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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 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: 001-38586

RUBIUS THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

46-2688109

(State or other jurisdiction of
incorporation or organization)

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

399 Binney Street, Suite 300
Cambridge, Massachusetts
(Address of principal executive offices)

02139
(Zip code)

(617679-9600

(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 $0.001 per share

RUBY

The 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, if any, 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, a 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 30, 2020, the registrant had 80,923,945 shares of common stock, $0.001 par value per share, outstanding.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. 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, plan, objectives of management and expected market growth are forward-looking statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under “Risk Factors” and include, among other things:

the success, cost and timing of our product development activities and clinical trials, including statements regarding the timing of initiation, enrollment in and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
our ability to advance any product candidate into or successfully complete any clinical trial;
our ability or the potential to successfully manufacture our product candidates or obtain adequate and timely supply of our product candidates for clinical trials or for commercial use, if approved;
our ability to successfully operate our manufacturing facility and any plans for further renovation or expansion;
the potential for our identified research priorities to advance our technologies;
our ability to maintain regulatory approval, if obtained, of any of our current or future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;
the ability to license additional intellectual property relating to our product candidates and to comply with our existing license agreements;
our ability to commercialize our products in light of the intellectual property rights of others;
developments relating to cellular therapies, including red blood cell therapies;
the success of competing therapies that are or become available;
our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;
the commercialization of our product candidates, if approved;
our plans to research, develop and commercialize our product candidates;
our ability to attract collaborators with development, regulatory and commercialization expertise;
future agreements with third parties in connection with the commercialization of our product candidates and any other approved product;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

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the impact of global economic and political developments on our business, including economic slowdowns or recessions that may result from the recent outbreak of COVID-19;
natural and manmade disasters, including pandemics such as COVID-19, and other force majeures, which could impact our operations, and those of our partners and other participants in the health care industry, and which could reduce demand for, or inhibit our ability to develop and manufacture, our product candidates;
the rate and degree of market acceptance of our product candidates;
regulatory developments in the United States and foreign countries;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
our ability to attract and retain key scientific or management personnel;
the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
the impact of laws and regulations;
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates; and
our expectations regarding the period during which we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act.

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

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Summary of the Material Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:

we have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future;

we will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete the development and commercialization of our product candidates;

we have a limited operating history, which may make it difficult to evaluate our technology and product development capabilities and predict our future performance;

our business is highly dependent on the success of our initial product candidates targeting cancer and autoimmune diseases. All of our product candidates will require significant additional nonclinical and clinical development before we can seek regulatory approval for and launch a product commercially;

the successful development of cellular therapeutics, such as our investigational RCTs, is highly uncertain;

our RCT product candidates are based on a new technology, which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval, if at all;

the FDA, the EMA and other regulatory authorities may implement additional regulations or restrictions on the development and commercialization of our product candidates, which may be difficult to predict;

clinical development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates;

our planned clinical trials or those of our future collaborators may reveal significant adverse events not seen in our preclinical or nonclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates;

positive results from early preclinical studies of our product candidates are not necessarily predictive of the results of later preclinical studies and any future clinical trials of our product candidates;

if we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected;

cellular therapies are a novel approach and negative perception of any product candidates that we develop could adversely affect our ability to conduct our business or obtain regulatory approvals for such product candidates;

we are subject to numerous laws and regulations, noncompliance with which would subject us to possible legal or regulatory action;

the effects of health epidemics like the recent COVID-19 pandemic, including recurring surges and waves of infection, in regions where we, or the third parties on which we rely, have business operations could adversely impact our business, including our clinical supply, preclinical studies, ongoing and planned clinical trials;

if we are unable to obtain and maintain patent protection for any product candidates we develop or for our RED PLATFORM, our competitors could develop and commercialize products or technology similar or identical to ours,

iii

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and our ability to successfully commercialize any product candidates we may develop, and our technology may be adversely affected;

we intend to rely on patent rights and the status of our product candidates, if approved, as products eligible for exclusivity under the Biologics Price Competition and Innovation Act (BPCIA). If we are unable to obtain or maintain exclusivity from the combination of these approaches, we may not be able to compete effectively in our markets;

third-party claims of intellectual property infringement, misappropriation or other violation against us, our licensors or our collaborators may prevent or delay the development and commercialization of our product candidates, RED PLATFORM and other technologies;

our product candidates are uniquely manufactured. If we or any third-party manufacturers that we may engage encounter difficulties in manufacturing our product candidates, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure;

we have acquired and are establishing our own manufacturing facility and infrastructure in addition to or in lieu of relying on CMOs for the manufacture of our product candidates, which is costly, time-consuming, and which may not be successful; and

we do not have extensive experience as a company managing a manufacturing facility.

The summary risk factors described above should be read together with the text of the full risk factors below and in the other information set forth in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes, as well as in other documents that we file with the SEC. If any such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.

iv

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Rubius Therapeutics, Inc.

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Page No.

PART I - FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

1

Condensed Consolidated Balance Sheets (Unaudited)

1

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

2

Condensed Consolidated Statements of Cash Flows (Unaudited)

3

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

4

Notes to (Unaudited) Condensed Consolidated Financial Statements

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

100

Item 3.

Defaults Upon Senior Securities

101

Item 4.

Mine Safety Disclosures

101

Item 5.

Other Information

101

Item 6.

Exhibits

102

Signatures

103

Solely for convenience, the trademarks, service marks and trade names referred to in this quarterly report are listed without the ®, (sm) and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

    

September 30, 2020

December 31, 2019

Assets

Current assets:

Cash and cash equivalents

$

75,174

$

91,898

Investments

 

132,730

 

191,389

Prepaid expenses and other current assets

 

6,458

 

5,979

Total current assets

 

 

214,362

 

289,266

Operating lease, right-of-use-asset

41,483

46,559

Property, plant and equipment, net

 

54,635

 

56,924

Restricted cash

 

1,573

 

1,735

Other assets

 

311

 

357

Total assets

$

312,364

$

394,841

Liabilities and Stockholders' Equity

 

 

Current liabilities:

 

 

Accounts payable

$

9,135

$

7,178

Accrued expenses and other current liabilities

 

11,143

 

16,042

Operating lease liabilities

 

9,719

 

10,540

Total current liabilities

 

29,997

 

33,760

Long-term debt, net of discount

 

74,828

 

49,596

Other long-term liabilities

884

405

Operating lease liabilities, net of current portion

 

33,540

 

36,867

Total liabilities

 

139,249

 

120,628

Commitments and contingencies (see Note 9)

 

 

Stockholders' equity:

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2020 and December 31, 2019; no shares issued or outstanding at September 30, 2020 and December 31, 2019

Common stock, $0.001 par value; 150,000,000 shares authorized at September 30, 2020 and December 31, 2019; 80,923,820 and 80,016,245 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

81

 

80

Additional paid-in capital

 

612,934

 

586,798

Accumulated other comprehensive income

 

32

 

75

Accumulated deficit

 

(439,932)

 

(312,740)

Total stockholders' equity

 

173,115

 

274,213

Total liabilities and stockholders' equity

$

312,364

$

394,841

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

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RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

Revenue

$

$

$

$

Operating expenses:

Research and development

 

28,209

 

33,530

90,491

 

81,919

General and administrative

 

11,976

 

14,952

36,241

 

42,254

Total operating expenses

 

40,185

 

48,482

126,732

 

124,173

Loss from operations

 

(40,185)

 

(48,482)

(126,732)

 

(124,173)

Other income (expense):

 

  

 

  

 

  

Interest income

 

223

 

2,002

1,682

 

6,492

Interest expense

 

(1,174)

 

(835)

(2,987)

 

(1,957)

Other income, net

284

300

845

652

Total other income (expense), net

 

(667)

 

1,467

(460)

 

5,187

Net loss

 

(40,852)

 

(47,015)

(127,192)

 

(118,986)

Net loss per share, basic and diluted

$

(0.51)

$

(0.59)

$

(1.58)

$

(1.52)

Weighted average common shares outstanding, basic and diluted

 

80,778,042

 

79,115,305

80,511,543

 

78,357,791

 

  

 

  

  

 

Comprehensive loss:

 

  

 

  

  

 

  

Net loss

$

(40,852)

$

(47,015)

$

(127,192)

$

(118,986)

Other comprehensive income (loss):

 

  

 

  

  

 

  

Unrealized gains (losses) on investments, net of tax of $0

 

(162)

 

(124)

(43)

 

195

Comprehensive loss

$

(41,014)

$

(47,139)

$

(127,235)

$

(118,791)

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

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RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine months ended September 30, 

    

2020

    

2019

Cash flows from operating activities:

 

  

 

  

Net loss

$

(127,192)

$

(118,986)

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

 

  

Stock-based compensation expense

24,725

 

30,440

Depreciation and amortization expense

5,176

 

2,294

Amortization (accretion) of premium (discount) on investments

186

 

(1,939)

Loss on disposal of property and equipment

119

Non-cash interest expense

232

 

201

Changes in operating assets and liabilities:

 

  

Prepaid expenses and other current assets

(1,318)

 

(2,129)

Operating lease, right-of-use-asset

4,184

3,336

Other assets

(5)

(293)

Accounts payable

2,095

 

3,184

Accrued expenses and other current liabilities

(2,425)

 

3,330

Other long-term liabilities

580

395

Operating lease liabilities

(3,338)

(1,411)

Net cash used in operating activities

(97,100)

 

(81,459)

Cash flows from investing activities:

  

 

  

Purchases of property, plant and equipment

(4,467)

 

(27,381)

Purchases of investments

(122,671)

 

(259,231)

Sales and maturities of investments

181,102

143,275

Net cash provided by (used in) investing activities

53,964

 

(143,337)

Cash flows from financing activities:

  

 

  

Proceeds from borrowings under loan and security agreement

25,000

 

25,000

Repurchase of unvested restricted common stock

(122)

Proceeds from issuance of common stock upon exercise of stock options

1,412

 

1,843

Net cash provided by financing activities

26,412

 

26,721

Net decrease in cash, cash equivalents and restricted cash

(16,724)

 

(198,075)

Cash, cash equivalents and restricted cash at beginning of period

93,633

 

309,421

Cash, cash equivalents and restricted cash at end of period

$

76,909

$

111,346

Supplemental cash flow information:

Cash paid for interest, net of interest capitalized

$

2,740

$

1,706

Cash paid for leases

$

5,822

$

3,194

Lease assets obtained in exchange for new operating lease liabilities

$

90

$

49,496

Lease asset derecognized upon lease cancellation

$

982

$

Supplemental disclosure of non-cash investing and financing information:

 

  

Purchases of property, plant and equipment included in accounts payable or accrued expenses

$

564

$

6,073

Deferred offering costs and issuance costs included in accounts payable or accrued expenses

$

$

11

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

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RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

Accumulated

Additional

other

Total

Common stock

paid-in

comprehensive

Accumulated

stockholders’

   

Shares

   

Amount

   

capital

   

income (loss)

   

deficit

   

equity

Balances at December 31, 2019

 

80,016,245

$

80

$

586,798

$

75

$

(312,740)

$

274,213

Issuance of common stock

upon exercise of stock

options

 

413,721

 

 

486

 

 

 

486

Stock-based compensation

expense

 

 

 

8,488

 

 

 

8,488

Unrealized gains on

investments

 

 

 

 

456

 

 

456

Net loss

 

 

 

 

 

(48,486)

 

(48,486)

Balances at March 31, 2020

80,429,966

 

80

 

595,772

 

531

 

(361,226)

 

235,157

Issuance of common stock

upon exercise of stock

options

 

115,553

256

 

256

Stock-based compensation

expense

 

8,252

 

8,252

Unrealized losses on

investments

 

(337)

 

(337)

Net loss

 

(37,854)

 

(37,854)

Balances at June 30, 2020

 

80,545,519

80

604,280

194

(399,080)

205,474

Issuance of common stock

upon exercise of stock

options

 

378,301

1

669

 

670

Stock-based compensation

expense

 

7,985

 

7,985

Unrealized losses on

investments

 

(162)

 

(162)

Net loss

 

(40,852)

 

(40,852)

Balances at September 30, 2020

 

80,923,820

$

81

$

612,934

$

32

$

(439,932)

$

173,115

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RUBIUS THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - continued

(In thousands, except share amounts)

(Unaudited)

Accumulated

Additional

other

Total

Common stock

paid-in

comprehensive

Accumulated

stockholders’

   

Shares

   

Amount

   

capital

   

income (loss)

   

deficit

   

equity

Balances at December 31, 2018

 

79,234,853

$

79

$

543,040

$

(29)

$

(150,082)

$

393,008

Issuance of common stock

upon exercise of stock

options

 

619,342

 

1

 

798

 

 

 

799

Stock-based compensation

expense

 

 

 

9,478

 

 

 

9,478

Vesting of restricted

common stock

22

22

Unrealized gains on

investments

 

110

 

110

Cumulative effect adjustment

for adoption of ASC 842

800

800

Net loss

 

(32,581)

 

(32,581)

Balances at March 31, 2019

 

79,854,195

80

553,338

81

(181,863)

371,636

Issuance of common stock

upon exercise of stock

options

 

223,484

 

 

572

 

 

 

572

Stock-based compensation

expense

 

 

 

10,604

 

 

 

10,604

Vesting of restricted

common stock

13

13

Unrealized gains on

investments

 

209

 

209

Net loss

 

(39,390)

 

(39,390)

Balances at June 30, 2019

 

80,077,679

80

564,527

290

(221,253)

343,644

Issuance of common stock

upon exercise of stock

options

 

367,971

 

1

 

471

 

 

 

472

Stock-based compensation

expense

 

 

 

10,358

 

 

 

10,358

Repurchase of unvested

restricted common stock

(667,917)

 

(1)

 

 

 

(1)

Vesting of restricted

common stock

9

9

Unrealized gains on

investments

 

(124)

 

(124)

Net loss

 

(47,015)

 

(47,015)

Balances at September 30, 2019

 

79,777,733

$

80

$

575,365

$

166

$

(268,268)

$

307,343

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

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RUBIUS THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of the Business and Basis of Presentation

Rubius Therapeutics, Inc. (“Rubius” or the “Company”) is a therapeutics company focused on using its platform to develop red cell therapeutics for the treatment of patients with severe diseases. Rubius was incorporated in April 2013 as VL26, Inc. under the laws of the State of Delaware. In January 2015, the Company changed its name to Rubius Therapeutics, Inc.

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, compliance with government regulations, the ability to establish clinical- and commercial-scale manufacturing processes and the ability to secure additional capital to fund operations. In addition, the Company is subject to uncertainty regarding the performance and safety of red cell therapeutics in humans. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The Company is monitoring the potential impact of the novel coronavirus (“COVID-19”), if any, on the carrying value of certain assets. To date, the Company has not experienced material business disruption, nor has it incurred impairment of any assets as a result of COVID-19. The extent to which these events may impact the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted at this time. The duration and intensity of these impacts and resulting disruption to the Company’s operations is uncertain and the Company will continue to assess the financial impact.

On July 20, 2018, the Company completed its initial public offering (“IPO”), pursuant to which it issued and sold 12,055,450 shares of common stock, inclusive of 1,572,450 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $254.3 million, after deducting underwriting discounts and commissions and other offering costs. Upon the closing of the IPO, all of the shares of the Company’s outstanding convertible preferred stock then outstanding automatically converted into 51,845,438 shares of common stock.

The accompanying condensed consolidated 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. The Company has incurred recurring losses since inception, including net losses of $127.2 million for the nine months ended September 30, 2020 and $163.5 million for the year ended December 31, 2019. As of September 30, 2020, the Company had an accumulated deficit of $439.9 million. The Company expects to continue to generate operating losses in the foreseeable future. As of November 9, 2020, the issuance date of the interim condensed consolidated financial statements, the Company expects that its cash, cash equivalents and investments will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of the interim condensed consolidated financial statements. The Company will seek additional funding through private or public equity financings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company's stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects. Although management 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.

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The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current year presentation.

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The condensed consolidated balance sheet at December 31, 2019 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited condensed consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2019, on file with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of September 30, 2020 and condensed consolidated results of operations for the three and nine months ended September 30, 2020 and 2019 and the condensed consolidated cash flows for the nine months ended September 30, 2020 and 2019 have been made. The Company’s condensed consolidated results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the valuation of common stock prior to the IPO and the valuation of stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19. As of the date of issuance of these unaudited condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. Actual results may differ from those estimates or assumptions.

Concentrations of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and investments. The Company’s cash, cash equivalents and investments, as of September 30, 2020, consisted of U.S. government money market funds, U.S. government treasury bills and U.S. government treasury notes. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

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The Company relies, and expects to continue to rely, on a small number of vendors to manufacture supplies and raw materials for its development programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Restricted Cash

As of both September 30, 2020 and December 31, 2019, the Company maintained letters of credit totaling $1.7 million for the benefit of the landlords of its leased properties. The Company was required to maintain separate cash balances of these amounts to secure the letters of credit. Related to these separate cash balances, the Company included $0.1 million in prepaid expenses and other current assets and $1.6 million in restricted cash (non-current) in its condensed consolidated balance sheet as of September 30, 2020. The Company classified $1.7 million as restricted cash (non-current) and it did not have any restricted cash (current) in its condensed consolidated balance sheet as of December 31, 2019.

Cash, cash equivalents and restricted cash presented in the accompanying condensed consolidated statement of cash flows was $76.9 million and $111.3 million for the nine months ended September 30, 2020 and 2019, respectively, of which $1.7 million and $1.7 million was restricted cash, respectively.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. The carrying value of the Company’s long-term debt approximates its fair value due to its variable interest rate, which approximates a market interest rate.

Investments

The Company’s investments are classified as available-for-sale and are carried at fair value. Realized gains and losses and declines in value are based on the specific identification method and are included as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The Company classifies its investments with maturities beyond one year as short-term, based on their highly liquid nature and because such investments are available for current operations.

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In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses, which changes the impairment model for most financial assets, including the Company’s investments. The Company adopted the standard effective January 1, 2020 using a prospective transition method.

The Company evaluates its investments with unrealized losses for impairment. When assessing investments for unrealized declines in value, the Company considers whether the decline in value is related to a credit loss or non-credit loss. For credit losses, the Company reduces the investment to fair value through an allowance for credit losses recorded to the balance sheet and corresponding charge to the statement of operations. The allowance for credit losses and corresponding impairment charge is adjusted each period for changes in fair value. For non-credit losses, the Company reduces the investment to fair value through a charge to the statement of comprehensive loss, reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. No such adjustments were necessary during the periods presented.

Leases

At the inception of an arrangement as lessee or lessor, the Company determines whether the arrangement is or contains a lease. Operating lease cost is recognized over the lease term on a straight-line basis. Variable lease cost and short-term leases (lease terms less than 12 months) are recognized as incurred. For both lessee and lessor arrangements, variable lease payments are the amounts owed by the Company to a lessor that are not fixed, such as reimbursement for common area maintenance and utilities costs, and are expensed when incurred. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

For lessee arrangements, operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. Operating leases are recognized on the balance sheet as right-of-use assets, operating lease liabilities current and operating lease liabilities non-current.

The Company has elected the following lease policies at the inception of a lease: (1) for lessee and lessor arrangements within all asset classes, combine lease and non-lease components as a single component, with the lease expense recognized over the expected term on a straight-line basis and (2) for lessee arrangements, apply short-term lease exemption for all leases that qualify, where a right-of-use asset or lease liability will not be recognized for leases with terms of one year or less.

Recently Adopted Accounting Pronouncements

ASU No. 2016-02, Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized over the lease term based on an effective interest method for financing leases or on a straight-line basis for operating leases. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to previous guidance for operating leases under ASC 840. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years.

ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presented in the financial statements would be prepared under the revised guidance. In July 2018, the FASB issued ASU 2018-11, Leases

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(Topic 842), which added an optional transition method under which financial statements may be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted ASC 842 using the modified retrospective approach with an effective date of January 1, 2019 for leases that existed on that date. Prior period results continue to be presented under ASC 840 based on the accounting standards originally in effect for such periods. This standard provides a number of optional practical expedients in transition. The Company applied the package of practical expedients to leases that commenced prior to the effective date, whereby it elected not to reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. The Company elected the short-term lease recognition exemption for all leases that qualify, where a right-of-use asset or lease liability will not be recognized for short term leases that have terms of one year or less. The most significant effects of adoption were the recognition of material new right-of-use assets and corresponding liabilities on its condensed consolidated balance sheet related to its existing facility operating leases. In addition, the Company has a material lease where the Company was deemed the owner during the construction period and for which the construction was not complete as of January 1, 2019. The Company took control of the leased space during the first quarter of 2019 at which time the lease commenced. Under ASC 842, as the commencement date of this material lease had not occurred, the new right-of-use assets and corresponding liabilities related to this lease were not recognized on the condensed consolidated balance sheet as of date of adoption, January 1, 2019, however, were recognized upon the commencement date of January 28, 2019. The adoption of this standard has had a material impact on the Company’s financial position but did not significantly affect the Company’s results of operations.

ASU No. 2018-15, Intangibles–Goodwill and Other–Internal-Use Software

In August 2018, the FASB issued ASU No. 2018-15, Intangibles–Goodwill and Other–Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. Early adoption was permitted. The Company early-adopted this standard on January 1, 2019 on a prospective basis. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

ASU No. 2016-13, Financial Instruments—Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. For available-for-sale debt securities, entities are required to recognize an allowance for credit losses rather than a reduction in carrying value of the asset. Entities are no longer permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. Early adoption was permitted. The Company adopted this standard as of January 1, 2020 on a prospective basis. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

ASU No. 2018-13, Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project. For all entities, this guidance was effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. The Company adopted this standard as of January 1,

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2020 on a prospective basis. The adoption did not have an impact on the Company’s condensed consolidated financial statements.

ASU No. 2020-04, Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. For all entities, this guidance is effective as of issuance, March 12, 2020, through December 31, 2022. The Company adopted this standard as of March 12, 2020 on a prospective basis and is currently evaluating its contracts referencing LIBOR for reference rate replacement.

Recently Issued Accounting Pronouncements

ASU No. 2019-12, Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (ASC 740). The ASU enhances and simplifies various aspects of the income tax accounting guidance in ASC 740, including requirements related to hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intra-period tax allocation exception to the incremental approach, ownership changes in investments, changes from a subsidiary to an equity method investment, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. This guidance is effective for the Company for annual and interim periods beginning after December 31, 2020; however, early adoption is permitted. The Company is currently in the process of evaluating the impact to its consolidated financial statements.

3. Investments and Fair Value of Financial Assets and Liabilities

Investments by security type consisted of the following (in thousands):

September 30, 2020

Amortized Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Credit Losses

Fair Value

U.S. treasury bills and notes (due within one year)

 

$

132,698

 

$

43

 

$

(11)

$

$

132,730

$

132,698

$

43

$

(11)

$

$

132,730

December 31, 2019

Amortized Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

U.S. treasury bills and notes (due within one year)

 

$

189,816

 

$

91

 

$

(20)

$

189,887

U.S. government agency bonds (due within one year)

 

1,498

 

4

 

 

1,502

$

191,314

$

95

$

(20)

$

191,389

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The following tables present the Company’s fair value hierarchy for its assets and liabilities, which are measured at fair value on a recurring basis (in thousands):

Fair value measurements at September 30, 2020 using:

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

  

 

  

 

  

  

Cash equivalents:

 

  

 

  

 

  

  

Money market funds

 

$

68,916

 

$

 

$

$

68,916

Investments:

 

 

 

 

  

U.S. treasury bills and notes

 

 

132,730

 

 

132,730

$

68,916

$

132,730

$

$

201,646

Fair value measurements at December 31, 2019 using:

    

Level 1 

    

Level 2 

    

Level 3

    

Total 

Assets:

 

  

 

  

 

  

  

Cash equivalents:

 

  

 

  

 

  

  

Money market funds

 

$

91,898

 

$

 

$

$

91,898

Investments:

 

  

 

  

 

  

 

  

U.S. government agency bonds

 

 

1,502

 

 

1,502

U.S. treasury bills and notes

 

 

189,887

 

 

189,887

$

91,898

$

191,389

$

$

283,287

U.S. government money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. U.S. treasury notes and U.S. government agency bonds were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy. There have been no changes to the valuation methods during the nine months ended September 30, 2020. The Company evaluates transfers between levels at the end of each reporting period. There were no transfers between Level 1, Level 2 or Level 3 during the nine months ended September 30, 2020.

4. Property, Plant and Equipment, Net

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

    

September 30, 2020

    

December 31, 2019

Manufacturing facility

$

30,539

$

Manufacturing equipment

8,685

Land

1,300

1,300

Laboratory equipment

 

16,210

16,079

Computer equipment

 

 

2,028

 

1,051

Furniture and fixtures

1,228

1,228

Leasehold improvements

 

 

445

 

445

Construction-in-progress

 

 

2,866

 

41,262

 

 

63,301

 

61,365

Less: Accumulated depreciation and amortization

 

 

(8,666)

 

(4,441)

$

54,635

$

56,924

Manufacturing Facility

On July 31, 2018, the Company completed its purchase of a 135,000 square foot manufacturing facility located in Smithfield, Rhode Island for a purchase price of $8.0 million. In August 2018, the Company began renovations to customize this facility to manufacture clinical supply of its product candidates. Of the total purchase price, $1.3 million

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was allocated to the value of land acquired based on the value of comparable assets, and $6.7 million was allocated to construction in progress, as the building was not ready for its intended use. During the years ended December 31, 2019 and 2018, the Company capitalized, as construction-in-progress, the design, demolition, construction and interest costs related to the renovation project, as well as costs for manufacturing equipment to be used in the facility. In January 2020, after achieving the regulatory qualifications required to bring it to its intended use, the Company placed the manufacturing facility and manufacturing equipment into service. In connection with placing the manufacturing facility into service, $30.5 million and $7.8 million of construction-in-progress was transferred to depreciating asset accounts classified as manufacturing facility and manufacturing equipment, respectively.

5. Accrued Expenses and Other Current Liabilities

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

    

September 30, 2020

    

December 31, 2019

Accrued employee compensation and benefits

 

$

5,511

$

5,045

Accrued external research and development expenses

 

 

3,686

 

6,715

Accrued manufacturing facility expenses

 

 

369

 

2,824

Accrued general and administrative expenses

1,462

1,136

Other

 

 

115

 

322

$

11,143

$

16,042

6. Debt

On December 21, 2018 (the “Closing Date”), the Company entered into a loan and security agreement (the “Loan Agreement”) with Solar Capital Ltd. as collateral agent for the lenders party thereto for an aggregate principal amount of $75.0 million. The aggregate principal amount will be funded in three tranches of term loans of $25.0 million each. On the Closing Date, the Company made an initial borrowing of $25.0 million. In June 2019, the Company made a second borrowing of $25.0 million. In June 2020, the Company made a third and final borrowing of $25.0 million.

Interest on the outstanding loan balance will accrue at a rate of the one-month U.S. LIBOR rate plus 5.50%. Monthly principal payments will commence 36 months after the Closing Date and will be amortized over the following 24 months. Certain backend fees are due to the lender at the time of final repayment based on the total funded term loans. The Company accrues the backend fees that will be due at final repayment to outstanding debt by charges to interest expense over the term of the loans using the effective-interest method. The term loans are subject to a prepayment fee of 1.00% in the first year, 0.50% in the second year and 0.25% in the third year. In conjunction with 2018 Credit Facility, the Company incurred issuance costs of $0.8 million.

The Loan Agreement contains financial covenants that require the Company to maintain either a certain minimum cash balance or a minimum market capitalization threshold. The Company was in compliance with all such covenants as of September 30, 2020. The Loan Agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse change default. Upon the occurrence of an event of default, a default interest rate of an additional 4.00% per annum may be applied to the outstanding loan balances, and the lenders may declare all outstanding obligations immediately due and payable. Borrowings under the Loan Agreement are collateralized by substantially all of the Company’s assets, other than its intellectual property.

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As of September 30, 2020, the estimated future principal payments due were as follows (in thousands):

Year ending December 31, 

    

  

2020 (three months ending December 31)

$

2021

 

2022

37,500

2023

37,500

2024 and thereafter

$

75,000

7. Equity

On July 20, 2018, the Company filed a restated certificate of incorporation in the State of Delaware, which, among other things, restated the number of shares of all classes of stock that the Company has authority to issue to 160,000,000 shares, consisting of (i) 150,000,000 shares of common stock, $0.001 par value per share, and (ii) 10,000,000 shares of preferred stock, $0.001 par value per share. The preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Company’s board of directors upon issuance. The shares of preferred stock are currently undesignated.

Also on July 20, 2018, the Company completed its IPO, pursuant to which it issued and sold 12,055,450 shares of common stock, inclusive of 1,572,450 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $254.3 million, after deducting underwriting discounts and commissions and other offering costs. Upon the closing of the IPO, all of the shares of the Company’s outstanding convertible preferred stock then outstanding automatically converted into 51,845,438 shares of common stock.

On August 1, 2019, the Company entered into a Distribution Agreement (the “Distribution Agreement”) with J.P. Morgan Securities LLC, Jefferies LLC and SVB Leerink LLC (the “Sales Agents”), pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $100.0 million through the Sales Agents. The Company’s registration statement on Form S-3 filed on August 1, 2019 was declared effective on August 21, 2019. The Sales Agents may sell common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Global Select Market or any other existing trade market for the common stock, in negotiated transactions at market prices prevailing at the time of sale or at prices related to prevailing market prices, or any other method permitted by law. The Sales Agents will be entitled to receive 3.0% of the gross sales price per share of common stock sold pursuant to the Distribution Agreement. As of September 30, 2020, no shares of common stock have been issued and sold pursuant to the Distribution Agreement.

8. Stock-Based Compensation

Service-Based Stock Options

During the nine months ended September 30, 2020, the Company granted options with service-based vesting conditions for the purchase of 3,738,221 shares of common stock with a weighted average exercise price of $7.44 per share and a weighted average grant-date fair value of $4.62 per share.

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Stock-Based Compensation

The Company recorded stock-based compensation expense in the following expense categories of its condensed consolidated statements of operations and comprehensive loss (in thousands):

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

Research and development expenses

$

1,996

$

2,195

 

$

6,165

$

6,798

General and administrative expenses

 

5,989

 

8,163

 

18,560

 

23,642

$

7,985

$

10,358

$

24,725

$

30,440

As of September 30, 2020, total unrecognized compensation cost related to the unvested stock-based awards was $52.5 million, which is expected to be recognized over a weighted average period of 1.9 years.

9. Commitments and Contingencies

License Agreement with the Whitehead Institute for Biomedical Research

The Company has a license agreement with the Whitehead Institute for Biomedical Research (“WIBR”), as amended, under which the Company has been granted an exclusive, sublicensable, nontransferable license under certain patent families related to the development of the Company’s red cell therapies (the “WIBR License”). The Company is obligated to pay WIBR annual license maintenance fees of less than $0.1 million, as well as patent-related costs, including legal fees, and low single-digit royalties based on annual net sales of licensed products and licensed services by the Company and its sublicensees. Based on the progress the Company makes in the advancement of products covered by the licensed patent rights, the Company is required to make aggregate milestone payments of up to $1.6 million upon the achievement of specified preclinical, clinical and regulatory milestones. In addition, the Company is required to pay to WIBR a percentage of the non-royalty payments that it receives from sublicensees of the patent rights licensed by WIBR. This percentage varies from low single-digit to low double-digit percentages and will be based upon the clinical stage of the product that is the subject of the sublicense. Royalties shall be paid by the Company on a licensed product-by-licensed product and country-by-country basis, beginning on the first commercial sale of such licensed product in such country until expiration of the last valid patent claim covering such licensed product in such country.

The Company has the right to terminate the WIBR License in its entirety, on a patent-by-patent or country-by-country basis, at will upon three months’ notice to WIBR. WIBR may terminate the agreement upon breach of contract or in the event of the Company’s bankruptcy, liquidation, insolvency or cessation of business related to the license.

401(k) Plan

In January 2018, the Company established a defined-contribution plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company will make matching contributions at a rate of 50% of each employee’s contribution up to a maximum employee contribution of 6% of eligible plan compensation. For the three and nine months ended September 30, 2020, the Company made matching contributions of $0.2 million and $0.6 million, respectively.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, contract research organizations, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of

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future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. The Company has not incurred any material costs as a result of such indemnifications and is not currently aware of any indemnification claims.

Legal Proceedings

The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.

10. Net Loss per Share

Basic and diluted net loss per share was calculated as follows (in thousands, except share and per share amounts):

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2020

    

2019

    

2020

    

2019

Numerator:

 

  

 

  

 

  

 

  

Net loss

$

(40,852)

$

(47,015)

$

(127,192)

$

(118,986)

 

  

 

 

  

 

  

Denominator: