UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
As of August 3, 2020, the registrant had
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, the anticipated impact of the novel coronavirus (“COVID-19”) pandemic on our business, business strategy, prospective products, product approvals, research and development costs, anticipated timing and likelihood of success of clinical trials, expected timing of the release of clinical trial data, the plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
2
Table of Contents
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Page |
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PART I. |
4 |
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Item 1. |
4 |
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Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (Unaudited) |
4 |
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5 |
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6 |
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7 |
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8 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
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Item 3. |
35 |
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Item 4. |
36 |
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PART II. |
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37 |
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Item 1. |
37 |
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Item 1A. |
37 |
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Item 2. |
82 |
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Item 3. |
82 |
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Item 4. |
82 |
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Item 5. |
82 |
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Item 6. |
83 |
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84 |
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3
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
HOMOLOGY MEDICINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(UNAUDITED)
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As of |
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June 30, 2020 |
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December 31, 2019 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use assets |
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— |
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Restricted cash |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other liabilities |
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Operating lease liabilities |
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— |
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Deferred rent |
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— |
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Deferred revenue |
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Total current liabilities |
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Non-current liabilities: |
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Operating lease liabilities, net of current portion |
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— |
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Deferred rent, net of current portion |
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— |
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Deferred revenue, net of current portion |
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Total liabilities |
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Commitments and contingencies (Note 7) |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ December 31, 2019, respectively; and outstanding as of June 30, 2020 and December 31, 2019, respectively |
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Additional paid-in capital |
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Accumulated other comprehensive gain |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See notes to condensed consolidated financial statements.
4
HOMOLOGY MEDICINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(UNAUDITED)
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Three months ended June 30, |
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Six months ended June 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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Collaboration revenue |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
) |
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( |
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( |
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( |
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Other income: |
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Interest income |
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Total other income |
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Net loss |
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$ |
( |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss per share-basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted-average common shares outstanding-basic and diluted |
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See notes to condensed consolidated financial statements.
5
HOMOLOGY MEDICINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(UNAUDITED)
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Three months ended June 30, |
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Six months ended June 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Other comprehensive gain (loss): |
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Change in unrealized gain (loss) on available for sale securities, net |
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( |
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Total other comprehensive gain (loss) |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
) |
See notes to condensed consolidated financial statements.
6
HOMOLOGY MEDICINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share and per share amounts)
(UNAUDITED)
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Common Stock $0.0001 Par Value |
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Additional Paid-in |
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Accumulated Other Comprehensive |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Gain (Loss) |
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Deficit |
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Equity |
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Balance at January 1, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Vesting of common stock from option exercises |
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— |
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— |
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— |
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Issuance of common stock from option exercises |
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— |
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— |
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— |
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Issuance of common stock pursuant to employee stock purchase plan |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Other comprehensive gain |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Issuance of common stock in follow-on offering, net of discounts and issuance costs |
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— |
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— |
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Vesting of common stock from option exercises |
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— |
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— |
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— |
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Issuance of common stock from option exercises |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Other comprehensive gain |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at June 30, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Common Stock $0.0001 Par Value |
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Additional Paid-in |
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Accumulated Other Comprehensive |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Gain (Loss) |
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Deficit |
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Equity |
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Balance at January 1, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Vesting of common stock from option exercises |
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— |
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— |
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— |
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Issuance of common stock from option exercises |
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— |
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— |
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— |
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Issuance of common stock pursuant to employee stock purchase plan |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Vesting of common stock from option exercises |
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— |
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— |
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— |
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Issuance of common stock from option exercises |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Other comprehensive gain |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at June 30, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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See notes to condensed consolidated financial statements.
7
HOMOLOGY MEDICINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
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Six months ended June 30, |
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2020 |
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2019 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Noncash lease expense |
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— |
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Stock-based compensation expense |
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Amortization of premium on short-term investments |
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( |
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( |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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Accounts payable |
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Accrued expenses and other liabilities |
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Deferred revenue |
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( |
) |
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( |
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Deferred rent |
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— |
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Operating lease liabilities |
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( |
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— |
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Net cash used in operating activities |
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( |
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( |
) |
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Cash flows from investing activities: |
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Purchases of short-term investments |
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( |
) |
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( |
) |
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Maturities of short-term investments |
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Purchases of property and equipment |
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( |
) |
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( |
) |
|
Net cash provided by investing activities |
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|
|
|
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
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Proceeds from issuance of common stock in follow-on public offering, net of discounts and issuance costs |
|
|
— |
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|
|
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|
Proceeds from issuance of common stock pursuant to employee stock purchase plan |
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|
Proceeds from issuance of common stock from option exercises |
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|
Net cash provided by financing activities |
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|
|
|
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|
Net change in cash, cash equivalents and restricted cash |
|
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|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
|
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|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental disclosures of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Reclassification of liability for common stock vested |
|
$ |
|
|
|
$ |
|
|
|
Property and equipment additions included in accounts payable |
|
$ |
|
|
|
$ |
|
|
|
Property and equipment additions included in accrued expenses and other liabilities |
|
$ |
|
|
|
$ |
— |
|
|
Unrealized (loss) gain on available for sale securities, net |
|
$ |
( |
) |
|
$ |
|
|
|
Deferred offering costs included in accounts payable and accrued expenses |
|
$ |
— |
|
|
$ |
|
|
See notes to condensed consolidated financial statements.
8
HOMOLOGY MEDICINES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(UNAUDITED)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business—Homology Medicines, Inc. (the “Company”) is a clinical stage biopharmaceutical company dedicated to translating proprietary gene editing and gene therapy technology into novel treatments for patients with rare genetic diseases with significant unmet medical needs by curing the underlying cause of the disease. The Company was founded in March 2015 as a Delaware corporation. Its principal offices are in Bedford, Massachusetts.
Since its inception, the Company has devoted substantially all of its resources to recruiting personnel, developing its technology platform and advancing its pipeline of product candidates, developing and implementing manufacturing processes, building out manufacturing and research and development space, and maintaining and building its intellectual property portfolio. The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependency on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and manufacturing of its product candidates. The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, obtain regulatory approval of its products, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.
On April 2, 2018, the Company completed its initial public offering (“IPO”) with the sale of
On April 12, 2019, the Company completed a follow-on public offering of its common stock. The Company sold
On March 12, 2020, the Company filed a Registration Statement on Form S-3 (File No. 333-237131) (the “Shelf”) with the Securities and Exchange Commission (“SEC”) in relation to the registration of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof for a period up to three years from the date of the filing. The Shelf became effective on March 12, 2020. The Company also simultaneously entered into a sales agreement with Cowen and Company, LLC (“Cowen”), as sales agent, providing for the offering, issuance and sale by the Company of up to an aggregate $
To date, the Company has not generated any revenue from product sales and does not expect to generate any revenue from the sale of product in the foreseeable future. Through June 30, 2020, the Company has financed its operations primarily through public offerings of its common stock, the issuance of convertible preferred stock, and with proceeds from its collaboration and license agreement with Novartis Institutes of BioMedical Research, Inc. (“Novartis”) (see Note 10). During the six months ended June 30, 2020, the Company incurred a net loss of $
9
Based on current projections, management believes that existing cash, cash equivalents and short-term investments will enable the Company to continue its operations into the fourth quarter of 2021. In the absence of a significant source of recurring revenue, the continued viability of the Company beyond that point is dependent on its ability to continue to raise additional capital to finance its operations. There can be no assurance that the Company will be able to obtain sufficient capital to cover its costs on acceptable terms, if at all.
Basis of Presentation— The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These 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, 2019, included in the Company's Annual Report on Form 10-K on file with the SEC.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position as of June 30, 2020, and consolidated results of operations for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019. Such adjustments are of a normal and recurring nature. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation—The Company’s condensed consolidated financial statements include the accounts of the Company and its subsidiary, Homology Medicines Securities Corporation, a wholly owned Massachusetts corporation, for the sole purpose of buying, selling, and holding securities on the Company’s behalf. All intercompany balances and transactions have been eliminated in the condensed consolidated financial statements.
Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and the disclosure of contingent assets and liabilities as of and during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, revenue recognition, accrued research and development expenses and useful lives assigned to property and equipment. The Company assesses estimates on an ongoing basis; however, actual results could materially differ from those estimates.
Comprehensive Income (Loss) —Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s only element of other comprehensive income (loss) is unrealized gains and losses on available-for-sale investments.
Cash and Cash Equivalents and Restricted Cash—Cash and cash equivalents consist of standard checking accounts, money market accounts and certain investments. The Company considers all highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less to be cash equivalents. Restricted cash consists of cash serving as collateral for letters of credit issued for security deposits for the Company’s facility leases in Bedford, Massachusetts.
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the condensed consolidated statements of cash flows:
|
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June 30, |
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2020 |
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2019 |
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||
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(in thousands) |
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|||||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Restricted cash |
|
|
|
|
|
|
|
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Total cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
10
Short-Term Investments—Short-term investments represent holdings of available-for-sale marketable securities in accordance with the Company’s investment policy and cash management strategy. Short-term investments mature within one-year from the balance sheet date. Investments in marketable securities are recorded at fair value, with any unrealized gains and losses reported within accumulated other comprehensive income as a separate component of stockholders’ equity until realized or until a determination is made that an other-than-temporary decline in market value has occurred. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense over the life of the of the underlying security. Such amortization and accretion, together with interest on securities, are included in interest income on the Company’s condensed consolidated statements of operations. The cost of marketable securities sold is determined based on the specific identification method and any realized gains or losses on the sale of investments are reflected as a component of other income.
Deferred Offering Costs—The Company capitalizes incremental legal, professional accounting and other third-party fees that are directly associated with equity financings as other current assets until the transactions are completed. After equity financings are complete, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering.
Leases— In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which eliminated the tests for lease classification under prior U.S. GAAP and requires lessees to recognize right-of-use assets and related lease liabilities on the balance sheet. The FASB subsequently issued the following amendments to ASU 2016-02 that have the same effective date and transition date: ASU No. 2018-01 - Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, ASU No. 2018-10 - Codification Improvements to Topic 842, Leases, ASU No. 2018-11 – Leases (Topic 842): Targeted Improvements, ASU No. 2018-20 – Leases (Topic 842): Narrow-Scope Improvements for Lessors, and ASU No. 2019-01 – Leases (Topic 842): Codification Improvements. The Company adopted these amendments with ASU 2016-02 (collectively, the new leasing standards) effective January 1, 2020.
The Company adopted the new leasing standards using the modified retrospective approach, as of January 1, 2020, with no restatement of prior periods or cumulative adjustments to retained earnings. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows the Company to carry forward the historical lease classification. In addition, the Company elected the practical expedient not to apply the recognition requirements in the leasing standards to short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that it is reasonably certain to exercise) and the practical expedient that permits lessees to make an accounting policy election (by class of underlying asset) to not separate lease components of a contract from non-lease components.
The Company determines if an arrangement is a lease at contract inception. The Company’s contracts are determined to contain a lease when all of the following criteria based on the specific circumstances of the arrangement are met: (1) there is an identified asset for which there are no substantive substitution rights; (2) the Company has the right to obtain substantially all of the economic benefits from the identified asset; and (3) the Company has the right to direct the use of the identified asset.
At the commencement date, operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term. The Company’s lease agreements do not provide an implicit rate. As a result, the Company utilizes an estimated incremental borrowing rate to discount lease payments, which is based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or lease incentives received. Operating lease cost is recognized over the expected term on a straight-line basis. Variable lease cost is recognized as incurred.
The Company acts as sublessor related to a sublease of the Company's former headquarters. Fixed sublease payments received are recognized on a straight-line basis over the sublease term. Right-of-use assets are periodically evaluated for impairment.
The expected lease term for those leases commencing prior to January 1, 2020 did not change with the adoption of the new leasing standards. The expected lease term for leases commencing after the adoption of the new leasing standards includes noncancelable lease periods and, when applicable, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, as well as periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.
11
As a result of the adoption of the new leasing standards, on January 1, 2020, the Company recorded non-cash transactions to recognize a right-of-use asset of $
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January 1, 2020 (in thousands) |
|
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|
|
|
Prior to adoption of new leasing standards |
|
|
Adjustment for adoption of new leasing standards |
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|
As Adjusted |
|
|||
|
Right-of-use assets (1)(2) |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Deferred rent (2) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
Deferred rent, net of current portion (2) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
Operating lease liabilities (3) |
|
$ |
— |
|
|
$ |
|
|
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