dyn-10q_20200930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 September 30, 2020

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: 001-39509

 

 

Dyne Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

36-4883909

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

830 Winter Street

Waltham, Massachusetts

02451

(Address of principal executive offices)

(Zip Code)

(781) 786-8230

(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, $0.0001 par value per share

 

DYN

 

Nasdaq Global Select 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 October 31, 2020, the registrant had 45,445,115 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

ii

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations

2

 

Condensed Statements of Cash Flows

5

 

Notes to Unaudited Condensed Financial Statements

6

Item 2.

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

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

PART II.

OTHER INFORMATION

22

Item 1.

Legal Proceedings

22

Item 1A.

Risk Factors

22

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 3.

Defaults Upon Senior Securities

74

Item 4.

Mine Safety Disclosures

74

Item 5.

Other Information

74

Item 6.

Exhibits

75

Signatures

76

 

 


i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” or the negative of these words or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

 

The forward-looking statements in this Quarterly Report include, among other things, statements about:

 

 

the initiation, timing, progress and results of our research and development programs and preclinical studies and clinical trials;

 

 

the anticipated timing of the submission of investigational new drug applications for any product candidates we develop;

 

 

the impact of the ongoing COVID-19 pandemic and our response to it;

 

 

our estimates regarding expenses, future revenue, capital requirements, need for additional financing and the period over which we believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements;

 

 

our plans to develop and, if approved, subsequently commercialize any product candidates we may develop;

 

 

the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for any product candidates we may develop;

 

 

the potential advantages of our FORCE platform;

 

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

 

our intellectual property position and our expectations regarding our ability to obtain and maintain intellectual property protection;

 

 

our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

 

 

the impact of government laws and regulations;

 

 

our competitive position and expectations regarding developments and projections relating to our competitors and any competing therapies that are or become available;

 

 

developments and expectations regarding developments and projections relating to our competitors and our industry;

 

 

our ability to maintain and establish collaborations or obtain additional funding; and

 

 

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

 

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, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Moreover, we operate in a competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments we may make or enter into.

 

You should read this Quarterly Report and the documents that we file with the Securities and Exchange Commission with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and 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 applicable law.

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Financial Statements (Unaudited)

Dyne Therapeutics, Inc.

Condensed Balance Sheets (Unaudited)

(in thousands, except share and per share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

379,606

 

 

$

14,632

 

Prepaid expenses and other current assets

 

 

234

 

 

 

127

 

Total current assets

 

 

379,840

 

 

 

14,759

 

Property and equipment, net

 

 

1,441

 

 

 

1,486

 

Other assets

 

 

191

 

 

 

191

 

Total assets

 

$

381,472

 

 

$

16,436

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,488

 

 

$

1,256

 

Accrued expenses and other current liabilities

 

 

3,190

 

 

 

1,102

 

Total current liabilities

 

 

4,678

 

 

 

2,358

 

Long-term debt—net of unamortized debt discount

 

 

9,936

 

 

 

 

Deferred rent

 

 

13

 

 

 

42

 

Total liabilities

 

 

14,627

 

 

 

2,400

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Convertible preferred stock (Note 7)

 

 

 

 

 

27,429

 

Common stock, $0.0001 par value; 200,000,000 and 68,000,000 shares   authorized at September 30, 2020 and December 31, 2019, respectively;

       45,445,115 and 3,239,017 shares issued and 45,004,247 and 2,586,535 shares outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

5

 

 

 

1

 

Additional paid-in capital

 

 

417,374

 

 

 

6,352

 

Accumulated deficit

 

 

(50,534

)

 

 

(19,746

)

Total stockholders’ equity

 

 

366,845

 

 

 

14,036

 

Total liabilities and stockholders’ equity

 

$

381,472

 

 

$

16,436

 

 

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

1


 

Dyne Therapeutics, Inc.

Condensed Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

9,679

 

 

$

2,982

 

 

$

23,102

 

 

$

6,781

 

General and administrative

 

 

3,841

 

 

 

647

 

 

 

6,945

 

 

 

1,575

 

Total operating expenses

 

 

13,520

 

 

 

3,629

 

 

 

30,047

 

 

 

8,356

 

Loss from operations

 

 

(13,520

)

 

 

(3,629

)

 

 

(30,047

)

 

 

(8,356

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

110

 

 

 

24

 

 

 

223

 

Interest expense

 

 

(130

)

 

 

 

 

 

(315

)

 

 

 

Change in fair value of preferred stock tranche obligations

 

 

 

 

 

(2,352

)

 

 

 

 

 

(1,323

)

Change in success fee obligation

 

 

(270

)

 

 

 

 

 

(450

)

 

 

 

Total other (expense) income, net

 

 

(400

)

 

 

(2,242

)

 

 

(741

)

 

 

(1,100

)

Net loss

 

$

(13,920

)

 

$

(5,871

)

 

$

(30,788

)

 

$

(9,456

)

Net loss per share—basic and diluted

 

$

(2.01

)

 

$

(2.36

)

 

$

(7.51

)

 

$

(3.94

)

Weighted-average common shares outstanding used in net

   loss per share—basic and diluted

 

 

6,920,008

 

 

 

2,491,487

 

 

 

4,100,504

 

 

 

2,401,039

 

 

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

 

2


 

 

Dyne Therapeutics, Inc.

Condensed Statements of Stockholders’ Equity (Deficit) (Unaudited)

(in thousands, except share data and issuance costs)

 

 

 

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance at January 1, 2020

 

 

32,500,000

 

 

$

27,429

 

 

 

2,586,535

 

 

$

1

 

 

$

6,352

 

 

$

(19,746

)

 

$

14,036

 

Issuance of Series A redeemable

   convertible preferred stock, net

   of issuance costs of $0.1 million

 

 

2,000,000

 

 

 

1,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,972

 

Vesting of restricted shares

 

 

 

 

 

 

 

 

70,538

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66

 

 

 

 

 

 

66

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,886

)

 

 

(7,886

)

Balance at March 31, 2020

 

 

34,500,000

 

 

 

29,401

 

 

 

2,657,073

 

 

 

1

 

 

 

6,418

 

 

 

(27,632

)

 

 

8,188

 

Exercise of stock options

 

 

 

 

 

 

 

 

753

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted shares

 

 

 

 

 

 

 

 

70,539

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

75

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,982

)

 

 

(8,982

)

Balance at June 30, 2020

 

 

34,500,000

 

 

 

29,401

 

 

 

2,728,365

 

 

 

1

 

 

 

6,493

 

 

 

(36,614

)

 

 

(719

)

Issuance of Series A convertible

   preferred stock, net of issuance

   costs of $0.1 million

 

 

17,500,000

 

 

 

17,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,495

 

Issuance of Series B convertible

   preferred stock, net of issuance

   costs of $0.4 million

 

 

41,159,724

 

 

 

115,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

115,319

 

Conversion of convertible preferred

   stock into common stock upon

   initial public offering

 

 

(93,159,724

)

 

 

(162,215

)

 

 

28,086,375

 

 

 

3

 

 

 

162,212

 

 

 

 

 

 

 

Issuance of common stock upon initial

   public offering, net of issuance costs

   of $2.6 million

 

 

 

 

 

 

 

 

14,089,314

 

 

 

1

 

 

 

246,410

 

 

 

 

 

 

246,411

 

Exercise of stock options

 

 

 

 

 

 

 

 

29,656

 

 

 

 

 

 

24

 

 

 

 

 

 

24

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,235

 

 

 

 

 

 

2,235

 

Vesting of restricted shares

 

 

 

 

 

 

 

 

70,537

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,920

)

 

 

(13,920

)

Balance at September 30, 2020

 

 

 

 

$

 

 

 

45,004,247

 

 

$

5

 

 

$

417,374

 

 

$

(50,534

)

 

$

366,845

 

 

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

3


 

 

Dyne Therapeutics, Inc.

Condensed Statements of Stockholders’ Equity (Deficit) (Unaudited)

(in thousands, except share data and issuance costs)

 

 

Redeemable Convertible

Preferred Stock

 

 

 

Convertible Preferred

Stock

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance at January 1, 2019

 

 

12,500,000

 

 

$

9,061

 

 

 

 

 

 

$

 

 

 

2,110,404

 

 

$

1

 

 

$

7

 

 

$

(4,887

)

 

$

(4,879

)

Vesting of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

239,503

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,087

)

 

 

(2,087

)

Balance at March 31, 2019

 

 

12,500,000

 

 

 

9,061

 

 

 

 

 

 

 

 

 

 

2,349,907

 

 

 

1

 

 

 

9

 

 

 

(6,974

)

 

 

(6,964

)

Issuance of Series A redeemable

   convertible preferred stock, net

   of issuance costs of $0.1 million

 

 

20,000,000

 

 

 

19,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement of Tranche Right I

 

 

 

 

 

(1,621

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84,478

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,497

)

 

 

(1,497

)

Balance at June 30, 2019

 

 

32,500,000

 

 

 

27,429

 

 

 

 

 

 

 

 

 

 

2,434,385

 

 

 

1

 

 

 

13

 

 

 

(8,471

)

 

 

(8,457

)

Reclassification of redeemable

   convertible preferred stock

   and preferred stock tranche

   obligations

 

 

(32,500,000

)

 

 

(27,429

)

 

 

 

32,500,000

 

 

 

27,429

 

 

 

 

 

 

 

 

 

6,319

 

 

 

 

 

 

33,748

 

Vesting of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74,229

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,871

)

 

 

(5,871

)

Balance at September 30, 2019

 

 

 

 

$

 

 

 

 

32,500,000

 

 

$

27,429

 

 

 

2,508,614

 

 

$

1

 

 

$

6,339

 

 

$

(14,342

)

 

$

19,427

 

 

 

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


4


 

Dyne Therapeutics, Inc.

Condensed Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(30,788

)

 

$

(9,456

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,376

 

 

 

12

 

Depreciation and amortization expense

 

 

483

 

 

 

125

 

Changes in fair value of preferred stock tranche obligations

 

 

 

 

 

1,323

 

Changes in success fee obligation

 

 

450

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(107

)

 

 

(329

)

Accounts payable and other liabilities

 

 

1,114

 

 

 

505

 

Net cash used in operating activities

 

 

(26,472

)

 

 

(7,820

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(438

)

 

 

(910

)

Net cash used in investing activities

 

 

(438

)

 

 

(910

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from initial public offering of common stock, net of issuance costs

 

 

247,454

 

 

 

 

Proceeds from issuance of debt, net of issuance costs

 

 

9,936

 

 

 

 

Settlement of success fee obligation

 

 

(450

)

 

 

 

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

 

 

134,920

 

 

 

19,989

 

Proceeds from exercise of stock options

 

 

24

 

 

 

 

Net cash provided by financing activities

 

 

391,884

 

 

 

19,989

 

Net increase in cash and cash equivalents

 

 

364,974

 

 

 

11,259

 

Cash and cash equivalents at beginning of period

 

 

14,632

 

 

 

6,508

 

Cash and cash equivalents at end of period

 

$

379,606

 

 

$

17,767

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest and taxes

 

$

311

 

 

$

 

Supplemental disclosure of non-cash investing and financing information:

 

 

 

 

 

 

 

 

Reclassification of preferred stock tranche obligation liability to permanent equity

 

$

 

 

$

6,319

 

Settlement of Tranche Right I

 

$

 

 

$

1,621

 

Conversion of convertible preferred stock to common stock

 

$

162,215

 

 

$

 

Purchase of property and equipment in accounts payable

 

$

 

 

$

370

 

Issuance costs from convertible preferred stock included in accounts payable or accrued expenses

 

$

134

 

 

$

 

Public offering costs included in accounts payable or accrued expenses

 

$

1,043

 

 

$

 

 

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


5


 

Dyne Therapeutics, Inc.

Notes to Condensed Financial Statements (Unaudited)

 

1. Nature of the Business and Basis of Presentation

Dyne Therapeutics, Inc. (the “Company”) is building a leading muscle disease company focused on advancing innovative life-transforming therapeutics for people living with genetically driven diseases that was incorporated in Delaware on December 1, 2017 and has a principal place of business in Waltham, Massachusetts.

 

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, dependence on key personnel, protection of proprietary technology, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for its product candidates, fluctuations in operating results, compliance with government regulations, the ability to establish clinical- and commercial-scale manufacturing processes, the impact of the COVID-19 pandemic and the ability to secure additional capital to fund operations. Programs currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization of a product. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

 

On September 21, 2020, the Company completed its initial public offering (“IPO”) pursuant to which it issued and sold 14,089,314 shares of its common stock, including 1,837,736 shares pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $19.00 per share, resulting in net proceeds of $246.4 million, after deducting underwriting discounts and commissions and offering expenses. Upon the closing of the IPO, all of the Company’s then outstanding convertible preferred stock automatically converted into shares of common stock.

 

The accompanying financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has funded its operations with proceeds from the sales of instruments convertible into convertible preferred stock (which converted into convertible preferred stock in 2018), the sale of convertible preferred stock, borrowings under a loan and security agreement (the “Loan Agreement”) and most recently, the sale of common stock in the IPO completed in September 2020. The Company has incurred recurring losses, including net losses of $30.8 million for the nine months ended September 30, 2020 and $14.9 million for the year ended December 31, 2019. As of September 30, 2020, the Company had an accumulated deficit of $50.5 million. The Company expects to continue to generate operating losses for the foreseeable future. As of November 5, 2020, the issuance date of these interim condensed financial statements, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance of these interim condensed financial statements.

 

To continue its development efforts, the Company will need to obtain substantial additional funding through public or private equity offerings, debt financings, collaborations, strategic alliances and/or licensing arrangements in order to fund its research and development and ongoing operating expenses. The Company may not be able to obtain financing on acceptable terms, when needed or at all, and the Company may not be able to enter into collaborations, strategic alliances or licensing arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. Any collaborations, strategic alliances or licensing arrangements may require the Company to relinquish rights to certain of its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to the Company. If the Company is unable to obtain funding, the Company could be forced to delay, limit, reduce or eliminate some or all of its research and development programs, pipeline expansion or future commercialization efforts or grant rights to develop and market product candidates, which could adversely affect its business prospects. Although management will continue 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 when needed or at all.

 

To date, the Company has not experienced material business disruptions, including with its vendors, as a result of the COVID-19 pandemic. In March 2020, the Company implemented a remote working policy for many of its employees and began restricting non-essential travel, and on May 18, 2020, when Massachusetts began its staged reopening plan, the Company began implementing a return-to-work plan, in accordance with the guidance and requirements of federal and state authorities. The Company expects to continue to take actions as may be required or recommended by government authorities or as it determines are in the best interests of its employees and other business partners. The Company is continuing to monitor the potential impact of the pandemic, but cannot be certain what the overall impact will be on its business, financial condition, results of operations and prospects.

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2. Summary of Significant Accounting Policies

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States of America. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Unaudited interim financial information

The financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim financial statements have been prepared on the same basis as audited annual financial statements, except certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair representation of the results for the reported periods. Accordingly, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Prospectus that forms a part of the Company’s Registration Statement on Form S-1 (File No. 333-248414), which was filed with the SEC pursuant to Rule 424(b)(4) on September 17, 2020 (the “Prospectus”). The results for the nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.

Use of estimates

The preparation of the financial statements in accordance 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. Actual results could differ from those estimates.

Summary of significant accounting policies

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” to the Company’s financial statements included in the Prospectus. There have been no material changes to the significant accounting policies during the three months ended September 30, 2020.

Accounting pronouncements issued and not adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which applies to all leases and will require lessees to record most leases on the balance sheet but recognize expense in a manner similar to the previous standard. The Company will use a modified retrospective approach of adoption for its leases. The Company plans to adopt this standard on January 1, 2022 and is currently evaluating the impact that the adoption will have on its financial statements. The Company expects to recognize a lease obligation and right to use asset upon adoption of ASU 2016-02.

3. Fair Value Measurements

The following tables set forth by level, within the fair value hierarchy, the assets and liabilities carried at fair value on a recurring basis for the periods presented:

 

 

 

Fair Value Measurements as of December 31, 2019

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents—money market funds

 

$

14,420

 

 

 

 

 

 

 

 

$

14,420

 

Total

 

$

14,420

 

 

 

 

 

 

 

 

$

14,420

 

 

Money market funds were valued by the Company based on quoted market prices. There were no transfers among Level 1, Level 2, or Level 3 categories during the periods presented.

 

The fair value of the liability recognized in connection with the contingent success fee associated with the Loan Agreement (see Note 6) was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the liability was determined using the probability-weighted expected return method (“PWERM”), which considered as inputs the probability of occurrence of a specified liquidity event, the expected timing of a liquidity event, the amount of the success fee and a risk-adjusted discount rate. The initial fair value of the liability was de minimis due to the low probability of the events probable of triggering payment. As of September 21, 2020, the closing date of the IPO, the event occurred and the probability increased to 100% and the

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discount rate was assessed to be 0%. Based on these inputs, the Company determined that the fair value of the derivative liability was $0.5 million as of September 21, 2020. Following the completion of the IPO, the success fee of $0.5 million was paid in September 2020.

 

The following table presents a roll-forward of the aggregate fair value of the success fee obligation for which fair value is determined by Level 3 inputs:

 

(in thousands)

 

Success Fee

Obligation

 

Balance—January 1, 2020

 

$

 

Initial fair value of success fee obligation

 

 

 

Change in fair value

 

 

450

 

Settlement of derivative instrument

 

 

(450

)

Balance—September 30, 2020

 

$

 

Financial instruments not recorded at fair value

The carrying values of cash, cash equivalents, accounts payable and accrued expenses that are reported on the balance sheets approximate their fair value due to the short-term nature of these assets and liabilities. The carrying value of the long-term debt at September 30, 2020 approximates fair value given that the debt was issued in February 2020 and settled in October 2020 at amounts that approximate the carrying value.

4. Property and Equipment

Property and equipment consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2020

 

 

2019

 

Laboratory equipment

 

$

1,993

 

 

$

1,705

 

Office and computer equipment

 

 

79

 

 

 

62

 

Leasehold improvements

 

 

14

 

 

 

14

 

Construction in process

 

 

133

 

 

 

 

Property and equipment—at cost

 

 

2,219

 

 

 

1,781

 

Less accumulated depreciation and amortization

 

 

(778

)

 

 

(295

)

Property and equipment—net

 

$

1,441

 

 

$

1,486

 

 

Depreciation and amortization expense for the three and nine months ended September 30, 2020 was $0.2 million and $0.5 million, respectively. Depreciation and amortization expense for the three and nine months ended September 30, 2019 was $0.1 million and $0.1 million, respectively.

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

2020

 

 

2019

 

Payroll and benefits

 

$

1,318

 

 

$

540

 

Consulting services

 

23

 

 

 

60

 

Legal services

 

458

 

 

 

 

Research and development

 

818

 

 

 

484

 

Facility costs

 

36

 

 

 

18

 

Other

 

537

 

 

 

 

Total

 

$

3,190

 

 

$

1,102

 

 

6. Debt Financing

On February 20, 2020, the Company entered into a Loan Agreement pursuant to which the lender made term loans to the Company in an aggregate principal amount of $10.0 million. Borrowings under the Loan Agreement were collateralized by substantially all of the Company’s assets, excluding intellectual property.

 

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Interest on the outstanding loan balance accrued at a variable annual rate equal to the greater of (i) the lender’s prime rate plus 0.25% and (ii) 5.00%, and the Company was required to make interest-only payments on the loans on a monthly basis through August 2021. The interest rate was 5.00% at September 30, 2020. The outstanding borrowings were repaid in October 2020.

 

As part of the Loan Agreement, a success fee of $0.5 million was required in the event of a liquidation event, including an IPO. The success fee represented an embedded derivative which the Company bifurcated from the debt arrangement and carried at fair value. In September 2020, the Company completed its IPO and paid the success fee of $0.5 million.

7. Convertible Preferred Stock

The Company had issued Series A convertible preferred stock (the “Series A Preferred Stock”) and Series B convertible preferred stock (the “Series B Preferred Stock”). Collectively the Series A Preferred Stock and the Series B Preferred Stock are referred to as the Preferred Stock.

 

In July 2020, the Company issued and sold 17,500,000 shares of Series A Preferred Stock at a price of $1.00 per s