What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-08-11 · 137 added, 94 removed, 347 unchanged (40% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

18 unchanged sentences

Preferred stock, $ 0.00001 par value per share;

10,000,000 shares authorized and no shares issued and outstanding as of June 30, 2022 and December 31, 2021

10,000,000 shares authorized and no shares issued and outstanding as of September 30, 2022 and December 31, 2021

Common stock, $ 0.00001 par value per share;

200,000,000 shares authorized and 41,020,086 and 38,473,945 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

200,000,000 shares authorized and 41,175,939 and 38,473,945 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital

7 unchanged sentences

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

Operating expenses:

14 unchanged sentences

(in thousands, except share data)

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Stockholders'

Balance as of March 31, 2022

Balance as of June 30, 2022

Stock-based compensation

Issuance of common stock, net of sales commissions and other offering costs of $ 392

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

Balance as of June 30, 2022

For the Three Months Ended June 30, 2021

Issuance of common stock under ESPP

Balance as of September 30, 2022

For the Three Months Ended September 30, 2021

Stockholders'

Balance as of March 31, 2021

Balance as of June 30, 2021

Stock-based compensation

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

Balance as of June 30, 2021

Balance as of September 30, 2021

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

2 unchanged sentences

(in thousands, except share data)

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

Stockholders'

3 unchanged sentences

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

Balance as of June 30, 2022

For the Six Months Ended June 30, 2021

Issuance of common stock under ESPP

Balance as of September 30, 2022

For the Nine Months Ended September 30, 2021

Stockholders'

2 unchanged sentences

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

Balance as of June 30, 2021

Balance as of September 30, 2021

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

2 unchanged sentences

(in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from operating activities

14 unchanged sentences

Cash flows from financing activities

Payment of shelf registration costs

ESPP contributions

Proceeds from Term Loan, net

Proceeds from issuance of common stock, net of sales commissions

Payment of shelf registration costs

Proceeds from common stock issuances under ESPP

Net cash provided by financing activities

26 unchanged sentences

In April 2022, the Company sold 2,000,000 shares of common stock under the Sales Agreement and received $ 11.6 million in net proceeds.

No other shares of common stock have been issued and sold pursuant to the Sales Agreement as of June 30, 2022.

Going Concern

No other shares of common stock have been issued and sold pursuant to the Sales Agreement as of September 30, 2022.

Liquidity and Capital Resources

The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Pursuant to ASC 205, Presentation of Financial Statements , the Company is required to and does evaluate at each annual and interim period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

In its Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, the Company concluded that there was insufficient funding available to allow the Company to fund its currently planned research and discovery programs and the build-out of its GMP manufacturing facility for a period exceeding one year from the filing of those financial statements, and that those conditions raised substantial doubt about the Company’s ability to continue as a going concern.

In October 2022, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) and an option agreement (the “Option Agreement,” together with the Securities Purchase Agreement the “Astellas Transactions”) with Audentes Therapeutics, Inc.

(d/b/a Astellas Gene Therapy) (“Astellas”), pursuant to which the Company agreed to issue and sell 7,266,342 shares of its common stock for aggregate proceeds of $ 30.0 million and received a one-time payment in the amount of $ 20.0 million (the “Upfront Payment”), respectively, for total gross proceeds of $ 50.0 million.

Also in October 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Goldman Sachs & Co.

LLC (the "Underwriter”) to issue and sell 14,000,000 shares of common stock for at a price of $ 2.00 per share.

The Underwriter has an option, for a period of 30 days, to purchase up to an additional 2,100,000 shares of the Company’s common stock at a price of $ 1.88 per share.

The net proceeds are expected be approximately $ 25.6 million, or approximately $ 29.6 million if the Underwriter exercises in full its option to purchase additional shares of Common Stock, in each case after deducting underwriting discounts and commissions and estimated offering expenses.

See Note 12 for additional information.

The Company has concluded that these additional cash flows provide the Company with sufficient liquidity to satisfy its obligations for at least twelve months following the date of the issuance of these condensed consolidated financial statements.

Accordingly, the Company has concluded that there is no longer substantial doubt about the Company’s ability to continue as a going concern.

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 June 30, 2022, the Company had an accumulated deficit of $ 319.6 million and cash and cash equivalents of $ 66.2 million .

As of September 30, 2022, the Company had an accumulated deficit of $345.9 million.

Losses are expected to continue as the Company continues to invest in its research and development activities.

Management believes that there is presently insufficient funding available to allow the Company to fund its currently planned research and discovery programs and the build-out of its GMP manufacturing facility for a period exceeding one year from the date of this filing with the Securities and Exchange Commission.

These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

In response to these conditions and to meet the Company’s capital requirements, management plans to use its current cash on hand, along with access to the term loan facility (see Note 4), and some combination of the following:

(i) dilutive and/or non-dilutive financings, (ii) out-licensing or strategic alliances/collaborations, and (iii) out-licensing or sale of its non-core assets.

If the Company raises additional funds through collaborations, strategic alliances, business development or licensing arrangements with third parties, the Company might have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates.

However, these plans have not yet been finalized and are not within the Company’s control, and therefore cannot be deemed probable.

As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

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.

The Company will need to obtain additional financing in order to complete clinical

studies and launch and commercialize any product candidates for which it receives regulatory approval.

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

Note 2—Summary of Significant Accounting Policies

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To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

In response to the ongoing and rapidly evolving COVID-19 pandemic, management considered the impact of the estimated economic implications on the Company’s critical and significant accounting estimates, including assessment of impairment of long-lived assets.

Significant Accounting Policies

9 unchanged sentences

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 commenced its implementation efforts of this new accounting standard during the quarter and concluded that the cumulative impact of the adoption will be recorded as an adjustment to accumulated deficit as of January 1, 2022, and prior periods will not be adjusted.

Upon adoption, the Company expects to recognize right-of-use assets and lease liabilities in the consolidated balance sheet related to operating leases.

Additionally, upon adoption, the Company expects to derecognize the build-to-suit asset and obligation (see Note 9) related to the construction-in-progress as the Company does not control the building during the construction period.

Note 3—Balance Sheet Components

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

September 30,

Prepaid research and development

4 unchanged sentences

Total prepaid expenses and other current assets

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

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

September 30,

Leasehold improvements

5 unchanged sentences

Property, plant and equipment, net

Included in construction in progress at June 30, 2022 was $ 56.3 million of costs associated with the Build-to-Suit lease (see Note 9), which includes $ 3.1 million of capitalized payroll and payroll-related costs.

Depreciation expense was $ 0.3 million and $ 0.5 million for the three and six months ended June 30, 2022, respectively.

Depreciation expense was less than $ 0.1 million and $ 0.1 million for the three and six months ended June 30, 2021, respectively.

Included in construction in progress at September 30, 2022 was $ 59.0 million of costs associated with the Build-to-Suit lease (see Note 9), which includes $ 3.1 million of capitalized payroll and payroll-related costs.

Depreciation expense was $ 0.3 million and $ 0.8 million for the three and nine months ended September 30, 2022, respectively.

Depreciation expense was $ 0.2 million and $ 0.3 million for the three and nine months ended September 30, 2021, respectively.

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

September 30,

Accrued research and development

9 unchanged sentences

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

The Company did no t draw on the additional $ 20.0 million tranche prior to its expiration on September 30, 2022 .

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.

The Term Loans are interest only from the Closing Date through August 31, 2024, after which the Company is required to pay equal monthly installments of principal through August 1, 2026 , the maturity date.

The Term Loans may be prepaid in full through August 12, 2022 with payment of a 2.00 % prepayment premium, after which they may be prepaid in full through August 12, 2023 with payment of a 1.00 % prepayment premium, after which they may be prepaid in full with no prepayment premium.

The Term Loans may be prepaid in full through August 12, 2023 with payment of a 1.00 % prepayment premium, after which they may be prepaid in full with no prepayment premium.

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 $ 3.0 million was recorded as debt discount and has also been fully accrued within non-current liabilities as of June 30, 2022.

The Exit Fee of $ 3.0 million was recorded as debt discount and has also been fully accrued within non-current liabilities as of September 30, 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.

10 unchanged sentences

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 June 30, 2022.

The Company was in compliance with all covenants under the Term Loan Agreement as of September 30, 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 six months ended June 30, 2022, the Company recognized interest expense related to the Term Loan of $ 1.4 million.

Future principal debt payments on the loan payable as of June 30, 2022 are as follows (in thousands):

During the nine months ended September 30, 2022, the Company recognized interest expense related to the Term Loan of $ 2.5 million.

Future principal debt payments on the loan payable as of September 30, 2022 are as follows (in thousands):

Year Ending December 31,

5 unchanged sentences

On November 19, 2019, the Company entered into a research, collaboration and license agreement (“UT Southwestern Agreement”) with the Board of Regents of the University of Texas System on behalf of The University of Texas Southwestern Medical Center (“UT Southwestern”).

drug application -enabling studies), and the Company is responsible for all subsequent clinical development and commercialization activities with respect to the licensed products.

Under the UT Southwestern Agreement, UT Southwestern is primarily responsible for preclinical development activities with respect to licensed products for use in certain specified indications (up to investigational new drug application-enabling studies), and the Company is responsible for all subsequent clinical development and commercialization activities with respect to the licensed products.

UT Southwestern will conduct such preclinical activities for a two-year period under mutually agreed upon sponsored research agreements that were entered into beginning in April 2020.

18 unchanged sentences

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 six months ended June 30, 2022.

No additional milestone payments were made in connection with the Queen’s Agreement during the nine months ended September 30, 2022.

Abeona CLN1 Agreements

10 unchanged sentences

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 six months ended June 30, 2022.

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 nine months ended September 30, 2022.

Abeona Rett Agreement

8 unchanged sentences

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.

The Company recorded $ 1.0 million within research and development expenses in the condensed consolidated statements of operations for the six months ended June 30, 2022.

The $ 1.0 million regulatory milestone fee was paid in July 2022.

T he Company recorded $ 1.0 million within research and development expenses in the condensed consolidated statements of operations for the nine months ended September 30 , 2022.

The $ 1.0 million regulatory milestone fee was paid in July 2022 and classified as an investing cash outflow in the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 .

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

7 unchanged sentences

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 six months ended June 30, 2021, 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 six months ended June 30, 2021.

No additional milestone payments were made in connection with the GAN Agreement during the six months ended June 30, 2022.

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 nine months ended September 30, 2021, 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 the GAN Agreement during the nine months ended September 30, 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 paid 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 up-front license fee was classified as an investing cash outflow in the condensed consolidated statements of cash flows for the six months ended June 30, 2022.

In connection with the CLN7 Agreement, the Company paid a one-time upfront license fee of $ 0.3 million.

The Company recorded the upfront 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 upfront license fee was classified as an investing cash outflow in the condensed consolidated statements of cash flows for the nine months ended September 30, 2022.

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.

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On September 16, 2020, the Company’s stockholders approved the 2020 Stock Incentive Plan (“New Plan”), which became effective upon the execution of the underwriting agreement in connection with the IPO.

Initially, the number of shares available for future issuance under the New Plan was 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.

The number of shares of common stock reserved for issuance under the New Plan automatically increases 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.

Initially, the number of shares available for

future issuance under the New Plan was 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 .

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

4 unchanged sentences

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

No issuance s have been made under the ESPP as of June 3 0 , 2022 .

The Company has issued 73,073 shares of common stock under the ESPP as of September 30, 2022.

Stock Options

6 unchanged sentences

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 June 30, 2022, 777,852 shares of common stock under the New Plan were awarded with a weighted-average grant date fair value per share of $ 4.13 .

For the six months ended June 30, 2022 2,679,952 shares of common stock under the New Plan were awarded with a weighted-average grant date fair value per share of $ 4.21 .

For the three months ended September 30, 2022, no shares of common stock under the New Plan were awarded.

For the nine months ended September 30, 2022, 2,679,952 shares of common stock under the New Plan were awarded with a weighted-average grant date fair value per share of $ 4.21 .

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 six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

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, 2022 and 2021:

Three Months Ended September 30,

Nine Months Ended September 30,

Risk-free interest rate

2 unchanged sentences

Expected volatility

The following table summarizes stock option activity, during the six months ended June 30, 2022:

The following table summarizes stock option activity, during the nine months ended September 30, 2022:

Life (in years)

4 unchanged sentences

Options expired

Outstanding at June 30, 2022

Vested and expected to vest at June 30, 2022

Options exercisable at June 30, 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 June 30, 2022 and the exercise price of the stock options.

As of June 30, 2022, the total unrecognized compensation related to unvested stock option awards granted was $ 37.3 million, which the Company expects to recognize over a weighted-average period of approximately 3.1 years.

Outstanding at September 30, 2022

Vested and expected to vest at September 30, 2022

Options exercisable at September 30, 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 September 30, 2022 and the exercise price of the stock options.

As of September 30, 2022, the total unrecognized compensation related to unvested stock option awards granted was $ 29.2 million, which the Company expects to recognize over a weighted-average period of approximately 2.9 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

4 unchanged sentences

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

As of June 30, 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 $ 8.6 million which is expected to be amortized on a straight-line basis over a weighted-average period of approximately 2.0 years.

As of September 30, 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 $ 7.5 million which is expected to be amortized on a straight-line basis over a weighted-average period of approximately 1.7 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 six months ended June 30, 2022 was as follows:

The Company’s RSU activity for the nine months ended September 30, 2022 was as follows:

Nonvested at December 31, 2021

1 unchanged sentence

Cancelled or forfeited

Nonvested at June 30, 2022

Nonvested at September 30, 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 June 30, 2022, the total unrecognized compensation related to unvested RSAs granted was $ 1.1 million which is expected to be amortized on a straight-line basis over a weighted-average period of approximately 0.8 years.

As of September 30, 2022, the total unrecognized compensation related to unvested RSAs granted was $ 0.7 million which is expected to be amortized on a straight-line basis over a weighted-average period of approximately 0.5 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 six months ended June 30, 2022 was as follows:

The Company’s RSA activity for the nine months ended September 30, 2022 was as follows:

Nonvested at December 31, 2021

Restricted stock granted

Nonvested at June 30, 2022

Nonvested at September 30, 2022

Employee Stock Purchase Plan

2 unchanged sentences

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 six months ended June 30, 2022, stock-based compensation expense related to the ESPP was not material.

During the six months ended June 30, 2022, $ 0.2 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 and six months ended June 30, 2022 and 2021 (in thousands):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

During the nine months ended September 30, 2022, stock-based compensation expense related to the ESPP was not material.

During the nine months ended September 30, 2022, $ 0.2 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, net of the amounts capitalized, for the three and nine months ended September 30, 2022 and 2021 (in thousands):

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

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 June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

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 June 30, 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:

The following common stock equivalents outstanding as of September 30, 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:

September 30,

Unvested RSUs

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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 June 30, 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.

As of September 30, 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

2 unchanged sentences

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 June 30, 2022.

The Company’s maximum exposure under these arrangements is unknown at September 30, 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 June 30, 2022 and 2021, respectively, and $ 0.6 million and $ 0.1 million for the six months ended June 30, 2022 and 2021, respectively.

Total lease expense, inclusive of lease incentives, under all operating lease agreements amounted to $ 0.4 million and $ 0.1 million for the three months ended September 30, 2022 and 2021, respectively, and $ 1.0 million and $ 0.1 million for the nine months ended September 30, 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”).

4 unchanged sentences

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 June 30, 2022.

The escrow funds are recorded as restricted cash on the condensed consolidated balance sheet as of September 30, 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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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 $ 10.6 million have been capitalized during the six months ended June 30, 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.

Costs of approximately $ 13.2 million have been capitalized during the nine months ended September 30, 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.

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Substantially 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 six months ended June 30, 2022, primarily within research and development expenses.

Payments of accrued severance and termination-related costs are substantially complete as of June 30, 2022.

In connection with prioritization of programs, the Company reduced headcount by approximately 35 % across all functions in March 2022.

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 nine months ended September 30, 2022, primarily within research and development expenses.

Payments of accrued severance and termination-related costs are complete as of September 30, 2022.

Note 11 – Retirement Plan

1 unchanged sentence

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

The Company contributed $ 0.1 million and $ 0.6 million to the 401(k) retirement savings plan for the three and six months ended June 30, 2022, respectively.

The Company contributed $ 0.1 million and $ 0.7 million to the 401(k) retirement savings plan for the three and nine months ended September 30, 2022, respectively.

The Company contributed less than $ 0.1 million and $ 0.1 million to the 401(k) retirement savings plan for the three and nine months ended September 30, 2021, respectively.

Note 12– Subsequent Events

Astellas Transactions

On October 21, 2022, or the Effective Date, the Company entered into the Option Agreement with Astellas, pursuant to which the Company granted to Astellas an exclusive option to obtain an exclusive, worldwide, royalty and milestone-bearing right and license (A) to research, develop, make, have made, use, sell, offer for sale, have sold, import, export and otherwise exploit, or, collectively, Exploit, the product known, as of the Effective Date, as TSHA-120, or the 120 GAN Product, and any backup products with respect thereto for use in the treatment of GAN or any other gene therapy product for use in the treatment of GAN that is controlled by Taysha or any of its affiliates or with respect to which the Company or any of its affiliates controls intellectual property rights covering the Exploitation thereof, or a GAN Product, and (B) under any intellectual property rights controlled by Taysha or any of its affiliates with respect to such Exploitation, or the GAN Option.

Subject to certain extensions, the GAN Option is exercisable from the Effective Date through a specified period of time following Astellas’ receipt of (i) the formal minutes from the Type B end-of-Phase 2 meeting between Taysha and the FDA in response to the Company’s meeting request sent to the FDA on September 19, 2022 for the 120 GAN Product, or the Type B end-of-Phase 2 Meeting, (ii) all written feedback from the FDA with respect to the Type B end-of-Phase 2 Meeting, and (iii) all briefing documents sent by Taysha to the FDA with respect to the Type B end-of-Phase 2 Meeting.

Under the Option Agreement, the Company also granted to Astellas an exclusive option to obtain an exclusive, worldwide, royalty and milestone-bearing right and license (A) to Exploit any Rett Product (as defined below), and (B) under any intellectual property rights controlled by Taysha or any of its affiliates with respect to such Exploitation, or the Rett Option and together with the GAN Option, each, an Option.

Subject to certain extensions, the Rett Option is exercisable from the Effective Date through a specified period of time following Astellas’ receipt of (i) certain clinical data from the female pediatric trial and (ii) certain specified data with respect to TSHA-102, such period, the Rett Option Period, related to (i) the product known, as of the Effective Date, as TSHA-102 and any backup products with respect thereto for use in the treatment of Rett syndrome, and (ii) any other gene therapy product for use in the treatment of Rett syndrome that is controlled by Taysha or any of its affiliates or with respect to which the Company or any of its affiliates controls intellectual property rights covering the Exploitation thereof, or a Rett Product.

The parties have agreed that, if Astellas exercises an Option, the parties will, for a specified period, negotiate a license agreement in good faith on the terms and conditions outlined in the Option Agreement, including payments by Astellas of a to be determined upfront payment, certain to be determined milestone payments, and certain to be determined royalties on net sales of GAN Products and/or Rett Products, as applicable.

During the Rett Option Period, the Company has agreed to (A) not solicit or encourage any inquiries, offers or proposals for, or that could reasonably be expected to lead to, a Change of Control (as defined in the Option Agreement), or (B) otherwise initiate a process for a potential Change of Control, in each case, without first notifying Astellas and offering Astellas the opportunity to submit

an offer or proposal to the Company for a transaction that would result in a Change of Control.

If Astellas fails or declines to submit any such offer within a specified period after the receipt of such notice, the Company will have the ability to solicit third party bids for a Change of Control transaction.

If Astellas delivers an offer to the Company for a transaction that would result in a Change of Control, the Company and Astellas will attempt to negotiate in good faith the potential terms and conditions for such potential transaction that would result in a Change of Control for a specified period, which period may be shortened or extended by mutual agreement.

As partial consideration for the rights granted to Astellas under the Option Agreement, Astellas will pay the Company the Upfront Payment, which is $ 20.0 million, within 30 days after receipt of an invoice for such payment, which invoice will be delivered by the Company on or after the Effective Date.

Astellas or any of its affiliates shall have the right, in its or their discretion and upon written notice to the Company, to offset the amount of the Upfront Payment (in whole or in part, until the full amount of the Upfront Payment has been offset) against (a) any payment(s) owed to Taysha or any of its affiliates (or to any third party on behalf of the Company) under or in connection with any license agreement entered into with respect to any GAN Product or Rett Product, including, any upfront payment, milestone payment or royalties owed to Taysha or any of its affiliates (or to any third party on behalf of the Company) under or in connection with any such license agreement or (b) any amount owed to Taysha or any of its affiliates in connection with a Change of Control transaction with Astellas or any of its affiliates.

As further consideration for the rights granted to Astellas under the Option Agreement, the Company and Astellas also entered into the Securities Purchase Agreement.

Securities Purchase Agreement

On October 21, 2022, the Company entered into the Securities Purchase Agreement with Astellas, pursuant to which the Company agreed to issue and sell to Astellas in a private placement, or the Private Placement, an aggregate of 7,266,342 shares, or the Private Placement Shares, of its common stock, for aggregate gross proceeds of $ 30.0 million.

The Private Placement closed on October 24, 2022.

Pursuant to the Securities Purchase Agreement, in connection with the Private Placement, Astellas has the right to designate one individual to attend all meetings of the Board in a non-voting observer capacity.

The Company also granted Astellas certain registration rights with respect to the Private Placement Shares.

October 2022 Follow-On Offering

On October 26, 2022, the Company entered into the Underwriting Agreement with the Underwriter to issue and sell 14,000,000 shares of the Company’s common stock of the Company, par value $ 0.00001 per share, in an underwritten public offering pursuant to an effective registration statement on Form S-3 (File No.

333-260069) and a related prospectus and prospectus supplement, in each case filed with the SEC.

The offering price to the public was $ 2.00 per share of the Company’s common stock, and the Underwriter agreed to purchase the shares from the Company pursuant to the Underwriting Agreement at a price of $ 1.88 per share.

In addition, the Company granted the Underwriter an option to purchase, for a period of 30 days, up to an additional 2,100,000 shares of the Company’s common stock, which such option had not been exercised as of the date of this Quarterly Report on Form 10-Q.

The offering closed on October 31, 2022 and the Company received net proceeds of $ 25.6 million after deducting underwriting discounts, commissions and estimated offering expenses.

The Company estimates that the net proceeds from the Offering will be approximately $ 29.6 million if the Underwriter exercises in full its option to purchase additional shares of the Company’s common stock after deducting underwriting discounts and commissions and estimated offering expenses.

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