Cartesian Therapeutics(RNAC) - 2019 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and related disclosures for Selecta Biosciences, Inc. and its subsidiaries Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Selecta Biosciences, Inc. and its subsidiaries, including the balance sheets, statements of operations and comprehensive loss, statements of changes in stockholders' equity (deficit), and statements of cash flows, along with detailed notes explaining the company's accounting policies and specific financial line items Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018 Presents the company's financial position, showing a slight increase in total assets and a decrease in total liabilities, leading to a positive stockholders' equity (deficit) as of June 30, 2019, compared to a deficit at December 31, 2018 | Metric | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $46,947 | $44,482 | | Total liabilities | $46,891 | $49,900 | | Total stockholders' equity (deficit) | $56 | $(5,418) | Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months ended June 30, 2019 and 2018 (Unaudited) Details the company's financial performance, showing a reduced net loss for both the three and six months ended June 30, 2019, compared to the same periods in 2018, primarily due to decreased operating expenses | Metric | 3 Months Ended June 30, 2019 (in thousands) | 3 Months Ended June 30, 2018 (in thousands) | Change | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :----- | | Grant and collaboration revenue | $13 | $0 | +$13 | | Research and development expenses | $12,134 | $14,407 | -$2,273 | | General and administrative expenses | $4,114 | $4,362 | -$248 | | Net loss | $(16,394) | $(18,796) | +$2,402 | | Basic and diluted net loss per share | $(0.37) | $(0.84) | +$0.47 | | Metric | 6 Months Ended June 30, 2019 (in thousands) | 6 Months Ended June 30, 2018 (in thousands) | Change | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :----- | | Grant and collaboration revenue | $23 | $0 | +$23 | | Research and development expenses | $19,487 | $25,546 | -$6,059 | | General and administrative expenses | $8,627 | $9,036 | -$409 | | Net loss | $(28,468) | $(34,684) | +$6,216 | | Basic and diluted net loss per share | $(0.68) | $(1.55) | +$0.87 | Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Three Months ended March 31 and June 30, 2019 and 2018 (Unaudited) Details the changes in stockholders' equity (deficit) for the periods, showing a significant increase in additional paid-in capital due to common stock issuances, which helped to offset the accumulated deficit and move total equity from a deficit to a positive balance by June 30, 2019 | Metric | Balance at Dec 31, 2018 (in thousands) | Balance at June 30, 2019 (in thousands) | | :-------------------------------- | :----------------------------------- | :---------------------------------- | | Common stock shares outstanding | 22,471,776 | 44,952,951 | | Additional paid-in capital | $279,539 | $313,447 | | Accumulated deficit | $(280,403) | $(308,871) | | Total stockholders' equity (deficit) | $(5,418) | $56 | Consolidated Statements of Cash Flows for the Six Months ended June 30, 2019 and 2018 (Unaudited) Outlines the cash flow activities, indicating a decrease in net cash used in operating activities and a significant increase in cash provided by financing activities for the six months ended June 30, 2019, primarily from common stock issuances | Metric | 6 Months Ended June 30, 2019 (in thousands) | 6 Months Ended June 30, 2018 (in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | | Net cash used in operating activities | $(27,437) | $(30,382) | | Net cash provided by (used in) investing activities | $(11,274) | $19,630 | | Net cash provided by financing activities | $31,479 | $362 | | Net change in cash, cash equivalents, and restricted cash | $(7,203) | $(10,461) | | Cash, cash equivalents, and restricted cash at end of period | $30,479 | $60,566 | Notes to Consolidated Financial Statements (Unaudited) Provides detailed explanations and disclosures for the consolidated financial statements, covering the company's business nature, significant accounting policies, specific financial line items, and recent events Note 1. Nature of the Business and Basis of Presentation Selecta Biosciences, Inc. is a clinical-stage biotechnology company focused on immune tolerance technology (ImmTOR™) for rare and serious diseases. The company has incurred significant losses since inception and its ability to continue as a going concern is in substantial doubt, requiring additional financing - Selecta Biosciences is a clinical-stage biotechnology company developing ImmTOR™ technology for rare and serious diseases[28] - The company has incurred significant operating losses and negative cash flows since inception, with an accumulated deficit of $308.9 million as of June 30, 2019, raising substantial doubt about its ability to continue as a going concern[35] - Management is actively exploring licenses, strategic collaborations, and equity issuances to secure additional capital, but may need to curtail expenses or delay product development if unable to raise sufficient funds[36] Note 2. Summary of Significant Accounting Policies Outlines the key accounting policies, including principles of consolidation, foreign currency translation, use of estimates, segment information (one operating segment), cash equivalents and investments, fair value measurements, property and equipment, impairment of long-lived assets, debt issuance costs, accumulated other comprehensive income (loss), revenue recognition (ASC 606), research and development costs, clinical trial costs, income taxes, warrants, stock-based compensation, net loss per share, contingent liabilities, and recent accounting pronouncements (adoption of ASC 842 for leases) - The company operates as a single operating segment focused on the research and development of nanoparticle immunomodulatory drugs[43] - Adopted ASU 2016-02 (Topic 842) on January 1, 2019, requiring recognition of operating lease assets and liabilities on the balance sheet, with no impact on consolidated net loss[86] Component of Accumulated Other Comprehensive Income (Loss) | Component of Accumulated Other Comprehensive Income (Loss) | Balance at Dec 31, 2018 (in thousands) | Other Comprehensive Income (Loss) during period (in thousands) | Balance as of June 30, 2019 (in thousands) | | :------------------------------------------------------- | :------------------------------------- | :------------------------------------------------------------- | :----------------------------------------- | | Foreign currency translation adjustment | $(4,557) | $29 | $(4,528) | | Unrealized gains (losses) on available-for-sale securities | $0 | $3 | $3 | | Total accumulated other comprehensive income (loss) | $(4,557) | $32 | $(4,525) | Note 3. Available-for-Sale Marketable Securities Details the company's available-for-sale marketable securities, which primarily consist of U.S. government and agency securities, corporate bonds, and commercial paper, totaling $11.48 million as of June 30, 2019 Available-for-Sale Marketable Securities | Security Type | Amortized Cost (in thousands) | Gross Unrealized Gains (in thousands) | Gross Unrealized Losses (in thousands) | Fair Value (in thousands) | | :-------------------------------- | :---------------------------- | :------------------------------------ | :------------------------------------- | :------------------------ | | U.S. government and agency securities | $7,487 | $2 | $0 | $7,489 | | Corporate bonds and commercial paper | $3,990 | $1 | $0 | $3,991 | | Total available-for-sale marketable securities | $11,477 | $3 | $0 | $11,480 | Note 4. Net Loss Per Share Reports the basic and diluted net loss per share, which are identical due to the company's net loss position, and lists potential dilutive common share equivalents that were excluded as they were anti-dilutive Net Loss Per Share | Metric | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss per share (basic and diluted) | $(0.37) | $(0.84) | $(0.68) | $(1.55) | | Weighted average common shares outstanding | 44,855,083 | 22,355,603 | 41,668,902 | 22,350,591 | - Potential dilutive common share equivalents (stock options, unvested restricted stock units, stock warrants) totaling 5,008,082 as of June 30, 2019, were excluded from diluted EPS calculation as their effect would have been anti-dilutive[94] Note 5. Fair Value Measurements Provides a summary of financial assets measured at fair value on a recurring basis, primarily cash equivalents (money market funds) and short-term investments (U.S. government and agency securities, corporate bonds, commercial paper), all classified within Level 1 or Level 2 of the fair value hierarchy Fair Value Measurements | Asset Type | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | June 30, 2019 | | | | | | Money market funds | $345 | $0 | $0 | $345 | | U.S. government and agency securities | $0 | $7,489 | $0 | $7,489 | | Corporate bonds and commercial paper | $0 | $3,991 | $0 | $3,991 | | Total | $345 | $11,480 | $0 | $11,825 | | December 31, 2018 | | | | | | Money market funds | $10,123 | $0 | $0 | $10,123 | | Total | $10,123 | $0 | $0 | $10,123 | Note 6. Property and Equipment Details the composition of property and equipment, net of accumulated depreciation, showing a decrease from $2.127 million at December 31, 2018, to $1.620 million at June 30, 2019 Property and Equipment, Net | Category | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :----------------------- | :----------------------------- | :------------------------------- | | Laboratory equipment | $4,915 | $5,379 | | Computer equipment and software | $479 | $561 | | Leasehold improvements | $278 | $278 | | Furniture and fixtures | $235 | $247 | | Office equipment | $135 | $135 | | Construction in process | $2 | $79 | | Total property and equipment | $6,044 | $6,679 | | Less accumulated depreciation | $(4,424) | $(4,552) | | Property and equipment, net | $1,620 | $2,127 | - Depreciation expense for the six months ended June 30, 2019, was $0.4 million, down from $0.6 million in the same period of 2018[99] Note 7. Accrued Expenses Provides a breakdown of accrued expenses, which significantly decreased from $11.7 million at December 31, 2018, to $5.789 million at June 30, 2019, primarily due to reductions in accrued external research and development costs and collaboration and licensing expenses Accrued Expenses | Category | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Payroll and employee related expenses | $1,705 | $2,497 | | Collaboration and licensing | $319 | $1,222 | | Accrued external research and development costs | $1,816 | $5,344 | | Accrued expenses (Total) | $5,789 | $11,700 | Note 8. Leases Details the adoption of Topic 842 on January 1, 2019, resulting in the recognition of operating lease assets of $1.6 million and liabilities of $1.8 million, with no impact on accumulated deficit. The company's primary lease is for its headquarters, expiring in March 2020, and it has a new lease for office and laboratory space starting March 2020 - Adopted Topic 842 on January 1, 2019, recognizing $1.6 million in operating lease assets and $1.8 million in operating lease liabilities, with no impact on accumulated deficit[101] - The Headquarters Lease for 480 Arsenal Way, Watertown, Massachusetts, was amended to extend through March 31, 2020[108] Lease Expense Components | Lease Expense Component | 3 Months Ended June 30, 2019 (in thousands) | 6 Months Ended June 30, 2019 (in thousands) | | :---------------------- | :------------------------------------ | :------------------------------------ | | Operating lease expense | $341 | $682 | | Variable lease expense | $211 | $414 | | Short-term lease expense | $3 | $11 | | Total lease expense | $555 | $1,107 | Note 9. Debt Describes the 2017 Term Loan facility of up to $21.0 million with Silicon Valley Bank, maturing on February 1, 2022. All amounts due under this loan are classified as a current liability as of June 30, 2019, due to going concern considerations and a material adverse change clause - The company has a $21.0 million 2017 Term Loan with Silicon Valley Bank, maturing on February 1, 2022[114][124] - All amounts due under the 2017 Term Loan are classified as