Orchard Therapeutics plc(ORTX) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2021 Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Orchard Therapeutics plc for the quarterly period ended March 31, 2021, including balance sheets, statements of operations, cash flows, and shareholders' equity Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2021, shows a significant increase in cash, marketable securities, and total shareholders' equity compared to December 31, 2020, primarily due to a private placement financing Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $78,883 | $55,135 | | Marketable securities | $219,543 | $136,813 | | Total current assets | $328,423 | $223,535 | | Total assets | $389,113 | $280,937 | | Liabilities & Equity | | | | Total current liabilities | $48,485 | $51,561 | | Total liabilities | $93,533 | $102,503 | | Total shareholders' equity | $295,580 | $178,434 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the three months ended March 31, 2021, the company reported a net loss of $35.2 million, a reduction from the $50.6 million net loss in the same period of 2020, driven by lower operating expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Product sales, net | $0 | $0 | | Research and development | $21,035 | $24,836 | | Selling, general and administrative | $14,051 | $20,145 | | Loss from operations | $(35,086) | $(44,981) | | Net loss | $(35,182) | $(50,569) | | Net loss per share, basic and diluted | $(0.31) | $(0.51) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $39.2 million for the first quarter of 2021, while financing activities provided $146.4 million, primarily from a private placement, resulting in a net increase in cash - Net cash used in operating activities decreased to $39.2 million in Q1 2021 from $49.9 million in Q1 2020[23] - The company received $150.0 million in proceeds from the issuance of ordinary shares in a private placement, resulting in net cash of $143.7 million after fees and costs[23][31] - Cash used in investing activities was $83.5 million, a significant shift from the $56.8 million provided by investing activities in the prior year period, mainly due to a $130.4 million purchase of marketable securities[23][143] Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's business, accounting policies, and financial activities, including the European marketing authorization for Libmeldy and a private placement that significantly boosted liquidity - In February 2021, the company completed a private placement, selling ordinary and non-voting ordinary shares for net proceeds of $143.7 million after deducting fees and costs[31] - The company received standard marketing authorization from the European Commission for Libmeldy™ for the treatment of early-onset MLD in December 2020[30] - As of March 31, 2021, the company had an accumulated deficit of $640.8 million but expects its cash, cash equivalents, and marketable securities of $298.4 million to be sufficient to fund operations for at least the next twelve months[33] - The company has a manufacturing agreement with AGC Biologics with total remaining commitments of approximately $61.0 million as of March 31, 2021[100] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transition to a commercial-stage entity, highlighting reduced net loss in Q1 2021 due to lower operating expenses and a significant liquidity boost from a private placement Results of Operations Comparing Q1 2021 to Q1 2020, total operating expenses decreased by $9.9 million to $35.1 million, driven by reductions in research and development and selling, general, and administrative expenses Comparison of Operating Results (in thousands) | Metric | Q1 2021 | Q1 2020 | Change | | :--- | :--- | :--- | :--- | | Research and development | $21,035 | $24,836 | $(3,801) | | Selling, general and administrative | $14,051 | $20,145 | $(6,094) | | Total costs and operating expenses | $35,086 | $44,981 | $(9,895) | | Net loss | $(35,182) | $(50,569) | $15,387 | - Direct R&D expenses for primary immune deficiency programs declined by $1.8 million, mainly due to a $2.5 million reduction in costs for OTL-101 following its de-prioritization[131] - SG&A expenses declined by $6.1 million, primarily due to a $2.7 million share-based compensation charge and a $0.7 million severance charge in Q1 2020 related to the separation of the former CEO, which did not recur[87][135] Liquidity and Capital Resources As of March 31, 2021, the company had $298.4 million in cash, cash equivalents, and marketable securities, with existing cash expected to fund operations into the first half of 2023 - The company's cash, cash equivalents, and marketable securities totaled $298.4 million as of March 31, 2021[108] - A private placement in February 2021 provided net proceeds of $143.7 million[112][144] - The company believes its existing cash will fund operations and capital expenditures into the first half of 2023[147] - The company has an "at the market offering" agreement to sell up to $100.0 million in ADSs, but no shares had been sold under this agreement as of March 31, 2021[138] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily interest rate sensitivity from its variable-rate debt and foreign currency exchange risk from international operations, without currently using hedging instruments - The company has $25.0 million in debt under a credit facility with a variable interest rate of 6% plus LIBOR, exposing it to interest rate risk[152] - The company is exposed to foreign currency exchange risk, particularly between the U.S. dollar, pound sterling, and euro, recording a net foreign currency gain of $1.4 million in Q1 2021, compared to a loss of $6.6 million in Q1 2020[153] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective[157] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[160] PART II. OTHER INFORMATION This section outlines legal proceedings, various risk factors, and other required disclosures for the company Item 1. Legal Proceedings As of March 31, 2021, the company was not a party to any material legal proceedings, expecting no material adverse effect from ordinary course claims - The company is not currently a party to any material litigation[162] Item 1A. Risk Factors This section details numerous risks that could harm the company's business, financial condition, and prospects, including financial position, development, manufacturing, commercialization, and COVID-19 impacts Risks related to financial position and need for additional capital The company has a history of net losses and expects to incur losses for the foreseeable future, requiring substantial additional funding to support operations and achieve profitability - The company has incurred net losses since inception and expects to continue incurring them for the foreseeable future, with a net loss of $35.2 million for the three months ended March 31, 2021[164] - Additional funding is necessary and failure to obtain it on acceptable terms may force the company to delay, limit, or terminate product development or other operations[172] Risks related to the discovery, development and regulatory approval of our product candidates The novelty of gene therapy makes development time and cost difficult to predict, with risks including insufficient clinical trial data, serious adverse events from administration, and challenges in demonstrating manufacturing comparability - The novelty of gene therapy makes it difficult to predict the time and cost of development and regulatory approval[178] - The FDA and/or EMA may require additional clinical trials for OTL-200 (MLD) and OTL-103 (WAS) before considering marketing approval, as a single registrational trial may be deemed insufficient[181] - A patient treated with Strimvelis was diagnosed with lymphoid T-cell leukemia due to insertional oncogenesis, a known risk for gammaretroviral vectors, which could impact perception and regulation of gene therapies[194] - The company may be unable to demonstrate comparability between drug product manufactured using different cell sources (bone marrow vs. peripheral blood) or formulations (fresh vs. cryopreserved), which could delay or limit regulatory approval[199][202] Risks related to manufacturing and supply The company relies on third-party CDMOs, often single sources, for its complex gene therapies, creating risks of delays, supply interruptions, compliance failures, and challenges in managing the highly complex autologous supply chain - The company relies on third-party manufacturers (CDMOs), which are often single sources of supply, for its complex and difficult-to-manufacture gene therapies[269] - The autologous ex vivo gene therapy supply chain is highly complex, requiring coordination of patient cell collection, transport to manufacturing, and return of the cryopreserved drug product to the treatment center under strict time and temperature conditions[279][280] - Any microbial contamination, raw material shortages, or failure of key suppliers could result in significant delays in clinical development or commercialization[284] Risks related to commercialization The company faces significant hurdles in commercializing its products, including building sales capabilities, gaining market acceptance, navigating competition, and securing adequate insurance coverage and reimbursement for high-cost therapies - The company may not be successful in establishing effective sales, marketing, and distribution capabilities for Libmeldy and other future products, which is expensive and time-consuming[318] - The company faces significant competition from larger pharmaceutical and biotech companies with greater resources, and its lack of issued patents for key products like Libmeldy lowers barriers to entry[323][324] - Failure to obtain and maintain adequate insurance coverage and reimbursement for high-cost gene therapies could severely limit the ability to market and sell products[331] Risks related to the impact of COVID-19 The COVID-19 pandemic has caused and may continue to cause significant disruptions, including delays in clinical trials, diversion of healthcare resources, and interruptions in global shipping, with uncertain full impact on business operations - The COVID-19 pandemic has caused disruptions that may continue to delay clinical trial enrollment, patient follow-up, and regulatory timelines[337][339] - Specific impacts include diversion of healthcare resources, limitations on travel for trial activities, and interruptions in global shipping of clinical materials[340] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended March 31, 2021, the company had no sales of unregistered securities other than those detailed in its Current Report on Form 8-K filed on February 9, 2021 - Details regarding unregistered sales of equity securities during the quarter are referenced in the Form 8-K filed on February 9, 2021[508] Item 3. Defaults Upon Senior Securities Not applicable, as the company reports no defaults upon senior securities Item 4. Mine Safety Disclosures Not applicable, as the company has no mine safety disclosures to report Item 5. Other Information Not applicable, as the company reports no other information for this item Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Securities Purchase Agreement from the February 2021 private placement, certifications, and XBRL data files - The exhibits include the Securities Purchase Agreement dated February 4, 2021, CEO/CFO certifications (Rule 13a-14(a) and Section 906), and Inline XBRL documents[513]