Korro Bio(KRRO) - 2020 Q2 - Quarterly Report

Filing Information FORM 10-Q Details This Form 10-Q report for Frequency Therapeutics, Inc. covers the period ended June 30, 2020, identifying the company as a non-accelerated filer, smaller reporting company, and emerging growth company - The registrant is a non-accelerated filer, smaller reporting company, and an emerging growth company[4] Common Stock Outstanding | Date | Shares Outstanding | | :--- | :--- | | July 31, 2020 | 33,645,901 | Forward-Looking Statements Nature of Forward-Looking Statements The report contains forward-looking statements subject to safe harbor provisions, involving known and unknown risks and uncertainties that may cause actual results to differ materially from projections - The report contains forward-looking statements covered by safe harbor provisions, which are subject to known and unknown risks and uncertainties[9] - Forward-looking statements are based on current expectations and projections about future events and financial trends[10] Key Risks and Uncertainties Key risks include the impact of COVID-19 on clinical trials and operations, the success of product candidates like FX-322, regulatory approvals, intellectual property, and financing - Impact of COVID-19 on clinical trials, research, development, manufacturing, and financial markets is a significant risk[11] - Risks include the initiation, timing, progress, and results of preclinical and clinical trials for FX-322 and the MS program[11] - Ability to develop the progenitor cell activation (PCA) platform, obtain regulatory approvals, commercialize products, protect intellectual property, and secure additional financing are crucial factors[11] PART I. Financial Information Item 1. Consolidated Financial Statements (Unaudited) This section presents Frequency Therapeutics, Inc.'s unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, with detailed explanatory notes Consolidated Balance Sheets Total assets decreased from $223.2 million at December 31, 2019, to $204.8 million at June 30, 2020, primarily due to reduced cash and marketable securities, while total liabilities also decreased Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $195,379 | $200,158 | | Short-term marketable securities | — | $17,197 | | Total current assets | $198,424 | $221,355 | | Total assets | $204,786 | $223,218 | | Deferred revenue | $35,265 | $48,152 | | Total current liabilities | $41,165 | $52,780 | | Total liabilities | $43,085 | $55,860 | | Total stockholders' equity | $161,701 | $167,358 | Consolidated Statements of Operations Revenue for the three months ended June 30, 2020, was $8.5 million, with a net loss of $6.0 million, while six-month revenue was $15.8 million and net loss was $10.9 million, showing an improvement from the prior year Consolidated Statements of Operations Highlights (in thousands, except per share) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $8,523 | $— | $15,787 | $— | | Research and development | $8,764 | $3,921 | $15,434 | $7,367 | | General and administrative | $5,959 | $3,098 | $12,208 | $5,568 | | Total operating expenses | $14,723 | $7,019 | $27,642 | $12,935 | | Net loss | $(6,025) | $(6,852) | $(10,938) | $(12,678) | | Net loss per share (basic & diluted) | $(0.19) | $(3.42) | $(0.35) | $(6.67) | Consolidated Statements of Comprehensive Loss Comprehensive loss for the three months ended June 30, 2020, was $5.95 million, and for the six months, $10.93 million, both improving from prior periods due to reduced net loss Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(6,025) | $(6,852) | $(10,938) | $(12,678) | | Unrealized gain on marketable securities | $75 | $80 | $6 | $150 | | Comprehensive loss | $(5,950) | $(6,772) | $(10,932) | $(12,528) | Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) Stockholders' equity decreased from $167.4 million at December 31, 2019, to $161.7 million at June 30, 2020, primarily due to net loss, partially offset by stock-based compensation and common stock issuance Stockholders' Equity Changes (Six Months Ended June 30, 2020, in thousands) | Item | Balance, Dec 31, 2019 | Stock-based compensation | Issuance of common stock | Other comprehensive income | Net loss | Balance, June 30, 2020 | | :-------------------------- | :-------------------- | :----------------------- | :----------------------- | :------------------------- | :------- | :--------------------- | | Total stockholders' equity | $167,358 | $4,575 | $700 | $6 | $(10,938) | $161,701 | Consolidated Statements of Cash Flows Net cash used in operating activities was $19.6 million for the six months ended June 30, 2020, with investing activities providing $15.9 million and financing activities providing $0.7 million, resulting in a $3.1 million net decrease in cash Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Activity | 2020 | 2019 | | :-------------------------------------- | :----- | :----- | | Net cash used in operating activities | $(19,625) | $(10,622) | | Net cash provided by (used in) investing activities | $15,854 | $(28,328) | | Net cash provided by financing activities | $700 | $430 | | Net decrease in cash, cash equivalents and short-term investments | $(3,071) | $(38,520) | | Cash, cash equivalents, short-term investments and restricted cash at end of period | $197,188 | $3,769 | Notes to Unaudited Consolidated Financial Statements These