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Item 7. Management’s Discussion and Analysis

2021-03-12 compared with 2020-03-12 · 194 added, 224 removed, 137 unchanged (75% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Item 6.

Selected Consolidated Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and projections.

Our actual results could differ materially from those discussed in these forward-looking statements.

Important factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A “Risk Factors.” A discussion of the year ended December 31, 2018 compared to the year ended December 31, 2017 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 15, 2019, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We are a clinical-stage biopharmaceutical company using our ImmTOR platform with the goal to effectively and safely treat rare and serious diseases by enabling the development of novel biologic therapies that would otherwise be limited by their immunogenicity.

Many such diseases are treated with biologic therapies that are foreign to the patient’s immune system and therefore elicit an undesired immune response.

Our proprietary tolerogenic ImmTOR platform encapsulates an immunomodulator in biodegradable nanoparticles and is designed to mitigate the formation of ADAs by inducing antigen-specific immune tolerance to biologic drugs.

We believe ImmTOR has potential to enhance the efficacy without compromising the safety of existing approved biologic drugs, improve product candidates under development and enable novel therapeutic modalities, such as re-administration of systemic gene therapy.

Our Current Programs

Chronic Refractory Gout

Our lead product candidate, SEL-212, is designed to be a monthly treatment for chronic refractory gout, a debilitating rare disease with an unmet medical need.

SEL-212 consists of a combination of our ImmTOR platform co-administered with pegadricase.

Pegadricase is an investigational recombinant pegylated uricase (urate oxidase), an enzyme not naturally found in humans, and is therefore highly immunogenic.

This enzyme is designed to treat patients with symptomatic gout, refractory to standard uric acid lowering treatment, by breaking down the excess uric acid to the more soluble allantoin.

In preclinical studies, we observed that ImmTOR, when co-administered with pegadricase, induced antigen-specific immune tolerance to pegadricase and substantially reduced the formation of associated ADAs.

Based on our Phase 1/2 clinical data, we believe that SEL-212 has the potential to control SUA levels and mitigate the formation of ADAs in response to the therapeutic enzyme.

Our Phase 1 data provided evidence that ImmTOR mitigated the formation of ADAs against pegadricase in a dose-dependent manner after a single dose of SEL-212.

In our Phase 2 trial, ImmTOR inhibited the formation of ADAs in patients with up to five monthly doses, resulting in sustained reduction of SUA levels.

We also observed a lower-than-expected rate of gout flares in the first months after initiation of SEL-212 treatment, with further reductions observed in months three to five.

SEL-212, if successfully developed and approved, has the potential to offer a unique treatment for patients with chronic refractory gout, including reduced immunogenicity, improved efficacy, and monthly dosing compared to other FDA-approved treatments, and provide clinical evidence supporting the utility of our ImmTOR platform in providing patients with antigenic specific tolerance.

In March 2019, we initiated a Phase 2 head-to-head clinical trial of SEL-212 (COMPARE), in which SEL-212 is being compared against the current FDA-approved therapy for chronic refractory gout, KRYSTEXXA, in multiple clinical sites in the United States.

We completed enrollment of our Phase 2 head-to-head (COMPARE) clinical study against KRYSTEXXA in December 2019 and expect to report top-line data in the third quarter of 2020.

The two-armed, open label trial has enrolled approximately 150 patients, randomized 1:1, with one arm receiving KRYSTEXXA (as set forth in the prescribing information) and the other arm receiving six monthly doses of SEL-212.

The primary endpoint in the study is the percentage of patients in each arm that maintain SUA control below 6.0 mg/dL, for at least 80% of the time during months three and six.

We plan to commence the Phase 3 clinical program in SEL-212 in the second half of 2020.

We will require additional resources to complete the planned Phase 3 clinical program for SEL-212.

We expect our clinical and, if approved, marketing strategy for SEL-212 to initially focus on the estimated 160,000 patients in the United States with chronic refractory gout, and to focus on those patients that are being treated by rheumatologists.

In August 2019, we entered into a feasibility study and license agreement with AskBio, the AskBio Collaboration Agreement, pursuant to which we and AskBio will conduct proof of concept studies to potentially validate the use of our ImmTOR platform in conjunction with an AAV gene therapy to mitigate the formation of neutralizing anti-AAV capsid antibodies, which currently precludes redosing.

The initial product candidate being developed under this collaboration is gene therapy for MMA which can cause severe developmental defects and premature death as a result of an accumulation of toxic metabolites.

We previously conducted preclinical studies for this product candidate based on SEL-302 and will leverage that previous work within the collaboration.

If the proof of concept studies are successful, we will proceed with a collaboration to pursue the development and commercialization of AAV gene therapy product candidates utilizing ImmTOR for the treatment of certain agreed serious rare and orphan genetic diseases.

We plan to enter the clinic under this collaboration in 2020.

Additionally, in December 2019 we entered into the AskBio License Agreement which provides AskBio with exclusive worldwide rights to our ImmTOR platform to research, develop and commercialize certain AAV-gene therapy products targeting the GAA gene, or derivatives thereof, to treat Pompe Disease.

In September 2018, we announced a collaboration with the European consortium, CureCN, for an ImmTOR+AAV gene therapy combination product candidate in Crigler-Najjar syndrome, a rare genetic disorder characterized by an inability to properly convert and clear bilirubin from the body.

We expect the CureCN consortium to obtain scientific advice from the German drug regulatory authority in 2020.

In December 2016, we entered into the Spark License Agreement which provides Spark with exclusive worldwide rights to our ImmTOR platform to research, develop and commercialize gene therapies for Factor VIII, an essential blood clotting protein relevant to the treatment of hemophilia A.

Our proprietary gene therapy product candidate, SEL-313, is being developed to treat OTC deficiency and is currently in preclinical development.

FINANCIAL OPERATIONS OVERVIEW

Important factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1A.

“Risk Factors.” A discussion of the year ended December 31, 2019 compared to the year ended December 31, 2018 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 12, 2020, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We are a clinical-stage biopharmaceutical company leveraging our ImmTOR ™ immune tolerance platform with the goals of amplifying the efficacy of biologics, including enabling the re-dosing of life-saving gene therapies, and restoring self-tolerance in autoimmune diseases.

Our ImmTOR platform encapsulates rapamycin, also known as sirolimus, an immunomodulator, in biodegradable nanoparticles and is designed to induce antigen-specific immune tolerance.

We believe ImmTOR has the potential to enhance the efficacy without compromising the safety of biologic therapies, improve product candidates under development, and enable novel therapeutic modalities.

We have developed a portfolio of proprietary and collaboration-driven applications of ImmTOR, and we plan to continue to develop proprietary compounds and pursue collaboration-driven development in certain disease areas, which could include strategic collaborations, out-licensing, and in-licensing transactions.

Impact of COVID-19

We are closely monitoring how COVID-19 is affecting our employees, business, preclinical studies and clinical trials.

In response to the spread of COVID-19, we have closed our executive offices with our administrative employees continuing their work outside of our offices and limited the number of staff in any given research and development laboratory.

Disruptions caused by the COVID-19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials, and the incurrence of unforeseen costs as a result of preclinical study or clinical trial delays.

While the COVID-19 pandemic has not had a material impact on our clinical programs as of the date of this Annual Report on Form 10-K, it could have an impact on our ability to complete the Phase 3 DISSOLVE clinical program of SEL-212, and our

ability to commence preclinical and clinical studies of our IgA nephropathy, gene therapy, and autoimmune disease programs, and our ability to obtain supply of both active drug substances and finished drug product as well as efficient execution of the overall supply chain for SEL-212 and our other programs.

We have been proactively working with our CRO, clinical sites, and principal investigators to provide patients with more convenient locations to have their SUA measured for the primary endpoint of the study, such as at local laboratories or their homes, as well as alternative sites to receive infusions of study drug.

We are also working with our primary and back-up suppliers for SEL-037 (pegadricase) and SEL-110 (ImmTOR) to ensure that we have adequate supply of our materials for both our clinical and preclinical programs.

As of the date of this Annual Report on Form 10-K, we believe we will have adequate supply of all material necessary to conduct our Phase 3 DISSOLVE clinical program of SEL-212 in chronic refractory gout and to begin our clinical trial in gene therapy under our collaboration with AskBio.

At this time, there is significant uncertainty relating to the trajectory of the COVID-19 pandemic and the impact of related responses.

Any impact of COVID-19 on our business, revenues, results of operations and financial condition 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⸻The outbreak of COVID-19 may continue to adversely impact our business, including our preclinical studies and clinical trials.” in Part I, Item 1A of this Annual Report on Form 10-K.

Financial Operations

To date, we have financed our operations primarily through the public offering and private placements of our securities, funding received from research grants and collaboration arrangements and our credit facility.

To date, we have financed our operations primarily through public offerings and private placements of our securities, funding received from research grants and collaboration arrangements and our credit facility.

We do not have any products approved for sale and have not generated any product sales.

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We expect to continue to incur significant expenses and operating losses for at least the next several years as we:

conduct additional clinical trials for SEL‑212;

• continue the research and development of our other product candidates as well as product candidates that we may be developing jointly with collaboration partners;

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We will need to generate significant revenues to achieve profitability, and we may never do so.

We will require additional external sources of capital to complete the planned Phase 3 clinical program for SEL-212.

Under the terms of our exclusive patent license agreement with the Massachusetts Institute of Technology, or the MIT License, MIT may terminate the MIT License if we fail to meet a diligence obligation, including the initiation of a Phase 3 clinical trial by a specified date in the fourth quarter of 2019.

On December 13, 2019, we entered into the Fourth Amendment, which we refer to as the MIT Amendment, to the Exclusive Patent License Agreement by and between us and the Massachusetts Institute of Technology, or the MIT Agreement.

Pursuant to the MIT Amendment, a provision of the MIT Agreement under which we were obligated to initiate a Phase 3 clinical trial for a licensed product by a specified date in the fourth quarter of 2019 is tolled until the earlier of (i) a specified date in the second quarter of 2020 or (ii) the effective date of a written amendment to the MIT Agreement.

Further, pursuant to the MIT Amendment, the parties agreed to negotiate in good faith to enter into a future amendment to the MIT Agreement after we provide MIT with an amended diligence plan.

If we are unable to reach an agreement with MIT regarding an acceptable amendment of the MIT License and if we are unable to cure the breach, there could be a material adverse effect on our business.

We believe that our existing cash, cash equivalents, investments, and restricted cash as of December 31, 2019 will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2021.

Because our current operating plan does not contain sufficient resources, we will require additional external sources of capital to complete the planned Phase 3 clinical program for SEL-212.

We believe that our existing cash, cash equivalents, short term investments, and restricted cash as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2023.

We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

Because of the uncertainty in securing additional capital, we have concluded that substantial doubt exists with respect to our ability to continue as a going concern within one year after the date of the filing of this Annual Report on Form 10-K .

For additional information, see “Liquidity and Capital Resources.”

The consolidated financial information presented below includes the accounts of Selecta Biosciences, Inc.

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All intercompany accounts and transactions have been eliminated.

Grant and collaboration revenue

Collaboration and grant revenue

To date, we have not generated any product sales.

Our revenue consists of grant and collaboration revenue, which includes amounts recognized related to upfront and milestone payments for research and development funding under collaboration and license agreements.

Our revenue consists of collaboration and grant revenue, which includes amounts recognized related to upfront and milestone payments for research and development funding under collaboration and license agreements.

In addition, we earn revenue under the terms of government contracts or grants, which require the performance of certain research and development activities.

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We have incurred a total of $295.3 million in research and development expenses from inception through December 31, 2020, with a majority of the expenses being spent on the development of SEL-212 and a prior nicotine vaccine candidate, and the remainder being spent on our various discovery and preclinical stage product candidate programs and the general expansion of our technology.

In connection with our intention to focus on advancing our ImmTOR platform, as stated in January 2019, we have ceased ongoing work on our immune stimulation programs SELA-070 and SEL-701, and currently do not have plans to move these programs forward or to perform any additional work on either of these programs.

As we expand the clinical development of SEL‑212 and our gene therapy programs, we expect our research and development expenses to increase.

In connection with our intention to focus on advancing our ImmTOR platform, we have ceased ongoing work on our immune stimulation programs SELA-070 and SEL-701, and currently do not have plans to move these programs forward or to perform any additional work on either of these programs.

We expense research and development costs as incurred.

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Product candidates in clinical development generally have higher development costs than those in earlier stages of development, primarily due to the size, duration and cost of clinical trials.

We plan to increase our research and development expenses for the foreseeable future as we seek to complete development of SEL‑212, and to further advance our preclinical and earlier stage research and development projects.

The successful development of our clinical and preclinical product candidates is highly uncertain.

At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that

will be necessary to complete the development of SEL‑212 or any of our preclinical programs or the period, if any, in which material net cash inflows from these product candidates may commence.

Clinical development timelines, the probability of success and development costs can differ materially from our expectations.

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Year ended December 31,

2020 2019 2018

Research and development expenses (key projects and initiatives):

SEL-212 $ 32,288 $ 25,489 $ 22,770

AskBio collaboration 2,807 — —

SELA-070 — 46 1,602

Discovery and preclinical stage product candidate programs, collectively 1,717 1,614 2,623

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Total research and development expenses $ 54,505 $ 42,743 $ 47,687

On June 11, 2020, we and Sobi entered into the Sobi License.

Pursuant to the Sobi License, clinical trial costs incurred to complete development of SEL-212, including but not limited to costs incurred while conducting and completing the Phase 3 DISSOLVE trials, will be reimbursed by Sobi.

These costs, when reimbursed, will be recognized as revenue consistent with the revenue recognition methodology disclosed in Footnote 12.

The reimbursable costs exclude any costs of additional development activities required that are related to ImmTOR and that are unrelated to SEL-212.

General and administrative

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, business development and support functions.

Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses, travel expenses for our general and administrative personnel and professional fees for auditing, tax and corporate legal services, including intellectual property-related legal services.

Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses, travel expenses for our general and

administrative personnel and professional fees for auditing, tax and corporate legal services, including intellectual property-related legal services.

Investment income

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Other income (expense)

Other income (expense) consists primarily of issuance fees associated with warrant liabilities for the year ended December 31, 2019 , and was de minimis for each of the years ended December 31, 2018 and 2017.

Other income (expense) was de minimis during each the years ended December 31, 2020, and 2018, and for the year ended December 31, 2019 it consists primarily of issuance fees associated with warrant liabilities.

Change in fair value of warrant liabilities

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dollars or other currencies.

At each of December 31, 2019 and December 31, 2018 , we maintained cash of $0.4 million in Russian banks, all of which was denominated in U.S.

As of December 31, 2020 and 2019, we maintained cash of $0.3 million and $0.4 million, respectively, in Russian banks, all of which was denominated in U.S.

The amounts denominated in U.S.

dollars and used in transacting the day-to-day operations of our Russian subsidiary are subject to transaction gains and losses, which are reported as incurred.

Results of Operations

Comparison of the Years Ended December 31, 2020 and 2019

The following is a comparison of revenue for the years ended December 31, 2020 and 2019 (in thousands, except percentages):

Year Ended December 31, Increase

2020 2019 (decrease)

Collaboration revenue $ 16,597 $ 6,677 $ 9,920 149 %

During the year ended December 31, 2020, collaboration revenue increased by $9.9 million, or 149%, from collaboration revenue generated in 2019.

During the year ended December 31, 2020 we recognized $16.6 million under the license agreement with Sobi resulting from the shipment of clinical supply and the reimbursement of costs incurred for the Phase 3 DISSOLVE clinical program and a de minimis amount recognized for shipments under the collaboration agreement with Sarepta.

During the year ended December 31, 2019, we recognized $6.7 million in revenue upon expiration of the term for Spark to exercise additional target options that represented material rights and less than $0.1 million of revenue for two shipments to Spark under our collaboration agreement.

Research and development

The following is a comparison of research and development expenses for the years ended December 31, 2020 and 2019 (in thousands, except percentages):

Year Ended December 31, Increase

2020 2019 (decrease)

Research and development $ 54,505 $ 42,743 $ 11,762 28 %

During the year ended December 31, 2020 , our research and development expenses increased by $11.8 million, or 28%, as com pared to 2019.

The increase in cost was primarily the result of expenses incurred for the Phase 3 DISSOLVE clinical program for SEL-212, the Phase 2 COMPARE trial for SEL-212 and for the AskBio Collaboration.

General and administrative

The following is a comparison of general and administrative expenses for the years ended December 31, 2020 and 2019 (in thousands, except percentages):

Year Ended December 31, Increase

2020 2019 (decrease)

General and administrative $ 18,913 $ 16,389 $ 2,524 15 %

During the year ended December 31, 2020, our general and administrative expenses increased by $2.5 million, or 15%, as compared to 2019.

The increase in costs was the result of expenses for patent and professional fees offset by reduced consulting fees and travel expenses.

Investment income

Investment income was $0.3 million and $0.8 million for the years ended December 31, 2020 and 2019, respectively.

The decrease reflects reduced interest rates.

Loss on extinguishment of debt

For the year ended December 31, 2020, we recognized a $0.5 million loss on extinguishment of the 2017 Term Loan (see Note 9).

Foreign currency transaction gain (loss)

We recognized minimal foreign currency gains of less than $0.1 million and minimal losses of less than $0.1 million during the years ended December 31, 2020 and 2019, respectively.

Interest expense

Interest expense was $1.6 million and $1.5 million for the years ended December 31, 2020 and 2019, respectively, representing interest expense and amortization of the carrying costs of our credit facilities.

