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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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:
001-38550
 
 
Translate Bio, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
Delaware
 
61-1807780
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
29 Hartwell Avenue
Lexington, Massachusetts
 
02421
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (617)
945-7361
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, $0.001 par value
 
TBIO
 
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
Non-accelerated
filer
     Smaller reporting company  
Emerging growth company       
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
As of May 3, 2021, the registrant had 75,232,798 shares of common stock, $0.001 par value per share, outstanding.
 
 
 

Table of Contents
Table of Contents
 
         
Page
 
PART I.
   FINANCIAL INFORMATION      1  
Item 1.
   Financial Statements (Unaudited)      1  
   Condensed Consolidated Balance Sheets      1  
   Condensed Consolidated Statements of Operations      2  
   Condensed Consolidated Statements of Comprehensive Income (Loss)      3  
   Condensed Consolidated Statements of Stockholders’ Equity      4  
   Condensed Consolidated Statements of Cash Flows      6  
   Notes to Condensed Consolidated Financial Statements (Unaudited)      7  
Item 2.
   Management’s Discussion and Analysis of Financial Condition and Results of Operations      25  
Item 3.
   Quantitative and Qualitative Disclosures About Market Risk      37  
Item 4.
   Controls and Procedures      37  
PART II.
   OTHER INFORMATION      38  
Item 1.
   Legal Proceedings      38  
Item 1A.
   Risk Factors      38  
Item 6.
   Exhibits      86  
        87  
 
i

Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on
Form 10-Q contains
forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report
on Form 10-Q, including
statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on
Form 10-Q include,
among other things, statements about:
 
 
 
the impacts of the
COVID-19
pandemic;
 
 
 
the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;
 
 
 
our estimates regarding expenses, future revenue, capital requirements and need for additional financing;
 
 
 
our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents, and investments and the period in which we expect that such cash, cash equivalents, and investments will enable us to fund such operating expenses and capital expenditure requirements;
 
 
 
our plans to develop our product candidates;
 
 
 
the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for our product candidates;
 
 
 
the potential advantages of our product candidates;
 
 
 
the rate and degree of market acceptance and clinical utility of our product candidates;
 
 
 
our estimates regarding the potential market opportunity for our product candidates;
 
 
 
our commercialization, marketing and manufacturing capabilities and strategy;
 
 
 
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
 
 
 
our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
 
 
 
the impact of government laws and regulations;
 
 
 
our competitive position;
 
 
 
developments relating to our competitors and our industry; and
 
 
 
our ability to establish collaborations or obtain additional funding.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on
Form 10-Q, particularly
in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this Quarterly Report on
Form 10-Q
and the documents that we reference herein and have filed or incorporated by reference hereto completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on
Form 10-Q are
made as of the date hereof, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.
 
ii

Table of Contents
This Quarterly Report on
Form 10-Q
includes certain statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates of potential market opportunities. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
 
iii

Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
 
 
  
March 31,
2021
 
 
December 31,
2020
 
Assets
  
     
 
     
Current assets:
                
Cash and cash equivalents
   $ 155,746     $ 342,027  
Investments
     499,007       312,001  
Collaboration receivables
     23,240       26,598  
Prepaid expenses and other current assets
     16,721       11,741  
Restricted cash
     4,826       4,826  
    
 
 
   
 
 
 
Total current assets
     699,540       697,193  
Property and equipment, net
     16,563       15,372  
Right-of-use
assets, net
     71,154       72,957  
Goodwill
     21,359       21,359  
Intangible assets, net
     77,106       79,127  
Other assets
     4,918       3,928  
    
 
 
   
 
 
 
Total assets
   $ 890,640     $ 889,936  
    
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
                
Current liabilities:
                
Accounts payable
   $ 17,068     $ 8,839  
Accrued expenses
     16,240       13,202  
Current portion of deferred revenue
     72,373       67,563  
Current portion of operating lease liability
     12,084       11,733  
Income tax liability
 
 
254
 
 
 
 
 
Total current liabilities
     118,019       101,337  
Contingent consideration
     108,251       152,230  
Deferred revenue, net of current portion
     226,876       228,659  
Operating lease liability, net of current portion
     48,604       50,953  
    
 
 
   
 
 
 
Total liabilities
     501,750       533,179  
    
 
 
   
 
 
 
Commitments and contingencies (Notes 3
and 12)
            
Stockholders’ equity:
                
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of March 31, 2021 and December 31, 2020; no shares issued and outstanding as of March 31, 2021 and December 31, 2020
              —    
Common stock, $0.001 par value; 200,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 75,217,672 shares and 75,029,625 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
     75       75  
Additional
paid-in
capital
     775,499       769,965  
Accumulated deficit
     (386,761     (413,283
Accumulated other comprehensive income
     77       —    
    
 
 
   
 
 
 
Total stockholders’ equity
     388,890       356,757  
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 890,640     $ 889,936  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)
 
    
Three Months Ended March 31,
 
    
2021
   
2020
 
Collaboration revenue
   $ 34,600     $ 4,654  
Operating expenses:
                
Research and development
     41,140       21,439  
General and administrative
     10,817       7,458  
Change in fair value of contingent consideration
     (43,979     (9,452
    
 
 
   
 
 
 
Total operating expenses
     7,978       19,445  
    
 
 
   
 
 
 
Income (loss) from operations
     26,622       (14,791
Other income, net
     154       509  
    
 
 
   
 
 
 
Income (loss) before income tax provision
     26,776       (14,282
Income tax provision
    
(254
)
 
    —    
    
 
 
   
 
 
 
Net income (loss)
   $ 26,522     $ (14,282
    
 
 
   
 
 
 
Net income (loss) per share—basic
   $ 0.35     $ (0.24
    
 
 
   
 
 
 
Weighted average common shares outstanding—basic
     75,189,696       60,008,217  
    
 
 
   
 
 
 
Net income (loss) per share—diluted
   $ 0.34     $ (0.24
    
 
 
   
 
 
 
Weighted average common shares outstanding—diluted
     79,101,624       60,008,217  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)
 
    
Three Months Ended
March 31,
 
    
2021
    
2020
 
Net income (loss)
   $ 26,522      $ (14,282
Other comprehensive income (loss):
     
Unrealized gains on
available-for-sale
securities, net of tax of $0
     77        114  
    
 
 
    
 
 
 
Comprehensive income (loss)
   $ 26,599      $ (14,168
    
 
 
    
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share amounts)
 
    
Common Stock
    
Additional
Paid-in

Capital
    
Accumulated
Deficit
   
Accumulated
Other
Comprehensive
Income
    
Total
Stockholders’
Equity
 
    
Shares
    
Amount
 
Balances at December 31, 2020
     75,029,625     
$
75     
$
769,965     
$
 
(413,283  
$
       
$
356,757  
Exercise of stock options
     188,047        —          1,550        —         —          1,550  
Stock-based compensation expense
     —          —          3,984        —         —          3,984  
Unrealized gains on
available-for-sale
securities
     —          —          —          —         77        77  
Net income
     —          —          —          26,522       —          26,522  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
Balances at March 31, 2021
     75,217,672      $ 75      $ 775,499      $ (386,761   $ 77      $ 388,890  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share amounts)
 
    
Common Stock
    
Additional
Paid-in

Capital
    
Accumulated
Deficit
   
Accumulated
Other
Comprehensive
Income
    
Total
Stockholders’
Equity
 
    
Shares
    
Amount
 
Balances at December 31, 2019
     60,022,067      $ 60      $ 512,231      $ (359,496   $ 741      $ 153,536  
Exercise of stock options
     15,596        —          132        —         —          132  
Stock-based compensation expense
     —          —          3,172        —         —          3,172  
Unrealized gains on
available-for-sale
securities
     —          —          —          —         114        114  
Net loss
     —          —          —          (14,282     —          (14,282
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
Balances at March 31, 2020
     60,037,663      $ 60      $ 515,535      $ (373,778   $ 855      $ 142,672  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
    
Three Months

Ended March 31,
 
    
2021
   
2020
 
Cash flows from operating activities:
                
Net income (loss)
   $ 26,522     $ (14,282
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                
Depreciation and amortization expense
     2,841       1,351  
Stock-based compensation expense
     3,984       3,172  
Change in fair value of contingent consideration
     (43,979     (9,452
Changes in operating assets and liabilities:
                
Collaboration receivables
     3,358       (1,633
Prepaid expenses and other assets
     (4,672     2,647  
Right-of-use
assets
     3,049       132  
Long-term prepaid rent
    
(1,298
)
 
    (3,044
)
Accounts payable
     8,114       (9,545
Accrued expenses
     2,733       584  
Income tax liabilit
y
 
 
 
254
 
 
 
 
 
Lease liability
     (3,244     (110
Deferred revenue
     3,027       (1,267
    
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     689       (31,447
    
 
 
   
 
 
 
Cash flows from investing activities:
                
Purchases of investments
     (186,929     (27,409
Sales and maturities of investments
     —         73,994  
Purchases of property and equipment
     (1,591     (2,325
    
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     (188,520     44,260  
    
 
 
   
 
 
 
Cash flows from financing activities:
                
Payments of public offering costs
     —         (57
Proceeds from option exercises
     1,550       132  
    
 
 
   
 
 
 
Net cash provided by financing activities
     1,550       75  
    
 
 
   
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash:
     (186,281     12,888  
Cash, cash equivalents and restricted cash at beginning of period
     346,853       85,530  
    
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period
   $ 160,572     $ 98,418  
    
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period:
                
Cash and cash equivalents
   $ 155,746     $ 97,468  
Restricted cash
     4,826       950  
    
 
 
   
 
 
 
Total cash, cash equivalents and restricted cash at end of period
   $ 160,572     $ 98,418  
    
 
 
   
 
 
 
Supplemental disclosure of
non-cash
investing and financing activities:
                
Purchases of property and equipment included in accounts payable and accrued expenses
   $ 826     $ 764  
Deferred offering costs included in accounts payable and accrued expenses
   $ —       $ 120  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Nature of the Business and Basis of Presentation
Translate Bio, Inc. (the “Company”) is a clinical-stage messenger RNA (“mRNA”) therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction, or to prevent infectious diseases by generating protective immunity. Using its proprietary mRNA therapeutic platform (“MRT platform”), the Company creates mRNA that encodes functional proteins. The Company’s mRNA is designed to be delivered to the target cell where the cell’s own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. The Company is primarily focused on applying its MRT platform to treat pulmonary diseases caused by insufficient protein production or where production of proteins can modify disease. In addition, the Company is pursuing discovery efforts in diseases that affect the liver. The Company is also pursuing the applicability of its MRT platform for the development of mRNA vaccines for infectious diseases under a collaboration with Sanofi Pasteur Inc. (“Sanofi”), the vaccines global business unit of Sanofi S.A.
Since early 2020, the outbreak of the novel strain of coronavirus named
SARS-CoV-2,
which causes
COVID-19,
has spread across the globe and the
COVID-19
pandemic has had wide-reaching impacts on the global economy and business operations. The
COVID-19
pandemic has had, and the Company expects it will continue to have, an impact on its operations, the operations of its collaborators, the operations of third-party contractors and other entities with which the Company interacts, as well as on the patients who may enroll in the Company’s clinical trials. The Company actively continues to monitor
COVID-19
trends and government guidance. The ultimate impacts of the
COVID-19
pandemic are still unknown and uncertain.
The Company is developing MRT5005 for the treatment of cystic fibrosis (“CF”). The Company is conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of single- and multiple-ascending doses of MRT5005. The clinical trial is investigating several groups receiving five once-weekly doses, as well as a group receiving five daily doses. Percent predicted forced expiratory volume in one second (“ppFEV
1
”) which is a well-defined and accepted endpoint measuring lung function, is also being measured at
pre-defined
timepoints throughout the trial as a safety measure. In 2019, the Company reported interim data from the single-ascending dose portion of the Phase 1/2 clinical trial through
one-month
follow up post dosing. In January 2021, the Company announced that it completed enrollment and dosing in the dose cohorts comprising the second interim data analysis and in March 2021, the Company reported the second interim data analysis. In evaluating safety and tolerability, the primary outcome measure, data to date from the ongoing Phase 1/2 clinical trial suggested that repeat dosing of MRT5005 was generally safe and well tolerated. For patients receiving MRT5005, ppFEV
1
was not negatively impacted; there was no pattern of treatment-associated increases in ppFEV
1
. The clinical trial continues to dose in the remaining dose groups, which include a 20 mg multiple-ascending dose group and the daily dosing cohorts, and the Company anticipates reporting the findings from the clinical trial at a future medical meeting. The Company plans to continue with ongoing and additional translational studies with MRT5005 and a next-generation CF candidate to support and optimize future clinical development.
The Company is leveraging its lung delivery platform and focusing its preclinical research efforts on identifying lead product candidates for a next-generation CF program, as well as beyond CF in additional pulmonary diseases with unmet medical needs, including primary ciliary dyskinesia, pulmonary arterial hypertension and respiratory infectious diseases.
The Company has a collaboration with Sanofi to develop infectious disease vaccines using the Company’s mRNA technology. Under the collaboration, the Company and Sanofi are jointly conducting research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens (see Note 3). Two of the target pathogens under development are
SARS-CoV-2
and influenza. MRT5500 has been selected as the lead candidate for a vaccine against
SARS-CoV-2.
A Phase 1/2 clinical trial to evaluate MRT5500 began in the first quarter of 2021. For the influenza vaccine program, lead lipid nanoparticle/mRNA formulations are being evaluated in preclinical studies to support a clinical
proof-of-technology
trial anticipated to begin
mid-year
2021.
The Company is subject to risks 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 and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including 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 product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
 
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The preparation of the accompanying condensed consolidated financial statements requires the Company to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis the Company evaluates its estimates, judgments and methodologies. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the
COVID-19
pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including revenue, expenses, reserves and allowances, manufacturing, 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 in an effort to contain it or to potentially treat or vaccinate against
COVID-19,
as well as the economic impact on local, regional, national and international customers and markets. The Company has made estimates of the impact of
COVID-19
within its financial statements and have determined them to be immaterial. There may be changes to those estimates in future periods. Actual results may differ from these estimates.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its two wholly owned subsidiaries, Translate Bio MA, Inc. and Translate Bio Securities Corporation, from their date of incorporation. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated balance sheet as of March 31, 2021, the unaudited condensed consolidated statements of operations and of comprehensive income (loss) for the three months ended March 31, 2021 and 2020, the unaudited condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2021 and 2020 and the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 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. The accompanying balance sheet as of December 31, 2020 has been derived from the Company’s audited financial statements for the year ended December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited interim 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
that was filed with the SEC on March 1, 2021.
The accompanying unaudited interim condensed consolidated financial presentation has been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflects all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2021, the results of its operations for the three months ended March 31, 2021 and 2020, and its cash flows for the three months ended March 31, 2021 and 2020. The financial data and other information disclosed in these notes related to the three months ended March 31, 2021 and 2020 are also unaudited. The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.
Sales of Common Stock
The Company is
 a
party to an Open Market Sale Agreement
SM
(the “Sales Agreement”) with Jefferies LLC under which the Company may issue and sell shares of common stock, from time to time, having an aggregate offering price of up to 
$100.0 
million. As of March 31, 2021, the Company has issued and sold 
2,863,163
shares of its common stock pursuant to the Sales Agreement, resulting in gross proceeds of 
$37.9 
million, before deducting commissions of 
$1.1 million and other offering expenses of $0.2 
million.
There were no shares issued or sold pursuant to the Sales Agreement during the three months ended March 31, 2021.
In the future, 
$62.1 
million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under the Company’s universal shelf registration statement on Form S-3.
On June 24, 2020, the Company filed a registration statement on Form
S-3ASR,
which became automatically effective upon filing with the SEC (File
No. 333-239405)
(the “June 2020 Registration Statement”). The June 2020 Registration Statement registered for sale from time to time common stock, preferred stock, debt securities, warrants and/or units in one or more offerings. On June 30, 2020, the Company issued and sold 5,681,819 shares of common stock through a public offering pursuant to the June 2020 Registration Statement. The price to the public was $22.00 per share, resulting in gross proceeds to the Company of $125.0 million, before deducting underwriting discounts and commissions of $7.5 million and other offering expenses of $0.5 million.
Sanofi Pasteur Collaboration and Licensing Agreement
In 2018, the Company entered into a collaboration and license agreement with Sanofi (the “Original Sanofi Agreement”) to develop mRNA vaccines for up to five infectious disease pathogens (the “Licensed Fields”). On March 26, 2020, the Company and
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Sanofi amended the Original Sanofi Agreement (the “First Sanofi Amendment”) to include vaccines against
SARS-CoV-2
as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six. On June 22, 2020, the Company and Sanofi further amended the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi (the “Second Sanofi Amendment”) (see Note 3). The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is referred to as the “Amended Sanofi Agreement.”
Pursuant to the Amended Sanofi Agreement, the Company and Sanofi are jointly conducting research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens. The term of the research collaboration (the “Collaboration Term”) expires in June 2022 with an option for Sanofi to extend the Collaboration Term for one additional year, followed by a technology transfer to Sanofi. If Sanofi elects to extend the Collaboration Term, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens, bringing the total to up to ten pathogens.
Under the terms of the Amended Sanofi Agreement, the Company has granted to Sanofi exclusive, worldwide licenses under applicable patents, patent applications,
know-how
and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any infectious disease pathogen, with certain specified exceptions.
2. Summary of Significant Accounting Policies
The significant accounting policies and estimates used in preparation of the consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the Company’s Annual Report on Form
10-K.
During the three months ended March 31, 2021, there were no material changes to the Company’s significant accounting policies.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. The guidance requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For
available-for-sale
debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company adopted this new standard as of the required effective date of January 1, 2021, and its adoption had no impact on the Company’s condensed consolidated financial statements and disclosures.
In December 2019, the FASB issued ASU
No. 2019-12,
Income Taxes-Simplifying the Accounting for Income Taxes
. This new standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a
step-up
in the tax basis of goodwill. The Company adopted this new standard as of the required effective date of January 1, 2021, and its adoption had no impact on the Company’s condensed consolidated financial statements.
3. Collaboration Agreement
Sanofi Collaboration and License Agreement
In 2018, the Company and Sanofi entered into the Original Sanofi Agreement to develop mRNA vaccines and an mRNA vaccine platform for up to five infectious disease pathogens. In March 2020, the Company and Sanofi entered into the First Sanofi Amendment to include vaccines against
SARS-CoV-2
as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six. In June 2020, the Company and Sanofi entered into the Second Sanofi Amendment, which became effective in July 2020 following early termination of the waiting period under the Hart-Scott Rodino Act, to expand the scope of the collaboration and licenses granted to Sanofi.
Under the terms of the Amended Sanofi Agreement, the Company has agreed to grant to Sanofi exclusive, worldwide licenses under applicable patents, patent applications,
know-how
and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any infectious disease pathogen, with certain specified exceptions.
 
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Pursuant to the Amended Sanofi Agreement, the Company and Sanofi are jointly conducting research and development activities to advance mRNA vaccines targeting up to seven infectious
disease pathogens. The Collaboration Term expires in June 2022
, with an option for Sanofi to extend the Collaboration Term for one additional year, followed by a technology transfer to Sanofi. If Sanofi elects to extend the Collaboration Term, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens, bringing the total to up to ten pathogens. In addition to the research and development and technology transfer, the Company is responsible for
manufacturing
and supplying
non-clinical
products, related materials and investigational products as required by the collaboration plan. Pursuant to the Amended Sanofi Agreement, the Company and Sanofi agreed to a governance structure to manage the activities under the collaboration. If the Company and Sanofi do not mutually agree on certain decisions, Sanofi will be able to break a deadlock without the Company’s consent under certain conditions. The collaboration includes an estimated budget. Sanofi is responsible for paying reimbursable development costs, including the Company’s employee costs, manufacturing costs, and
out-of-pocket
costs paid to third parties, up to a specified amount for each Licensed Field.
The Company and Sanofi retain the rights to perform their respective obligations and exercise their respective rights under the Amended Sanofi Agreement. Sanofi also granted the Company
non-exclusive,
sublicensable licenses under patent rights claiming certain improvements that Sanofi may make to the technology the Company had licensed to it or claiming certain technology arising from the collaboration and owned by Sanofi. The Company may exercise such licenses to develop, manufacture and commercialize products, other than products that use a vaccine to prevent, treat or cure a disease, disorder or condition in humans caused by an infectious disease pathogen. Sanofi may terminate these licenses to the Company if the Company materially breaches the terms of the license and the breach remains uncured for a specified period, which may be extended in certain circumstances.
Pursuant to the Original Sanofi Agreement, Sanofi paid the Company an upfront payment of $45.0 million in 2018. Pursuant to the Second Sanofi Amendment, Sanofi paid the Company an additional upfront payment of $300.0 million in August 2020. If Sanofi chooses to exercise its option to extend the Collaboration Term for an additional year, Sanofi has agreed to pay the Company an additional payment of $75.0 million. The Amended Sanofi Agreement provides that the Company is eligible to receive aggregate potential payments of up to $1.9 billion upon the achievement of additional specified development, regulatory, manufacturing and commercialization milestones, inclusive of the fee to exercise the option to extend the Collaboration Term. In particular, the Company is entitled to receive development, regulatory and sales milestone payments of up to $148.0 million for each Licensed Field, other than the
SARS-CoV-2
Licensed Field, development, regulatory and sales milestone payments of up to $250.0 million in the
SARS-CoV-2
Licensed Field, and
one-time
manufacturing milestone payments of up to $200.0 million. In addition, the Company is entitled to receive a $10.0 million milestone payment from Sanofi following completion of the technology and process transfer.
 In March 2021, Sanofi paid the Company a milestone payment of $25.0 million upon the initiation of the Phase 1/2 clinical trial of MRT5500 in accordance with agreed upon milestones in the Amended Sanofi Agreement.
Under the terms of the Amended Sanofi Agreement, Sanofi has also agreed to pay the Company royalties on net sales of mRNA vaccines in the
SARS-CoV-2
Licensed Field in accordance with the terms of and at the same high single digits to low teens percentages set forth in the Original Sanofi Agreement, except where such vaccines are provided as a donation or transferred to a third party without any profit margin, in which case the Company will be paid royalties sufficient to cover its royalty obligations.
The Amended Sanofi Agreement provides that it will remain in effect until terminated in accordance with its terms. Either the Company or Sanofi may terminate the Amended Sanofi Agreement in its entirety if the other party is subject to certain insolvency proceedings. Either party may terminate the Amended Sanofi Agreement in its entirety or with respect to a particular Licensed Field, country or product if the other party materially breaches the Amended Sanofi Agreement and the breach remains uncured for a specified period, which may be extended in certain circumstances. Sanofi may also terminate the Amended Sanofi Agreement in its entirety or with respect to a particular Licensed Field, country or product for safety reasons or for convenience, in each case after a specified notice period. After termination of the Amended Sanofi Agreement, Sanofi may continue to manufacture and commercialize the terminated products for a specified period of time, subject to Sanofi’s payment obligations.
In connection with the execution of the Second Sanofi Amendment, the Company and an affiliate of Sanofi (the “Sanofi Investor”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) for the sale and issuance 
of 4,884,434 shares of the Company’s common stock to the Sanofi Investor at a price of $25.59 per share for an aggregate purchase price of approximately $125.0 million. The closing of the transaction contemplated by the Securities Purchase Agreement was consummated in July 2020, following early termination of the waiting period under the Hart-Scott Rodino Act. Pursuant to the terms of the Securities Purchase Agreement, the Sanofi Investor agreed not to, without the prior written approval of the Company and subject to specified conditions, directly or indirectly acquire shares of the Company’s outstanding common stock, make a tender, exchange, or other offer to acquire shares of the Company’s outstanding common stock, solicit proxies or consents with respect to any matter, or undertake other specified actions related to the potential acquisition of additional equity interests in the Company (the “Standstill Restrictions”). Further, the Sanofi Investor agreed not to, and to cause its affiliates not to, sell or transfer the shares without the prior written approval of the Company subject to specified conditions (the
“Lock-Up
Restrictions”). The Standstill Restrictions terminate 12 months after the closing date. The
Lock-Up
Restrictions terminate 18 months from the closing date.
 
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Sanofi has sole responsibility for all commercialization activities for mRNA vaccines in the Licensed Fields and is obligated to bear all costs in connection with any commercialization in the Licensed Fields. The Company and Sanofi also entered into a separate supply agreement on June 22, 2020, with an effective date of December 20, 2019, governing the terms of the supply of products by the Company (the “Supply Agreement”). Pursuant to the Supply Agreement, the Company has agreed to use commercially reasonable efforts to manufacture and supply Sanofi with
non-clinical
and clinical supply of products and other research materials in certain Licensed Fields, as set forth in the Amended Sanofi Agreement. Sanofi will pay the Company for the
non-clinical
and clinical supply at the Company’s cost to manufacture plus a specified markup. The Supply Agreement will remain in effect until terminated in accordance with its terms. However, under the Amended Sanofi Agreement, the Company’s obligation to manufacture and supply products is limited to a defined duration based on the Licensed Field of the applicable product. The Supply Agreement may be terminated by the mutual consent of the parties. Sanofi may terminate the Supply Agreement for convenience after a specified notice period, or in the event that the Company does not provide the supply in a timely manner. The Company may terminate the Supply Agreement in the event of a breach by Sanofi of its payment obligations and such breach remains uncured for a specified period. As part of the Second Sanofi Amendment, the Company and Sanofi agreed to negotiate in good faith and enter into a further supply agreement in respect of supply of products in the
SARS-CoV-2
Licensed Field for use in Phase 3 clinical trials or commercial supply.
Accounting for the Sanofi Collaboration
For accounting purposes, the Company has combined the Amended Sanofi Agreement, Securities Purchase Agreement and Supply Agreement because the contracts were negotiated as a package with a single commercial objective, the amount of consideration to be paid in one contract depends on the price or performance of the other contracts, and the goods and services promised in the contracts are a single performance obligation in accordance with Accounting Standards Codification (“ASC”) 606.
The Company accounts for the Amended Sanofi Agreement under ASC 606. In determining the appropriate amount of revenue to be recognized under ASC 606, the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company identified the following promised goods or services contained in the Amended Sanofi Agreement: (i) the license it conveyed to Sanofi with respect to the Licensed Fields, (ii) the licensed
know-how
to be conveyed to Sanofi with respect to the Licensed Fields, (iii) its obligation to perform research and development on the Licensed Fields, (iv) its obligation to transfer licensed materials to Sanofi, (v) its obligation to manufacture and supply certain
non-clinical
and clinical mRNA vaccines and materials containing mRNA until the Company transfers such manufacturing capabilities to Sanofi; and (vi) the technology and process transfer. The Company assessed whether each of these promised goods or services are distinct performance obligations on their own or if they need to be combined with other promises to create a bundle that is a distinct performance obligation. The Company determined that the promised goods and services do not have standalone value and are highly interrelated. Accordingly, the promised goods and services represent one performance obligation. Additionally, Sanofi’s right to exercise its option to extend the research term and have the Company conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens were determined at the time of the modification to not represent material rights, based on the criteria of ASC 606, and therefore do not represent a separate performance obligation.
Under ASC 606, the Company recognized revenue using the
cost-to-cost
input method, which it believes best depicts the transfer of control to the customer. Under the
cost-to-cost
input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the progress of completion. The calculation of the total estimated cost to fulfill the performance obligation includes costs associated with employees, development, manufacturing, and
out-of-pocket
costs expected to be paid to third parties. The estimate of the Company’s measure of progress and estimate of variable consideration to be included in the transaction price will be updated at each reporting date as a change in estimate. The amount related to the unsatisfied portion will be recognized as that portion is satisfied over time. The Company has estimated the completion of manufacturing activities to be in 2024.
During the three months ended March 31, 2021, the Company increased the overall transaction price by $7.9 million. The transaction price as of March 31, 2021 includes the upfront,
non-refundable
payments of $345.0 million for the transfer of the combined license, supply and development obligations under the Original Sanofi Agreement and Second Sanofi Amendment, the premium paid in consideration for common stock of $51.2 million, which represents the excess of the price paid compared to the fair
 
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value of the Company’s common stock on the closing date, under the Securities Purchase Agreement, an estimated $76.0 million in reimbursable employee costs, an estimated $167.3 million in reimbursable development costs including manufacturing costs and
out-of-pocket
costs paid to third parties and an estimated $112.0 million in milestone payments. Under ASC 606, at the end of each reporting period, the Company
re-evaluates
the variable consideration determined using either the expected value or most likely outcome approach and
re-evaluates
the probability that the consideration associated with each milestone or reimbursement will not be subject to a significant reversal in the cumulative amount of revenue recognized, and, if necessary, adjusts the estimate of the overall transaction price. The estimated collaboration budget is consistently
re-evaluated
and changes to the budget, if any, require approval by the Joint Steering Committee. If an approved change occurs, the Company will
re-evaluate
the transaction price which could potentially affect the cumulative amount of revenue recognized. As a result of the Second Sanofi Amendment, the Company revised the budget and collaboration plan.
During the third quarter of 2020, the Company accounted for the Second Sanofi Amendment as a modification to the existing agreement and not as a separate agreement because the additional goods and services were not distinct and therefore form a single performance obligation that was partially satisfied at the date of the contract modification. Changes as a result of a contract modification or in the planned services under the Amended Sanofi Agreement may have an impact on the transaction price and on the Company’s measure of progress toward complete satisfaction of the performance obligation.
The impact of changes during the three months ended March 31, 2021 resulted in a decrease in revenue of 
$3.3 million.
The following table summarizes the Company’s collaboration revenue (in thousands):
 
 
  
Three Months Ended March 31,
 
 
  
2021
 
  
2020
 
Collaboration revenue
   $ 34,600      $ 4,654  
The following table presents the balance of the Company’s contract liabilities (in thousands):
 
    
March 31,
    
December 31,
 
    
2021
    
2020
 
Contract liabilities
                 
Deferred revenue
   $ 299,249      $  296,222  
Deferred revenue is classified as short-term or long-term in the consolidated balance sheets based on the Company’s estimate of revenue that will be recognized within the next twelve months which is determined by the
cost-to-cost
input method which measures the extent of progress towards satisfying the performance obligation. As of March 31, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligation is estimated to be approximately $568.9 million, which is expected to be recognized as revenue through 2024. Revenue recognized from contract liabilities at the beginning of the period was $13.0 million and $1.3 million during the three months ended March 31, 2021 and 2020, respectively.
4. Intangible Assets and Goodwill
Acquisition of Shire’s MRT Program
In December 2016, the Company entered into an asset purchase agreement (as amended in June 2018) with Shire Human Genetic Therapies, Inc. (“Shire”), a subsidiary of Takeda Pharmaceutical Company Ltd., pursuant to which Shire sold equipment to and assigned to the Company all of its rights to certain patent rights, permits, real property leases, contracts, regulatory documentation, books and records, and materials related to Shire’s mRNA therapy platform (the “MRT Program”), including its cystic fibrosis transmembrane conductance regulator program.
 
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Intangible Assets, Net
The acquisition of Shire’s MRT Program was accounted for in accordance with the acquisition method of accounting for business combinations. The total purchase consideration transferred was allocated to the tangible and identifiable intangible assets acquired based on their estimated fair values. The tables below present the Company’s definite-lived intangible assets that are subject to amortization and indefinite-lived intangible assets:
 
 
  
 
 
  
March 31, 2021
 
 
  
Estimated Life
 
  
Gross Carrying

Amount
 
  
Accumulated

Amortization
 
 
Net Carrying

Amount
 
 
  
 
 
  
(In thousands)
 
Definite-lived intangible assets:
  
     
  
     
  
     
 
     
MRT
 
 
6 years
 
  $ 45,992     $   (11,177   $ 34,815  
   
 
 
 
 
 
 
   
 
 
   
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
                       
IPR&D - CF
 
 
Indefinite
 
    42,291       —         42,291  
   
 
 
 
 
 
 
   
 
 
   
 
 
 
Total intangible assets, net
 
 
 
 
  $ 88,283     $ (11,177   $ 77,106  
   
 
 
 
 
 
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
     
 
 
December 31, 2020
 
   
Estimated Life
 
 
Gross Carrying

Amount
   
Accumulated

Amortization
   
Net Carrying

Amount
 
     
 
       
(In
 
thousands)
       
Definite-lived intangible assets:
 
 
 
 
                       
MRT
 
 
6 years
 
  $ 45,992     $ (9,156   $ 36,836  
   
 
 
 
 
 
 
   
 
 
   
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
                       
IPR&D - CF
 
 
Indefinite
 
    42,291       —         42,291  
   
 
 
 
 
 
 
   
 
 
   
 
 
 
Total intangible assets, net
 
 
 
 
  $ 88,283     $ (9,156   $ 79,127  
   
 
 
 
 
 
 
   
 
 
   
 
 
 
Identifiable intangible assets acquired in the acquisition of Shire’s MRT Program consisted of
in-process
research and development (“IPR&D”), which included ongoing projects that could further the Company’s preclinical and clinical
d
evelopment activities related to CF and other potential rare diseases. As of the date of acquisition, the IPR&D was determined to be indefinite-lived.
Upon commencement of the Original Sanofi Agreement, the
IPR&D - MRT 
intangible asset was reclassified from indefinite-lived to definite-lived intangible assets and the Company began amortization of this intangible asset. Amortization will be recorded over the intangible asset’s estimated life based on an economic consumption model. The Company recorded amortization expense of $2.0 million and $0.7 million during the three months ended March 31, 2021 and 2020, respectively, related to the definite-lived MRT intangible asset. The estimated amortization expense for the remainder of the useful life is $11.8 million, $11.2 million, $11.2 million and $2.7 million for the years ending December 31, 2021, 2022, 2023 and 2024, respectively.
Indefinite-lived IPR&D is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company tests its indefinite-lived IPR&D annually for impairment on October 1st. The Company determined the results of the second interim data analysis from the Phase 1/2 clinical trial of MRT5005 were a potential indicator of impairment and as such performed a qualitative and quantitative impairment analysis of the CF program and determined the IPR&D was not impaired as of March 31, 2021.
 
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Goodwill
The excess of the fair value of the consideration transferred over the fair value of identifiable assets acquired in the acquisition of Shire’s MRT Program was allocated to goodwill in the amount of $21.4 million. There have been no
changes to the carrying amount of goodwill during the three months ended March 31, 2021. Goodwill is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company determined the results of the second interim data analysis from the Phase 1/2 clinical trial of MRT5005 were a potential indicator of impairment and as such performed a quantitative impairment analysis of the carrying value of
g
oodwill and determined it was not impaired as of March 31, 2021. As such, the Company did 
not
recognize any impairment charges related to
g
oodwill during the three months ended March 31, 2021.
5. Fair Value of Financial Assets and Liabilities
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):
 
 
  
Fair Value Measurements

as of March 31, 2021 Using:
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
Assets:
  
     
  
     
  
     
  
     
Money market funds
  $       $ 86,637     $     $ 86,637  
U.S. treasuries
          441,082             441,082  
U.S. government agency bonds
          57,925             57,925  
   
 
 
   
 
 
   
 
 
   
 
 
 
    $       $ 585,644     $     $ 585,644  
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities:
                               
Contingent consideration
  $     $     $ 108,251     $ 108,251  
   
 
 
   
 
 
   
 
 
   
 
 
 
    $     $     $ 108,251     $ 108,251  
   
 
 
   
 
 
   
 
 
   
 
 
 
   
   
Fair Value Measurements

as of December 31, 2020 Using:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                               
Money market funds
  $     $ 273,827     $     $ 273,827  
U.S. treasuries
          292,001             292,001  
U.S. government agency bonds
          20,000             20,000  
   
 
 
   
 
 
   
 
 
   
 
 
 
    $     $ 585,828     $     $ 585,828  
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities:
                               
Contingent consideration
  $     $     $ 152,230     $ 152,230  
   
 
 
   
 
 
   
 
 
   
 
 
 
    $     $     $ 152,230     $ 152,230  
   
 
 
   
 
 
   
 
 
   
 
 
 
During the three months ended March 31, 2021 and the year ended December 31, 2020, there were no transfers between Level 1, Level 2 and Level 3.
Cash equivalents as of March 31, 2021 and December 31, 2020 consisted of money market funds totaling $86.6 million and $273.8 million, respectively.
The money market funds were valued using inputs observable in active markets for similar securities, which represent a Level 2 measurement in the fair value hierarchy. The Company’s investments as of March 31, 2021 and December 31, 2020 consisted of U.S. treasuries and U.S. government agency bonds and were classified as available-for-sale securities. The U.S. treasuries and U.S. government agency bonds were valued using inputs observable in active markets for similar securities, which represent a Level 2 measurement in the fair value hierarchy. The Company has classified its investments with maturities beyond one year as short term, based on their highly liquid nature and because such available-for-sale securities represent the investment of cash that is available for current operations. 
The estimated amortized costs and fair value of the Company’s
available-for-sale
securities by contractual maturity are summarized as follows:
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Table of Contents
 
  
March 31, 2021
 
  
December 31, 2020
 
 
  
Amortized Cost
 
  
Fair Value
 
  
Amortized Cost
 
  
Fair Value
 
Due within one year
  
$
299,369
 
  
$
299,451
 
  
$
201,606
 
  
$
201,596
 
Due after one year through two years
  
 
199,561
 
  
 
199,556
 
  
 
110,395
 
  
 
110,405
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total
available-for-sale
securities
  
$
498,930
 
  
$
499,007
 
  
$
312,001
 
  
$
312,001
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Valuation of Contingent Consideration
The contingent consideration liability related to the acquisition of Shire’s MRT Program in 2016 was classified as a Level 3 measurement within the fair value hierarchy. The Company may be required to pay
f
uture consideration to Shire contingent upon the achievement of potential future milestones and earnout payments.
The fair value of the liability to make potential future milestone and earnout payments was estimated by the Company at each reporting date based, in part, on the results of a valuation using a discounted cash flow analysis based on various assumptions, including the amount and timing of cash flows, probability of achieving specified events, discount rate, and the period of time until earnout payments are payable and the conditions triggering the milestone payments are met. The actual settlement of contingent consideration could differ from current estimates based on the actual occurrence of these specified events.
The following table presents the unobservable inputs and fair value of the components of the contingent consideration (dollar amounts in thousands):
 
 
  
Unobservable Inputs

Projected Year of Payment
 
  
Fair Value at
 
 
  
March 31,
 
  
December 31,
 
 
  
2021
 
  
2020
 
Earnout payments
  
 
2027 - 2039
 
  
$
99,122     
$
142,250  
Milestone payments
  
 
2027 - 2032
 
     9,129        9,980  
    
 
 
 
  
 
 
    
 
 
 
    
 
 
 
   $ 108,251      $ 152,230  
    
 
 
 
  
 
 
    
 
 
 
The discount rate used in the valuation was 11.0% as of March 31, 2021 and December 31, 2020.
The following table presents a roll-forward of the total acquisition-related contingent consideration liability (in thousands):
 
   
Fair Value
 
Balance as of December 31, 2020
  $ 152,230  
Decrease in fair value of contingent consideration
    (43,979
   
 
 
 
Balance as of March 31, 2021
  $ 108,251  
   
 
 
 
During the quarter ended March 31, 2021, the Company released results of the second interim data analysis from the Phase 1/2 clinical trial of MRT5005. Following the release, the Company reassessed the clinical development plan for MRT5005 and adjusted the expected timelines and the probability of achieving specified events for the program, which resulted in a decrease in the fair value of contingent consideration during the three months ended March 31, 2021.
 
6. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
 
   
March 31,
2021
   
December
 
31,
2020
 
Laboratory equipment
  $ 17,403     $ 12,710  
Computer equipment
    933       922  
Office equipment
    941       941  
Leasehold improvements
    4,822       5,730  
Construction in progress
    2,498       5,189  
   
 
 
   
 
 
 
      26,597       25,492  
Less: Accumulated depreciation and amortization
    (10,034     (10,120
   
 
 
   
 
 
 
    $ 16,563     $ 15,372  
   
 
 
   
 
 
 
 
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Depreciation and amortization expense related to property and equipment was $0.8 million and $0.7 million during the three months ended March 31, 2021 and 2020, respectively.
 
7. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
 
 
  
March 31,
2021
 
  
December 31,
2020
 
Accrued external research and development expenses
  $ 5,100    
$
2,805  
Accrued employee compensation and benefits
    3,425       5,600  
Accrued consultant and professional fees
    1,969       1,489  
Other
    5,746       3,308  
   
 
 
   
 
 
 
    $ 16,240     $ 13,202  
   
 
 
   
 
 
 
Included in other accrued expenses as of March 31, 2021 was $4.5 million related to a work agreement to perform a
build-out
of the Company’s office and laboratory space at 200 West Street in Waltham, Massachusetts (see Note 11).
8. Incentive
Stock Options and Employee Stock Purchase Plan
2021 Inducement Stock Incentive Plan
On January 20, 2021, the Board of Directors adopted a 2021 Inducement Stock Incentive Plan (the “2021 Plan”), pursuant to which the Company may grant
non-statutory
stock options, restricted stock, restricted stock units and other stock-based awards with respect to an aggregate of 2,612,550 shares of common stock. Awards under the 2021 Plan may only be granted to persons who (i) were not previously an employee or director of the Company or (ii) are commencing employment with the Company following a bona fide period of
non-employment,
in either case as an inducement material to the individual’s entering into employment with the Company and in accordance with the requirements of Nasdaq Stock Market Rule 5635(c)(4).
2018 Equity Incentive Plan
On March 7, 2018, the Company’s Board of Directors (the “Board of Directors”), subject to stockholder approval, adopted, and on June 15, 2018, the Company’s stockholders approved, the 2018 Equity Incentive Plan (the “2018 Plan”), which became effective on June 27, 2018. The 2018 Plan provides for the grant of incentive stock options,
non-qualified
stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards.
The number of shares initially reserved for issuance under the 2018 Plan is the sum of 2,512,187, plus the number of shares (up to 1,013,167 shares) equal to the sum of (i) the number of shares remaining available for issuance under the 2016 Stock Incentive Plan, as amended (the “2016 Plan”), upon the effectiveness of the 2018 Plan, which was 360,514 shares, and (ii) the number of shares of common stock subject to outstanding awards under the 2016 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right. The number of shares of common stock that may be issued under the 2018 Plan will automatically increase on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2028, by an amount equal to the lowest of (i) 3,349,582 shares, (ii) 4% of the outstanding shares of common stock on such date and (iii) an amount determined by the Board of Directors. As of December 31, 20
20
, there were 7,457,171 shares of common stock reserved for issuance under the 2018 Plan. On January 1, 2021, the number of shares of common stock that may be issued under the 2018 Plan increased by 3,001,185 shares of common stock. During the three months ended March 31, 2021, a total of 151 shares issued under the 2016 Plan have been canceled and rolled over to the 2018 Plan, such that there is a total of 10,458,507 shares of common stock reserved for issuance under the 2018 Plan as of March 31, 2021. The shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by the Company under the 2018 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan.
 
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The 2018 Plan is administered by the Board of Directors. The exercise prices, vesting periods and other restrictions are determined at the discretion of the Board of Directors, except that the exercise price per share of options may not be less than 100% of the fair market value of the common stock on the date of grant. Stock options awarded under the 2018 Plan expire 10 years after the grant date, unless the Board of Directors sets a shorter term. Awards granted to employees, officers, members of the Board of Directors and consultants typically vest over a period of one to four years.
Typically, unvested stock options are forfeited upon the recipient ceasing to provide services to the Company
.
 
2018 Employee Stock Purchase Plan
On March 7, 2018, the Board of Directors, subject to stockholder approval, adopted, and on June 15, 2018, the Company’s stockholders approved the 2018 Employee Stock Purchase Plan (the “2018 ESPP”), which became effective on June 27, 2018. A total of 418,697 shares of common stock were initially reserved for issuance under this plan. The number
o
f shares of common stock that may be issued under the 2018 ESPP will automatically increase on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2019 and continuing for each fiscal year until, and including, the fiscal year commencing on January 1, 2029, by an amount equal to the lowest of (i) 837,395 shares, (ii) 1% of the outstanding shares of common stock on such date and (iii) an amount determined by the Board of Directors. In
December 2020
,
 the Board of Directors elected to add no shares of common stock to the 2018 ESPP. As of March 31, 2021, 870,096 shares of common stock were reserved for issuance under this plan.
As of March 31, 2021, 26,964 shares have been issued under the 2018 ESPP.
2016 Stock Incentive Plan
The 2016 Plan provided for the grant of stock options, stock appreciation rights, restricted stock and restricted stock units. Shares that are expired, terminated, surrendered or canceled under the 2016 Plan without having been exercised will be available for future grants of awards under the 2018 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards under the 2018 Plan.
The 2016 Plan is administered by the Board of Directors. The exercise prices, vesting periods and other restrictions were determined at the discretion of the Board of Directors, except that the exercise price per share of options could not be less than 100% of the fair market value of the common stock on the date of grant. Stock options awarded under the 2016 Plan expire 10 years after the grant date, unless the Board of Directors set a shorter term. Stock options and restricted stock granted to employees, officers, members of the Board of Directors and consultants typically vest over a four-year period.
Upon the effectiveness of the 2018 Plan on June 27, 2018, no further awards will be made under the 2016 Plan, but awards outstanding under the 2016 Plan will continue to be governed by their existing terms.
Stock Options
The following table summarizes the Company’s stock option activity since December 31, 2020 (in thousands, except share and per share amounts):
 
    
Number of

Shares
    
Weighted

Average

Exercise

Price
    
Weighted

Average

Remaining

Contractual

Term
    
Intrinsic

Value
 
                  
(in years)
        
Outstanding as of December 31, 2020
     9,557,391      $ 8.79        7.92      $ 93,256  
Granted
     2,324,110      $ 22.77                    
Exercised
     (188,047    $ 8.24                    
Forfeited
     (41,941    $ 14.88                    
    
 
 
                            
Outstanding as of March 31, 2021
     11,651,513      $ 11.57        8.18      $ 73,830  
    
 
 
                            
Exercisable as of March 31, 2021
     5,456,919      $ 7.84        7.21      $ 47,181  
Vested and expected to vest as of March 31, 2021
     11,651,513      $ 11.57        8.18      $ 73,830  
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2021 and 2020 was $2.7 million and less than $0.1 million, respectively.
 
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The weighted average grant-date fair value per share of stock options granted was $14.20 and $4.67 during the three months ended March 31, 2021 and 2020, respectively.
Stock Option Valuation
The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company completed its initial public offering in July 2018 and therefore lacks company-specific historical and implied volatility information before that date. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to
non-employees
is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees and directors:
 
 
  
Three Months Ended March 31,
 
 
  
2021
 
 
2020
 
Risk-free interest rate
     1.01     0.86
Expected term (in years)
     6.1       6.1  
Expected volatility
     69.9     68.0
Expected dividend yield
     0     0
Stock-Based Compensation
Stock-based compensation expense was classified in the condensed consolidated statements of operations as follows (in thousands):
 
 
  
Three Months Ended March 31,
 
 
  
2021
 
  
2020
 
Research and development expenses
   $ 2,080      $ 1,454  
General and administrative expenses
     1,904        1,718  
    
 
 
    
 
 
 
     $ 3,984      $ 3,172  
    
 
 
    
 
 
 
As of March 31, 2021, total unrecognized compensation cost related to the unvested stock-based awards was $54.2 million, which is expected to be recognized over a weighted average period of 2.9 years.
9. Income Taxes
The Company recognized an income tax provision of 
$0.3
million and 
$0 
during the three months ended March 31, 2021 and 2020, respectively. The income tax provision recognized during the three months ended March 31, 2021 relates primarily to an expected income tax liability due to the acceleration of revenue recognition for tax purposes related to the Amended Sanofi Agreement. There was 
no
income tax benefit recognized during the three months ended March 31, 2020. Net operating losses generated in 2018 and years thereafter can be carried forward indefinitely.
10. Net
Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period, including any dilutive effect from outstanding stock options.
 
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Basic and diluted net income (loss) per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
 
 
  
Three Months Ended March 31,
 
 
  
2021
 
  
2020
 
Basic net income (loss) per common share:
  
     
  
     
Numerator:
                 
Net income (loss)
   $ 26,522      $ (14,282
Denominator:
                 
Weighted average common shares outstanding—basic
     75,189,696        60,008,217  
Net income (loss) per share—basic
   $ 0.35      $ (0.24
Diluted net income (loss) per common share:
                 
Numerator:
                 
Net income (loss)
   $ 26,522      $ (14,282
Denominator:
                 
Weighted average common shares outstanding—diluted
     79,101,624        60,008,217  
Net income (loss) per share—diluted
   $ 0.34      $ (0.24
The Company excluded 18,507 shares of restricted common stock, presented on a weighted average basis, from the calculations of basic net loss per share attributable to common stockholders for the three months ended March 31, 2020 because those shares had not vested. As of March 31, 2021, there are no unvested shares of restricted common stock.
The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net income (loss) per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
 
 
  
Three Months Ended March 31,
 
 
  
    2021    
 
  
    2020    
 
Options to purchase common stock
     3,053,207        10,983,227  
Unvested restricted common stock
            6,763  
    
 
 
    
 
 
 
       3,053,207        10,989,990  
    
 
 
    
 
 
 
 
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11. Leases
Suite Retention Agreements
In September 2019, the Company
e
ntered into a suite retention and development agreement with Albany Molecular Research, Inc. (“AMRI”) under which a series of cleanroom suites were built at AMRI’s manufacturing facility in accordance with the Company’s objectives (“AMRI Agreement”). The AMRI Agreement continues for five years after the
build-out
is completed, and the Company has the right to extend for an additional three years. The Company has determined this is a lease under ASU
No. 2016-02,
Leases (Topic 842) (“ASC 842”). Under the AMRI Agreement, the Company will finance $6.0 million of the costs of the
build-out
(“Build-Out
Costs”). If
Build-Out
Costs exceed $6.0 million, the Company and AMRI will share overage costs equally, up to $11.0 million, and the Company will be responsible for any amounts exceeding $11.0 million. The Company had paid $12.8 million towards the
Build-Out
Costs prior to the lease commencement date which had been recorded within other long-term assets as prepaid rent as these represented payments for lessor owned assets. The Company anticipates making additional payments of $5.4 million related to the final
Build-Out
Costs, of which $2.3 million was paid as of March 31, 2021. These costs are included within the
right-of-use
(“ROU”) assets and lease liabilities recorded at the lease commencement date. Upon the
build-out
completion date of August 31, 2020 (“AMRI Lease Commencement”), the Company determined that it gained control of the space, in accordance with ASC 842, which resulted in the recording of ROU assets and related lease liabilities of approximately $66.6 million and $53.8 million, respectively, with the difference being due to the elimination of previously recorded prepaid rent. Due to an increase in the final
Build-Out
Costs, the Company recorded an increase of $1.2 million to ROU assets and lease liabilities as of March 31, 2021. As of August 31, 2020, the Company began paying monthly fees of $1.0 million, which are subject to a 3% increase on January 1 of each calendar year following the first anniversary of the
build-out
completion. The option to extend the lease for an additional three years was not included in the lease liability as of March 31, 2021 as the Company is not reasonably certain it will exercise this option.
In October 2020, the Company entered into a suite retention agreement (the “Biomere Suite Retention Agreement”) with Biomedical Research Models, Inc. (“Biomere”) under which the Company will lease two exclusive procedure rooms and one housing and maintenance room in Biomere’s Worcester, Massachusetts facility. The lease term is
 
13
months, commencing on December 1, 2020 (the “Biomere Lease Commencement”). The Company can terminate the Biomere Suite Retention Agreement for convenience, and without penalty, with 60 days’ written notice. The Biomere Suite Retention Agreement does not contain any lease incentives or renewal options. Upon the Biomere Lease Commencement, the Company determined that it gained control of the space, in accordance with ASC 842, which resulted in the recording of an ROU asset and lease liability of 
$
0.3
 million. As of the Biomere Lease Commencement, the Company began paying monthly fees of less than $
0.1
 million.
Real Estate Lease
In June 2017, the Company entered into an operating lease for office and laboratory space at its headquarters in Lexington, Massachusetts. The Company occupies approximately 59,000 square feet of space under a
10-year
lease agreement expiring in April 2028. The Company occupied this property in March 2018. Monthly lease payments include base rent charges of $0.2 million, which are subject to a 3% annual increase each year. In June 2017, in connection with this lease agreement, the Company issued a letter of credit collateralized by cash deposits of $1.0 million, which are classified as restricted cash on the consolidated balance sheets as of March 31, 2021 and December 31, 2020.
Equipment Lease
In March 2018, the Company entered into an operating lease for communications equipment for use at its office and laboratory space in Lexington, Massachusetts. The term of the lease is five years, expiring in March 2023.
The Company excludes leases with an initial term of one year or less in the recognized ROU asset and lease liabilities. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASC 842, lease and
non-lease
components are combined into a single lease component. The Company’s leases have remaining lease terms of up to nine years, excluding two five-year options to extend the real estate lease after the expiration of the initial term. The Company believes the Lexington real estate lease, together with the anticipated relocation to a space in Waltham, Massachusetts as described below, will be sufficient to meet its needs for the foreseeable future and that suitable additional space will be available as and when needed.
 
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The components of lease cost were as follows (dollar am
o
unts in thousands):
 
    
Three Months Ended March 31,
 
    
2021
   
2020
 
Lease cost
                
Operating lease cost
   $ 4,772     $ 673  
    
 
 
   
 
 
 
Total lease cost
   $ 4,772     $ 673  
    
 
 
   
 
 
 
Other information
                
Operating cash flows from operating leases
   $ 4,968     $ 650  
Operating lease liabilities arising from obtaining
right-of-use
assets
     1,246       —    
Weighted-average remaining lease term
     5 years       8 years  
Weighted-average discount rate
     11.9     17.5
Maturities of operating lease liabilities are as follows (in thousands):
 
    
March 31, 2021
    
December 31, 2020
 
2021
   $ 14,421      $ 18,067  
2022
     15,178        15,178  
2023
     15,591        15,591  
2024
     16,050        16,050  
2025
     12,030        12,029  
2026 and thereafter
     7,134        7,134  
    
 
 
    
 
 
 
Total future minimum lease payments
     80,404        84,049  
Less: imputed interest
     (19,716      (21,363
    
 
 
    
 
 
 
Present value of lease liabilities
   $ 60,688      $ 62,686  
    
 
 
    
 
 
 
 
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As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate which are the rates incurred to borrow on a collateralized basis over a term equal to the lease payments in a similar economic environment in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date and for all subsequent leases the Company used an appropriate incremental borrowing rate upon commencement date.
In October 2020, the Company entered into a suite retention agreement with Azzur Cleanrooms-on-Demand – Burlington, LLC (“Azzur”) under which it will lease two exclusive cleanroom suites in Azzur’s Burlington, Massachusetts facility (the “Azzur Agreement”). The lease term is 
24 months, commencing on July 1, 2021, with the option to extend the term with three months’ notice prior to the termination date. Upon commencement, the Company will pay monthly fees of $0.4 million, which are subject to a 4% increase on July 1, 2022. As of March 31, 2021, the Company’s commitment
under this agreement is 
$8.8 
million through June 2023. The Company can terminate the Azzur Agreement for convenience, and without penalty, with three months’ written notice. The Azzur Agreement does not contain any lease incentives or renewal options. The Company has determined this is a lease under ASC 842. As of March 31, 2021, the Company has determined that it does not have control of the space, as defined in ASC 842, during the build-out and as such, this Azzur Agreement was 
no
included in the ROU assets or lease liabilities on the Company’s consolidated balance sheet.
On November 3, 2020 (the “Lease Commencement Date”), the Company
e
ntered into a
ten-year
lease agreement for approximately 138,444 square feet of office and laboratory space located at 200
West Street in Waltham, Massachusetts (the “Waltham Lease Agreement”). The Waltham Lease Agreement includes an extension option of one period of 
10
years. The Waltham Lease Agreement includes a work agreement to perform a build-out arrangement, with a construction period from March 2021 to December 2021. Under the Waltham Lease Agreement, the Company has improvement allowances of 
$26.3 million, plus an additional tenant allowance of up to $15 per square foot, should the Company elect to use those.
In April 2021, the Company entered into a contract with the Richmond Group for $36.8 million for the build-out of this office and laboratory space. The Company
expects to spend between $10.5 million and $12.5 million on the construction of lessor assets, which represents the cost of the project that exceeds the tenant allowances. Initial base rent, which commences 12 months after the Lease Commencement Date, shall be $5.7 million for the first year and approximately $8.0 million for the second year and thereafter shall be subject to a 3%
annual increase. In December 2020, in connection with this Waltham Lease Agreement, the Company issued a letter of credit collateralized by cash deposits of 
$3.9 
million, which are classified as restricted cash on the consolidated balance sheets as of March 31, 2021 and December 31, 2020. The Company has determined this is a lease under ASC 842. As of March 31, 2021, the Company has determined that it does not have control of the space, as defined in ASC 842, during the build-out and as such, this Waltham Lease Agreement was 
no
included in the ROU assets or lease liabilities on the Company’s consolidated balance sheet.
12. Commitments and Contingencies
Research, Supply and License Agreements
Roche Master Supply Agreement
The Company is a party to a master supply agreement with Roche Diagnostics Corporation (“Roche”) pursuant to which Roche will custom manufacture certain products for the Company. The agreement requires the Company to purchase from Roche specified manufactured products and the related raw materials in an amount equal to the greater of (i) quantities of raw materials in the Company’s annual forecast to be purchased or (ii) 80% of the Company’s demand for products as the same or similar type (the “Purchase Commitment”). In June 2017, the Company exercised its option under the agreement to extend the agreement through December 31, 2024. In September 2018, the Company and Roche amended the agreement to remove and replace the Purchase Commitment for certain manufactured products and related raw materials supplied by Roche. The agreement, as amended, specifies a minimum purchase requirement for certain custom manufactured products. As of March 31, 2021, the Company’s purchase commitments under the agreement totaled $10.5 million, with $3.5 million committed as payments each year from 202
2
 to 2024. Research and development expenses related to
this agreement totaled 
$4.5 million and $0.7 million during the three months ended March 31, 2021 and 2020, respectively.
MIT Research Agreement
In September 2019, the Company entered into a research agreement with the Massachusetts Institute of Technology (“MIT”) pursuant to which the Company is obligated to reimburse MIT up to $4.1 million for specified direct and indirect costs to be incurred from January 2020 through December 2022 for specified research activities conducted for the Company (the “2019 MIT Agreement”). As of March 31, 2021 and 2020, the Company paid MIT $2.0 million and $0.3 million, respectively, towards the total committed amount. Research and development expenses related to this agreement were $0.3 million during each of the three months ended March 31, 2021 and 2020. There were no amounts payable by the Company under the agreement as of March 31, 2021. The 2019 MIT Agreement expires in December 2022 and may be extended thereafter by mutual agreement of the parties.
 
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MIT Exclusive Patent License Agreement
The Company is a party to an exclusive patent license agreement with MIT pursuant to which the Company received an exclusive license under the licensed patent rights to develop, manufacture and commercialize any product containing both (i) any RNA sequences, including mRNA, that encode a protein or peptide suitable for human therapeutic use which may include operably linked
non-coding
sequences that facilitate translation of the coding portion of such RNA sequence, but such
non-coding
sequences do not include nucleic acids that function through an RNA interface mechanism or transcriptional activation mechanism (the “coding RNA component”), and (ii) products covered by the licensed patent rights (the “lipid products”). A product containing both a coding RNA component and a lipid product is referred to as a “licensed product.” Under the licensed patent rights, the Company is permitted to develop, manufacture and commercialize the licensed products for the delivery of coding RNA components to treat disease in humans.
The Company has the right to grant sublicenses under this license. The patent rights licensed to the Company by MIT include claims that cover certain of the Company’s customized lipid nanoparticles used for delivery of coding RNA components in its MRT platform, including products that may be developed under the Company’s collaboration with Sanofi.
Under the license agreement, the Company is obligated to make annual license maintenance payments to MIT, payable on January 1 of each calendar year, of up to $0.2 million, which may be credited against royalties subsequently due on net sales of licensed products earned in the same calendar year. The Company paid annual license maintenance fees of $0.2 million to MIT during each of the three months ended March 31, 2021 and 2020.
The Company is also obligated to make milestone payments to MIT aggregating up to $1.375 million upon the achievement of specified clinical and regulatory milestones with respect to each licensed product and $1.250 million upon the Company’s first commercial sale of each licensed product, and to pay royalties of a low single-digit percentage to MIT based on the Company’s, and any of its affiliates’ and sublicensees’, net sales of licensed products. The royalties are payable on a
product-by-product
and
country-by-country
basis, and may be reduced in specified circumstances. The Company’s obligation to make royalty payments extends with respect to a licensed product in a country until four years past the expiration of the
last-to-expire
patent or patent application licensed from MIT covering the licensed product in the country. In addition, the Company is obligated to pay MIT a low double-digit percentage of the portion of income from sublicensees that the Company ascribes to the
MIT-licensed
patents, excluding royalties on net sales and research support payments.
Pursuant to such provision, in the quarter ended March 31, 2021, the Company paid 
$2.5 
million to MIT as MIT’s share of sublicense income with respect to the payments the Company received in 2020 under the Second Sanofi Amendment and the Securities Purchase Agreement. The Company is required to pay MIT a portion of the 
$25.0 
million milestone payment from Sanofi received in March 2021 (see Note 3).
 
The amount payable to MIT related to this milestone payment is currently being negotiated between the Company and MIT and the final amount payable to MIT is unknown as this time. Future amounts that the Company may owe to MIT will depend upon the relative value of the patents the Company licensed from MIT and sublicensed to Sanofi as compared to the other rights that the Company licensed to Sanofi. The determination of the relative value of such rights is subject to a process described in the Company’s license agreement with MIT. Additionally, the Company is required to pay a total of $0.7 million due to the achievement of specified milestones in accordance with the license agreement with MIT.
The agreement obligates the Company to use commercially reasonable efforts and expend a minimum amount of resources each year to develop licensed products in accordance with a development plan, and a development milestone timetable specified in the agreement; to use commercially reasonable efforts to commercialize licensed products; and upon commercialization, to make the licensed products reasonably available to the public.
MIT has the right to terminate the agreement if the Company fails to pay amounts when due or otherwise materially breaches the agreement and fails to cure such nonpayment or breach within specified cure periods or in the event the Company ceases to carry on its business related to the agreement. In the event of a termination due to the Company’s breach caused by a due diligence failure of a licensed product, but where the Company has fulfilled its obligations with respect to a different licensed product, MIT may not terminate the agreement with respect to the different licensed product. MIT may immediately terminate the agreement if the Company or any of its affiliates brings specified patent challenges against MIT or assists others in bringing a patent challenge against MIT. The Company has the right to terminate the agreement for its convenience at any time on three months’ prior written notice to MIT and payment of all amounts due to MIT through the date of termination.
The Company’s patent rights, and the rights of its affiliates and sublicensees, in specified licensed products may also terminate, if the Company, its affiliates or MIT receives a request from a third party to develop such licensed product for which the Company is unable to, within nine months of receiving notice of any such request, either demonstrate that the Company has initiated a fully funded 
 
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project for the commercial development of such licensed product, and provide a business plan with acceptable milestones; demonstrate that the licensed product proposed by such third party would be competitive with a licensed product for which the Company has initiated a fully funded project; or enter into a sublicense agreement with such third party on commercially reasonable terms, and, in each case, MIT, in its sole discretion, grants a license to such third party for the specified patent rights.
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, 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 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. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of March 31, 2021 and December 31, 2020.
Legal Proceedings
The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities.
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on
Form 10-Q and
our audited financial statements and related notes included in our Annual Report on Form
10-K
for the year ended December 31, 2020, or the 2020 Annual Report, that was filed with the Securities and Exchange Commission, or SEC, on March 1, 2021. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. Among the important factors that could cause actual results to differ materially from those indicated by our forward-looking statements are those discussed under the heading “Risk Factors” in Part II, Item 1A. and elsewhere in this report, and in the 2020 Annual Report.
Objective
The purpose of this Management’s Discussion and Analysis is to better allow our investors to understand and view our company from our management’s perspective. We are providing an overview of our business and strategy, followed by a discussion of our financial condition and results of operations. As further discussed below, our vision is to continue building a leading messenger RNA, or mRNA, product company, leveraging our extensive experience with proprietary mRNA product development, delivery, manufacturing and process development. However, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. We believe that our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements through 2023.
Business Overview
We are a clinical-stage mRNA therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction, or to prevent infectious diseases by generating protective immunity. Using our proprietary mRNA therapeutic platform, or MRT platform, we create mRNA that encodes functional proteins. Our mRNA is designed to be delivered to the target cell where the cell’s own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. We believe the mRNA design, delivery and manufacturing capabilities of our MRT platform provide us with the most advanced platform for developing product candidates that deliver mRNA encoding functional proteins for therapeutic uses. We believe our MRT platform is broadly applicable across multiple diseases in which the production of a desirable protein can have a therapeutic effect. We are primarily focused on applying our MRT platform to treat pulmonary diseases caused by insufficient protein production or where production of proteins can modify disease. In addition, we are pursuing discovery efforts in diseases that affect the liver. We are also pursuing the applicability of our MRT platform for the development of mRNA vaccines for infectious diseases under a collaboration with Sanofi Pasteur Inc., or Sanofi, the vaccine global business unit of Sanofi S.A.
We are developing MRT5005 for the treatment of cystic fibrosis, or CF. We believe MRT5005 is the first clinical-stage mRNA product candidate designed to deliver mRNA encoding fully functional cystic fibrosis transmembrane conductance regulator, or CFTR, protein to the lung. We have designed MRT5005 to be inhaled via a handheld nebulizer. Once the inhaled MRT5005 has entered the epithelial cells lining the patient’s lungs, our therapeutic mRNA uses the cells’ own machinery for translation and expression of fully functional CFTR protein, thereby restoring this essential ion channel, which we believe will address the pathology of CF directly. Currently approved CFTR modulating therapies are limited to patients with specific genetic mutations; therefore, there remains a significant unmet medical need for patients with CF who have genetic mutations
non-amenable
to currently approved CFTR modulating therapies. Additionally, patients treated with these current therapies still suffer from a long-term decline in lung function and exacerbations that require hospitalization. MRT5005 is being developed to treat the underlying cause of CF, regardless of the specific genetic mutation, including in patients with limited or no CFTR protein. The U.S. Food and Drug Administration, or FDA, has granted orphan drug designation, fast track designation and rare pediatric disease designation for MRT5005 for the treatment of CF.
We are conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of single- and multiple-ascending doses of MRT5005. The clinical trial is investigating several groups receiving five once-weekly doses, as well as a group receiving five daily doses. Percent predicted forced expiratory volume in one second, or ppFEV
1
, which is a well-defined and accepted endpoint measuring lung function, is also being measured at
pre-defined
timepoints throughout the trial as a safety measure. Target enrollment for each dose group consists of four patients total, three patients receiving MRT5005 and one receiving placebo. In evaluating safety and tolerability, the primary outcome measure, data to date from the ongoing Phase 1/2 clinical trial suggested that repeat dosing of MRT5005 was generally safe and well tolerated. For patients receiving MRT5005, ppFEV
1
was not negatively impacted; there was no pattern of treatment-associated increases in ppFEV
1
. There was no clinically relevant immunogenicity as measured by anti-CFTR antibodies,
anti-PEG
antibodies or
T-cell
sensitization to CFTR. Detection of mRNA and lipid in the blood suggests that MRT5005 crosses the mucus layer, delivering mRNA to the lung of CF patients.
 
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The clinical trial continues to dose in the remaining dose groups, which include a 20 mg multiple-ascending dose group and the daily dosing cohorts, and we anticipate reporting the findings from the clinical trial at a future medical meeting. We plan to continue with ongoing and additional translational studies with MRT5005 and a next-generation CF candidate to support and optimize future clinical development, including research into dosing, formulation and nebulization. We have a next-generation CF discovery program that incorporates mRNA codon optimization and advances in lipid nanoparticle, or LNP, chemistry. Positive preclinical data generated supports planned initiation of investigational new drug, or IND,-enabling studies in the second half of 2021.
We are leveraging our lung delivery platform and focusing our preclinical research efforts on identifying lead product candidates in additional pulmonary diseases with unmet medical need, including primary ciliary dyskinesia, pulmonary arterial hypertension and respiratory infectious diseases. In addition, we are pursuing discovery efforts in diseases that affect the liver.
We have also begun to explore ways to apply our mRNA and delivery platform expertise to diseases where the degradation of a protein would lead to therapeutic benefit. We believe that using mRNA to enable the production of a molecule that can help tag a target protein for destruction within the cell may have advantages over other protein degradation approaches, including the ability to reach previously undruggable therapeutic targets and increase target selectivity. Additionally, we are evaluating the potential of delivering mRNA encoding therapeutic antibodies. We have early discovery efforts ongoing in these areas.
Additionally, we are leveraging the broad applicability of our platform through a collaboration with Sanofi to develop infectious disease vaccines using our mRNA technology. In the case of vaccines, the mRNA instructs certain cells in the body to produce an antigen that will induce an immune response to an infectious pathogen. Under the collaboration with Sanofi, we are jointly conducting research and development activities to advance vaccines targeting up to seven infectious disease pathogens. As part of the ongoing vaccine development program, comprehensive
in vivo
studies have been conducted across several infectious disease targets. Multiple development candidates have been evaluated against distinct pathogens, all of which were well tolerated across all species tested. Multiple antigens have been tested with all demonstrating robust neutralization titers. Two of the target pathogens under development are a novel strain of coronavirus named
SARS-CoV-2,
which causes
COVID-19,
and influenza. After evaluation of multiple
COVID-19
vaccine candidates
in vivo
for immunogenicity and neutralizing antibody activity, MRT5500 was selected as the lead candidate for a vaccine against
SARS-CoV-2.
In October 2020 and in April 2021, preclinical data was reported demonstrating that MRT5500 induced potent neutralizing antibodies against
SARS-CoV-2
in mice and
non-human
primates, or NHPs. Two doses of MRT5500 in NHPs induced neutralizing antibody levels significantly higher than those observed in a panel of samples from
COVID-19
patients. Additionally, MRT5500 demonstrated protection against viral infection and disease progression in Syrian golden hamsters immunized with MRT5500 against a virus challenge. It was also demonstrated that MRT5500-immunized mice and NHPs exhibited a
Th1-biased
T-cell
response against
SARS-CoV-2.
Vaccine-associated enhanced respiratory disease, or VAERD, has generally not been reported to be associated with a
Th1-biased
T-cell
response and therefore these data suggest the potential for a reduced risk for VAERD. A Phase 1/2 clinical trial to evaluate MRT5500 began in March 2021 and interim data from this trial is expected in the third quarter of 2021. For information on risks related to our successful development of a vaccine against
COVID-19,
please see Part II, Item 1A – “Risk Factors – Risks Related to the
COVID-19
Pandemic,” included elsewhere in this Quarterly Report on Form
10-Q.
For the influenza vaccine program, lead LNP/mRNA formulations are being evaluated in preclinical studies to support a clinical
proof-of-technology
trial anticipated to begin
mid-year
2021. Preclinical studies are ongoing for targets against additional viral and bacterial pathogens.
Our vision is to continue building a leading mRNA product company, leveraging our extensive experience with proprietary mRNA product development, delivery, manufacturing and process development. Our proprietary MRT platform has enabled us to focus on direct therapeutic approaches to treat specific genetic diseases with significant unmet medical need. We are primarily focused on applying our MRT platform to treat pulmonary diseases where the production of proteins can modify disease. We are also leveraging our platform’s broad applicability to other diseases, including liver diseases, as well as to preventing disease in the case of infectious disease vaccines. To realize our vision, we plan to advance multiple programs to clinical stage, add new pipeline programs and continue to innovate on the mRNA platform. In order to achieve these goals, we plan to increase our research and development investments, add key
in-house
capabilities, deepen our platform and delivery expertise as well as expand our infrastructure and facility size. We also plan to appropriately invest in manufacturing and commercial capabilities to support continued growth and advancement and our ultimate goal of delivering mRNA medicines to treat or prevent life-threatening or debilitating illnesses.
The successful development of our product candidates will require, among other things, our mRNA manufacturing capabilities. To date, we have established
100-gram
single-batch production with our clinical-stage mRNA therapeutics platform.
Build-out
of a dedicated manufacturing space through a contract manufacturing partner was completed during the third quarter of 2020 and has the potential to accommodate multiple
250-gram
batches per month upon continued investments and third-party supplier arrangements. As it relates to development of a
COVID-19
vaccine, depending on the final human
COVID-19
vaccine dose and timing of
scale-up
activities, we estimate that we could have manufacturing capacity to produce
90-360 million
doses annually. We plan to further expand our mRNA manufacturing capabilities to increase production capacity, and will need to work with raw material and other third-party suppliers to achieve this goal.
 
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Since our inception in 2011, we have devoted substantially all of our focus and financial resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for our programs. We do not have any products approved for sale and have not generated any revenue from product sales. Through March 31, 2021, we have funded our operations primarily through sales of equity securities and upfront and milestone payments received under a collaboration and license agreement with Sanofi and we have received proceeds of approximately $1.1 billion from such transactions.
We are a party to an Open Market Sale Agreement
SM
, or Sales Agreement, with Jefferies LLC, or Jefferies, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to $100.0 million. As of March 31, 2021, we have issued and sold 2,863,163 shares of our common stock pursuant to the Sales Agreement, resulting in gross proceeds of $37.9 million, before deducting commissions of $1.1 million and other offering expenses of $0.2 million. There were no shares issued or sold pursuant to the Sales Agreement during the three months ended March 31, 2021. In the future, $62.1 million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under our universal shelf registration statement on Form
S-3,
or the 2020 Shelf.
On June 30, 2020, we issued and sold 5,681,819 shares of our common stock through a public offering under a Registration Statement on Form
S-ASR,
which became automatically effective upon filing on June 24, 2020, at a price per share of $22.00, resulting in gross proceeds of $125.0 million, before deducting underwriting discounts and commissions of $7.5 million and other offering expenses of $0.5 million.
Since our inception, we have incurred significant operating losses. Our ability to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. As of March 31, 2021, we had an accumulated deficit of $386.8 million. We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the
in-licensing
or acquisition of additional product candidates.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties or grants from organizations and foundations. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential
in-licenses
or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of March 31, 2021, we had cash, cash equivalents and investments of $654.8 million. We believe that our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements through 2023.
Sanofi Pasteur Collaboration and Licensing Agreement
In 2018, we entered into a collaboration and license agreement with Sanofi, or the Original Sanofi Agreement, to develop mRNA vaccines for up to five infectious disease pathogens, or the Licensed Fields. On March 26, 2020, we and Sanofi amended the Original Sanofi Agreement, or the First Sanofi Amendment, to include vaccines against
SARS-CoV-2
as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six. On June 22, 2020, we and Sanofi further amended the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi, or the Second Sanofi Amendment, which closed on July 20, 2020, the effective date. The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is referred to as the Amended Sanofi Agreement.
Pursuant to the Amended Sanofi Agreement, we and Sanofi are jointly conducting research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens. The term of the research collaboration expires in June 2022, with an option for Sanofi to extend for one additional year. If Sanofi elects to extend the collaboration, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens, bringing the total to up to ten pathogens.
 
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Under the terms of the Amended Sanofi Agreement, we have granted to Sanofi exclusive, worldwide licenses under applicable patents, patent applications,
know-how
and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any infectious disease pathogen, with certain specified exceptions.
Business Impact of the
COVID-19
Pandemic
Since early 2020, the outbreak of the novel strain of coronavirus named
SARS-CoV-2,
which causes
COVID-19,
has spread across the globe and the
COVID-19
pandemic has had wide-reaching impacts on the global economy and business operations. The
COVID-19
pandemic has had, and we expect it will continue to have, an impact on our operations, the operations of our collaborators, the operations of third-party contractors and other entities, with which we interact, as well as on the patients who may enroll in our clinical trials. We actively continue to monitor
COVID-19
trends and government guidance. The ultimate impacts of the
COVID-19
pandemic are still unknown and uncertain. For additional information on risks posed by the
COVID-19
pandemic, please see Part II, Item 1A – “Risk Factors – Risks Related to the
COVID-19
Pandemic,” included elsewhere in this Quarterly Report on Form
10-Q.
Components of Our Results of Operations
Revenue from Product Sales
To date, we have not generated any revenue from product sales, and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.
Collaboration Revenue
Since 2018, we have recognized revenue relating to the Amended Sanofi Agreement. Under revenue recognition guidance, we account for: (i) the license we conveyed to Sanofi with respect to the Licensed Fields, (ii) the licensed
know-how
to be conveyed to Sanofi with respect to the Licensed Fields, (iii) our obligations to perform research and development on the Licensed Fields, (iv) our obligation to transfer licensed materials to Sanofi, (v) our obligation to manufacture and supply certain
non-clinical
and clinical mRNA vaccines and materials containing mRNA until we transfer such manufacturing capabilities to Sanofi and (vi) the technology and process transfer as a single performance obligation. We recognize revenue using the
cost-to-cost
input method, which we believe best depicts the transfer of control to the customer. Under the
cost-to-cost
input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. We recognize adjustments in revenue under the cumulative
catch-up
method. Under this method, the impact of this adjustment on revenue recorded to date is recognized in the period the adjustment is identified.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:
 
   
employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions;
 
   
expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs;
 
   
the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs;
 
   
laboratory supplies;
 
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facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance;
 
   
costs to fulfill our obligations under our collaboration with Sanofi;
 
   
costs related to compliance with regulatory requirements; and
 
   
payments made under third-party licensing agreements.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the services have been performed or the goods have been delivered, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments, milestone payments (other than those deemed contingent consideration in a business combination) and annual maintenance fees under license agreements are expensed in the period in which they are incurred.
Our direct research and development expenses are tracked on a
program-by-program
basis and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include costs of laboratory supplies incurred for each program as well as fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery and to manage our preclinical development, process development, manufacturing and clinical development activities.
The table below summarizes our direct research and development expenses incurred by program:
 
    
Three Months Ended
March 31,
 
    
2021
    
2020
 
    
(in thousands)
 
Discovery program
   $ 8,616      $ 3,775  
Vaccine program
     7,570        2,589  
MRT5005 program
     6,214        6,094  
Unallocated research and development expenses
     18,740        8,981  
  
 
 
    
 
 
 
Total research and development expenses
   $ 41,140      $ 21,439  
  
 
 
    
 
 
 
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we conduct our clinical trials of MRT5005 for the treatment of patients with CF; expand our manufacturing capabilities; conduct research and development activities to advance mRNA vaccine candidates and develop an mRNA vaccine platform under the Amended Sanofi Agreement; prepare regulatory filings for our product candidates; continue to discover and develop additional product candidates; and potentially advance product candidates from our discovery program into later stages of clinical development. We expect to continue to devote a substantial portion of our resources to our discovery program for the foreseeable future.
The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
 
   
the timing and progress of preclinical and clinical development activities, including delays resulting from the
COVID-19
pandemic;
 
   
the number and scope of preclinical and clinical programs we decide to pursue;
 
   
our ability to maintain our current research and development programs and to establish new ones;
 
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establishing an appropriate safety profile with IND enabling studies;