Taysha Gene Therapies, Inc. 10-Q

Item 2. 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 our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the period from September 20, 2019 (date of inception) through December 31, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our final prospectus dated September 23, 2020 and filed with the Securities and Exchange Commission, or SEC, on September 25, 2020, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Taysha Gene Therapies, Inc. together with its consolidated subsidiaries. Forward-Looking Statements The information in this discussion contains forward-looking statements and information 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, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. Overview We are a patient-centric gene therapy company focused on developing and commercializing AAV-based gene therapies for the treatment of monogenic diseases of the central nervous system in both rare and large patient populations. We were founded in partnership with The University of Texas Southwestern Medical Center, or UT Southwestern, to develop and commercialize transformative gene therapy treatments. Together with UT Southwestern, we are advancing a deep and sustainable product portfolio of 18 gene therapy product candidates, with exclusive options to acquire four additional development programs at no cost. By combining our management team’s proven experience in gene therapy drug development and commercialization with UT Southwestern’s world-class gene therapy capabilities, we believe we have created a powerful engine to develop transformative therapies to dramatically improve patients’ lives. We expect to initiate a Phase 1/2 clinical trial of TSHA-101 for the treatment of GM2 gangliosidosis, under a Clinical Trial Application, in Canada by the end of 2020. In addition, we plan to submit investigational new drug applications, or INDs, for four programs to the U.S. Food and Drug Administration, or the FDA, by the end of 2021: TSHA-101, TSHA-102 (Rett syndrome), TSHA-103 (SLC6A1 haploinsufficiency) and TSHA-104 (SURF1 deficiency). We are also developing TSHA-118 (formerly ABO-202) for the treatment of CLN1 disease (or infantile Batten disease) and intend to initiate a Phase 1/2 clinical trial of TSHA-118 under a currently open IND. In addition to our product pipeline candidates, we are building a platform of next-generation technologies to optimize key components of our AAV-based gene therapies, including redosing, transgene regulation and capsid development. We have a limited operating history. Since our inception, our operations have focused on organizing and staffing our company, business planning, raising capital and entering into collaboration agreements for conducting preclinical research and development activities for our product candidates. All of our lead product candidates are still in the preclinical testing stage. We do not have any product candidates approved for sale and have not generated any revenue from product sales. We have funded our operations through the sale of equity, raising an aggregate of $307.0 million of gross proceeds from our initial public offering and private placements of our convertible preferred stock. 18 Since our inception, we have incurred significant operating losses. Our net losses were $1.1 million for the period from September 20, 2019 (date of inception) through December 31, 2019, and $ 41.7 million for the nine months ended September 30, 2020. As of September 30, 2020, we had an accumulated deficit of $ 42.8 million. We exp ect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we: • continue to advance the preclinical and clinical development of our product candidates and preclinical and discovery programs; • conduct our planned clinical trial of TSHA-101, as well as initiate and complete additional clinical trials of TSHA-101, TSHA-118, TSHA-102, TSHA-103, TSHA-104 and future product candidates; • seek regulatory approval for any product candidates that successfully complete clinical trials; • continue to develop our gene therapy product candidate pipeline and next-generation platforms; • scale up our clinical and regulatory capabilities; • manufacture current good manufacturing practices, or cGMP, material for clinical trials or potential commercial sales; • establish and validate a commercial-scale cGMP manufacturing facility; • establish a commercialization infrastructure and scale up internal and external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval; • adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products; • maintain, expand and protect our intellectual property portfolio; • hire additional clinical, manufacturing quality control, regulatory, manufacturing and scientific and administrative personnel; • add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and • incur additional legal, accounting and other expenses in operating as a public company. License Agreements Research, Collaboration and License Agreement with The University of Texas Southwestern Medical Center In November 2019, we entered into the UT Southwestern Agreement with The Board of Regents of the University of Texas System on behalf of UT Southwestern, as amended in April 2020. In connection with the UT Southwestern Agreement, we obtained an exclusive, worldwide, royalty-free license under certain patent rights of UT Southwestern and a non-exclusive, worldwide, royalty-free license under certain know-how of UT Southwestern, in each case to make, have made, use, sell, offer for sale and import licensed products for use in certain specified indications. Additionally, we obtained a non-exclusive, worldwide, royalty-free license under certain patents and know-how of UT Southwestern for use in all human uses, with a right of first refusal to obtain an exclusive license under certain of such patent rights and an option to negotiate an exclusive license under other of such patent rights. We are required to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize at least one licensed product. In connection with the entry into the UT Southwestern Agreement, we issued to UT Southwestern 2,179,000 shares of our common stock. We do not have any future milestone or royalty obligations to UT Southwestern under the UT Southwestern Agreement, other than costs related to the maintenance of patents. License Agreement with Queen’s University at Kingston In February 2020, we entered into a license agreement, or the Queen’s University Agreement, with Queen’s University at Kingston, or Queen’s University. In connection with the Queen’s University Agreement, we obtained an exclusive, perpetual, worldwide, royalty-bearing license, with the right to grant sublicenses, under certain patent rights and know-how of Queen’s University, including certain improvements to the foregoing, to make, have made, use, offer for sale, sell and import licensed products and otherwise exploit such patents and know-how for use in certain specified indications. We also obtained an exclusive right of first negotiation to license certain next generation technology and improvements of Queen’s University that do not constitute an already-licensed improvement to the licensed technology. 19 In connection with the Queen’s University Agreement, we paid Queen’s University a one-time fee of $3.0 million as an upfront fee and approximately $220,000 to reimburse Queen’s University for certain plasm id production costs. We are obligated to pay Queen’s University up to $10.0 million in the aggregate upon achievement of certain regulatory milestones and up to $10.0 million in the aggregate upon achievement of certain commercial milestones, a low single digit royalty on net sales of licensed products, subject to certain customary reductions, and a percentage of non-royalty sublicensing revenue ranging in the low double digits. Royalties are payable on a licensed product-by-licensed product basis and count ry-by-country basis until expiration of the last valid claim of a licensed patent covering such licensed product in such country and the expiration of any regulatory exclusivity for such licensed product in such country. Additionally, we are obligated to p ay Queen’s University a low double-digit portion of any amounts received by us in connection with the sale of a priority review voucher related to a licensed product, not to exceed a low eight-figure amount. We were also obligated under the terms of a separate research grant agreement between us and Queen’s University to pay up to a total of $3.8 million to fund certain manufacturing expenses. License Agreement with Abeona Therapeutics Inc. (CLN1 Disease) In August 2020, we entered into a license agreement, or the Abeona CLN1 Agreement, with Abeona Therapeutics Inc., or Abeona. In connection with the Abeona CLN1 Agreement, we obtained an exclusive, worldwide, royalty-bearing license, with the right to grant sublicenses under certain patents, know-how and materials originally developed by University of North Carolina at Chapel Hill and Abeona to research, develop, manufacture, have manufactured, use, and commercialize licensed products for gene therapy for the prevention, treatment, or diagnosis of CLN1 Disease (or infantile Batten disease) in humans. In connection with the license grant, we will pay Abeona a one-time upfront license fee of $3.0 million. We are obligated to pay Abeona up to $26.0 million in regulatory-related milestones and up to $30.0 million in sales-related milestones per licensed product and high single-digit royalties on net sales of licensed products. Royalties are payable on a licensed product-by-licensed product and country-by-country basis until the latest of the expiration or revocation or complete rejection of the last licensed patent covering such licensed product in the country where the licensed product is sold, the loss of market exclusivity in such country where the product is sold, or, if no licensed product exists in such country and no market exclusivity exists in such country, ten years from first commercial sale of such licensed product in such country. In addition, concurrent with the Abeona CLN1 Agreement we entered into a purchase and reimbursement agreement with Abeona, pursuant to which we purchased specified inventory from Abeona and reimbursed Abeona for certain research and development costs previously incurred for total consideration of $4.0 million. The Abeona CLN1 Agreement expires on a country-by-country and licensed product-by-licensed product basis upon the expiration of the last royalty term of a licensed product. Either party may terminate the agreement upon an uncured material breach of the agreement or insolvency of the other party. We may terminate the agreement for convenience upon specified prior written notice to Abeona. Impact of COVID-19 on Our Business We have been actively monitoring the novel coronavirus, or COVID-19, situation and its impact globally. Our financial results for the three and nine months ended September 30, 2020 were not impacted by COVID-19, and we currently do not expect any material impact on our financial results for the remainder of 2020. We believe the remote working arrangements and travel restrictions imposed by various governmental jurisdictions have had limited impact on our ability to maintain internal operations during the nine months ended September 30, 2020. The extent to which COVID-19 may impact our business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak and the effectiveness of actions to contain and treat COVID-19. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, including to our planned clinical trials and preclinical studies. Any such shutdowns or other business interruptions could result in material and negative effects to our ability to conduct our business in the manner and on the timelines presently planned, which could have a material adverse impact on our business, results of operation and financial condition. Components of Results of Operations Revenue To date, we have not recognized any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products, if approved, in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, or license agreements with third parties, we may generate revenue in the future from product sales. However, there can be no assurance as to when we will generate such revenue, if at all. 20 Operating Expenses Research and Development Expenses Research and development expenses primarily consist of preclinical development of our product candidates and discovery efforts, including conducting preclinical studies, manufacturing development efforts, preparing for clinical trials and activities related to regulatory filings for our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Costs incurred in obtaining technology licenses through asset acquisitions are charged to research and development expense if the licensed technology has not reached technological feasibility and has no alternative future use. Research and development expenses include or could include: • employee-related expenses, including salaries, bonuses, benefits, stock-based compensation, other related costs for those employees involved in research and development efforts; • external research and development expenses incurred under agreements with consultants, contract research organizations, or CROs, investigative sites and consultants to conduct our preclinical studies; • costs related to manufacturing material for our preclinical studies and clinical trials, including fees paid to contract manufacturing organizations, or CMOs; • laboratory supplies and research materials; • costs related to compliance with regulatory requirements; and • facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance and equipment. Research and development activities are central to our business model. We do not currently track our research and development expenses on a program-by-program basis as such costs are deployed across multiple projects under development. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and manufacturing processes and conduct discovery and research activities for our preclinical programs. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. Our clinical development costs are expected to increase significantly as we commence clinical trials. Our future expenses may vary significantly each period based on factors such as: • expenses incurred to conduct preclinical studies required to advance our product candidates into clinical development; • per patient trial costs, including based on the number of doses that patients received; • the number of patients who enroll in each trial; • the number of trials required for approval; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the drop-out or discontinuation rates of patients; • potential additional safety monitoring requested by regulatory agencies; • the duration of patient participation in the trials and follow-up; • the phase of development of the product candidate; • third-party contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; 21 • the ability to manufactur e of our product candidates; • regulators or institutional review boards, or IRBs, requiring that we or our investigators suspend or terminate clinical development for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; and • the efficacy and safety profile of our product candidates. General and Administrative Expenses General and administrative expenses consist or will consist principally of salaries and related costs for personnel in executive and administrative functions, including stock-based compensation, travel expenses and recruiting expenses. Other general and administrative expenses include professional fees for legal, consulting, accounting and audit and tax-related services and insurance costs. We began paying salaries and related costs for personnel during the quarter ended June 30, 2020 and granted equity awards to employees and directors during the quarter ended September 30, 2020. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our expanded infrastructure, as well as the initiation and continuation of our preclinical studies and clinical trials for our product candidates. We also anticipate that our general and administrative expenses will increase as a result of payments for accounting, audit, legal, consulting services, as well as costs associated with maintaining compliance with Nasdaq listing rules and SEC requirements, director and officer liability insurance, investor and public relations activities and other expenses associated with operating as a public company . We anticipate the additional costs for these services will increase our general and administrative expenses by between $6.0 million and $7.0 million on an annual basis, including the cost of director and officer liability insurance. Results of Operations Results of Operations for the Three Months Ended September 30, 2020 and for the Period from September 20, 2019 (date of inception) through September 30, 2019 The following table summarizes our results of operations for the three months ended September 30, 2020 and the period from September 20, 2019 (date of inception) through September 30, 2019 (in thousands): For the Three Months Ended September 30, 2020 Period from September 20, 2019 (date of inception) through September 30, 2019 Operating expenses: Research and development $ 11,057 $ — General and administrative 3,984 31 Total operating expenses 15,041 31 Loss from operations (15,041 ) (31 ) Other expense: Interest expense (1 ) — Total other expense (1 ) — Net loss $ (15,042 ) $ (31 ) Research and Development Expenses Research and development expenses were $11.1 million for the three months ended September 30, 2020, compared to no expenses for the period from September 20, 2019 (date of inception) through September 30, 2019. The $11.1 million was primarily attributable to $7.0 million of expenses recognized pursuant to the Abeona CLN1 Agreement, as well as $2.8 million in other sponsored research agreements for our various product candidates. Additionally, we incurred regulatory and clinical consulting expenses of $0.6 million and employee compensation and benefits expenses of $0.7 million, which included $0.4 million of non-cash stock-based compensation. 22 General and Administrative Expenses General and administrative expenses were $4.0 million for the three months ended September 30, 2020, compared to less than $0.1 million for the period from September 20, 2019 (date of inception) through September 30, 2019. The increase of approximately $4.0 million was primarily attributable to $2.1 million of compensation and benefits related to new hires, which included $0.9 million of non-cash stock-based compensation, $1.4 million in consulting fees, $0.3 million of legal expenses related to general corporate matters and approximately $0.2 million related to insurance and other administrative expenses. Results of Operations for the Nine Months Ended September 30, 2020 and for the Period from September 20, 2019 (date of inception) through September 30, 2019 The following table summarizes our results of operations for the nine months ended September 30, 2020 and the period from September 20, 2019 (date of inception) through September 30, 2019 (in thousands): For the Nine Months Ended September 30, 2020 Period from September 20, 2019 (date of inception) through September 30, 2019 Operating expenses: Research and development $ 19,633 $ — General and administrative 5,002 31 Total operating expenses 24,635 31 Loss from operations (24,635 ) (31 ) Other expense: Change in fair value of preferred stock tranche liability (17,030 ) — Interest expense (28 ) — Total other expense (17,058 ) — Net loss $ (41,693 ) $ (31 ) Research and Development Expenses Research and development expenses were $19.6 million for the nine months ended September 30, 2020, compared to no expenses for the period from September 20, 2019 (date of inception) through September 30, 2019. The $19.6 million was primarily attributable to $10.0 million of expenses recognized pursuant to the Queen’s University Agreement and the Abeona CLN1 Agreement, $4.1 million related to the manufacture of clinical trial material and $3.9 million in other sponsored research agreements for our various product candidates. Additionally, we incurred regulatory and clinical consulting expenses of $0.8 million and employee compensation and benefits expenses of $0.8 million, which included $0.4 million of non-cash stock-based compensation. General and Administrative Expenses General and administrative expenses were $5.0 million for the nine months ended September 30, 2020, compared to less than $0.1 million for the period from September 20, 2019 (date of inception) through September 30, 2019. The increase of approximately $5.0 million was primarily attributable to $2.7 million of compensation and benefits related to new hires, which included $0.9 million of non-cash stock-based compensation, $1.7 million in consulting fees, $0.5 million of legal expenses related to general corporate matters and $0.1 million related to insurance and other administrative expenses. Other Expense Change in Fair Value of Preferred Stock Tranche Liability We determined that our obligation to issue, and the investors’ right to purchase, additional shares of Series A convertible preferred stock pursuant to the milestone closings represented a freestanding financial instrument, or the tranche liability. The tranche liability was initially recorded at fair value. We concluded that the tranche liability met the definition of a freestanding financial instrument, as it was legally detachable and separately exercisable from the initial closing of the Series A convertible preferred stock. On June 30, 2020, ahead of the anticipated closing of the Series B preferred stock financing at a purchase price of $17.00 per share on July 2, 2020, certain investors elected to exercise in full their options to purchase their pro-rata portion of the milestone 23 shares prior to our achievement of the clinical milestones and purchased 200,000 shares of Series A convertible preferred stock. We remeasured the fair value of the en tire tranche liability at June 30, 2020, and recognized a non-cash expense of approximately $17.0 million. The tranche liability was extinguished upon the issuance of the Series A milestone shares on July 1, 2020 and July 2, 2020, and no additional changes in fair value were recorded. Liquidity and Capital Resources Overview Since our inception, we have not generated any revenue and have incurred significant operating losses. As of September 30, 2020, we had cash and cash equivalents of $278.6 million. We have funded our operations through equity financings, raising an aggregate of $307.0 million in gross proceeds from our initial public offering and private placements of convertible preferred stock. Specifically, between March and July 2020, we closed on the sale of an aggregate of 10,000,000 shares of Series A convertible preferred stock for gross proceeds of $30.0 million. In July and August 2020, we closed on the sale of an aggregate of 5,647,048 shares of Series B convertible preferred stock for gross proceeds of $96.0 million. In September 2020, we raised gross proceeds of $181.0 million in our initial public offering. Funding Requirements To date, we have not generated any revenues from the commercial sale of approved drug products, and we do not expect to generate substantial revenue for at least the next few years. If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, our ability to generate future revenue will be compromised. We do not know when, or if, we will generate any revenue from our product candidates, and we do not expect to generate significant revenue unless and until we obtain regulatory approval of, and commercialize, our product candidates. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate clinical trials of and seek marketing approval for our product candidates. In addition, if we obtain approval for any of our product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company. We anticipate that we will need substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital requirements into 2023. We intend to devote our existing cash and cash equivalents to the clinical and preclinical development of our product candidates. We have based this estimate on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of biological products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to: • the scope, progress, costs and results of discovery, preclinical development, laboratory testing and clinical trials for TSHA-101, TSHA-118, TSHA-102, TSHA-103, TSHA-104 and future product candidates; • the extent to which we develop, in-license or acquire other product candidates and technologies in our gene therapy product candidate pipeline; • the costs and timing of process development and manufacturing scale-up activities associated with our product candidates and other programs as we advance them through preclinical and clinical development; • the number and development requirements of product candidates that we may pursue; • the costs, timing and outcome of regulatory review of our product candidates; • our headcount growth and associated costs as we expand our research and development capabilities and establish a commercial infrastructure; • the costs of establishing and maintaining our own commercial-scale cGMP manufacturing facility; • the costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution, for any 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; 24 • the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; and • the costs of operating as a public company. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of product candidates that we do not expect to be commercially available in the near term, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the terms of these equity securities or this debt may restrict our ability to operate. Any future debt financing and equity financing, if available, may involve agreements that include covenants limiting and restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, entering into profit-sharing or other arrangements or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. We are continuing to assess the effect that the COVID-19 pandemic may have on our business and operations. The extent to which COVID-19 may impact our business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, the duration and effect of business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements and business closures in the United States and other countries to contain and treat the disease. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. Cash Flows Prior to the issuance and sale of our Series A convertible preferred stock in March 2020, we had no cash. Outstanding accrued expenses of $0.2 million as of December 31, 2019 were paid in 2020 following the receipt of the proceeds from the issuance and sale of our Series A convertible preferred stock. The following table shows a summary of our cash flows for the nine months ended September 30, 2020 (in thousands): Nine Months Ended September 30, 2020 Net cash used in operating activities $ (10,881 ) Net cash used in investing activities (3,031 ) Net cash provided by financing activities 292,546 Net change in cash and cash equivalents $ 278,634 Operating Activities For the nine months ended September 30, 2020 our net cash used in operating activities of $10.9 million primarily consisted of a net loss of $41.7 million, primarily attributable to our spending on research and development expenses. The net loss of $41.7 million was partially offset by changes in working capital of $6.4 million, which was primarily due to increases in accounts payable related to the Abeona clinical materials and development costs of $4.0 million, and $24.4 million in adjustments for non-cash items, primarily the change in the fair value of the preferred stock tranche liability of $17.0 million, the upfront payment to acquire the license rights pursuant to the Queen’s University Agreement for $3.0 million, the upfront expense related to the Abeona CLN1 license agreement for $3.0 million, both of which were recorded as a component of research and development expenses, and stock-based compensation expense of $1.3 million. 25 Investing Activities During the nine months ended September 30, 2020, investing activities used $3.0 million of cash attributable to the upfront fee paid pursuant to the Queen’s University Agreement. Financing Activities During the nine months ended September 30, 2020, financing activities provided $292.5 million of cash, which was primarily attributable to the receipt of $167.1 million in net proceeds from our initial public offering, $95.8 million in net proceeds from the sale of our Series B convertible preferred stock and $29.6 million in net proceeds from the sale of our Series A convertible preferred stock. Contractual Obligations and Other Commitments As of December 31, 2019, we did not have any commitments or contractual obligations. In addition, we enter into agreements in the normal course of business with CROs, CMOs and other vendors for research and development services for operating purposes, which are generally cancelable upon written notice. These payments are therefore not included in our contractual obligations herein. We have not included milestone or royalty payments or other contractual payment obligations as the timing and amount of such obligations are unknown or uncertain, and are contingent upon the initiation and successful completion of future activities. See Notes 4 and 11 to our unaudited condensed consolidated financial statements located in “Part I – Financial Information, Item 1. Financial Statements” in this Quarterly Report on Form 10-Q. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Critical Accounting Policies and Significant Judgments and Estimates This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. In accordance with U.S. GAAP, we evaluate our estimates and judgments on an ongoing basis, including those related to accrued expenses, the preferred stock tranche liability and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 2 to our unaudited condensed consolidated financial statements located in “Part I – Financial Information, Item 1. Financial Statements” in this Quarterly Report on Form 10-Q, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments. There were no material changes to our critical accounting policies that are disclosed in our audited financial statements for the period from September 20, 2019 (date of inception) through December 31, 2019 included in our final prospectus dated September 23, 2020, and filed with the SEC on September 25, 2020 pursuant to Rule 424(b)(4). Recent Accounting Pronouncements See Note 2 to our unaudited condensed consolidated financial statements located in “Part I – Financial Information, Item 1. Financial Statements” in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements. 26 Emerging Growth Company and Smaller Reporting Company Statu s In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies. In addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: • an exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended; • reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; • exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements; and • an exemption from compliance with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on financial statements. We may take advantage of these provisions until we no longer qualify as an emerging growth company. We will cease to qualify as an emerging growth company on the date that is the earliest of: (i) December 31, 2025, (ii) the last day of the fiscal year in which we have more than $1.07 billion in total annual gross revenues, (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, or (iv) the date on which we have issued more than $1.0 billion of non-convertible debt over the prior three-year period. We may choose to take advantage of some but not all of these reduced reporting burdens. We have taken advantage of certain reduced reporting requirements in this Quarterly Report on Form 10-Q and our other filings with the SEC. Accordingly, the information contained herein may be different than you might obtain from other public companies in which you hold equity interests. We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.