Change in fair value of warrant liabilities

For the year ended December 31, 2020, we recognized a $10.4 million charge for the increase in the fair value of warrant liabilities utilizing the Black-Scholes valuation methodology.

The increase in value was primarily driven by an increase in the share price and volatility (see Note 5).

For the year ended December 31, 2019, we recognized $0.9 million as a change in the fair value of warrant liabilities primarily driven by an increase in the share price from issuance.

Other income (expense)

Other income (expense) was $0.1 million and ($1.3 million) for the years ended December 31, 2020 and 2019, respectively.

The other expense during 2019 was the result of fees incurred as a result of the issuance of liability classified common warrants in our December 2019 private placement.

Net loss for the year ended December 31, 2020 was $68.9 million compared to $55.4 million for the year ended December 31, 2019.

Liquidity and Capital Resources

Since our inception, we have incurred recurring net losses.

We expect that we will continue to incur losses and that such losses will increase for the foreseeable future.

We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, third-party funding and other collaborations and strategic alliances.

From our inception through December 31, 2020, we have raised an aggregate of $549.1 million to fund our operations, which includes $118.5 million from the sale of preferred stock, $11.1 million in government grant funding, $36.7 million from borrowings under our credit facility, $165.9 million from our collaborations and license agreements, $64.5 million in combined net proceeds from our initial public offering, $149.3 million in combined net proceeds from private placements and follow-on offerings of our common stock, and $3.1 million in aggregate net proceeds from “at-the-market” offerings of our common stock.

Collaborations

On October 8, 2020, we entered into the IGAN Agreement, and paid IGAN a $0.5 million one-time up-front payment.

On June 13, 2020, we entered into the Sarepta Agreement.

We received a $2.0 million upfront payment.

On June 11, 2020, we entered into the Sobi License.

Sobi paid us a one-time, up-front payment of $75 million, and upon the closing of the Sobi Private Placement, we received an additional $25 million from Sobi in consideration for Sobi’s purchase of our common stock at $4.6156 per share.

We are eligible to receive $630 million in milestone payments upon the achievement of various development and regulatory milestones and sales thresholds for annual net sales of SEL-212, and tiered royalty payments ranging from the low double digits on the lowest sales tier to the high teens on the highest sales tier.

Additionally, Sobi has agreed to fund the Phase 3 clinical program of SEL-212, which commenced in September 2020.

We expect this to substantially reduce our annual operating expenses.

On December 17, 2019, we entered into the AskBio License Agreement.

Pursuant to the AskBio License Agreement, AskBio has exercised its option to exclusively license intellectual property rights covering ImmTOR to research, develop, and commercialize certain AAV gene therapy products utilizing ImmTOR, and targeting the GAA gene, or derivatives thereof, to treat Pompe Disease.

We received $7.0 million of upfront fees pursuant to the AskBio License Agreement and are eligible to receive $237 million in milestone payments, and royalties on net sales ranging from the mid-to-high single digits.

In August 2017, we entered into a sales agreement, or the 2017 Sales Agreement, with Jefferies LLC, as sales agent, to sell shares of our common stock with an aggregate value of up to $50 million in an “at-the-market” offering.

In August 2020, concurrent with the filing of a new shelf registration statement, we entered into a new sales agreement, or the 2020 Sales Agreement, with Jefferies LLC, as sales agent, pursuant to which we may, from time to time, issue and sell common stock with an aggregate value of up to $50 million in an “at-the-market” offering.

The 2017 Sales Agreement terminated pursuant to its terms in August 2020.

Sales of common stock, if any, pursuant to the 2020 Sales Agreement, may be made in sales deemed to be an “at the market offering” as defined in Rule 415(a) of the Securities Act, including sales made directly through the Nasdaq Stock Market or on any other existing trading market for our common stock.

We intend to use the proceeds from the offering for working capital and other general corporate purposes.

We may suspend or terminate the 2020 Sales Agreement at any time.

From August 11, 2017, the date we entered into the 2017 Sales Agreement, to December 31, 2019, we sold 615,453 shares of our common stock pursuant to the 2017 Sales Agreement at an average price of approximately $1.84 per share for aggregate net proceeds of $1.0 million, after deducting commissions and other transaction costs.

During the year ended December 31, 2020, we sold 1,069,486 shares of our common stock pursuant to the 2017 Sales Agreement and 2020 Sales Agreement, as applicable, at an average price of approximately $2.16 per share for aggregate net proceeds of $2.1 million, after deducting commissions and other transaction costs.

As of December 31, 2020, our cash, cash equivalents, and restricted cash were $140.1 million, of which $1.4 million was restricted cash related to lease commitments and $0.3 million was held by our Russian subsidiary designated solely for use in its operations.

Our Russian subsidiary cash is consolidated for financial reporting purposes.

In addition to our existing cash equivalents, we receive research and development funding pursuant to our collaboration agreements.

Currently, funding from payments under our collaboration agreements represent our only source of committed external funds.

On August 31, 2020, we entered into a term loan of up to $35.0 million, consisting of term loans in an aggregate amount of $25.0 million, or the Term A Loan, and term loans in an aggregate amount of $10.0 million, or the Term B Loan, governed by a loan and security agreement among us and Oxford, as collateral agent and a lender, and SVB, as a lender.

The Term A Loan was funded in full on August 31, 2020, the proceeds of which were used to repay our previously existing 2017 Term Loan and for general corporate and working capital purposes.

The Term B Loan will be available, subject to the collateral agent’s discretion and customary terms and conditions, during the period commencing on the date we have delivered to Oxford and SVB evidence:

(i) we or one of the our collaboration partners has enrolled its first randomized patient for a Phase 1 clinical trial evaluating the treatment of MMA, and (ii) we have enrolled the first patient in each of two Phase 3 pivotal trials evaluating SEL-212, or the Second Draw Period Milestone, and ending on the earliest of (i) the date which is thirty (30) days following the date the Second Draw Period Milestone is achieved, (ii) September 30, 2021 (iii) and the occurrence of an event of default, other than an event of default that has been waived in writing by Oxford and SVB in their sole discretion.

Because we have enrolled the first patient in each of our two Phase 3 trials for SEL-212, the Second Draw Period Milestone has been achieved, and we expect the Term B Loan will be available to be drawn, once we or AskBio enroll the first randomized patient in our planned Phase 1 clinical trial evaluating the treatment of MMA.

The 2020 Term Loan is secured by a lien on substantially all of our assets, other than intellectual property, provided that such lien on substantially all assets includes any rights to payments and proceeds from the sale, licensing or disposition of intellectual property.

We also granted Oxford a negative pledge with respect to our intellectual property.

The 2020 Term Loan contains customary covenants and representations, including but not limited to financial reporting obligations and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.

The 2020 Term Loan also contains other customary provisions, such as expense reimbursement, non-disclosure obligations as well as indemnification rights.

The events of default under the 2020 Term Loan include, but are not limited to, our failure to make any payments of principal or interest under the 2020 Term Loan or other transaction documents, our breach or default in the performance of any covenant under the 2020 Term Loan or other transaction documents, the occurrence of a material adverse event, making a false or misleading representation or warranty in any material respect under the 2020 Term Loan, our insolvency or bankruptcy, any attachment or judgment on our assets of at least approximately $0.5 million, or the occurrence of any default under any of our agreements or obligations involving indebtedness in excess of approximately $0.5 million.

If an event of default occurs, Oxford and SVB are entitled to take enforcement action, including acceleration of amounts due under the 2020 Term Loan.

If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.

For a further description of the 2020 Term Loan, see Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Plan of operations and future funding requirements

As of the date of this Annual Report on Form 10-K, we have not generated any product sales.

We do not know when, or if, we will generate revenue from product sales.

We will not generate significant revenue from product sales unless and until we obtain regulatory approval and commercialize one of our current or future product candidates.

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses, and general overhead costs.

We expect that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products.

We are subject to risks in the development of our products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

We expect that we will need substantial additional funding to support our continuing operations.

As of December 31, 2020, we had an accumulated deficit of $404.6 million.

We anticipate operating losses to continue for the foreseeable future due to, among other things, costs related to research, development of our product candidates, conducting preclinical studies and clinical trials, and our administrative organization.

We will require substantial additional financing to fund our operations and to continue to execute our strategy, and we will pursue a range of options to secure additional capital.

We are exploring various sources of funding such as strategic collaborations and the issuance of equity to fund our operations.

If we raise additional funds through strategic collaborations and alliances, which may include existing collaboration partners, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

To the extent that we raise additional capital through the sale of equity, the ownership interest of our existing shareholders will be diluted and other preferences may be necessary that adversely affect the rights of existing shareholders.

We believe that our existing cash, cash equivalents, and restricted cash as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2023.

Additionally, while the potential economic impact brought by and the duration of the COVID-19 pandemic may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital as and when needed.

We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

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

• the number of product candidates that we pursue;

• our collaboration agreements remaining in effect, our entering into additional collaboration agreements and our ability to achieve milestones under these agreements;

• the cost of manufacturing clinical supplies of our product candidates;

• our headcount growth and associated costs;

• the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates;

• the costs, timing and outcome of regulatory review of our product candidates;

• the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

• the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

• the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

• the effect of competing technological and market developments;

• the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates.

As noted above, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity future funding requirements is uncertain as of the filing date of this Annual Report on Form 10-K as this continues to evolve globally.

Summary of Cash Flows

Year Ended December 31,

(In thousands) 2020 2019 2018

Cash provided by (used in):

Operating activities $ 34,881 $ (51,435) $ (59,161)

Investing activities (741) 229 25,272

Financing activities 14,431 105,041 697

Effect of exchange rate changes on cash (58) 34 (153)

Net change in cash, cash equivalents, and restricted cash $ 48,513 $ 53,869 $ (33,345)

Operating activities

Net cash provided by operating activities for the year ended December 31, 2020 was $34.9 million compared to $51.4 million used in the same period in 2019.

The increase in net cash provided by operating activities was primarily due to the recognition of $94.1 million in deferred revenue, and a $2.8 million change in accounts receivable, offset by a $0.4 million change in accrued expenses and other liabilities, and $7.1 million changes in prepaid expenses, deposits and other assets and accounts payable when compared to the prior year and a $3.2 million increase in recorded net loss after adjusting for non-cash items.

Investing activities

Net cash used in investing activities for the year ended December 31, 2020 was $0.7 million compared to net cash provided by investing activities of $0.2 million in the same period in 2019.

The net cash used in investing activities in 2020 was to purchase property and equipment.

The net cash provided by investing activities in 2019 was the result of purchases of short-term investments of $18.2 million, offset by $16.4 million of maturities and $2.0 million of sales of short term investments.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2020 was $14.4 million compared to net cash provided by financing activities of $105.0 million in the same period in 2019.

The net cash provided by financing activities in 2020 was the result of $10.3 million from the Sobi Private Placement, $24.7 million from the Term A Loan, $2.1 million net proceeds from “at-the-market” offerings, and $1.0 million proceeds from warrant exercises, offset by $4.4 million of issuance costs paid for December 2019 financing and $19.3 million principal payment on outstanding debt.

The net cash provided by financing activities in 2019 was the result of $30.9 million net proceeds from an underwritten follow-on offering of our common stock in January, $75.7 million net proceeds from private placement offerings in August and December and $1.0 million net proceeds from “at-the-market” offerings, offset by $2.8 million principal payment on outstanding debt.

Research and development contract obligations

Under our license agreement with MIT, milestone payments are due upon the occurrence of certain events and royalty payments commence upon our commercialization of a product.

As of December 31, 2020, contractual obligations were $0.4 million.

We have assumed license payments are fully offset by royalty payments in 2028.

Recent Accounting Pronouncements

For a discussion of recently adopted or issued accounting pronouncements please see Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Critical Accounting Policies and Use of Estimates

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These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future.

We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under

the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Changes in estimates are reflected in reported results for the period in which they become known.

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Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as a prepaid asset or accrued clinical trial cost.

These third party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred.

Non-refundable advance clinical payments for goods or services that will be used or rendered for future R&D activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed.

These third party agreements are generally cancellable, and related costs are recorded as research and development expenses as incurred.

Non-refundable advance clinical payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed.

We also record accruals for estimated ongoing clinical research and development costs.

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Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period.

Actual results could differ from the estimates made by the Company.

The historical clinical accrual estimates made by the Company have not been materially different from the actual costs.

Actual results could differ from the estimates made by us.

The historical clinical accrual estimates made by us have not been materially different from the actual costs.

Revenue Recognition

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We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

For example, certain performance obligations associated with Spark (see Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K ) will be satisfied over time, and revenue will be recognized using the output method, based on the proportion of actual deliveries to the total expected deliveries over the initial term.

For example, certain performance obligations associated with Sobi, AskBio, and Sarepta (see Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K) will be satisfied over time, and revenue will be recognized using the output method, based on the proportion of actual deliveries to the total expected deliveries over the initial term.

Collaboration and Grant Revenue:

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Grants and license agreements with customers are accounted for in accordance with ASC 606.

We analyze collaboration arrangements by first assessing whether they are within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808) , and evaluate whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities.

We analyze collaboration arrangements by first assessing

whether they are within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808) , and evaluate whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities.

Collaboration agreements with customers that are not within the scope of ASC 808 are accounted for in accordance with ASC 606.

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We recognize the shared costs incurred that are not within the scope of other accounting literature as a component of the related expense in the period incurred by analogy to ASC 730, Research and Development (ASC 730) , and record reimbursements from counterparties as an offset to the related costs.

In determining the appropriate amount of revenue to be recognized as it fulfills our obligations under the agreements in accordance with ASC 606, we perform the five steps above.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under the agreements in accordance with ASC 606, we perform the five steps above.

As part of the accounting for the arrangement, we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

We use key assumptions to determine the stand-alone

selling price, which may include market conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success.

We use key assumptions to determine the stand-alone selling price, which may include market conditions, reimbursement rates for personnel costs, development timelines and probabilities of regulatory success.

The terms of our arrangements typically include one or more of the following:

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(iii) royalties on net sales of licensed products;

(iv) reimbursements or cost-sharing of R&D expenses;

(iv) reimbursements or cost-sharing of research and development expenses;

and (v) profit/loss sharing arising from co-promotion arrangements.

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If the milestone payment is not specifically related to our effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method.

We also evaluate the milestones to determine whether they are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.

We also evaluate the milestones to determine whether they are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated, otherwise, such amounts are constrained and excluded from the transaction price.

At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts our estimate of the transaction price.

Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception.

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Warrant Liabilities

In December 2019, we issued common warrants in connection with the 2019 Purchase Agreement.

Pursuant to the terms of these common warrants, we could be required to settle the common warrants in cash in the event of certain acquisitions of the Company and, as a result, the common warrants are required to be measured at fair value and reported as a liability on the balance sheet.

In December 2019, we issued common warrants in connection with a securities purchase agreement between us and a group of institutional investors and certain members of our board of directors.

Pursuant to the terms of these common warrants,

we could be required to settle the common warrants in cash in the event of certain acquisitions of us and, as a result, the common warrants are required to be measured at fair value and reported as a liability on the balance sheet.

We recorded the fair value of the common warrants of $40.7 million upon issuance using the Black-Scholes valuation model, and are required to revalue the common warrants at each reporting date with any changes in fair value recorded on our statement of operations.

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As of December 31, 2020, the fair value of the common warrants of $28.7 million was recorded as a long-term liability on our balance sheet, which resulted in a change in fair value of $10.4 million for the year ended December 31, 2020.

Additionally, we allocated $ 1.2 million of the transaction costs associated with the 2019 Purchase Agreement to financing expense on our statement of operations.

The remaining $ 3.2 million of transaction costs were offset against the proceeds allocated to our common stock and pre-funded warrants.

Stock-Based Compensation

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Stock-based compensation is measured at the grant date fair value using the Black-Scholes option pricing model and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of estimated forfeitures.

reduce recorded stock‑based compensation for estimated forfeitures.

To the extent that actual forfeitures differ from management’s estimates, the differences are recorded as a cumulative adjustment in the period the estimates were adjusted.

Stock‑based compensation expense recognized in the consolidated financial statements is based on awards that are ultimately expected to vest.

Stock-based compensation expense recognized in the consolidated financial statements is based on awards that ultimately vest.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an ‘‘emerging growth company’’ such as 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.

The JOBS Act permits an ‘‘emerging growth company’’ such as 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 not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We will remain an emerging growth company until December 31, 2021, the last day of the fiscal year following the fifth anniversary of the closing of the initial public offering of our common stock.

However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more than $1.07 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

Smaller Reporting Company

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We will remain a smaller reporting company until the last day of the fiscal year in which the aggregate market value of our common stock held by non-affiliated persons and entities, or our public float, was less than $250 million as of the last business day of our most recently completed second fiscal quarter, or the last day of the fiscal year in which we have at least $100 million in revenue and at least $700 million in public float as of the last business day of our most recently completed second fiscal quarter.

RESULTS OF OPERATIONS

Comparison of the Years Ended December 31, 2019 and 2018

The following is a comparison of revenue for the years ended December 31, 2019 and 2018 (in thousands, except percentages):

Year Ended December 31,

Grant revenue

Collaboration revenue

Total revenue

During the year ended December 31, 2019 , we recognized $6.7 million in revenue upon expiration of the term for Spark to exercise additional target options that represented material rights and less than $0.1 million of revenue for two shipments to Spark under our collaboration agreement.

During the year ended December 31, 2018, we recognized the remaining $0.9 million in grant revenues from NIDA after receiving final approval from NIDA.

Research and development

The following is a comparison of research and development expenses for the years ended December 31, 2019 and 2018 (in thousands, except percentages):

Year Ended December 31,

Research and development

During the year ended December 31, 2019 , our research and development expenses decreased by $5.0 million, or 10% , as com pared to 2018 .

The decrease reflects reduced costs in 2019 resulting from the completion of prior programs in 2018 combined with reduced salaries and benefits resulting from the headcount reduction in early 2019.

The cost reductions were offset by an overall increase in costs incurred on our lead product candidate, SEL-212.

General and administrative

The following is a comparison of general and administrative expenses for the years ended December 31, 2019 and 2018 (in thousands, except percentages):

Year Ended December 31,

General and administrative

During the year ended December 31, 2019 , our general and administrative expenses decreased by $1.8 million , or 10% , as compared to 2018 .

The decrease is the result of lower salary and stock compensation expense resulting from a reduction in headcount at the end of 2018, and lower patent and professional fees.

Investment income

Investment income remained relatively unchanged during the years ended December 31, 2019 as compared to 2018 .

Foreign currency transaction gain (loss)

We recognized minimal foreign currency losses of less than $0.1 million and gains of $0.1 million during the year ended December 31, 2019 and 2018 , respectively.

Interest expense

Interest expense was $1.5 million for each of the years ended December 31, 2019 and 2018 , representing interest expense and amortization of the carrying costs of our credit facilities.

Change in fair value of warrant liabilities

We recognized $0.9 million as a change in the fair value of warrant liabilities utilizing a Black-Scholes valuation methodology, for the year ended December 31, 2019 , primarily driven by an increase in the share price from issuance (see Note 5).

Other income (expense)

Other (expense) income was $ 1.3 million and less than $0.1 million for the years ended December 31, 2019 and 2018 , respectively.

The increase in the other expense during 2019 was the result of $1.2 million of fees incurred as a result of the issuance of liability classified common warrants in our December 2019 private placement (see Note 10).

Net loss for the year ended December 31, 2019 was $55.4 million compared to $65.3 million for the year ended December 31, 2018 .

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have incurred recurring net losses.

We expect that we will continue to incur losses and that such losses will increase for the foreseeable future.

We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, third‑party funding and other collaborations and strategic alliances.

From our inception through December 31, 2019 , we have raised an aggregate of $416.0 million to fund our operations, which includes $118.5 million from the sale of preferred stock, $11.1 million in government grant funding, $25.3 million from borrowings under our credit facility, $46.3 million from our collaborations and license agreements, $64.5 million in combined net proceeds from our initial public offering $118.4 million in combined net proceeds from private placements of our common stock in June 2017 and August and December 2019, $30.9 million from an underwritten follow-on offering of our common stock in January 2019, and $1.0 million in aggregate net proceeds from "at-the-market" offerings of our common stock in 2019.

Collaborations

On December 17, 2019, we entered into the AskBio License Agreement.

Pursuant to the AskBio License Agreement, AskBio has exercised its option to exclusively license the Company’s intellectual property rights covering ImmTOR to research, develop, and commercialize certain AAV genetherapy products utilizing ImmTOR, and targeting the GAA gene, or derivatives thereof, to treat Pompe Disease.

As of December 31, 2019 , AskBio paid $2.0 million of the aggregate $7.0 million of upfront fees.

On December 23, 2019, we sold an aggregate of 37,634,883 shares of our common stock at a purchase price of $ 1.46 per share, warrants to purchase an aggregate of 22,988,501 shares of common stock at a purchase price of $ 0.125 per share underlying

each common warrant, and pre-funded warrants to purchase an aggregate of 8,342,128 shares of common stock at a purchase price of $ 1.46 per share for net proceeds of $ 65.6 million, after deducting commissions and other transaction costs.

On August 19, 2019, we sold 3,178,174 shares of its common stock pursuant to a Stock Purchase Agreement to individual investors, including certain of our executive officers and members of our board of directors for aggregate net proceeds of approximately $ 5.7 million, after deducting transaction costs.

On January 25, 2019 , we completed a public offering of 20,000,000 shares of our common stock at a public offering price of $1.50 per share.

On January 29, 2019 , an additional 2,188,706 shares were sold at a public offering price of $1.50 per share.

The total net proceeds from the offering were $ 30.9 million , after deducting underwriting discounts and commissions.

In August 2017, we entered into a sales agreement, or the Sales Agreement, with Jefferies LLC, as sales agent, pursuant to which we may, from time to time, issue and sell common stock with an aggregate value of up to $50 million in an "at-the-market" offering.

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

We intend to use the proceeds from the offering for working capital and other general corporate purposes.

We may suspend or terminate the Sales Agreement at any time.

During the year ended December 31, 2019 , we sold 615,453 shares of our common stock pursuant to the Sales Agreement at an average price of approximately $1.84 per share for aggregate net proceeds of $ 1.0 million, after deducting commissions and other transaction costs.

As of December 31, 2019 , our cash, cash equivalents, and restricted cash were $91.6 million , of which $1.7 million was restricted cash related to lease commitments and $0.4 million was held by our Russian subsidiary designated solely for use in its operations.

Our Russian subsidiary cash is consolidated for financial reporting purposes.

In addition to our existing cash equivalents, we receive research and development funding pursuant to our research grants and collaboration agreements.

Currently, funding from research grants and payments under our collaboration agreements represent our only source of committed external funds.

On September 12, 2017, we entered into a term loan facility of up to $21.0 million with Silicon Valley Bank, a California corporation, or SVB, the proceeds of which were used to repay our previously existing term loan facility with Oxford Finance LLC and Pacific Western Bank, as successor in interest to Square 1 Bank, and for general corporate and working capital purposes.

The term loan facility is governed by a loan and security agreement, dated September 12, 2017, between us and SVB, which was funded in full on September 13, 2017.

The term loan facility with SVB is secured by a lien on substantially all assets, other than intellectual property, provided that such lien on assets includes any rights to payments and proceeds from the sale, licensing or disposition of intellectual property.

We also granted SVB a negative pledge with respect to our intellectual property.

The term loan facility contains customary covenants and representations, including but not limited to financial reporting obligations and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.

The term loan facility also contains other customary provisions, such as expense reimbursement, non-disclosure obligations as well as indemnification rights for the benefit of SVB.

The events of default under the term loan facility include, but are not limited to, our failure to make any payments of principal or interest under the term loan facility or other transaction documents, our breach or default in the performance of any covenant under the term loan facility or other transaction documents, the occurrence of a material adverse effect, making a false or misleading representation or warranty in any material respect under the term loan facility, our insolvency or bankruptcy, any attachment or judgment on our assets in excess of approximately $0.3 million , or the occurrence of any default under any of our agreements or obligations involving indebtedness in excess of approximately $0.3 million .

If an event of default occurs, SVB is entitled to take enforcement action, including acceleration of amounts due under the term loan facility.

If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.

Plan of operations and future funding requirements

As of the date of this Annual Report on Form 10-K , we have not generated any product sales.

We do not know when, or if, we will generate revenue from product sales.

We will not generate significant revenue from product sales unless and until we obtain regulatory approval and commercialize one of our current or future product candidates.

We are subject to risks in the development of our products, and we may encounter unforeseen expenses, difficulties,

complications, delays and other unknown factors that may adversely affect our business.

We expect that we will need substantial additional funding to support our continuing operations.

As of December 31, 2019 and December 31, 2018 , we had an accumulated deficit of $335.8 million and $280.4 million , respectively.

We will require substantial additional financing to fund our operations and to continue to execute our strategy, and we will pursue a range of options to secure additional capital.

Management is exploring various sources of funding such as strategic collaborations and the issuance of equity to fund our operations.

We will require additional external sources of capital to complete the planned Phase 3 clinical program for SEL-212.

Further, pursuant to the MIT Amendment, the parties agreed to negotiate in good faith to enter into a future amendment to the MIT Agreement after we provide MIT with an amended diligence plan.

If we are unable to reach an agreement with MIT regarding an acceptable amendment of the MIT License and if we are unable to cure the breach, there could be a material adverse effect on our business.

We plan to commence our Phase 3 clinical program in SEL-212 in the second half of 2020.

Because our current operating plan does not contain sufficient resources, we will require additional external sources of capital to complete the planned Phase 3 clinical program for SEL-212.

We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

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

the scope, progress, results and costs of our clinical trials of SEL-212;

the number of product candidates that we pursue;

our collaboration agreements remaining in effect, our entering into additional collaboration agreements and our ability to achieve milestones under these agreements;

the cost of manufacturing clinical supplies of our product candidates;

our headcount growth and associated costs;

the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates;

the costs, timing and outcome of regulatory review of our product candidates;

the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

the effect of competing technological and market developments;

the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates.

Summary of Cash Flows

Year Ended December 31,

(In thousands)

Cash provided by (used in):

Operating activities

Investing activities

Financing activities

Effect of exchange rate changes on cash

Net change in cash, cash equivalents, and restricted cash

Operating activities

Net cash used in operating activities for the year ended December 31, 2019 was $51.4 million compared to $59.2 million in the same period in 2018, a decrease of $7.8 million.

The decrease in net cash used in operating activities was primarily due to a $10.0 million decrease in recorded net loss, a decrease of $5.8 million in prepaid expenses, and a decrease of $1.4 million resulting from non-cash charges which were offset by an increase of $4.9 million in accrued expenses and other liabilities, and an increase of $5.0 million in accounts receivable.

The change in deferred revenue is due to the receipt of $2.0 million and a receivable of $5.0 million in proceeds from AskBio offset by $6.7 million from the expiration of the term for Spark to exercise additional target options.

Investing activities

Net cash provided by investing activities for the year ended December 31, 2019 was $0.2 million compared to net cash provided from investing activities of $25.3 million in the same period in 2018.

The net cash provided by investing activities in 2018 was primarily due to receipts of $41.7 million from maturities of short-term investments, offset by $15.6 million of purchases of short-term investments.

Financing activities

Net cash provided by financing activities for the year ended December 31, 2019 was $105.0 million compared to $0.7 million in the same period in 2018.

The net cash provided by financing activities in 2019 was the result of $30.9 million net proceeds from an underwritten follow-on offering of our common stock in January, $75.7 million net proceeds from private placement offerings in August and December and $1.0 million net proceeds from "at-the-market" offerings, offset by $2.8 million principal payment on outstanding debt.

The net cash provided by financing activities in 2018 was due to $0.2 million from the issuance of common stock under the ESPP and $0.5 million from the exercise of employee stock options.

Contractual Obligations

The following summarizes our principal contractual obligations as of December 31, 2019 :

Operating leases obligations (1)

Research and development contract obligations (2)

Debt obligations (3)

Total contractual obligations

(1) Operating lease obligations represent future minimum lease payments under noncancellable property leases in Watertown, Massachusetts.

The minimum lease payments do not include common area maintenance charges, real estate taxes or any sublease income we may earn.

(2) Research and development contract obligations represent minimum annual license fees payable to universities or partners under our license agreements.

Under our license agreement with the Massachusetts Institute of Technology, or MIT, milestone payments are due upon the occurrence of certain events and

royalty payments commence upon our commercialization of a product.

For purposes of presenting our contractual obligations under the MIT agreement, we have assumed license payments are fully offset by royalty payments in 2023.

(3) Debt obligations payments are based on the contractual payment dates.

Recent Accounting Pronouncements

For a discussion of recently adopted or issued accounting pronouncements please refer to Part IV, Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K .

Off-Balance Sheet Arrangements

As of December 31, 2019 , we did not have any off-balance sheet arrangements as defined in the rules and regulations of the Securities and Exchange Commission.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis