Replimune Group, Inc. 10-Q

Item 1. Financial Statements. REPLIMUNE GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share amounts) (Unaudited) June 30, March 31, 2020 2020 Assets Current assets: Cash and cash equivalents $ 104,797 $ 59,500 Short-term investments 156,962 109,055 Research and development incentives receivable 2,951 2,962 Prepaid expenses and other current assets 3,031 2,734 Total current assets 267,741 174,251 Property, plant and equipment, net 7,357 6,860 Research and development incentives receivable - long term 679 Restricted cash 1,636 1,636 Right-to-use asset - operating leases 5,852 4,425 Right-to-use asset - financing leases 46,318 46,925 Total assets $ 329,583 $ 234,097 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,480 $ 3,434 Accrued expenses and other current liabilities 5,139 5,156 Operating lease liabilities, current 830 873 Financing lease liabilities, current 2,429 2,411 Total current liabilities 11,878 11,874 Long term debt, net of debt discount 9,764 9,801 Operating lease liabilities, non-current 5,210 3,737 Financing lease liabilities, non-current 24,917 24,967 Total liabilities 51,769 50,379 Commitments and contingencies (Note 12) Stockholders' equity Common stock, $0.001 par value; 150,000,000 shares authorized as of June 30, 2020 and March 31, 2020; 40,280,420 and 36,668,743 shares issued and outstanding as of June 30, 2020 and March 31, 2020, respectively 40 37 Additional paid-in capital 408,755 296,961 Accumulated deficit (129,791 ) (112,298 ) Accumulated other comprehensive loss (1,190 ) (982 ) Total stockholders' equity 277,814 183,718 Total liabilities and stockholders' equity $ 329,583 $ 234,097 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 REPLIMUNE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share and per share amounts) (Unaudited) Three Months Ended June 30, 2020 2019 Operating expenses: Research and development $ 12,157 $ 7,457 General and administrative 5,676 3,450 Total operating expenses 17,833 10,907 Loss from operations (17,833 ) (10,907 ) Other income: Research and development incentives 686 621 Investment income 527 687 Interest expense on finance lease liability (561 ) - Interest expense on debt obligations (284 ) - Other income (28 ) 91 Total other income, net 340 1,399 Net loss attributable to common stockholders $ (17,493 ) $ (9,508 ) Net loss per share attributable to common stockholders, basic and diluted $ (0.44 ) $ (0.30 ) Weighted average common shares outstanding, basic and diluted 39,862,319 31,661,430 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 REPLIMUNE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Amounts in thousands) (Unaudited) Three Months Ended June 30, 2020 2019 Net loss $ (17,493 ) $ (9,508 ) Other comprehensive loss: Foreign currency translation loss (12 ) (182 ) Net unrealized gain (loss) on short-term investments, net of tax (196 ) 65 Comprehensive loss $ (17,701 ) $ (9,625 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 REPLIMUNE GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Amounts in thousands, except share amounts) (Unaudited) Common stock Additional paid-in Accumulated Accumulated other comprehensive Total stockholders’ Shares Amount capital deficit loss equity Balances as of March 31, 2020 36,668,743 $ 37 $ 296,961 $ (112,298 ) $ (982 ) $ 183,718 Issuance of prefunded warrants to purchase common stock, net of $2,100 issuance costs - - 32,900 - - 32,900 Issuance of common stock, net of issuance costs and underwriter fees of $5,117 3,478,261 3 74,879 74,882 Foreign currency translation adjustment - - - - (12 ) (12 ) Unrealized loss on short-term investments - - - - (196 ) (196 ) Exercise of stock options 133,416 1,547 - - 1,547 Stock-based compensation expense - - 2,468 - - 2,468 Net loss - - - (17,493 ) - (17,493 ) Balances as of June 30, 2020 40,280,420 $ 40 $ 408,755 $ (129,791 ) $ (1,190 ) $ 277,814 Balances as of March 31, 2019 31,656,950 32 198,645 (59,766 ) (1,055 ) 137,856 Foreign currency translation adjustment - - - - (182 ) (182 ) Unrealized gain on short-term investments - - - - 65 65 Exercise of stock options 6,751 - 18 - - 18 Stock-based compensation expense - - 1,810 - - 1,810 Impact of adoption of ASC 842 - - - 93 - 93 Net loss - - - (9,508 ) - (9,508 ) Balances as of June 30, 2019 31,663,701 $ 32 $ 200,473 $ (69,181 ) $ (1,172 ) $ 130,152 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 REPLIMUNE GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) Three Months Ended June 30, 2020 2019 Cash flows from operating activities: Net loss $ (17,493 ) $ (9,508 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 2,468 1,810 Depreciation and amortization 391 42 Noncash interest expense 63 - Net amortization of premiums and discounts on short-term investments 91 (436 ) Changes in operating assets and liabilities: Research and development incentives receivable (684 ) (621 ) Prepaid expenses and other current assets (301 ) (847 ) Operating lease, right-of-use-asset 135 85 Finance lease, right-of-use-asset 607 Long term prepaid rent - (6,895 ) Accounts payable (224 ) 3,764 Accrued expenses and other current liabilities (11 ) (885 ) Operating lease liabilities (132 ) (91 ) Net cash used in operating activities (15,090 ) (13,582 ) Cash flows from investing activities: Purchases of property, plant and equipment (932 ) (362 ) Purchase of short-term investments (125,812 ) (18,486 ) Proceeds from sales and maturities of short-term investments 77,618 45,659 Net cash provided by (used in) investing activities (49,126 ) 26,811 Cash flows from financing activities: Payment of issuance costs (100 ) - Proceeds from issuance of common stock in follow-on public offering, net of underwriting fees and discounts 75,199 - Proceeds from issuance of prefunded warrants to purchase common stock, net of underwriting fees and discounts 32,900 - Principal payment of finance lease obligation (32 ) - Exercise of stock options 1,547 18 Net cash provided by financing activities 109,514 18 Effect of exchange rate changes on cash, cash equivalents and restricted cash (1 ) (137 ) Net increase in cash, cash equivalents and restricted cash 45,297 13,110 Cash, cash equivalents and restricted cash at beginning of period 61,136 26,890 Cash, cash equivalents and restricted cash at end of period $ 106,433 $ 40,000 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 221 $ - Supplemental disclosure of non-cash investing and financing activities: Net unrealized gain (loss) on short-term investments $ (196 ) $ 65 Issuance costs included in accounts payable $ 317 $ - Purchases of property and equipment included in accounts payable $ 64 $ - Lease assets obtained in exchange for new operating lease liabilities $ 1,580 $ 789 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 1. Nature of the business Replimune Group, Inc. (the “Company”) is a clinical-stage biotechnology company focused on the development of oncolytic immunotherapies to treat cancer. Replimune Group, Inc., whose predecessor was founded in 2015, is the parent company of its wholly owned subsidiaries: Replimune Limited (“Replimune UK”); Replimune, Inc. (“Replimune US”); and Replimune Securities Corporation. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance and reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. Basis of presentation The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurred recurring losses since its inception, including net losses of $17,493 and $9,508 for the three months ended June 30, 2020 and 2019, respectively. In addition, as of June 30, 2020, the Company had an accumulated deficit of $129,791. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of these consolidated financial statements, the Company expects that its cash and cash equivalents and short-term investments will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance of the consolidated financial statements. The Company expects to seek additional funding through public and private equity financings, debt financings, collaborations, licensing arrangements, and/or strategic alliances. If the Company is unable to obtain funding it could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or it may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all. Impact of the COVID-19 coronavirus In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government imposed travel restrictions on travel between the United States, Europe and certain other countries. The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society, which has resulted, and will likely continue to result, in significant disruptions to the global economy as well as businesses and capital markets around the world. In response to public health directives and orders and to help minimize the risk of the virus to employees, the Company has taken precautionary measures, including implementing work-from-home policies for the Company’s employees, other than certain essential employees in our laboratory and who perform manufacturing functions, and certain other employees who we deem essential from time to time. For those essential employees, the Company has implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. The Company has taken these and other precautionary steps while maintaining business continuity in order to continue to progress its programs. While there has been no prolonged material disruption to the Company’s business to date, the impact of the virus, including work-from-home policies, may negatively impact productivity, disrupt the Company’s business, and delay its preclinical research and clinical trial activities and its development program timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct its business in the ordinary course. Other impacts to the Company’s business may include temporary closures of its suppliers and disruptions or restrictions on its employees’ ability to travel. Any prolonged material disruption to the Company’s employees or suppliers could adversely impact the Company’s preclinical research and clinical trial activities, financial condition and results of operations, including its ability to obtain financing. 7 2. Summary of significant accounting policies Principles of consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and include the accounts of the Company and its wholly owned subsidiaries, Replimune UK, Replimune US and Replimune Securities Corporation, after elimination of all intercompany accounts and transactions. The consolidated financial statements reflect the capital as if Replimune Group, Inc. had been in existence for all periods presented. Use of estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses and the valuation of common stock and stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including, expenses, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Estimates are periodically reviewed in light of reasonable changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates or assumptions. Unaudited interim financial information The accompanying consolidated balance sheet as of June 30, 2020, the consolidated statements of operations, of comprehensive loss and of cash flows for the three months ended June 30, 2020 and 2019 and the consolidated statement of stockholders’ equity as of June 30, 2020 and 2019 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2020 and the results of its operations and its cash flows for the three months ended June 30, 2020 and 2019. The financial data and other information disclosed in these consolidated notes related to the three months ended June 30, 2020 and 2019 are unaudited. The results for the three months ended June 30, 2020 are not necessarily indicative of results to be expected for the year ending March 31, 2021, any other interim periods or any future year or period. The financial information included herein should be read in conjunction with the financial statements and notes in the Company's Annual Report on Form 10-K for the year ended March 31, 2020. During the three months ended June 30, 2020, there have been no changes to the Company’s significant accounting policies as described in the Company's Annual Report on Form 10-K for the year ended March 31, 2020, except as described below. 8 Recently adopted accounting pronouncements In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this ASU require certain existing disclosure requirements in Topic 820 to be modified or removed, and certain new disclosure requirements to be added to the Topic. In addition, this ASU allows entities to exercise more discretion when considering fair value measurement disclosures. The Company adopted ASU 2018-13 on April 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company's consolidated financial statements. In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU2018-18”), which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. The standard adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606, and requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, including adoption in any interim period for public business entities for periods in which financial statements have not been issued. Amendments in the standard should be applied retrospectively to the date of initial application of Topic 606, but entities may elect to apply the amendments in this Update retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606, and should disclose the election. An entity may also elect to apply the practical expedient for contract modifications that is permitted for entities using the modified retrospective transition method in Topic 606. The Company adopted ASU 2018-18 on April 1, 2020. The adoption of ASU 2018-18 did not have a material impact on the Company's consolidated financial statements. Recently issued accounting pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments- Credit Losses (Topic 326). The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics. Additionally, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326), which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The standard is effective for fiscal years and interim periods beginning after December 15, 2023. Early adoption is permitted for all periods beginning after December 15, 2018. The adoption of ASU 2016-13 is not expected to have a material impact on the Company's consolidated financial statements. 3. Fair value of financial assets and liabilities The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements as of June 30, 2020 Using: Level 1 Level 2 Level 3 Total Assets Money market funds $ - $ 43,566 $ - $ 43,566 US Treasury bonds - 84,785 - 84,785 US Government Agency bonds - 105,624 - 105,624 $ - $ 233,975 $ - $ 233,975 Fair Value Measurements as of March 31, 2020 Using: Level 1 Level 2 Level 3 Total Assets Money market funds $ - $ 36,712 $ - $ 36,712 Commercial paper - 21,884 - 21,884 US Treasury bonds - 35,810 - 35,810 US Government Agency bonds - 15,295 - 15,295 Corporate debt securities - 36,066 - 36,066 $ - $ 145,767 $ - $ 145,767 9 The underlying securities held in the money market funds held by the Company are all government backed securities. During the three months ended June 30, 2020 and 2019, there were no transfers between levels. Valuation of cash equivalents and short-term investments Money market funds, commercial paper, U.S. Treasury bonds, U.S. Government Agency bonds and corporate debt securities were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy. Cash equivalents consisted of money market funds at June 30, 2020 and March 31, 2020. 4. Short-term investments Short-term investments by investment type consisted of the following: June 30, 2020 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Commercial paper $ - US Government agency bonds $ 90,147 $ 37 $ (9 ) $ 90,175 US Treasury bonds 66,688 102 (3 ) 66,787 $ 156,835 $ 139 $ (12 ) $ 156,962 March 31, 2020 Amortized cost Gross unrealized gains Gross unrealized losses Fair value Commercial paper $ 21,818 $ 66 $ - $ 21,884 US Government agency bonds 15,217 78 - 15,295 US Treasury bonds 35,590 220 - 35,810 Corporate debt securities 36,107 24 (65 ) 36,066 $ 108,732 $ 388 $ (65 ) $ 109,055 10 5. Property, plant and equipment, net Property, plant and equipment, net consisted of the following: June 30, March 31, 2020 2020 Construction in progress $ 1,246 $ 1,217 Plant and laboratory equipment 4,409 3,669 Leasehold improvements 647 532 Computer equipment 1,662 1,658 Office equipment 721 721 8,685 7,797 Less: Accumulated depreciation and amortization (1,328 ) (937 ) $ 7,357 $ 6,860 Depreciation and amortization expense was $391 and $42 for the three months ended June 30, 2020 and 2019, respectively, and recorded within research and development and general and administrative expenses in the consolidated statement of operations. 6. Accrued expenses and other current liabilities Accrued expenses and other current liabilities consisted of the following: June 30, March 31, 2020 2020 Accrued research and development costs $ 2,872 $ 2,009 Accrued compensation and benefits costs 1,189 2,065 Accrued professional fees 503 779 Other 575 303 $ 5,139 $ 5,156 7. Long-term debt Long-term debt consisted of the following: June 30, March 31, 2020 2020 Principal amount of long-term debt $ 10,000 $ 10,000 Unamortized debt discount (236 ) (199 ) Long-term debt, net of discount $ 9,764 $ 9,801 Hercules Loan Agreement On August 8, 2019, (the “Closing Date”) and as amended on June 1, 2020 (“the First Amendment”), the Company and certain of its affiliates entered into a Loan and Security Agreement (the “Hercules Loan Agreement”) with Hercules Capital, Inc. (“Hercules”) pursuant to which Hercules agreed to make available to the Company a secured term loan facility in the amount of $30,000 (the “Term Loan Facility”), subject to certain terms and conditions. The Company borrowed $10,000 under the Hercules Loan Agreement in one advance as a single tranche Term Loan on the Closing Date upon which the Company paid a $225 facility charge and incurred $130 in additional closing and legal fees. The Company may borrow the unused $20,000 available under the Term Loan Facility in two separate advances. The second advance of up to $10,000 may be borrowed between January 1, 2020 and December 15, 2020 and the third advance of up to $10,000 may be borrowed between July 1, 2020 and June 30, 2021. In June 2020, the Company entered into the First Amendment to the Hercules Loan Agreement (the “Hercules First Amendment”), which amended the secured term loan facility from $30,000 to $40,000, subject to terms and conditions, by adding a fourth advance of up to $10,000. The Company may borrow the second advance of $10,000 may between October 1, 2020 and December 15, 2020. In the event the Company does not draw on the second advance or if the Term Loan Facility is terminated prior to a draw of the second advance, the Company shall pay Hercules a one-time facility charge fee of $0.1 million on the earliest of (i) December 16, 2020 or (ii) the date the Company prepays the outstanding obligations. The third advance of up to $10,000 may be borrowed between July 1, 2020 and June 30, 2021. The fourth advance of up to $10,000 may be borrowed between July 1, 2021 and December 15, 2021. The Company incurred $103 in additional closing and legal fees in connection with Hercules First Amendment, of which $100 will be capitalized and amortized as part of the effective yield. Additionally, the Amortization Date was changed from March 1, 2022 to September 1, 2022 (the “Amortization Date”) to extend the interest only payment period by six months. 11 Advances under the Term Loan Facility bear interest at a rate per annum equal to the greater of either (i) the prime rate as reported in The Wall Street Journal plus 2.75%, or (ii) 8.75%. The Hercules Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. The term of the Hercules Loan Agreement is four years, ending August 1, 2023. Interest is payable on a monthly basis until the Amortization Date. After the Amortization Date, payments shall consist of equal monthly installments of principal and interest payable until the secured obligations are repaid in full. At any time the Company may prepay the principal of any advance pursuant to the terms of the Term Loan Facility subject to a prepayment charge equal to: 3.0%, if such advance is prepaid within the first twelve months following the Closing Date, 2.0%, if such advance is prepaid after twelve months but prior to twenty four months following the Closing Date, and 1.0%, if such advance is prepaid anytime thereafter. The Company will also pay a charge equal to the product of 4.95% and the aggregate amount of any advance made pursuant to the terms of the Term Loan Facility. The Term Loan Facility is secured by substantially all of the Company’s assets, but excluding its intellectual property, and subject to certain exceptions and exclusions. The Hercules Loan Agreement contains customary covenants for transactions of this type and other covenants agreed to by the parties, including, among others, (i) the provision of delivery of annual and quarterly financial statements and insurance policies and restrictions on incurring debt, granting liens, making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales. The Hercules Loan Agreement also provides for customary events of default, including, among others, events of default relating to failure to make payment, bankruptcy, breach of covenants, breaches of representations and warranties, change of control, judgment and material adverse effects. In connection with entering into the Hercules Loan Agreement, the Company paid Hercules $355 of upfront fees, including closing costs and legal fees associated with entering into the agreement, which were recorded as a debt discount. In connection with entering into the Hercules First Amendment, the Company paid $100 of upfront fees, including closing costs and legal fees associated with entering into the amendment, which were recorded as debt discount, totaling the debt discount to $455 as of June 30, 2020. The debt discount is reflected as a reduction of the carrying value of long-term debt on the Company’s consolidated balance sheet and is being amortized to interest expense over the term of the loan using the effective interest method. The Company recognized aggregate interest expense under the Hercules Loan Agreement of $284 during the three months ended June 30, 2020, which included non-cash interest expense of $27 and $36 related to the accretion of the debt discount and the final payment. As of June 30, 2020, the unamortized debt discount was $236. The Company’s annual effective interest rate of the Hercules First Amendment was approximately 10.5% as of June 30, 2020. There were no principal payments due or paid under the Hercules Loan Agreement during the three months ended June 30, 2020. Future payments of long-term debt as of June 30, 2020 are as follows (fiscal years): Debt maturity as of June 30, 2020 Future long-term debt payments: 2021 (remaining nine months) $ - 2022 - 2023 5,722 2024 4,278 Total debt payments $ 10,000 The table of future payments of long-term debt excludes the end of term charge of $495 which is due upon the maturity of the loan. 12 8. Stockholders’ Equity Common stock As of June 30, 2020 and March 31, 2020, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue up to 150,000,000 shares of common stock, par value $0.001 per share. As of June 30, 2020 and March 31, 2020, the Company had reserved 13,670,676 and 10,449,033 shares of common stock for the exercise of outstanding stock options, the number of shares remaining available for grant under the Company’s 2018 Omnibus Incentive Compensation Plan and the Company’s Employee Stock Purchase Plan (see Note 9) and the exercise of the outstanding warrants to purchase shares of common, respectively. Undesignated preferred stock As of June 30, 2020, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue up to 10,000,000 shares of undesignated preferred stock, par value $0.001 per share. There were no undesignated preferred shares issued or outstanding as of June 30, 2020. Convertible preferred stock and preferred stock warrants The Company has issued series seed convertible preferred stock (the “series seed preferred stock”), series A convertible preferred stock (the “series A preferred stock”) and series B convertible preferred stock (the “series B preferred stock”). The series seed preferred stock, series A preferred stock and series B preferred stock are collectively referred to as the “preferred stock.” In connection with the closing of the IPO, the preferred stock converted into 19,157,360 shares of common stock on a 1:9.94688 basis. There was no preferred stock outstanding as of June 30, 2020 and March 31, 2020. In connection with the issuance of the series seed preferred stock, the Company issued to the holders of the series seed preferred stock warrants for the purchase of 50,000 shares of series seed preferred stock, which became fully vested and exercisable in the year of issuance. The warrants to purchase shares of series seed preferred stock were issued at an exercise price of $10.00 per share and expire on the earlier of September 16, 2025 or a qualified change of control event. Upon the closing of the Company's IPO in July 2018, the series seed preferred stock warrants became exercisable for 497,344 shares of common stock and were reclassified to stockholders’ equity. ATM program In August 2019, the Company entered into a Sales Agreement (as amended, the “Sales Agreement”) with SVB Leerink LLC (the “Agent”), pursuant to which the Company could sell, from time to time, at its option, up to an aggregate amount of $75,000 of shares of the Company’s common stock, $0.001 par value per share (the “Shares”), through the Agent, as the Company’s sales agent. In June 2020, the Sales Agreement was amended to reduce the aggregate offering amount under the Sales Agreement from $75,000 of shares to $30,000 of Shares. Any Shares to be offered and sold under the Sales Agreement will be issued and sold (i) by methods deemed to be an “at the market offering” (“ATM”), as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended or in negotiated transactions, if authorized by the Company, and (ii) pursuant to, and only upon the effectiveness of, a registration statement on Form S-3 filed by the Company with the Securities and Exchange Commission on August 8, 2019 for an offering of up to $250,000 of various securities, including shares of the Company’s common stock, preferred stock, debt securities, warrants and/or units for sale to the public in one or more public offerings. 