What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-06 · 78 added, 53 removed, 270 unchanged (33% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q and our audited financial statements and related notes for the year ended December 31, 2019 included in our annual report filed on Form 10-K on March 12, 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.

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, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended.

We have based these forward-looking statements on our current expectations and projections about future events.

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SGT-001 has been granted Rare Pediatric Disease Designation and Fast Track Designation in the United States and Orphan Drug Designations in both the United States and European Union.

The safety and efficacy of SGT-001 are currently being evaluated in a Phase I/II clinical trial called IGNITE DMD, which is currently on clinical hold.

The safety and efficacy of SGT-001 are currently being evaluated in a Phase I/II clinical trial called IGNITE DMD.

I n the fourth quarter of 2017, we initiated IGNITE DMD, a randomized, controlled, open-label, single-ascending dose Phase I/II clinical trial, to evaluate SGT-001 in ambulatory and non-ambulatory males with Duchenne aged four to 17 years.

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In July 2020, we announced that the FDA responded by maintaining the clinical hold and requesting further manufacturing information and updated safety and efficacy data for all patients dosed in the trial, as well as providing direction on the total viral load to be administered per patient.

We are evaluating next steps and plan to continue our dialogue with the FDA to determine the appropriate path for SGT-001.

In October 2020, we announced that the FDA lifted the clinical hold placed on our IGNITE DMD Phase I/II clinical trial.

In connection with the lifting of the clinical hold, we are reducing the maximum weight of the next two patients dosed in IGNITE DMD to 18 kg per patient, with safety outcomes from these two patients driving potential weight increase of patients dosed subsequently.

This reduction, in conjunction with the delivery of fewer viral particles as a result of our manufacturing process improvements, will reduce patients’ total viral load while continuing dosing at the 2E14 vg/kg dose.

Additionally, to mitigate the risk of serious drug-related adverse events, we are amending the IGNITE DMD clinical protocol to include the prophylactic use of both anti-complement inhibitor eculizumab and C1 esterase inhibitor, and increasing the prednisone dose in the first month post dosing.

We are currently working to complete all activities necessary to resume dosing, which we expect to occur in the first quarter of 2021 .

In December 2019, we announced preliminary findings based on three-month biopsy data from the first two patients dosed with 2E14 vg/kg of SGT-001.

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We have never been profitable, and since our inception, we have incurred significant operating losses.

Our net losses were $45.7 million and $56.1 million for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020, we had an accumulated deficit of $362 million.

Our net losses were $66.9 million and $85.4 million for the nine months ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, we had an accumulated deficit of $383.2 million.

We expect to incur significant expenses and operating losses for the foreseeable future.

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We received $57.9 million of net proceeds from the private placement after deducting offering costs.

As of June 30, 2020, we had cash and cash equivalents of $40.4 million.

As a result, we will need to raise additional funds.

In October 2020, we entered into a collaboration and license agreement, or the Collaboration Agreement, with Ultragenyx Pharmaceutical Inc., or Ultragenyx, pursuant to which we granted Ultragenyx an exclusive worldwide license under certain intellectual property rights controlled by us to make, have made, use, distribute, offer for sale, sell, import and export, including to research, develop, modify, enhance, improve, register, distribute, commercialize, or otherwise dispose of AAV8 or other clade E AAV variant pharmaceutical products that express our MD5 nNOS binding domain form of microdystrophin protein for the diagnosis, treatment, cure, mitigation or prevention of Duchenne Muscular Dystrophy and other disease indications resulting from a lack of functional dystrophin, including Becker muscular dystrophy.

In connection with the execution of the Collaboration Agreement, we also entered into a stock purchase agreement with Ultragenyx, pursuant to which we issued and sold 7,825,797 shares of our common stock to Ultragenyx for an aggregate purchase price of approximately $40 million.

As of September 30, 2020, we had cash and cash equivalents of $24.8 million.

As a result, in order to continue to operate our business beyond that time, we will need to raise additional funds.

However, there can be no assurance that we will be able to generate funds on terms acceptable to us, on a timely basis, or at all.

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

Based upon our current and projected cash flow, we note there is substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements are issued and we believe that our existing cash and cash equivalents as of June 30, 2020 will enable us to fund our operating expenses into the first quarter of 2021.

