Cartesian Therapeutics(RNAC) - 2020 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION This section provides the company's financial statements, management's analysis, market risk disclosures, and internal controls Financial Statements This section presents the unaudited consolidated financial statements for Selecta Biosciences, Inc. as of September 30, 2020, and for the three and nine months then ended. It includes the Consolidated Balance Sheets, Statements of Operations, Statements of Changes in Stockholders' Equity, and Statements of Cash Flows, accompanied by detailed Notes to the Financial Statements which elaborate on accounting policies and significant transactions, including new collaboration agreements and financing activities Consolidated Balance Sheets Presents the company's financial position, including assets, liabilities, and equity, at specific points in time Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $146,261 | $89,893 | | Total current assets | $166,502 | $96,667 | | Total assets | $180,996 | $99,569 | | Liabilities & Equity | | | | Total current liabilities | $77,004 | $34,943 | | Total liabilities | $188,378 | $91,172 | | Total stockholders' (deficit) equity | $(7,382) | $8,397 | | Total liabilities and stockholders' (deficit) equity | $180,996 | $99,569 | Consolidated Statements of Operations and Comprehensive Loss Details the company's revenues, expenses, and net loss over specific periods Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Grant and collaboration revenue | $4,646 | $0 | $4,646 | $23 | | Research and development | $13,960 | $8,104 | $39,414 | $27,591 | | General and administrative | $4,420 | $3,690 | $14,155 | $12,317 | | Loss from operations | $(13,734) | $(11,794) | $(48,923) | $(39,885) | | Net loss | $(9,729) | $(11,994) | $(53,430) | $(40,462) | | Net loss per share (basic and diluted) | $(0.09) | $(0.26) | $(0.54) | $(0.94) | Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $42,131 | $(38,559) | | Net cash (used in) provided by investing activities | $(575) | $238 | | Net cash provided by financing activities | $14,621 | $36,507 | | Net change in cash, cash equivalents, and restricted cash | $56,089 | $(1,790) | | Cash, cash equivalents, and restricted cash at end of period | $147,640 | $35,892 | Notes to Consolidated Financial Statements (Unaudited) The notes provide detailed explanations of the company's accounting policies and financial activities. Key disclosures include the nature of the business as a clinical-stage biotech focused on the ImmTOR™ platform, liquidity status with cash runway into Q1 2023, details of significant collaboration and revenue agreements with Sobi, Sarepta, and AskBio, information on debt facilities including a new $35M term loan, and equity financing activities such as private placements and at-the-market offerings - The company is a clinical-stage biotechnology company leveraging its ImmTOR™ platform to amplify the efficacy of biologics and restore self-tolerance in autoimmune diseases[31] - As of September 30, 2020, the company's cash, cash equivalents, and restricted cash of $147.6 million are expected to fund operations into the first quarter of 2023[39] - In August 2020, the company entered into a new term loan agreement for up to $35.0 million, drawing down an initial $25.0 million (Term A Loan)[106] - In June 2020, the company entered into a significant license and development agreement with Sobi for SEL-212, receiving a $75 million upfront payment and a $25 million equity investment. Sobi will also reimburse costs for the Phase 3 DISSOLVE trials[169][172] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus on its ImmTOR™ platform, particularly for gene therapy and autoimmune diseases, following the licensing of its lead candidate, SEL-212, to Sobi. The analysis covers financial results for the third quarter and first nine months of 2020, highlighting a significant increase in revenue from the Sobi agreement and a rise in R&D expenses due to the initiation of the Phase 3 DISSOLVE program. The company confirms its cash runway extends into Q1 2023, supported by recent financing and collaboration payments Overview The company is a clinical-stage biopharmaceutical firm focused on its ImmTOR™ immune tolerance platform. Its strategy is to amplify biologic efficacy (e.g., enabling gene therapy re-dosing) and restore self-tolerance in autoimmune diseases. The lead candidate, SEL-212 for chronic refractory gout, was licensed to Sobi in June 2020, with Phase 3 trials initiated in September 2020. The pipeline also includes programs in IgA nephropathy, gene therapies for MMA (with AskBio) and OTC deficiency, and an autoimmune program in PBC - Strategic focus is on the ImmTOR platform to amplify biologic efficacy and restore self-tolerance in autoimmune diseases[247][248] - Lead product candidate SEL-212 for chronic refractory gout was licensed to Sobi in June 2020. The Phase 3 DISSOLVE clinical program, funded by Sobi, commenced in September 2020[248][252] - The pipeline includes gene therapy programs in collaboration with AskBio for methylmalonic acidemia (MMA) and a proprietary program for OTC deficiency, as well as an autoimmune program for primary biliary cholangitis (PBC)[255][256][257] Results of Operations For the third quarter of 2020, revenue was $4.6 million, primarily from the Sobi and Sarepta agreements, compared to zero in Q3 2019. R&D expenses increased 72% to $14.0 million due to the Phase 3 DISSOLVE program initiation. G&A expenses rose 20% to $4.4 million. For the nine months ended September 30, 2020, revenue was also $4.6 million, R&D expenses increased 43% to $39.4 million, and G&A expenses increased 15% to $14.2 million. The net loss for the nine months was $53.4 million, up from $40.5 million in the prior year period Comparison of Results for the Three Months Ended September 30 (in thousands) | Metric | 2020 | 2019 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Collaboration Revenue | $4,646 | $0 | $4,646 | N/A | | Research & Development | $13,960 | $8,104 | $5,856 | 72% | | General & Administrative | $4,420 | $3,690 | $730 | 20% | Comparison of Results for the Nine Months Ended September 30 (in thousands) | Metric | 2020 | 2019 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Collaboration Revenue | $4,646 | $23 | $4,623 | 201% | | Research & Development | $39,414 | $27,591 | $11,823 | 43% | | General & Administrative | $14,155 | $12,317 | $1,838 | 15% | - A gain of $4.8 million was recognized in Q3 2020 from the decrease in fair value of warrant liabilities, while a loss of $3.6 million was recognized for the nine-month period due to an increase in fair value[295][305] Liquidity and Capital Resources As of September 30, 2020, the company had $147.6 million in cash, cash equivalents, and restricted cash. Management believes these funds are sufficient to support operations into the first quarter of 2023. This position was strengthened by a $75 million upfront payment from Sobi, a $25 million equity investment from Sobi, and a new $35 million debt facility, of which $25 million was drawn. The company continues to utilize its "at-the-market" offering for additional funding - The company believes its existing cash of $147.6 million as of September 30, 2020, will fund operating expenses and capital expenditure requirements into the first quarter of 2023[328][272] - In June 2020, the company entered into the Sobi License agreement, receiving $75 million upfront and a $25 million equity investment. Sobi will also fund the Phase 3 clinical program for SEL-212[312] - In August 2020, the company secured a new term loan facility for up to $35.0 million and drew down the initial $25.0 million tranche[319] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate changes affecting its cash, cash equivalents, and investments. However, due to the short-term and low-risk nature of these holdings, management believes a 100 basis point change in interest rates would not have a material effect. The company also has minor foreign currency risk from its Russian subsidiary, which held $0.3 million in U.S. dollars as of September 30, 2020 - The primary market risk is interest rate sensitivity on cash and investments, which is considered not to have a material effect on fair market value[354] - The company is subject to foreign currency risk from its Russian subsidiary, which held cash of $0.3 million as of September 30, 2020[355] Controls and Procedures Based on an evaluation as of September 30, 2020, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the third quarter of 2020 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020[357] - No changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal controls were identified during Q3 2020[358] Part II. OTHER INFORMATION This section covers legal proceedings, detailed risk factors, and other miscellaneous disclosures required for the report Legal Proceedings The company discloses a shareholder derivative action filed on August 3, 2020, in the Court of Chancery of the State of Delaware. The complaint alleges that certain current and former directors breached their fiduciary duties in connection with a private placement transaction announced in December 2019. The defendants filed a motion to dismiss on September 25, 2020 - A shareholder derivative action was filed on August 3, 2020, against certain current and former directors, alleging breach of fiduciary duties related to a December 2019 private placement[361] Risk Factors This section details significant risks that could materially affect the company's business. Key risks include its history of losses and need for additional capital; reliance on the unproven ImmTOR platform; uncertainties in clinical development and regulatory approval; dependence on third parties like 3SBio for manufacturing and Sobi for commercialization; potential for product liability and competition; challenges in protecting intellectual property; and operational risks related to its new strategy and retaining key personnel Risks Related to Financial Position and Need for Additional Capital Highlights risks associated with the company's financial health, including historical losses and future funding requirements - The company is a development-stage company with a history of significant losses ($389.2 million accumulated deficit as of Sep 30, 2020) and expects to incur losses for the foreseeable future[363] - Substantial additional funding will be needed to complete development and commercialization of product candidates. Failure to raise capital could force delays or elimination of programs[368] Risks Related to Discovery, Development and Regulatory Approval Addresses the inherent uncertainties and challenges in the clinical development and regulatory approval process for product candidates - The company's product candidates are based on the ImmTOR platform, which is an unproven approach, and the company is in the early stages of most clinical development efforts[380] - Clinical drug development is a lengthy, expensive process with an uncertain outcome. The company may incur additional costs or delays and could ultimately be unable to complete development[394] - The COVID-19 pandemic may continue to adversely impact business, including preclinical studies and clinical trials, through delays in enrollment, site initiation, and supply chain disruptions[406] Risks Related to Dependence on Third Parties and Manufacturing Discusses risks arising from reliance on external partners for manufacturing, supply, and collaboration agreements - The company relies on 3SBio in China as the primary supplier of pegadricase, a key component of SEL-212, exposing it to supply disruption, geopolitical, and tariff risks[430][431][432] - Reliance on third-party contract manufacturers for all product candidates increases risks related to supply quantity, cost, quality, and regulatory compliance (cGMP)[435][437] - Existing collaborations (e.g., Sobi, AskBio) are important to the business, and the failure to maintain these or enter new ones could adversely affect development and funding[439] Risks Related to Commercialization and Legal Compliance Covers challenges in achieving market acceptance, building sales infrastructure, and adhering to complex healthcare regulations - Even if approved, product candidates may fail to achieve market acceptance by physicians, patients, and payors[451] - The company has no sales organization and will need to build one or rely on third parties, which carries significant risks and costs[452] - The business is subject to complex healthcare laws, including anti-kickback and fraud statutes, which could expose it to criminal sanctions and civil penalties[470] Risks Related to Intellectual Property Outlines risks concerning the protection, maintenance, and potential infringement of the company's intellectual property rights - The company's success depends on its ability to obtain and maintain patent protection for its technology and products, which is an expensive and uncertain process[495] - The company may be subject to litigation alleging infringement of third-party intellectual property rights, which could be costly and disruptive[512] - Failure to comply with obligations in intellectual property license agreements could result in the loss of important rights to the company's product candidates[522] Risks Related to Operations and Common Stock Examines operational challenges, dependence on key personnel, and factors affecting the volatility of the company's stock price - The company's new corporate strategy focusing on the ImmTOR platform post-Sobi deal may not be successful[533] - Future success is highly dependent on retaining key executives, like the CEO, and attracting qualified personnel in a competitive market[536] - The market price of the company's common stock is likely to be volatile and could fluctuate substantially[549] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period covered by this report - None reported Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported Mine Safety Disclosures This item is not applicable to the company - Not applicable Other Information The company reported no other information for this period - None reported Exhibits This section lists the exhibits filed with the Form 10-Q. Notable exhibits include the company's restated certificate of incorporation and bylaws, warrant forms, the amended Registration Rights Agreement with Sobi, a new employment agreement, the new Loan and Security Agreement with Oxford Finance and SVB, and officer certifications - Key exhibits filed include the Loan and Security Agreement dated August 31, 2020, and the amended Registration Rights Agreement with Sobi[571]