Imagine-1 Trial. In the fourth quarter of 2021, we reported initial safety and 30-day biomarker data from the initial cohort of two late onset patients with GM1 treated with the low dose of PBGM01. We also reported interim safety data for the initial cohort that showed PBGM01 was well tolerated with no serious adverse events and no evidence of dorsal root ganglion toxicity. In February 2022 and May 2022, we reported meaningful developmental improvement in assessments, utilizing the Bayley III and Vineland II scales, performed by trained healthcare providers and the patients’ caregivers, respectively, for both patients in the initial cohort. Additionally, we have dosed our first patient in Cohort 2, for late onset infantile GM1 with high dose PBGM01, and completed dosing patients in Cohort 3, for early onset infantile GM1 with low dose PBGM01. Initial biomarker and safety data from Cohort 2 and Cohort 3 are expected to be reported in the second half of 2022.
The FDA has granted Orphan Drug Designation, or ODD, Rare Pediatric Disease Designation, or RPDD, and Fast Track Designation, to PBGM01 for the treatment of GM1. The European Commission has granted Orphan designation for PBGM01.
Through our manufacturing partners, we have manufactured the PBGM01 clinical supply and have established a clinical supply chain to support global clinical trials.
PBFT02 for the Treatment of FTD-GRN
We are currently developing PBFT02, which utilizes an AAV1 capsid to deliver a functional copy of the granulin gene, or GRN, encoding for human progranulin, or PGRN, for the treatment of frontotemporal dementia caused by progranulin deficiency, or FTD-GRN. FTD-GRN is an inheritable form of FTD in which patients have mutations in the GRN gene, causing a deficiency in PGRN. PGRN is a complex and highly conserved protein thought to have multiple roles in cell homeostasis, neurodevelopment, and inflammation. Emerging evidence suggests that PGRN deficiency in FTD and other neurodegenerative disorders may contribute to lysosomal dysfunction. Currently, there are no disease-modifying therapies approved for the treatment of FTD-GRN. Based on findings in preclinical studies, we believe that PBFT02 may provide FTD-GRN patients with significantly improved outcomes. We selected the AAV1 capsid and ICM administration for PBFT02 because this approach led to extensive and robust expression of human PGRN throughout the brain and spinal cord of NHPs, and due to the higher PGRN levels in CSF using AAV1 as compared with other serotypes tested. ICM administration of AAV1 to NHPs resulted in CSF levels of human PGRN in excess of 50-fold higher than those in healthy human subjects’ CSF, and in excess of 5-fold higher than levels achieved in NHPs with AAVhu68 or AAV5.
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We have an active IND from the FDA and approved CTAs in multiple countries for PBFT02, which allows us to proceed with our upliFT-D Trial, an international, multi-center, open-label, single-arm Phase 1/2 clinical trial of PBFT02 in patients with a diagnosis of early symptomatic FTD-GRN.
We expect to dose the first patient in our initial cohort of our upliFT-D Trial in mid-2022.
The FDA has granted ODD and Fast Track Designation to PBFT02 for the treatment of FTD-GRN and the European Commission granted Orphan designation for PBFT02.
Through our manufacturing partners, we have manufactured the PBFT02 clinical supply to support clinical trial initiation.
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 Krabbe disease. Krabbe disease is an autosomal recessive lysosomal storage disease caused by mutations in the GALC gene, which provides instructions for making an enzyme called galactosylceramidase, which breaks down certain fats, including galactosylceramide and psychosine. This results in the accumulation of galactolipids such as psychosine, resulting in widespread death of myelin-producing cells in the CNS and in the peripheral nervous system, or PNS. Without myelin, nerves in the brain and other parts of the body cannot transmit signals properly, leading to the signs and symptoms 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 other critical peripheral organs affected in Krabbe disease patients using our ICM method of administration in combination with our next-generation AAVhu68 capsid.
We have an active IND from the FDA and approved CTAs in multiple countries for PBKR03, which allows us to proceed with our GALax-C Trial, an international, multi-center, open-label, single-arm Phase 1/2 clinical trial of PBKR03 in patients with a diagnosis of infantile Krabbe disease.
In March 2022, we dosed the first patient in our GALax-C Trial. T his patient experienced a grade 4 adverse event of acute communicating hydrocephalus, which is a build-up of the CSF in the brain, twenty-six days after dosing. Health authorities, including the FDA and ex-U.S. regulatory agencies, as well as study investigators, were notified per regulatory requirements. The patient underwent surgery to have a shunt inserted to reduce CSF build-up in the brain. The procedure was well-tolerated, and the patient has been stable post-procedure.
Following an investigation, this adverse event was assessed to be possibly related to either study treatment or study procedures due to the temporal proximity of the adverse event to the administration of treatment. At the time of the adverse event, there was no evidence of inflammation in blood or in cerebrospinal fluid. However, the role of disease progression may also be a factor due to the following findings: 1) hydrocephalus has been reported in the literature in association with Krabbe disease, and 2) baseline imaging showed evidence of changes in the ventricles of the brain that progressed following dosing in this patient.
In addition, preliminary biomarker data in this patient showed rapid normalization of GALC activity and reduction of psychosine in both serum and CSF within 30 days.
The Independent Data Monitoring Committee, or IDMC, recommended continuation of the trial with specified modifications including certain changes to the inclusion/exclusion criteria and additional monitoring post administration. The protocol has been updated and submitted to relevant health authorities and ethics committees. In addition, per study protocol, we have also increased the number of subjects in Cohort 1 from three to four following this adverse event.
We are proceeding with study recruitment, and we expect to report interim safety and biomarker data from a subset of Cohort 1 by the end of 2022.
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The FDA has granted ODD, RPDD, and Fast Track Designation to PKBR03, and the European Commission granted Orphan designation for PBKR03.
Through our manufacturing partners, we have manufactured PBKR03 clinical supply to support clinical trial initiation.
PBML04 for the Treatment of Metachromatic Leukodystrophy
We are developing PBML04, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional arylsulfatase A gene, or ARSA, encoding the ARSA enzyme for Metachromatic Leukodystrophy, or MLD. MLD is a rare, autosomal recessive lysosomal storage disease caused by mutations in the ARSA gene, resulting in little or no functional activity of the ARSA enzyme, which is essential for the degradation of sphingolipid cerebroside-3-sulfate, or sulfatide. Sulfatides are the most abundant sphingolipids in myelin and have important structural and functional roles in the maintenance of myelin. When the ARSA enzyme is lacking, sulfatides accumulate in lysosomal storage deposits in microglia, oligodendrocytes, and Schwann cells, leading to widespread demyelination. Without myelin, nerves in the brain and other parts of the body cannot transmit signals properly, leading to the signs and symptoms of MLD. Accumulation of sulfatides in neurons also leads to further neuronal dysfunction. We believe PBML04 may provide patients with significantly improved outcomes. In preclinical models, treatment with PBML04 led to increases in the expression of ARSA in disease relevant target tissues and in the periphery, reduction in sulfatide accumulation, with corresponding clinical improvements and survival.
In April 2022, we submitted an IND for PBML04 to support clinical development in MLD, a rare, pediatric, lysosomal storage disorder. On May 20, 2022, the FDA cleared our IND application for PBML04, which allows us to proceed with PBML04-001, an international, multi-center, open-label, single-arm clinical trial of PBML04 in patients with a diagnosis of late onset infantile MLD.
As we continue to evaluate our resources and operating expenses, we have made the decision to hold advancement of clinical development activities for the MLD program at this time.
Through our manufacturing partners, we have manufactured PBML04 clinical supply to support clinical trial initiation.
Research Programs
We have two programs in preclinical research stages under our license agreement with Penn: PBAL05 for ALS and an unnamed program for Huntington’s disease. PBAL05 is targeting patients with ALS who have a gain-of-function mutation in the C9orf72 gene. Our unnamed program is for the treatment of Huntington’s disease, a repeat expansion disorder.
In March 2022, we announced plans to prioritize research and development programs to reduce operating expenses and extend our cash runway. We returned our rights to programs in Canavan disease, Charcot-Marie-Tooth Type 2A and Parkinson’s disease to Penn’s GTP for future development. We continue to hold eight additional license options.
Beyond this portfolio, through our research collaboration with GTP, we also have the option to license programs for eight additional new indications in CNS diseases along with rights and licenses to new gene therapy technologies developed by Penn, such as novel capsids, toxicity reduction technologies and delivery and formulation. We also have exploratory research programs with GTP for large indications, initially focused on Alzheimer’s Disease, or AD, and Temporal Lobe Epilepsy, or TLE, which can be expanded to other large CNS diseases upon mutual agreement with GTP.
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
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operations. Historically, we have funded our operations through the sale of convertible preferred stock and public offerings of common stock. Our net loss was $39.5 and $48.4 million for the three months ended June 30, 2022 and 2021, respectively, and $82.4 million and $87.3 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $438.6 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. 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.
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.
In March 2022, we announced a 13 percent reduction in workforce and plans to prioritize research and development programs, as described above, to reduce operating expenses and to extend our cash runway. We have slowed our investment in our pilot plant and therefore, the establishment of a pilot plant will be later than end of 2022.
As of June 30, 2022 , we had cash, cash equivalents and marketable securities of $239.3 million. We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.
COVID-19 Impact
We are continuing to proactively monitor and assess the current coronavirus disease 2019, or COVID-19, global pandemic. Since early March 2020, we have activated a management team task force 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. The safety and well-being of employees, patients and partners is our highest priority.
As we diligently work to activate sites for our clinical programs, we are experiencing some impacts to our site initiation activities related to COVID-19, such as meeting delays with various investigational review bodies or ethics committees that have prioritized COVID-19 related clinical trials and staffing levels at site hospitals. For example, the clinical initiation of our upliFT-D clinical study for PBFT02 and the GALax-C clinical study for PBKR03 were substantially impacted by COVID-19-related issues. Our expected timelines for clinical trials could be further delayed by these impacts.
Financial Operations Overview
License Agreement
University of Pennsylvania
We have a research, collaboration and licensing agreement, as amended, or the Penn Agreement, with Penn, for research and development collaborations and exclusive license rights to patents for certain products and technologies. Under the
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Penn Agreement, we have the obligation to fund certain research relating to the preclinical development of selected products in research programs as well as the new exploratory research program in non-rare and/or non-monogenic (or large) CNS indications, initially AD and TLE. We also fund discovery research conducted by Penn through August 2026 and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery program for products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements. Our discovery research funding commitment is $5.0 million a year for five years, with quarterly payments of $1.3 million through June 2026. Under the Penn Agreement we have eight remaining options available to us to commence additional licensed programs for CNS indications until May 2026. If we were to exercise any of these remaining options, we would owe Penn a non-refundable aggregate fee of $1.0 million, with $0.5 million per product indication paid immediately and another $0.5 million fee owed upon a further developmental milestone. We have the obligation to fund certain research relating to the preclinical development of each licensed program
The Penn Agreement requires that we make payments of up to (i) $16.5 million per product candidate for rare, monogenic disorders in aggregate and (ii) $39.0 million per product candidate in the aggregate arising from the exploratory program for large CNS indications, initially AD and TLE and such other mutually agreed upon large CNS indications. Each payment will be due 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. In addition, we will pay Penn a tiered transaction fee ranging from 1-2% of the net proceeds upon certain change of control events.
The Penn Agreement includes an exploratory research collaboration to identify targets and early product candidates in such large CNS indications. The exploratory research program is focused on discovering targets and novel gene therapy candidates for large CNS diseases, initially focused on AD and TLE, and that can be expanded to other large CNS diseases upon mutual agreement. The initial term of the exploratory research program is 3 years, which term can be extended by mutual agreement. During such term we will have an exclusive right of first negotiation to include additional targets to the exploratory research program in the agreed upon large CNS indications. Under the exploratory research program, we will have the right to further develop and commercialize any gene therapy product candidates specific for those selected targets within AD and TLE (and any future large CNS indications that are mutually agreed upon) that arise from the exploratory research programs on substantially the same terms of the current Penn Agreement.
Collaboration and Manufacturing and Supply Agreements
Catalent
In June 2019, we entered into a collaboration agreement, or the Collaboration Agreement, with Catalent Maryland, Inc., or Catalent. As part of the Collaboration Agreement, we paid Catalent an upfront fee for the commissioning, qualification, validation and equipping of a dedicated clean room suite, or the Clean Room Suite. We will pay an annual fee for five years for the exclusive use of the Clean Room Suite, which commenced in November 2020 upon its validation.
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. The Collaboration Agreement continues to be in effect pursuant to its terms . Under the terms of the Manufacturing and Supply Agreement, Catalent has agreed to manufacture batches of drug product for our gene therapy product candidates at the Clean Room
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Suite provided for in the Collaboration Agreement. There is a minimum annual purchase commitment owed to Catalent for five years beginning in November 2020, subject to certain inflationary adjustments. We have the right to terminate the Manufacturing and Supply Agreement for convenience or other reasons specified in the Manufacturing and Supply Agreement upon prior written notice. If we terminate the Manufacturing and Supply Agreement, we will be obligated to pay an early termination fee to Catalent.
Under both the Collaboration Agreement and the Manufacturing and Supply Agreement, we have an annual minimum commitment of $10.6 million per year owed to Catalent for five years from November 2020, subject to certain inflationary adjustments.
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 research and development;
● expenses 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;
● expenses related to funding research performed by third parties, including pursuant to agreements with clinical research organizations, or 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;
● expenses and 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 facilities costs, including rent, utilities, depreciation and maintenance.
We track outsourced development expenses and other external research and development expenses 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 expenses which are deployed across multiple projects under development.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development expenses than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Given our recent reduction in workforce and prioritization of research and development programs, we expect our research and development expenses to remain consistent or decrease in the near future.
Expenses incurred in obtaining technology licenses are expensed 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 expenses consist primarily of personnel expenses, including salaries, benefits and share-based compensation expense, for employees and consultants in executive, finance, accounting, legal, information
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technology, commercial, quality, regulatory, operations and human resource functions. General and administrative expenses also include corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expenses, legal expenses related to intellectual property and corporate matters, insurance expense, and expenses for accounting and consulting services. Given our recent reduction in workforce and prioritization of operating expenses, we expect our general and administrative expenses to remain consistent or decrease in the near future.
Interest Income, net
Interest income, net consists of interest earned on our cash equivalents and marketable securities, offset by amortization of premium and discount on our marketable securities and fees paid to our external asset manager.
Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table sets forth our results of operations for the three months ended June 30, 2022 and 2021:
Three months ended
June 30,
(in thousands)
2022
2021
Change
Operating expenses:
Research and development
$
26,821
$
33,112
$
(6,291)
Acquired in‑process research and development
—
—
—
General and administrative
12,991
15,422
(2,431)
Loss from operations
(39,812)
(48,534)
8,722
Interest income, net
270
99
171
Net loss
$
(39,542)
$
(48,435)
$
8,893
Research and Development Expenses
Research and development expenses decreased by $6.3 million to $26.8 million for the three months ended June 30, 2022 from $33.1 million for three months ended June 30, 2021. The decrease was primarily due to a decrease of $10.9 million in clinical manufacturing expenses, which relates to the timing of our manufacturing activities. This amount was partially offset by a $1.2 million increase in research and development expenses associated with the Penn Agreement, a $1.6 million increase in facility and other expenses, a $1.6 million increase in clinical operations and professional fee expenses, and a $0.2 million increase in personnel-related and share-based compensation expenses. Personnel-related and share-based compensation expenses for the three months ended June 30, 2021 includes $0.9 million of expenses related to modifications of shared-based compensation awards, compared to no modifications of share-based compensation awards for the three months ended June 30, 2022. Expenses associated with the Penn Agreement will continue to vary from quarter to quarter based on our selection and prioritization of preclinical product candidates, the status of our preclinical pipeline and timing of preclinical work performed.
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We track outsourced development, outsourced personnel expenses and other external research and development costs of specific programs. We do not track our internal research and development expenses 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)
2022
2021
Program Specific Expenses
$
$
GM1
3,449
5,249
FTD‑GRN
3,814
5,589
Krabbe
3,320
4,887
MLD
1,913
3,222
Other Programs and Discovery
2,237
2,276
Unallocated Internal Expenses
Personnel-related (including share-based compensation)
8,366
8,207
Other
3,722
3,682
$
26,821
$
33,112
Acquired In-Process Research and Development Expenses
During both of the three months ended June 30, 2022 and 2021, we incurred no expenses related to the achievement of development milestones.
General and Administrative Expenses
General and administrative expenses decreased by $2.4 million to $13.0 million for the three months ended June 30, 2022 from $15.4 million for three months ended June 30, 2021. The decrease was primarily due to a $2.3 million decrease in personnel-related and share-based compensation expense related to our workforce reduction, which was partially offset by severance expenses incurred in the three months ended June 30, 2022 related to the resignation of our Chief Executive Officer, and a $0.1 million decrease in our professional fees, facilities and other expenses.
Interest Income, net
Interest income, net was $0.3 million and $0.1 million for the three months ended June 30, 2022 and 2021, respectively, and were primarily attributable to interest income earned on cash, cash equivalents and marketable securities, partially offset by realized losses on marketable securities in the three months ended June 30, 2022.
Comparison of the Six Months Ended June 30, 2022 and 2021
The following table sets forth our results of operations for the six months ended June 30, 2022 and 2021:
Six Months Ended
June 30,
(in thousands)
2022
2021
Change
Operating expenses:
Research and development
$
53,034
$
58,082
$
(5,048)
Acquired in‑process research and development
1,500
1,500
—
General and administrative
28,090
27,886
204
Loss from operations
(82,624)
(87,468)
4,844
Interest income, net
271
151
120
Net loss
$
(82,353)
$
(87,317)
$
4,964
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Research and Development Expenses
Research and development expenses decreased by $5.0 million to $53.0 million for the six months ended June 30, 2022 from $58.1 million for six months ended June 30, 2021. The decrease was primarily due to a decrease of $5.7 million in clinical manufacturing expenses, a $4.0 million decrease in research and development expenses associated with the Penn Agreement, and a $1.3 million decrease in personnel-related and share-based compensation. These decreases were partially offset by a $3.2 million increase in clinical operations and professional fees expense and a $2.8 million increase in facility and other expense. Expenses associated with the Penn Agreement will continue to vary from quarter to quarter based on our selection and prioritization of preclinical product candidates, the status of our preclinical pipeline and timing of preclinical work performed.
We track outsourced development, outsourced personnel expenses and other external research and development costs of specific programs. We do not track our internal research and development expenses 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)
2022
2021
Program Specific Expenses
GM1
$
4,658
$
8,772
FTD‑GRN
7,111
6,857
Krabbe
6,006
8,939
MLD
5,668
4,177
Other Programs and Discovery
4,326
6,093
Unallocated Internal Expenses
Personnel-related (including share-based compensation)
18,210
19,481
Other
7,055
3,763
$
53,034
$
58,082
Acquired In-Process Research and Development Expenses
During both of the six months ended June 30, 2022 and 2021, we incurred expenses of $1.5 million related to the achievement of a development milestone.
General and Administrative Expenses
General and administrative expenses increased by $0.2 million to $28.1 million for the six months ended June 30, 2022 from $27.9 million for six months ended June 30, 2021. The increase was primarily due to a $0.8 million increase in personnel-related and share-based compensation expense. Personnel-related and share-based compensation expense includes modifications of share-based compensation and severance related expenses incurred during the six months ended June 30, 2022, which was partially offset by lower personnel-related expenses due to our workforce reduction. This amount was also partially offset by a $0.6 million decrease in professional fees, facility and other expenses.
Interest Income, net
Interest income, net $0.3 million and $0.2 million for the six months ended June 30, 2022 and 2021, respectively, and were primarily attributable to interest income earned on cash, cash equivalents and marketable securities, partially offset by realized losses on marketable securities in the six months ended June 30, 2022
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Liquidity and Capital Resources
Overview
As of June 30, 2022, we had $239.3 million in cash, cash equivalents and marketable securities and had an accumulated deficit of $438.6 million. We expect that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024.
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 expenses 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 expenses of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
● the expenses 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 expenses required to scale up our clinical, regulatory and manufacturing capabilities;
● the expenses 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, existing stockholders’ ownership interests will be diluted, and the terms of these securities may include
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liquidation or other preferences that adversely affect existing stockholders’ rights as common stockholders. 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 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)
2022
2021
Cash used in operating activities
$
(70,794)
$
(55,048)
Cash provided by (used in) investing activities
33,315
(30,654)
Cash provided by financing activities
(357)
166,157
Net increase (decrease) in cash and cash equivalents
$
(37,836)
$
80,455
Net Cash Used in Operating Activities
During the six months ended June 30, 2022, we used $70.8 million of net cash in operating activities. Cash used in operating activities reflected a net loss of $82.4 million and a net increase in our operating assets of $5.5 million, partially offset by non-cash charges of $17.1 million related to share-based compensation, depreciation, amortization of premium and discount, net, and acquired in-process research and development. The primary use of cash was to fund our operations related to the development of our product candidates.
During the six months ended June 30, 2021, we used $55.0 million of net cash in operating activities. Cash used in operating activities reflected a net loss of $87.3 million, which was partially offset by net increase in our operating net liabilities of $9.5 million and non-cash charges of $21.2 million related to share-based compensation, depreciation, amortization of premium and discount, net, and changes in deferred rent. The primary use of cash was to fund our operations related to the development of our product candidates.
Net Cash Used in Investing Activities
During the six months ended June 30, 2022, we purchased $58.8 million in marketable securities, had sales and maturities of $95.3 million in marketable securities, had purchases of property and equipment of $1.6 million, and paid $1.5 million for technology licenses.
During the six months ended June 30, 2021, we purchased $132.1 million in marketable securities, had sales and maturities of $108.3 million in marketable securities, had purchases of property and equipment of $4.8 million, and paid $2.0 million for technology licenses.
Net Cash Provided by (Used in) Financing Activities
During the six months ended June 30, 2022 , we received $49,000 from the exercise of stock options, received $0.2 million in proceeds from the issuance of common stock under the ESPP and paid $0.6 million for short-term insurance premium financing.
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During the six months ended June 30, 2021, we received net proceeds of $165.8 million from the sale of our common stock, received $0.2 million from the exercise of stock options and received $0.5 million in proceeds from the issuance of common stock under the ESPP. We also paid $0.3 million in deferred offering costs.
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.
Critical Accounting Policies and Estimates
During the six months ended June 30, 2022, 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 our 2021 Annual Report filed on Form 10-K.
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 3 to our unaudited 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.
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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.