What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 139 added, 90 removed, 235 unchanged (49% of the section changed)

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Our proprietary platform is designed to utilize our human hematopoietic stem cell derived adeno-associated virus vectors, or AAVHSCs, to precisely and efficiently deliver single administration genetic medicines in vivo either through gene therapy or nuclease-free gene editing across a broad range of genetic disorders.

Our diverse set of AAVHSCs allows us to precisely target, via a single injection, a wide range of disease-relevant tissues, including the liver, central nervous system, or CNS, bone marrow, muscle and eye.

Our diverse set of AAVHSCs allows us to precisely target, via a single injection, a wide range of disease-relevant tissues, including the liver, central nervous system, or CNS, peripheral nervous system, or PNS, bone marrow, muscle and eye.

Our genetic medicines platform is designed to provide us the flexibility to choose the method we believe is best suited from either gene therapy or gene editing for each disease we pursue, based on such factors as the targeted disease biology, the biodistribution of our AAVHSCs to key tissues, and the rate of cell division the tissues exhibit.

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By utilizing the body’s natural mechanism of correcting gene defects, we also avoid the need for exogenous nucleases, or bacteria-derived enzymes used in other gene editing approaches to cut DNA, that are known to significantly increase the risk of unwanted modifications.

We are currently in the dose-escalation portion of our Phase 1/2 pheNIX clinical trial with our first and lead product candidate, HMI-102, a gene therapy for the treatment of phenylketonuria, or PKU.

Once a dose is chosen, we plan to initiate the randomized, concurrently controlled Part B of the trial, which has the potential to be converted to a registrational trial.

In December 2019, in accordance with a corporate goal that we had established in early 2018, we reported encouraging initial clinical data from the pheNIX trial from Cohort 1 (low dose, n=2) and Cohort 2 (mid-dose, n=1) based on the data cutoff date of December 2, 2019.

Preliminary safety data from three subjects in Cohorts 1 and 2 showed HMI-102 was well-tolerated with no treatment-emergent adverse events, or TEAEs, or serious TEAEs, that were related to HMI-102.

Efficacy data from the first patient in Cohort 2 suggested a dose-response effect with an observed reduction in phenylalanine, or Phe, levels from baseline and a corresponding increase in tyrosine, or Tyr, which translated to an overall reduction in the phenylalanine to tyrosine ratio, or Phe/Tyr ratio, suggestive of increased enzymatic activity.

Phe levels have been evaluated as a primary registrable endpoint in previous PKU clinical trials, Tyr is a product of Phe metabolism and a precursor to neurotransmitters, and the Phe/Tyr ratio is a clinically relevant diagnostic measurement for PKU.

Since reporting initial data from the pheNIX trial in December 2019, we enrolled and dosed patients in a third, high-dose cohort.

We have continued to observe encouraging clinical data that suggest PAH enzymatic activity, and no treatment-related serious adverse events have been reported.

Due to delays in enrolling and dosing patients in our pheNIX trial caused by the COVID-19 pandemic, we are extending the timeline for the dose-escalation portion of the trial before selecting a dose for the expansion phase of the trial.

HMI-102 for Treatment of PKU in Adult Patients

In June 2019, we commenced enrollment of our Phase 1/2 pheNIX clinical trial with our first and lead product candidate, HMI-102, a gene therapy for the treatment of adults with phenylketonuria, or PKU.

The pheNIX trial is designed to evaluate the safety and efficacy of HMI-102 in a dose-escalation, randomized, concurrently-controlled study in adult patients with PKU.

During the dose-escalation portion of the trial, we evaluated safety and efficacy and sought to determine a dose to bring forward to the expansion phase.

As of the data cutoff date of October 19, 2020, six patients in the dose-escalation phase of the pheNIX trial had received HMI-102 across three dose cohorts (low-dose Cohort 1, n=2;

mid-dose Cohort 2, n=2;

high-dose Cohort 3, n=2).

Cohorts included males and females, with an age range of 21-49 and time in study ranging from 13 weeks to 52 weeks (end of study).

Safety data from these six patients as of the cutoff date showed HMI-102 was generally well-tolerated, and there were no treatment-related serious adverse events.

There was one serious adverse event of Herpes zoster (shingles) assessed by a principal investigator of the pheNIX trial as not related to treatment with HMI-102.

There were no clinically significant changes in electrocardiogram or vital signs and no clinical signs of complement activation.

In Cohorts 2 and 3, Grade 1 and 3 alanine aminotransferases, or ALTs, (ALT Grades based on Common Terminology Criteria for Adverse Events Version 5), which are common in adeno-associated virus-based gene therapy, were observed and managed with increased steroids when necessary.

Each of the two patients who experienced Grade 3 ALTs had pre-existing underlying immune conditions.

An independent data monitoring committee, which provided guidance throughout the pheNIX clinical trial, supported the conclusion that there were no safety concerns related to bilirubin, and that ALT elevations may be associated with reduced therapeutic activity.

Efficacy data from the two patients in Cohort 1 did not show any meaningful reductions in plasma phenylalanine, or Phe, throughout the study, which they have completed.

We be lieve this first and lowest dose in this dose-escalation study was insufficient to impact Phe levels.

Preliminary data from Cohort 1 (low-dose) in the dose-escalation phase of the pheNIX clinical trial as of the data cutoff date of October 19, 2020.

In Cohort 2, one patient experienced a marked Phe reduction from baseline level of 1,010 μmol/L, and recorded five plasma Phe values <360 μmol/L, and many of <600 μmol/L.

The mean percentage change from baseline for this patient are reported in three categories:

tyrosine, or Tyr, and the Phe/Tyr ratio.

