What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2021-11-10 · 145 added, 248 removed, 273 unchanged (59% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

5 unchanged sentences

Property, plant and equipment, net

Other non-current assets

LIABILITIES AND STOCKHOLDERS' EQUITY

4 unchanged sentences

Build-to-suit lease liability

Term loan, net

Other non-current liabilities

3 unchanged sentences

Preferred stock, $ 0.00001 par value per share;

10,000,000 shares authorized and no shares issued and outstanding as of September 30, 2021 and December 31, 2020

10,000,000 shares authorized and no shares issued and outstanding as of March 31, 2022 and December 31, 2021

Common stock, $ 0.00001 par value per share;

200,000,000 shares authorized and 38,473,945 and 37,761,435 issued and outstanding as of September 30, 2021 and December 31, 2020

200,000,000 shares authorized and 38,473,945 issued and outstanding as of March 31, 2022 and December 31, 2021

Additional paid-in capital

7 unchanged sentences

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

Operating expenses:

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Other income (expense):

Change in fair value of preferred stock tranche liability

Interest income

Interest expense

Total other expense, net

Other expense

Total other income (expense), net

Net loss per common share, basic and diluted

2 unchanged sentences

Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

For the Three Months Ended September 30, 2021

Stockholders'

Balance as of June 30, 2021

Stock-based compensation

Issuance of common stock, upon vesting and settlement of restricted stock units

Balance as of September 30, 2021

For the Three Months Ended September 30, 2020

Stockholders'

Preferred Stock

Balance as of June 30, 2020

Issuance of Series A convertible preferred stock,

net of offering costs of $ 165

Issuance of Series B convertible preferred stock net of offering costs of $ 185

Reclassification of preferred stock tranche liability upon issuance of Series A milestone shares

Conversion of Series A and B convertible preferred stock to common stock

Issuance of shares of common stock in initial public offering, net of offering costs and underwriting discounts and commissions of $ 15,111

Issuance of restricted stock award

Stock-based compensation

Balance as of September 30, 2020

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Taysha Gene Therapies, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Stockholders'

1 unchanged sentence

Stock-based compensation

Issuance of common stock, upon vesting and settlement of restricted stock units

Balance as of September 30, 2021

For the Nine Months Ended September 30, 2020

Balance as of March 31, 2022

For the Three Months Ended March 31, 2021

Stockholders'

Preferred Stock

Balance as of December 31, 2020

Issuance of Series A convertible preferred stock, net of offering costs of $ 605 and issuance of preferred stock tranche liability of $ 1,050

Issuance of Series B convertible preferred stock net of offering costs of $ 185

Reclassification of preferred stock tranche liability upon issuance of Series A milestone shares

Conversion of Series A and Series B convertible preferred stock to common stock

Issuance of shares of common stock in initial public offering, net of offering costs and underwriting discounts and commissions of $ 15,111

Issuance of restricted stock award

Stock-based compensation

Balance as of September 30, 2020

Balance as of March 31, 2021

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

2 unchanged sentences

(in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from operating activities

1 unchanged sentence

Depreciation expense

Change in fair value of preferred stock tranche liability

Research and development license expense

Stock-based compensation

Build-to-suit lease

Changes in operating assets and liabilities:

9 unchanged sentences

Cash flows from financing activities

Proceeds from Term Loan, net

Proceeds from initial public offering, net of underwriting discounts and commission and other offering costs

Proceeds from Series A convertible preferred stock, net of issuance costs

Proceeds from Series B convertible preferred stock, net of issuance costs

Proceeds from note payable to related party

Repayment of note payable to related party

Net cash provided by financing activities

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

Payment of shelf registration costs

ESPP contributions

Net cash used in financing activities

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at the beginning of the period

8 unchanged sentences

Acquisition of property, plant and equipment funded by landlord

Build-to-suit lease liability

Deferred offering costs not yet paid

Reclassification of preferred stock tranche liability

Allocation of preferred stock tranche liability

Conversion of Series A and Series B convertible preferred stock to common stock

Purchase of research and development license not yet paid

Issuance costs for issuance of common stock in initial public offering not yet paid

Series A convertible preferred stock issuance costs not yet paid

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

Note 1—Organization and Description of Business Operations

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Taysha is 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.

On September 16, 2020, the Company effected a 1.0895 -for-one stock split of its authorized, issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s convertible preferred stock as discussed in Note 6.

Accordingly, all share and per share amounts for the periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the convertible preferred stock conversion ratios.

On September 16, 2020, the Company also increased the number of shares of common stock authorized for issuance under the 2020 Equity Incentive Plan (the “Existing Plan”) to 3,845,294 .

Initial Public Offering

On September 23, 2020, the Company’s registration statement on Form S-1 (File No.

333-248559) related to the initial public offering (“IPO”) of its common stock became effective and on September 28, 2020, the IPO closed.

Pursuant to the IPO, the Company issued and sold 9,050,000 shares of common stock at a public offering price of $ 20.00 per share, which included 1,180,434 shares of common stock issued upon the exercise in full of the underwriters’ option to purchase additional shares.

The Company received net proceeds of $ 165.9 million after deducting underwriting discounts and commissions and other offering costs of $ 2.5 million.

The shares began trading on the Nasdaq Global Select Market on September 24, 2020.

On September 28, 2020, in connection with the closing of the IPO, 10,000,000 shares of Series A and 5,647,048 shares of Series B convertible preferred stock automatically converted into an aggregate of 17,047,378 shares of common stock with a conversion ratio of 1.0895 shares of common stock for each share of Series A and Series B convertible preferred stock.

As a result of the IPO, including the underwriters’ exercise in full of their option to purchase additional shares, and the conversions of the Series A and B convertible preferred stock, the Company’s total number of outstanding shares increased by 26,097,378 immediately following the closing of the IPO.

Upon the effectiveness of the Company’s registration statement related to the IPO, the Company’s 2020 Stock Incentive Plan (the “New Plan”) and 2020 Employee Stock Purchase Plan became effective.

At that time, all shares reserved for issuance under the Existing Plan ceased to be available for issuance under such plan and became available for issuance under the New Plan.

Sales Agreement

On October 5, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with SVB Securities LLC (f/k/a SVB Leerink LLC) and Wells Fargo Securities, LLC (collectively, the “Sales Agents”), pursuant to which the Company may issue and sell, from time to time in its sole discretion, shares of its common stock having an aggregate offering price of up to $ 150.0 million through the Sales Agents.

In March 2022, the Company amended the Sales Agreement to, among other things, include Goldman Sachs & Co.

LLC as an additional Sales Agent.

The Sales Agents may sell common stock by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the Nasdaq Global Select Market or any other existing trade market for the common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law.

The Sales Agents will be entitled to receive 3.0 % of the gross sales price per share of common stock sold under the Sales Agreement.

As of March 31, 2022, no shares of common stock had been issued and sold pursuant to the Sales Agreement .

The Company sold 2.0 million shares under the Sales Agreement in April 2022 (see Note 12).

Liquidity and Capital Resources

The Company has incurred operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable.

As of September 30, 2021, the Company had an accumulated deficit of $ 185.3 million.

Prior to the closing of the Company’s IPO, between March and July 2020, the Company 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.

Between July and August 2020, the Company 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.

As of March 31, 2022, the Company had an accumulated deficit of $ 285.8 million.

Future capital requirements will depend on many factors, including the timing and extent of spending on research and development and the market acceptance of the Company’s products.

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There can be no assurance that such financing will be available or will be on terms acceptable to the Company.

As of September 30, 2021, the Company had cash and cash equivalents of $ 188.8 million which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months from the date of issuance of these condensed consolidated financial statements.

As of March 31, 2022, the Company had cash and cash equivalents of $ 96.6 million which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months from the date of issuance of these condensed consolidated financial statements.

In December 2019, the novel coronavirus that causes the disease COVID-19 emerged and has subsequently spread worldwide.

The World Health Organization has declared the COVID-19 outbreak a global pandemic, resulting in federal, state and

local governments and private entities implementing various restrictions including travel restrictions, restrictions on public gatherings, stay at home orders, other advisories and quarantines of people who may have been exposed to the virus.

The Company has been actively monitoring COVID-19 and its impact globally.

Management believes the financial results for the nine months ended September 3 0 , 2021 were not significantly impacted by the COVID-19 pandemic .

In addition, management believes the remote working arrangements and travel restrictions imposed by various governmental jurisdictions have had limited impact on the Company’s ability to maintain internal operations during the nine months ended September 30, 2021 .

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19.

Management believes the financial results for the three months ended March 31, 2022 were not significantly impacted by the COVID-19 pandemic.

In addition, management believes the Company’s remote and hybrid working arrangements have had limited impact on the Company’s ability to maintain internal operations during the three months ended March 31, 2022.

Note 2—Summary of Significant Accounting Policies

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The consolidated balance sheet as of December 31, 2021 is derived from audited financial statements, however, it does not include all of the information and footnotes required by GAAP for complete financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s 2020 Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 3, 2021.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s 2021 Annual Report.

Principles of Consolidation

The accompanying interim condensed consolidated financial statements include the accounts of Taysha and its inactive wholly owned U.S.

subsidiaries that were incorporated during 2020 , and two inactive foreign subsidiaries incorporated during 2021 .

subsidiaries that were incorporated during 2020 , and two foreign subsidiaries incorporated during 2021 .

All intercompany transactions and balances have been eliminated in consolidation.

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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

The most significant estimates and assumptions in the Company’s financial statements relate to the determination of the fair value of the common stock prior to the IPO (as an input into stock-based compensation), estimating preclinical manufacturing accruals and accrued or prepaid research and development expenses, and the valuation of the preferred stock tranche liability.

The most significant estimates and assumptions in the Company’s financial statements relate to the determination of the fair value of the common stock prior to the Company’s initial public offering (“IPO”) in September 2020 (as an input into stock-based compensation), and estimating preclinical manufacturing accruals and accrued or prepaid research and development expenses.

These estimates and assumptions are based on current facts, historical experience and various other factors 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 and the recording of expenses that are not readily apparent from other sources.

3 unchanged sentences

Significant Accounting Policies

There have been no changes in the Company’s significant accounting policies as disclosed in Note 2 to the audited consolidated financial statements included in the 2020 Annual Report, except as described below:

Restricted Cash

Restricted cash consists of cash that the Company has placed in an escrow account which is pledged as collateral under certain lease agreements and letters of credit.

Offering Costs

The Company capitalizes costs directly associated with equity financings until such financings are consummated, at which time such costs are recorded in additional paid-in capital against the gross proceeds of the equity financings.

Costs associated with the shelf registration statement on Form S-3, filed with the SEC on October 5, 2021 have been capitalized and will be reclassified to additional paid-in capital on a pro rata basis when the Company completes offerings under the shelf registration.

At the end of the three-year term of the shelf registration, the remaining deferred offering costs, if any, will be charged to operations.

As of September 30, 2021, $ 0.2 million of such deferred costs are included in prepaid expenses and other current assets on the condensed consolidated balance sheet.

Build-to-Suit Lease

In the Company’s recent lease arrangement (as described in Note 11), the Company was involved in the construction of the build-out.

To the extent the Company is involved with the structural improvements of the construction project or takes construction risk prior to the commencement of a lease, accounting guidance requires the Company to be considered the owner for accounting purposes of these types of projects during the construction period.

In such cases, the Company records an asset in property, plant and equipment on its consolidated balance sheet equal to the fair value of the building shell, and a corresponding build-to-suit lease obligation on its consolidated balance sheet representing the amounts paid by the lessor.

Upon completion of construction, the Company will consider the requirements for sale-leaseback accounting treatment, including evaluating whether all risks of ownership have been transferred back to the landlord.

There have been no changes in the Company’s significant accounting policies as disclosed in Note 2 to the audited consolidated financial statements included in the 2021 Annual Report.

Comprehensive Loss

Comprehensive loss is equal to net loss as presented in the accompanying condensed consolidated statements of operations.

Recently Issued Accounting Pronouncements

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The new standard requires the use of one of the following two approaches, either (1) retrospectively to each prior reporting period presented in the financial statements with the cumulative effect recognized at the beginning of the earliest comparative period presented, or (2) retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment.

The Company has not yet concluded which approach will be utilized to adopt the new standard and is currently evaluating the impact of this standard on its condensed consolidated financial statements.

The Company has not yet concluded

which approach will be utilized to adopt the new standard and is currently evaluating the impact of this standard on its condensed consolidated financial statements.

Note 3—Balance Sheet Components

Prepaid expenses and other current assets consisted of the following (in thousands):

September 30,

Prepaid research and development

Prepaid bonus

Prepaid clinical trial

Deferred offering costs

Prepaid bonus

Prepaid insurance

1 unchanged sentence

Property, plant and equipment consisted of the following (in thousands):

September 30,

Leasehold improvements

Furniture and fixtures

Computer equipment

Laboratory equipment

Computer equipment

Furniture and fixtures

Construction in progress

1 unchanged sentence

Property, plant and equipment, net

Included in construction in progress at September 30, 2021 was $ 36.7 million of costs associated with the Build-to-Suit lease (see Note 11).

Depreciation expense was $ 166,000 and $ 283,000 for the three and nine months ended September 30, 2021, respectively.

Depreciation expense was not significant for the three and nine months ended September 30, 2020.

Included in construction in progress at March 31, 2022 was $ 50.4 million of costs associated with the Build-to-Suit lease (see Note 9), which includes $ 3.0 million of capitalized payroll and payroll-related costs.

Depreciation expense was $ 0.3 million for the three months ended March 31, 2022 and less than $ 0.1 million for the three months ended March 31, 2021.

Accrued expenses and other current liabilities consisted of the following (in thousands):

September 30,

Accrued research and development

Accrued severance

Accrued compensation

Accrued professional and consulting fees

Accrued license fees

Accrued property plant and equipment

Accrued professional and consulting fees

Accrued clinical trial

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On August 12, 2021 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Term Loan Agreement”), by and among the Company, the lenders party thereto from time to time (the “Lenders”) and Silicon Valley Bank, as administrative agent and collateral agent for the Lenders (“Agent”).

The Term Loan Agreement provides for (i) on the Closing Date, $ 40.0 million aggregate principal amount of term loans available through December 31, 2021 , (ii) from January 1, 2022 until September 30, 2022 , an additional $ 20.0 million term loan facility available at the Company’s option upon having three distinct and active clinical stage programs at the time of draw, (iii) from October 1, 2022 until March 31, 2023 , an additional $ 20.0 million term loan facility available at the Company’s option upon having three distinct and active clinical stage programs at the time of draw and (iv) from April 1, 2023 until December 31, 2023 , an additional $ 20.0 million term loan facility available upon approval by the Agent and the Lenders (collectively, the “Term Loans”).

The Company drew $ 30.0 million in term loans on the Closing Date.

The Term Loan Agreement provides for ( i ) on the Closing Date, $ 40.0 million aggregate principal amount of term loans available through December 31, 2021 , (ii) from January 1, 2022 until September 30, 2022 , an additional $ 20.0 million term loan facility available at the Company’s option upon having three distinct and active clinical stage programs , determined at the discretion of the Agent, at the time of draw, (iii) from October 1, 2022 until March 31, 2023 , an additional $ 20.0 million term loan facility available at the Company’s option upon having three distinct and active clinical stage programs , determined at the discretion of the Agent, at the time of draw and (iv) from April 1, 2023 until December 31, 2023 , an additional $ 20.0 million term loan facility available upon approval by the Agent and the Lenders (collectively, the “Term Loans”).

The Company drew $ 30.0 million in term loans on the Closing Date and $ 10.0 million in term loans in December 2021 .

The interest rate applicable to the Term Loans is the greater of (a) the WSJ Prime Rate plus 3.75 % or (b) 7.00 % per annum.

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An additional final payment of 7.5 % of the amount of Terms Loans advanced by the Lenders (“Exit Fee”) will be due upon prepayment or repayment of the Term Loans in full.

The Exit Fee of $ 2.3 million was recorded as debt discount and has also been fully accrued within non-current liabilities as of September 30, 2021.

The debt discount is being accreted using the effective interest method over the term of the Term Loans within interest expense in the condensed statements of operations.

The Exit Fee of $ 3.0 million was recorded as debt discount and has also been fully accrued within non-current liabilities as of March 31, 2022.

The debt discount is being accreted using the effective interest method over the term of the Term Loans within interest expense in the condensed consolidated statements of operations.

The obligations under the Term Loan Agreement are secured by a perfected security interest in all of the Company’s assets except for intellectual property and certain other customarily excluded property pursuant to the terms of the Term Loan Agreement.

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The Term Loan Agreement also contains customary representations and warranties, and also includes customary events of default, including payment default, breach of covenants, change of control, and material adverse effects.

The Company was in compliance with all covenants under the Term Loan Agreement as of September 30, 2021.

Upon the occurrence of an event of default, a default interest rate of an addition 5 % per annum may be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the Term Loan Agreement and under applicable law.

Future principal debt payments on the loan payable as of September 30, 2021 are as follows (in thousands):

The Company was in compliance with all covenants under the Term Loan Agreement as of March 31, 2022.

Upon the occurrence of an event of default, a default interest rate of an additional 5 % per annum may be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the Term Loan Agreement and under applicable law.

During the three months ended March 31, 2022, the Company recognized interest expense related to the Term Loan of $ 0.9 million.

Future principal debt payments on the loan payable as of March 31, 2022 are as follows (in thousands):

Year Ending December 31,

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No additional consideration was transferred in connection with this amendment.

In March 2022, the Company and UT Southwestern mutually agreed to revise the payment schedules and current performance expectations of the current sponsored research agreements under the UT Southwestern Agreement and defer payments by fifteen months.

The UT Southwestern Agreement expires on a country-by-country and licensed product-by-licensed product basis upon the expiration of the last valid claim of a licensed patent in such country for such licensed product.

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In March 2020, following the initial closing of the Series A convertible preferred stock agreement, which met the definition of such qualified financing, the anti-dilution feature expired and no additional shares were issued.

The Company is aware that UT Southwestern no longer owns such shares of common stock as of January 2022.

The Company does not have any future milestone or royalty obligations to UT Southwestern under the UT Southwestern Agreement other than costs related to maintenance of patents.

Queen’s Agreement

In late December 2019, the Company entered into a research grant agreement (“RGA”) with Queen’s University at Kingston (“Queen’s”), for certain research and development activities related to the generation of AAV9 vector.

The Company committed to fund $ 3.8 million under the RGA with Queen’s.

The Company issued Queen’s a promise-to-pay note whereby any amounts paid directly by Queen’s for the manufacture of the vector for use in the funded research activities, to the extent such amounts had not already been funded by the Company to Queen’s, would become a loan obligation for the Company (the “Note”), subject to an interest rate of 6 %.

Any amounts outstanding under the Note were required to be repaid, along with any accrued interest, by or before June 30, 2020.

In the event of default, any amount outstanding was deemed immediately payable by RA Session II, the Company’s President and Chief Executive Officer, as a personal guarantor (see Note 9).

For the period from Inception through December 31, 2019, the Company did not incur any expenses associated with the Queen’s RGA, and no amounts were due or outstanding under the Note as of December 31, 2019.

For the year ended December 31, 2020, the Company paid all expenses associated with the Queen’s RGA, thus no amounts were due or outstanding under the Note as of December 31, 2020, and the promise-to-pay has therefore expired.

On February 21, 2020, the Company entered into a license agreement with Queen’s (the “Queen’s Agreement”) to obtain the exclusive perpetual, royalty-bearing license, with the right to sublicense through multiple tiers, under certain patent rights and know-how of Queen’s, including certain improvements to such patent rights and know-how, to develop products in any field which use one or more valid claims of the patents licensed under the Queen’s Agreement (the “Licensed Patents”), or the technology, information and intellectual property related to the patents licensed under the Queen’s Agreement (together with the Licensed Patents, the “Licensed Products”), and to make, have made, use, sell, offer for sale, import and export Licensed Products and otherwise exploit such patents and know-how for use in certain specified indications.

In exchange for the rights granted to the Company, the Company made a cash payment of $ 3.0 million in April 2020 which is recorded in research and development expenses in the condensed consolidated statements of operations and included as an investing cash outflow in the condensed consolidated statements of cash flows since the acquired license does not have an alternative future use for the nine months ended September 30, 2020.

In exchange for the rights granted to the Company, the Company made a cash payment of $ 3.0 million in April 2020 which was recorded within research and development expenses in the consolidated statements of operations for the year ended December 31, 2020 since the acquired license does not have an alternative future use.

The Company is obligated to make aggregate cash payments of up to $ 10.0 million upon the completion of a combination of regulatory milestones and up to $ 10.0 million upon the completion of a combination of commercial milestones.

In further consideration of the rights granted, beginning with the Company’s first commercial sale of the Licensed Products, the Company will also pay an annual earned royalty in the low single digits 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.

In further consideration of the rights granted, beginning with the Company’s first commercial sale of the Licensed Products, the Company will also pay an annual

earned royalty in the low single digits 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 Products-by-Licensed Products and a country-by-country basis, until expiration of the last valid claim of a Licensed Patent covering such Licensed Products in such country and the expiration of any regulatory exclusivity for such Licensed Products in such country.

No additional milestone payments were made in connection with the Queen’s Agreement during the nine months ended September 30, 2021.

No additional milestone payments were made in connection with the Queen’s Agreement during the three months ended March 31, 2022.

Abeona CLN1 Agreements

In August 2020, the Company entered into license and inventory purchase agreements with Abeona Therapeutics Inc.

In August 2020, the Company entered into license and inventory purchase agreements (collectively, the “Abeona Agreements”) with Abeona Therapeutics Inc.

(“Abeona”) for worldwide exclusive rights to certain intellectual property rights and know-how relating to the research, development and manufacture of ABO-202, an AAV-based gene therapy for CLN1 disease (also known as infantile Batten disease).

Under the terms of the agreements, the Company made initial cash payments to Abeona of $ 3.0 million for the license fee and $ 4.0 million for purchase of clinical materials and reimbursement for previously incurred development costs in October 2020.

Under the terms of the Abeona Agreements, the Company made initial cash payments to Abeona of $ 3.0 million for the license fee and $ 4.0 million for purchase of clinical materials and reimbursement for previously incurred development costs in October 2020.

In exchange for the license rights, the Company recorded an aggregate of $ 7.0 million within research and development expenses in the consolidated statements of operations for the year ended December 31, 2020 since the acquired license or acquired inventory do not have an alternative future use.

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The Company will also pay an annual earned royalty in the high single digits on net sales of any licensed CLN1 products.

The license 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.

The Company may terminate the license agreement for convenience upon specified prior written notice to Abeona.

No additional milestone payments were made in connection with this agreement during the nine months ended September 3 0 , 2021.

The license agreement with Abeona (the “Abeona License 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 Abeona License Agreement upon an uncured material breach of the agreement or insolvency of the other party.

The Company may terminate the Abeona License Agreement for convenience upon specified prior written notice to Abeona.

In December 2021 the Company’s CTA filing for TSHA-118 for the treatment of CLN1 disease was approved by Health Canada and therefore triggered a regulatory milestone payment in connection with this agreement.

The Company recorded $ 3.0 million within research and development expenses in the consolidated statements of operations for the year ended December 31, 2021.

The milestone fee was paid in January 2022 and classified as an investing cash outflow in the condensed consolidated statements of cash flows for the three months ended March 31, 2022.

Abeona Rett Agreement

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Subject to certain obligations of Abeona, the Company is required to use commercially reasonable efforts to develop at least one licensed product and commercialize at least one licensed product in the United States.

In connection with the Abeona Rett Agreement, the Company paid Abeona a one-time upfront license fee of $ 3.0 million which is recorded in research and development expenses in the consolidated statements of operations for the year ended December 31, 2020 since the acquired license does not have an alternative future use.

In connection with the Abeona Rett Agreement, the Company paid Abeona a one-time upfront license fee of $ 3.0 million which was recorded in research and development expenses in the consolidated statements of operations for the year ended December 31, 2020 since the acquired license does not have an alternative future use.

The Company is obligated to pay Abeona up to $ 26.5 million in regulatory-related milestones and up to $ 30.0 million in sales-related milestones per licensed Rett product and high single-digit royalties on net sales of licensed Rett products.

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The Company may terminate the agreement for convenience upon specified prior written notice to Abeona.

No additional milestone payments were made in connection with the Abeona Rett Agreement during the nine months ended September 30, 2021.

In March 2022, the Company’s CTA filing for TSHA-102 for the treatment of Rett Syndrome was approved by Health Canada and therefore triggered a regulatory milestone payment in connection with this agreement.

T he Company recorded $ 1.0 million within research and development expenses in the condensed consolidated statements of operations for the three months ended March 31, 2022.

Acquisition of Worldwide Rights for TSHA-120 for the treatment of GAN

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The worldwide rights were acquired through a license agreement, effective March 29, 2021, between Hannah’s Hope Fund for Giant Axonal Neuropathy, Inc.

(“HHF”) and the Company.

Under the terms of the agreement, in exchange for granting the Company the exclusive worldwide rights to TSHA-120, HHF received an upfront payment of $ 5.5 million and will be eligible to receive clinical, regulatory and commercial milestones totaling up to $ 19.3 million, as well as a low, single-digit royalty on net sales upon commercialization of the product.

In exchange for the license rights, the Company recorded an aggregate of $ 5.5 million within research and development expenses in the condensed consolidated statements of operations since the acquired license does not have an alternative future use.

This license fee was paid in April 2021 and has been classified as an investing outflow in the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 .

No additional milestone payments were made in connection with this agreement during the nine months ended September 30, 2021.

Note 6—Stockholders’ Equity (Deficit), Convertible Preferred Stock and Tranche Liability

Authorized Shares

The Company amended its certificate of incorporation on March 4, 2020, July 2, 2020 and again on July 28, 2020 such that the total number of shares of common stock authorized to be issued was increased to 32,685,000 , and the total number of shares of preferred stock authorized to be issued was increased to 15,647,052 , of which 10,000,000 preferred shares were designated Series A convertible preferred stock and 5,647,052 were designated Series B convertible preferred stock.

On September 28, 2020, the Company amended its certificate of incorporation such that the total number of shares of common stock authorized to be issued was increased to 200,000,000 , and the total number of shares of new preferred stock authorized to be issued was 10,000,000 .

As of September 30, 2021 and December 31, 2020, no shares of preferred stock were issued or outstanding.

On September 28, 2020, the Company issued an aggregate of 7,869,566 shares of common stock in the IPO, and on September 29, 2020, the Company issued an aggregate of 1,180,434 shares of common stock upon the underwriters’ exercise in full of their option to purchase additional shares, each at the public offering price of $ 20.00 per share less underwriting discounts and commissions.

In connection with the IPO, the Company received gross proceeds of $ 181.0 million, which was offset by issuance costs, including underwriters’ discounts and commissions, of approximately $ 15.1 million.

Series A and B convertible preferred stock

On March 4, 2020, the Company entered into a purchase agreement (the “Series A Purchase Agreement”) providing for a private placement of up to 10,000,000 shares of Series A convertible preferred stock at an original issuance price of $ 3.00 per share, subject to separate closings, including:

(1) 6,000,000 shares at the initial closing on March 4, 2020, and (2) 2,000,000 shares at each of two subsequent closings triggered by the achievement of specific clinical milestones.

The Series A Purchase Agreement obligated the Company to issue and sell and the Series A investors to purchase up to a total of 4,000,000 additional shares of Series A convertible preferred stock (the “Milestone Shares”) at the same price per share upon the achievement of certain defined clinical milestones (the “tranche liability”).

The determination as to whether the milestone events had been met was subject to certification by the Board of Directors.

Each Series A investor had the right, but not the obligation, to purchase all or any portion of the Milestone Shares at any time in its sole option and in its sole and absolute discretion, whether or not the Company had achieved the applicable clinical milestone.

On June 30, 2020, several affiliated Series A investors elected to exercise in full their options to purchase 200,000 shares, representing all of their remaining pro-rata portion of the Milestone Shares, prior to the Company’s achievement of the clinical milestones for gross proceeds of $ 0.6 million.

The remainder of the Series A investors exercised in full their options to purchase 3,800,000 shares, representing all of their remaining pro-rata portion of the Milestone Shares, prior to the Company’s achievement of the clinical milestones, for gross proceeds of $ 11.4 million between July 1, 2020 and July 2, 2020.

As part of this issuance, the Company issued and sold 3,266,667 shares to PBM TGT Holdings, LLC and 400,000 shares to Nolan Capital, LLC, which stockholders are controlled by certain members of the Company’s board of directors.

On July 2, 2020, the Company entered into a purchase agreement (the “Series B Purchase Agreement”), as later amended on July 28, 2020, providing for a private placement of up to 5,647,052 shares of Series B convertible preferred stock.

The Company sold 5,647,048 shares of Series B convertible preferred stock at a price of $ 17.00 per share in multiple closings in July and August 2020 for gross proceeds of $ 96.0 million.

The majority of investors that participated in the Series B Purchase Agreement were new investors.

As described above, in connection with the closing of the IPO, all shares of Series A and Series B convertible preferred stock were automatically converted into an aggregate of 17,047,378 shares of common stock with a conversion ratio, which was adjusted for the stock split, of 1.0895 shares of common stock for each share of Series A and Series B convertible preferred stock then outstanding.

Series A convertible preferred stock tranche liability

The Company 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.

The estimated fair value of the tranche liability was determined using a Monte Carlo simulation at the initial issuance date.

As of March 4, 2020, the simulations occurred based on the implied aggregate equity value of the Company derived from the Series A convertible preferred stock offering price of $ 3.00 per share, along with, in part, the following subjective assumptions:

risk-free rate of 0.59 %, an expected volatility of 80 %, the expected term to a liquidity event of 1 year, and a 60 % probability of achieving the clinical milestones and timing thereof.

Subsequently, the estimated fair value of the tranche liability was determined using a backsolve approach at June 30, 2020, immediately prior to the issuance of the Milestone Shares, which was calculated based on the aggregate equity value of the Company derived from the Series B convertible preferred stock offering price of $ 17.00 per share.

The subsequent remeasurement also considered, in part, a risk-free rate of 0.17 %, an expected volatility of 80 %, and the expected term to a liquidity event of 0.5 years.

Based on the analysis, the Company recorded a preferred stock tranche liability of $ 1.1 million at the issue date to account for the obligation to issue the Milestone Shares at a predetermined fixed price at a future settlement date.

The Company remeasured the fair value of the entire tranche liability at June 30, 2020, and recognized a non-cash expense of $ 17.0 million in the condensed consolidated statement of operations.

Between June 30, 2020 and July 2, 2020, all of the 4,000,000 Milestone Shares were issued and the related tranche liability was extinguished in its entirety, and the Company reclassified $ 18.1 million to convertible preferred stock on the condensed consolidated balance sheet.

(“HHF”) and the Company (the “GAN Agreement”).

Under the terms of the GAN Agreement, in exchange for granting the Company the exclusive worldwide rights to TSHA-120, HHF received an upfront payment of $ 5.5 million and will be eligible to receive clinical, regulatory and commercial milestones totaling up to $ 19.3 million, as well as a low, single-digit royalty on net sales upon commercialization of the product.

In exchange for the license rights, the Company recorded an aggregate of $ 5.5 million within research and development expenses in the condensed consolidated statements of operations for the three months ended March 31, 2021, since the acquired license does not have an alternative future use.

No additional milestone payments were made in connection with the GAN Agreement during the three months ended March 31, 2022.

License Agreement for CLN7

In March 2022, the Company entered into a license agreement with UT Southwestern (the “CLN7 Agreement”) pursuant to which the Company obtained an exclusive worldwide, royalty-bearing license with right to grant sublicenses to develop, manufacture, use, and commercialize licensed products for gene therapy for CLN7, a form of Batten Disease In connection with the CLN7 Agreement, the Company will pay a one-time up-front license fee of $ 0.3 million.

The Company recorded the up-front license fee in research and development expense in the condensed consolidated statements of operations since the acquired license does not have an alternative future use.

The Company is obligated to pay UT Southwestern up to $ 7.7 million in regulatory-related milestones and up to $ 7.5 million in sales-related milestones, as well as a low, single-digit royalty on net sales upon commercialization of the product.

Note 6—Stock-Based Compensation

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The number of shares available for future issuance under the New Plan is the sum of (1) 3,390,168 new shares of common stock, (2) 209,841 remaining shares of common stock reserved under the Existing Plan that became available for issuance upon the effectiveness of the New Plan and (3) the number of shares of common stock subject to outstanding awards under the Existing Plan when the New Plan became effective that thereafter expire or are forfeited, canceled, withheld to satisfy tax withholding or to purchase or exercise an award, repurchased by the Company or are otherwise terminated.

At December 31, 2020, there were 2,941,509 shares available for future grant under the New Plan.

The number of shares of common stock reserved for issuance under the New Plan will automatically increase on January 1 of each year, for a period of ten years , from January 1, 2021 continuing through January 1, 2030 , by 5 % of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors.

On January 1, 2021 the board of directors increased the number of common stock reserved for issuance under the New Plan by 1,434,934 shares.

On January 1, 2021 the Company’s board of directors increased the number of common stock reserved for issuance under the New Plan by 1,434,934 shares.

On January 1, 2022 the Company’s board of directors increased the number of common stock reserved for issuance under the New Plan by 1,923,697 shares.

Furthermore, on September 16, 2020, the Company’s stockholders approved the Employee Stock Purchase Plan (“ESPP”), which became effective upon the execution of the underwriting agreement in connection with the IPO.

The maximum number of shares of common stock that may be issued under the ESPP will not exceed 362,000 shares of common stock, plus the number of shares of common stock that are automatically added on January 1st of each year for a period of up to ten years , commencing on the first January 1 following the IPO Date and ending on (and including) January 1, 2030 , in an amount equal to the lesser of (i) one percent ( 1.0 %) of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year, and (ii) 724,000 shares of common stock.

No shares have been added to the ESPP as of January 1, 2021 and no issuances have been made under the ESPP as of September 30, 2021.

The maximum number of shares of common stock that may be issued under the ESPP will not exceed 362,000 shares of common stock, plus the number of shares of common stock that are automatically added on January 1st of each year for a period of up to ten years , commencing on the first January 1 following the IPO and ending on (and including) January 1, 2030 , in an amount equal to the lesser of (i) one percent ( 1.0 %) of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year, and (ii) 724,000 shares of common stock.

No shares were added to the ESPP in 2021, and no issuances have been made under the ESPP as of December 31, 2021 .

On January 1, 2022, the Company’s board of directors increased the number of common stock reserved for issuance under the ESPP by 384,739 .

No issuance s have been made under the ESPP as of March 31, 2022 .

Stock Options

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Accordingly, the Company continues to recognize the remaining compensation cost of the Cancelled Options over the vesting period of the RSUs.

For the three months ended September 30, 2021, 415,100 shares of common stock under the New Plan were awarded with a weighted-average grant date fair value per share of $ 12.83 .

For the nine months ended September 30, 2021, 3,001,750 shares of common stock under the New Plan were awarded with a weighted-average grant date fair value per share of $ 16.64 .

For the three months ended March 31, 2022, 1,902,100 shares of common stock under the New Plan were awarded with a weighted-average grant date fair value per share of $ 4.24 .

The stock options vest over one to four years and have a ten-year contractual term.

The following weighted-average assumptions were used to estimate the fair value of stock options that were granted during the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30,

Nine months ended September 30,

The following weighted-average assumptions were used to estimate the fair value of stock options that were granted during the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Risk-free interest rate

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Expected volatility

The following table summarizes stock option activity, during the nine months ended September 30, 2021:

The following table summarizes stock option activity, during the three months ended March 31, 2022:

Life (in years)

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Options cancelled or forfeited

Outstanding at September 30, 2021

Vested and expected to vest at September 30, 2021

Options exercisable at September 30, 2021

The aggregate intrinsic value in the above table is calculated as the difference between the fair value of the Company’s common stock as of September 30, 2021 and the exercise price of the stock options.

As of September 30, 2021, the total unrecognized compensation related to unvested stock option awards granted was $ 47.3 million, which the Company expects to recognize over a weighted-average period of approximately 3.3 years.

Options expired

Outstanding at March 31, 2022

Options to be forfeited due to severance

Vested and expected to vest at March 31, 2022

Options exercisable at March 31, 2022

The aggregate intrinsic value in the above table is calculated as the difference between the fair value of the Company’s common stock as of March 31, 2022 and the exercise price of the stock options.

As of March 31, 2022, the total unrecognized compensation related to unvested stock option awards granted was $ 47.4 million, which the Company expects to recognize over a weighted-average period of approximately 3.3 years.

No stock options were exercised during the period.

In March 2022, the Company announced a strategic reprioritization.

As part of the reprioritization, the Company reduced its workforce by approximately 35 % (see Note 10).

All outstanding unvested awards were forfeited upon each employee’s termination date, resulting in a forfeit of 713,540 awards in April 2022 and reversal of $ 0.8 million in stock-based compensation expense in April 2022.

Restricted Stock Units

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Such shares are not accounted for as outstanding until they vest.

As of September 30, 2021, the total unrecognized compensation related to unvested RSUs granted, including the remaining compensation cost associated with the RSUs granted on September 2, 2020 in exchange for the Cancelled Options, was $ 11.8 million which is expected to be amortized on a straight-line basis over the weighted-average remaining vesting period of approximately 1.3 years.

As of March 31, 2022, the total unrecognized compensation related to unvested RSUs granted, including the remaining compensation cost associated with the RSUs granted on September 2, 2020 in exchange for the Cancelled Options, was $ 9.6 million which is expected to be amortized on a straight-line basis over the weighted-average remaining vesting period of approximately 1.2 years.

The Company's default tax withholding method for RSUs is the sell-to-cover method, in which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the RSUs upon vesting and settlement to cover the tax withholding liability and the cash proceeds from such sales are remitted by the Company to taxing authorities.

The Company’s RSU activity for the nine months ended September 30, 2021 was as follows:

Nonvested at January 1, 2021

The Company’s RSU activity for the three months ended March 31, 2022 was as follows:

Nonvested at December 31, 2021

Restricted units granted

Cancelled or forfeited

Nonvested at September 30, 2021

Nonvested at March 31, 2022

Restricted Stock Awards

RA Session II, the Company’s President and Chief Executive Officer, was awarded 769,058 RSAs under the Existing Plan on July 1, 2020, which are expected to vest over a three-year term, subject to continuous employment.

As of September 30, 2021, the total unrecognized compensation related to unvested RSAs granted was $ 2.2 million which is expected to be amortized on a straight-line basis over the weighted-average remaining vesting period of approximately 0.8 years.

As of March 31, 2022, the total unrecognized compensation related to unvested RSAs granted was $ 1.5 million which is expected to be amortized on a straight-line basis over the weighted-average remaining vesting period of approximately 0.4 years.

The fair value of these RSAs at the grant date of July 1, 2020 was $ 5.28 per share.

The Company’s RSA activity for the nine months ended September 30, 2021 was as follows:

The Company’s RSA activity for the three months ended March 31, 2022 was as follows:

Nonvested at December 31, 2021

Restricted stock granted

Nonvested at September 30, 2021

The following table summarizes the total stock-based compensation expense for the stock options, RSAs and RSUs recorded in the condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Nonvested at March 31, 2022

Employee Stock Purchase Plan

In February 2022, the Company’s board of directors authorized the first offering under the ESPP.

Under the ESPP, eligible employees may purchase shares of Taysha common stock through payroll deductions at a price equal to 85 % of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods.

An employee’s payroll deductions under the ESPP are limited to 15 % of the employee’s compensation and employees may not purchase more than 1,800 of shares of Taysha common stock during any offering period.

During the three months ended March 31, 2022, stock-based compensation expense related to the ESPP was not material.

During the three months ended March 31, 2022, $ 0.1 million of stock-based compensation expense was capitalized as part of construction in process (see Note 3).

The following table summarizes the total stock-based compensation expense for the stock options, ESPP, RSAs and RSUs recorded in the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 (in thousands):

For the Three Months Ended March 31,

Research and development expense

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The following table represents the calculation of basic and diluted net loss per common share (in thousands, except share and per share data):

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

For the Three Months Ended March 31,

Weighted-average shares of common stock outstanding used to compute net loss per common share, basic and diluted

Net loss per common share, basic and diluted

The following common stock equivalents outstanding as of September 30, 2021 and 2020 were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti‑dilutive:

September 30,

The following common stock equivalents outstanding as of March 31, 2022 and 2021 were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti‑dilutive:

Unvested RSUs

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Stock options

Note 9—Related Party Transactions

RA Session II, President and Chief Executive Officer and a member of the Company’s board of directors, was a guarantor under the Guaranty and Security Agreement between himself, Queen’s and the Company, and in the event of the Company’s failure to fund its obligations under the RGA with Queen’s, had personally guaranteed payments due by the Company to Queen’s.

In addition, the Company entered into two secured promissory notes with Mr.

Session in January 2020 for an aggregate of $ 1.67 million, with 10 % interest.

The Company secured the notes with a first priority security interest in certain assets of the Company.

During March 2020, the Company repaid $ 1.65 million of the notes, and the remaining balance was repaid in July 2020.

In March 2020, the Company entered into a services agreement with PBM Capital Group, LLC (“PBM”), an affiliate of PBM TGT Holdings, LLC whereby PBM provided accounting and other administrative and management services related to payroll administration, human resources, bookkeeping, preparation of financial statements and tax returns, accounts payable and receivable, and other similar functions for a fee of $ 2,500 per month.

Manning, a member of the Company’s board of directors and a holder of more than 5 % of the Company’s capital stock, is the Chief Executive Officer of PBM Capital Group, LLC and has sole voting and investment power with respect to the shares held by PBM TGT Holdings, LLC.

In September 2020, PBM TGT Holdings, LLC distributed all of the shares of Series A convertible preferred stock it previously held to its beneficial owners, including Mr.

Manning and entities controlled by Mr.

Manning, for no additional consideration in accordance with the terms of its operating agreement.

In April 2021, the PBM services agreement was terminated and all outstanding amounts due have been paid.

Note 8—Income Taxes

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax

assets will not be realized.

Valuation allowances are provided if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets.

There is no provision for income taxes because the Company has incurred operating losses and capitalized certain items for income tax purposes since its inception and maintains a full valuation allowance against its net deferred tax assets.

The reported amount of income tax expense for the period differs from the amount that would result from applying the federal statutory tax rate to net loss before taxes primarily because of the change in valuation allowance.

As of September 30, 2021, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for the year ended December 31, 2020.

reported amount of income tax expense for the period differs from the amount that would result from applying the federal statutory tax rate to net loss before taxes primarily because of the change in valuation allowance.

As of March 31, 2022, there were no material changes to either the nature or the amounts of the uncertain tax positions previously determined for the year ended December 31, 2021.

Note 9—Commitments and Contingencies

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In the normal course of business, the Company enters into contracts that contain a variety of indemnifications with its employees, licensors, suppliers and service providers.

The Company’s maximum exposure under these arrangements is unknown at September 30, 2021.

The Company’s maximum exposure under these arrangements is unknown at March 31, 2022.

The Company does not anticipate recognizing any significant losses relating to these arrangements.

Total lease expense, inclusive of lease incentives, under all operating lease agreements amounted to $ 0.3 million and $ 0.1 million for the three months ended March 31, 2022 and 2021, respectively.

On December 17, 2020, the Company entered into a lease agreement (the “Durham Lease”) with Patriot Park Partners II, LLC, a Delaware limited liability company (the “Durham Landlord”), pursuant to which the Company agreed to lease approximately 187,500 square feet of a manufacturing facility located at 5 National Way, Durham, North Carolina (the “Facility”).

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The Company was required to place $ 2.6 million in an escrow account which will be released when the improvements are substantially complete.

The escrow funds are recorded as restricted cash on the condensed consolidated balance sheet as of September 30, 2021 and are expected to be released in 2023.

The escrow funds are recorded as restricted cash on the condensed consolidated balance sheet as of March 31, 2022.

The Durham Landlord has the right to terminate the Durham Lease upon specified events of default, including the Company’s failure to pay rent in a timely manner and upon the occurrence of certain events of insolvency with respect to the Company.

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In accordance with ASC Topic 840, Leases , the Company is deemed, for accounting purposes only, to be the owner of the entire leased Facility, including the building shell, during the construction period because of the Company’s expected level of direct financial and operational involvement in the substantial tenant improvements, including structural improvements, required to build out the Facility.

As a result, the Company capitalized approximately $ 26.3 million as a build-to-suit asset within property, plant and equipment, net and recognized a corresponding build-to-suit lease financing obligation as a liability on its condensed consolidated balance sheets equal to the fair value of the existing building shell using comparable market prices per square foot for similar space for public real estate transactions in the surrounding area at commencement of construction.

Additionally, construction costs incurred as part of the build-out and tenant improvements are also capitalized within property, plant and equipment, net.

Costs of approximately $ 10.5 million have been capitalized during the nine months ended September 30, 2021, related to both equipment purchases and the build-out of the leased Facility.

Construction is expected to be completed in 2023, upon which time the Company will assess and determine if the build-to-suit asset and corresponding liability should be de-recognized.

On January 11, 2021, the Company entered into a lease agreement (the “Dallas Lease”) with Pegasus Park, LLC, a Delaware limited liability company (the “Dallas Landlord”), pursuant to which the Company will lease approximately 15,000 square feet of office space at 3000 Pegasus Park Drive, Dallas, Texas 75247 (the “Office Space”).

The Dallas Lease commenced on May 27, 2021 , and has a term of approximately ten years .

The Company has an option to extend the term of the Dallas Lease for one additional period of five years .

The Company’s obligation for the payment of base rent for the Office Space is initially approximately $ 32,500 per month and will increase annually, up to an estimated monthly base rent of $ 50,000 during the term of the Dallas Lease.

The Company is obligated to pay operating costs and utilities applicable to the Office Space.

The Company was required to provide a security deposit of $ 32,500 in connection with its entry into the Dallas Lease.

Total future minimum lease payments under the Dallas Lease over the initial 10 year term are approximately $ 4.9 million.

The Company is responsible for costs of constructing interior improvements within the Office Space that exceed a construction allowance provided by the Dallas Landlord not to exceed $ 40.00 per rentable square foot.

The Company has a right of first refusal with respect to certain additional adjacent office space before the Dallas Landlord accepts any offer for such space.

The Dallas Landlord has the right to terminate the Dallas Lease, or the Company’s right to possess the Office Space without terminating the Dallas Lease, upon specified events of default, including the Company’s failure to pay rent in a timely manner and upon the occurrence of certain events of insolvency with respect to the Company.

As of September 30, 2021, the Company recognized approximately $ 0.6 million of lease construction incentive based on the construction allowance provided.

The construction incentive has been recorded on the condensed consolidated balance sheets as a deferred lease incentive obligation and is being amortized into earnings as a deduction of rent expense over the term of the Dallas Lease.

Costs of approximately $ 4.6 million have been capitalized during the three months ended March 31, 2022, related to both equipment purchases and the build-out of the leased Facility, as well as capitalization of interest and certain payroll and payroll-related costs.

The Company will assess and determine if the build-to-suit asset and corresponding liability should be de-recognized upon completion of construction.

Note 10 – Strategic Reprioritization

In March 2022, the Company implemented changes to the Company’s organizational structure as well as a broader operational cost reduction plan to enable the Company to focus on specific clinical-stage programs for GAN and Rett syndrome.

The Company will conduct small proof-of-concept studies in CLN1 disease and SLC13A5 deficiency.

Development of the CLN7 program will continue in collaboration with existing partners with future clinical development to focus on the first-generation construct.

All other research and development activities have been paused to increase operational efficiency.

In connection with prioritization of programs, the Company reduced headcount by approximately 35 % across all functions.

In accordance with ASC 420, Exit and Disposal Activities, the Company recorded one-time severance and termination-related costs of $ 2.6 million in the condensed consolidated statements of operations for the three months ended March 31, 2022, primarily within research and development expenses.

The Company expects the payment of all accrued severance termination-related costs to be substantially complete by June 30, 2022.

The following table summarizes the accrued severance activity recorded in connection with the reduction in workforce for the three months ended March 31, 2022:

As of March 31, 2022

Accrued severance recorded

Severance paid

Accrued severance balance

Note 11 – Retirement Plan

In July 2021, the Company adopted a 401(k) retirement savings plan that provides retirement benefits to all full-time employees.

Eligible employees may contribute a percentage of their annual compensation, subject to Internal Revenue Service limitations.

The Company contributed $ 0.4 million to the 401(k) retirement savings plan for the three months ended March 31, 2022.

Note 12 — Subsequent Events

Acquisition of Option to License Worldwide Rights to Clinical-Stage AAV9 Gene Therapy Program for CLN7 Disease

In October 2021, the Company announced its exclusive option to license the worldwide rights to a clinical-stage AAV9 gene therapy program for the treatment of CLN7, a form of Batten disease.

The first-generation construct for the CLN7 program was developed in the laboratory of Steven Gray, Ph.D., Associate Professor at UT Southwestern Chief Scientific Advisor for the Company.

The CLN7 program is currently in a Phase 1 clinical proof-of-concept trial run by UT Southwestern, and the Company expects the availability of preliminary human proof-of-concept clinical safety and efficacy data from the first-generation construct by year-end 2021.

The Company also entered into a research collaboration with UT Southwestern to develop a next-generation construct for the treatment of CLN7 disease, which is expected to improve potency, safety profile, packaging efficiency and manufacturability over the first-generation construct.

Completion of the next-generation construct design is anticipated by year-end 2021 with commercial-grade GMP material expected in 2022.

The Company intends to initiate a planned pivotal trial using the next-generation construct in 2022, with reference to the human proof-of-concept clinical data being generated from the first generation construct.

Sales Agreement

On October 5, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with SVB Leerink LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”), pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $ 150.0 million through the Sales Agents.

The Sales Agents may sell common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act, including sales made directly on or through the Nasdaq Global Select Market or any other existing trade market for the common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law.

The Sales Agents will be entitled to receive 3.0 % of the gross sales price per share of common stock sold under the Sales Agreement.

As of the date of these financial statements, no shares of common stock have been issued and sold pursuant to the Sales Agreement .

In April 2022, the Company issued 2,000,000 shares under the Sales Agreement and received gross proceeds of $ 12.0 million.

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 1. Financial Statements