Aug. 10, 2020, 8:17 a.m. EDT

10-Q: LOGICBIO THERAPEUTICS, INC.

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission, or SEC, on March 16, 2020.

This discussion contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements are identified by words such as "believe," "will," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "expect," "predict," "could," "potentially" or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other "forward-looking" information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the "Risk Factors" section of our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These statements, like all statements in this Quarterly Report on Form 10-Q, speak only as of their date, and except as required by law, we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

We are a company dedicated to extending the reach of genetic medicine with pioneering targeted delivery platforms. Our proprietary genome editing technology platform, GeneRide, enables the site-specific integration of a therapeutic transgene without nucleases or exogenous promoters by harnessing the native process of homologous recombination. We are developing LB-001, a wholly owned genome editing program leveraging GeneRide for the treatment of methylmalonic acidemia, or MMA. In addition, we have a research collaboration with Takeda to develop LB-301, an investigational therapy leveraging GeneRide for the treatment of the rare pediatric disease Crigler-Najjar syndrome, or CN.

We are also developing a Next Generation Capsid platform for use in gene editing and gene therapy. Data presented have shown that the capsids deliver highly efficient functional transduction of human hepatocytes with improved manufacturability with low levels of pre-existing neutralizing antibodies in human samples. Top-tier capsid candidates from this effort demonstrated significant improvements over benchmark AAVs currently in clinical development. We are developing these highly potent vectors for internal development candidates and potentially for business development collaborations.

Based on our GeneRide technology, we are developing our lead product candidate, LB-001, to treat MMA. In August 2020, we announced the clearance of an investigational new drug application, or IND, to support the initiation of a Phase 1/2 clinical trial in pediatric patients with MMA. The SUNRISE trial is a multi-center, open-label, Phase 1/2 clinical trial designed to assess the safety and tolerability of a single intravenous infusion of LB-001 in pediatric patients with MMA characterized by methylmalonyl-CoA mutase gene (MMUT) mutations. Six leading centers in the United States are expected to participate in the SUNRISE Phase 1/2 trial. The trial is expected to enroll eight pediatric patients with ages ranging from 6 months to 12 years, initially starting with 3 to 12 year-old patients and then adding patients aged 6 months to 2 years. The SUNRISE Phase 1/2 trial will evaluate two doses of LB-001. Patients will participate in a pre-dosing observational period and will be administered a prophylactic steroid regimen. The primary endpoint of the SUNRISE trial is to assess the safety and tolerability of LB-001 at 52 weeks after a single infusion. Additional endpoints include changes in disease-related biomarkers, including serum methylmalonic acid, clinical outcomes such as growth and healthcare utilization, and the pharmacodynamic marker albumin-2A. The company expects to enroll the first patient in early 2021.

We believe that achieving clinical proof of concept in an inherited liver disease such as MMA will validate our platform technology, including its potential application to other organs and diseases. In addition to MMA and CN, we have demonstrated proof of concept of our platform in hemophilia B and alpha-1-antitrypsin deficiency, or A1ATD, animal disease models. We expect to select future product candidates from these and other genetic diseases addressed by targeting the liver initially, and later by targeting the central nervous system, or CNS, and muscle.

Since our inception in 2014, we have devoted the majority of our efforts to business planning, research and development, developing and protecting our intellectual property, raising capital and recruiting management and technical staff. We do not have any products approved for sale and our only revenue has consisted of service revenue related to research cost reimbursement received under the Takeda agreement. As of June 30, 2020, we have raised approximately $9.8 million in net proceeds through the loan and security agreement in July 2019, approximately $72.3 million in net proceeds through our initial public offering, or IPO, in October 2018, approximately $33.1 million in net proceeds from the sale of our convertible preferred stock in 2016 and 2017 and $1.9 million in net

proceeds through at-the-market sales of our common stock. We have incurred significant operating losses since our inception. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of our product candidate and any future product candidates. Our net loss was $17.7 million for the six months ended June 30, 2020 and our accumulated deficit was $85.1 million as of June 30, 2020. We expect to continue to incur significant expenses and operating losses for the foreseeable future in connection with our ongoing activities.

Impact of COVID-19

We have been actively monitoring the COVID-19 pandemic and its impact globally. Our objectives have remained the same throughout the pandemic: to support the safety of our team members and their families and to continue our research and development activities to develop genetic medicines that have the potential to durably treat rare diseases in patients with significant unmet medical need.

Since mid-March 2020, our non-laboratory employees have been working remotely in order to comply with social distancing and other applicable orders and guidelines from federal, state and local government agencies. After being limited to working in shifts on-premises through early July, laboratory employees, whose work must be performed on premises, have returned to normal working schedules on-premises. We have also ceased all business travel for our employees. We plan to maintain these or similar restrictions on our business activities until we believe our employees can fully resume such business activities in accordance with federal, state and local requirements and guidelines.

Our research, development and manufacturing activities are dependent on our ability to continue our work on premises at our laboratory. We also rely on third parties located in countries that are affected by the COVID-19 pandemic, including the United States, for certain research, development and manufacturing activities. Similar to how we have restricted business activities at our premises, many of these third parties have also limited their staff from working on premises as part of their response to COVID-19. While we believe we and our third party vendors, suppliers and collaborators have largely been able to continue or resume essential business activities to a certain degree, we cannot predict the impact of the progression of the COVID-19 pandemic on future results due to a variety of factors, including the health of our and their employees, our ability to maintain operations, the ability of our third party vendors, suppliers and collaborators to continue operations, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic.

In April 2020, as part of our effort to preserve capital, our leadership team volunteered to accept salary cuts ranging from 15% to 20%. We have also adopted certain other cost-cutting measures aimed at enhancing our capital position. During the three months ended June 30, 2020, we entered into "at-the-market" sales of our common stock resulting in net proceeds of approximately $1.9 million. While we intend to continue to evaluate ways to enhance our liquidity and capital position, our efforts will largely depend on future developments that are highly uncertain and cannot be predicted with confidence at this time.

We plan to continue to closely monitor the COVID-19 pandemic in order to ensure the safety of our personnel and to continue advancing our research and development activities.

Components of Results of Operations

Revenue

To date, our only revenue has consisted of research cost reimbursements recognized as service revenue, all of which is attributable to the January 2020 research agreement with Takeda to develop LB-301 in CN. We have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, and include:

salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

license maintenance fees and milestone fees incurred in connection with various license agreements;

the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and, eventually, clinical trial materials;

expenses incurred under agreements with contract research organizations, or CROs, contract manufacturing organizations, or CMOs, as well as academic institutions and consultants that conduct our preclinical studies and other scientific development services;

facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs;

costs of outside consultants, including their fees, stock-based compensation and related travel expenses; and

costs related to compliance with regulatory requirements.

We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, travel expenses, and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

Other Income (Expense), Net

Interest income consists primarily of interest on our cash and cash equivalents and investments. Interest expense consists of interest expense related to the aggregate $10.0 million principal amount of the Term A Loan borrowing under the loan and security agreement in July 2019. A portion of the interest expense on the Term A Loan is non-cash expense relating to the accretion of the debt discount and amortization of issuance costs. During the three and six months ended June 30, 2020, we recorded $0.3 million and $0.5 million, respectively, in interest expense, of which $0.2 million and $0.4 million, respectively, related to cash interest paid and the remainder to the accretion of the debt discount and amortization of issuance costs. Other expense, net consists primarily of foreign exchange losses.







        Results of Operations
        Comparison of the Three Months Ended June 30, 2020 and 2019
        The following table summarizes our results of operations for the three months
        ended June 30, 2020 and 2019:
                                        Three Months Ended
                                             June 30,
                                        2020          2019
                                          (in thousands)
        REVENUE
        Service revenue               $     965     $       -
        Total revenue                       965             -
        OPERATING EXPENSES
        Research and development          5,895         7,934
        General and administrative        3,029         2,524
        Total operating expenses          8,924        10,458
        Loss from operations             (7,959 )     (10,458 )
        Other (expense) income:
        Other (expense) income, net        (268 )         410
        Loss before income taxes         (8,227 )     (10,048 )
        Income tax provision                  -             -
        Net loss                      $  (8,227 )   $ (10,048 )
        


Revenue

Our revenue for the three months ended June 30, 2020 consisted solely of the $1.0 million in research cost reimbursements recognized as service revenue under the January 2020 research agreement with Takeda.







        Research and Development Expenses
        The following table summarizes our research and development expenses for the
        three months ended June 30, 2020 and 2019:
                                                            Three Months Ended
                                                                 June 30,
                                                                                        (Decrease) /
                                                           2020             2019          Increase
                                                                       (in thousands)
        LB-001 external development and manufacturing
        costs                                           $     2,393      $    4,676     $      (2,283 )
        Personnel-related costs                               1,398           1,498              (100 )
        Other research and development costs                  2,104           1,760               344
        Total research and development expenses         $     5,895      $    7,934     $      (2,039 )
        


Research and development expenses for the three months ended June 30, 2020 were $5.9 million, compared to $7.9 million for the three months ended June 30, 2019. The decrease of approximately $2.0 million was primarily due to decreases of approximately $2.3 million in external development and manufacturing expenses for our lead product candidate, LB-001 and $0.1 million in personnel-related costs as our increased headcount has been offset by salary cuts related to the COVID-19 pandemic. These decreases were partially offset by an increase of $0.3 million in other research and development expenses as we increased our overall research and development activities related to general platform development. While there may be fluctuations on a quarterly basis, we expect that our research and development costs will decrease during 2020, as compared to 2019, as we have already incurred a significant proportion of the LB-001 external development and manufacturing costs needed to bring LB-001 into clinical development.

General and Administrative Expenses

General and administrative expenses were $3.0 million for the three months ended June 30, 2020, compared to $2.5 million for the three months ended June 30, 2019. The increase of approximately $0.5 million was primarily due to an increase of $0.2 million in corporate legal expense, an increase of $0.1 million related to D&O insurance premiums and an increase of $0.1 million related to non-capitalizable facilities expense. We expect that our general and administrative expenses will remain relatively consistent during 2020 as compared to 2019, although there may be fluctuations on a quarterly basis.

Other (Expense) Income, Net

Other expense, net was $0.3 million for the three months ended June 30, 2020, compared to other income, net of $0.4 million for the three months ended June 30, 2019. The net decrease was primarily related to a decrease in interest income due to lower interest rates and lower capital resource balances as well as interest expense related to the loan and security agreement.







        Comparison of the Six Months Ended June 30, 2020 and 2019
        The following table summarizes our results of operations for the six months
        ended June 30, 2020 and 2019:
                                         Six Months Ended
                                             June 30,
                                        2020          2019
                                          (in thousands)
        REVENUE
        Service revenue               $   1,986             -
        Total revenue                     1,986             -
        OPERATING EXPENSES
        Research and development         13,068        13,420
        General and administrative        6,221         5,156
        Total operating expenses         19,289        18,576
        Loss from operations            (17,303 )     (18,576 )
        Other (expense) income:
        Other (expense) income, net        (379 )         853
        Loss before income taxes        (17,682 )     (17,723 )
        Income tax provision                  -           (22 )
        Net loss                      $ (17,682 )   $ (17,745 )
        


Revenue

Our revenue for the six months ended June 30, 2020 consisted solely of the $2.0 million in research cost reimbursements recognized as service revenue under the January 2020 research agreement with Takeda.







        Research and Development Expenses
        The following table summarizes our research and development expenses for the six
        months ended June 30, 2020 and 2019:
                                                            Six Months Ended
                                                                June 30,
                                                                                      (Decrease) /
                                                           2020           2019          Increase
                                                                      (in thousands)
        LB-001 external development and manufacturing
        costs                                           $    5,887     $    7,430     $      (1,543 )
        Personnel-related costs                              3,164          2,695               469
        Other research and development costs                 4,017          3,295               722
        Total research and development expenses         $   13,068     $   13,420     $        (352 )
        


Research and development expenses for the six months ended June 30, 2020 were $13.1 million, compared to $13.4 million for the six months ended June 30, 2019. The decrease of approximately $0.4 million was primarily due to a decrease of approximately $1.5 million related to external development and manufacturing expenses for our lead product candidate, LB-001. This was partially offset by an increase of $0.7 million in other research and development expenses as we increased our overall research and development activities related to general platform development and $0.5 million in personnel-related costs due to increases in research and development headcount. Personnel-related costs for the six months ended June 30, 2020 included stock-based compensation expense of $0.6 million, compared to $0.4 million for the six months ended June 30, 2019.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2020 were $6.2 million, compared to $5.2 million for the six months ended June 30, 2019. The increase of approximately $1.0 million reflects a $0.5 million increase in personnel-related costs which was mainly the result of a $0.5 million increase in stock-based compensation expense, a $0.3 million increase in corporate and IP legal expenses and an increase of $0.3 million related to D&O insurance premiums.

Other (Expense) Income, Net

Other expense, net was $0.4 million for the six months ended June 30, 2020, compared to other income, net of $0.9 million for the six months ended June 30, 2019. The net decrease was primarily related to a decrease in interest income due to lower interest rates and lower capital resource balances as well as interest expense related to the loan and security agreement.

Liquidity and Capital Resources

Overview

Since our inception and through June 30, 2020, we have not generated any sales revenue and have incurred significant losses and negative cash flows from our operations.

As a result of the uncertainties for our business caused by the COVID-19 pandemic, we have implemented certain measures as part of our effort to preserve capital as described further under the heading "Impact of COVID-19." As of June 30, 2020, we had cash and cash equivalents of $36.7 million, which we believe will be able to fund our operating expenses and capital expenditure requirements into the third quarter of 2021. While we intend to continue to evaluate ways to enhance our liquidity and capital position, our efforts will largely depend on future developments that are highly uncertain and cannot be predicted with confidence at this time. As such, there is substantial doubt about our ability to continue as a going concern within one year of the date of this filing.







        Cash Flows
        The following table summarizes our cash flows for the six months ended June 30,
        2020 and 2019:
                                                                   Six Months Ended
                                                                       June 30,
                                                                  2020          2019
                                                                    (in thousands)
        Net cash used in operating activities                   $ (15,845 )   $ (16,962 )
        Net cash provided by (used in) investing activities        17,298       (38,577 )
        Net cash provided by financing activities                   1,991            82
        Effect of foreign exchange rates on cash and cash
          equivalents                                                   -             7
        Net increase (decrease) in cash, cash equivalents and
          restricted cash                                       $   3,444     $ (55,450 )
        


Operating Activities

During the six months ended June 30, 2020, net cash used in operating activities was approximately $15.8 million, primarily related to our net loss adjusted for non-cash charges and changes in the components of working capital. The $1.1 million decrease in net cash used in operating activities during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019, was primarily driven by the three month rent abatement period received on the 65 Hayden Ave Lease as well as larger non-cash stock-based compensation expense.

Investing Activities

During the six months ended June 30, 2020, net cash provided by investing activities was $17.3 million as the proceeds from our short-term investments that matured during the period were not reinvested and were instead held as cash and cash equivalents. During the six months ended June 30, 2019, net cash used in investing activities was $38.6 million, primarily related to net short-term investments activity of $37.8 million and the purchase of property and equipment of $0.7 million.

Financing Activities

During the six months ended June 30, 2020, net cash provided by financing activities was $2.0 million primarily driven by approximately $1.9 million in net proceeds from sales of our common stock under the open market sales agreement with Jefferies LLC. During the six months ended June 30, 2019, net cash provided by financing activities consisted of approximately $0.1 million related to the exercise of stock options.

Funding Requirements

We expect to continue to incur a significant amount of expenses in connection with our ongoing activities for the foreseeable future. In particular, we will incur significant expenses related to the preclinical activities and clinical trials of our product candidates and any future product candidates.

We expect that our expenses will increase substantially if and as we:

continue our research and preclinical development of any product candidates from our current or future research programs;

initiate clinical trials for LB-001 and any other product candidates we identify and develop;

seek to identify, assess, acquire and/or develop additional research programs and additional product candidates;

seek marketing approvals for any product candidate that successfully complete clinical trials;

develop, optimize, scale and validate a manufacturing process and analytical methods for any product candidates we may develop;

establish and build out internal process and analytical development capabilities and preclinical and clinical grade production;

obtain market acceptance of any product candidates we may develop as viable treatment options;

address competing technological and market developments;

maintain, expand and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

further develop our GeneRide technology platform and our next generation capsid platform;

hire additional technical, quality, regulatory, clinical, scientific and commercial personnel and add operational, financial and management information systems and personnel, including personnel to support our process and product development, manufacturing and planned future commercialization efforts;

make royalty, milestone or other payments under current and any future in-license agreements;

establish and maintain supply chain and manufacturing relationships with third parties that can provide adequate products and services, in both amount, timing and quality, to support clinical development and the market demand for any product candidate for which we obtain regulatory and marketing approval;

. . .

Aug 10, 2020

COMTEX_369162272/2041/2020-08-10T08:16:52

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