The financial statements for the quarter ended June 30, 2020 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern

The ongoing novel coronavirus pandemic, commonly referred to as COVID-19, which began in December 2019, has spread worldwide, causing federal, state, and local governments to implement measures to slow the spread of the outbreak through quarantines, strict travel restriction and bans, heightened border scrutiny and other measures.

We believe that our existing cash and cash equivalents as of September 30, 2020, together with the proceeds of $40.0 million received in October 2020 from the sale of shares of our common stock to Ultragenyx as well as the net proceeds of $23.2 million received from the sale of shares of our common stock in October 2020 pursuant to a sales agreement, dated March 13, 2019, or the ATM Sales Agreement, by and between us and Jefferies LLC, or Jefferies, will enable us to fund our operating expenses into the second half of 2021.

The financial statements for the quarter ended September 30, 2020 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.

The ongoing novel coronavirus pandemic, commonly referred to as COVID-19, which began in December 2019, has spread worldwide, causing federal, state, and local governments to implement measure s to slow the spread of the outbreak through quarantines, strict travel restriction and bans, heightened border scrutiny and other measure s .

We are following, and will continue to follow, recommendations from the U.S.

Centers for Disease Control and Prevention (CDC) as well as federal, state, and local governments regarding working-from-home practices for non-essential employees.

Centers for Disease Control and Prevention as well as federal, state, and local governments regarding working-from-home practices for non-essential employees.

As a result, we have modified our business practices, including implementing a work from home policy for all employees who are able to perform their duties remotely and restricting all nonessential travel, and 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, and other business partners in light of COVID-19.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

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the scope, rate of progress, expense and results of any clinical trials of SGT-001 or other product candidates and other research and development activities that we may conduct;

the imposition of regulatory restrictions on clinical trials, including full and partial clinical holds, such as the current clinical hold on IGNITE DMD, and the time and activities required to lift any such holds;

the imposition of regulatory restrictions on clinical trials, including full and partial clinical holds, and the time and activities required to lift any such holds;

the impact of the COVID-19 outbreak on our ability to conduct clinical trials of SGT-001 and other product candidates;

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and facility-related expenses, which include depreciation costs and allocated expenses for rent and maintenance of office facilities and other operating costs.

We expect that our general and administrative expenses will increase in the future as we incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs.

We expect that our general and administrative expenses will decrease in calendar year 2020 as a result of the organizational changes we announced in January 2020, to create a leaner organization focused on advancing SGT-001.

Restructuring charges

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Our actual results may differ from these estimates under different assumptions or conditions.

During the three and six months ended June 30, 2020, there were no material changes to our critical accounting policies.

During the three and nine months ended September 30, 2020, there were no material changes to our critical accounting policies.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical accounting policies and use of estimates” in our Annual Report on Form 10-K for the year ended December 31, 2019 and the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1, “Financial Statements (unaudited),” of this quarterly report on Form 10-Q.

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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:

Comparison of the three months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019:

Three Months Ended

September 30,

(in thousands)

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Three Months Ended

September 30,

(in thousands)

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Total research and development expenses

Research and development expenses for the three months ended June 30, 2020 were $13.4 million, compared to $21.6 million for the three months ended June 30, 2019.

The decrease of $8.2 million in research and development costs was due to a decrease in unallocated research and development costs of $3.4 million, primarily due to a reduction in personnel and facility related expenses as a result of the restructuring that occurred in January 2020, a $3.1 million decrease in costs related to our lead product candidate SGT-001, driven by a reduction in manufacturing costs of $4.5 million partially offset by an increase in clinical costs of $1.4 million, primarily driven by clinical consulting costs.

Research and development expenses for the three months ended September 30, 2020 were $16.0 million, compared to $22.8 million for the three months ended September 30, 2019.

The decrease of $6.8 million in research and development costs was due to a decrease in unallocated research and development costs of $5.6 million, primarily due to a reduction in personnel and facility related expenses as a result of the restructuring that occurred in January 2020, a $0.7 million decrease in costs related to our lead product candidate SGT-001, driven by a reduction in manufacturing costs of $0.2 million, and a decrease in clinical costs of $0.5 million.

The reduction in research and development was also driven by a $0.5 million decrease in costs related to other product candidates as we focus on advancing SGT-001.