13 Subject to the terms of the Sales Agreement, the Agent will use commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay the Agent a commission of 3.0% of the gross proceeds from the sale of the Shares, if any. During the year ended March 31, 2020, the Company issued and sold 287,559 Shares for gross proceeds of $4,568 less offering fees of $137 for net proceeds of $4,431 under the ATM. As of June 30, 2020, the Company had $25,432 of Shares remaining available for sale under the ATM. Equity offerings In November 2019, the Company entered into an Underwriting Agreement (the “November 2019 Underwriting Agreement”) with J.P. Morgan Securities LLC and SVB Leerink LLC, as representatives of the several underwriters named therein (the “November 2019 Underwriters”), relating to the issuance and sale of an aggregate of (a) 3,678,031 shares of the Company’s common stock (the “November 2019 Shares”), and (b) pre-funded warrants to purchase 2,200,000 shares of the Company’s common stock (the “November 2019 Pre-Funded Warrants”) to the Underwriters (the “November 2019 Offering”). The November 2019 Shares were sold to the purchasers at the public offering price of $13.61 per share. The November 2019 Pre-Funded Warrants were sold at a public offering price of $13.6099 per November 2019 Pre-Funded Warrant, which represents the per share public offering price for the Company’s common stock less a $0.0001 per share exercise price for each such November 2019 Pre-Funded Warrant. In December 2019, the November 2019 Underwriters partially exercised their purchase option pursuant to the Underwriting Agreement, and the Company issued and sold an additional 838,530 shares of its common stock. The Company received aggregate net proceeds of approximately $85,598 in the November 2019 Offering, after deducting underwriting discounts, commissions and other offering expenses payable by the Company of approximately $5,814. Funds affiliated with Redmile Group, LLC purchased all of the November 2019 Pre-Funded Warrants. The November 2019 Pre-Funded Warrants are exercisable at any time after the date of issuance. A holder of November 2019 Pre-Funded Warrants may not exercise the November 2019 Pre-Funded Warrant if the holder, together with its affiliates, would beneficially own more than 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise. A holder of November 2019 Pre-Funded Warrants may increase or decrease this percentage up to 19.99% by providing at least 61 days’ prior notice to the Company. As of June 30, 2020, none of the November 2019 Pre-Funded Warrants had been exercised. In June 2020, the Company entered into a separate Underwriting Agreement (the “June 2020 Underwriting Agreement”) with J.P. Morgan Securities LLC and SVB Leerink LLC, as representatives of the several underwriters named therein (the “June 2020 Underwriters”), relating to the issuance and sale of an aggregate of (a) 2,826,088 shares of the Company’s common stock (the “June 2020 Shares”), and (b) pre-funded warrants to purchase 1,521,738 shares of the Company’s common stock (the “June 2020 Pre-Funded Warrants”) to the Underwriters (the “June 2020 Offering”). The June 2020 Shares were sold to the purchasers at the public offering price of $23.00 per share. The June 2020 Pre-Funded Warrants were sold at a public offering price of $22.9999 per June 2020 Pre-Funded Warrant, which represents the per share public offering price for the Company’s common stock less a $0.0001 per share exercise price for each such June 2020 Pre-Funded Warrant. The June 2020 Underwriters fully exercised their purchase option pursuant to the June 2020 Underwriting Agreement, and the Company issued and sold an additional 652,173 shares of its common stock. The Company received aggregate net proceeds of approximately $107,782 after deducting underwriting discounts, commissions and other offering expenses payable by the Company of approximately $7,217. Funds affiliated with Redmile Group, LLC and funds affiliated with a second institutional investor purchased all of the June 2020 Pre-Funded Warrants. The June 2020 Pre-Funded Warrants are exercisable at any time after the date of issuance. A holder of June 2020 Pre-Funded Warrants may not exercise the June 2020 Pre-Funded Warrant if the holder, together with its affiliates, would beneficially own more than 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise. A holder of June 2020 Pre-Funded Warrants may increase or decrease this percentage up to 19.99% by providing at least 61 days’ prior notice to the Company. As of June 30, 2020, none of the June 2020 Pre-Funded Warrants had been exercised. 14 All of the Company’s pre-funded warrants to purchase the Company’s common stock were purchased by funds affiliated with Redmile Group, LLC (in both the November 2019 Offering and the June 2020 Offering) and funds affiliated with a second institutional investor (in the June 2020 Offering). Other than as set forth in Note 10 to these consolidated financial statements, the 3,721,738 shares of the Company’s common stock into which the November 2019 Pre-Funded Warrants and the June 2020 Pre-Funded Warrants are exercisable are not included in the number of issued and outstanding shares of the Company’s common stock set forth herein. However, the November 2019 Pre-Funded Warrants and the June 2020 Pre-Funded Warrants are included in the calculation of basic and diluted net loss per share attributable to common stockholders (see Note 10). 9. Stock-based compensation 2015 Enterprise Management Incentive Share Option Plan The 2015 Enterprise Management Incentive Share Option Plan of Replimune UK (the “2015 Plan”) provided for Replimune UK to grant incentive stock options, non-statutory stock options, stock awards, stock units, stock appreciation rights and other stock-based awards. Incentive stock options are granted only to the Company’s employees, including officers and directors who are also employees. Non-statutory stock options are granted to employees, members of the board of directors, outside advisors and consultants of the Company. 2017 Equity Compensation Plan In July 2017, in conjunction with the Reorganization, the 2015 Plan was terminated, and all awards were cancelled with replacement awards issued under the 2017 Equity Compensation Plan (the “2017 Plan”). Subsequent to the Reorganization, no additional grants will be made under the 2015 Plan and any outstanding awards under the 2015 Plan will continue with their original terms. The Company concluded that the cancellation of the 2015 Plan and issuance of replacement awards under the 2017 Plan was a modification with no change in the material rights and preferences and therefore no recorded change in the fair value of each respective award. The Company’s 2017 Plan provides for the Company to grant incentive stock options or non-statutory stock options, stock awards, stock units, stock appreciation rights and other stock-based awards. Incentive stock options may be granted only to the Company’s employees, including officers and directors who are also employees. Restricted stock awards and non-statutory stock options may be granted to employees, officers, members of the board of directors, advisors and consultants of the Company. The maximum number of common shares that may be issued under the 2017 Plan was 2,659,885 of which 0 remained available for future grants as of June 30, 2020. Shares with respect to which awards have expired, terminated, surrendered or cancelled under the 2017 Plan without having been fully exercised will be available for future awards under the 2017 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards. 2018 Omnibus Incentive Compensation Plan On July 9, 2018, the Company’s board of directors adopted, and the Company’s stockholders approved the 2018 Omnibus Incentive Compensation Plan (the “2018 Plan”), which became effective immediately prior to the effectiveness of the registration statement for the Company’s initial public offering. The 2018 Plan provides for the issuance of incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights and other stock-based awards. The number of shares initially reserved for issuance under the 2018 Plan is 3,617,968 shares. If any options or stock appreciation rights, including outstanding options and stock appreciation rights granted under the 2017 Plan (up to 2,520,247 shares), terminate, expire, or are canceled, forfeited, exchanged, or surrendered without having been exercised, or if any stock awards, stock units or other stock-based awards, including outstanding awards granted under the 2017 Plan, are forfeited, terminated, or otherwise not paid in full in shares of common stock, the shares of the Company’s common stock subject to such grants will be available for purposes of our 2018 Plan. On April 1, 2020, the number of shares reserved for issuance under the 2018 Plan automatically increased by 1,466,749 shares pursuant to the terms of the 2018 Plan. On April 1, 2019, the number of shares reserved for issuance under the 2018 Plan automatically increased by 1,266,278 shares pursuant to the terms of the 2018 Plan. As of June 30, 2020, 1,909,204 shares remained available for future grants under the 2018 Plan. 15 The 2015 Plan, the 2017 Plan and the 2018 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. However, the board of directors shall administer and approve all grants made to non-employee directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, except that the exercise price per share of incentive stock options may not be less than 100% of the fair market value of the common stock on the date of grant (or 110% of fair value in the case of an award granted to employees who hold more than 10% of the total combined voting power of all classes of stock at the time of grant) and the term of stock options may not be greater than five years for an incentive stock option granted to a 10% stockholder and greater than ten years for all other options granted. Stock options awarded under both plans expire ten years after the grant date, unless the board of directors sets a shorter term. Vesting periods for both plans are determined at the discretion of the board of directors. Incentive stock options granted to employees and non-statutory options granted to employees, officers, members of the board of directors, advisors, and consultants of the Company typically vest over four years. Employee Stock Purchase Plan On July 9, 2018, the Company’s board of directors adopted and the Company’s stockholders approved the Employee Stock Purchase Plan (the “ESPP”), which became effective immediately prior to the effectiveness of the registration statement for the Company’s IPO. The total shares of common stock initially reserved for issuance under the ESPP is limited to 348,612 shares. In addition, as of the first trading day of each fiscal year during the term of the ESPP (excluding any extensions), an additional number of shares of the Company’s common stock equal to 1% of the total number of shares outstanding on the last trading day in the immediately preceding fiscal year or 697,224 shares, whichever is less (or such lesser amount as determined by the Company’s board of directors) will be added to the number of shares authorized under the ESPP. In accordance, on April 1, 2020, the number of shares reserved for issuance under the ESPP automatically increased by 366,687 shares, for a total of 1,031,868 shares reserved for the ESPP. In accordance, on April 1, 2019, the number of shares reserved for issuance under the ESPP automatically increased by 316,569 shares, for a total of 665,181 shares reserved for the ESPP. If the total number of shares of common stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the ESPP, then the plan administrator will allocate the available shares pro-rata and refund any excess payroll deductions or other contributions to participants. Stock option valuation The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company lacks company-specific historical and implied volatility information. Therefore, it estimated its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The following table presents, on a weighted-average basis, the assumptions that the Company used to determine the grant-date fair value of stock options granted to employees and directors: Three Months Ended June 30, 2020 2019 Risk-free interest rate 1.24 % 2.34 % Expected term (in years) 6.5 6.0 Expected volatility 75.0 % 71.0 % Expected dividend yield 0 % 0 % 16 Stock options The following table summarizes the Company’s stock option activity: Weighted Weighted Average Average Aggregate Number of Exercise Contractual Intrinsic Shares Price Term (Years) Value Outstanding as of March 31, 2020 4,964,381 $ 9.78 8.02 $ 15,344 Granted 1,721,504 10.43 9.77 Exercised (133,416 ) 11.60 Cancelled (41,947 ) 12.02 Outstanding as of June 30, 2020 6,510,522 9.90 8.29 $ 97,322 Options exercisable as of March 31, 2020 2,117,721 $ 5.66 7.20 $ 11,733 Options exercisable as of June 30, 2020 2,545,850 $ 7.01 7.21 $ 45,430 The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The weighted average grant-date fair value per share of stock options granted during the three months ended June 30, 2020 and 2019 was $6.94 and $9.96, respectively. The total fair value of options vested during the three months ended June 30, 2020 and 2019 was $4,633 and $211, respectively. Stock-based compensation expense Stock-based compensation expense was classified in the consolidated statements of operations as follows: Three Months Ended June 30, 2020 2019 Research and development $ 1,000 $ 841 General and administrative 1,468 969 $ 2,468 $ 1,810 As of June 30, 2020, total unrecognized compensation cost related to the unvested stock-based awards was $27,901, which is expected to be recognized over a weighted average period of 2.96 years. 10. Net loss per share Basic and diluted net loss per share attributable to common stockholders was calculated as follows: Three Months Ended June 30, 2020 2019 Numerator: Net loss attributable to common stockholders $ (17,493 ) $ (9,508 ) Denominator: Weighted average common shares outstanding, basic and diluted 39,862,319 31,661,430 Net loss per share attributable to common stockholders, basic and diluted $ (0.44 ) $ (0.30 ) 17 The November 2019 Pre-Funded Warrants and the June 2020 Pre-Funded Warrants are included in the calculation of basic and diluted net loss per share attributable to common stockholders. The Company’s potentially dilutive securities, which include stock options, preferred stock and warrants to purchase shares of series seed preferred stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect: Three Months Ended June 30, 2020 2019 Options to purchase common stock 6,510,522 4,845,068 Warrants to purchase convertible preferred stock (as converted to common stock) 497,344 497,344 7,007,866 5,342,412 11. Significant agreements Agreement with Bristol-Myers Squibb Company In February 2018, the Company entered into an agreement with Bristol-Myers Squibb Company (“BMS”). Pursuant to the agreement, BMS will provide to the Company, at no cost, a compound for use in the Company’s ongoing clinical trial. Under the agreement, the Company will sponsor, fund and conduct the clinical trial in accordance with an agreed-upon protocol. BMS granted the Company a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its intellectual property to its compound in the clinical trial and agreed to supply its compound, at no cost to the Company, for use in the clinical trial. In January 2020, this agreement was expanded to cover an additional cohort of 125 patients with anti-PD-1 refractory melanoma. Unless earlier terminated, the agreement will remain in effect until (i) the completion of the clinical trial, (ii) all related clinical trial data have been delivered to both parties and (iii) the completion of any statistical analyses and bioanalyses contemplated by the clinical trial protocol or any analysis otherwise agreed upon by the parties. The agreement may be terminated by either party (i) in the event of an uncured material breach by the other party, (ii) in the event the other party is insolvent or in bankruptcy proceedings or (iii) for safety reasons. Upon termination, the licenses granted to the Company to use BMS’s compound in the clinical trial will terminate. In April 2019, the Company entered into a separate agreement with BMS on terms similar to the terms set forth in the agreement described above, pursuant to which BMS will provide to the Company, at no cost, nivolumab for use in the Company’s Phase 1 clinical trial of RP2 in combination with nivolumab. As of June 30, 2020, the Company had not incurred any costs and does not expect to incur future costs in connection with this agreement. Agreement with Regeneron Pharmaceuticals, Inc . In May 2018, the Company entered into an agreement with Regeneron Pharmaceuticals, Inc. (“Regeneron”). The Company and Regeneron are each independently developing compounds for the treatment of certain tumor types. Pursuant to the agreement, the Company and Regeneron will undertake one or more clinical trials using a combination of the compounds being developed by each entity. Under the agreement, each study will be conducted under terms set out in a separately agreed upon study plan that will identify the name of the sponsor and which party will manage the particular clinical trial, and include the protocol, the budget and a schedule of clinical obligations. In June 2018, under the terms of the agreement between the Company and Regeneron, the parties agreed to the first study plan. The Company and Regeneron have agreed to the protocol, budget, sample testing and clinical obligations schedule under the study plan. Development and supply costs associated with the study plan will be split equally between the Company and Regeneron. Pursuant to the terms of the agreement, each party granted the other party a non-exclusive license under its respective intellectual property and agreed to contribute the necessary resources needed to fulfill its respective obligations, in each case, under the terms of the agreed-upon or to-be agreed upon study plans. Development costs of a particular clinical trial will be split equally between the Company and Regeneron. The agreement may be terminated by either party if (i) there is no active study plan for which a final study report has not been completed, (ii) the parties have not entered into a study plan for an additional clinical trial within a period of time after the delivery of the most recent final study report or (iii) in the event of a material breach. 18 The Company will account for costs incurred as part of the study, including costs to supply compounds for use in the study, as research and development expenses within the consolidated statement of operations. The Company will recognize any amounts received from Regeneron in connection with this agreement as an offset to research and development expense within the consolidated statement of operations. Under the terms of the agreement, on a quarterly basis the Company and Regeneron true-up costs of the study and make corresponding payments to the party that incurred the majority of the costs. During the three months ended June 30, 2020 or 2019, the Company did not make any payments under the terms of the agreement to Regeneron. During the three months ended June 30, 2020 and 2019, the Company received payments under the terms of the agreement to Regeneron of $971 and $337, respectively. As of June 30, 2020 and March 31, 2020, the Company recorded $1,432 and $971 of receivables from Regeneron in connection with this agreement in prepaid expenses and other current assets in the consolidated balance sheet, respectively. 12. Commitments and contingencies Leases In April 2016, the Company entered into a lease agreement for office and laboratory space in Abingdon, England. On June 29, 2020 the Company modified the lease terms to extend the expiration date to April 3, 2031 and the lease modification was not accounted for as a separate contract. As part of the lease modification, the lease liability was remeasured in accordance with the updated terms of the contract and the associated lease liability and right-of-use asset was increased by $1,580. The Company has the right to terminate the lease as of April 4, 2026 upon at least twelve months’ prior written notice. Monthly lease payments are inclusive of base rent, ancillary charges, non-rent shared tenant occupancy costs and the respective value added tax to be paid. Monthly lease payments include base rent of approximately $29 through June 23, 2020, $14 from June 24, 2020 through December 24, 2020, and $29 thereafter. Monthly base rent is subject to increase after April 2021 in proportion to the Retail Price Index or market rates. The lease is classified as an operating lease. In June 2018, the Company entered into an agreement to lease approximately 63,000 square feet of office, manufacturing and laboratory space in Framingham, Massachusetts. Pursuant to the lease agreement, the lease term commenced in December 2018, subject to the landlord completing certain agreed upon landlord improvements. The rent commencement date started in August 2019. The initial lease term is ten years from the rent commencement date and includes two optional five-year extensions. Annual lease payments during the first year were $2,373 with increases of 3.0% each year thereafter until the expiration of the lease. Construction was completed associated with approximately 10,500 square feet of the leased space in Framingham, Massachusetts and the Company occupied the building as office space beginning August 1, 2019. The Company recorded a right-of-use asset and lease liability associated with the occupied space as of August 1, 2019. The Company recorded $2,368 in related construction costs to the right-of-use asset upon the lease commencement date which were reclassified from prepaid rent. The Company occupied the remainder of the facility, approximately 53,000 square feet used as laboratory space, on October 22, 2019. The Company recorded a right-of-use asset and lease liability associated with the remaining space as of October 22, 2019. The Company recorded $18,164 in related construction costs and $261 in rent payments made prior to the lease commencement date to the right-of-use asset upon the lease commencement date which were reclassified from prepaid rent. The lease is classified as a financing lease. In June 2019, the Company entered into an agreement to lease approximately 18,700 square feet of office space in Woburn, Massachusetts. Pursuant to the lease agreement, the lease term commenced in August 2019. The rent commenced in September 2019. The initial lease term is ten years from the rent commencement date and includes an optional five-year extension. Annual lease payments during the first year are $488 with increases of approximately 1.6% each year. The Company recorded a right-of-use asset and a lease liability of $4,363 upon the commencement date of the lease and the lease is classified as an operating lease. 19 The Company determines if an arrangement is a lease at inception. Operating leases are included in our balance sheet as right-to-use—operating leases, operating lease liabilities, current and operating lease liabilities, non-current. Finance leases are included in the balance sheet as right-to-use asset—finance lease finance lease liabilities, current, and finance lease liabilities, non-current. Certain of the Company’s lease agreements contain renewal options; however, the Company does not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing the lease at inception or when a triggering event occurs. As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component. Some of the Company’s lease agreements contain rent escalation clauses (including index-based escalations). The Company recognizes the minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement. The Company amortizes this expense over the term of the lease beginning with the date of initial possession, which is the date the Company can enter the leased space and begin to make improvements in preparation for its intended use. Variable lease components represent amounts that are not fixed in nature and are not tied to an index or rate, and are recognized as incurred. Three Months Ended June 30, Lease cost 2020 2019 Finance lease costs: Amortization of right-to-use asset $ 607 $ - Interest on lease liabilities 561 - Operating lease costs 230 114 Total lease cost $ 1,398 $ 114 Finance lease costs of $90 and $0 are recognized in general and administrative expenses for the three months ended June 30, 2020 and 2019, respectively, and $517 and $0 in research and development expenses for the three months ended June 30 and 2019, respectively. Operating leases costs are recognized in general and administrative expenses for the three months ended June 30, 2020 and 2019. The following table summarizes the maturity of the Company’s lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating and financing lease liabilities recognized on our balance sheet as of June 30, 2020: 20 June 30, 2020 Operating leases Financing lease Total 2022 (remaining nine months) $ 599 $ 1,817 $ 2,416 2023 930 2,483 3,413 2024 939 2,558 3,497 2025 949 2,634 3,583 2026 958 2,713 3,671 Thereafter 4,832 43,686 48,518 Total lease payments 9,207 55,891 65,098 Less: interest 3,167 28,545 31,712 Total lease liabilities $ 6,040 $ 27,346 $ 33,386 The following table provides lease disclosure as of June 30, 2020 and March 31, 2020: June 30, 2020 March 31, 2020 Leases Right-to-use operating lease asset $ 5,852 $ 4,425 Right-to-use finance lease asset 46,318 46,925 Total lease assets $ 52,170 $ 51,350 Operating lease liabilities, current $ 830 $ 873 Finance lease liabilities, current 2,429 2,411 Operating lease liabilities, non-current 5,210 3,737 Finance lease liabilities, non-current 24,917 24,967 Total lease liabilities $ 33,386 $ 31,988 The following table provides lease disclosure for the three months ended June 30, 2020 and 2019: Three Months Ended June 30, 2020 2019 Other information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 209 $ 114 Operating cash flows from finance leases $ 561 $ - Financing cash flows from finance leases $ 32 $ - Right-to-use asset obtained in exchange for new operating lease liabilities $ 1,580 $ 789 Weighted-average remaining lease term - operating leases 9.8 years 1.8 years Weighted-average remaining lease term - financing leases 19.3 years - Weighted-average discount rate - operating leases 10 % 15 % Weighted-average discount rate - financing leases 8 % 0 % The variable lease costs and short-term lease costs were insignificant for three months ended June 30, 2020 and 2019. Manufacturing commitments The Company has entered into an agreement with a contract manufacturing organization to provide clinical trial products. As of June 30, 2020 and March 31, 2020, the Company had committed to minimum payments under these arrangements totaling $3,109 and $3,569, respectively, through March 31, 2021. Indemnification agreements In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and therefore it has not accrued any liabilities related to such obligations in its consolidated financial statements as of June 30, 2020 or March 31, 2020. 21 Legal proceedings The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. 13. Geographic information The Company operates in two geographic regions: the United States (Massachusetts) and the United Kingdom (Oxfordshire). Information about the Company’s long-lived assets held in different geographic regions is presented in the tables below: June 30, 2020 March 31, 2020 United States $ 6,806 $ 6,357 United Kingdom 551 503 $ 7,357 $ 6,860 22 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 together with our unaudited consolidated financial statements and related notes appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended March 31, 2020, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020. Some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10- Q, including information with respect to our plans and strategy for our business, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly including those risks identified in Part II, Item 1A “Risk factors” and our other filings with the SEC. Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Overview General We are a clinical-stage biotechnology company committed to applying our leading expertise in the field of oncolytic immunotherapy to transform the lives of cancer patients. We use our proprietary Immulytic platform to design and develop product candidates that are intended to maximally activate the immune system against cancer. Oncolytic immunotherapy, which we intend to establish as the second cornerstone of immune-based cancer treatment, is an emerging class of immuno-oncology therapy, alongside checkpoint blockade, that exploits the ability of certain viruses to selectively replicate in and directly kill tumors, as well as induce a potent, patient-specific, anti-tumor immune response. Such oncolytic, or "cancer killing," viruses have the potential to generate an immune response targeted to an individual patient's particular set of tumor antigens, including neo-antigens that are uniquely present in tumors. Our product candidates incorporate multiple mechanisms of action into a practical "off-the-shelf" approach that is intended to maximize the immune response against a patient's cancer and to offer significant advantages over personalized vaccine approaches. We believe that the bundling of multiple approaches for the treatment of cancer into single therapies will simplify the development path of our product candidates, while also improving patient outcomes at a lower cost to the healthcare system than the use of multiple different drugs. The foundation of our Immulytic platform consists of a proprietary, engineered strain of herpes simplex virus 1, or HSV-1, that has been "armed" with a fusogenic glycoprotein intended to substantially increase anti-tumor activity. Our Immulytic platform enables us to incorporate various genes into HSV-1 that are intended to further augment the inherent properties of HSV-1 in order to both directly destroy tumor cells and induce an anti-tumor immune response. We currently have three product candidates in our development pipeline, RP1, our lead product candidate, and additionally RP2 and RP3. We are currently conducting a number of clinical trials of RP1, both as a monotherapy and in combination with anti-PD-1 therapy, with a focus on immune-responsive tumors. We are conducting a randomized, controlled Phase 2 clinical trial of RP1 in approximately 240 patients with cutaneous squamous cell carcinoma, or CSCC, RP1's lead indication. This registration-directed clinical trial is evaluating RP1 in combination with cemiplimab, an anti-PD-1 therapy developed by Regeneron Pharmaceuticals, Inc., or Regeneron, versus cemiplimab alone. Regeneron has granted to us a non-exclusive royalty-free license to cemiplimab for use in this trial, is funding one-half of the clinical trial costs, and is supplying cemiplimab at no cost to us. If compelling clinical data are generated demonstrating the benefits of the combined treatment in this clinical trial, we believe the data from this Phase 2 clinical trial could support a filing with regulatory authorities for marketing approval. Recruitment into this Phase 2 clinical trial is expected to take approximately eighteen to twenty-four months and we expect the primary data readout from the clinical trial in 2022. We have also opened for enrollment a Phase 1b clinical trial of single agent RP1 in solid organ transplant recipients with CSCC, which we believe to be potentially registrational (in its own right or, subject to discussion with regulatory authorities, following enrollment of additional patients). We intend to enroll approximately 30 patients in this clinical trial to assess the safety and efficacy of RP1 in liver and kidney transplant recipients with recurrent CSCC. 23 We have entered into a collaboration with Bristol-Myers Squibb Company, or BMS, under which it has granted us a non-exclusive, royalty-free license to, and is supplying at no cost, its anti-PD-1 therapy, nivolumab, for use in combination with RP1 in a multi-cohort clinical trial. We are currently enrolling a 125-patient extension cohort of RP1 combined with nivolumab in anti-PD-1 refractory cutaneous melanoma. We initiated this cohort after completing enrollment in a prior Phase 2 cohort in the same clinical trial of approximately 30 patients with melanoma. The data generated in the melanoma cohort demonstrated that RP1 combined with nivolumab has the potential to treat anti-PD-1 refractory melanoma. We also believe this cohort to be potentially registrational (in its own right or, subject to discussion with regulatory authorities, following enrollment of additional patients). We continue to enroll patients in other Phase 2 cohorts of approximately 30 patients each, testing RP1 in combination with nivolumab in non-melanoma skin cancers and microsatellite instability high, or MSI-H/dMMR, tumors under our collaboration with BMS. Due in part to COVID-19 related disruptions, we expect that the non-melanoma skin cancer cohort to be fully accrued by the end of 2020. Similarly, it is likely that accumulating sufficient data to inform a decision as to whether to pursue MSI-H/dMMR tumors into registration-directed development will be delayed into 2021. In addition, as a result of changes in the competitive landscape, we recently announced our intention to replace a 30 patient bladder cancer cohort with a cohort of patients with anti-PD-1 refractory non-small cell lung cancer, or NSCLC. We intend to initiate enrollment into this cohort later this year. We are also developing additional product candidates, RP2 and RP3, that have been further engineered to enhance anti-tumor immune responses and are intended to address additional tumor types. In addition to the expression of GALV-GP R(-) and human GM-CSF, RP2 has been engineered to express an antibody-like molecule intended to block the activity of CTLA-4, a protein that inhibits the immune response to tumors. RP3 has been engineered with the intent to further stimulate an anti-tumor response through activation of the immune co-stimulatory pathways through expression of the ligands for CD40 and 4-1BB. We initiated a Phase 1 clinical trial of RP2 in October 2019. The Phase 1 clinical trial of RP2 is also being conducted as a collaboration with BMS, under which BMS has granted us a non-exclusive, royalty-free license to, and will supply at no cost, nivolumab, for use in combination with RP2. We expect to release initial safety and efficacy data from this Phase 1 clinical trial in the second half of 2020. Based on the data generated to date, we have decided to amend the protocol to allow for an expansion of the second part of this clinical trial (of RP2 combined with nivolumab) from 12 to 30 patients. We intend to file an Investigational New Drug application, or IND, and/or foreign equivalents for RP3 and, assuming regulatory clearance, enter clinical development during 2020. IND and/or foreign equivalent enabling studies of RP3 are currently underway. Recent Developments During the quarter ended June 30, 2020, we announced interim data from the Phase 2 part of our Phase 1/2 clinical trial of RP1 in which we are assessing the safety and efficacy of RP1 in combination with nivolumab in cohorts of approximately 30 patients. We announced that four of seven evaluable CSCC patients in the 30-patient non-melanoma skin cancer cohort have ongoing complete responses and six of the seven evaluable patients have either an ongoing complete response or an ongoing partial response. We continue to believe this interim data demonstrates that RP1 in combination with nivolumab is well-tolerated, demonstrates immune activation and continues to drive deep and durable responses in patients with CSCC. Of particular note, we observed clear differentiation in the number of complete responses in patients with advanced CSCC who were treated with RP1 in combination with nivolumab as compared to the number of complete responses which we believe would be expected in patients if they were treated with nivolumab alone. 24 We have enrolled and treated 36 melanoma patients, including the six melanoma patients enrolled into the Phase 1 expansion cohort of RP1 combined with nivolumab. 16 patients with anti-PD-1 refractory cutaneous melanoma have been treated as have an additional 20 patients with anti-PD-1 naïve cutaneous melanoma, uveal melanoma (all anti-PD-1 refractory), and mucosal melanoma (anti-PD-1 naïve or refractory). Five of the 16 anti-PD-1 refractory cutaneous melanoma patients at the data cut-off date met the formal definition of response, with an additional two patients remaining on treatment with the opportunity for response. Accordingly, we will observe a final response rate from this cohort of at least 31%. Four of eight anti-PD-1 naïve cutaneous melanoma patients met the formal definition of response at the data cut-off date, with an additional two patients continuing on treatment with the opportunity for response. Additionally, two of the six mucosal melanoma patients met the formal definition of response at the data cut-off date, and two of the six uveal melanoma patients are on study with the opportunity of response, with one such uveal melanoma patient demonstrating a 27.3% reduction in target disease burden as of the last CT scan in April 2020. Financial overview Since our inception, we have devoted substantially all of our resources to developing our Immulytic platform and our lead product candidate, RP1, building our intellectual property portfolio, conducting research and development of our product candidates, business planning, raising capital and providing general and administrative support for our operations. To date, we have financed our operations primarily with proceeds from the sale of equity securities and to a lesser extent the proceeds from the issuance of debt securities. We do not have any products approved for sale and have not generated any revenue from product sales. On July 24, 2018, we completed our initial public offering (“IPO”) of our common stock and issued and sold 6,700,000 shares of our common stock at a public offering price of $15.00 per share, resulting in net proceeds of approximately $93.5 million after deducting underwriting discounts and commissions but before deducting offering costs. On July 30, 2018, we issued and sold an additional 707,936 shares of our common stock at the IPO price of $15.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of approximately $9.9 million after deducting discounts and commissions but before deducting other offering expenses. On August 8, 2019, we entered into a Loan and Security Agreement with Hercules Capital, Inc. (“Hercules Loan Agreement”), pursuant to which we borrowed $10.0 million under a secured term loan facility in the amount of $30.0 million (“Term Loan Facility”). The Hercules Loan Agreement was subsequently amended on June 1, 2020, in order to, among other things, increase the secured term loan facility from $30.0 million to $40.0 million. Also on August 8, 2019, we entered into a Sales Agreement with SVB Leerink LLC (“Sales Agreement”), pursuant to which we could sell, from time to time, at our option, up to an aggregate amount of $75.0 million of shares of our common stock, of which we have sold $4.5 million as of June 30, 2020. In June 2020 the Sales Agreement was amended to reduce the aggregate offering amount under the Sales Agreement from $75,000 of shares to $30,000 of Shares. On November 18, 2019, we completed a follow-on public offering, or the November Offering, of (i) 3,678,031 shares of our common stock at a public offering price of $13.61 per share and (ii) pre-funded warrants to purchase 2,200,000 shares of our common stock at a purchase price of $13.6099 per pre-funded warrant, the public offering price per share of common stock less the $0.0001 per share exercise price of each pre-funded warrant. On December 13, 2019 we sold 838,530 shares of our common stock to the underwriters at the public offering price in connection with the underwriters’ partial exercise of their option to purchase additional shares of our common stock. We received aggregate net proceeds of approximately $85.6 million after deducting underwriting discounts, commissions and other offering expenses of approximately $5.8 million. On June 11, 2020, we completed an additional follow-on public offering, or the “June Offering”, of (i) 2,826,088 shares of our common stock at a public offering price of $23.00 per share and (ii) pre-funded warrants to purchase 1,521,738 shares of our common stock at a purchase price of $22.9999 per pre-funded warrant, the public offering price per share of common stock less the $0.0001 per share exercise price of each pre-funded warrant. On June 29, 2020 we sold 652,173 shares of our common stock to the underwriters at the public offering price in connection with the underwriters’ full exercise of their option to purchase additional shares of our common stock. We received aggregate net proceeds of approximately $107.8 million after deducting underwriting discounts, commissions and other offering expenses of approximately $7.2 million. 25 Funds affiliated with two separate institutional investors hold all of our outstanding pre-funded warrants. Other than as set forth in Note 10 of our condensed consolidated financial statements appearing elsewhere in this Quarterly Report, the 3,721,738 shares of our common stock into which our outstanding pre-funded warrants are exercisable are not included in the number of issued and outstanding shares of our common stock set forth in this Quarterly Report. However, the November 2019 Pre-Funded Warrants and the June 2020 Pre-Funded Warrants are included in the calculation of basic and diluted net loss per share attributable to common stockholders (see Note 10). Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. Our net losses were $17.5 million and $9.5 million for the three months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, we had an accumulated deficit of $129.8 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates, and if and as we: ● conduct our current and future clinical trials with RP1; ● progress the clinical development of RP2 and preclinical development of RP3; ● operate our own in-house manufacturing facility; ● seek to identify and develop additional product candidates; ● seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any; ● establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; ● maintain, expand and protect our intellectual property portfolio; ● hire and retain additional clinical, quality control, scientific and general and administration personnel; ● acquire or in-license other drugs and technologies; and ● add operational, financial and management information systems and personnel, including personnel to support our research and development programs and any future commercialization efforts. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for RP1 or our other product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership in any jurisdiction, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing, and distribution. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of one or more of our product candidates. 26 Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As of June 30, 2020, we had cash and cash equivalents and short-term investments of $261.8 million. We believe that our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements through at least 12 months from the issuance of the consolidated financial statements included in this Quarterly Report on Form 10-Q. See “—Liquidity and capital resources” and “Risk factors—Risks related to our financial position and need for additional capital.” Components of our results of operations Revenue To date, we have not generated any revenue from product sales as we do not have any approved products and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for RP1 or any other product candidates that we may develop in the future are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from those collaborations or license agreements. Operating expenses Our expenses since inception have consisted solely of research and development costs and general and administrative costs. Research and development expenses Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, and include: ● expenses incurred under agreements with third parties, including clinical research organizations, or CROs, that conduct research, preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture our product candidates for use in our preclinical and clinical trials; ● salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions; ● costs of outside consultants, including their fees, stock-based compensation and related travel expenses; ● the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; ● costs related to compliance with regulatory requirements in connection with the development of our product candidates; and ● facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. 27 These costs will be partially offset by our agreement with Regeneron related to our Phase 2 clinical trial of RP1 in approximately 240 patients with CSCC clinical trial . We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Our direct external research and development expenses are tracked on a program-by-program basis and consist of costs, such as fees paid to consultants, contractors, CMOs, and CROs in connection with our preclinical and clinical development activities. To date, we have not allocated expenses to our earlier-stage programs for RP2 and RP3. In addition, we do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. The table below summarizes our research and development expenses by product candidate or development program for each of the periods presented: Three Months Ended June 30, 2020 2019 (Amounts in thousands) Direct research and development expenses by program: RP1 5,997 $ 3,701 Unallocated research and development expenses: Personnel related (including stock-based compensation) 5,060 3,086 Other 1,100 670 Total research and development expenses $ 12,157 $ 7,457 Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue enrollment and initiate additional clinical trials of RP1, pursue initial stages of clinical development of RP2, complete preclinical development of RP3 and continue to discover and develop additional product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following: ● the scope, rate of progress, expense and results of our ongoing clinical trials, as well future clinical trials or other product candidates and other research and development activities that we may conduct; ● the number and scope of preclinical and clinical programs we decide to pursue; ● our ability to maintain our current research and development programs and to establish new ones; ● uncertainties in clinical trial design and patient enrollment rates; ● the successful completion of clinical trials with safety, tolerability, and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority; ● the receipt of regulatory approvals from applicable regulatory authorities; 28 ● our success in operating a manufacturing facility, or securing manufacturing supply through relationships with third parties; ● our ability to obtain and maintain patents, trade secret protection, and regulatory exclusivity, both in the United States and internationally; ● our ability to protect our rights in our intellectual property portfolio; ● the commercialization of our product candidates, if and when approved; ● the acceptance of our product candidates, if approved, by patients, the medical community, and third-party payors; ● our ability to successfully develop our product candidates for use in combination with third-party products or product candidates; ● negative developments in the field of immuno-oncology; ● competition with other products; and ● significant and changing government regulation and regulatory guidance. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant trial delays due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development. We may never succeed in obtaining regulatory approval for any of our product candidates. General and administrative expenses General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and the development and potential commercialization of our product candidates. We also expect to continue to incur increased expenses, including accounting, audit, legal, regulatory and tax-related services costs associated with maintaining compliance with exchange listing and SEC requirements; director and officer insurance costs; and investor and public relations costs. Other income (expense), net Research and development incentives Research and development incentives consists of reimbursements of research and development expenditures. We participate, through our subsidiary in the United Kingdom, in the research and development program provided by the United Kingdom tax relief program, such that a percentage of up to 14.5% of our qualifying research and development expenditures are reimbursed by the United Kingdom government, and such incentives are reflected as other income. Investment income Investment income consists of income earned on our cash and cash equivalents and short-term investments. Interest expense on finance lease liability 29 Interest expense on finance lease liability consists of amortization of finance charges under our financing lease. Interest expense on debt obligations Interest expense on debt obligations consists of the amortization of debt discount and cash paid for interest under the Term Loan Facility. Other income (expense), net Other income (expense), net consists primarily of realized and unrealized foreign currency transaction gains and losses. Income taxes Since our inception and through June 30, 2020, we have not recorded any income tax benefits for the net losses we incurred in each jurisdiction in which we operate, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards will not be realized. Results of operations Comparison of the three months ended June 30, 2020 and 2019 The following table summarizes our results of operations for the three months ended June 30, 2020 and 2019: Three Months Ended June 30, 2020 2019 Change (Amounts in thousands) Operating expenses: Research and development $ 12,157 $ 7,457 $ 4,700 General and administrative 5,676 3,450 2,226 Total operating expenses 17,833 10,907 6,926 Loss from operations (17,833 ) (10,907 ) (6,926 ) Other income (expense): Research and development incentives 686 621 65 Investment income 527 687 (160 ) Interest expense on finance lease liability (561 ) - (561 ) Interest expense on debt obligations (284 ) - (284 ) Other income (28 ) 91 (119 ) Total other income (expense), net 340 1,399 (940 ) Net loss $ (17,493 ) $ (9,508 ) $ (7,866 ) 30 Research and development expenses Three Months Ended June 30, 2020 2019 Change (Amounts in thousands) Direct research and development expenses by program: RP1 5,997 $ 3,701 $ 2,296 Unallocated research and development expenses: Personnel related (including stock-based compensation) 5,060 3,086 1,974 Other 1,100 670 430 Total research and development expenses $ 12,157 $ 7,457 $ 4,700 Research and development expenses for the three months ended June 30, 2020 were $12.2 million, compared to $7.5 million for the year ended June 30, 2019. The increase of $4.7 million was due primarily to an increase of approximately $2.3 million in direct research costs associated with RP1 and an approximately $2.4 million increase in our unallocated research and development costs. The increase in RP1 costs was due primarily to an increase in clinical trial costs in the three months ended June 30, 2020 associated with our ongoing clinical trials as well as costs associated with operations of our new manufacturing facility for RP1 clinical trial supplies The increase in unallocated research and development expenses reflected an increase of $2.0 million in personnel-related costs, including stock-based compensation and an increase of $0.2 million in other costs. The increase in personnel-related costs largely reflected the hiring of additional personnel in our research and development functions as we expanded the development plan for RP1 in multiple indications. Personnel related costs for the three months ended June 30, 2020 and 2019 included stock-based compensation expense of $1.0 million and $0.8 million, respectively. Other costs increased primarily due to our potential registrational studies associated with our RP1 development plan with multiple cohorts as well as costs associated with operations of our new manufacturing facility. General and administrative expenses General and administrative expenses were $5.7 million for the three months ended June 30, 2020, compared to $3.5 million for the three months ended June 30, 2019. The increase of $2.2 million primarily reflected increases of $1.0 million in personnel related costs, increases of $0.6 million in facility and other variable costs and increases of $0.6 million in professional fees. The increase in personnel related costs was due to the hiring of additional personnel in our general and administrative functions as we expanded our operations in the United States. The increase in professional fees was due to costs associated with increased spending to build out our information technology capabilities as well legal and accounting fees related to ongoing business operations and enhancements to the internal control environment. The increase in facility and other variable costs was due primarily to an increase in costs associated with our directors and officers insurance. Total other income, net Other income (expense) was $0.3 million for the three months ended June 30, 2020, compared to $1.4 million for the three months ended June 30, 2019. The decrease of $1.1 million was primarily attributable to a $0.6 million increase in interest related to our finance lease liability, a $0.3 million increase in interest expense on debt obligations related to our Term Loan Facility, a $0.1 decrease in other income due primarily to the changes in foreign exchange rates of the Great British Pounds to United States Dollar and a $0.2 million decrease in investment income due to fluctuations in the rate of return on investments, partially offset by a $0.1 million increase in research and development incentives. 31 The COVID-19 Pandemic In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, which continues to spread throughout the U.S. and worldwide. We could be materially and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other public health crisis, such as the recent outbreak of COVID-19. We are continuing to monitor the global outbreak and spread of COVID-19 and have taken steps to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and actions taken by governmental and health authorities to address the COVID-19 pandemic. The spread of COVID-19 has caused us to modify our business practices, including implementing a global work from home policy for certain employees who are able to perform their duties remotely and restricting all nonessential travel. For those employees working from our facilities, including certain essential employees in our laboratory and who perform manufacturing functions, and certain other employees who we deem essential from time to time, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees, the patients we serve and other business partners in light of COVID-19. The COVID-19 pandemic has delayed, and we expect it may continue to delay, the timing of patient enrollment and treatment in certain of our ongoing clinical studies. For example, the enrollment of our clinical trial of RP1 in solid organ transplant patients with CSCC, representing a highly immunocompromised patient populations, has been slower than expected for reasons we attribute to the COVID-19 pandemic. However, the extent of such delay is currently unknown and has and will likely continue to vary by clinical study site. In addition, we may incur unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays. The impact of COVID-19 on our business 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 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—Our financial condition and results of operations could be adversely affected by the recent novel coronavirus disease-2019, or COVID-19, outbreak.” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Liquidity and capital resources Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we do not expect to generate revenue from sales of any products for the foreseeable future, if at all. Sources of liquidity To date, we have financed our operations primarily with proceeds from the sale of equity securities and, to a lesser extent, proceeds from the issuance of debt securities. Through June 30, 2020, we had received gross proceeds of approximately $419.0 million from our sales of equity instruments and $10.0 million from the issuance of debt. As of June 30, 2020, we had cash and cash equivalents and short-term investments of $261.8 million. On July 24, 2018, we completed our IPO and issued and sold 6,700,000 shares of our common stock at a public offering price of $15.00 per share, resulting in net proceeds of $93.5 million after deducting underwriting discounts and commissions but before deducting offering costs. On July 30, 2018, we issued and sold an additional 707,936 shares of our common stock at the IPO price of $15.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of our common stock, resulting in additional net proceeds of $9.9 million after deducting discounts and commissions but before deducting other offering expenses. On August 8, 2019, we entered into the Hercules Loan Agreement, pursuant to which we borrowed $10.0 million under the secured Term Loan Facility in the amount of $30.0 million. On June 1, 2020, the Company amended the Hercules Loan Agreement to, among other things, increase the secured term loan facility from $30.0 million to $40.0 million by adding a fourth advance of up to $10.0 million which may be borrowed between July 1, 2021 and December 15, 2021. On August 8, 2019, we entered into the Sales Agreement with SVB Leerink LLC, pursuant to which we may sell, from time to time, at our option, up to an aggregate amount of $75.0 million of shares of our common stock, of which we sold $4.5 million as of June 30, 2020. On June 8, 2020 the Sales Agreement was amended to reduce the aggregate offering amount under the Sales Agreement from $75.0 million of shares to $30.0 million of Shares. On November 18, 2019, we closed the November Offering of (i) 3,678,031 shares of its common stock at a public offering price of $13.61 per share and (ii) pre-funded warrants to purchase 2,200,000 shares of our common stock at a purchase price of $13.6099 per pre-funded warrant, the public offering price per share of the common stock less the $0.0001 per share exercise price of each pre-funded warrant. On December 13, 2019, we sold 838,530 shares of our common stock at the public offering price in connection with the underwriters’ partial exercise of an option to purchase additional shares of our common stock. We received aggregate net proceeds of approximately $85.6 million after deducting underwriting discounts, commissions and other offering expenses of approximately $5.8 million. On June 12, 2020, we closed the June Offering of (i) 2,826,088 shares of our common stock at a public offering price of $23.00 per share and (ii) pre-funded warrants to purchase 1,521,738 shares of our common stock at a purchase price of $22.9999 per pre-funded warrant, the public offering price per share of common stock less the $0.0001 per share exercise price of each pre-funded warrant. On June 29, 2020 we sold 652,173 shares of our common stock to the underwriters at the public offering price in connection with the underwriters’ full exercise of their option to purchase additional shares of our common stock. We received aggregate net proceeds of approximately $107.8 million after deducting underwriting discounts, commissions and other offering expenses of approximately $7.2 million. 32 Cash flows The following table summarizes our cash flows for each of the periods presented: Three Months Ended June 30, 2020 2019 (Amounts in thousands) Net cash used in operating activities $ (15,090 ) $ (13,582 ) Net cash provided by (used in) investing activities (49,126 ) 26,811 Net cash provided by financing activities 109,514 18 Effect of exchange rate changes on cash and cash equivalents (1 ) (137 ) Net increase (decrease) in cash and cash equivalents $ 45,297 $ 13,110 Operating activities During the three months ended June 30, 2020, net cash used in operating activities was $15.1 million, primarily resulting from our net loss of $17.5 million and net cash used by changes in our operating assets and liabilities of $0.6 million, partially offset by non-cash charges of $3.0 million. Net cash used by our changes in our operating assets and liabilities for the three months ended June 30, 2020 consisted primarily of a $0.7 million increase in research and development incentive receivables, partially from the United Kingdom government due to the timing and amount of our qualifying expenditures, $0.3 million increase in prepaid expenses and other current assets and $0.2 million decrease in accounts payable, partially offset by $0.6 million net decrease related to ASC 842 (including changes in operating lease liabilities, operating lease, right-of-use asset and financing lease, right-of-use asset). The changes in accounts payable were primarily due to the timing of vendor invoicing and payments. During the three months ended June 30, 2019, net cash used in operating activities was $13.6 million, primarily resulting from our net loss of $9.5 million and net cash used by changes in our operating assets and liabilities of $5.5 million, partially offset by net non-cash charges of $1.4 million. Net cash used by changes in our operating assets and liabilities for the three months ended June 30, 2019 consisted primarily of a $6.9 million increase in long term prepaid rent, a $0.9 million decrease in accrued expenses and other current liabilities, a $0.8 million increase in prepaid expenses and other current assets, a $0.6 million increase in the research and development incentives receivable from the United Kingdom government due to the timing and amount of our qualifying expenditures and $0.1 million decrease in lease liabilities, partially offset by a $3.8 million increase in accounts payable and $0.1 million decrease in right-to-use asset. 33 Investing activities During the three months ended June 30, 2020, net cash used in investing activities was $49.1 million, consisting of $125.8 million in purchases of available for sale securities and $0.9 million in purchases of property, plant and equipment, partially offset by $77.6 million in proceeds from sales and maturities of short-term investments. During the three months ended June 30, 2019, net cash provided by investing activities was $26.8 million, consisting of $45.7 million in proceeds from sales and maturities of short-term investments, partially offset by $18.5 million in purchases of available for sale securities and $0.4 million in purchases of property, plant and equipment. Financing Activities During the three months ended June 30, 2020, net cash provided by financing activities was $109.5 million, consisting of $75.2 million from the issuance of common stock, $32.9 million in net proceeds from the issuance of pre-funded warrants to purchase common stock in connection with our follow-on public offering in June 2020, $1.5 million in proceeds from the exercise of stock options, partially offset by $0.1 million of issuance costs. During the three months ended June 30, 2019, net cash provided by financing activities consists of an immaterial amount of proceeds from the exercise of stock options. Hercules Loan Agreement On August 8, 2019 and as amended on June 1, 2020, we and certain of our affiliates entered into the Hercules Loan Agreement with Hercules Capital, Inc., which, provided for aggregate borrowings of up to $40.0 million in the form of term loans. We borrowed $10.0 million at closing under the Hercules Loan Agreement. We may borrow the unused $30.0 million available under the Term Loan Facility in three separate advances. The second advance of up to $10.0 million may be borrowed between October 1, 2020 and December 15, 2020, the third advance of up to $10.0 million may be borrowed between July 1, 2020 and June 30, 2021 and the fourth advance of up to $10.0 million may be borrowed between July 1, 2021 and December 15, 2021 which contains certain borrowing milestones as defined in the agreement. In the event the Company does not draw on the second advance or if the Term Loan Facility is terminated prior to a draw of the second advance, the Company shall pay Hercules a one-time facility charge fee of $0.1 million on the earliest of (i) December 16, 2020 or (ii) the date the Company prepays the outstanding obligations. Borrowings under the Hercules Loan Agreement bear interest at a rate per annum equal to the greater of either (i) the prime rate as reported in The Wall Street Journal plus 2.75%, or (ii) 8.75%. Under the Hercules Loan Agreement, we were required to make monthly interest-only payments through September 1, 2022, and are required to make equal monthly payments of principal, plus accrued interest, from October 1, 2022 through August 1, 2023. As of June 30, 2020, the outstanding principal amount under the Hercules Loan Agreement was $10.0 million. The term of the Hercules Loan Agreement is four years, ending August 1, 2023. We may voluntarily prepay all, but not less than all, of the outstanding principal at any time prior to the maturity date, subject to a prepayment fee, which ranges from 1% to 3% of the outstanding principal. A final payment of 4.95% of the aggregate amount of any advances made under the Hercules Loan Agreement. The Term Loan Facility is secured by substantially all of our assets, excluding our intellectual property, and subject to certain exceptions and exclusions. The Hercules Loan Agreement contains customary affirmative and negative covenants, including restrictions on our ability to pay dividends, incur debt, grant liens, make acquisitions, make loans, dissolving, and entering into leases and asset sales, but does not contain any financial covenants. 34 Funding requirements Our plan of operation is to continue implementing our business strategy, continue research and development of RP1 and our other product candidates and continue to expand our research pipeline and our internal research and development capabilities. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates, and if and as we: ● conduct our current and future clinical trials of RP1; ● progress the preclinical and clinical development of RP2 and RP3; ● operate our own in-house manufacturing facility; ● seek to identify and develop additional product candidates; ● seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any; ● establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; ● until our planned manufacturing facility is fully validated, continued manufacturing by third parties of larger quantities of our product candidates for clinical development. ● maintain, expand and protect our intellectual property portfolio; ● acquire or in-license other drugs and technologies; and ● add operational, financial and management information systems and personnel, including personnel to support our research and development programs and any future commercialization efforts. As of June 30, 2020, we had cash and cash equivalents and short-term investments of $261.8 million. We believe that our existing cash and cash equivalents and short-term investments along with our debt commitments will enable us to fund our operating expenses and capital expenditure requirements to mid-2023. Because of the numerous risks and uncertainties associated with the development of RP1 and other product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including those described in this section and above under “—Operating expenses—Research and development expenses.” Developing novel biopharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any products for which we may obtain marketing approval. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of therapies that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of our equity or convertible debt securities, our shareholders’ interest may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of our common stockholder. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt adversely impact our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. 35 Contractual obligations and commitments During the three months ended June 30, 2020, there were no material changes to our contractual obligations and commitments from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the year ended March 31, 2020, which was filed with the Securities and Exchange Commission on June 3, 2020. Collaborations BMS On February 26, 2018, we entered into a Clinical Trial Collaboration and Supply Agreement with Bristol-Myers Squibb Company, or BMS. Pursuant to the agreement, BMS is providing to us, at no cost, nivolumab, its anti-PD-1 therapy, for use in combination with RP1 in our ongoing Phase 1/2 clinical trial. Under the agreement, we will sponsor, fund and conduct the clinical trial in accordance with an agreed-upon protocol. BMS granted us a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its intellectual property to use nivolumab in the clinical trial and has agreed to supply nivolumab, at no cost to us, for use in the clinical trial. Both parties will own the study data produced in the clinical trial, other than study data related solely to nivolumab, which will belong solely to BMS, or study data related solely to RP1, which will belong solely to us. In January 2020, this agreement was expanded to cover an additional cohort of 125 patients with anti-PD-1 refractory melanoma. Unless earlier terminated, the agreement will remain in effect until (i) the completion of the clinical trial, (ii) all related clinical trial data have been delivered to both parties and (iii) the completion of any statistical analyses and bioanalyses contemplated by the clinical trial protocol or any analysis otherwise agreed upon by the parties. The agreement may be terminated by either party (i) in the event of an uncured material breach by the other party, (ii) in the event the other party is insolvent or in bankruptcy proceedings or (iii) for safety reasons. Upon termination, the licenses granted to us to use nivolumab in the clinical trial will terminate. The agreement contains representations, warranties, undertakings and indemnities customary for a transaction of this nature. On April 12, 2019, we entered into a separate agreement with BMS on terms similar to the terms set forth in the agreement described above, pursuant to which BMS will provide, at no cost to us, nivolumab for use in our Phase 1 clinical trial of RP2 in combination with nivolumab. Regeneron On May 29, 2018, we entered into a Master Clinical Trial Collaboration and Supply Agreement with Regeneron Pharmaceuticals, Inc., or Regeneron. Pursuant to the agreement we agreed to undertake one or more clinical trials with Regeneron for the administration of our product candidates in combination with cemiplimab, an anti-PD-1 therapy developed by Regeneron, across multiple solid tumor types, the first of which is our ongoing Phase 2 clinical trial testing RP1 in combination with cemiplimab versus cemiplimab alone in patients with CSCC. Each clinical trial will be conducted pursuant to an agreed study plan which, among other things, will identify the name of the sponsor and which party will manage the particular study, and include the protocol, the budget and a schedule of clinical obligations. The first study plan related to the Phase 2 clinical trial in CSCC has been agreed. Pursuant to the terms of the agreement, each party granted the other party a non-exclusive license of their respective intellectual property and agreed to contribute the necessary resources needed to fulfill their respective obligations, in each case, under the terms of agreed study plans. Development costs of a particular clinical trial will be split equally. The agreement contains representations, warranties, undertakings and indemnities customary for a transaction of this nature. The agreement also contains certain covenants that restrict us from entering into a third-party arrangement with respect to the use of our product candidates in combination with an anti-PD-1 therapy and that restrict Regeneron from entering into a third-party arrangement with respect to the use of cemiplimab in combination with an HSV-1 virus, in each case, for the treatment of a tumor type that is the subject of a clinical trial to which the covenants apply. Unless otherwise mutually agreed in a future study plan, these covenants are only applicable to our ongoing Phase 2 clinical trial in CSCC, and expire upon the one-year anniversary of the commencement of the applicable study plan. The agreement may be terminated by either party if (i) there is no active study plan for which a final study report has not been completed, (ii) the parties have not entered into a study plan for an additional clinical trial within a period of time after the delivery of the most recent final study report or (iii) in the event of a material breach. 36 Critical accounting policies and significant judgments and estimates Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report Form on 10-Q, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements. Accrued research and development expenses As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to: ● CROs in connection with performing research activities and conducting preclinical studies and clinical trials on our behalf; ● CMOs in connection with the production of preclinical and clinical trial materials; ● investigative sites or other service providers in connection with clinical trials; ● vendors in connection with preclinical and clinical development activities; and ● vendors related to product manufacturing and development and distribution of preclinical and clinical supplies. We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses. 37 Stock-based compensation We measure stock-based awards granted to employees and directors based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. We have to date only issued stock-based awards with service-based vesting conditions and record the expense for these awards using the straight-line method. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. See Note 9 to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for more information. Forfeitures are accounted for as they occur. The fair value of each stock-based award is estimated on the date of grant based on the fair value of our common stock on that same date. Prior to the adoption of ASC 2018-07 on April 1, 2019, for stock-based awards granted to consultants and non-employees, we recognize compensation expense over the period during which services are rendered by such non-employees and consultants until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option pricing model. After the adoption of ASC 2018-07, for stock-based awards granted to consultants and non-employees, we measure stock-based these awards based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. We have to date only issued stock-based awards with service-based vesting conditions and record the expense for these awards using the straight-line method. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. We classify stock-based compensation expense in our consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. Off-balance sheet arrangements We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Recently issued accounting pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Emerging growth company status As an “emerging growth company,” the Jumpstart Our Business Startups Act of 2012 permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies. 38