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Aug. 4, 2022, 8:16 a.m. EDT

10-Q: REPLIMUNE GROUP, INC.

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(EDGAR Online via COMTEX) -- 2015 Enterprise Management Incentive Share Option Plan

The 2015 Enterprise Management Incentive Share Option Plan of Replimune UK (the "2015 Plan") provided for Replimune UK to grant incentive stock options, non-statutory stock options, stock awards, stock units, stock appreciation rights and other stock-based awards. Incentive stock options were granted under the 2015 Plan only to the Company's employees, including officers and directors who were also employees. Non-statutory stock options were granted under the 2015 Plan to employees, members of the board of directors, outside advisors and consultants of the Company.

2017 Equity Compensation Plan

In July 2017, in conjunction with reorganization by Replimune Limited, pursuant to which each shareholder thereof exchanged their outstanding shares in Replimune Limited for shares in Replimune Group, Inc., on a one-for-one basis (the "Reorganization"), the 2015 Plan was terminated, and all awards were cancelled with replacement awards issued under the 2017 Equity Compensation Plan (the "2017 Plan"). Subsequent to the Reorganization, no additional grants have been or will be made under the 2015 Plan and any outstanding awards under the 2015 Plan have continued, and will continue with their original terms. The Company concluded that the cancellation of the 2015 Plan and issuance of replacement awards under the 2017 Plan was a modification with no change in the material rights and preferences and therefore no recorded change in the fair value of each respective award.

The Company's 2017 Plan provides for the Company to grant incentive stock options or non-statutory stock options, stock awards, stock units, stock appreciation rights and other stock-based awards. Incentive stock options were granted under the 2017 Plan only to the Company's employees, including officers and directors who were also employees. Restricted stock awards and non-statutory stock options were granted under the 2017 Plan to employees, officers, members of the board of directors, advisors and consultants of the Company. The maximum number of common shares that may be issued under the 2017 Plan was 2,659,885, of which none remained available for future grants as of June 30, 2022. Shares with respect to which awards have expired, terminated, surrendered or cancelled under the 2017 Plan without having been fully exercised will be available for future awards under the 2018 Plan referenced below. 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.

2018 Omnibus Incentive Compensation Plan

On July 9, 2018, the Company's board of directors adopted, and the Company's stockholders approved the 2018 Omnibus Incentive Compensation Plan (the "2018 Plan"), which became effective immediately prior to the effectiveness of the registration statement filed in connection with the Company's initial public offering. The 2018 Plan provides for the issuance of incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights and other stock-based







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awards. The number of shares of common stock initially reserved for issuance under the 2018 Plan is 3,617,968 shares. If any options or stock appreciation rights, including outstanding options and stock appreciation rights granted under the 2017 Plan (up to 2,520,247 shares), terminate, expire, or are canceled, forfeited, exchanged, or surrendered without having been exercised, or if any stock awards, stock units or other stock-based awards, including outstanding awards granted under the 2017 Plan, are forfeited, terminated, or otherwise not paid in full in shares of common stock, the shares of the Company's common stock subject to such grants will be available for purposes of the 2018 Plan. The number of shares reserved for issuance under the 2018 Plan will increase automatically on the first day of each April equal to 4.0% of the total number of shares of Company stock outstanding on the last trading day in the immediately preceding fiscal year, which includes for these purposes, the 5,284,238 shares issuable upon exercise of those pre-funded warrants described in Note 7 to these consolidated financial statements, or such lesser amount as determined by the Board. On April 1, 2022, the number of shares reserved for issuance under the 2018 Plan automatically increased by 2,104,915 shares pursuant to the terms of the 2018 Plan and based on total number of shares of Company stock outstanding on March 31, 2022. On April 1, 2021, the number of shares reserved for issuance under the 2018 Plan automatically increased by 2,074,028 shares pursuant to the terms of the 2018 Plan. As of June 30, 2022, 2,337,711 shares remained available for future grants under the 2018 Plan.

The 2015 Plan, the 2017 Plan and the 2018 Plan are administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. However, the board of directors shall administer and approve all grants made to non-employee directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, except that the exercise price per share of incentive stock options may not be less than 100% of the fair market value of the common stock on the date of grant (or 110% of fair value in the case of an award granted to employees who hold more than 10% of the total combined voting power of all classes of stock at the time of grant) and the term of stock options may not be greater than five years for an incentive stock option granted to a 10% stockholder and greater than ten years for all other options granted. Stock options awarded under both plans expire ten years after the grant date, unless the board of directors sets a shorter term. Vesting periods for the plans are determined at the discretion of the board of directors. Incentive stock options granted to employees and non-statutory options granted to employees, officers, members of the board of directors, advisors, and consultants of the Company typically vest over four years. In 2021 the board of directors initiated the award of restricted stock units ("RSUs"), under the 2018 Plan in addition to stock option awards available as part of the Company's equity incentive for employees, officers, advisors and consultants of the Company. The RSUs typically vest over four approximately equal annual installments with the first such installment occurring on a designated vesting date that is approximately on the one year anniversary of the date of grant and the subsequent installments occurring on the subsequent three annual anniversaries of the designated vesting date.

Employee Stock Purchase Plan

On July 9, 2018, the Company's board of directors adopted and the Company's stockholders approved the Employee Stock Purchase Plan (the "ESPP"), which became effective immediately prior to the effectiveness of the registration statement that was filed in connection with the Company's IPO. The total shares of common stock initially reserved for issuance under the ESPP is 348,612 shares. In addition, as of the first trading day of each fiscal year during the term of the ESPP (excluding any extensions), an additional number of shares of the Company's common stock equal to 1% of the total number of shares outstanding on the last trading day in the immediately preceding fiscal year, which includes for these purposes, the 5,284,238 shares issuable upon exercise of those pre-funded warrants described in Note 7 to these consolidated financial statements, or 697,224 shares, whichever is less (or such lesser amount as determined by the Company's board of directors) will be added to the number of shares authorized under the ESPP. In accordance with the terms of the ESPP, on April 1, 2022 and 2021, the number of shares reserved for issuance under the ESPP automatically increased by 526,228 and 518,507 shares respectively, for a total of 2,076,603 shares reserved for the ESPP. If the total number of shares of common stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the ESPP, then the plan administrator will allocate the available shares pro-rata and refund any excess payroll deductions or other contributions to participants. The Company's ESPP is not currently active.

Out-of-Plan Inducement Grant

In May 2021, the Company granted an equity award to a newly hired executive as a material inducement to enter into employment with the Company. The grant constitutes an "employment inducement grant" in accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules and was issued outside of the 2018 Plan and each of the other stock incentive plans described above. The inducement grant included a nonqualified stock option to purchase up to 125,000 shares of the Company's common stock, as well as a restricted stock unit grant representing 88,333 shares of the Company's common stock. These stock option and restricted stock unit inducement grants have terms and conditions consistent with those set forth under the 2018 Plan and vest under the same respective vesting schedules as stock option and restricted stock unit awards granted under the 2018 Plan. The inducement grant is included in the stock option and RSU award tables below.







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Stock option valuation

The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. As the Company has limited company-specific historical and implied volatility information, the expected stock volatility is based on a combination of Replimune volatility and the historical volatility of a publicly traded set of peer companies. 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 that the Company used to determine the grant-date fair value of stock options granted to employees and directors:







                                         Three Months Ended
                                              June 30,
                                          2022              2021
        Risk-free interest rate                2.59  %     1.12  %
        Expected term (in years)                   6.0         6.0
        Expected volatility                    75.6  %     80.2  %
        Expected dividend yield                   0  %        0  %
        


Stock options

The following table summarizes the Company's stock option activity:







                                                                              Weighted               Weighted
                                                                               Average               Average               Aggregate
                                                       Number of              Exercise             Contractual             Intrinsic
                                                         Shares                 Price              Term (Years)              Value
        Outstanding as of March 31, 2022               6,514,334            $    16.78                        7.26       $   30,358
        Granted                                        1,265,509            $    18.08
        Exercised                                       (124,028)           $    12.60
        Cancelled                                       (144,256)           $    19.82
        Outstanding as of June 30, 2022                7,511,559            $    17.01                        7.47       $   31,884
        Options exercisable as of March 31, 2022       3,645,749            $    10.85                        6.31       $   24,875
        Options exercisable as of June 30, 2022        4,144,044            $    13.15                        6.36       $   26,859
        


As of June 30, 2022, there was $46.3 million of unrecognized compensation cost related to unvested common stock options, which is expected to be recognized over a weighted average period of 2.7 years.

The weighted average grant-date fair value of stock options granted during the three months ended June 30, 2022 and 2021 was $12.15 and $22.29, respectively. The aggregate intrinsic value of stock options exercised during the three months ended June 30, 2022 was $0.5 million.

Restricted stock units







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A summary of the changes in the Company's RSUs during the three months ended June 30, 2022 is as follows:







                                                                                                                    Weighted
                                                                                                                     Average
                                                                         Number of Restricted Shares          Grant Date Fair Value
        Outstanding as of March 31, 2022                                           826,213                             31.38
        Granted                                                                    616,902                             18.01
        Vested                                                                    (149,341)                            32.92
        Cancelled                                                                  (37,651)                            27.79
        Outstanding as of June 30, 2022                                          1,256,123                             24.74
        


As of June 30, 2022, there was $29.0 million of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted average period of 3.4 years. As of June 30, 2021, there was $20.9 million unrecognized compensation cost related to unvested restricted stock units.

9. Net loss per share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows:







                                                                               Three Months Ended June 30,
                                                                               2022                   2021
        Numerator:
        Net loss                                                         $      (42,253)         $    (27,311)
        Denominator:
        Weighted average common shares outstanding, basic and diluted        54,211,446            51,910,331
        Net loss per share, basic and diluted                            $        (0.78)         $      (0.53)
        


The November 2019 Pre-Funded Warrants, the June 2020 Pre-Funded Warrants and the October 2020 Pre-Funded Warrants are included as outstanding common stock in the calculation of basic and diluted net loss per share.

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







                                                    Three Months Ended June 30,
                                                 2022                        2021
        Options to purchase common stock     7,511,559                   7,411,680
        Warrants to purchase common stock      497,344                     497,344
                                             8,008,903                   7,909,024
        


10. Significant agreements

Agreement with Bristol-Myers Squibb Company

In February 2018, the Company entered into an agreement with Bristol-Myers Squibb Company ("BMS"). Pursuant to the agreement, BMS will provide to the Company, at no cost, a compound for use in the Company's ongoing clinical trial of RP1. Under the agreement, the Company will sponsor, fund and conduct the clinical trial in accordance with an agreed-upon Table of Contents

protocol. BMS granted the Company a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its intellectual property to its compound in the clinical trial and agreed to supply its compound, at no cost to the Company, for use in the clinical trial. In January 2020, this agreement was expanded to cover an additional cohort of 125 patients with anti-PD-1 failed melanoma.

Unless earlier terminated, the agreement will remain in effect until (i) the completion of the clinical trial, (ii) all related clinical trial data have been delivered to both parties and (iii) the completion of any statistical analyses and bioanalyses contemplated by the clinical trial protocol or any analysis otherwise agreed upon by the parties. The agreement may be terminated by either party (x) in the event of an uncured material breach by the other party, (y) in the event the other party is insolvent or in bankruptcy proceedings or (z) for safety reasons. Upon termination, the licenses granted to the Company to use BMS's compound in the clinical trial will terminate.

In April 2019, the Company entered into a separate agreement with BMS on terms similar to the terms set forth in the agreement described above, pursuant to which BMS will provide to the Company, at no cost, nivolumab for use in the Company's Phase 1 clinical trial of RP2 in combination with nivolumab.

Agreement with Regeneron Pharmaceuticals, Inc.

In May 2018, the Company entered into an agreement with Regeneron Pharmaceuticals, Inc. ("Regeneron"). The Company and Regeneron are each independently developing compounds for the treatment of certain tumor types. Pursuant to the agreement, the Company and Regeneron will undertake one or more clinical trials using a combination of the compounds being developed by each entity. Under the agreement, each study will be conducted under terms set out in a separately agreed upon study plan that will identify the name of the sponsor and which party will manage the particular clinical trial, and include the protocol, the budget and a schedule of clinical obligations. In June 2018, under the terms of the agreement between the Company and Regeneron, the parties agreed to the first study plan. The Company and Regeneron have agreed to the protocol, budget, sample testing and clinical obligations schedule under the study plan. Development and supply costs associated with the first study plan will be split equally between the Company and Regeneron.

Pursuant to the terms of the agreement, each party granted the other party a non-exclusive license under its respective intellectual property and agreed to contribute the necessary resources needed to fulfill its respective obligations, in each case, under the terms of the agreed-upon or to-be agreed upon study plans. Development costs of a particular clinical trial will be split equally between the Company and Regeneron in accordance with the agreed upon study plan.

The agreement may be terminated by either party if (i) there is no active study plan for which a final study report has not been completed and the parties have not entered into a study plan for an additional clinical trial within a period of time after the delivery of the most recent final study report or (ii) in the event of a material breach.

The agreement with Regeneron is accounted for under ASC 808, Collaborative Arrangements ("ASC 808"), as both parties are active participants and each party pays its own compound costs and shares equally in development costs in accordance with and up to the amount in the agreed upon first study plan. The Company will account for costs incurred as part of the study, including costs to supply compounds for use in the study, as research and development expenses within the consolidated statement of operations. The Company will recognize any amounts received from Regeneron in connection with this agreement as an offset to research and development expense within the consolidated statement of operations.

Under the terms of the agreement, on a quarterly basis the Company and Regeneron true-up costs of the study and make corresponding payments to the party that incurred the majority of the costs up to the amount in the study plan or modified version thereof agreed by the Joint Development Committee established to govern the collaboration. In July 2022, Regeneron informed the Company that the costs of the study have reached the initial budget for the initial study plan of June 2018 and that Regeneron's reimbursement of CERPASS study costs to the Company have completed in the period ending June 30, 2022 in relation to the initial study budget. The Company and Regeneron are in communication regarding receiving Regeneron's acknowledgement of the sharing of the study costs according to the current budget that superseded that of the initial study plan and initial budget. The true-up cost in discussion for the period ending June 30, 2022 is $1.4 million to the Company, which have not been recorded in prepaid expenses and other current assets in the consolidated balance sheet or as an offset to research and development expense within the consolidated statement of operations. During the three months ended June 30, 2022 and 2021, the Company did not make any payments to Regeneron under the terms of the agreement. During the three months ended June 30, 2022 and 2021, the Company received payments under the terms of the agreement from Regeneron of $2.0 million and $1.3 million, respectively. As of June 30, 2022 and March 31, 2022, the Company recorded $1.1 million and $2.0 million of receivables from Regeneron in connection with this agreement in prepaid expenses and other current assets in the consolidated balance sheet, respectively.







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11. Commitments and contingencies







        Leases
        The table below presents the lease-related assets and liabilities recorded on
        the consolidated balance sheet as of June 30, 2022:
                                                      Three Months Ended June 30,
                                                           2022                   2021
        Lease cost
        Finance lease costs:
        Amortization of right-to-use asset     $          607                   $   607
        Interest on lease liabilities                     552                       558
        Operating lease costs                             259                       242
        Total lease cost                       $        1,418                   $ 1,407
        


The following table summarizes the classification of lease costs in the consolidated statement of operations for the three months ended June 30, 2022 and 2021 as follows:







                                                         Three Months Ended June 30,
                                                              2022                   2021
        Finance Lease Costs
          Research and development                $          518                   $   518
          Selling, general and administrative                 89                        89
        Other income (expense)                               552                       558
        Operating Lease Costs
        Research and development                             110                        94
          Selling, general and administrative                149                       148
        Total lease cost                          $        1,418                   $ 1,407
        


The following table summarizes the maturity of the Company's lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating and financing lease liabilities recognized on its balance sheet as of June 30, 2022:







                                                              June 30, 2022
                                          Operating leases       Financing lease        Total
        2023 (remaining nine months)     $             777      $          1,932      $  2,709
        2024                                         1,044                 2,639         3,683
        2025                                         1,053                 2,718         3,771
        2026                                         1,062                 2,799         3,861
        2027                                         1,030                 2,883         3,913
        Thereafter                                   2,868                38,022        40,890
        Total lease payments                         7,834                50,993        58,827
        Less: interest                               2,257                24,102        26,359
        Total lease liabilities          $           5,577      $         26,891      $ 32,468
        


The following table provides lease disclosure as of June 30, 2022 and March 31, 2022:







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                                                    June 30, 2022       March 31, 2022
        Leases
        Right-to-use operating lease asset         $        5,269      $         5,552
        Right-to-use finance lease asset                   41,487               42,094
        Total lease assets                         $       46,756      $        47,646
        Operating lease liabilities, current       $        1,036      $         1,070
        Finance lease liabilities, current                  2,581                2,562
        Operating lease liabilities, non-current            4,541                4,801
        Finance lease liabilities, non-current             24,310               24,406
        Total lease liabilities                    $       32,468      $        32,839
        


The following table provides lease disclosure for the three months ended June 30, 2022 and 2021:







                                                                                  Three Months Ended June 30,
                                                                            2022                                  2021
        Other information
        Cash paid for amounts included in the measurement of
        lease liabilities:
        Operating cash flows from operating leases           $        261                             $     242
        Operating cash flows from finance leases             $        552                             $     558
        Financing cash flows from finance leases             $         77                             $      53
        Weighted-average remaining lease term - operating
        leases                                                             7.6            years                8.6            years
        Weighted-average remaining lease term - financing
        leases                                                            17.3            years               18.1            years
        . . .
        


Aug 04, 2022

COMTEX_411575440/2041/2022-08-04T08:16:03

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