notes detail the company's financial statements, covering organization, accounting policies, fair value, property, accrued expenses, equity, stock compensation, income taxes, collaboration, and commitments Note 1. Organization and basis of presentation Frequency Therapeutics, Inc. is a clinical-stage biotechnology company focused on regenerative medicine, having completed a reverse stock split, IPO, and private placement, while facing risks including the COVID-19 pandemic - Frequency Therapeutics, Inc. is a clinical-stage biotechnology company focused on harnessing innate biology for degenerative disease repair[30] - The company completed a 1-for-6.7355 reverse stock split in September 2019 and an IPO in October 2019, raising approximately $79.7 million in net proceeds[31][32] - A private placement in July 2020 generated $40.1 million in net proceeds[33] - The COVID-19 pandemic is expected to materially and adversely impact financial estimates and operations in the near term[35] - The company has incurred recurring losses and had an accumulated deficit of $79.8 million as of June 30, 2020, expecting continued operating losses[37] Note 2. Summary of significant accounting policies This note outlines the company's significant accounting policies, covering basis of presentation, consolidation, estimates, comprehensive income, segment information, cash, marketable securities, fair value, property, R&D, leases, revenue, stock compensation, income taxes, and net loss per share - The company operates as a single operating segment focused on discovering and developing small molecule drugs that activate progenitor cells[46] - Early adopted ASC 842 for leases as of January 1, 2020, recognizing ROU assets and lease liabilities[66][104] - Revenue from collaborative arrangements (e.g., Astellas Agreement) is recognized over time using an input method based on research and development costs incurred[73][154] - Stock-based compensation is expensed based on grant date fair values using the Black-Scholes model[89] - Net loss per share is basic and diluted due to anti-dilutive potential common shares[96][97] Note 3. Fair value measurements Financial assets measured at fair value primarily consist of Level 1 money market funds, with no short-term marketable securities as of June 30, 2020, unlike the prior year Financial Assets at Fair Value (in thousands) | Item | June 30, 2020 (Fair Market Value) | December 31, 2019 (Fair Market Value) | | :-------------------------- | :------------------------------- | :------------------------------- | | Money market funds | $194,546 | $200,119 | | U.S. Government treasury securities | — | $17,197 | | Total | $194,546 | $217,316 | Note 4. Property and equipment Property and equipment, net, increased from $1.76 million at December 31, 2019, to $2.56 million at June 30, 2020, with depreciation expense of $459 thousand for the six months ended June 30, 2020 Property and Equipment, Net (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | Lab equipment | $2,768 | $1,846 | | Software | $237 | — | | Total | $5,080 | $3,828 | | Accumulated depreciation | $(2,525) | $(2,066) | | Property and equipment, net | $2,555 | $1,762 | - Depreciation expense for the six months ended June 30, 2020, was $459 thousand, up from $374 thousand in the prior year[113] Note 5. Accrued expenses Accrued expenses remained stable at $3.29 million at June 30, 2020, compared to $3.24 million at December 31, 2019, with an increase in third-party research and development expenses Accrued Expenses (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Payroll and employee related expenses | $2,133 | $2,686 | | Third-party research and development expenses | $492 | $118 | | Total | $3,289 | $3,239 | Note 6. Stockholders' equity Authorized capital includes 10 million preferred shares and 200 million common shares, with 31.2 million common shares outstanding and 8.7 million shares reserved for future issuance under stock option plans as of June 30, 2020 - Authorized capital: 10,000,000 preferred shares ($0.001 par value) and 200,000,000 common shares ($0.001 par value)[115] Common Stock Issued and Outstanding | Date | Shares Issued and Outstanding | | :--- | :---------------------------- | | June 30, 2020 | 31,249,499 | | December 31, 2019 | 30,844,507 | Shares Reserved for Future Issuance | Item | June 30, 2020 | December 31, 2019 | | :---------------------------------- | :------------ | :---------------- | | Stock options outstanding | 6,803,296 | 5,968,672 | | Shares available for future grant | 1,853,818 | 1,859,654 | | Total | 8,657,114 | 7,828,326 | Note 7. Stock-based compensation Stock-based compensation expense for the six months ended June 30, 2020, was $4.58 million, a significant increase from $1.53 million in the prior year, with $29.4 million in unrecognized expense remaining - The 2019 Incentive Award Plan was approved, reserving 3,100,000 shares, with an automatic annual increase of 4% of outstanding common stock[120] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $1,033 | $768 | $2,003 | $809 | | General and administrative | $1,378 | $714 | $2,572 | $722 | | Total | $2,411 | $1,482 | $4,575 | $1,531 | - As of June 30, 2020, total unrecognized stock-based compensation expense was $29.4 million, to be recognized over a weighted-average period of 3.30 years[134] Note 8. Employee stock purchase plan The 2019 Employee Stock Purchase Plan (ESPP) became effective with the IPO, reserving 315,000 shares with an annual increase of 1% of outstanding common stock, though no shares have been issued as of June 30, 2020 - The 2019 Employee Stock Purchase Plan (ESPP) was adopted, reserving 315,000 shares initially, with an annual increase of 1% of outstanding common stock[136] - No shares have been issued under the ESPP as of June 30, 2020[136] Note 9. Income taxes The company has cumulative federal and state net operating losses (NOLs) and R&D credit carryforwards with a full valuation allowance, and prior ownership changes have limited their utilization - The company has cumulative federal and state net operating loss (NOL) and R&D credit carryforwards, but a full valuation allowance is recorded[137][142] - Income tax expense for the three and six months ended June 30, 2020, was $7 thousand and $45 thousand, respectively, related to interest income from a subsidiary[138][20] - Ownership changes in March 2017 and October 2019 (IPO) have resulted in limitations on the utilization of federal NOL carryforwards under Section 382[140] Note 10. Collaboration agreement In July 2019, the company entered a License and Collaboration Agreement with Astellas Pharma Inc. for FX-322 outside the U.S., including an $80 million upfront fee and potential milestones up to $545 million, with the upfront recognized as revenue over the Phase 2a clinical trial period - Entered into a License and Collaboration Agreement with Astellas Pharma Inc. in July 2019 for exclusive rights outside the U.S. for Astellas Licensed Products, including FX-322[145] - Astellas paid an $80 million upfront payment and may pay up to $230 million in development milestones and $315 million in commercialization milestones, plus tiered royalties[150] - The $80 million upfront payment is recognized as revenue over the estimated period to completion of the Phase 2a clinical trial for FX-322 using the input method[154] Revenue Recognized from Astellas Agreement (in thousands) | Period | Revenue Recognized | | :-------------------------------- | :----------------- | | Three months ended June 30, 2020 | $8,500 | | Six months ended June 30, 2020 | $15,800 | | Since inception of agreement | $44,700 | Note 11. Commitments and contingencies Operating lease liabilities totaled $2.34 million as of June 30, 2020, with a new Lexington, MA facility lease committing $47 million over 10 years, alongside research commitments and officer/director indemnifications Operating Lease Liabilities (in thousands) | Item | Amount | | :-------------------------------------- | :----- | | Operating lease ROU assets (June 30, 2020) | $1,998 | | Current lease liabilities (June 30, 2020) | $421 | | Non-current lease liabilities (June 30, 2020) | $1,920 | | Total minimum lease payments (Woburn, MA) | $2,684 | - Entered into a new lease for a Lexington, MA facility with total minimum lease payments of approximately $47 million over an initial term of 10 years, expected to commence December 1, 2020[162] - Committed to $705 thousand in payments over twelve months for research on a therapeutic drug to treat multiple sclerosis[167] - Indemnifies officers and directors, with unlimited potential future payments, but covered by D&O insurance[171] Note 12. Subsequent events On July 20, 2020, the company completed a private placement, issuing 2,350,108 common shares at $18.00 per share for $40.1 million in net proceeds, and entered a Registration Rights Agreement for resale - On July 20, 2020, the company issued and sold 2,350,108 shares of common stock in a private placement for net proceeds of $40.1 million[176] - A Registration Rights Agreement was signed, requiring the company to file a registration statement for the resale of these shares within 60 days[177] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting its focus on FX-322 for hearing restoration, progress in clinical trials, the impact of the COVID-19 pandemic, and its financial performance, liquidity, and future funding requirements Overview Frequency Therapeutics is a clinical-stage biotech company focused on inner-ear cellular regeneration with lead candidate FX-322 for SNHL, currently in Phase 2a trials, while also developing an MS candidate and managing COVID-19 impacts, having raised significant capital but incurring substantial losses - The company is a clinical-stage biotechnology company focused on inner-ear cellular regeneration and hearing restoration, with lead product candidate FX-322 for SNHL[181] - FX-322 showed statistically significant and clinically meaningful improvement in hearing loss measures in Phase 1/2 trials and is currently in Phase 2a, with data readout expected in Q2 2021[182] - The COVID-19 pandemic temporarily halted patient enrollment in Phase 2a trials, but most sites have resumed, and enrollment activity has been steady[182] - The company is also developing a product candidate for multiple sclerosis (MS) with an IND submission planned for H2 2021[185] - Since formation in 2014, the company has raised approximately $358.8 million through various financings and collaboration agreements, but has incurred significant operating losses, with an accumulated deficit of $79.8 million as of June 30, 2020[190] License and Collaboration Agreements The company holds key license and collaboration agreements, notably with Astellas Pharma Inc. for FX-322 outside the U.S. (including an $80 million upfront payment), and other licenses with MIT, MEEI, CALIBR, and Cambridge Enterprise, each with specific development obligations, milestones, and royalties - Astellas Agreement: Exclusive license for FX-322 outside the U.S., with an $80 million upfront payment and potential development milestones up to $230 million and commercial milestones up to $315 million, plus tiered royalties[193][194] - MIT License: Exclusive worldwide license for certain patent rights, requiring diligent development efforts and milestone payments up to $2.9 million per product, plus low single-digit royalties and low-twenties royalties on sublicense revenues[195][196] - MEEI License: Non-exclusive worldwide license for patent rights related to hearing loss, with milestone payments up to $350 thousand per product and low single-digit royalties[197][198] - CALIBR License: Exclusive worldwide license for MS treatment patent rights, with a $1.0 million upfront payment and milestone payments up to $26.0 million per product category, plus mid-single-digit royalties[199][200] - Cambridge License: Exclusive worldwide license for demyelinating disease patent rights, with a $50 thousand upfront payment and milestone payments up to $10.5 million per product, plus low single-digit royalties[203][204] Components of Our Results of Operations This section details financial results components, including revenue from the Astellas Agreement, increasing research and development expenses for FX-322, rising general and administrative costs, and other income/expense items - Revenue is primarily from the Astellas Agreement's upfront license fee, recognized over the Phase 2a clinical trial period using the input method[206] - Research and development expenses are expensed as incurred, including salaries, third-party costs, manufacturing, and license payments[207] - General and administrative expenses include personnel costs, legal fees, professional fees, and public company operating costs[213][214] - The company has significant federal and state net operating loss (NOL) and R&D credit carryforwards, but their utilization is limited by prior ownership changes[220][222] Results of Operations For the three months ended June 30, 2020, revenue was $8.5 million with a net loss of $(6.0) million, while six-month revenue was $15.8 million with a net loss of $(10.9) million, reflecting increased R&D and G&A expenses Summary of Results of Operations (in thousands) | Item | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $8,523 | $— | $15,787 | $— | | R&D Expenses | $8,764 | $3,921 | $15,434 | $7,367 | | G&A Expenses | $5,959 | $3,098 | $12,208 | $5,568 | | Net Loss | $(6,025) | $(6,852) | $(10,938) | $(12,678) | - Research and development expenses increased by $4.8 million (3 months) and $8.1 million (6 months) year-over-year, driven by FX-322 external development costs and platform development[225][235] - General and administrative expenses increased by $2.9 million (3 months) and $6.6 million (6 months) year-over-year, due to increased headcount, D&O insurance, and professional fees related to public company operations[227][237] Liquidity and Capital Resources The company expects continued operating losses, requiring additional financing, but believes existing cash and July 2020 private placement proceeds of $195.4 million will fund operations into 2023, though future needs are uncertain - The company has incurred significant operating losses since inception and expects to continue to do so, requiring additional capital[242] Cash, Cash Equivalents, and Short-Term Investments (in millions) | Date | Amount | | :--- | :----- | | June 30, 2020 | $195.4 | - Existing cash, cash equivalents, short-term investments, and net proceeds from the July 2020 private placement are expected to fund operations into 2023[253] - Future funding requirements are highly dependent on the progress and costs of clinical trials for FX-322 and other product candidates, regulatory requirements, and commercialization activities[254][255] - The company is an 'emerging growth company' and 'smaller reporting company,' allowing for reduced disclosure requirements[262][468][469] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exempt from this disclosure requirement as it is a small reporting company[263] - The company is exempt from this disclosure requirement as it is a small reporting company[263] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting during the period - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2020[265] - No material changes in internal control over financial reporting occurred during the period[266] PART II. Other Information Item 1. Legal Proceedings The company is not subject to any material legal proceedings[269] - The company is not subject to any material legal proceedings[269] Item 1A. Risk Factors This section details various risks that could materially and adversely affect the company's business, financial condition, results of operations, and future growth, spanning financial, development, commercial, third-party, legal, IP, and operational aspects Risks Related to Our Financial Position and Need for Additional Capital The company has incurred significant losses since inception, expects continued losses, and requires substantial additional capital for operations and development, with failure to obtain financing potentially harming the business or diluting stockholders - The company has incurred significant losses since inception, with an accumulated deficit of $79.8 million as of June 30, 2020, and expects to continue incurring losses[271] - Substantial additional capital will be required to complete development, seek regulatory approvals, and commercialize product candidates, including FX-322[275] - Failure to raise necessary financing could lead to delays or discontinuation of product development and commercialization[276] - Raising additional capital through equity or convertible debt may dilute existing stockholders or impose restrictive covenants[280] - The company's ability to use net operating loss carryforwards may be limited by ownership changes[285] Risks Related to Development, Clinical Testing, Manufacturing, and Regulatory Approval Success depends on FX-322's clinical development and the novel PCA platform's regulatory approval, with clinical trials being expensive, time-consuming, and prone to delays, while adverse events or the COVID-19 pandemic could halt development - Success is substantially dependent on FX-322, which is still in clinical development and may never receive regulatory approval or be successfully commercialized[287] - The PCA platform is a new therapeutic approach, making successful development, approval, and commercialization uncertain due to potential longer regulatory review and increased costs[289] - Clinical trials are expensive, time-consuming, and have uncertain outcomes; preclinical and early clinical results are not always predictive of future results[291] - Delays in clinical trials can occur due to various factors, including regulatory disagreements, patient enrollment issues, and the impact of the COVID-19 pandemic[292] - Serious adverse events or undesirable side effects from product candidates could halt clinical development, delay/prevent marketing approval, or lead to product recalls/warnings if approved[313][316] - The COVID-19 pandemic could adversely impact preclinical studies, clinical trials (enrollment, site initiation, monitoring), and operations, leading to delays and disruptions[342][343] Risks Related to Commercialization The company faces intense competition, and commercial success depends on adequate coverage, reimbursement, and market acceptance for novel therapies, requiring effective sales and marketing capabilities and managing international operational risks - The biotechnology, pharmaceutical, and medical device industries are highly competitive, and failure to compete effectively could harm operating results[345] - Successful commercialization depends on adequate coverage, reimbursement levels, and pricing policies from governmental authorities and health insurers, which are uncertain for novel products like FX-322[349] - Even if approved, product candidates may fail to achieve market acceptance by physicians, patients, and third-party payors, limiting commercial success[355] - Inability to establish effective sales and marketing capabilities, either independently or through collaborations, could hinder commercialization[359][360] - Operating internationally involves risks such as conflicting laws, regulatory complexities, financial risks (e.g., foreign currency), and political instability[362][370] Risks Related to Our Dependence on Third Parties The company heavily relies on the Astellas Agreement for FX-322 development, and on third-party CMOs for supply and CROs for clinical trials, introducing risks of delays, manufacturing defects, and limited control over performance - The Astellas Agreement is critical; its termination or inadequate performance by either party could materially delay FX-322 development and commercialization outside the U.S.[365][367] - Reliance on third-party CMOs for clinical and commercial supply of product candidates exposes the company to risks of supply interruptions, manufacturing defects, and compliance issues with cGMP requirements[374][375] - The company is substantially dependent on a single manufacturer for a key component of FX-322 and its lyophilization process, making transitions to new CMOs time-consuming and costly[374] - Reliance on CROs to conduct clinical trials limits control over activities and performance, potentially leading to delays, unreliable data, or intellectual property misappropriation[380][382] Risks Related to Healthcare Laws and Other Legal Compliance Matters Operations are subject to extensive healthcare regulatory laws, including anti-kickback, false claims, and HIPAA, with non-compliance risking penalties; legislative changes, GDPR, and environmental laws also pose significant compliance challenges - Business operations are subject to various healthcare regulatory laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, Physician Payments Sunshine Act) which could expose the company to penalties for non-compliance[393][394][396] - Enacted and future healthcare legislation, particularly related to drug pricing and cost-containment initiatives, could increase costs, reduce demand, and affect product pricing[385][389][390] - Clinical trial programs and collaborations in the EEA are subject to GDPR, which imposes stringent data privacy requirements and significant fines for non-compliance[398] - The company is subject to environmental, health, and safety laws, with potential for liability and substantial expenses for compliance or remediation[399][401] Risks Related to Our Intellectual Property Success depends on obtaining, maintaining, and enforcing intellectual property rights, facing complex and uncertain patent prosecution, potential licensing issues, and risks of expensive IP litigation, while also needing to protect trade secrets and trademarks - Failure to obtain, maintain, enforce, and protect patent protection for technology and product candidates could allow competitors to commercialize similar products, adversely affecting the business[402][403] - The patent prosecution process is expensive, time-consuming, and uncertain, with potential for challenges to validity or enforceability, and patent terms may be inadequate[404][405][408] - Inability to obtain licenses from third parties on commercially reasonable terms or failure to comply with existing license obligations could lead to loss of critical IP rights[409][411][429] - The company may become involved in lawsuits to protect or enforce its IP rights, or face allegations of infringing third-party IP, which are expensive, time-consuming, and could result in substantial damages or injunctions[418][422][425] - Failure to protect the confidentiality of trade secrets or adequately protect trademarks and trade names could harm the business and competitive position[444][445] Risks Related to Our Employees, Managing Our Growth and Our Operations Future success depends on retaining key personnel and managing significant growth, which requires improved systems; acquisitions or in-licensing could disrupt business, and system failures or security breaches pose operational and liability risks - Future success is highly dependent on retaining key personnel and attracting, retaining, and motivating qualified employees in a competitive environment[448][449][450] - Expected significant growth in employees and operations requires improved managerial, operational, and financial systems, which may be difficult to manage effectively[452] - Future acquisitions or in-licensing transactions could disrupt business, cause shareholder dilution, or reduce financial resources[453] - System failures or security breaches in computer systems could lead to data loss, operational disruptions, and liabilities, potentially delaying product development[454][456] Risks Related to Our Common Stock The common stock market price is highly volatile due to clinical trial results, regulatory decisions, and market conditions, risking securities litigation; significant shareholder influence, adverse analyst opinions, and public company costs, along with anti-takeover provisions, also pose risks - The market price of common stock is highly volatile and subject to wide fluctuations due to factors like clinical trial results, regulatory decisions, and market conditions, including the COVID-19 pandemic[457][459] - The company is susceptible to securities class action litigation, which could result in substantial costs and diversion of management's attention[460] - Directors, executive officers, and affiliated shareholders own a significant percentage (15.0% as of July 31, 2020) of common stock, allowing them to exert significant influence over shareholder approval matters[461] - Adverse analyst opinions or substantial sales of common stock could cause the stock price to fall[463][465] - Operating as a public company incurs increased legal, accounting, and compliance costs, requiring substantial management time, especially for SOX Section 404 compliance[466][467] - Anti-takeover provisions in organizational documents and Delaware law may discourage, delay, or prevent mergers or acquisitions[472][474] - The restated certificate of incorporation designates specific courts as the exclusive forum for certain litigation, potentially limiting stockholders' ability to obtain a favorable judicial forum[476] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In October 2019, the company completed its IPO, issuing 6,325,000 common shares at $14.00 per share, generating approximately $79.2 million in net proceeds, with no material change in their expected use - In October 2019, the company issued and sold 6,325,000 shares of common stock in an IPO at $14.00 per share[478][479] - The IPO generated approximately $79.2 million in net proceeds after deducting underwriting discounts and offering expenses[479] - No material change in the expected use of net proceeds from the IPO[480] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reported period[481] - None[481] Item 4. Mine Safety Disclosures This item is not applicable to the company[481] - Not applicable[481] Item 5. Other Information There is no other information to report under this item[482] - None[482] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including organizational documents, investor rights agreements, and certifications from the CEO and CFO - Key exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Second Amended and Restated Investors' Rights Agreement, and certifications from the CEO and CFO[483] Signatures Report Signatures The report was signed on August 12, 2020, by David L. Lucchino (President and CEO) and Richard Mitrano (VP, Finance and Operations) - The report was signed on August 12, 2020, by David L. Lucchino (President and CEO) and Richard Mitrano (VP, Finance and Operations)[487]