General and administrative expenses

General and administrative expenses were $5.5 million for the three months ended June 30, 2020, compared to $5.4 million for the three months ended June 30, 2019.

The increase of $0.1 million was due to an increase in corporate expenses of $0.7 million offset by a decrease in personnel related expenses of $0.6 million as a result of the restructuring announced in January 2020.

General and administrative expenses were $5.2 million for the three months ended September 30, 2020, compared to $6.9 million for the three months ended September 30, 2019.

The decrease of $1.7 million was due to a decrease in personnel related expenses of $1.5 million partially due to the restructuring that occurred in January 2020 and a net decrease in corporate expenses of $0.2 million.

Interest (expense) income

Interest expense was less than $0.1 million for the three months ended June 30, 2020 , compared to interest income of $0.4 million for the three months ended June 30, 2019 .

Interest expense was less than $0.1 million for the three months ended September 30, 2020, compared to interest income of $0.4 million for the three months ended September 30, 2019.

The decrease was primarily related to a reduction of available-for-sale securities included within our portfolio.

Other income for the three months ended June 30, 2020 was $0 million compared to $0.1 million for the three months ended June 30, 2019.

Other income for the three months ended September 30, 2020 was $0 million compared to $0.1 million for the three months ended September 30, 2019.

Other income relates to contributions from charitable organizations.

We do not expect these contributions to be significant in future periods.

Comparison of the six months ended June 30, 2020 and 2019

The following table summarizes our results of operations for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30,

Comparison of the nine months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019:

Nine Months Ended September 30,

(in thousands)

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Research and development expenses

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Total research and development expenses

Research and development expenses for the six months ended June 30, 2020 were $33.1 million, compared to $44.9 million for the six months ended June 30, 2019.

The decrease of $11.8 million in research and development costs was due to a decrease in unallocated research and development costs of $4.7 million, primarily due to a reduction in personnel and facility related expenses as a result of the restructuring that occurred in January 2020, a $4.3 million decrease in costs related to our lead product candidate SGT-001, driven by a reduction in manufacturing costs of $5.3 million partially offset by clinical costs of $1.0 million primarily driven by clinical consulting costs.

Research and development expenses for the nine months ended September 30, 2020 were $49.2 million, compared to $67.7 million for the nine months ended September 30, 2019.

The decrease of $18.5 million in research and development costs was due to a decrease in unallocated research and development costs of $10.3 million, primarily due to a reduction in personnel and facility related expenses as a result of the restructuring that occurred in January 2020, and a $5.0 million decrease in costs related to our lead product candidate SGT-001, driven by a reduction in manufacturing costs of $5.6 million partially offset by an increase in clinical costs of $0.6 million primarily driven by clinical consulting costs.

The reduction in research and development was also driven by a $3.2 million decrease in costs related to other product candidates as we focus on advancing SGT-001.

General and administrative expenses

General and administrative expenses were $10.8 million for the six months ended June 30, 2020, compared to $12.4 million for the six months ended June 30, 2019.

The decrease of $1.6 million was due to a decrease in personnel related expenses of $1.0 million and a net decrease of $0.6 million related to other corporate expenses.

General and administrative expenses were $16.0 million for the nine months ended September 30, 2020, compared to $19.3 million for the nine months ended September 30, 2019.

The decrease of $3.3 million was due to a decrease in personnel related expenses of $2.8 million partially due to the restructuring that occurred in January 2020 and a net decrease in corporate expenses of $0.5 million.

Restructuring Charges

During the six months ended June 30, 2020, we recorded charges of $1.9 million related to severance and other employee-related costs.

We paid $1.4 million during the six months ended June 30, 2020 and expect to pay approximately $0.5 million in the next nine months.

During the nine months ended September 30, 2020, we recorded charges of $1.9 million related to severance and other employee-related costs.

We paid approximately $1.7 million during the nine months ended September 30, 2020 and expect to pay approximately $0.3 million in the next three months.

Interest income

Interest income was $0.2 million for the six months ended June 30, 2020 , compared to $0.9 million for the six months ended June 30, 2019 .

Interest income was $0.1 million for the nine months ended September 30, 2020, compared to $1.3 million for the nine months ended September 30, 2019.

The decrease was primarily related to a reduction of available-for-sale securities included within our portfolio.

Other income for the six months ended June 30, 2020 was less than $0.1 million compared to $0.3 million for the six months ended June 30, 2019.

Other income for the nine months ended September 30, 2020 was less than $0.1 million compared to $0.3 million for the nine months ended September 30, 2019.

Other income relates to contributions from charitable organizations.

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Sources of liquidity

To date, we have financed our operations primarily through private placements of preferred units and our initial public offering as well as a private placement of shares of our common stock and pre-funded warrants to purchase shares of our common stock.

Through June 30, 2020, we raised an aggregate of $144.6 million of gross proceeds from our sales of preferred units prior to the completion of our initial public offering, an aggregate of $129.1 million of net proceeds from the sale of our common stock after deducting underwriting discounts and commission and offering expenses in our initial public offering and an aggregate of $57.9 million of net proceeds, after deducting offering costs, from our July 2019 private placement.

To date, we have financed our operations primarily through private placements of preferred units and our initial public offering as well as a private placements of shares of our common stock and pre-funded warrants to purchase shares of our common stock.

Through September 30, 2020, we raised an aggregate of $144.6 million of gross proceeds from our sales of preferred units prior to the completion of our initial public offering, an aggregate of $129.1 million of net proceeds from the sale of our common stock after deducting underwriting discounts and commission and offering expenses in our initial public offering and an aggregate of $57.9 million of net proceeds, after deducting offering costs, from our July 2019 private placement.

We completed our initial public offering on January 30, 2018, in which we sold 8,984,375 shares of common stock, including shares of common stock issued upon the exercise in full of the underwriters’ over-allotment option, at a public offering price of $16.00 per share, resulting in net proceeds of $129.1 million.

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We received $57.9 million of net proceeds from the private placement after deducting offering costs .

As of June 30, 2020, we had cash, cash equivalents and available-for-sale securities of $40.4 million and had no debt outstanding.

As of September 30, 2020, we had cash and cash equivalents of $24.8 million and had no debt outstanding.

In October 2020, we entered into a collaboration and license agreement, or the Collaboration Agreement, with Ultragenyx Pharmaceutical Inc., or Ultragenyx.

In March 2019, we entered into the ATM Sales Agreement under which we may offer and sell, from time to time, shares of our common stock having aggregate gross proceeds of up to $50.0 million through Jefferies as sales agent.

Any such sales being made by any method that is deemed an “at-the-market offering” as defined in Rule 415 promulgated under the Securities Act.

We will pay Jefferies a commission of up to 3% of the gross proceeds of any sales of common stock pursuant to the ATM Sales Agreement.

During the nine months ended September 30, 2020, we did not sell any shares under the ATM Sales Agreement.

In October 2020, we sold 6,309,632 shares pursuant to the ATM Sales Agreement resulting in net proceeds of $23.2 million.

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

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

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Cash provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

Net (decrease)/increase in cash, cash equivalents and restricted cash

Operating activities

During the six months ended June 30, 2020, operating activities used $42.3 million of cash, primarily resulting from our net loss of $45.7 million and cash used in changes in our operating assets and liabilities of $5.3 million offset by non-cash charges of $8.7 million due primarily to equity-based compensation of $6.3 million and depreciation expense of $2.4 million.

Net cash used in changes in our operating assets and liabilities during the six months ended June 30, 2020 consisted primarily of a reduction in accrued expenses and other liabilities of $1.8 million and a decrease in accounts payable of $3.9 million partially offset by a net decrease in prepaid expenses and other assets of $0.4 million.

These changes were primarily due to the timing of payments.

During the six months ended June 30, 2019, operating activities used $52.2 million of cash, primarily resulting from our net loss of $56.1 million and cash used in changes in our operating assets and liabilities of $4.6 million offset by non-cash charges of $8.4 million due primarily to equity-based compensation of $7.4 million and depreciation expense of $1.3 million.

Net cash used in changes in our operating assets and liabilities during the six months ended June 30, 2019 consisted primarily of an increase in prepaid expenses and other assets of $4.3 million, which was primarily due to up-front research and development expenses as well as an decrease in accrued expenses and other liabilities of $2.7 million which was partially offset by a increase in accounts payable of $2.4 million due to the timing of payments.

During the nine months ended September 30, 2020, operating activities used $57.9 million of cash, primarily resulting from our net loss of $66.9 million and cash used in changes in our operating assets and liabilities of $3.2 million offset by non-cash charges of $12.2 million due primarily to equity-based compensation of $9.1 million and depreciation expense of $3.1 million.

Net cash used in changes in our operating assets and liabilities during the nine months ended September 30, 2020 consisted primarily of a reduction in

accrued expenses and other liabilities of $ 2.

0 million and a decrease in accounts payable of $ 2.6 million partially offset by a n et de crease in prepaid expenses and other assets of $ 1.5 million .

These changes were primarily due to the tim ing of payments.

During the nine months ended September 30, 2019, operating activities used $71.5 million of cash, primarily resulting from our net loss of $85.4 million offset by non-cash charges of $12.6 million due primarily to equity-based compensation of $10.8 million and depreciation expense of $2.0 million as well as $1.3 million of cash provided by changes in our operating assets and liabilities.

Net cash provided by changes in our operating assets and liabilities during the nine months ended September 30, 2019 consisted primarily of an increase in accrued expenses and other liabilities of $2.4 million partially offset by an increase in prepaid expenses and other assets of $1.1 million, which was primarily due to up-front research and development expenses.

Investing activities

During the six months ended June 30, 2020, investing activities provided $6.7 million of cash, consisting primarily of proceeds from maturities of available-for-sale securities partially offset by purchases of property and equipment, and available-for-sale securities.

During the six months ended June 30, 2019, investing activities provided $17.7 million of cash, consisting primarily of proceeds from maturities of available-for-sale securities offset by purchases of property and equipment, and available-for-sale securities.

During the nine months ended September 30, 2020, investing activities provided $6.7 million of cash, consisting primarily of proceeds from maturities of available-for-sale securities partially offset by purchases of property and equipment, and available-for-sale securities.

During the nine months ended September 30, 2019, investing activities provided $21.7 million of cash, consisting primarily of proceeds from maturities of available-for-sale securities offset by purchases of property and equipment, and available-for-sale securities.

Financing activities

During the six months ended June 30, 2020 and 2019, there were no financing activities.

During the nine months ended September 30, 2020, there were no financing activities.

During the nine months ended September 30, 2019, net cash provided by financing activities was $58.2 million, due to the proceeds from a private placement of shares of our common stock and pre-funded warrants to purchase shares of our common stock completed on July 30, 2019, partially offset by $1.8 million of payments made in connection with costs incurred for the private placement.

Funding requirements

We expect that our expenses will increase substantially if and as we:

seek to resolve the clinical hold on and determine next steps for IGNITE DMD and, if and when possible, resume our clinical development of SGT-001;

seek to enroll patients in IGNITE DMD and continue clinical development of SGT-001;

move other product candidates into clinical trials;

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acquire or in-license other drugs, technologies and intellectual property;

fund a portion of the development or commercialization of products in collaboration with Ultragenyx pursuant to our collaboration and license agreement with Ultragenyx;

add operational, financial and management information systems and personnel.

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We received $57.9 million of net proceeds from the private placement after deducting offering costs .

As of June 30, 2020, we had cash and cash equivalents of $40.4 million.

We believe that our existing cash and cash equivalents as of June 30, 2020, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2021.

As of September 30, 2020, we had cash and cash equivalents of $24.8 million.

We believe that our existing cash and cash equivalents as of September 30, 2020, together with the proceeds of $40.0 million received in October 2020 from the sale of shares of common stock to Ultragenyx as well as the proceeds of $23.2 million received from the sale of shares of common stock in October 2020 pursuant to a sales agreement, dated March 13, 2019, between the Company and Jefferies LLC (the “ATM Sales Agreement”), will be sufficient to fund its operating expenses and capital requirements into the second half of 2021.

As a result, in order to continue to operate our business beyond that time, we will need to raise additional funds.

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

if, when and how we are able to favorably resolve the clinical hold on and resume IGNITE DMD;

the progress and results of IGNITE DMD and future clinical trials of SGT-001 and other product candidates;

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the outcome of any lawsuits filed against us;

the terms of our current and any future license agreements and collaborations;

the terms of our current and any future license agreements;

the success of our collaboration with Ultragenyx;

our ability to establish and maintain additional strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;

the payment or receipt of milestones, royalties and other collaboration-based revenues, if any;

the extent to which we acquire or in-license other product candidates, technologies and intellectual property;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis