(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.
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. At the American Society of Gene & Cell Therapy, or ASGCT, conference in May 2020, data was presented showing that the capsids deliver highly efficient functional transduction of human hepatocytes in a humanized mouse model. The data also showed the capsids exhibited improved manufacturability with low levels of pre-existing neutralizing antibodies in human samples. Based on this data, we believe the top-tier capsid candidates from this effort demonstrated the potential to achieve significant improvements over benchmark adeno-associated viruses, or AAVs, that are currently in clinical development. We are developing these highly potent vectors for internal development candidates and potentially for business development collaborations. We plan to announce data generated from translational animal models using these capsids in early 2021.
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 SUNRISE Phase 1/2 clinical 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 trial will evaluate two dose cohorts of LB-001 (cohort 1 = 5 x 1013 vg/kg and cohort 2 = 1 x 1014 vg/kg). After initially starting with the lower dose in the 3 to 12 year old patient group (cohort 1, older age group, n=2), age de-escalation (cohort 1, younger age group, n=2) and dose escalation (cohort 2, older age group, n=2) are planned to occur in parallel. The decision to escalate the dose will be determined based solely on safety, whereas the decision to age de-escalate will be based on both safety and the detection of the pharmacodynamic biomarker, albumin-2A. Afterwards, based on a review of safety and/or the detection of albumin-2A, as applicable, from these two patient groups, the trial will progress to dosing additional patients in the younger age group at the higher dose (cohort 2, younger age group, n=2). The SUNRISE trial includes a six-week staggering interval between the dosing of each patient. 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. We expect to enroll the first patient in early 2021 and provide an operational update regarding the dose escalation and age de-escalation in mid-2021. Based on the parallel age de-escalation and dose escalation plan, we expect to announce interim data from both age groups and both dose cohorts in the SUNRISE trial by the end of 2021.
In addition to the Phase 1/2 SUNRISE trial, we are also conducting a retrospective natural history study designed to evaluate disease progression in pediatric patients with MMA. We expect this study will provide us with insights into, among other matters, the course of disease progression, the impact of a liver transplant on the outcomes of MMA patients and potential endpoints such as the relevance of methylmalonic acid levels on clinical outcomes, with the goal of informing our future clinical development in MMA and our discussions with regulatory agencies as we look toward advancing our MMA program. We plan to announce preliminary findings from our retrospective natural history study in mid-2021.
In November 2020, the U.S. Food and Drug Administration, or FDA, granted Fast Track designation for LB-001 for the treatment of MMA. In addition, we have received rare pediatric disease designation and orphan drug designation from the FDA for LB-001.
We expect that the initial product candidates we develop, including LB-001, will address diseases by targeting the liver, including a category of diseases known as inborn errors of metabolism, a group of genetic disorders that disrupt normal metabolic processes. We believe that achieving clinical proof of concept in an inherited liver disease such as MMA will validate our GeneRide platform technology, including its potential application to other tissues and diseases. Our approach to expanding our indication pipeline may also incorporate indications such as propionic acidemia, which like MMA is an organic acidemia, where we can leverage the experience we have gained through our research and the modularity of our platform. Furthermore, 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 skeletal muscle and the central nervous system, or CNS. We plan to select at least one new indication from our preclinical portfolio in 2021 and commence IND-enabling studies utilizing our modular approach and leveraging learnings from our lead programs. Depending on data and timelines, we plan to evaluate the integration of our Next Generation Capsids into our future development programs.
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. Through September 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 $3.2 million in net proceeds through at-the-market sales of our common stock. In addition, in October 2020, we raised approximately $45.2 million in net proceeds, after deducting underwriting discounts and commissions and other estimated offering expenses, through a follow-on offering. 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 $25.7 million for the nine months ended September 30, 2020 and our accumulated deficit was $93.1 million as of September 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% which remained in effect until September 30, 2020. We have also adopted certain other cost-cutting measures aimed at enhancing our capital position. During the nine months ended September 30, 2020, we entered into "at-the-market" sales of our common stock resulting in net proceeds of approximately $3.2 million. In September 2020, we entered into an amendment to the loan and security agreement with Oxford Finance LLC and Horizon Technology Finance Corporation, or the Loan Agreement, to extend the availability of the $10.0 million second loan tranche until the earliest of
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
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.
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 and related 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 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 nine months ended September 30, 2020, we recorded $0.3 million and $0.8 million, respectively, in interest expense, of which $0.2 million and $0.7 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 September 30, 2020 and 2019 The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019: Three Months Ended September 30, 2020 2019 (in thousands) REVENUE Service revenue $ 926 $ - Total revenue 926 - OPERATING EXPENSES Research and development 5,492 8,858 General and administrative 3,200 2,175 Total operating expenses 8,692 11,033 Loss from operations (7,766 ) (11,033 ) Other (expense) income: Other (expense) income, net (273 ) 115 Loss before income taxes (8,039 ) (10,918 ) Income tax provision - - Net loss $ (8,039 ) $ (10,918 )
Our revenue for the three months ended September 30, 2020 consisted solely of the $0.9 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 September 30, 2020 and 2019: Three Months Ended September 30, (Decrease) / 2020 2019 Increase (in thousands) LB-001 external development and manufacturing costs $ 1,714 $ 5,546 $ (3,832 ) Personnel-related costs $ 1,536 1,534 2 Other research and development costs $ 2,242 1,778 464 Total research and development expenses $ 5,492 $ 8,858 $ (3,366 )
Research and development expenses for the three months ended September 30, 2020 were $5.5 million, compared to $8.9 million for the three months ended September 30, 2019. The decrease of approximately $3.4 million was primarily due to decreases of approximately $3.8 million in external development and manufacturing expenses for our lead product candidate, LB-001. This decrease was partially offset by an increase of $0.5 million in other research and development expenses as we increased our overall research and development activities related GeneRide and our Next Generation Capsids. 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 $3.2 million for the three months ended September 30, 2020, compared to $2.2 million for the three months ended September 30, 2019. The increase of approximately $1.0 million was primarily driven by an increase of $0.4 in stock-based compensation expense and a $0.4 million increase in legal fees and professional services. We expect that our general and administrative expenses will remain relatively consistent for 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 September 30, 2020, compared to other income, net of $0.1 million for the three months ended September 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 agreement.
Comparison of the Nine Months Ended September 30, 2020 and 2019 The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019: Nine Months Ended September 30, 2020 2019 (in thousands) REVENUE Service revenue $ 2,912 - Total revenue 2,912 - OPERATING EXPENSES Research and development 18,560 22,278 General and administrative 9,421 7,331 Total operating expenses 27,981 29,609 Loss from operations (25,069 ) (29,609 ) Other (expense) income: Other (expense) income, net (652 ) 968 Loss before income taxes (25,721 ) (28,641 ) Income tax provision - (22 ) Net loss $ (25,721 ) $ (28,663 )
Our revenue for the nine months ended September 30, 2020 consisted solely of the $2.9 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 nine months ended September 30, 2020 and 2019: Nine Months Ended September 30, (Decrease) / 2020 2019 Increase (in thousands) LB-001 external development and manufacturing costs $ 7,601 $ 12,976 $ (5,375 ) Personnel-related costs 4,700 4,229 471 Other research and development costs 6,259 5,073 1,186 Total research and development expenses $ 18,560 $ 22,278 $ (3,718 )
Research and development expenses for the nine months ended September 30, 2020 were $18.6 million, compared to $22.3 million for the nine months ended September 30, 2019. The decrease of approximately $3.7 million was primarily due to a decrease of approximately $5.4 million related to external development and manufacturing expenses for our lead product candidate, LB-001. This decrease was partially offset by an increase of $1.2 million in other research and development expenses as we increased our overall research and development activities related to GeneRide and our Next Generation Capsids and a $0.5 million increase in personnel-related costs. Personnel-related costs for the nine months ended September 30, 2020 included stock-based compensation expense of $0.8 million, compared to $0.6 million for the nine months ended September 30, 2019.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2020 were $9.4 million, compared to $7.3 million for the nine months ended September 30, 2019. The increase of approximately $2.1 million reflects a $1.0 million increase in personnel-related costs primarily driven by an increase in stock-based compensation expense, a $0.4 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 $0.7 million for the nine months ended September 30, 2020, compared to other income, net of $1.0 million for the nine months ended September 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 agreement.
Liquidity and Capital Resources
Since our inception and through September 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 September 30, 2020, we had cash and cash equivalents of $32.3 million, which combined with the estimated net proceeds of approximately $45.2 million under our October follow-on offering, we believe will be sufficient to fund our operating expenses and capital expenditures for at least the next twelve months from the date of issuance of the financial statements included in this Quarterly Report on Form 10-Q. 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.
Cash Flows The following table summarizes our cash flows for the nine months ended September 30, 2020 and 2019: Nine Months Ended September 30, 2020 2019 (in thousands) Net cash used in operating activities $ (21,436 ) $ (27,048 ) Net cash provided by (used in) investing activities 17,157 (25,174 ) Net cash provided by financing activities 3,311 9,988 Effect of foreign exchange rates on cash and cash equivalents - 8 . . .
Nov 09, 2020
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