a current liability as of June 30, 2019, due to substantial doubt about the company's ability to continue as a going concern and a material adverse change clause[37][124] Interest Expense | Metric | 3 Months Ended June 30, 2019 (in thousands) | 3 Months Ended June 30, 2018 (in thousands) | 6 Months Ended June 30, 2019 (in thousands) | 6 Months Ended June 30, 2018 (in thousands) | | :------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Interest expense | $400 | $365 | $796 | $715 | Note 10. Stockholders' Equity Details changes in stockholders' equity, including a public offering in January 2019 that raised $30.9 million net proceeds from 22,188,706 common shares, and an "at-the-market" offering in May 2019 for $0.4 million. The company has 44,952,951 common shares outstanding as of June 30, 2019 - Completed an underwritten public offering in January 2019, selling 22,188,706 shares of common stock for $30.9 million in net proceeds[126] - Sold 164,926 shares of common stock through an "at-the-market" offering during Q2 2019, generating approximately $0.4 million in net proceeds[128] Common Stock Shares | Metric | June 30, 2019 | December 31, 2018 | | :-------------------------------- | :------------ | :---------------- | | Common stock shares authorized | 200,000,000 | 200,000,000 | | Common stock shares issued and outstanding | 44,952,951 | 22,471,776 | Note 11. Stock Incentive Plans Describes the company's stock incentive plans (2008 Plan, 2016 Plan, and Inducement Incentive Award Plan) for employees and non-employees, detailing stock option and restricted stock unit activity. Total unrecognized compensation expense for unvested employee stock options was $9.3 million, and for non-employee options was $0.9 million, as of June 30, 2019 - Total unrecognized compensation expense for unvested employee stock options was $9.3 million, expected to be recognized over 3.0 years[149] - Total unrecognized compensation expense for unvested non-employee stock options was $0.9 million, expected to be recognized over 1.7 years[150] Stock-Based Compensation Expense | Metric | 3 Months Ended June 30, 2019 (in thousands) | 3 Months Ended June 30, 2018 (in thousands) | 6 Months Ended June 30, 2019 (in thousands) | 6 Months Ended June 30, 2018 (in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Research and development | $445 | $622 | $964 | $1,133 | | General and administrative | $806 | $664 | $1,467 | $1,306 | | Total stock-based compensation expense | $1,251 | $1,286 | $2,431 | $2,439 | Note 12. Revenue Arrangements Details revenue recognition from collaboration and grant agreements, primarily with Spark Therapeutics, Inc. and Skolkovo Foundation. The Spark agreement, a combined license and supply obligation, generated less than $0.1 million in revenue for the six months ended June 30, 2019, with $15.9 million in deferred revenue remaining. The Skolkovo grant resulted in $1.8 million revenue recognized and $0.1 million contract liability - Recognized less than $0.1 million in revenue from the Spark License Agreement for the six months ended June 30, 2019[179] - As of June 30, 2019, a contract liability of $15.9 million (current: $1.0 million, non-current: $14.9 million) represents deferred revenue from the Spark agreement[180] - Recognized $1.8 million in revenue from the Skolkovo grant, with a remaining contract liability of $0.1 million as of June 30, 2019[187][189] Note 13. Related‑Party Transactions Discloses related-party transactions, including significant common stock purchases by directors and affiliated entities in the January 2019 public offering, and consulting expenses paid to founders Common Stock Purchases in 2019 Follow-On Offering | Related Party | Shares of Common Stock Purchased in 2019 Follow-On | Total Purchase Price | | :------------------------------------ | :----------------------------------------------- | :------------------- | | Timothy A. Springer, Ph.D. | 4,000,000 | $6,000,000.00 | | Entities affiliated with NanoDimension | 1,666,666 | $2,499,999.00 | | Entities affiliated with OrbiMed Advisors | 1,333,333 | $1,999,999.50 | | Entities affiliated with Polaris | 666,666 | $999,999.00 | | SAF-BND Trust (affiliate of Omid Farokhzad, M.D.) | 83,333 | $124,999.50 | | Chafen Lu (Timothy Springer's wife) | 66,666 | $99,999.00 | | Jed Springer (Timothy Springer's brother) | 1,000 | $1,500.00 | - Incurred $0.3 million in consulting expenses from founders for the six months ended June 30, 2019, up from $0.1 million in the same period of 2018[193] Note 14. Technology License Agreements Outlines the company's technology license agreements, including an exclusive patent license with MIT (requiring payments for sublicenses, such as $2.2 million for the Spark sublicense), and agreements with Shenyang Sunshine Pharmaceutical Co., Ltd. (3SBio) and Massachusetts Eye and Ear Infirmary (MEE) - Holds an exclusive royalty-bearing patent license with MIT, requiring payments for sublicenses (e.g., $2.2 million for the Spark sublicense)[196][197] - Paid an aggregate of $3.0 million in upfront and milestone-based payments under the 3SBio License[198] - Paid $0.4 million in license fees under the MEE License through June 30, 2019[199] Note 15. Income Taxes States that the company has provided a full valuation allowance against its net deferred tax assets due to the unlikelihood of realization. An equity offering in January 2019 is believed to have triggered an ownership change under Section 382 of the Internal Revenue Code, potentially limiting the use of $49.5 million in federal and Massachusetts net operating losses and credits - A full valuation allowance has been provided against net deferred tax assets, as their realization is not more likely than not[201] - The January 2019 equity offering is expected to result in an ownership change under Section 382 of the Internal Revenue Code, potentially limiting the use of $49.5 million in federal and Massachusetts net operating losses and credits[203] Note 16. Defined Contribution Plan Describes the company's 401(k) Plan, which includes matching contributions that vest ratably over 4 years. Company contributions were less than $0.1 million for both the three and six months ended June 30, 2019 and 2018 - Company contributions to the 401(k) Plan were less than $0.1 million for both the three and six months ended June 30, 2019 and 2018[209] Note 17. Commitments and Contingencies Discloses operating lease agreements for offices and indemnification obligations for directors and under facility leases. The company does not expect material losses from these indemnification obligations or from various contractual disputes and potential claims arising in the ordinary course of business - The company indemnifies its directors and landlords under facility leases, with unlimited maximum potential future payments, but expects negligible claims due to insurance coverage and no material losses to date[211] Note 18. Subsequent Events Reports on a Feasibility Study and License Agreement with Asklepios BioPharmaceutical, Inc. (AskBio) entered into on August 6, 2019, for AAV gene therapy products utilizing ImmTOR, with shared research, development, and commercialization responsibilities and costs. Also, a new office and laboratory lease for 65 Grove Street, Watertown, Massachusetts, was signed on July 23, 2019, with a term from March 2020 to April 2028 - Entered a Feasibility Study and License Agreement with AskBio on August 6, 2019, to collaborate on AAV gene therapy products using ImmTOR for rare genetic diseases, sharing R&D and commercialization costs[213][215] - Signed a new lease on July 23, 2019, for 25,078 sq ft of office and lab space at 65 Grove Street, Watertown, MA, with a term from March 2020 to April 2028 and base rent of $137,929 per month[217][218] 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, including an overview of its business, a detailed analysis of financial performance for the three and six months ended June 30, 2019 and 2018, and discussions on liquidity, capital resources, and critical accounting policies OVERVIEW Selecta Biosciences is a clinical-stage biopharmaceutical company leveraging its ImmTOR technology to treat rare and serious diseases by mitigating immunogenicity to biologic therapies. Its lead product candidate, SEL-212 for chronic refractory gout, is in a Phase 2 head-to-head clinical trial against Krystexxa®, with plans for a Phase 3 trial in Q4 2019, contingent on additional capital. The company also has preclinical gene therapy candidates (SEL-302, SEL-313) and a collaboration for Crigler-Najjar syndrome. Selecta has incurred significant operating losses since inception and requires substantial additional financing to fund future operations - Selecta Biosciences is a clinical-stage biopharmaceutical company focused on ImmTOR technology to treat rare and serious diseases by mitigating immunogenicity[221][222] - Lead product candidate, SEL-212 for chronic refractory gout, is in a Phase 2 head-to-head clinical trial (COMPARE) against Krystexxa®, with interim data expected in Q4 2019 and planned Phase 3 initiation in Q4 2019, subject to additional capital[223][224] - The company incurred net losses of $28.5 million for the six months ended June 30, 2019, and had an accumulated deficit of $308.9 million, expecting continued losses and requiring substantial additional financing[229] FINANCIAL OPERATIONS OVERVIEW Provides an overview of the company's revenue sources (grant and collaboration), and expense categories (research and development, general and administrative, investment income, interest expense, foreign currency transaction gain/loss). It highlights the focus on ImmTOR platform development and the discontinuation of immune stimulation programs SELA-070 and SEL-701 - Revenue consists solely of grant and collaboration revenue, with no product sales expected for the foreseeable future[232] - Research and development expenses totaled $217.5 million from inception through June 30, 2019, with a focus on SEL-212 and ImmTOR technology[234] - Completed work on immune stimulation programs SELA-070 and SEL-701, with no plans for further development[235] Grant and collaboration revenue Revenue is generated from grants and collaboration/license agreements, which are expected to fluctuate quarterly based on timing and amount of fees and reimbursements. No product sales are anticipated for several years - Revenue is derived from grants and collaboration/license agreements, with no product sales expected for the foreseeable future[232] Research and development R&D expenses, primarily external costs (CMO, CROs) and internal compensation, totaled $217.5 million from inception through June 30, 2019. The company is increasing R&D for SEL-212 and gene therapy programs, while discontinuing SELA-070 and SEL-701 - Incurred $217.5 million in R&D expenses from inception through June 30, 2019, primarily for SEL-212 and ImmTOR technology[234] - Discontinued work on immune stimulation programs SELA-070 and SEL-701 to focus on the ImmTOR platform[235] General and administrative G&A expenses primarily include salaries, benefits, facility costs, travel, and professional fees for executive, finance, business development, and support functions - General and administrative expenses primarily cover executive, finance, business development, and support functions, including salaries, benefits, facility costs, travel, and professional fees[238] Investment income Investment income is mainly derived from interest earned on cash and cash equivalents and short-term investments - Investment income primarily consists of interest earned on cash, cash equivalents, and short-term investments[239] Interest expense Interest expense relates to amounts borrowed under the company's credit facilities - Interest expense is incurred on amounts borrowed under the company's credit facilities[240] Other income (expense) Other income (expense) was de minimis for the reported periods - Other income (expense) was de minimis for the three and six months ended June 30, 2019 and 2018[241] Foreign currency transaction gain (loss) Foreign currency transaction gains or losses arise from cash balances held in Russian bank accounts (U.S. dollars and Russian rubles) by the Russian subsidiary, reflecting minimal fluctuations in exchange rates - Foreign currency transaction gains/losses result from cash balances held in Russian bank accounts, with minimal fluctuation of the U.S. dollar to the Russian ruble[242] RESULTS OF OPERATIONS This section provides a comparative analysis of the company's financial results for the three and six months ended June 30, 2019, versus the same periods in 2018, detailing changes in revenue, operating expenses, and net loss Comparison of the Three Months Ended June 30, 2019 and 2018 The company reported a net loss of $16.4 million for Q2 2019, an improvement from $18.8 million in Q2 2018, driven by a 16% decrease in R&D expenses and a 6% decrease in G&A expenses. Revenue increased due to collaboration activities Q2 2019 vs Q2 2018 Financial Performance | Metric | Q2 2019 (in thousands) | Q2 2018 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Collaboration revenue | $13 | $0 | $13 | N/A | | Research and development | $12,134 | $14,407 | $(2,273) | (16)% | | General and administrative | $4,114 | $4,362 | $(248) | (6)% | | Net loss | $(16,394) | $(18,796) | $2,402 | (13)% | Revenue Collaboration revenue increased to $13 thousand in Q2 2019 from zero in Q2 2018, primarily from a shipment under the Spark collaboration agreement - Collaboration revenue increased to $13 thousand in Q2 2019 from zero in Q2 2018, due to a shipment under the Spark collaboration agreement[243] Research and development R&D expenses decreased by $2.3 million (16%) in Q2 2019 compared to Q2 2018, mainly due to headcount reduction and completion of work on SELA-070 and SEL-701, partially offset by costs for SEL-212 Phase 2 and Phase 3 programs - R&D expenses decreased by $2.3 million (16%) in Q2 2019, driven by headcount reduction and completion of SELA-070/SEL-701 programs[246] General and administrative G&A expenses decreased by $0.2 million (6%) in Q2 2019 compared to Q2 2018, primarily due to reduced patent fees, partially offset by increased professional fees - G&A expenses decreased by $0.2 million (6%) in Q2 2019, mainly due to reduced patent fees, offset by increased professional fees[247] Investment income Investment income remained relatively unchanged in Q2 2019 compared to Q2 2018 - Investment income remained relatively unchanged in Q2 2019 compared to Q2 2018[248] Foreign currency transaction gain (loss) The company recognized minimal foreign currency losses in Q2 2019 compared to minimal gains in Q2 2018, reflecting slight fluctuations in the U.S. dollar to Russian ruble exchange rate - Minimal foreign currency losses in Q2 2019 vs. minimal gains in Q2 2018, reflecting slight USD-RUB exchange rate fluctuations[249] Interest expense Interest expense remained consistent at $0.4 million for both Q2 2019 and Q2 2018 - Interest expense was $0.4 million for both Q2 2019 and Q2 2018[250] Other income (expense) Other income (expense) was de minimis for both Q2 2019 and Q2 2018 - Other income (expense) was de minimis for both Q2 2019 and Q2 2018[251] Net Loss Net loss decreased to $16.4 million in Q2 2019 from $18.8 million in Q2 2018 - Net loss decreased to $16.4 million in Q2 2019 from $18.8 million in Q2 2018[252] Comparison of the Six Months Ended June 30, 2019 and 2018 The company's net loss for the six months ended June 30, 2019, decreased to $28.5 million from $34.7 million in the prior year, primarily due to a 24% reduction in R&D expenses and a 5% reduction in G&A expenses, alongside an increase in collaboration revenue H1 2019 vs H1 2018 Financial Performance | Metric | 6 Months Ended June 30, 2019 (in thousands) | 6 Months Ended June 30, 2018 (in thousands) | Change (in thousands) | Change (%) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | :--------- | | Collaboration revenue | $23 | $0 | $23 | N/A | | Research and development | $19,487 | $25,546 | $(6,059) | (24)% | | General and administrative | $8,627 | $9,036 | $(409) | (5)% | | Net loss | $(28,468) | $(34,684) | $6,216 | (18)% | Revenue Collaboration revenue increased to $23 thousand for the six months ended June 30, 2019, from zero in the prior year, due to two shipments under the Spark collaboration agreement - Collaboration revenue increased to $23 thousand for the six months ended June 30, 2019, from zero in the prior year, due to two shipments under the Spark collaboration[254] Research and development R&D expenses decreased by $6.1 million (24%) for the six months ended June 30, 2019, primarily due to headcount reductions and the completion of SELA-070 and SEL-701 programs, partially offset by costs for SEL-212 Phase 2 and Phase 3 clinical programs - R&D expenses decreased by $6.1 million (24%) for the six months ended June 30, 2019, due to headcount reduction and completion of SELA-070/SEL-701 programs[256] General and administrative G&A expenses decreased by $0.4 million (5%) for the six months ended June 30, 2019, mainly due to reduced patent and consulting fees, offset by increased professional fees - G&A expenses decreased by $0.4 million (5%) for the six months ended June 30, 2019, primarily due to reduced patent and consulting fees[257] Investment income Investment income remained relatively unchanged for the six months ended June 30, 2019, compared to the same period in 2018 - Investment income remained relatively unchanged for the six months ended June 30, 2019, compared to the same period in 2018[258] Foreign currency transaction gain (loss) The company recognized minimal foreign currency losses for the six months ended June 30, 2019, compared to minimal gains in the prior year, reflecting slight exchange rate fluctuations - Minimal foreign currency losses in H1 2019 vs. minimal gains in H1 2018, reflecting slight USD-RUB exchange rate fluctuations[259] Interest expense Interest expense increased slightly to $0.8 million for the six months ended June 30, 2019, from $0.7 million in the prior year - Interest expense increased to $0.8 million for the six months ended June 30, 2019, from $0.7 million in the prior year[260] Other income (expense) Other income (expense) was less than $0.1 million for both the six months ended June 30, 2019 and 2018 - Other income (expense) was less than $0.1 million for both the six months ended June 30, 2019 and 2018[261] Net Loss Net loss decreased to $28.5 million for the six months ended June 30, 2019, from $34.7 million in the prior year - Net loss decreased to $28.5 million for the six months ended June 30, 2019, from $34.7 million in the prior year[262] LIQUIDITY AND CAPITAL RESOURCES The company has incurred recurring net losses and expects to continue doing so, requiring substantial additional capital. It has raised $342.1 million since inception through various financings, including a $30.9 million public offering in January 2019. As of June 30, 2019, cash, cash equivalents, restricted cash, and short-term investments totaled $42.0 million. The company believes it has resources to complete the SEL-212 Phase 2 trial but needs additional capital for the planned Phase 3 program, raising substantial doubt about its ability to continue as a going concern - The company has incurred recurring net losses and expects to continue incurring losses, necessitating substantial additional capital[263] - Raised $342.1 million since inception through June 30, 2019, including $30.9 million from a January 2019 public offering[264][267] - As of June 30, 2019, cash, cash equivalents, restricted cash, and short-term deposits and investments totaled $42.0 million[268] - Substantial doubt exists about the company's ability to continue as a going concern due to insufficient capital for the planned SEL-212 Phase 3 clinical program[277] Indebtedness The company has a $21.0 million term loan facility with Silicon Valley Bank, secured by substantially all assets (excluding intellectual property but including proceeds from its disposition). The loan contains customary covenants and events of default, including a material adverse effect clause, which could trigger acceleration of repayment - Has a $21.0 million term loan facility with Silicon Valley Bank, secured by substantially all assets (excluding IP but including IP proceeds)[270] - The loan includes customary covenants and events of default, such as a material adverse effect clause, which could lead to acceleration of repayment[271][272] Plan of operations and future funding requirements The company expects continued operating losses and increased expenses for R&D, regulatory approvals, and potential commercialization. It requires substantial additional financing, exploring strategic collaborations and equity issuances. The current operating plan covers the SEL-212 Phase 2 trial but needs external capital for Phase 3, leading to substantial doubt about its going concern ability - Expects continued operating losses and increased expenses for R&D, regulatory approvals, and commercialization[274][276] - Requires substantial additional financing, exploring strategic collaborations and equity issuances, but may need to curtail expenses or delay development if funds are insufficient[277] - Substantial doubt exists about the company's ability to continue as a going concern due to insufficient capital for the planned SEL-212 Phase 3 clinical program[277] Summary of Cash Flows Provides a summary of cash flows, showing a decrease in net cash used in operating activities and a significant increase in net cash provided by financing activities for the six months ended June 30, 2019, compared to the prior year Cash Flow Activities | Cash Flow Activity | 6 Months Ended June 30, 2019 (in thousands) | 6 Months Ended June 30, 2018 (in thousands) | | :------------------------- | :------------------------------------ | :------------------------------------ | | Operating activities | $(27,437) | $(30,382) | | Investing activities | $(11,274) | $19,630 | | Financing activities | $31,479 | $362 | | Net change in cash | $(7,203) | $(10,461) | Operating activities Net cash used in operating activities decreased by $3.0 million to $27.4 million for the six months ended June 30, 2019, primarily due to a reduced net loss, increased accounts payable, and decreased prepaid expenses, partially offset by a decrease in accrued expenses - Net cash used in operating activities decreased by $3.0 million to $27.4 million for the six months ended June 30, 2019[280] - This decrease was primarily driven by a $6.2 million reduction in net loss, a $1.2 million increase in accounts payable, and a $3.0 million decrease in prepaid expenses, partially offset by a $7.4 million decrease in accrued expenses[281] Investing activities Net cash used in investing activities was $11.3 million for the six months ended June 30, 2019, a significant change from $19.6 million provided in the prior year, mainly due to increased purchases of short-term investments - Net cash used in investing activities was $11.3 million for the six months ended June 30, 2019, compared to $19.6 million provided in the prior year[282] - This change was primarily due to $18.2 million in purchases of short-term investments, partially offset by $4.9 million in maturities and $2.0 million in sales of short-term investments[282] Financing activities Net cash provided by financing activities significantly increased to $31.5 million for the six months ended June 30, 2019, from $0.4 million in the prior year, primarily due to net proceeds from common stock issuances in public and at-the-market offerings - Net cash provided by financing activities increased significantly to $31.5 million for the six months ended June 30, 2019, from $0.4 million in the prior year[283] - This increase was driven by $30.9 million from the January 2019 Public Offering and $0.4 million from an "at-the-market" offering[283] Off-Balance Sheet Arrangements The company had no off-balance sheet arrangements as of June 30, 2019 - The company had no off-balance sheet arrangements as of June 30, 2019[284] Recent Accounting Pronouncements Refers to Note 2 for a discussion of recently adopted or issued accounting pronouncements - For details on recent accounting pronouncements, refer to Note 2 of the consolidated financial statements[285] CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES Discusses the critical accounting policies and the use of estimates in preparing financial statements, emphasizing areas like clinical trial costs and revenue recognition, where management judgment significantly impacts reported amounts - Financial statements require significant estimates and judgments, particularly in revenue recognition and accrued research and development expenses[42][286] Clinical Trial Costs Clinical trial expenses are a significant component of R&D, largely outsourced to third parties. Accruals for these costs involve significant estimates based on patient enrollment, cycles, and contracted costs, which are regularly evaluated - Clinical trial expenses are a significant R&D component, largely outsourced, with accruals based on estimates of patient enrollment, cycles, and contracted costs[287] Revenue Recognition Revenue is recognized following ASC 606's five-step model, which involves identifying contracts, performance obligations, transaction price, allocation, and recognition upon satisfaction of obligations. Significant judgment is required to determine stand-alone selling prices and evaluate variable consideration - Revenue recognition follows ASC 606's five-step model, requiring significant judgment in determining stand-alone selling prices and evaluating variable consideration[288][292] Emerging Growth Company Status The company is an "emerging growth company" under the JOBS Act, allowing it to use reduced disclosure requirements, but has irrevocably elected not to use the extended transition period for new accounting standards - The company is an "emerging growth company" under the JOBS Act, benefiting from reduced disclosure requirements[298][530] - Irrevocably elected not to use the extended transition period for new or revised accounting standards, adhering to the same standards as other public companies[298][531] Smaller Reporting Company The company qualifies as a "smaller reporting company," allowing it to use scaled disclosure requirements, including reduced executive compensation disclosures, until it no longer meets the criteria based on public float and revenue thresholds - Qualifies as a "smaller reporting company," allowing scaled disclosure requirements, including reduced executive compensation disclosures[299] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is interest rate sensitivity on its cash, cash equivalents, restricted cash, and short-term investments, but an immediate 100 basis point change would not materially affect their fair value. It also faces currency risk from Russian ruble balances but does not hedge against it - Primary market risk is interest rate sensitivity on $42.0 million in cash, cash equivalents, restricted cash, and short-term investments as of June 30, 2019[300] - An immediate 100 basis point change in interest rates would not materially affect the fair value of these assets[300] - Subject to currency risk for Russian ruble balances, but does not hedge against foreign currency risks[301] Item 4. Controls and Procedures Management, including the CEO and Controller, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2019, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2019[303] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2019[304] Limitations on effectiveness of controls and procedures Management acknowledges that controls and procedures, regardless of design, can only provide reasonable assurance of achieving objectives, and their design involves balancing benefits against costs - Controls and procedures provide only reasonable assurance, and their design involves balancing benefits against costs[302] Evaluation of disclosure controls and procedures The CEO and Controller concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2019 - The CEO and Controller concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2019[303] Changes in internal control over financial reporting No changes in internal control over financial reporting occurred during the three months ended June 30, 2019, that materially affected or are reasonably likely to materially affect it - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2019[304] Part II. OTHER INFORMATION This section provides additional information beyond the financial statements, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The company is not a party to any material legal proceedings - The company is not a party to any material legal proceedings[306] Item 1A. Risk Factors This section outlines the significant risks associated with investing in Selecta Biosciences' common stock, covering various aspects such as the company's financial position and capital needs, product development and regulatory approval, dependence on third-party manufacturing, commercialization challenges, intellectual property protection, operational risks, and factors affecting the common stock - Investing in the company's common stock involves a high degree of risk, as detailed in the risk factors section[307] RISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR ADDITIONAL CAPITAL The company has incurred significant losses since inception ($308.9 million accumulated deficit as of June 30, 2019) and expects to continue incurring losses, requiring substantial additional funding. Its ability to continue as a going concern is in substantial doubt, and failure to raise capital could force delays or termination of product development - Incurred significant operating losses since inception, with an accumulated deficit of $308.9 million as of June 30, 2019[308] - Requires substantial additional funding to complete product development and commercialization, with current capital expected to last only into Q1 2020[314][315] - Substantial doubt exists about the company's ability to continue as a going concern due to recurring losses and the need for additional capital for the planned SEL-212 Phase 3 program[315][321] RISKS RELATED TO THE DISCOVERY, DEVELOPMENT AND REGULATORY APPROVAL OF OUR PRODUCT CANDIDATES The company's ImmTOR technology is an unproven approach, and its product candidates are in early development, facing high risks of failure in clinical trials. Regulatory approval for novel gene therapies is lengthy, expensive, and unpredictable, with potential for delays, additional studies, or adverse public perception - ImmTOR technology is an unproven approach, and product candidates are in early development, facing high risks of failure in clinical trials[329][331] - Regulatory approval for gene therapy products is lengthy, expensive, and unpredictable, with limited experience from authorities and potential for additional requirements or delays[333][334][337] - Clinical trials are costly and uncertain; preclinical results may not predict success, and adverse events (e.g., SEL-403 patient death) can lead to development abandonment or delays[347][349] RISKS RELATED TO OUR DEPENDENCE ON THIRD PARTIES AND MANUFACTURING The company relies heavily on third parties, including 3SBio in China for pegadricase and CMOs for other product candidates, for manufacturing. This dependence poses risks of supply disruption, increased costs (e.g., tariffs), failure to meet regulatory requirements (cGMPs), and inability to scale up production, which could delay or impair development and commercialization - Heavily relies on 3SBio in China for pegadricase supply, exposing the company to risks like production disruption, increased costs from tariffs, and regulatory non-compliance[387][388][389] - Dependence on third-party CMOs for manufacturing product candidates for preclinical and clinical testing, especially for gene therapy, increases risks of insufficient quantities, unacceptable cost/quality, and failure to meet cGMP regulations[390][392] - Any performance failure by manufacturers or inability to establish new agreements could delay clinical development or marketing approval[393] RISKS RELATED TO COMMERCIALIZATION OF OUR PRODUCT CANDIDATES AND OTHER LEGAL COMPLIANCE MATTERS Even if approved, product candidates may fail to achieve market acceptance due to competition, pricing, or lack of effective sales/marketing. The company faces substantial competition, including from biosimilars, and is subject to complex healthcare laws (anti-kickback, fraud and abuse) and pricing regulations, which could lead to sanctions or reduced profitability - Approved product candidates may fail to gain market acceptance due to efficacy, safety, pricing, competition, or lack of effective sales/marketing[409][410] - Faces substantial competition from major pharmaceutical and biotechnology companies, including biosimilars, which could reduce or eliminate commercial opportunity[415][417][419][420] - Subject to complex anti-kickback, fraud and abuse, and other healthcare laws, as well as pricing regulations, which could result in criminal sanctions, civil penalties, or reduced revenues[432][434][422][426] RISKS RELATED TO OUR INTELLECTUAL PROPERTY The company's success depends on protecting its proprietary technology through patents and trade secrets. The patent prosecution process is expensive, time-consuming, and uncertain, with risks of invalidation, narrow interpretation, or infringement by third parties. Failure to protect IP or comply with license obligations could harm the business - Success depends on obtaining and maintaining patent and intellectual property protection, which is expensive, time-consuming, and uncertain[462][463] - Risks include patent invalidation, narrow interpretation, infringement by competitors, and challenges from third-party patent applications[464][466][467][469] - Failure to protect trade secrets or comply with intellectual property license obligations could lead to loss of rights or competitive disadvantage[471][474][491] RISKS RELATED TO OUR OPERATIONS The company's new corporate strategy and restructuring (including a 36% headcount reduction) may not be successful, potentially disrupting operations. Future success depends on retaining key executives and attracting qualified personnel, and managing expected growth in development and regulatory capabilities. System failures, international operations risks, and potential acquisitions also pose operational challenges - New corporate strategy and 36% headcount reduction in January 2019 may not be successful, potentially disrupting operations and requiring effective talent acquisition and retention[503][504][506][508] - Expected significant growth in operations (R&D, regulatory, sales/marketing) may be difficult to manage due to limited financial resources and management experience[509][510] - Risks include system failures, challenges with international operations (e.g., Russian subsidiary), and potential disruptions from acquisitions or joint ventures[513][516][517] RISKS RELATED TO OUR COMMON STOCK The market price of the company's common stock is highly volatile due to various factors, including clinical trial results, financing efforts, and competitive developments. Executive officers, directors, and principal stockholders collectively hold significant voting power. Sales of a substantial number of shares could depress the stock price. The company's "emerging growth company" status and certain corporate provisions may also affect investor attractiveness and acquisition attempts - The market price of common stock is highly volatile, influenced by clinical trial results, financing, competition, and other factors[524] - Executive officers, directors, and principal stockholders collectively hold approximately 41.9% of voting stock, enabling significant influence over company matters[525] - Sales of a substantial number of shares, including those eligible for registration, could significantly reduce the stock price[528] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds were reported[540] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[541] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - No mine safety disclosures were reported[541] Item 5. Other Information The company reported no other information - No other information was reported[542] Item 6. Exhibits Provides a list of exhibits filed with the Form 10-Q, including organizational documents, employment agreements, certifications, and XBRL data files - The exhibit index includes the Restated Certificate of Incorporation, Amended and Restated By-laws, 2018 Employment Inducement Incentive Award Plan, an employment agreement for Alison Schecter, M.D., and various certifications (Rule 13a-14(a)/15d-14(a) and Section 1350)[545]