For patients with PKU, the goal for a therapy is to lower Phe values, increase Tyr values and lower the overall Phe/Tyr ratio.

As of the cutoff date, this patient’s mean percentage change from baseline showed a 48.6% reduction in plasma Phe, an 81.1% increase in Tyr and a 70.8% decrease in the Phe/Tyr ratio.

We believe these results are consistent with an increase in phenylalanine hydroxylase enzymatic activity and increased Phe metabolism.

These results were observed even while the patient self-liberalized diet, including a mean percent change from baseline of more than a 100% increase in dietary Phe intake.

The other patient in Cohort 2 did not experience a similar reduction in plasma Phe, but this patient had pre-existing immune conditions and experienced Grade 3 ALT elevation, which we believe may have affected the results.

As of the cutoff date, this patient had a mean percentage change from baseline of 13% increase in plasma Phe, with a 131 .1% increase in Tyr and a 45.5% decrease in the Phe/Tyr ratio.

This also occurred while the patient self-liberalized diet with a mean percent change from baseline of 140.5% more dietary intact protein, 289% more dietary Phe intake and 75.6% decreased dieta ry Tyr intake.

We believe the findings in this patient may be suggestive of phenylalanine hydroxylase enzymatic activity sufficient to increase the patient’s tyrosine concentration from its low baseline, but not sufficient to reduce this patient’s Phe.

Interim data from Cohort 2 (mid-dose) in the dose-escalation phase of the pheNIX clinical trial as of the data cutoff date of October 19, 2020.

In Cohort 3, one patient showed a marked reduction in Phe from baseline level of 1,060 μmol/L, and re corded one plasma Phe value <360 μmol/L and several plasma Phe values <600 μ mol/L through the 13 weeks of observation as of the cutoff date.

The mean percentage change from baseline was a 31.4% reduction in plasma Phe, a 40.3% increase in Tyr and a 52.4% d ecrease in the Phe/Tyr ratio.

These results were observed while the patient self-liberalized diet, including a mean percent change from baseline of more than 45.4% increase in dietary intact protein and a 41.8% increase in dietary Phe.

In contrast, the oth er patient in Cohort 3 did not experience a similar reduction in plasma Phe, but similar to the second patient in Cohort 2, had pre-existing underlying immune conditions and experienced Grade 3 ALT elevation, which we believe may have affected the results.

As of the cutoff date, this patient experienced an increase in the mean percentage change from baseline in Tyr of 22.6% and a reduction in the mean percentage change from baseline in the Phe/Tyr ratio of 25.4%.

We believe the findings in this patient may also be suggestive of phenylalanine hydroxylase enzymatic activity, which was enough to improve Tyr, but not enough to reduce Phe.

Interim data from Cohort 3 (high-dose) in the dose-escalation phase of the pheNIX clinical trial as of the data cutoff date of October 19, 2020.

Based on the safety and efficacy results observed in the dose-escalation phase as of the cutoff date, we intend to advance to the randomized, concurrently controlled, expansion phase of the pheNIX trial in early 2021, which has the potential to be converted to a registrational trial.

We have selected two doses for the expansion phase:

the mid-dose from Cohort 2 and a dose between the doses in Cohorts 2 and 3, which we believe has the potential to improve Phe reductions while reducing overall steroid exposure.

Other Product Candidate Updates

We are in later-stage IND-enabling studies with HMI-202, our lead gene therapy CNS product development candidate for the treatment of metachromatic leukodystrophy, or MLD.

This represents our first CNS program as we are leveraging the ability of our AAVHSCs to cross the blood-brain-barrier as well as the blood-nerve-barrier.

This represents our first CNS program and we have generated preclinical data that demonstrates that a single I.V.

administration of HMI-202 crossed the blood-brain-barrier and blood-nerve-barrier and led to durable reduction of sulfatides in all brain regions of the disease model.

HMI-202 was superior to an AAV9-based MLD gene therapy construct in terms of human ARSA enzyme activity, vector genome copies and biodistribution in the peripheral and central nervous systems of the disease model.

In October 2020, we announced a new in vivo gene therapy development program for the treatment of mucopolysaccharidosis type II (MPS II, or Hunter syndrome).

Development candidate HMI-203 is a potential one-time AAVHSC treatment designed to deliver functional copies of the IDS gene to multiple target organs, including the PNS and CNS, following a single I.V.

administration.

We have initiated IND-enabling studies and scaled the new construct up to 500 liters by leveraging our commercial manufacturing platform.

We are in later-stage IND-enabling studies with HMI-103, our lead gene editing product development candidate for the treatment of PKU in pediatric patients.

We have generated in vivo preclinical data, using quantitative molecular methods, that demonstrates achievement of gene integration efficiencies in the liver that correspond with Phe correction in a PKU murine model, are

significantly greater than other adeno-associa ted virus, or AAV, based approaches and we believe are at a therapeutic level in the preclinical model.

We have generated in vivo preclinical data, using quantitative molecular methods, that demonstrated achievement of gene integration efficiencies in the liver that corresponded with Phe correction in a PKU murine model, are significantly greater than other adeno-associated virus, or AAV, based approaches and we believe are at a therapeutic level in the preclinical model.

These findings were peer-reviewed and published in PLOS ONE in May 2020.

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Together, we are working on advancing this program to development candidate selection.

We have internal process development and Good Manufacturing Practices, or GMP, manufacturing capabilities, including a 25,000 square foot GMP manufacturing facility to support our clinical development programs in both gene therapy and gene editing.

We have a commercial manufacturing process.

We also continue to work with Novartis on identifying new targets for the collaboration based on the exploratory research component of the agreement, which was extended for an additional six months pursuant to an amendment to the agreement executed in October 2020, with such obligations now concluding in May 2021.

We have fully integrated process development and Good Manufacturing Practice, or GMP, manufacturing capabilities that support the full breadth and flexibility of our AAVHSC capsid library.

Our process development expertise covers all classical gene development functions and incorporates deep characterization and understanding of vector design and their consequences.

Our manufacturing process is a versatile system that rapidly delivers high quality vector at scale.

The manufacturing capacity within our 25,000 square foot GMP manufacturing facility includes multi-suite and multi-product capabilities to support our clinical development programs in both gene therapy and gene editing.

Our platform process is a commercial manufacturing process that has successfully produced several of our product candidates.

We are currently operating three 500-liter bioreactors in our internal manufacturing facility and have successfully produced GMP material at the 500-liter scale for multiple pipeline candidates.

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We continue to build on our intellectual property estate through our ongoing product and platform development efforts.

Since our inception in 2015, we have raised approximately $444.2 million in aggregate net proceeds through our initial public offering, or IPO, in April 2018, a follow-on public offering of common stock in April 2019, proceeds from the sale of common stock under an “at-the-market” sales agreement and preferred stock financings.

Since our inception in 2015 through September 30, 2020, we have raised approximately $444.2 million in aggregate net proceeds through our initial public offering, or IPO, in April 2018, a follow-on public offering of common stock in April 2019, proceeds from the sale of common stock under an “at-the-market” sales agreement and preferred stock financings.

We received $50.0 million from Novartis, our collaboration partner, including an up-front payment of $35.0 million and a $15.0 million equity investment.

We will require additional capital in order to advance HMI-102 and our other product candidates through clinical development and commercialization.

We believe that our compelling preclinical data, encouraging initial clinical data with HMI-102, scientific expertise, product development strategy, manufacturing capabilities, and robust intellectual property position us as a leader in the development of genetic medicines.

We believe that our compelling preclinical data, positive clinical data with HMI-102, scientific expertise, product development strategy, manufacturing capabilities, and robust intellectual property position us as a leader in the development of genetic medicines.

On November 9, 2020, we entered into a stock purchase agreement, or the Stock Purchase Agreement, with Pfizer Inc., or Pfizer, pursuant to which Pfizer has agreed to purchase 5,000,000 shares of our common stock through a private placement transaction at a purchase price of $12.00 per share, for an aggregate purchase price of $60.0 million.

Under the Stock Purchase Agreement, Pfizer was granted an exclusive right of first refusal, or ROFR, for a 30-month period beginning on the date of the closing of the private placement to negotiate a potential collaboration on the development and commercialization of HMI-102 and HMI-103.

exercise its right of first refusal under the ROFR one time for each of HMI-102 and HMI-103 during the ROFR period.

Additionally during the ROFR period, Pfizer has the right to designate a member to jo in our Scientific Advisory Board to participate in matters related to the development of these programs.

See “Liquidity and Capital Resources.”

We were incorporated and commenced operations in 2015.

Since our incorporation, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, developing our technology platform, advancing our lead product candidate, HMI-102 for the treatment of PKU, through IND-enabling studies and into a Phase 1/2 clinical trial, advancing HMI-103 and HMI-202 into IND-enabling studies, researching and identifying additional product candidates, developing and implementing manufacturing processes and internal manufacturing capabilities, building out our manufacturing and research and development space, enhancing our intellectual property portfolio, and providing general and administrative support for these operations.

Since our incorporation, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, developing our technology platform, advancing our lead product candidate, HMI-102 for the treatment of PKU, through IND-enabling studies and into a Phase 1/2 clinical trial, advancing HMI-103, HMI-202 and HMI-203 into IND-enabling studies, researching and identifying additional product candidates, developing and implementing manufacturing processes and internal manufacturing capabilities, building out our manufacturing and research and development space, enhancing our intellectual property portfolio, and providing general and administrative support for these operations.

To date, we have financed our operations primarily through the sale of common stock, through the sales of preferred stock, and through funding from our collaboration partner.

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 at all.

We recognized $0.6 million and $1.2 million in collaboration revenue for the three and six months ended June 30, 2020, respectively, and $0.4 million and $0.7 million for the three and six months ended June 30, 2019, respectively.

We recognized $0.6 million and $1.7 million in collaboration revenue for the three and nine months ended September 30, 2020, respectively, and $0.4 million and $1.1 million for the three and nine months ended September 30, 2019, respectively.

Since inception, we have incurred significant operating losses.

Our net losses for the three and six months ended June 30, 2020 were $35.3 million and $70.7 million, respectively.

Our net losses for the three and six months ended June 30, 2019 were $26.3 million and $50.1 million, respectively.

As of June 30, 2020 and December 31, 2019, we had an accumulated deficit of $270.3 million and $199.7 million, respectively.

Our total operating expenses were $36.3 million and $73.3 million for the three and six months ended June 30, 2020, respectively, and $28.4 million and $53.8 million for the three and six months ended June 30, 2019, respectively.

Our operating expenses for the six months ended June 30, 2020 included substantial advance purchases of raw materials procured for future manufacturing needs to mitigate any possible supply chain interruptions as a result of the COVID-19 pandemic.

We expect our operating expenses to continue to increase substantially in connection with our ongoing development activities related to our product candidates.

Specifically, we anticipate that our expenses will increase substantially due to costs associated with our Phase 1/2 pheNIX clinical trial with HMI-102, development activities including IND-enabling studies associated with our other gene therapy and gene editing product candidates, including HMI-202, our gene therapy product candidate for MLD, and HMI-103, our gene editing product candidate for PKU, research activities in additional therapeutic areas to expand our pipeline, hiring additional personnel in manufacturing, research, clinical and regulatory, quality and other functional areas, increased expenses incurred with contract manufacturing organizations, or CMOs, to supply us with product for our clinical studies, costs to manufacture product for preclinical and clinical studies in our internal manufacturing facility and other costs including the maintenance and expansion of our intellectual property portfolio.

In addition, we expect to incur additional costs associated with operating as a public company.

Our net losses for the three and nine months ended September 30, 2020 were $28.2 million and $98.9 million, respectively.

Our net losses for the three and nine months ended September 30, 2019 were $29.6 million and $79.7 million, respectively.

As of September 30, 2020 and December 31, 2019, we had an accumulated deficit of $298.6 million and $199.7 million, respectively.

Our total operating expenses were $28.8 million and $102.2 million for the three and nine months ended September 30, 2020, respectively, and $31.7 million and $85.5 million for the three and nine months ended September 30, 2019, respectively.

Our operating expenses for the nine months ended September 30, 2020 included substantial advance purchases of raw materials procured for future manufacturing needs to mitigate any possible supply chain interruptions as a result of the COVID-19 pandemic.

We expect our operating expenses to continue to increase in connection with our ongoing development activities related to our product candidates.

Specifically, we anticipate that our expenses will increase substantially due to costs associated with our Phase 1/2 pheNIX clinical trial with HMI-102, development activities including IND-enabling studies associated with our other product candidates, including HMI-202, our gene therapy product candidate for MLD, HMI-203, our gene therapy product candidate for Hunter syndrome, and HMI-103, our gene editing product candidate for PKU, research activities in additional therapeutic areas to expand our pipeline, hiring additional personnel in manufacturing, research, clinical and regulatory, quality and other functional areas, increased expenses incurred with contract manufacturing organizations, or CMOs, to supply us with product for our clinical studies, costs to manufacture product for preclinical and clinical studies in our internal manufacturing facility and other costs including the maintenance and expansion of our intellectual property portfolio.

In addition, we expect to continue to incur additional costs associated with operating as a public company.

We have incurred significant capital expenditures for the buildout of a facility we have leased, including research and development labs, office space and manufacturing suites and the procurement of equipment and furniture for this facility and in support of our product development candidates and research initiatives.

We expect to incur additional capital expenditures in 2020 and beyond in support of our research and development activi ties and our manufacturing facility.

We expect to incur additional capital expenditures in support of our research and development activities and our manufacturing facility.

Because of the numerous risks and uncertainties associated with the development of our current and any future product candidates and our platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown, we are unable to predict the timing and amount of increased operating expenses and capital expenditures associated with completing the research and development of our product candidates.

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the costs, timing, and results of our ongoing research and development efforts, including clinical trials, for HMI-102;

the costs, timing, and results of our ongoing research and development efforts for HMI-103 and HMI-202, both of which are in IND-enabling studies;

the costs, timing, and results of our ongoing research and development efforts for HMI-103, HMI-202 and HMI-203, all of which are in IND-enabling studies;

the costs, timing, and results of our research and development efforts for current and future product candidates in our gene therapy and gene editing pipeline;

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our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements for our product candidates.

We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our current projected operating expenses and capital expenditures into the fourth quarter of 2021 including, subject to the impact of the COVID-19 pandemic on our business, additional development activities associated with our Phase 1/2 pheNIX clinical trial with HMI-102, the advancement of our lead gene editing product candidate, HMI-103, and our lead CNS gene therapy product candidate, HMI-202, the scale-up of our manufacturing processes and the expansion of our intellectual property portfolio.

We now believe that our existing cash and cash equivalents, together with the anticipated proceeds of $60.0 million from the Pfizer private placement, will enable us to fund our current projected operating expenses and capital expenditure requirements into the third quarter of 2022 including, subject to the impact of the COVID-19 pandemic on our business, additional development activities related to our Phase 1/2 pheNIX clinical trial with HMI-102, the advancement of HMI-103, our lead gene editing product candidate for PKU, HMI-203, our newly announced gene therapy product candidate for Hunter syndrome, and HMI-202, our lead CNS gene therapy product candidate, the scale-up of our manufacturing processes and the expansion of our intellectual property portfolio.

We have based these estimates on assumptions that may prove to be imprecise, and we may use our available capital resources sooner than we currently expect.

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In response to the spread of COVID-19, we have taken steps to minimize the impact on our operations.

Operations – To protect the health of our employees and the third parties with whom we interact, we have instructed all office-based employees to work from home, while ensuring essential staffing levels in our operations remain in place, including maintaining key personnel in our laboratories and manufacturing facility.

Operations – To protect the health of our employees and the third parties with whom we interact, most office-based employees continue to work from home, while essential staffing levels in our operations remain in place, including key personnel in our laboratories and manufacturing facility.

For those employees on-site, we have developed shift schedules for our laboratories and manufacturing facility and a modified office layout and traffic flow pattern to increase spacing capabilities, reduce inter-office risks and allow for business continuity.

We have increased cleaning protocols throughout our entire facility, limited visitors to only those who are critical to our ongoing operations and have cancelled all business travel.

In addition, we have developed our own on-site COVID-19 and antibody testing for all employees to promote health and safety.

In addition, we have developed our own on-site COVID-19 surveillance testing for employees to help promote health and safety.

Phase 1/2 pheNIX clinical trial – We are currently continuing our Phase 1/2 pheNIX clinical trial and are working with trial sites to mitigate potential COVID-19-related disruptions in order to help ensure the safety of patients and healthcare professionals.

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We will continue to evaluate the impact of the ongoing global pandemic on the pheNIX trial and will make adjustments, as needed.

Preclinical studies – IND-enabling studies are continuing in support of our HMI-202 and HMI-103 programs and we have made operational changes to mitigate the risk of potential disruptions caused by the COVID-19 pandemic.

Preclinical studies – IND-enabling studies are continuing in supp ort of our HMI-103, HMI-202 and HMI-203 programs and we have made operational changes to mitigate the risk of potential disruptions caused by the COVID-19 pandemic.

All of our ongoing and planned preclinical studies at external CROs are progressing and we have accelerated shipments of reagents and supplies to avoid any disruption of activities.

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Manufacturing – We continue to operate our manufacturing facility at or near normal levels.

We have on-hand all of the drug product needed for the ongoing dose-escalation and planned Part B expansion phase of the pheNIX clinical trial.

We have on-hand all of the drug product needed for the expansion phase of the pheNIX clinical trial.

In addition, during the first quarter of 2020, we accelerated the procurement of raw materials for future manufacturing, research and development needs to minimize potential supply chain interruptions.

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At this time, there is significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses and as a result, we expect that the COVID-19 pandemic may impact our business, revenues, results of operations and financial condition.

The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact of COVID-19 on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact of COVID-19 on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

See “Risk Factors— The COVID-19 pandemic caused by the novel strain of coronavirus could adversely impact our business, including our preclinical studies and clinical trials.” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

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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.

We recorded $1.2 million in collaboration revenue for the six months ended June 30, 2020 (see Note 10 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding Novartis revenue recognition discussion).

We recorded $1.7 million in collaboration revenue for the nine months ended September 30, 2020 (see Note 10 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding Novartis revenue recognition discussion).

Operating Expenses

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The following table summarizes our research and development expenses by product candidate or development program:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands)

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Research and development activities are central to our business model.

We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we advance clinical trials of HMI-102 for the treatment of PKU, including our Phase 1/2 pheNIX clinical trial, continue to advance both HMI-103 and HMI-202 through IND-enabling studies and into clinical trials and continue to discover and develop additional product candidates.

We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we advance clinical trials of HMI-102 for the treatment of PKU, including our Phase 1/2 pheNIX clinical trial, continue to advance HMI-103, HMI-202 and HMI-203 through IND-enabling studies and into clinical trials and continue to discover and develop additional product candidates.

We cannot determine with certainty the duration and costs of future clinical trials of HMI-102 and IND-enabling studies and future clinical trials of our other product candidates in development or any other future product candidate we may develop or if, when, or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval.

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The duration, costs and timing of clinical trials and development of HMI-102, our other product candidates in development and any other future product candidate we may develop will depend on a variety of factors, including:

the scope, rate of progress, expense and results of clinical trials of HMI-102, HMI-103, HMI-202, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct;

the scope, rate of progress, expense and results of clinical trials of HMI-102, HMI-103, HMI-202 and HMI-203, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct;

uncertainties in clinical trial design and patient enrollment rates;

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and facility-related expenses, which include direct depreciation costs, rent expense, maintenance of facilities and other operating costs.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support increased research and development activities relating to HMI-102, HMI-103, HMI-202, and any other product candidate we may develop.

We also have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, compliance with the Sarbanes-Oxley Act of 2002, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements;

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Interest income consists of interest income earned on our cash, cash equivalents and short-term investments.

Our interest income has decreased due to lower yields on invested funds as well as lower invested balances during the six months ended June 30, 2020 as compared to the same period in 2019.

Our interest income has decreased due to lower yields on invested funds as well as lower invested balances during the nine months ended September 30, 2020 as compared to the same period in 2019.

Market volatility resulting from the COVID-19 pandemic has and may continue to adversely impact our interest income.

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Our critical accounting policies are 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 and the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

There were no material changes to our critical accounting policies during the three months ended June 30, 2020 from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

There were no material changes to our critical accounting policies during the three months ended September 30, 2020 from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Results of Operations

Comparison of Three Months Ended June 30, 2020 and 2019

Comparison of Three Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the periods presented:

Three months ended June 30,

Three months ended September 30,

(in thousands)

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Collaboration Revenue

Collaboration revenue for the three months ended June 30, 2020 was $0.6 million, compared to $0.4 million for the three months ended June 30, 2019.

Collaboration revenue for the three months ended September 30, 2020 was $0.6 million, compared to $0.4 million for the three months ended September 30, 2019.

The increase of $0.1 million is attributable to increased activities under our collaboration agreement with Novartis.

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Research and Development Expenses

Three months ended June 30,

Three months ended September 30,

(in thousands)

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Total research and development expenses

Research and development expenses for the three months ended June 30, 2020 were $27.5 million, compared to $22.8 million for the three months ended June 30, 2019.

The increase of $4.6 million was primarily due to an increase of $3.2 million in direct research expenses, including costs related to manufacturing clinical trial materials, as well as costs incurred with our CRO to conduct and manage our Phase 1/2 pheNIX clinical trial, a $1.3 million increase in direct research expenses related to HMI-202 and HMI-103 external development costs as we advance through IND-enabling studies and a $2.4 million increase due to additional employee headcount to support our ongoing development programs, research initiatives, technology platform and manufacturing capabilities resulting in increases in salaries, payroll taxes, stock-based compensation expense and recruiting costs.

Partially offsetting these increases was a $2.2 million decrease in other research and development costs related to laboratory supplies, research materials and services for our early-stage research programs.

Research and development expenses for the three months ended September 30, 2020 were $20.4 million, compared to $25.7 million for the three months ended September 30, 2019.

The decrease of $5.3 million was due to a decrease of $4.6 million in direct research expenses for HMI-102 related to the transition of the manufacturing of clinical trial materials for our Phase 1/2 pheNIX trial from a CMO to our internal GMP facility in 2020, which reduced costs with our CMOs compared to the prior year period.

Additionally, there was a $4.2 million decrease in other research and development costs related to laboratory supplies and research materials for our early-stage research programs.

Partially offsetting these decreases was a $2.2 million increase in employee-related costs due to additional employee headcount to support our ongoing development programs, research initiatives, technology platform and manufacturing capabilities resulting in increases in salaries, payroll taxes, stock-based compensation expense and recruiting costs, as well as a $1.3 million increase in direct research expenses related to our newly announced HMI-203 program for Hunters syndrome.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2020 were $8.8 million, compared to $5.5 million for the three months ended June 30, 2019.

The increase of $3.3 million was primarily due to an increase in employee-related expenses of $1.1 million, which included $0.8 million of increased stock-based compensation expense, an increase in consulting expense of $1.0 million, an increase in recruiting costs of $0.2 million, an increase in audit and legal costs of $0.2 million, an increase in insurance costs of $0.2 million and an increase in software expense of $0.2 million.

General and administrative expenses for the three months ended September 30, 2020 were $8.4 million, compared to $6.0 million for the three months ended September 30, 2019.

The increase of $2.4 million was primarily due to an increase in employee-related expenses of $1.5 million, which included $0.9 million of increased stock-based compensation expense, an increase in audit and legal costs of $0.3 million, an increase in market research costs of $0.3 million, an increase in facility costs of $0.2 million and an increase in taxes of $0.2 million.

Interest Income

Interest income for the three months ended June 30, 2020 was $0.4 million, compared to $1.7 million for the three months ended June 30, 2019.

The decrease was the result of lower yields on invested funds in cash, cash equivalents and short-term investment balances as well as lower invested balances for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Net loss for the three months ended June 30, 2020 was $35.3 million, compared to $26.3 million for the three months ended June 30, 2019.

The increase in net loss was primarily due to the increases in research and development and general and administrative expenses discussed above.

Comparison of Six Months Ended June 30, 2020 and 2019

Interest income for the three months ended September 30, 2020 was less than $0.1 million, compared to $1.7 million for the three months ended September 30, 2019.

The decrease was the result of lower invested balances in cash, cash equivalents and short-term investments for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, as well as lower yields on invested funds.

Net loss for the three months ended September 30, 2020 was $28.2 million, compared to $29.6 million for the three months ended September 30, 2019.

The decrease in net loss was primarily due to the decreases in research and development expenses discussed above.

Comparison of Nine Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the periods presented:

Six months ended June 30,

Nine months ended September 30,

(in thousands)

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Collaboration Revenue

Collaboration revenue for the six months ended June 30, 2020 was $1.2 million, compared to $0.7 million for the six months ended June 30, 2019.

Collaboration revenue for the nine months ended September 30, 2020 was $1.7 million, compared to $1.1 million for the nine months ended September 30, 2019.

The increase of $0.6 million is attributable to increased activities under our collaboration agreement with Novartis.

See “Comparison of Three Months Ended June 30, 2020 and 2019—Collaboration Revenue” for additional information.

See “Comparison of Three Months Ended September 30, 2020 and 2019—Collaboration Revenue” for additional information.

Research and Development Expenses

Six months ended June 30,

Nine months ended September 30,

(in thousands)

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Total research and development expenses

Research and development expenses for the six months ended June 30, 2020 were $56.8 million, compared to $43.4 million for the six months ended June 30, 2019.

The increase of $13.4 million was primarily due to an increase of $6.5 million in direct research expenses, including costs related to manufacturing clinical trial materials, as well as costs incurred with our CRO to conduct and manage our Phase 1/2 pheNIX clinical trial, a $4.4 million increase in direct research expenses related to HMI-202 and HMI-103 external development costs as we advance through IND-enabling studies and a $6.0 million increase due to additional employee headcount to support our ongoing development programs, research initiatives, technology platform and manufacturing capabilities resulting in increases in salaries, payroll taxes, stock-based compensation expense and recruiting costs.

Research and development expenses for the nine months ended September 30, 2020 were $77.2 million, compared to $69.1 million for the nine months ended September 30, 2019.

The increase of $8.1 million was primarily due to an increase of $1.9 million in direct research expenses, including costs related to manufacturing clinical trial materials, as well as costs incurred with our CRO to conduct and manage our Phase 1/2 pheNIX clinical trial, an $8.4 million increase in direct research expenses related to HMI-202, HMI-203 and HMI-103 external development costs as we advance through IND-enabling studies and an $8.2 million increase in employee-related costs due to additional employee headcount to support our ongoing development programs, research initiatives, technology platform and manufacturing capabilities resulting in increases in salaries, payroll taxes, stock-based compensation expense and recruiting costs.

Partially offsetting these increases was a $10.4 million decrease in other research and development costs related to laboratory supplies, research materials and services for our early-stage research programs.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2020 were $16.6 million, compared to $10.4 million for the six months ended June 30, 2019.

The increase of $6.2 million was due to an increase in employee-related expenses of $2.4 million, which included $1.7 million of increased stock-based compensation expense, an increase in consulting expense of $1.8 million, an increase in facility costs of $0.7 million, an increase in recruiting costs of $0.4 million, an increase in insurance costs of $0.3 million and an increase in software expense of $0.3 million.

General and administrative expenses for the nine months ended September 30, 2020 were $25.0 million, compared to $16.4 million for the nine months ended September 30, 2019.

The increase of $8.6 million was due to an increase in employee-related expenses of $3.9 million, which included $2.6 million of increased stock-based compensation expense, an increase in consulting expense of $1.4 million, an increase in facility costs of $1.1 million, an increase in market research costs of $0.8 million, an increase in insurance costs of $0.4 million, an increase in recruiting costs of $0.5 million and an increase in software expense of $0.3 million.

Interest Income

Interest income for the six months ended June 30, 2020 was $1.5 million, compared to $3.0 million for the six months ended June 30, 2019.

The decrease was the result of lower yields on invested funds in cash, cash equivalents and short-term investment balances as well as lower invested balances for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Net loss for the six months ended June 30, 2020 was $70.7 million, compared to $50.1 million for the six months ended June 30, 2019.

Interest income for the nine months ended September 30, 2020 was $1.6 million, compared to $4.6 million for the nine months ended September 30, 2019.

The decrease was the result of lower invested balances in cash, cash equivalents and short-term investments for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, as well as lower yields on invested funds.

Net loss for the nine months ended September 30, 2020 was $98.9 million, compared to $79.7 million for the nine months ended September 30, 2019.

The increase in net loss was primarily due to the increases in research and development and general and administrative expenses discussed above.

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To date, we have financed our operations primarily through the sale of common stock, and the sale of preferred stock and through an up-front payment from a collaboration partner.

Since our inception in 2015, we have raised approximately $444.2 million in aggregate net proceeds through our IPO, a follow-on public offering of common stock in April 2019, proceeds from the sale of common stock under an “at-the-market” sales agreement and preferred stock financings.

Since our inception in 2015 through September 30, 2020, we have raised approximately $444.2 million in aggregate net proceeds through our IPO, a follow-on public offering of common stock in April 2019, proceeds from the sale of common stock under an “at-the-market” sales agreement and preferred stock financings.

We received an up-front payment of $50.0 million from a collaboration partner, comprised of $35.0 million in cash and a $15.0 million equity investment, the latter of which is included in the proceeds from the sale of preferred stock.

As of June 30, 2020, we had $207.9 million in cash, cash equivalents, short-term investments and restricted cash and an accumulated deficit of $270.3 million.

As of September 30, 2020, we had $179.3 million in cash, cash equivalents and restricted cash and an accumulated deficit of $298.6 million.

In April 2019, we completed a follow-on public offering of our common stock.

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Sales of common stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a) of the Securities Act, including sales made directly through the Nasdaq Global Market or on any other existing trading market for our common stock.

No securities were issued pursuant to the Sales Agreement during the six months ended June 30, 2020.

As of June 30, 2020, there was $150.0 million of common stock remaining available for sale under the ATM.

No securities were issued pursuant to the Sales Agreement during the nine months ended September 30, 2020.

As of September 30, 2020, there was $150.0 million of common stock remaining available for sale under the ATM.

Simultaneous with the filing of the registration statement in March 2020, our previous Registration Statement on Form S-3 (File No.

333-230664) filed with the SEC on April 1, 2019 and our prior sales agreement with Cowen providing for the offering, issuance and sale of up to an aggregate $100.0 million of our common stock from time to time in “at-the-market” offerings were terminated.

Our cash, cash equivalents, short-term investments and restricted cash totaled $207.9 million and $263.7 million as of June 30, 2020 and December 31, 2019, respectively.

We had no indebtedness as of June 30, 2020 and December 31, 2019.

On November 9, 2020, we entered into the Stock Purchase Agreement with Pfizer, pursuant to which Pfizer has agreed to purchase 5,000,000 shares of our common stock through a private placement transaction at a purchase price of $12.

00 per share, for an aggregate purchase price of $60.0 million.

The closing of the private placement is expected to occur on or about November 10, 2020, subject to the satisfaction of customary closing conditions.

Our cash, cash equivalents and restricted cash totaled $179.3 million and $263.7 million as of September 30, 2020 and December 31, 2019, respectively.

We had no indebtedness as of September 30, 2020 and December 31, 2019.

The following table summarizes our sources and uses of cash for each of the periods presented:

Six months ended June 30,

Nine months ended September 30,

(in thousands)

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Net change in cash, cash equivalents and restricted cash

Cash Flows for the Six Months ended June 30, 2020

Cash Flows for the Nine Months ended September 30, 2020

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2020 was $53.8 million, driven primarily by our net loss of $70.7 million as we incurred expenses associated with research and development activities on HMI-102, HMI-103 and HMI-202, including the Phase 1/2 pheNIX trial for our HMI-102 program, and research activities on other applications for our technology and a decrease in operating lease liabilities of $1.1 million.

These items were partially offset by net non-cash expenses of $10.5 million, which includes $6.3 million of stock-based compensation expense and $3.9 million of depreciation expense, and a decrease in working capital of $7.8 million, which includes $4.9 million in increased accounts payable.

Net cash used in operating activities for the nine months ended September 30, 2020 was $82.7 million, driven primarily by our net loss of $98.9 million as we incurred expenses associated with research and development activities on HMI-102, HMI-103, HMI-202 and HMI-203, including the Phase 1/2 pheNIX trial for our HMI-102 program, and research activities on other applications for our technology and a decrease in operating lease liabilities of $1.7 million.

These items were partially offset by net non-cash expenses of $16.1 million, which includes $9.7 million of stock-based compensation expense and $5.9 million of depreciation expense, and a decrease in working capital of $2.3 million.

Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2020 was $167.0 million, attributable to maturities of short-term investments of $189.6 million, partially offset by purchases of short-term investments of $20.0 million and purchases of property and equipment of $2.6 million.

Net cash provided by investing activities for the nine months ended September 30, 2020 was $205.9 million, attributable to maturities of short-term investments of $228.6 million, partially offset by purchases of short-term investments of $20.0 million and purchases of property and equipment of $2.8 million.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2020 was $0.7 million, primarily due to proceeds from the issuance of common stock pursuant to the employee stock purchase plan.

Cash Flows for the Six Months ended June 30, 2019

Net cash provided by financing activities for the nine months ended September 30, 2020 was $1.1 million, primarily due to proceeds from the issuance of common stock pursuant to the employee stock purchase plan.

Cash Flows for the Nine Months ended September 30, 2019

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2019 was $39.5 million, driven primarily by our net loss of $50.1 million as we incurred expenses associated with research activities on HMI-102, HMI-103 and HMI-202, and research activities on other applications for our technology.

Net cash used in operating activities for the nine months ended September 30, 2019 was $65.0 million, driven primarily by our net loss of $79.7 million as we incurred expenses associated with research and development activities on HMI-102, HMI-103 and HMI-202, including the Phase 1/2 pheNIX trial for our HMI-102 program, and research activities on other applications for our technology.

The funding of our net loss was partially offset by net non-cash expenses of $8.2 million, an increase in deferred rent of $0.7 million and an increase in working capital of $6.2 million.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2019 was $18.6 million, attributable to purchases of short-term investments of $189.5 million and purchases of property and equipment of $16.4 million, partially offset by maturities of short-term investments of $187.2 million.

Net cash used in investing activities for the nine months ended September 30, 2019 was $31.8 million, attributable to purchases of short-term investments of $257.4 million and purchases of property and equipment of $18.1 million, partially offset by maturities of short-term investments of $243.7 million.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2019 was $135.0 million, primarily due to the receipt of $134.6 million in net proceeds from the issuance of common stock in a public offering in April 2019.

Net cash provided by financing activities for the nine months ended September 30, 2019 was $135.6 million, primarily due to the receipt of $134.5 million in net proceeds from the issuance of common stock in a public offering in April 2019.

Funding Requirements

Our operating expenses increased substantially in 2019 and in the first half of 2020 and are expected to increase substantially for the remainder of 2020 and in future years in connection with our ongoing activities, particularly as we advance our Phase 1/2 pheNIX clinical trial with HMI-102, advance our preclinical activities including IND enabling studies, scale-up manufacturing processes, engage with CMOs, manufacture materials for preclinical and clinical activities in our internal manufacturing facility and initiate additional human clinical trials.

Our operating expenses increased substantially in 2019 and during the first nine months of 2020 and are expected to increase for the remainder of 2020 and in future years in connection with our ongoing activities, particularly as we advance our Phase 1/2 pheNIX clinical trial with HMI-102, advance our preclinical activities including IND-enabling studies, scale-up manufacturing processes, engage with CMOs, manufacture materials for preclinical and clinical activities in our internal manufacturing facility and initiate additional human clinical trials.

In addition, we have incurred, and expect to continue to incur additional costs associated with operating as a public company.

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Specifically, our operating expenses and capital expenditures will increase as we:

pursue the preclinical and clinical development of HMI-102, including the ongoing pheNIX Phase 1/2 clinical trial, HMI-103 and HMI-202;

pursue the preclinical and clinical development of HMI-102, including the ongoing pheNIX Phase 1/2 clinical trial, HMI-103, HMI-202 and HMI-203;

pursue the preclinical and clinical development of other product candidates based on our gene therapy and gene editing technology;

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expand our operational, financial and management systems and increase personnel, including personnel to support our operations as a public company.

We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2021, including, subject to the impact of the COVID-19 pandemic on our business, additional development activities related to our Phase 1/2 pheNIX clinical trial with HMI-102, the advancement of our lead gene editing product candidate, HMI-103, and our lead CNS gene therapy product candidate, HMI-202, the scale-up of our manufacturing processes and the expansion of our intellectual property portfolio.

We now believe that our existing cash and cash equivalents, together with the anticipated proceeds of $60.0 million from the Pfizer private placement, will enable us to fund our current projected operating expenses and capital expenditure requirements into the third quarter of 2022, including, subject to the impact of the COVID-19 pandemic on our business, additional development activities related to our Phase 1/2 pheNIX clinical trial with HMI-102, the advancement of our lead gene editing product candidate, HMI-103, our lead CNS gene therapy product candidate, HMI-202 and our newly announced gene therapy product candidate for Hunter syndrome, HMI-203, the scale-up of our manufacturing processes and the expansion of our intellectual property portfolio.

We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.

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Our future funding requirements will depend on many factors, including:

the progress, costs and results of our preclinical development and initial clinical trials for HMI-102 including the pheNIX Phase 1/2 clinical trial, HMI-103 and HMI-202;

the progress, costs and results of our additional research and preclinical development programs in gene therapy and gene editing;

the progress, costs and results of our preclinical development and initial clinical trials for HMI-102 including the pheNIX Phase 1/2 clinical trial, HMI-103, HMI-202 and HMI-203;

the progress, costs and results of our additional research and preclinical development programs in gene therapy and g ene editing;

the costs and timing of internal process development and manufacturing scale-up activities, the production of materials in our internal manufacturing facility, and outsourcing activities with CMOs associated with our lead product development programs and other programs we advance through preclinical and clinical development;

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Contractual Obligations

There have been no material changes to our contractual obligations during the six months ended June 30, 2020 from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

There have been no material changes to our contractual obligations during the nine months ended September 30, 2020 from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis