
PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Presents the company's unaudited consolidated balance sheets, statements of operations, changes in equity, and cash flows Consolidated Balance Sheets Details the company's assets, liabilities, and stockholders' equity at the end of the reporting period Balance Sheet Summary | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | Change (%) | | :----------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Total Assets | $188,068 | $159,883 | $28,185 | 17.63% | | Total Liabilities | $98,462 | $137,362 | $(38,900) | -28.32% | | Total Stockholders' Equity | $89,606 | $22,521 | $67,085 | 297.88% | Consolidated Statements of Operations and Comprehensive Income (Loss) Summarizes revenues, expenses, and resulting net income or loss over the reporting periods Three-Month Performance | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (3M) | Change (3M %) | | :-------------------- | :--------------------------- | :--------------------------- | :---------- | :------------ | | Collaboration & License Revenue | $39,273 | $19,663 | $19,610 | 99.73% | | R&D Expenses | $19,182 | $14,463 | $4,719 | 32.63% | | G&A Expenses | $6,231 | $4,748 | $1,483 | 31.24% | | Operating Income (Loss) | $13,860 | $452 | $13,408 | 2966.37% | | Net Income (Loss) | $8,601 | $4,565 | $4,036 | 88.41% | | Basic EPS | $0.06 | $0.04 | $0.02 | 50.00% | | Diluted EPS | $0.06 | $0.00 | $0.06 | - | Six-Month Performance | Metric (in thousands) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (6M) | Change (6M %) | | :-------------------- | :--------------------------- | :--------------------------- | :---------- | :------------ | | Collaboration & License Revenue | $73,272 | $30,713 | $42,559 | 138.57% | | R&D Expenses | $36,871 | $27,467 | $9,404 | 34.24% | | G&A Expenses | $11,768 | $9,952 | $1,816 | 18.25% | | Operating Income (Loss) | $24,633 | $(6,706) | $31,339 | -467.33% | | Net Income (Loss) | $37,379 | $(20,032) | $57,411 | -286.59% | | Basic EPS | $0.27 | $(0.18) | $0.45 | -250.00% | | Diluted EPS | $0.17 | $(0.18) | $0.35 | -194.44% | Consolidated Statements of Changes in Stockholders' Equity Reports changes in the company's equity from net income, stock issuances, and other transactions - Total stockholders' equity significantly increased from $22.5 million at December 31, 2021, to $89.6 million at June 30, 2022, primarily driven by net income of $37.4 million and additional paid-in capital from equity financings141619 - Issuance of common stock and common warrants contributed $21.5 million to additional paid-in capital during the six months ended June 30, 202219 - Stock-based compensation expense for the six months ended June 30, 2022, was $6.3 million1978 Consolidated Statements of Cash Flows Outlines the cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change (in thousands) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :--------- | | Operating Activities | $(24,135) | $(18,176) | $(5,959) | 32.79% | | Investing Activities | $9,446 | $(25,060) | $34,506 | -137.69% | | Financing Activities | $38,603 | $30,291 | $8,312 | 27.44% | | Net Change in Cash, Cash Equivalents, and Restricted Cash | $24,000 | $(12,936) | $36,936 | -285.53% | - Net cash provided by investing activities in 2022 was primarily due to proceeds from maturities of marketable securities, contrasting with net cash used for purchases of marketable securities in 2021260 - Net cash provided by financing activities in both periods was mainly from net proceeds from underwritten and 'at-the-market' equity offerings261 Notes to Consolidated Financial Statements Provides detailed disclosures and explanations of the company's accounting policies and financial statement items Note 1. Description of the Business Outlines the company's core operations, focus, and financial outlook - Selecta Biosciences, Inc. is a clinical-stage biopharmaceutical company focused on its ImmTOR platform, designed to induce antigen-specific immune tolerance using rapamycin-encapsulated biodegradable nanoparticles28 - The company's product candidates are in early development, requiring significant R&D, preclinical/clinical testing, regulatory approval, and substantial additional capital2931 - As of June 30, 2022, cash, cash equivalents, restricted cash, and marketable securities totaled $143.4 million, expected to fund operations for at least the next twelve months33 Note 2. Summary of Significant Accounting Policies Describes the key accounting principles and new standards adopted by the company - The company adopted ASU 2021-04 (Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options) in fiscal year 2022, with no impact on financial position or results37 - The company is assessing the impact of ASU 2020-06 (Debt with Conversion and Other Options and Derivatives and Hedging) and ASU 2016-13 (Financial Instruments-Credit Losses), effective for smaller reporting companies after December 15, 2023, and December 15, 2022, respectively3840 Note 3. Marketable Securities and Investments Details the composition and fair value of the company's short-term investments Marketable Securities Breakdown | Marketable Securities (in thousands) | June 30, 2022 | December 31, 2021 | | :----------------------------------- | :------------ | :---------------- | | Commercial paper | $3,999 | $11,992 | | Corporate bonds | — | $2,006 | | Total | $3,999 | $13,998 | - All marketable securities had maturities of less than 12 months when purchased and are classified as short-term41 - The company holds a $2.0 million investment in Cyrus Biotechnology, Inc., limited to the carrying value of the investment42 Note 4. Net Income (Loss) Per Share Explains the calculation of basic and diluted earnings per share Earnings Per Share (EPS) | EPS Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :--------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS | $0.06 | $0.04 | $0.27 | $(0.18) | | Diluted EPS | $0.06 | $0.00 | $0.17 | $(0.18) | - Potential dilutive shares of common stock excluded from diluted EPS calculation due to anti-dilutive effect were 47.7 million for the three months ended June 30, 2022, and 37.5 million for the six months ended June 30, 202244 Note 5. Fair Value Measurements Discloses the valuation methods for financial assets and liabilities measured at fair value Fair Value of Financial Instruments | Fair Value Item (in thousands) | June 30, 2022 (Total) | December 31, 2021 (Total) | | :----------------------------- | :-------------------- | :------------------------ | | Money market funds | $76,686 | $66,563 | | Marketable securities | $3,999 | $13,998 | | Warrant liabilities | $26,934 | $25,423 | - Warrant liabilities (2019 and 2022 Warrants) are classified as Level 3 in the fair value hierarchy due to significant unobservable inputs (stock price volatility, expected life) in their Black-Scholes valuation52 - The fair value of warrant liabilities increased by $1.5 million from December 31, 2021, to June 30, 2022, primarily due to new issuances ($15.4 million) offset by a change in fair value ($13.9 million decrease)57 Note 6. Property and Equipment Reports the cost and accumulated depreciation of the company's tangible assets Property and Equipment, Net | Property and Equipment (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :------------ | :---------------- | | Total property and equipment | $7,667 | $6,939 | | Less accumulated depreciation | $(4,834) | $(4,797) | | Property and equipment, net | $2,833 | $2,142 | - Net property and equipment increased by $0.7 million from December 31, 2021, to June 30, 202258 Note 7. Accrued Expenses Breaks down short-term liabilities for expenses incurred but not yet paid Accrued Expenses Breakdown | Accrued Expenses (in thousands) | June 30, 2022 | December 31, 2021 | | :------------------------------ | :------------ | :---------------- | | Payroll and employee related | $2,223 | $3,179 | | Collaboration and licensing | $500 | — | | Accrued patent fees | $885 | $309 | | Accrued external R&D costs | $6,701 | $4,339 | | Accrued professional & consulting | $547 | $815 | | Accrued interest | $184 | $170 | | Other | $1,326 | $1,721 | | Total Accrued Expenses | $12,366 | $10,533 | - Accrued expenses increased by $1.8 million, primarily due to higher accrued external research and development costs and new collaboration and licensing accruals60 - Other accrued expenses include a $0.9 million estimated liability for litigation settlement as of June 30, 202260 Note 8. Leases Details the company's lease obligations, costs, and related financial metrics Lease Cost Summary | Lease Cost (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease cost | $505 | $454 | $1,011 | $898 | | Variable lease cost | $205 | $182 | $425 | $470 | | Short-term lease cost | $2 | $2 | $5 | $5 | | Total lease cost | $712 | $638 | $1,441 | $1,373 | - Total operating lease liabilities as of June 30, 2022, were $9.1 million, with a weighted-average remaining lease term of 5.9 years6162 Note 9. Debt Outlines the terms, balance, and payment schedule of the company's outstanding debt - The company's 2020 Term Loan principal balance remained at $25.0 million as of June 30, 2022, and December 31, 202164 - A Second Amendment to the 2020 Term Loan extended the amortization payment commencement date by twelve months to April 1, 2023, with a $0.1 million fee recorded as a debt discount63 Future Minimum Principal Payments | Future Minimum Principal Payments (in thousands) | Amount | | :----------------------------------------------- | :----- | | 2023 | $7,759 | | 2024 | $10,345 | | 2025 | $6,896 | | Total | $25,000 | Note 10. Equity Describes changes in the company's capital structure, including stock and warrant activity - Authorized common stock increased from 200,000,000 to 350,000,000 shares on June 17, 202265 - An underwritten offering in April 2022 generated approximately $36.9 million in net proceeds from the sale of 27,428,572 common shares and warrants to purchase 20,571,429 shares66 Warrant Activity Summary | Warrant Activity | Outstanding at Dec 31, 2021 | Issuance | Canceled | Outstanding at June 30, 2022 | | :--------------- | :-------------------------- | :------- | :------- | :--------------------------- | | Equity classified | 292,469 | — | (79,130) | 213,339 | | Liability classified | 10,443,511 | 20,571,429 | — | 31,014,940 | | Total Warrants | 10,735,980 | 20,571,429 | (79,130) | 31,228,279 | | Weighted average exercise price | $1.62 | $1.55 | $17.71 | $1.53 | Note 11. Stock Incentive Plans Summarizes stock-based compensation programs for employees and related expenses Stock-based Compensation Expense | Stock-based Compensation Expense (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :---------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Research and development | $2,021 | $786 | $3,039 | $1,540 | | General and administrative | $1,543 | $997 | $3,278 | $2,023 | | Total | $3,564 | $1,783 | $6,317 | $3,563 | - Total unrecognized compensation expense for unvested employee stock options was $16.9 million as of June 30, 2022, to be recognized over 2.8 years80 - Unrecognized compensation expense for restricted stock units was $2.6 million as of June 30, 2022, to be recognized over 3.2 years83 Note 12. Revenue Arrangements Details revenue recognized from major collaboration and license agreements - Takeda Agreement: $1.0 million revenue recognized in H1 2022; the agreement includes a $3.0 million upfront payment and potential future payments up to $1.124 billion8689 - Sobi License: $29.2 million and $52.9 million revenue recognized in Q2 and H1 2022, respectively; a $10.0 million development milestone was achieved for DISSOLVE II trial enrollment completion99101 - Sarepta Agreement: $10.1 million and $10.2 million revenue recognized in Q2 and H1 2022, respectively; milestones achieved include a $2.0 million payment for option extension and a $4.0 million payment for preclinical study milestones109110112 - Spark License Agreement: Mutually terminated on January 18, 2022, resulting in $9.2 million revenue recognition from short-term contract liability121 - As of June 30, 2022, the aggregate amount of transaction price allocated to remaining performance obligations was $23.1 million122 Note 13. Related-party Transactions Discloses transactions conducted with company insiders or their affiliates - TAS Partners, LLC (an affiliate of Timothy A. Springer, Ph.D.) purchased 6,681,600 shares of common stock and 5,011,200 warrants for a total of $9.4 million in the April 2022 offering125 - Consulting services from founders for the Scientific Advisory Board incurred less than $0.1 million in expenses for both three and six months ended June 30, 2021126 Note 14. Collaboration and License Agreements Describes key partnerships for research, development, and commercialization - Ginkgo Bioworks Agreements: The Second Ginkgo Agreement (Jan 2022) focuses on AAV capsids, with potential milestones up to $207 million cash per product; a $0.5 million payment and 892,857 shares ($1.0 million value) were issued to Ginkgo in Q2 2022 for a technical development milestone127128129182183 - Genovis Agreement (Oct 2021): Exclusive license for Xork enzyme technology for therapeutic uses, with development/sales milestones and low double-digit royalties130131184 - Cyrus Agreement (Sep 2021): Collaboration for protein engineering combining ImmTOR with Cyrus's engineered protein therapeutics, with potential milestones up to $1.5 billion; a preclinical milestone was achieved in June 2022132135185186 - AskBio Collaboration Agreement (Aug 2019): FDA clinical hold on SEL-302 was removed in March 2022; collaboration expenses recognized were $0.2 million (Q2 2022) and $0.6 million (H1 2022)138144 Note 15. Income Taxes Explains the company's income tax position, including deferred tax assets and valuation allowances - The company maintains a full valuation allowance against its net deferred tax assets, as realization is not considered more likely than not150 - As of December 31, 2021, the company had $51.1 million in federal net operating losses and $1.2 million in federal tax credits151 - Research and experimental expenditures under IRC Section 174 must be capitalized, but the projected taxable loss for 2022 does not result in income tax due151 Note 16. Defined Contribution Plan Details the company's employee retirement savings plan and associated contributions - Company contributions to the 401(k) Plan were less than $0.1 million for each of the three months ended June 30, 2022 and 2021, and $0.2 million and $0.1 million for the six months ended June 30, 2022 and 2021, respectively154 Note 17. Commitments and Contingencies Discloses potential liabilities from legal proceedings and other commitments - A stockholder derivative action (Franchi v. Barabe, et al.) related to a 2019 private placement was settled in principle, with court approval on July 21, 2022; the company accrued an estimated liability of $0.9 million157272 - The company indemnifies its officers and directors for certain events, with unlimited maximum potential payments, but insurance coverage limits exposure158 Note 18. Subsequent Events Reports on significant events that occurred after the balance sheet date - No subsequent events requiring disclosure have occurred through the date of financial statement issuance160 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's analysis of financial condition, operational results, liquidity, and key business developments Overview Summarizes the company's business focus as a clinical-stage biopharmaceutical entity - Selecta Biosciences is a clinical-stage biopharmaceutical company leveraging its ImmTOR platform, which encapsulates rapamycin to induce antigen-specific immune tolerance162 - The company is developing ImmTOR-IL™, a combination of ImmTOR with Treg-selective IL-2 muteins, showing synergistic activity in expanding antigen-specific Tregs for autoimmune diseases162 Our Product Candidates Details the company's development pipeline across biologics, gene therapies, and autoimmune treatments - The product development strategy focuses on three pillars: Biologic therapies (SEL-212), Gene therapies (SEL-302, SEL-018), and Tolerogenic Therapies for Autoimmune Disease (ImmTOR-IL)163164165166167169 - SEL-212 is in Phase 3 clinical trials with top-line data anticipated in Q1 2023169 - SEL-302 for Methylmalonic Acidemia (MMA) had its clinical hold removed by the FDA in March 2022, with study commencement planned for Q4 2022174 - The company has exclusively licensed Xork, an IgG-specific protease, for gene therapy applications to address pre-existing AAV immunity176 Licenses and Collaborations Outlines key strategic in-licensing and out-licensing agreements with partners - Key in-licenses include agreements with Ginkgo Bioworks (AAV capsids, IgA proteases), Genovis (Xork enzyme), Cyrus Biotechnology (IL-2 protein engineering), and IGAN Biosciences (IgA proteases)181183184185187 - Key out-licenses involve Takeda (potential $1.124 billion milestones), Sobi (potential $630 million milestones), and Sarepta (potential milestones and royalties)190191195 - Sobi paid a $75 million upfront payment and purchased $25 million in common stock; a $10.0 million receivable was recorded in June 2022 for DISSOLVE II trial enrollment completion192193194 - Sarepta extended its options for Duchenne and Limb-Girdle Muscular Dystrophies, resulting in a $2.0 million receivable, and a $4.0 million receivable for preclinical milestones196 Impact of Global Events Discusses the effects of the COVID-19 pandemic and geopolitical events on operations - COVID-19 pandemic has not materially impacted clinical programs to date, but poses risks of delays in trials, supply chain disruptions, and unforeseen costs200201 - The geopolitical situation in Ukraine and Russia led to increased enrollment in the DISSOLVE II trial to replace subjects potentially lost from these regions, with topline results expected in Q1 2023203 Financial Operations Reviews the company's financing history, accumulated deficit, and capital runway - The company has financed operations through public/private equity offerings, debt, research grants, and collaboration/license agreements, with no product revenue to date204 - Accumulated deficit was $392.9 million as of June 30, 2022, with expectations of continued operating losses205252 - Existing cash and receivables are expected to fund operations into mid-2024206244 - Research and development expenses totaled $400.9 million from inception through June 30, 2022210 Results of Operations Compares financial results for the three and six-month periods ended June 30, 2022 and 2021 Comparison of the Three Months Ended June 30, 2022 and 2021 Analyzes revenue and expense variances for the second quarter - Collaboration and license revenue increased by $19.6 million (100%) to $39.3 million, driven by Sobi ($29.2 million) and Sarepta ($10.1 million) agreements220 - Research and development expenses increased by $4.7 million (33%) to $19.2 million, mainly due to the SEL-212 clinical program, stock compensation, and salaries221222 - General and administrative expenses increased by $1.5 million (31%) to $6.2 million, primarily due to 2022 equity offering issuance costs and stock compensation223 - A $4.6 million charge was recognized from the increase in fair value of warrant liabilities in Q2 2022, compared to $4.8 million income in Q2 2021227 - Net income for Q2 2022 was $8.6 million, up from $4.6 million in Q2 2021229 Comparison of the Six Months Ended June 30, 2022 and 2021 Analyzes revenue and expense variances for the first half of the year - Collaboration revenue increased by $42.6 million (139%) to $73.3 million, primarily from Sobi ($52.9 million), Sarepta ($10.2 million), and Spark termination ($9.2 million)230 - Research and development expenses increased by $9.4 million (34%) to $36.9 million, driven by SEL-212, preclinical programs, and personnel232233 - General and administrative expenses increased by $1.8 million (18%) to $11.8 million, mainly due to equity offering costs and stock compensation234 - A $13.9 million income was recognized from the decrease in fair value of warrant liabilities in H1 2022, compared to an $11.9 million charge in H1 2021238 - Net income for H1 2022 was $37.4 million, a significant improvement from a net loss of $20.0 million in H1 2021240 Liquidity and Capital Resources Details the company's sources of funding, cash position, and future capital needs - From inception through June 30, 2022, the company raised $692.1 million, including $219.4 million from collaborations and $241.7 million from equity offerings243 - As of June 30, 2022, cash, cash equivalents, restricted cash, and marketable securities totaled $143.4 million244 - The 2020 Term Loan has an outstanding principal balance of $25.0 million, with amortization payments deferred to April 1, 2023246247 - Future capital requirements depend on the product pipeline, clinical trial progress, manufacturing costs, and commercialization efforts256 Summary of Cash Flows Provides a high-level overview of cash movements from all activities Six-Month Cash Flow | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(24,135) | $(18,176) | | Investing activities | $9,446 | $(25,060) | | Financing activities | $38,603 | $30,291 | | Net change in cash, cash equivalents, and restricted cash | $24,000 | $(12,936) | - Cash used in operating activities increased by $5.9 million to $24.1 million in H1 2022, primarily due to changes in operating assets and liabilities258 - Net cash provided by investing activities was $9.4 million in H1 2022, a significant shift from $25.1 million used in H1 2021, mainly due to marketable securities maturities260 - Net cash provided by financing activities increased by $8.3 million to $38.6 million in H1 2022, driven by proceeds from equity offerings261 Recent Accounting Pronouncements Refers to disclosures on newly adopted or issued accounting standards - Refer to Note 2 for a discussion of recently adopted or issued accounting pronouncements262 Off-Balance Sheet Arrangements Confirms the absence of any off-balance sheet arrangements - As of June 30, 2022, the company did not have any off-balance sheet arrangements263 Critical Accounting Policies and Use of Estimates States there were no material changes to critical accounting policies - No material changes to critical accounting policies were reported during the three and six months ended June 30, 2022, from those described in the 2021 Annual Report on Form 10-K264 Smaller Reporting Company Discloses the company's status as a smaller reporting company - The company qualifies as a 'smaller reporting company' and may utilize scaled disclosure requirements265 Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses the company's exposure to interest rate risk on its cash and investments - The company's primary market risk exposure is interest rate sensitivity, affecting its cash, cash equivalents, restricted cash, and marketable securities ($143.4 million as of June 30, 2022)266 - An immediate 100 basis point change in interest rates would not materially affect the fair market value of these assets due to their short-term and low-risk nature266 Item 4. Controls and Procedures Reports on the effectiveness of the company's disclosure controls and internal financial reporting controls - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2022267 - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2022269 - Internal controls have inherent limitations, providing only reasonable assurance for financial statement preparation268 PART II. OTHER INFORMATION Item 1. Legal Proceedings Details a stockholder derivative action that has been settled - A stockholder derivative action (Franchi v. Barabe, et al.) was filed in August 2020, alleging breach of fiduciary duties and corporate waste related to a 2019 private placement272 - The litigation was stayed, and a settlement in principle was reached and approved by the Court of Chancery in Delaware on July 21, 2022272 Item 1A. Risk Factors Highlights risks related to system failures and cybersecurity threats - The company's business and operations are vulnerable to material disruption from system failures, security breaches, data protection law violations, or data loss/damage274 - Cyber-attacks are increasing in frequency and sophistication, posing risks to system security, data confidentiality, availability, and integrity275 - General liability insurance may not cover all claims or be sufficient, and successful large claims could materially adversely affect the business276 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds States there were no unregistered sales of equity securities to report - None277 Item 3. Defaults Upon Senior Securities States there were no defaults upon senior securities to report - None278 Item 4. Mine Safety Disclosures States there were no mine safety disclosures to report - None279 Item 5. Other Information States there is no other information to report - None280 Item 6. Exhibits Lists the exhibits filed with the quarterly report - The exhibit index includes the Restated Certificate of Incorporation, Amended and Restated By-laws, Form of Common Stock Purchase Warrant, Certifications of Principal Executive and Financial Officers, and Inline XBRL documents283 Signatures Contains the certifying signatures of the company's principal officers - The report was signed by Carsten Brunn, Ph.D., President and Chief Executive Officer, and Kevin Tan, Chief Financial Officer, on August 8, 2022287