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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, 2021

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 29, 2021, the registrant had 89,865,777 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, results of preclinical studies or clinical trials 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” including, among other things:

the success, cost and timing of our product development activities and clinical trials, including the timing of initiation, enrollment in and completion of studies or trials and related preparatory work, availability and timing of clinical trial results, and the success and cost of 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 obtain regulatory approval, or to maintain such 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, clinical trials and, if approved, 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 and on our clinical trials, including economic slowdowns or recessions that have resulted from the ongoing 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 and legislative and regulatory changes; and
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates.

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 Red Cell Therapeutics, or 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 ongoing and 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 or early clinical trials of our product candidates are not necessarily predictive of the results of later preclinical studies or 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 ongoing COVID-19 pandemic, including recurring surges and waves of infection and emergent variants of the coronavirus, in regions where we, or the third parties on which we rely, have business operations could continue to adversely impact our business, including our clinical supply, preclinical studies, ongoing and planned clinical trials;

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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, 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, or 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 condensed 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 Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

103

Item 3.

Defaults Upon Senior Securities

103

Item 4.

Mine Safety Disclosures

103

Item 5.

Other Information

103

Item 6.

Exhibits

104

Signatures

105

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, 2021

December 31, 2020

    

Assets

Current assets:

Cash and cash equivalents

$

264,017

$

91,165

Investments

 

 

85,122

Prepaid expenses and other current assets

 

6,451

 

5,224

Total current assets

 

 

270,468

 

181,511

 

Operating lease, right-of-use-asset

36,296

40,447

Property, plant and equipment, net

 

52,727

 

53,952

Restricted cash

 

1,573

 

1,573

Other assets

 

 

311

Total assets

$

361,064

$

277,794

Liabilities and Stockholders' Equity

 

 

Current liabilities:

 

 

Accounts payable

$

8,492

$

5,478

Accrued expenses and other current liabilities

 

13,622

 

13,417

Operating lease liabilities

 

8,820

 

8,945

Total current liabilities

 

30,934

 

27,840

Long-term debt, net of discount

 

75,929

 

74,944

Other long-term liabilities

586

688

Operating lease liabilities, net of current portion

 

29,410

 

32,762

Total liabilities

 

136,859

 

136,234

Commitments and contingencies (see Note 9)

 

 

Stockholders' equity:

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2021 and December 31, 2020; no shares issued or outstanding at September 30, 2021 and December 31, 2020

Common stock, $0.001 par value; 150,000,000 shares authorized at September 30, 2021 and December 31, 2020; 89,862,482 and 81,053,651 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

 

90

 

81

Additional paid-in capital

 

846,112

 

621,946

Accumulated other comprehensive income

 

 

4

Accumulated deficit

 

(621,997)

 

(480,471)

Total stockholders' equity

 

224,205

 

141,560

Total liabilities and stockholders' equity

$

361,064

$

277,794

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, 

 

    

2021

    

2020

    

2021

    

2020

 

Revenue

$

$

$

$

Operating expenses:

Research and development

 

38,014

 

28,209

101,763

 

90,491

General and administrative

 

12,035

 

11,976

39,126

 

36,241

Total operating expenses

 

50,049

 

40,185

140,889

 

126,732

Loss from operations

 

(50,049)

 

(40,185)

(140,889)

 

(126,732)

Other income (expense):

 

  

 

  

 

  

Interest income

 

23

 

223

75

 

1,682

Interest expense

 

(1,711)

 

(1,174)

(4,771)

 

(2,987)

Other income, net

2,721

284

4,059

845

Total other income (expense), net

 

1,033

 

(667)

(637)

 

(460)

Net loss

 

(49,016)

 

(40,852)

(141,526)

 

(127,192)

Net loss per share, basic and diluted

$

(0.55)

$

(0.51)

$

(1.62)

$

(1.58)

Weighted average common shares outstanding, basic and diluted

 

89,807,383

 

80,778,042

87,240,694

 

80,511,543

 

  

 

  

  

 

Comprehensive loss:

 

  

 

  

  

 

  

Net loss

$

(49,016)

$

(40,852)

$

(141,526)

$

(127,192)

Other comprehensive income (loss):

 

  

 

  

  

 

  

Unrealized losses on investments, net of tax of $0

 

(1)

 

(162)

(4)

 

(43)

Comprehensive loss

$

(49,017)

$

(41,014)

$

(141,530)

$

(127,235)

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, 

    

2021

    

2020

    

Cash flows from operating activities:

 

  

 

  

 

Net loss

$

(141,526)

$

(127,192)

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

 

  

Stock-based compensation expense

26,428

 

24,725

Depreciation and amortization expense

4,331

 

5,176

Amortization of premium on investments

118

 

186

Non-cash interest expense

1,036

 

232

Changes in operating assets and liabilities:

 

  

Prepaid expenses and other current assets

(1,226)

 

(1,323)

Operating lease, right-of-use-asset

4,156

4,184

Accounts payable

2,773

 

2,095

Accrued expenses and other current liabilities

(416)

 

(2,425)

Other long-term liabilities

(102)

580

Operating lease liabilities

(3,477)

(3,338)

Net cash used in operating activities

(107,905)

 

(97,100)

Cash flows from investing activities:

  

 

  

Purchases of property, plant and equipment

(2,280)

 

(4,467)

Purchases of investments

 

(122,671)

Sales and maturities of investments

85,000

181,102

Net cash provided by investing activities

82,720

 

53,964

Cash flows from financing activities:

  

 

  

Proceeds from underwritten public offering of common stock, net of commissions and underwriting discounts

188,000

Payments of offering costs

(360)

Payments of debt issuance costs

(150)

 

Proceeds from borrowings under loan and security agreement

 

25,000

Proceeds from issuance of common stock upon exercise of stock options

10,547

 

1,412

Net cash provided by financing activities

198,037

 

26,412

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

172,852

 

(16,724)

Cash, cash equivalents and restricted cash at beginning of period

92,901

 

93,633

Cash, cash equivalents and restricted cash at end of period

$

265,753

$

76,909

Supplemental cash flow information:

Cash paid for interest

$

3,635

$

2,740

Cash paid for leases

$

5,675

$

5,822

Supplemental disclosure of non-cash investing and financing information:

 

  

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

$

1,145

$

564

Offering costs included in accounts payable and accrued expenses

$

35

$

Lease assets obtained in exchange for new operating lease liabilities

$

$

90

Lease asset derecognized upon lease cancellation

$

$

982

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

   

deficit

   

equity

Balances at December 31, 2020

 

81,053,651

$

81

$

621,946

$

4

$

(480,471)

$

141,560

Issuance of common stock

from public offering, net of

commissions, underwriting

discounts and offering costs of

$800

6,896,552

7

187,193

187,200

Issuance of common stock

upon exercise of stock

options

1,237,324

1

5,907

5,908

Stock-based compensation

expense

8,642

8,642

Unrealized gains on

investments

3

3

Net loss

(42,330)

(42,330)

Balances at March 31, 2021

 

89,187,527

89

823,688

7

(522,801)

300,983

Issuance of common stock

upon exercise of stock

options

 

532,400

 

1

 

3,719

 

 

 

3,720

Stock-based compensation

expense

 

 

 

9,597

 

 

 

9,597

Unrealized losses on

investments

 

 

 

 

(6)

 

 

(6)

Net loss

 

 

 

 

 

(50,180)

 

(50,180)

Balances at June 30, 2021

 

89,719,927

90

837,004

1

(572,981)

264,114

Issuance of common stock

upon exercise of stock

options

 

142,555

 

 

919

 

 

 

919

Stock-based compensation

expense

 

 

 

8,189

 

 

 

8,189

Unrealized losses on

investments

 

 

 

 

(1)

 

 

(1)

Net loss

 

 

 

 

 

(49,016)

 

(49,016)

Balances at September 30, 2021

 

89,862,482

$

90

$

846,112

$

$

(621,997)

$

224,205

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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

   

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

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 biopharmaceutical company that is using its platform to genetically engineer red blood cells into medicines, called Red Cell Therapeutics, for the treatment of cancer and autoimmune 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 its product candidates 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 continuing to monitor the impact of the novel coronavirus (“COVID-19”), if any, on the carrying value of certain assets. Although the Company has experienced some impacts to its business as a result of COVID-19, such impacts, to date, have not been material, nor has the Company incurred impairment of any assets as a result of COVID-19. The extent to which these events have impacted, and may continue to 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.

On March 18, 2021, the Company completed an underwritten public offering (the “March 2021 Offering”), pursuant to which it issued and sold 6,896,552 shares of common stock. The aggregate net proceeds received by the Company from the March 2021 Offering were $187.2 million, after deducting underwriting discounts and commissions and other offering costs.

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 $141.5 million for the nine months ended September 30, 2021 and $167.7 million for the year ended December 31, 2020. As of September 30, 2021, the Company had an accumulated deficit of $622.0 million. The Company expects to continue to generate operating losses in the foreseeable future. As of November 8, 2021, the issuance date of the interim condensed consolidated financial statements, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses, capital expenditure requirements and debt service payments for at least 12 months from the issuance date of the interim condensed consolidated financial statements.

The Company has financed its operations to date primarily through private placements, proceeds from its IPO and the March 2021 Offering and borrowings under credit facilities. The Company has devoted substantially all of its financial

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resources and efforts to research and development, including preclinical studies and clinical trials, and developing manufacturing capabilities. The Company will need to raise additional funds through public or private equity financings, debt financings, collaborations, strategic alliances or marketing, distribution or licensing arrangements to fund operations. The Company may not be able to obtain financing, or enter into collaboration or other arrangements, on acceptable terms, or at all. Furthermore, 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 may need to delay, scale back or discontinue some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects.

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, 2020 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, 2021 and for the three and nine months ended September 30, 2021 and 2020 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 consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2020, 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, 2021 and condensed consolidated results of operations for the three and nine months ended September 30, 2021 and 2020 and the condensed consolidated cash flows for the nine months ended September 30, 2021 and 2020 have been made. The Company’s condensed consolidated results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

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. In the condensed consolidated financial statements, the Company uses estimates and assumptions related to the accrual of research and development expenses 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 ongoing COVID-19 pandemic will directly or indirectly impact the Company’s 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 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.

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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 and cash equivalents, as of September 30, 2021, consisted of U.S. government money market funds. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020.

Cash, cash equivalents and restricted cash presented in the accompanying condensed consolidated statement of cash flows was $265.8 million and $76.9 million for the nine months ended September 30, 2021 and 2020, 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.

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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.

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 credit losses were recorded 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. 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,

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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 adopted this standard as of January 1, 2021 on a prospective basis. The adoption did not have an impact on the Company’s condensed consolidated financial statements.

3. Investments and Fair Value of Financial Assets and Liabilities

The Company had no investments as of September 30, 2021. As of December 31, 2020, investments by security type consisted of the following (in thousands):

December 31, 2020

Amortized Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Credit Losses

Fair Value

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

 

$

85,118

 

$

6

 

$

(2)

$

$

85,122

$

85,118

$

6

$

(2)

$

$

85,122

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, 2021 using:

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

  

 

  

 

  

  

Cash equivalents:

 

  

 

  

 

  

  

U.S. money market funds

 

$

256,034

 

$

 

$

$

256,034

$

256,034

$

$

$

256,034

Fair value measurements at December 31, 2020 using:

    

Level 1 

    

Level 2 

    

Level 3

    

Total 

Assets:

 

  

 

  

 

  

  

Cash equivalents:

 

  

 

  

 

  

  

U.S money market funds

 

$

88,814

 

$

 

$

$

88,814

Investments:

 

 

 

 

  

U.S. treasury bills and notes

 

 

85,122

 

 

85,122

$

88,814

$

85,122

$

$

173,936

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, 2021. 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, 2021.

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4. Property, Plant and Equipment, Net

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

    

September 30, 2021

    

December 31, 2020

    

Land

$

1,300

$

1,300

Manufacturing facility

31,235

30,969

Manufacturing equipment

8,804

8,782

Laboratory equipment

 

17,370

16,639

 

Computer equipment

 

 

2,480

 

2,118

 

Furniture and fixtures

1,228

1,228

Leasehold improvements

 

 

444

 

444

 

Construction-in-progress

 

 

4,330

 

2,605

 

 

 

67,191

 

64,085

 

Less: Accumulated depreciation and amortization

 

 

(14,464)

 

(10,133)

 

$

52,727

$

53,952

5. Accrued Expenses and Other Current Liabilities

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

    

September 30, 2021

    

December 31, 2020

Accrued employee compensation and benefits

 

$

5,978

$

8,124

Accrued external research and development expenses

 

 

4,430

 

3,156

Accrued manufacturing facility expenses

 

 

1,331

 

339

Accrued general and administrative expenses

1,019

1,244

Other

 

 

864

 

554

$

13,622

$

13,417

6. Debt

On December 21, 2018 (the “Closing Date”), the Company entered into a loan and security agreement (as amended, the “Loan Agreement”) with Solar Capital Ltd., now SLR Investment Corp., as collateral agent for the lenders party thereto for an aggregate principal amount of $75.0 million. The aggregate principal amount was 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 and in June 2020, the Company made a third and final borrowing of $25.0 million.

On June 22, 2021 (the “Amendment Closing Date”), the Company entered into an amendment (the “Amendment”) to its Loan Agreement. Pursuant to the Amendment, the Company and its lenders agreed to extend the interest-only period applicable to borrowings under the Loan Agreement from December 21, 2021 until July 1, 2024 and the final maturity date from December 21, 2023 until June 1, 2026. An additional tranche in the amount of $35.0 million is available at the request of the Company prior to the final maturity date, to be provided at the sole discretion of the lenders. The Amendment increases the LIBOR interest rate floor from 0.00% to 2.10%. Interest on the outstanding loan balance will accrue at a rate of 5.50%, plus the greater of 2.10% or the one-month U.S. LIBOR rate. Certain back-end fees are due to the lender at the time of final repayment based on the total funded term loans. The Company accrues the back-end 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% if prepayment occurs within the first year subsequent to the Amendment Closing Date, 0.50% in the second year and 0.25% in the third year through final maturity date.

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As the terms of the Amendment were not substantially different than the terms of the Loan Agreement, the Amendment was accounted for as a debt modification. In conjunction with the Amendment, the Company incurred issuance costs of $0.2 million payable to the lenders, which were recorded as an additional debt discount and will be amortized to interest expense over the remaining term, together with unamortized original issuance costs as of the Amendment Closing Date, using the effective interest method.

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 financial covenants as of September 30, 2021. 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.

As of September 30, 2021, the estimated future principal payments due were as follows (in thousands):

Year ending December 31, 

    

  

2021 (three months ending December 31)

$

2022

 

2023

2024

18,750

2025 and thereafter

56,250

$

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.

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, 2021, no shares of common stock have been issued and sold pursuant to the Distribution Agreement.

On March 18, 2021, the Company completed the March 2021 Offering, pursuant to which it issued and sold 6,896,552 shares of common stock. The aggregate net proceeds received by the Company from the March 2021 Offering were $187.2 million, after deducting underwriting discounts and commissions and other offering costs.

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8. Stock-Based Compensation

Service-Based Stock Options

During the nine months ended September 30, 2021, the Company granted options with service-based vesting conditions for the purchase of 3,942,080 shares of common stock with a weighted average exercise price of $16.01 per share and a weighted average grant-date fair value of $10.69 per share.

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, 

    

2021

    

2020

    

2021

    

2020

    

Research and development expenses

$

3,408

$

1,996

 

$

8,995

$

6,165

 

General and administrative expenses

 

4,781

 

5,989

 

17,433

 

18,560

 

$

8,189

$

7,985

$

26,428

$

24,725

As of September 30, 2021, total unrecognized compensation cost related to the unvested stock-based awards was $67.0 million, which is expected to be recognized over a weighted average period of 2.6 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”) 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 (as amended, 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, 2021, the Company made matching contributions of $0.2 million and $0.7 million, respectively.

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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 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, 

    

2021

    

2020

    

2021

    

2020

    

Numerator:

 

  

 

  

 

  

 

  

 

Net loss

$

(49,016)

$

(40,852)

$

(141,526)

$

(127,192)

 

  

 

 

  

 

  

Denominator:

 

  

 

  

 

  

 

  

Weighted average common shares outstanding, basic and diluted

 

89,807,383

 

80,778,042

 

87,240,694

 

80,511,543

Net loss per share, basic and diluted

$

(0.55)

$

(0.51)

$

(1.62)

$

(1.58)

The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares from the periods in the table above, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

September 30, 

    

2021

    

2020

    

Unvested restricted common stock

 

985,364

 

252,000

 

Stock options to purchase common stock

 

17,782,603

 

16,541,112

 

 

18,767,967

 

16,793,112

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission, or SEC, on February 23, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage biopharmaceutical company that is genetically engineering red blood cells to create an entirely new class of cellular medicines called Red Cell Therapeutics, or RCTs, for the treatment of cancer and autoimmune diseases. Based on the premise that human red blood cells are the foundation of the next significant innovation in medicine, we have designed a proprietary and highly versatile platform, called the RED PLATFORM, to genetically engineer and culture RCTs that are selective, potent and ready-to-use cellular therapies. RCTs are expected to provide advantages over other cell therapies, or agonist antibody and recombinant cytokine approaches, including the potential to generate a broad anti-tumor response with a wide therapeutic window and limited side effects given the biodistribution of RCTs to the vasculature and spleen. Additionally, RCTs do not have the complex logistics of other cell therapies, as RCT are prepared in the pharmacy, administered in an outpatient setting and do not require lymphodepletion prior to administration.

In the third quarter of 2021, we demonstrated strong execution across our pipeline of Red Cell Therapeutics by advancing enrollment in the ongoing clinical trials for our lead product candidates, RTX-240 and RTX-321, and further expanding our clinical pipeline with the clearance of our investigational new drug application, or IND, for our third clinical candidate RTX-224. Our manufacturing facility in Smithfield, Rhode Island, continues to provide cGMP supply for our ongoing clinical trials.

Additionally, we continue to advance our earlier-stage autoimmune program in Type I diabetes and explore ways in which to apply the RED PLATFORM across the remainder of our pipeline.

Highlights of our RCT clinical product candidates, RTX-240, RTX-321 and RTX-224, are described further below.

RTX-240

RTX-240 is an allogeneic, off-the-shelf cellular therapy product candidate that is engineered to replicate human immune system function by stimulating adaptive and innate immunity to generate an anti-tumor immune response. As shown in preclinical studies, RTX-240 expresses hundreds of thousands of copies of the costimulatory molecule 4-1BB ligand (4-1BBL) and the cytokine IL-15TP (a fusion of IL-15 and IL-15 receptor alpha) on the cell surface in their native forms. By activating existing agonist pathways, RTX-240 has the potential to enhance potency and improve anti-tumor activity, overcome resistance to immunotherapy and have a reduced toxicity profile given its biodistribution in the vasculature and the spleen.

We are currently dosing patients in three separate Phase 1 arms of our ongoing Phase 1/2 clinical trial of RTX-240: as a single-agent for the treatment of patients with relapsed/refractory or locally advanced solid tumors, as a single-agent for the treatment of patients with relapsed/refractory AML and as a combination therapy with pembrolizumab for the treatment of patients with relapsed/refractory or locally advanced solid tumors.

In March 2021, we announced initial clinical data from the RTX-240 clinical trial that we believe provides initial proof-of-concept of the RED PLATFORM by demonstrating that red blood cells can be engineered to mimic the human

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immune system and stimulate adaptive and innate immunity to generate clinical responses in cancer patients with refractory disease.

The data reported in March 2021 included initial safety (n=16) and efficacy (n=15) data from the RTX-240 Phase 1/2 clinical trial in relapsed/refractory or locally advanced solid tumors. These data were presented at the AACR conference in April. Five dose cohorts were completed at the time of the data cutoff on February 28, 2021 and the data analysis was based on RECIST v1.1. criteria. We observed the following:

no treatment-related Grade 3 or Grade 4 adverse events or dose limiting toxicities;
most common treatment-related Grade 1/2 adverse events were fatigue, chills, nausea, decreased appetite and arthralgias. There was a single Grade 1 event of liver toxicity;
two responses were observed in the study including a confirmed partial response, or PR, in a patient with metastatic anal cancer and an unconfirmed PR in a patient with metastatic uveal melanoma. Both patients’ disease had progressed on prior anti PD-L1 and anti-PD-1 therapy, respectively;
stable disease, or SD, was observed in six patients, including four patients with stable disease for at least 12 weeks in non-small cell lung cancer, soft tissue sarcoma, pancreatic cancer and prostate cancer; and
pharmacodynamic effects showed the activation and/or expansion of the key NK and/or T cells types in all patients (n=16).

Further, preliminary data from the single agent arms of our RTX-240 Phase 1 study that we reported in March 2021 showed early evidence of favorable immune-permissive changes in the tumor microenvironment, or TME, in three out of four patient biopsies, including increased expression of PD-L1 and/or increased ratio of M1/M2 macrophages after treatment with RTX-240, suggesting single-agent RTX-240 is able to induce changes in the TME that have been associated with response to checkpoint inhibition.

We are continuing to enroll patients and optimize the dose and schedule in the Phase 1 arm of the ongoing RTX-240 Phase 1/2 clinical trial for the treatment of relapsed/refractory AML. In March 2021, we presented preliminary trafficking data from the first AML patient in the trial, indicating strong accumulation of activated, granzyme B-positive NK and T cells in the bone marrow, which is the site of disease in AML. NK cells can exhibit potent anti-tumor activity against AML, but tumor-associated mechanisms often suppress the proper function of NK cells leading to disease progression. When NK cells are restored to their full anti-tumor potential, their cytolytic activity predicts a better long-term outcome for patients with AML. Reconstitution of NK cells post high-dose chemotherapy or transplant are strong prognostic indicators of overall survival. We believe RTX-240 could potentially provide benefit as a maintenance therapy for AML patients in remission following chemotherapy or transplantation, given its preliminary favorable safety profile seen to date and unique mechanism of action designed to activate and expand NK and T cells.

In June 2021, we began dosing patients in the arm of our RTX-240 clinical trial that is evaluating RTX-240 as a combination therapy with pembrolizumab for the treatment of patients with relapsed/refractory or locally advanced solid tumors. To be eligible for the combination arm, patients must have disease that is relapsed or refractory to an anti-PD-1 or PD-L1 therapy. We believe that RTX-240, with its mechanism of action as a broad immune agonist, may have synergy with immune checkpoint inhibition and potentially overcome resistance to PD-1 inhibition.

In July 2021, the paper entitled “Anti-Tumor Effects of RTX-240: An Engineered Red Blood Cell Expressing 4-1BB Ligand and Interleukin-15” was published in the peer-reviewed journal Cancer Immunology, Immunotherapy. The publication highlights preclinical findings and demonstrates that, consistent with the data reported in March 2021, RTX-

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240 activates and expands CD8+ T cells and NK cells in vitro and in vivo generating potent anti-tumor activity in both a colorectal and melanoma model.

We plan to present comprehensive results from the two single agent arms of our RTX-240 Phase 1 study in solid tumors and AML at the end of 2021 or during the first quarter of 2022.

RTX-321

We are dosing patients in a Phase 1 clinical trial for RTX-321 for the treatment of patients with HPV 16-positive cancers. RTX-321 is an allogeneic, off-the-shelf aAPC therapy product candidate that is engineered to induce a tumor-specific immune response by expanding antigen-specific T cells. RTX-321 expresses hundreds of thousands of copies of an HPV peptide antigen bound to major histocompatibility complex, or MHC, class I proteins, the costimulatory molecule 4-1BBL and the cytokine IL-12 on the cell surface to mimic human T cell-APC interactions. As part of our IND filing, we included frozen drug substance for the first time as part of the manufacturing process, allowing a truly off-the-shelf cellular therapy product candidate with a potential shelf life of several years based on preliminary stability data.

HPV 16 is associated with approximately 70% of cervical cancers, approximately 40% of head and neck squamous cell carcinoma, or HNSCC, arising in the oropharynx, approximately 25%-40% of HNSCC arising in other locations and approximately 80%-85% of anal cancers. A critical need remains for better treatment options for advanced HPV 16 associated cancers. The prognosis remains poor for patients with metastatic disease with few treatment options beyond the first-line setting.

In May 2021, a peer-reviewed manuscript for RTX-321 was published in Nature Communications, highlighting preclinical findings demonstrating that the surrogate model of RTX-321 induced a broad immune response, epitope spreading and memory formation in preclinical models.

We believe these findings support the potential of RTX-321 as an effective therapy for the treatment of HPV 16+ cancers.

RTX-224

RTX-224 is an allogeneic cellular therapy that is engineered to express hundreds of thousands of copies of 4-1BB ligand, or 4-1BBL, and interleukin-12, or IL-12, on the cell surface. RTX-224 is designed as a broad immune agonist of both adaptive and innate responses, engineered to activate CD8+ and CD4+ T cells, promote antigen presentation and activate and expand NK cells. It is expected to produce a broad and potent anti-tumor T cell response, an innate immune response and have anti-tumor activity in those tumor types with known sensitivity to T cell killing, including tumor types with high mutational burden, PD-L1 expression and prior responsiveness to checkpoint inhibitors. The combination of IL-12 and 4-1BB ligand has the potential to broadly induce an immune response in patients with solid tumors and may serve as the bridge between the innate and adaptive immune systems.

We plan to present preclinical data for RTX-224 at the upcoming Society for Immunotherapy of Cancer’s 36th Annual Meeting, which is being held from November 10 to 14, 2021. Our preclinical studies with RTX-224 showed that it activated immune cells in the spleen and blood, leading to their trafficking into the tumor microenvironment to deliver an anti-tumor effect in our preclinical models.

Following this encouraging preclinical data, we submitted to the FDA, and received FDA clearance of, our IND for RTX-224.

Manufacturing

We have generated hundreds of RCT product candidates using our RED PLATFORM and are utilizing our universal engineering and manufacturing processes to advance a broad pipeline of RCT product candidates into clinical trials in cancer and autoimmune diseases. Common design and manufacturing elements of our RCTs should enable us to achieve

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significant advantages in product development. Recognizing the importance of controlling our own manufacturing capabilities to produce consistent and reproducible product at greater scale, we acquired, renovated and operationalized a manufacturing facility in Smithfield, RI, that is currently providing cGMP supply for our four ongoing Phase 1 clinical trials: RTX-240 in advanced solid tumors, RTX-240 in relapsed/refractory AML, RTX-240 in combination with pembrolizumab and RTX-321 in HPV 16-positive cancers. Since operationalizing the facility, we have achieved the following milestones:

increased productivity in manufacturing of cGMP supply of RTX-240 in 50L bioreactors;
increased RTX-240 liquid in-vial shelf life from approximately 28 to 52 days;
for RTX-240, continuously met red blood cell identity (CD233+, mean corpuscu