10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38359

 

Adicet Bio, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

81-3305277

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

200 Berkeley Street, 19th Floor

Boston, MA

 

02116

(Address of principal executive offices)

 

(Zip Code)

 

(650) 503-9095

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

ACET

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of August 7, 2023, the registrant had 43,066,158 shares of common stock, $0.0001 par value per share, outstanding.

 

 


Table of Contents

 

Page

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

2

 

 

 

PART I.

FINANCIAL INFORMATION

4

Item 1.

Consolidated Financial Statements (Unaudited)

4

Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

4

Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022

5

 

Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022

6

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022

8

Notes to Unaudited Consolidated Financial Statements

9

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

76

Item 3.

Defaults Upon Senior Securities

76

Item 4.

Mine Safety Disclosures

76

Item 5.

Other Information

76

Item 6.

Exhibits

76

Signatures

78

 

i


Summary of the Material Risks Associated with Our Business

 

We have a limited operating history and face significant challenges and expense as we build our capabilities.
Our business is highly dependent on the success of ADI-001. If we are unable to obtain regulatory approval for ADI-001 and effectively commercialize ADI-001 for the treatment of patients in our approved indications, our business would be significantly harmed.
Our gamma delta T cell candidates represent a novel approach to cancer treatment that creates significant challenges for us.
Our product candidates are based on novel technologies, which makes it difficult to predict the likely success of such product candidates and the time and cost of product candidate development and obtaining regulatory approval.
Our clinical trials may fail to demonstrate the safety and efficacy of any of our product candidates, which would prevent or delay regulatory approval and commercialization.
We may not be able to file investigational new drug (IND) applications to commence additional clinical trials on the timelines we expect, and even if we are able to, the U.S. Food and Drug Administration (FDA) may not permit us to proceed.
We may encounter substantial delays in our clinical trials, or may not be able to conduct our trials on the timelines we expect.
The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
We have not yet commenced manufacturing operations at our manufacturing facility and currently depend on the ability of our third-party suppliers and manufacturers with whom we contract to perform adequately, particularly with respect to the timely production and delivery of our product candidates, including ADI-001. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
We will need substantial additional financing to develop our product candidates and implement our operating plans. If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and operations.
The current conflict between Russia and Ukraine may increase the likelihood of supply interruptions which could impact our ability to find the materials we need to make our product candidates.
Failure to achieve and maintain effective internal control over financial reporting could harm our business and negatively impact the value of our common stock.
If our collaboration with Regeneron Pharmaceuticals, Inc. (Regeneron) is terminated, or if Regeneron materially breaches its obligations thereunder, our business, prospects, operating results, and financial condition would be materially harmed.
The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our product candidates.
If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.
We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and its financial condition and results of operations.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
Our business is affected by macroeconomic conditions, including any potential recession, rising inflation, interest rates and supply chain constraints.

 

 

 

1


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

The timing of and our ability to execute our clinical trials for ADI-001 in non-Hodgkin’s lymphoma (NHL), including the ability to successfully complete our Phase 1 clinical trial and the period during which the results of the trial will become available;
our expectations regarding our additional internal gamma delta T cell therapy programs, including ADI-925 and ADI-270, in preclinical development and our ability to develop other oncology product candidates in our research pipeline;
our expectations regarding the availability, timing and announcement of data from our Phase 1 clinical trial;
our expectations regarding discussions with the FDA and the European Medicines Agency (EMA) of a potential path to support Biologics License Application (BLA) and Marketing Authorization Application (MAA) for ADI-001;
the anticipated timing of our submission of IND applications or equivalent regulatory filings and initiation of future clinical trials, including the timing of the anticipated results;
our expectations regarding the impact of unstable market and economic conditions, including impacts of inflation and adverse developments affecting the financial services industry, on our business, results of operations or financial conditions;
the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
the rate and degree of acceptance and clinical utility of any products for which we receive regulatory approval;
our commercialization, marketing and manufacturing capabilities and strategy;
our intellectual property position and strategy;
our ability to identify additional product candidates with significant commercial potential;
our plans to enter into collaborations for the development and commercialization of product candidates;
the potential benefits of any current and future collaboration;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
the success of competing therapies that are or may become available;
developments relating to our competitors and our industry;
our ability to retain the continued service of our key professionals and to identify, hire, and retain additional qualified professionals;
our financial performance;
our expectations related to the use of cash and cash equivalents;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our ability to maintain effective internal control over financial reporting;
the impact of government laws and regulations; and
other risks and uncertainties, including those listed under the caption “Risk Factors.”

2


We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed or incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this Quarterly Report on Form 10-Q, and we believe these industry publications and third-party research, surveys and studies are reliable.

3


PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

ADICET BIO, INC.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

June 30,
2023

 

 

December 31,
2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

205,460

 

 

$

257,656

 

Prepaid expenses and other current assets

 

 

3,196

 

 

 

3,382

 

     Total current assets

 

 

208,656

 

 

 

261,038

 

Property and equipment, net

 

 

29,577

 

 

 

28,710

 

Operating lease right-of-use asset

 

 

18,933

 

 

 

20,269

 

Goodwill

 

 

19,462

 

 

 

19,462

 

Other non-current assets

 

 

1,005

 

 

 

1,211

 

     Total assets

 

$

277,633

 

 

$

330,690

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,121

 

 

$

4,404

 

Accrued and other current liabilities

 

 

12,679

 

 

 

12,811

 

Operating lease liability

 

 

3,039

 

 

 

2,492

 

Total current liabilities

 

 

18,839

 

 

 

19,707

 

Operating lease liability, net of current portion

 

 

19,603

 

 

 

18,531

 

Other non-current liabilities

 

 

130

 

 

 

114

 

Total liabilities

 

 

38,572

 

 

 

38,352

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; none issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; 43,066,158 and 42,954,820 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

540,455

 

 

 

530,448

 

Accumulated deficit

 

 

(301,398

)

 

 

(238,114

)

Accumulated other comprehensive income

 

 

 

 

 

 

Total stockholders’ equity

 

 

239,061

 

 

 

292,338

 

Total liabilities and stockholders’ equity

 

$

277,633

 

 

$

330,690

 

 

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

4


ADICET BIO, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenuerelated party

 

$

 

 

$

 

 

$

 

 

$

24,990

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

28,362

 

 

 

16,178

 

 

 

55,118

 

 

 

29,661

 

General and administrative

 

 

6,528

 

 

 

6,529

 

 

 

13,093

 

 

 

13,330

 

Total operating expenses

 

 

34,890

 

 

 

22,707

 

 

 

68,211

 

 

 

42,991

 

Loss from operations

 

 

(34,890

)

 

 

(22,707

)

 

 

(68,211

)

 

 

(18,001

)

Interest income

 

 

2,615

 

 

 

325

 

 

 

5,279

 

 

 

357

 

Interest expense

 

 

(4

)

 

 

(18

)

 

 

(23

)

 

 

(36

)

Other expense, net

 

 

(124

)

 

 

(138

)

 

 

(329

)

 

 

(240

)

Loss before income tax provision

 

 

(32,403

)

 

 

(22,538

)

 

 

(63,284

)

 

 

(17,920

)

Income tax provision

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(32,403

)

 

$

(22,538

)

 

$

(63,284

)

 

$

(17,920

)

Net loss per share, basic and diluted

 

$

(0.75

)

 

$

(0.56

)

 

$

(1.47

)

 

$

(0.45

)

Weighted-average common shares used in computing net loss per share, basic and diluted

 

 

42,957,035

 

 

 

40,075,060

 

 

 

42,957,242

 

 

 

39,975,503

 

 

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

5


ADICET BIO, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid In

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2022

 

 

42,954,820

 

 

$

4

 

 

$

530,448

 

 

$

(238,114

)

 

$

292,338

 

Issuance of common stock upon exercise of stock options

 

 

713

 

 

 

 

 

 

3

 

 

 

 

 

$

3

 

Issuance of common stock upon vesting of restricted stock

 

 

3,205

 

 

 

 

 

 

 

 

 

 

 

$

-

 

Shares withheld for taxes

 

 

(1,307

)

 

 

 

 

 

(10

)

 

 

 

 

$

(10

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,765

 

 

 

 

 

$

4,765

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(30,881

)

 

$

(30,881

)

Balance at March 31, 2023

 

 

42,957,431

 

 

$

4

 

 

$

535,206

 

 

$

(268,995

)

 

$

266,215

 

Issuance of common stock upon exercise of stock options

 

 

233

 

 

 

 

 

 

1

 

 

 

 

 

$

1

 

Purchase of common stock under Employee Stock Purchase Plan

 

 

108,494

 

 

 

 

 

 

225

 

 

 

 

 

$

225

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,023

 

 

 

 

 

$

5,023

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(32,403

)

 

$

(32,403

)

Balance at June 30, 2023

 

 

43,066,158

 

 

$

4

 

 

$

540,455

 

 

$

(301,398

)

 

$

239,061

 

 

 

 

6


ADICET BIO, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid In

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2021

 

 

39,736,914

 

 

$

4

 

 

$

471,449

 

 

$

(168,324

)

 

$

303,129

 

Issuance of common stock upon exercise of stock options

 

 

10,099

 

 

 

 

 

 

93

 

 

 

 

 

 

93

 

Issuance of common stock upon vesting of restricted stock

 

 

224,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld for taxes

 

 

(85,197

)

 

 

 

 

 

(1,106

)

 

 

 

 

 

(1,106

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,350

 

 

 

 

 

 

4,350

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,618

 

 

 

4,618

 

Balance at March 31, 2022

 

 

39,885,816

 

 

$

4

 

 

$

474,786

 

 

$

(163,706

)

 

$

311,084

 

Issuance of common stock upon exercise of stock options

 

 

17,854

 

 

 

 

 

 

183

 

 

 

 

 

 

183

 

Issuance of common stock upon exercise of warrants

 

 

100,731

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of common stock under Employee Stock Purchase Plan

 

 

16,354

 

 

 

 

 

 

203

 

 

 

 

 

 

203

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,335

 

 

 

 

 

 

4,335

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(22,538

)

 

 

(22,538

)

Balance at June 30, 2022

 

 

40,020,755

 

 

$

4

 

 

$

479,507

 

 

$

(186,244

)

 

$

293,267

 

 

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

7


ADICET BIO, INC.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(63,284

)

 

$

(17,920

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

2,764

 

 

 

757

 

Noncash lease expense

 

 

1,335

 

 

 

1,304

 

Stock-based compensation expense

 

 

9,788

 

 

 

8,685

 

Loss on disposal of property, plant, and equipment

 

 

 

 

 

18

 

Amortization of deferred debt issuance costs

 

 

28

 

 

 

18

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable — related party

 

 

 

 

 

185

 

Prepaid expenses and other current assets

 

 

186

 

 

 

1,280

 

Other non-current assets

 

 

177

 

 

 

408

 

Accounts payable

 

 

(1,624

)

 

 

(1,186

)

Contract liabilities — related party

 

 

 

 

 

(4,805

)

Operating lease liability

 

 

1,618

 

 

 

(902

)

Accrued and other current and non-current liabilities

 

 

19

 

 

 

1,558

 

Net cash used in operating activities

 

 

(48,993

)

 

 

(10,600

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,422

)

 

 

(5,481

)

Net cash used in investing activities

 

 

(3,422

)

 

 

(5,481

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

4

 

 

 

277

 

Proceeds from Employee Stock Purchase Plan

 

 

225

 

 

 

203

 

Taxes withheld and paid related to net share settlement of equity awards

 

 

(10

)

 

 

(1,106

)

Deferred issuance costs

 

 

 

 

 

(345

)

Net cash provided by (used in) financing activities

 

 

219

 

 

 

(971

)

Net change in cash and cash equivalents

 

 

(52,196

)

 

 

(17,052

)

Cash and cash equivalents at the beginning of period

 

 

257,656

 

 

 

277,694

 

Cash and cash equivalents, at the end of period

 

$

205,460

 

 

$

260,642

 

Supplemental cash flow information

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

670

 

 

$

4,469

 

Operating right-of-use assets obtained in exchange for operating lease liabilities

 

$

 

 

$

2,343

 

 

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

8


ADICET BIO, INC.

Notes to Interim Consolidated Financial Statements (Unaudited)

1. Organization and Nature of the Business

Adicet Bio, Inc. (formerly resTORbio, Inc. (resTORbio), together with its subsidiaries, the Company) is a clinical stage biotechnology company discovering and developing allogeneic gamma delta T cell therapies for cancer. The Company is advancing a pipeline of “off-the-shelf” gamma delta T cells, engineered with chimeric antigen receptors (CARs) and adaptors (CAds), to enhance selective tumor targeting and facilitate innate and adaptive anti-tumor immune response for durable activity in patients. The Company's approach to activate, engineer, and manufacture allogeneic gamma delta T cell product candidates derived from the peripheral blood cells of unrelated donors allows it to generate new product candidates in a rapid and cost-efficient manner.

Adicet Bio, Inc. (when referred to prior to the merger, Former Adicet) was incorporated in November 2014 in Delaware. On September 15, 2020, Former Adicet completed a merger (Merger) with resTORbio, pursuant to which Former Adicet merged with a wholly owned subsidiary of resTORbio in an all-stock transaction with Former Adicet surviving as a wholly owned subsidiary of resTORbio and changing its name to “Adicet Therapeutics, Inc.” (Adicet Therapeutics). In connection with the Merger, the Company changed its name from “resTORbio, Inc.” to “Adicet Bio, Inc.” The Company’s principal executive offices are located in Boston, Massachusetts. The Company also has offices in Redwood City, California.

Adicet Bio Israel Ltd. (formerly Applied Immune Technologies Ltd.) (Adicet Israel) is a wholly owned subsidiary of the Company and is located in Haifa, Israel. Adicet Israel was founded in 2006. During 2019, the Company consolidated its operations, including research and development activities, in the United States and as a result, substantially reduced its operations in Israel.

Liquidity

The Company has incurred significant net operating losses and negative cash flows from operations and has an accumulated deficit of $301.4 million as of June 30, 2023. The Company has historically financed its operations primarily through a collaboration and licensing arrangement, public and private placements of equity securities and debt, and cash received in the Merger with resTORbio. To date, none of the Company’s product candidates have been approved for sale and therefore the Company has not generated any revenue from product sales. Management expects operating losses and negative cash flows to continue for the foreseeable future, until such time, if ever, that it can generate significant sales of its product candidates currently in development.

On March 12, 2021, the Company entered into a Capital On Demand™ Sales Agreement (the Sales Agreement) with JonesTrading Institutional Services LLC, as sales agent, to provide for the offering, issuance and sale of up to an aggregate amount of $75.0 million of shares of common stock from time to time in “at-the-market” (ATM) offerings under a registration statement on Form S-3 (File No. 333-254193) (2021 Shelf Registration Statement) filed with the U.S. Securities and Exchange Commission (the SEC), which was declared effective on March 30, 2021. In August 2022, pursuant to the Sales Agreement and subject to the limitations thereof, the Company sold an aggregate of 2,611,723 shares of common stock at $17.23 per share resulting in net proceeds to the Company of $43.4 million after deducting sales agent commissions and expenses. In November 2022, the Company filed a new prospectus supplement to the 2021 Shelf Registration Statement for the offer and sale of up to $100.0 million of shares of common stock from time to time through the sales agent, which includes the $30.0 million of shares of common stock not sold under the original prospectus and up to an additional $70.0 million of shares of common stock.

The Company expects that its cash and cash equivalents, including the net proceeds it received from its ATM offering, will be sufficient to fund its forecasted operating expenses, capital expenditure requirements and debt service payments for at least the next twelve months from the issuance of these interim consolidated financial statements.

All of the Company’s revenue to date has been generated from a collaboration and license agreement with Regeneron Pharmaceuticals Inc, (Regeneron). The Company does not expect to generate any significant product revenue until it obtains regulatory approval of and commercializes any of the Company’s product candidates or enters into additional collaborative agreements with third parties, and it does not know when, or if, either will occur. The Company expects to continue to incur significant losses for the foreseeable future, and it expects the losses to increase as the Company continues the development of, and seeks regulatory approvals for, its product candidates and begins to commercialize any approved products. The Company is subject to all of the risks typically related to the development of new product candidates, including, but not limited to, raising additional capital, development by its competitors of new technological innovations, risk of failure in preclinical and clinical studies, safety and efficacy of its product candidates in clinical trials, the risk of relying on external parties such as contract research organizations (CROs) and contract drug manufacturing organizations (CDMOs), the regulatory approval process, market acceptance of the Company’s products once approved, lack of marketing and sales

9


history, dependence on key personnel and protection of proprietary technology and it may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect its business.

Until such time as the Company can generate significant revenue from product sales, if ever, the Company expects to finance its operations through the sale of equity, debt financings, collaborative or other arrangements with corporate or other sources of financing. Adequate funding may not be available to the Company on acceptable terms or at all. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and the Company’s ability to pursue its business strategies. Although the Company continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited interim consolidated financial statements and related disclosures have been prepared in conformity with accounting principles generally accepted in the United States of America (United States GAAP or GAAP).

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2, "Summary of Significant Accounting Policies," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to the significant accounting policies during the six months ended June 30, 2023.

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements as of June 30, 2023, and for the three and six months ended June 30, 2023, have been prepared by the Company, pursuant to the rules and regulations of the SEC, for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s consolidated financial position as of June 30, 2023 and consolidated results of operations for the three and six months ended June 30, 2023 and 2022 and consolidated cash flows for the six months ended June 30, 2023 and 2022 have been made. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents. The Company’s cash and cash equivalents are held at two financial institutions in the U.S. and one financial institution in Israel and such amounts may, at times, exceed insured limits. The Company invests its cash equivalents in treasury securities and money market funds. The Company limits its credit risk associated with cash equivalents by placing them with banks and institutions it believes are highly creditworthy and in highly rated investments. The Company has not experienced any losses on its deposits of cash and cash equivalents to date.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials, and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting.

10


The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale and, therefore, the Company has not generated any revenue from product sales.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This ASU replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. For SEC filers that are eligible to be smaller reporting companies, this ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted the provisions of ASU 2016-13 in the first quarter of 2023. There was no impact to the consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). The new guidance simplifies the subsequent measurement of goodwill by removing the second step of the two-step impairment test. The amendment requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. SEC filers that are eligible to be smaller reporting companies should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2022. The amendment should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted the provisions of ASU 2017-04 in the first quarter of 2023. The impact on its consolidated financial statements and related disclosures was not material.

3. Fair Value Measurements

The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three level of inputs that may be used to measure fair value, as follows:

Level 1 — Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

11


Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

 

June 30, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Treasury securities (1) (2)

 

$

155,249

 

 

$

 

 

$

 

 

$

155,249

 

Money market funds (1) (3)

 

$

1,938

 

 

$

 

 

$

 

 

$

1,938

 

Total fair value of assets

 

$

157,187

 

 

$

 

 

$

 

 

$

157,187

 

 

 

 

December 31, 2022

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (1) (2)

 

$

75,701

 

 

$

 

 

$

 

 

$

75,701

 

Total fair value of assets

 

$

75,701

 

 

$