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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from         to        

Sigilon Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-39746

47-4005543

(State or other jurisdiction of
incorporation or organization)

(Commission File No.)

(I.R.S. Employer
Identification No.)

100 Binney Street, Suite 600

Cambridge, MA 02142

(Address, including zip code, of registrant’s principal executive offices)

(617) 336-7540

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share

SGTX

The Nasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of April 30, 2021, there were 31,529,653 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

Table of Contents

Sigilon Therapeutics, Inc.

TABLE OF CONTENTS

Page

PART I - Financial Information

Item 1.

Financial Statements (Unaudited)

4

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

4

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and March 31, 2020

5

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended March 31, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market and Risk

30

Item 4.

Controls and Procedures

30

PART II - Other Information

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

89

Item 3.

Defaults upon Senior Securities

90

Item 4.

Mine Safety Disclosures

90

Item 5.

Other Information

90

Item 6.

Exhibits

90

Signatures

92

S

1

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RISK FACTORS SUMMARY

Our business is subject to a number of risks, including risks that may adversely affect our business, results of operations, cash flows, and prospects. These risks are discussed more fully in “Item 1.A Risk Factors” and include, but are not limited to, risks related to:

We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
We will need substantial additional funding to continue operations. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our research and product development programs or future commercialization efforts.
The SLTx platform consists of novel technologies that are not yet clinically validated for human therapeutic use. The approaches we are taking to discover and develop novel therapeutics are unproven and may never lead to marketable products.
We may not be successful in our efforts to identify and develop product candidates. If these efforts are unsuccessful, we may never become a commercial stage company or generate any revenues.
We are early in our development efforts. It will be many years before we or our collaborators commercialize a product candidate, if ever.
We currently have only one clinical stage product candidate, SIG-001, for which we dosed our first two patients in the fourth quarter of 2020. A failure of this product candidate in clinical development would adversely affect our business and may require us to discontinue development of other product candidates, which are all based on the same SLTx platform.
We only have preliminary data from the first two patients dosed with SIG-001 and no results from our product candidates in clinical trials and any favorable preclinical results are not predictive of results that may be observed in future clinical trials.
If any of the product candidates we may develop, or the delivery modes we rely on to administer them, cause serious adverse events, undesirable side effects or unexpected characteristics, such events, side effects or characteristics could delay or prevent regulatory approval of the product candidates, limit the commercial potential or result in significant negative consequences following any potential marketing approval.
If we are unable to obtain and maintain patent and other intellectual property protection for SIG-001 or any other product candidates and for our SLTx platform, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our SLTx platform may be adversely affected.
A pandemic, epidemic, or outbreak of an infectious disease, such the COVID-19 pandemic, may materially and adversely affect our business and our financial results and could cause a disruption to the development or supply of SIG-001 or any other product candidates.

2

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, forward-looking statements include terms such as "may," "will," "should," "expect," "plan," "anticipate," "could," "intend," "target," "project," "contemplate," "believe," "estimate," "predict," "potential" or "continue" or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements concerning:

the initiation, timing, enrollment, progress and results of our research and development programs, preclinical studies and clinical trials, including the timing and enrollment of our clinical trials for SIG-001 for the treatment of Hemophilia A, our plans to dose additional patients in our clinical trials for SIG-001 and the submission of INDs or CTAs for our other product candidates;
our ability to advance any product candidates that we may develop and successfully complete any clinical studies, including the manufacture of any such product candidates;
our ability to leverage our initial programs to develop additional product candidates using the SLTx platform and our ability to leverage the modularity of our SLTx platform across our lysosomal disease programs;
the impact of the COVID-19 pandemic on our business operations, including our research and development programs, preclinical studies and clinical trials;
our ability to expand the target populations of our programs;
our ability to identify and enter into future license agreements and collaborations;
our ability to successfully scale our manufacturing capabilities; and
estimates of our expenses, capital requirements and needs for additional financing.

There may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q. We cannot guarantee future results, levels of activity, performance or achievements.

3

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Sigilon Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share and per share amounts)

March 31, 

December 31, 

    

2021

   

2020

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash

$

178,789

$

202,229

Accounts receivable (inclusive of $83 and $63 from a related party at March 31, 2021 and December 31, 2020, respectively)

 

140

 

177

Prepaid expenses and other current assets

 

4,058

 

1,729

Restricted cash—current

 

75

 

75

Total current assets

 

183,062

 

204,210

Property and equipment, net

 

3,107

 

2,991

Right‑of‑use assets

 

16,098

 

16,731

Restricted cash

 

1,118

 

1,118

Total assets

$

203,385

$

225,050

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

2,006

$

1,988

Accrued expenses and other current liabilities

 

6,912

 

7,892

Lease liabilities, current portion

 

5,427

 

5,361

Deferred revenue from related party, current portion

 

20,134

 

31,777

Total current liabilities

 

34,479

 

47,018

Deferred revenue from related party, net of current portion

 

8,725

 

Lease liability, net of current portion

 

11,099

 

11,893

Long‑term debt, net of discount

 

19,874

 

19,807

Other liabilities

 

176

 

176

Total liabilities

$

74,353

$

78,894

Commitments and contingencies (Note 9)

 

  

 

  

Stockholders’ equity

 

  

 

  

Common stock, par value $0.001 per share; 175,000,000 shares authorized at March 31, 2021 and December 31, 2020; 31,501,952 and 31,464,989 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

32

 

31

Preferred stock, par value $0.001 per share; 25,000,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued and outstanding at March 31, 2021 and December 31, 2020

 

 

Additional paid‑in capital

 

283,901

 

282,053

Accumulated deficit

 

(154,901)

 

(135,928)

Total stockholders’ equity

 

129,032

 

146,156

Total liabilities, convertible preferred stock and stockholders’ equity

$

203,385

$

225,050

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents

Sigilon Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited, in thousands, except per share data)

Three Months Ended March 31, 

    

2021

    

2020

Revenue

 

  

 

  

Collaboration revenue (inclusive of $2,932 and $3,466 from a related party for the three months ended March 31, 2021 and 2020, respectively)

$

2,958

$

3,466

Operating expenses:

 

 

Research and development (inclusive of related party payments to MIT of $66 and $220 for the three months ended March 31, 2021 and 2020, respectively)

 

15,985

 

13,274

General and administrative

 

5,540

 

2,871

Total operating expenses

 

21,525

 

16,145

Loss from operations

 

(18,567)

 

(12,679)

Other income (expense), net:

 

  

 

  

Interest income

 

86

203

Interest expense

 

(488)

(208)

Other expense

 

(4)

(16)

Change in fair value of preferred stock warrant liability

 

(35)

Total other expense, net

 

(406)

 

(56)

Net loss and comprehensive loss

$

(18,973)

$

(12,735)

Net loss per share attributable to common stockholders—basic and diluted

$

(0.60)

$

(2.55)

Weighted average common stock outstanding—basic and diluted

 

31,487,710

 

4,984,527

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

Sigilon Therapeutics, Inc.

Condensed Consolidated Statements of Convertible Preferred

Stock and Stockholders’ Equity (Deficit)

(Unaudited, in thousands, except per share data)

    

    

    

    

Total

Convertible

Additional

Stockholders’

Preferred Stock

Common Stock

PaidIn

Accumulated

Equity

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

Deficit

(Deficit)

Balances at December 31, 2019

 

31,836,001

$

90,206

 

5,221,628

$

5

$

3,553

$

(81,320)

$

(77,762)

Issuance of convertible preferred stock, net of issuance costs of $54

4,500,000

26,946

Issuance of common stock upon exercise of stock options

 

93,109

121

 

121

Stock‑based compensation expense

 

667

 

667

Net loss

 

(12,735)

 

(12,735)

Balances at March 31, 2020

 

36,336,001

$

117,152

 

5,314,737

$

5

$

4,341

$

(94,055)

$

(89,709)

Balances at December 31, 2020

$

31,464,989

$

31

$

282,053

$

(135,928)

$

146,156

Issuance of common stock upon exercise of stock options

 

36,963

1

144

 

145

Stock‑based compensation expense

 

1,704

 

1,704

Net loss

 

(18,973)

 

(18,973)

Balances at March 31, 2021

 

$

 

31,501,952

$

32

$

283,901

$

(154,901)

$

129,032

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

Sigilon Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Three Months Ended March 31, 

     

2021

     

2020

Cash flows from operating activities:

 

  

 

  

Net loss

$

(18,973)

 

$

(12,735)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

Depreciation and amortization expense

 

247

 

202

Stock‑based compensation expense

 

1,704

 

667

Non‑cash lease expense

 

1,197

 

745

Non‑cash interest expense

 

67

 

5

Change in fair value of preferred stock warrant liability

 

 

35

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

37

 

(168)

Prepaid expenses and other current assets

 

(2,329)

 

(1,043)

Accounts payable

 

578

 

2,355

Accrued expenses and other current liabilities

 

(991)

 

(1,029)

Lease liabilities

 

(1,292)

 

(938)

Deferred revenue

 

(2,918)

 

(3,298)

Net cash used in operating activities

 

(22,673)

 

(15,202)

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

 

(290)

 

(190)

Net cash used in investing activities

 

(290)

 

(190)

Cash flows from financing activities:

 

  

 

  

Proceeds from issuance of convertible preferred stock, including deemed dividend, net of issuance costs

 

26,946

Payments of deferred offering costs

 

(622)

(1)

Proceeds from the exercise of common stock options

 

145

121

Net cash (used in) provided by financing activities

 

(477)

 

27,066

Net increase in cash and restricted cash

 

(23,440)

 

11,674

Cash and restricted cash at beginning of period

 

203,422

 

76,645

Cash and restricted cash at end of period

$

179,982

 

$

88,319

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for interest

$

420

 

$

209

Supplemental disclosures of noncash investing and financing activities:

 

 

Lease assets obtained in exchange for lease liabilities

$

564

 

$

1,078

Deferred offering costs included in accounts payable

$

$

18

Purchases of property and equipment included in accounts payable and accrued expenses

$

108

 

$

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Table of Contents

Sigilon Therapeutics, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of the Business and Basis of Presentation

Sigilon Therapeutics, Inc. (the “Company” or “Sigilon”) is a biopharmaceutical company with a platform of biomedical technologies and cell therapies created to avoid host detection and foreign body responses with a goal of providing functional cures to patients with chronic diseases. The Company was incorporated on May 14, 2015 under the laws of the State of Delaware.

On December 8, 2020, the Company closed its initial public offering (“IPO”) of 8,050,000 shares of its common stock, including the exercise in full by the underwriters of their option to purchase up to 1,050,000 additional shares of common stock, at a public offering price of $18.00 per share. The aggregate net proceeds to the Company from the offering was $131.8 million.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, the successful completion of research and development, development by competitors of new technological innovations, dependence on key personnel, protection of technology, compliance with government regulations, and the ability to secure additional capital to fund operations and commercial success of its product candidates.

Since its inception, the Company has devoted substantially all of its efforts to raising capital, obtaining financing, and incurring research and development costs related to advancing its biomedical platform. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Basis of Presentation

The accompanying Unaudited Condensed Financial Statements have been prepared in accordance with (i) U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and (ii) the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, such financial statements do not include all the information and footnotes required by U.S. GAAP for a complete set of financial statements. In the opinion of management, the Unaudited Condensed Financial Statements include all adjustments, consisting of normal recurring accruals and other adjustments, considered necessary for a fair statement of the Company’s financial position, results of operations, stockholders’ equity (deficit) and cash flows as of and for the periods presented. The accompanying Condensed Balance Sheet as of December 31, 2020 was derived from the Company’s audited financial statements at that date but does not include all of the footnote disclosures required by U.S. GAAP.

The Unaudited Condensed Financial Statements should be read in conjunction with the Company’s audited financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). The Company’s significant accounting policies are described in Note 2 to the Notes to Financial Statements in the 2020 Form 10-K and are updated, as necessary, in subsequent Form 10-Q filings.

Reverse Stock Split

On November 25, 2020, the Company effected a 1-for-2.25 reverse stock split of the Company’s common stock and the conversion ratio for the preferred stock. All shares, stock options, warrants and per share information presented in the financial statements have been adjusted to reflect the reverse stock split on a retroactive basis for all periods presented. There was no change in the par value and authorized number of shares of the Company’s common stock or preferred stock as part of the reverse stock split.

8

Table of Contents

Going Concern

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

From its inception through March 31, 2021, the Company has funded its operations primarily with proceeds from its IPO, sales of convertible preferred stock, payments received under its collaboration agreement and proceeds from borrowings under loan and security agreements. The Company has incurred recurring losses since inception, including net losses of $19.0 million for the three months ended March 31, 2021 and $54.6 million for the year ended December 31, 2020. In addition, as of March 31, 2021, the Company had an accumulated deficit of $154.9 million. The Company expects to generate significant losses and negative cash flows from operations for the foreseeable future.

Based on its current operating plans, the Company believes its cash of $178.8 million as of March 31, 2021 will be sufficient to fund its anticipated level of operations, capital expenditures and satisfy debt repayments for a period of at least 12 months from the issuance date of this Quarterly Report. The Company expects to generate operating losses for the foreseeable future. Accordingly, the Company will seek additional funding through equity financings, debt financing, or additional collaboration agreements. If the Company is unable to raise additional funds through equity financing, debt financings or additional collaboration agreements the Company may be required to delay, limit, reduce or terminate product development or future commercialization efforts or grant rights to develop and market products or product candidates that the Company would otherwise prefer to develop and market itself.

Impact of COVID-19

In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government imposed travel restrictions on travel between the United States, Europe and certain other countries. The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as certain worker shortages have occurred, supply chains have been disrupted, and facilities and production have been suspended. The future progression of the pandemic and its effects on the Company’s business and operations are uncertain.

The COVID-19 pandemic has impacted and may continue to impact the clinical sites and startup activities for the Company’s Phase 1/2 clinical trial, including third-party manufacturing and logistics providers, which would disrupt its clinical supply chain or the availability or cost of materials, and it may affect the Company’s ability to timely complete our clinical trials and delay the initiation and/or enrollment of any future clinical trials, disrupt regulatory activities or have other adverse effects on its business and operations.

The Company is monitoring the potential impact of COVID-19 on its business and financial statements. The effects of the public health directives and the Company’s work-from-home policies may negatively impact productivity, disrupt its business and delay clinical programs and timelines and future clinical trials, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on its ability to conduct business in the ordinary course. These and similar, and perhaps more severe, disruptions in the Company’s operations could negatively impact business, results of operations and financial condition, including its ability to obtain financing.

To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and are not aware of any specific related event or circumstance that would require the Company to revise its estimates reflected in financial statements.

The Company cannot be certain what the overall impact of the COVID-19 pandemic will be on its business and prospects. The extent to which the COVID-19 pandemic will directly or indirectly impact its business, results of operations, financial condition and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.

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2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Estimates and assumptions reflected in these financial statements include, but are not limited to, revenue recognition, research and development expenses, the valuations of common stock, stock-based awards and the preferred stock warrant liability. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.

Concentration of Credit Risk and of Significant Suppliers

The financial instruments that potentially subject the Company to concentrations of credit risk are cash and accounts receivable. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. As of March 31, 2021 and December 31, 2020, all of the Company’s accounts receivable were related to three and two customers, respectively. One of these receivables, which represented 36% of the Company’s total receivables as of March 31, 2021 and December 31, 2020, is related to the Company’s collaboration agreements with Eli Lilly and Company (Note 8)

The Company is dependent on third-party manufacturers to supply certain products for research and development activities in its programs. The Company currently has a supplier of certain raw materials that would be considered a sole supplier. If the Company cannot access additional suppliers, its programs could be adversely affected by an interruption in the availability of these raw materials.

Net Income (Loss) per Share

The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of common stock equivalents. For purposes of this calculation, outstanding stock options, unvested restricted common stock, and convertible preferred stock are considered potential dilutive common stock and are excluded from the computation of diluted net income (loss) per share attributable to common stockholders if their effect is anti-dilutive.

The Company’s convertible preferred stock contractually entitles the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common

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shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the three months ended March 31, 2021 and 2020.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 362): Measurement of Credit Losses on Financial Statements (“ASU 2016-13”). The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The targeted transition relief standard allows filers an option to irrevocably elect the fair value option of ASC 825-10, Financial Instruments-Overall, applied on an instrument-by-instrument basis for eligible instruments. For public entities that are Securities and Exchange Commission (“SEC”) filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect this standard to have a material impact on its financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard will be effective for public business entities, for fiscal years beginning after December 15, 2020, and for all other entities, for fiscal years beginning after December 15, 2021. The Company is currently evaluating the potential impact ASU 2019-12 may have on its financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform if contract modifications are made on or before December 31, 2022. The amendments in this update are effective for all entities as of March 12, 2020 and do not apply to contract modifications made, and hedging relationships entered into or evaluated, after December 31, 2022. The Company has not yet adopted this ASU and is evaluating the effect of adopting this new accounting guidance.

3. Fair Value Measurements

As of March 31, 2021 and December 31, 2020 the Company did not have any financial assets and liabilities that were measured at fair value on a recurring basis.

The carrying value of the Company’s long-term debt approximates its fair value at March, 31 2021 and December 31, 2020 because the debt bears interest at a variable market rate and the Company’s credit risk has not materially changed since the inception of the agreement.

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4. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

March 31, 

December 31, 

    

2021

    

2020

Laboratory equipment

$

4,670

$

4,325

Leasehold improvements

 

60

 

60

Furniture and fixtures

 

620

 

620

Computers and software

 

48

 

30

 

5,398

 

5,035

Less: Accumulated depreciation and amortization

 

(2,291)

 

(2,044)

Total property and equipment, net

$

3,107

$

2,991

Depreciation and amortization expense for the three months ended March 31, 2021 and 2020 was $0.2 million and $0.2 million, respectively.

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

March 31, 

December 31, 

    

2021

2020

Employee compensation and benefits

$

1,622

$

2,910

External research and development costs

 

4,194

 

3,584

Legal and professional fees

 

750

 

1,155

Other

 

346

 

243

Total accrued expenses and other current liabilities

$

6,912

$

7,892

6. Debt

The following discussion of the Company’s debt should be read in conjunction with Note 8 to the Notes to the Consolidated Financial Statements in the 2020 Form 10-K.

As of March 31, 2021 and December 31, 2020, long-term debt consisted of the following (in thousands):

    

March 31, 

December 31, 

    

2021

    

2020

Principal amount of long‑term debt

$

20,000

$

20,000

Less: Current portion of long‑term debt

 

Long‑term debt, net of current portion

 

20,000

 

20,000

Final debt payment liability

700

700

Debt discount, net of accretion

 

(826)

 

(893)

Long‑term debt, net of discount and current portion

$

19,874

$

19,807

As of March 31, 2021 and December 31, 2020, the interest rate applicable to borrowings under the 2020 Credit Facility was 8.40%. During the three months ended March 31, 2021 and 2020, the weighted average effective interest rate on outstanding borrowings was approximately 9.8% and 5.3%, respectively.

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The estimated future principal payments due were as follows (in thousands):

March 31, 

    

2021

2021 (Remaining nine months)

$

2022

 

1,666

2023

 

6,667

2024

6,667

2025

5,000

$

20,000

As of March 31, 2021, the Company was in full compliance with all financial covenants of the Loan Agreement.

7. Stock Based Compensation

The Company uses stock options to provide long-term incentives to its employees, non-employee directors and certain consultants. The Company has three equity compensation plans under which awards are currently authorized for issuance: the 2020 Employee Stock Purchase Plan, the 2020 Equity Incentive Plan and the 2016 Equity Incentive Plan. As of March 31, 2021 there were 614,649 shares available for issuance under the 2020 Employee Stock Purchase Plan,  1,860,215 shares available for issuance under the 2020 Equity Incentive Plan and no shares available for issuance under the 2016 Equity Incentive Plan.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. The Company was a private company prior to the initial public offering and lacked company-specific historical and implied volatility information for its stock. Therefore, it estimates its expected stock price volatility based on the historical volatility of publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield of 0% is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees and directors:

    

Three months ended

 

March 31, 

 

2021

2020

 

Risk-free interest rate

 

0.66

%  

 

1.16

%

Expected dividend yield

 

0.00

%  

 

0.00

%

Expected term (in years)

 

6.1

 

6.0

Expected volatility

 

78.39

%  

 

82.60

%

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Stock Option Activity

The following table summarizes the Company’s stock option activity since December 31, 2020:

    

    

    

Weighted

    

average

Weighted

remaining

Aggregate

Number of

average

contractual term

intrinsic value

options

exercise price

(in years)

(in thousands)

Balances at December 31, 2020

 

3,872,457

$

4.98

 

7.5

$

166,728

Options granted

 

964,981

 

39.55

 

 

Options cancelled

 

(162,076)

 

9.39

 

 

Options exercised

 

(36,963)

 

3.90

 

Balances at March 31, 2021

4,638,399

12.02

7.7

64,482

Vested and expected to vest at March 31, 2021

 

4,638,399

$

12.02

 

7.7

$

64,482

Exercisable at March 31, 2021

 

2,120,779

$

3.58

 

6.4

$

39,811

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock.

The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2021 and 2020 were $1.0 million and $0.7 million, respectively. The weighted average grant date fair value of stock options during the three months ended March 31, 2021 and 2020 was $26.64 and $6.54, respectively.

Restricted Stock

In February 2016, the Company issued and sold 4,633,331 shares of restricted stock to its nonemployee and employee founders for $0.0003 per share. The shares vested 25% upon the first anniversary of the issuance of shares of Series A Preferred Stock and then 6.25% per quarter through the fourth anniversary of the vesting commencement date of February 5, 2016. The unvested shares were subject to repurchase by the Company, at the holder’s original purchase price in the event the holder’s service with the Company voluntarily or involuntarily terminates. Proceeds from the issuance and sale of restricted common stock are recorded as a liability within accrued expenses and other current liabilities for those restricted shares expected to vest in the next 12 months and other liabilities for those restricted shares expected to vest in greater than 12 months on the balance sheet. The liability for unvested common stock subject to repurchase is then reclassified to additional paid-in capital as the Company’s repurchase right lapses. As of March 31, 2021 and December 31, 2020, there were no shares of unvested restricted stock.

The aggregate intrinsic value of restricted stock awards that vested during the three ended March 31, 2020 was $2.6 million. The aggregate intrinsic value of restricted stock awards is calculated as the positive difference between the prices paid, if any, of the restricted stock awards and the fair value of the Company’s common stock.

Stock-based Compensation Expense

Stock-based compensation expense related to stock options and restricted stock awards was classified in the statement of operations and comprehensive loss as follows (in thousands):

Three months ended

March 31, 

    

2021

    

2020

Research and development

$

839

$

246

General and administrative

 

865

 

421

$

1,704

$

667

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As of March 31, 2021, total unrecognized stock-based compensation expense related to unvested stock-based awards was $31.0 million, which is expected to be recognized over a weighted average period of 3.5 years.

8. License and Collaboration Agreement

Lilly License and Collaboration Agreement

On April 2, 2018, the Company entered into a License and Collaboration Agreement with Lilly (the “2018 Lilly Agreement”). Under the 2018 Lilly Agreement, the Company granted Lilly an exclusive worldwide, royalty-bearing license, including the right to grant sublicenses, to the Company’s encapsulation technology applied to islet cells. The Company is responsible for research and development activities, including supply and manufacturing activities, through investigational new drug (“IND”) filing readiness for the first product candidate, including costs up to $47.5 million and certain supply and manufacturing of products and materials in Phase 1 clinical trials and for clinical and commercial use following Phase 1 clinical trials. Lilly will be responsible for development and commercialization of any licensed product post-IND filing readiness and research and development costs for the IND product candidate above the $47.5 million cost threshold. Lilly is also responsible for all research, development and commercialization related to any subsequent product candidate. The parties are collaborating with the intent of developing encapsulated cell therapies for the potential treatment of type 1 diabetes. The activities under the agreement are governed by a joint research committee (“JRC”), which meets quarterly and consists of at least three members each from the Company and Lilly.

Under the 2018 Lilly Agreement, Lilly was obligated to pay the Company a one-time, non-refundable and non-creditable license issuance fee of $62.5 million. Lilly is also obligated to make aggregate milestone payments to the Company of up to $165.0 million upon achievement of certain regulatory milestones for the first licensed product and regulatory milestones up to $160.0 million for additional licensed products. Lilly is also obligated to pay the company sales-based milestones of up to $250.0 million for each licensed product and tiered (from mid-single-to-low-double digit) sales-based royalties for each licensed product. The 2018 Lilly Agreement will expire upon the expiration of the last royalty term, on a product-by-product and country-for country basis. The royalty term, by product and country, commences upon the first commercial sale and ends upon the later to occur of (i) the expiration of the Company’s patent rights of a product candidate developed under the Lilly Agreement, (ii) the expiration of any data exclusivity period in a country or (iii) 10 years after the first commercial sale.

The Company will have the right, and the obligation, to supply Lilly’s requirements for the material to be used in the manufacture of licensed products for clinical and commercial use. In connection with the supply responsibilities, the parties may enter into supply and quality agreements for both clinical and commercial supply.

The Company evaluated the 2018 Lilly Agreement under ASC 606 as the transactions underlying the agreement were considered transactions with a customer. The Company identified the following material promises under the arrangement: (i) exclusive license to research, develop, manufacture and commercialize licensed products, (ii) initial technology transfer, (iii) research activities (including pre-IND supply), (iv) cell line development and supply, (v) product trademark election, (vi) requirement to supply Lilly with the licensed product related to Phase 1 clinical trial (“Phase 1 Supply”) and (vii) participation in the JRC.

The Company determined that the exclusive license to research, develop, manufacture and commercialize the licensed product was not distinct from the related research and manufacturing activities to be provided by the Company as a result of Lilly being unable to benefit on its own or with other resources reasonably available in the marketplace because the license to the Company’s intellectual property requires significant specialized capabilities in order to be further developed, the research services necessary to develop the product are highly specialized and the Company’s proprietary technology is a key capability of that development. The cell line development and supply and research activities were determined not to be distinct because they are performed in conjunction with the research activities to further develop the underlying technology. The product trademark was determined not to be distinct because the benefit that Lilly receives from the Company’s trademark license only exists when combined with the right to commercialize the licensed product. In addition, the Company determined that the impact of the participation in the JRC was insignificant and had an immaterial impact on the accounting model. Therefore, the Company determined that the first five promises should be combined into a single performance obligation (the “Combined Performance Obligation”). The Company determined the sixth promise,

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the Phase 1 Supply promise, is distinct in the contract. As this is at no cost to Lilly, the right to receive this supply represents a material right and a distinct performance obligation. As such, the Company determined there were two distinct performance obligations at the outset of the 2018 Lilly Agreement.

The Company determined that the $62.5 million upfront payment represents the entirety of the consideration to be included in the transaction price as of the outset of the arrangement. The potential milestone payments that the Company may have been eligible to receive were initially excluded from the transaction price at the outset of the arrangement because (i) all development and regulatory milestone payments did not meet the criteria for inclusion using the most-likely-amount method and (ii) the Company recognizes as revenue sales-based milestones and royalties when the related sales occur. As of March 31, 2021 no milestones or royalties have been deemed likely to be achieved or have been achieved.

The Company recognizes revenue for the Combined Performance Obligation as the research, development and manufacturing services are provided using an input method, based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy the Combined Performance Obligation. The transfer of control to the customer occurs over the time period that the research and development services are to be provided by the Company, and this cost-to-cost method is, in management’s judgement, the best measure of progress toward satisfying this performance obligation. The Company allocated $56.6 million of the transaction price to the Combined Performance Obligation at the outset of the arrangement.

The Phase 1 Supply was determined to be a material right, and the standalone selling price was estimated using the expected cost-plus margin approach. The Company allocated $5.9 million of the transaction price to the Phase 1 Supply at the outset of the arrangement. The Company has determined that the Phase 1 Supply will be satisfied at a point in time when the customer obtains control of each unit of product. Therefore, the Company will recognize revenue as shipments of the Phase 1 Supply are made to Lilly.

The Company reevaluates the transaction price and the total estimated costs expected to be incurred to satisfy the performance obligations at the end of each reporting period and as uncertain events, such as changes to the expected timing and cost of certain research, development and manufacturing activities that the Company is responsible for, are resolved or other changes in circumstances occur, and, if necessary, the Company will adjust its estimate of the transaction price and total estimated costs expected to be incurred.

During the year ended December 31, 2020, consistent with the Company’s presentation to the JRC, the Company revised its estimate of total costs to complete the activities under the 2018 Lilly Agreement to reflect the Company’s experiences to date and the impact this has on its expected future research and development activities to satisfy the Combined Performance Obligation. This resulted in an increase to total estimated costs expected to be incurred of $23.0 million for the year ended December 31, 2020. This increase in total estimated costs impacted both the Company’s estimated transaction price for the 2018 Lilly Agreement, as Lilly is obligated to reimburse the Company if the costs exceed $47.5 million to complete the services, and the Company’s input method used to recognize revenue, as this measure compares the Company’s cumulative costs incurred to the Company’s total estimated costs expected to be incurred. During the year ended December 31, 2020, the transaction price for the Combined Performance Obligation increased by $17.9 million based on the allocation of total transaction price to each performance obligation using the relative stand-alone selling price of each performance obligation under the 2018 Lilly Agreement. Additionally, the transaction price for the Phase 1 supply performance obligation increased by $1.9 million.

During the three months ended March 31, 2021, consistent with the Company’s presentation to the JRC, the Company revised the estimated timeline for the completion of certain activities under the 2018 Lilly Agreement.

During the three months ended March 31, 2021 and 2020, the Company recognized $2.9 million and $3.1 million, respectively, of collaboration revenue. As of March 31, 2021 and December 31, 2020, the Company recorded as a contract liability deferred revenue of $28.9 million and $31.8 million, respectively, of which, $20.1 million and $31.8 million, respectively, were current liabilities in the accompanying balance sheet. As of March 31, 2021 and December 31, 2020 the research and development services related to the Combined Performance Obligation were expected to be performed over a remaining period of approximately 2.0 years and 1.5 years, respectively.

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Contract Liability

The changes in the total contract liability (deferred revenue) balances related to the Company’s license and collaboration agreements with Lilly were as follows (in thousands):

Three Months Ended March 31, 

    

2021

    

2020

Deferred revenues at beginning of period

$

31,777

$

44,690

Revenues deferred during the period

 

 

Revenues recognized during the period

 

(2,918)

 

(3,298)

Deferred revenues at end of period

$

28,859

$

41,392

9. Commitments and Contingencies

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and certain of its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. The Company has not incurred any material costs as a result of such indemnifications and is not currently aware of any indemnification claims.

Legal Proceedings

The Company is not a party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.

10. Net Loss per Share

Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):

Three Months Ended March 31, 

    

2021

    

2020

Numerator:

 

  

 

  

Net loss

$

(18,973)

$

(12,735)

Net loss attributable to common stockholders

$

(18,973)

$

(12,735)

Denominator:

 

 

Weighted average common stock outstanding—basic and diluted

 

31,487,710

 

4,984,527

Net loss per share attributable to common stockholders—basic and diluted

$

(0.60)

$

(2.55)

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The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

Three Months Ended March 31, 

    

2021

    

2020

Series A Convertible preferred stock (as converted to common stock)

 

10,201,185

Series B Convertible preferred stock (as converted to common stock)

 

5,948,143

Warrants to purchase Series A‑1 convertible preferred stock (as converted to common stock)

 

37,036

Warrants to purchase Series B convertible preferred stock (as converted to common stock)

 

11,111

Warrants to purchase common stock

19,044

Stock options to purchase common stock

 

4,638,399

4,040,556

 

4,657,443

 

20,238,031

11. Related Party Transactions

As described in Note 11 of the Company’s 2020 Form 10-K, the Company has a patent license agreement with MIT and issued 333,333 shares of its common stock to MIT as part of the consideration for this patent license. Through the completion of the Company’s initial public offering in December 2020, two members of the Company’s board of directors were employed by MIT and subsequent to the initial public offering one member of the Company’s board of directors was employed by MIT. The Company incurs charges for the use of certain MIT equipment and facilities. For the three months ended March 31, 2021 and 2020, the Company incurred expenses of $0.1 million and $0.2 million related to business with MIT, respectively.

The Company paid five of its co-founders, two of whom were members of the board of directors employed by MIT, $0.1 million for the three months ended March 31, 2020 for ongoing consulting services. As of March 31, 2021 and December 31, 2020, there was $0 and less than $0.1 million recorded in accounts payable as due to these related parties, respectively.

As described in Note 8 above, the Company entered into the 2018 Lilly Agreement with Lilly in April 2018. During the three months ended March 31, 2021 and 2020, the Company recognized $2.9 million and $3.5 million, respectively, of related party revenue associated with the Lilly collaboration agreements. As of March 31, 2021 and December 31, 2020, the Company had deferred revenue related to the collaboration agreements with Lilly of $28.9 million and $31.8 million, respectively. At March 31, 2021 and December 31, 2020, the Company had $0.1 million of outstanding receivables with Lilly.

In January 2021, the Company entered into a shared space arrangement with a portfolio company of Flagship Pioneering, one of the Company’s significant stockholders, to sublease a portion of its office and laboratory space in Cambridge, Massachusetts. The term of the shared space arrangement commenced in January 2021 and the initial term ends on December 31, 2021 and shall automatically renew for successive one-month periods until either party terminates the agreement. Under this agreement, the Company recorded other income of $0.1 million during the three months ended March 31, 2021. The Company received cash payments of less than $0.1 million during the three months ended March 31, 2021.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Some of the numbers included herein have been rounded for the convenience of presentation. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.

Overview

We are a clinical stage biotechnology company pioneering a new class of therapeutics and seeking to develop functional cures for patients with chronic diseases by providing stable and durable levels of therapeutic molecules to patients. We have developed our Shielded Living Therapeutics, or SLTx, platform, which combines advanced cell engineering with cutting-edge innovations in biocompatible materials and enables our product candidates to produce a wide range of therapeutic molecules that may be missing or deficient, such as proteins (including therapeutic proteins and antibodies) and hormones. We are designing our product candidates to be off-the-shelf, durable, controllable and redosable, without requiring modification of the patient’s genes or immunosuppression.

Since our inception, we have devoted substantially all of our efforts to raising capital, obtaining financing, filing and prosecuting patent applications, organizing and staffing our company and incurring research and development costs related to advancing our biomedical platform. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations primarily with proceeds from sales of common stock, convertible preferred stock, payments received under our collaboration agreement with Lilly and proceeds from borrowings under our credit facilities.

We have incurred significant operating losses since our inception. Our ability to generate any product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. We reported a net loss of $19.0 million for the three months ended March 31, 2021. As of March 31, 2021, we had an accumulated deficit of $154.9 million and cash totaling $178.8 million. Based on our current operating plans, we believe our cash will be sufficient to fund our anticipated level of operations, capital expenditures and satisfy debt repayments for a period of at least 12 months from the issuance date of this Quarterly Report. We expect to generate operating losses for the foreseeable future. Accordingly, we will seek additional funding through equity financings, debt financing, or additional collaboration agreements. If we are unable to raise additional funds through equity financing, debt financings or additional collaboration agreements we may be required to delay, limit, reduce or terminate product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market itself.

Our Shielded Living Therapeutics Platform and Product Candidates

Our SLTx platform is comprised of two primary elements: the cells and the sphere. We engineered cells to express the therapeutic molecule of choice, which are subsequently encapsulated in our proprietary spheres. Our human cell line for our internal product candidates was selected for its safety, durability, scalability and engineerability, which has been extensively tested in preclinical and clinical settings. The spheres are composed of an Afibromer outer layer, an alginate conjugated with a novel, proprietary anti-fibrotic small molecule, which was derived from 10 years of work in the MIT labs of Professors Robert Langer and Daniel Anderson. We developed an inner compartment consisting of a proprietary conjugation of alginate and peptide molecules to enhance cell survival and productivity.

Modularity, a key attribute of our SLTx platform, is comprised of three pillars: the cells, the sphere and the manufacturing process. In addition to the cells and the sphere described above, we have also spent significant time and resources over the last three years to create a state-of-the-art modular manufacturing platform for all potential product candidates developed using our cell and sphere components. This cost-effective manufacturing platform is designed to provide a true “off-the-shelf” product for patients. Furthermore, virtually all aspects of the platform, from raw materials to processing steps, are shared across our development programs, enabling a potentially streamlined path from discovery

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to clinical trials. With our modular platform, the only significant change among our internal product candidates is the expression cassette used in the cells, which we customize to express the desired therapeutic molecule. This modularity has created an efficient engine for generation of product candidates, allowing us to build a diverse pipeline.

Leveraging the modularity of our platform and our scientific and preclinical work to date, we are able to advance programs in distinct therapeutic areas, including rare blood disorders, lysosomal diseases and endocrine and other chronic disorders. Our initial clinical trials for our product candidates will be in patients with the relevant disease for such products, rather than healthy volunteers. As a result, if the results from such clinical trials are positive, we expect to be able to proceed with Phase 3 trials studying the effectiveness of each product candidate after the completion of its initial clinical trial for each product candidate and approval by the applicable regulatory agencies.

Our programs and most advanced clinical-stage and pre-clinical product candidates are outlined below:

Rare Blood Disorders

SIG-001 is our most advanced SLTx product candidate, and is an investigational therapy in development for the prevention of bleeding episodes in patients with moderate-severe to severe Hemophilia A. For this indication, we designed human cells to express high levels of hFVIII. We were granted Orphan Drug designation for SIG-001 for the treatment of Hemophilia A by the FDA in August 2019 and by the EMA in November 2020. In the first half of 2020, we submitted a Clinical Trial Application, or CTA, in the United Kingdom and an IND in the United States for SIG-001 for the treatment of Hemophilia A, which have been accepted by the MHRA and the FDA, respectively. Recently, we cleared amendments to our CTA and IND for SIG-001 with the MHRA and FDA, respectively, to incorporate planned manufacturing changes. We expect to complete enrollment of our Phase 1/2 clinical study of SIG-001 in Hemophilia A prior to the end of 2021.

Moreover, we are extending our reach within rare blood disorders. We are developing SIG-009 for patients with Factor VII deficiency and SIG-003 for patients with Hemophilia B.

Lysosomal Diseases

SIG-005 is our product candidate that contains a cell line genetically modified with a non-viral vector designed to express human a-L-iduronidase, or IDUA, encapsulated within our spheres. SIG-005 is being developed for patients with a confirmed diagnosis of MPS-1 to treat the non-neurological manifestations of the disease. We were granted Orphan Drug designation for SIG-005 for the treatment of MPS-1 by the FDA in December 2020. We have completed pre-IND and scientific advisory meetings with both FDA and MHRA.

SIG-007 is being developed for patients with a confirmed diagnosis of Fabry disease. SIG-007 cells are genetically modified with a non-viral vector designed to express human alpha-galactosidase A, or AGAL, and encapsulated within our alginate spheres. We were granted Orphan Drug designation for SIG-007 for the treatment of Fabry disease by the FDA in March 2021. We have completed pre-IND and scientific advisory meetings with both FDA and MHRA.

We believe our SLTx platform has significant applicability to treat a broad range of other lysosomal diseases. We are developing SIG-018 for patients with mucopolysaccharidosis type 2, or MPS-2, and SIG-020 for patients with mucopolysaccharidosis type 6, or MPS-6. Similar to other lysosomal enzymes, we expect lysosomal enzymes produced by our spheres to be taken up by tissues via mannose 6-phosphate receptors.

Endocrine and Other Chronic Diseases

SIG-002 is our product candidate designed to replace islet cells for the treatment of Type 1 Diabetes, or T1D. In T1D, the immune system attacks and destroys the insulin-producing beta cells within the endocrine islets of the pancreas, which results in insulin deficiency and dysregulation of glucose metabolism. In April 2018, we partnered with Lilly to develop cell therapies for the treatment of T1D, including SIG-002. We are currently working through the IND-enabling preclinical studies described above in collaboration with Lilly. Lilly is responsible for the clinical development of SIG-002, including the clinical development plan.

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We are developing SIG-015 for patients with immune mediated diseases. We intend to apply the modularity of our SLTx platform to develop more product candidates and explore delivery of different molecules and alternative routes of administration.

Impact of COVID-19

The COVID-19 pandemic has impacted and may continue to impact the clinical sites and startup activities for our Phase 1/2 clinical trial, including third-party manufacturing and logistics providers, which would disrupt our clinical supply chain or the availability or cost of materials, and it may affect our ability to timely complete our clinical trials and delay the initiation and/or enrollment of any future clinical trials, disrupt regulatory activities or have other adverse effects on our business and operations. Within our laboratory facilities, we made several changes to our operations in response to COVID-19. This response included reducing our capacity in the labs, based on a rolling prioritization of critical experiments and other work, and performing all office-based work outside of the office. To help reduce the risk to our employees, we took other precautionary measures with respect to lab-based activities, including: shift based teams; mandatory wearing of masks and other personal protective equipment, or PPE; and deep cleaning of office, social distancing, occupancy limits, safety health checks and other preventive measures. In the second quarter of 2020, we initiated a phased reopening of our operations, restoring our lab-based capacity to 100%.

We are monitoring the potential impact of the COVID-19 pandemic on our business and financial statements. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and prospects. The extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, financial condition and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.

Components of Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. Substantially all of our revenue to date has been derived from the collaboration agreement with Lilly, which we entered into in 2018.

If our development efforts for our product candidates are successful and result in regulatory approval or if we enter into license or collaboration agreements with third parties, we may generate revenue in the future from product sales, payments from license or collaboration agreements that we may enter into with third parties, or any combination thereof. We expect that our revenue for the next several years will be derived primarily from our collaboration agreement with Lilly as well as any additional collaborations that we may enter into in the future. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all.

Collaboration Revenue

In April 2018, we entered into a License and Collaboration Agreement with Lilly, or the 2018 Lilly Agreement. Under the 2018 Lilly Agreement, we granted Lilly an exclusive worldwide, royalty-bearing license, including the right to grant sublicenses, to our encapsulation technology applied to islet cells. We are responsible for our own costs and expenses associated with pre-clinical development of a product candidate, and completion of the studies and other criteria required for filing the first IND, up to $47.5 million. Lilly is responsible for filing the first IND, all subsequent clinical development and commercialization, all research, development and commercialization for any subsequent product candidates, as well as reimbursing us for research and development costs required for filing the first IND related to the first developed product candidate that exceed $47.5 million.

We evaluated the 2018 Lilly Agreement under ASC 606 and concluded at the outset that there were two performance obligations under the arrangement: (1) exclusive license to research, develop, manufacture and commercialize licensed products, initial technology transfer, research activities (including pre-IND supply), cell line

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development and supply and product trademark election, or the Combined Performance Obligation; and (2) requirement to supply Lilly with the licensed product related to Phase 1 clinical trial, or Phase 1 Supply. We determined that the $62.5 million upfront payment represents the entirety of the consideration to be included in the transaction price as of the outset of the arrangement. We allocated $56.6 million of the transaction price to the Combined Performance Obligation and $5.9 million of the transaction price to the Phase 1 Supply at the outset of the arrangement. We recognize revenue for the Combined Performance Obligation as the research and development services are provided using an input method, based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy the Combined Performance Obligation. The transfer of control to the customer occurs over the time period that the research and development services are to be provided by us, and this cost-to-cost method is, in management’s judgment, the best measure of progress toward satisfying this performance obligation. We have determined that the Phase 1 Supply will be satisfied at a point in time when the customer obtains control of each unit of product. Therefore, we will recognize revenue as shipments of the Phase 1 Supply are made to Lilly.

We reevaluate the transaction price and our total estimated costs expected to be incurred at the end of each reporting period and as uncertain events, such as changes to the expected timing and cost of certain research, development and manufacturing activities that we are responsible for, are resolved or other changes in circumstances occur, and, if necessary, we will adjust our estimate of the transaction price or our total estimated costs expected to be incurred.

Additional information regarding the 2018 Lilly Agreement can be found in Note 8 to our financial statements in this Quarterly Report on Form 10-Q.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of our platform and product candidates. We expense research and development costs as incurred, which include:

employee-related expenses, including salaries, bonuses, benefits, stock-based compensation, other related costs for those employees involved in research and development efforts;
expenses incurred in connection with the preclinical development of our product candidates and research programs, including under agreements with third parties, such as consultants, contractors, and CROs;
the cost of raw materials and developing and scaling our manufacturing process and manufacturing product candidates for use in our research and preclinical studies, including under agreements with third parties, such as consultants, contractors, and CMOs;
laboratory supplies and research materials;
facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and
payments made under third-party licensing agreements.

We expense research and development costs as incurred. Non-refundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued, with a corresponding expense being

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recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.

Our direct external research and development expenses are tracked on a program-by-program basis, including our early-stage programs, and consist of costs that include fees, reimbursed materials, and other costs paid to consultants, contractors, contract manufacturing organizations or CMOs, and contract research organizations or CROs, in connection with our preclinical and manufacturing activities. Except for personnel expenses related to SIG-002, we do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified. The personnel expenses allocated to SIG-002 do not include stock-based compensation expense.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

the timing and progress of preclinical and clinical development activities;
the number and scope of preclinical and clinical programs we decide to pursue;
raising additional funds necessary to complete preclinical and clinical development of and commercialize our product candidates;
the progress of the development efforts of parties with whom we may enter into collaboration arrangements;
our ability to maintain our current research and development programs and to establish new ones;
our ability to establish new licensing or collaboration arrangements;
the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA, or any comparable foreign regulatory authority;
the receipt and related terms of regulatory approvals from applicable regulatory authorities;
the availability of raw materials for use in production of our product candidates;
our ability to consistently manufacture our product candidates for use in clinical trials;
our ability to establish and operate a manufacturing facility, or secure manufacturing supply through relationships with third parties;
our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the United States and internationally;
our ability to protect our rights in our intellectual property portfolio;
the commercialization of our product candidates, if and when approved;

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obtaining and maintaining third-party insurance coverage and adequate reimbursement;
the acceptance of our product candidates, if approved, by patients, the medical community and third-party payors;
competition with other products; and
a continued acceptable safety profile of our therapies following approval.

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of these product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and personnel expenses, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees paid for accounting, auditing, consulting, and tax services; insurance costs; travel expenses; and facility costs not otherwise included in research and development expenses.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of that product candidate.

Other Income (Expense)

Change in Fair Value of Preferred Stock Warrant Liability

In connection with our 2020 and 2019 Credit Facilities, we issued warrants to purchase Series A, Series B and Series B-1 convertible preferred stock, which subsequently converted to common stock in conjunction with the IPO. We classified these warrants as a liability on our balance sheet that we remeasure to fair value at each reporting date, and we recognize changes in the fair value of the warrant liability as a component of other income (expense) in our statements of operations and comprehensive loss. We recognized changes in the fair value of the warrant liability until the warrants became equity classified, which occurred when the warrants converted into warrants to purchase common stock.

Interest Income

Interest income consists of interest earned on our cash balances.

Interest Expense

Interest expense consists of interest expense on outstanding borrowings under our loan and security agreements as well as amortization of debt discount and deferred financing costs.

Other Expense

Other expense consists primarily of losses on the disposal of fixed assets, net foreign exchange losses and net sublease income from subleasing a portion of our facilities.

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Income Taxes

Since our inception in 2015, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. We did not provide for any income taxes in the three months ended March 31, 2021 or 2020.

Critical Accounting Policies and Significant Judgments and Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events. These estimates and judgments, in and of themselves, could materially impact the condensed consolidated financial statements and disclosures based on varying assumptions. The accounting policies discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 18, 2021, or the Annual Report, are considered by management to be the most important to an understanding of the consolidated financial statements because of their significance to the portrayal of our financial condition and results of operations. There have been no material changes to that information disclosed in our Annual Report during the three months ended March 31, 2021.

Results of Operations

Comparison of the Three Months ended March 31, 2021 and 2020

The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020:

Three Months Ended

March 31, 

Increase

    

2021

    

2020

    

(Decrease)

(in thousands)

Revenue

 

 

  

 

  

Collaboration revenue (inclusive of $2,932 and $3,466 from a related party for the three months ended March 31, 2021 and 2020, respectively)

$

2,958

$

3,466

$

(508)

Operating expenses:

 

 

 

Research and development

 

15,985

 

13,274

 

2,711

General and administrative

 

5,540

 

2,871

 

2,669

Total operating expenses

 

21,525

 

16,145

 

5,380

Loss from operations

 

(18,567)

 

(12,679)

 

(5,888)

Other income (expense):

 

 

 

Interest income

 

86

203

 

(117)

Interest expense

 

(488)

(208)

 

(280)

Other expense

 

(4)

(16)

 

12

Change in fair value of preferred stock warrant liability

 

(35)

 

35

Total other expense, net

 

(406)

 

(56)

 

(350)

Net loss and comprehensive loss

$

(18,973)

$

(12,735)

$

(6,238)

Revenue

Revenue was $3.0 million for the three months ended March 31, 2021, compared to $3.5 million for the three months ended March 31, 2020. The decrease in revenue of $0.5 million was due to a decrease in collaboration revenue from the 2018 Lilly Agreement, primarily related to the research and development activities performed under this agreement. In June 2020 and September 2020, revised estimates of total costs to complete the activities under the 2018 Lilly Agreement were presented to the JRC, which considered our experiences to date and the impact this has on our expected future research and development activities to satisfy the Combined Performance Obligation. This resulted in an increase to total estimated costs expected to be incurred of $23.0 million. This increase in total estimated costs impacted

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both our estimated transaction price for the 2018 Lilly Agreement, as Lilly is obligated to reimburse us if the costs exceed $47.5 million to complete the activities, and our input method used to recognize revenue, as this measure compares our cumulative costs incurred to our total estimated costs expected to be incurred. The transaction price for the Combined Performance Obligation increased by $17.9 million based on the allocation of total transaction price to each performance obligation under the 2018 Lilly Agreement. Additionally, the transaction price for the Phase 1 Supply performance obligation increased by $1.9 million. However, revenue recognized for the three months ended March 31, 2021, using the input measure, decreased as compared to revenue recognized for the three months ended March 31, 2020 as the percentage of costs incurred to total costs expected to be incurred decreased as a result of the increased total estimated costs.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended March 31, 2021 and 2020:

Three Months Ended

March 31, 

Increase

    

2021

    

2020

    

(Decrease)

(in thousands)

Direct research and development expenses by program:

  

  

  

SIG‑001

$

1,581

$

2,311

$

(730)

SIG‑002

 

2,616

 

2,089

 

527

SIG‑005

1,564

1,564

SIG‑007

695

695

Platform and pipeline development

 

4,460

 

4,881

 

(421)

Unallocated expenses

 

 

  

 

Personnel expenses (including stock‑based compensation)

 

4,030

 

3,315

 

715

Facility related and other

 

1,039

 

678

 

361

Total research and development expenses

$

15,985

$

13,274

$

2,711

Research and development expenses were $16.0 million for the three months ended March 31, 2021, compared to $13.3 million for three months ended March 31, 2020. The increase in research and development expenses was primarily related to ongoing pipeline development activities and advances in our SIG-005 and SIG-007 programs which received orphan drug designation in December 2020 and March 2021, respectively. Prior to December 31, 2020, the costs associated with SIG-005 and SIG-007 were included within platform and pipeline development. The increase of $0.5 million related to program SIG-002 was due to an increase in personnel related costs, external research costs and related lab supplies needed to further develop our Type 1 Diabetes program. Personnel expenses included stock-based compensation expense of $0.8 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively. These increases in research and development were offset by decreases in our SIG-001 program. The decrease in SIG-001 of $0.7 million was due to timing of manufacturing activities.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2021 were $5.5 million, compared to $2.9 million for the three months ended March 31, 2020. General and administrative expenses for the three months ended March 31, 2021 versus March 31, 2020 increased by $1.0 million as a result of the costs of operating as a publicly traded company. Personnel expenses increased by $1.1 million primarily as a result of the increase in headcount in our general and administrative function and increases in stock-based compensation. Stock-based compensation expense increased to $0.9 million from $0.4 million for the three months ended March 31, 2021 and 2020, respectively. The remaining increase in general and administrative expenses of $0.2 million was primarily due to an increase in rent expense.

Other expense, net

Other expense primarily consists primarily of interest income, interest expense and the change in fair value of the preferred stock warrant liability. Other expense for the three months ended March 31, 2021 and 2020 was $0.4 million and

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$0.1 million. The change was primarily due to the increase in interest expense on the outstanding borrowings under our 2020 Credit Facility and 2019 Credit Facility, a decrease in interest income on our invested cash balances and loss on the revaluation of the preferred stock warrant liability. The decrease in interest income was due to the decrease in interest rates during the respective periods.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for the foreseeable future, if at all. To date, we have funded our operations primarily with proceeds from sales of common stock, convertible preferred stock, payments received under our collaboration agreement with Lilly and proceeds from borrowings under our credit facilities. Through March 31, 2021, we had received net proceeds of $131.8 million from the sale of common stock in the IPO, $141.9 million from the net sales of our convertible preferred stock and net proceeds of $19.8 million through borrowings under our loan and security agreements with Pacific Western Bank, as amended and restated, or the 2019 Credit Facility and Oxford Finance LLC, or the 2020 Credit Facility. We have also partnered one of our encapsulation technology programs with Lilly. Under the terms of the partnership, we received an upfront payment of $62.5 million and we are eligible to receive additional milestone payments of up to $165.0 million upon achievement of certain regulatory milestones and sales-based milestones of up to $250.0 million for SIG-002. We are also eligible to receive tiered royalty payments in the mid-single digit to low-double digit percentages based on certain sales thresholds. Finally, Lilly is obligated to reimburse us for costs incurred to perform the research and development activities for the first developed product candidate that exceed $47.5 million. We are also eligible to receive additional payments upon the achievement of specified regulatory and sales milestones and royalty payments. As of March 31, 2021, we had cash of $178.8 million.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Three Months Ended

March 31, 

    

2021

    

2020

(in thousands)

Net cash used in operating activities

$

(22,673)

$

(15,202)

Net cash used in investing activities

 

(290)

 

(190)

Net cash (used in) provided by financing activities

 

(477)

 

27,066

Net increase in cash and restricted cash

$

(23,440)

$

11,674

Operating Activities

During the three months ended March 31, 2021, operating activities used $22.7 million of cash, primarily resulting from our net loss of $19.0 million and net cash used in changes in our operating assets and liabilities of $6.9 million, partially offset by non-cash charges of $3.2 million. Net changes in our operating assets and liabilities for the three months ended March 31, 2021 consisted primarily of a $2.9 million decrease in deferred revenue, a $2.3 million increase in prepaid expenses and other current assets, a $1.2 million decrease in lease liabilities and a $0.9 million decrease in accrued expenses and other current liabilities, partially offset by a $0.6 million increase in accounts payable. The decrease in deferred revenue was due to recognition of revenue related to our collaboration agreement. The increase in prepaid expenses and other current liabilities was the result of timing of payments for services. The decrease in lease liabilities was primarily due to payment of rent for our leased property.

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During the three months ended March 31, 2020, operating activities used $15.2 million of cash, primarily resulting from our net loss of $12.7 million and net cash used in changes in our operating assets and liabilities of $4.1 million, partially offset by non-cash charges of $1.7 million. Net cash used in changes in our operating assets and liabilities for the months ended March 31, 2020 consisted primarily of a $3.3 million decrease in deferred revenue, a $1.0 million decrease in our lease liabilities, a $1.0 million increase in prepaid expenses and a $1.0 million decrease in accrued expenses and other current liabilities, partially offset by a $2.3 million increase in accounts payable. The decrease in deferred revenue was due to recognition of revenue related to our collaboration agreement.

Investing Activities

During the three months ended March 31, 2021 and 2020, net cash used in investing activities was $0.3 million and $0.2 million, respectively, and consisted of purchases of laboratory equipment and furniture and fixtures.

Financing Activities

During the three months ended March 31, 2021, net cash used $0.4 million. The cash used in financing activities consisted of $0.6 million for the payment of deferred offering costs associated with our initial public offering and was offset by $0.2 million that was provided from the exercise of common stock options.

During the three months ended March 31, 2020, net cash provided by financing activities was $27.1 million, consisting primarily of net proceeds of $26.9 million from our issuance of Series B preferred stock.

Loan and security agreement

In January 2018, we entered into a loan and security agreement or the 2018 Credit Facility, with Pacific Western Bank. The 2018 Credit Facility initially provided for borrowings of up to $5.0 million under one term loan, as well as additional borrowings of up to an aggregate maximum of $5.0 million under one or more additional term loans. Under the 2018 Credit Facility, we borrowed $5.0 million in January 2018 and an additional $5.0 million in February 2019. Borrowings under the 2018 Credit Facility bear interest at an annual rate equal to the bank’s prime rate plus 0.75%, subject to a floor of 5.0%, and were repayable in monthly interest-only payments through August 2019 and in equal monthly payments of principal plus accrued interest from September 2019 until the maturity date in February 2022.

In November 2019, the loan and security agreement was amended, or the 2019 Credit Facility, to increase the principal term loan amount to $15.0 million while extending timelines. The amended term loan bore interest at an annual rate equal to the bank’s prime rate plus 0.75%, subject to a 5.0% floor and was payable in monthly interest-only payments through May 2021 and equal monthly payments of principal plus accrued interest from June 2021 until the maturity date in November 2023.

In September 2020, we entered into a loan and security agreement, or the 2020 Credit Facility, with Oxford Finance LLC, or Oxford, and paid off in full our borrowings under the 2019 Credit Facility with a portion of the proceeds from the 2020 Credit Facility. The 2020 Credit Facility provided for an initial term loan borrowing in an aggregate amount of $20.0 million. The Company elected to not borrow any additional eligible borrowings under the 2020 Credit Facility. Borrowings under the 2020 Credit Facility bear interest at an annual rate equal to the greater of 8.40% and the sum of U.S. Dollar LIBOR rate reported on the Wall Street Journal plus 8.23%.

Borrowings under the 2020 Credit Facility are collateralized by substantially all of our personal property, other than our intellectual property. There are no financial covenants associated with the 2020 Credit Facility; however, we are subject to certain affirmative and negative covenants to which we will remain subject until maturity. These covenants include limitations on dispositions, mergers or acquisitions; encumbering our intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. In addition, we are required to, among other things, on an annual basis to deliver Oxford Finance LLC annual audited financial statements. Obligations under the 2020 Credit Facility are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in our business, operations or financial or other condition.

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As of March 31, 2021, the interest rate applicable to borrowings under the 2020 Credit Facility was 8.40%. As of March 31, 2020, the interest rate applicable to borrowings under the 2019 Credit Facility was 5.0%. During the three months ended March 31, 2021 and 2020 the weighted average effective interest rate on outstanding borrowings was approximately 9.8% and 5.2%, respectively.

As of March 31, 2021, we were in compliance with all debt covenants pursuant to the 2020 Credit Facility. We cannot be assured that we will be able to obtain additional covenant waivers or amendments in the future which may have a material adverse effect on our results or operations or liquidity.

Funding requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. In addition, we expect to incur additional cost associated with operating as a public company. The timing and amount of our operating and capital expenditures will depend largely on:

the costs of continuing to improve our SLTx platform;
the costs of acquiring licenses for the components and engineered cell lines that will be used with our current and future product candidates;
the scope, progress, results, and costs of discovery, preclinical development, formulation development, and clinical trials for our current and future product candidates;
the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims;
the costs, timing, and outcome of regulatory review of SIG-001 or any other product candidates;
the costs of future activities, including product sales, medical affairs, marketing, manufacturing, distribution, coverage and reimbursement for SIG-001 or any other product candidates for which we receive regulatory approval;
the cost of developing and expanding our manufacturing capabilities and advancing these manufacturing capabilities to manufacture product candidates that are commercially viable;
the potential additional expenses attributable to adjusting our development plans (including any supply-related matters) due to the COVID-19 pandemic;
our ability to establish and maintain additional collaborations on favorable terms, if at all;
the success of any collaborations that we may establish and of our license agreements;
the achievement of milestones or occurrence of other developments that trigger payments under any additional collaboration agreements we obtain;
the extent to which we acquire or in-license product candidates, intellectual property and technologies; and
the costs of operating as a public company.

We believe that our existing cash will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

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Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through additional collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide this information.

Off-Balance Sheet Arrangements

During the periods presented in this Quarterly Report on Form 10-Q and as of March 31, 2021, we did not have any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide this information.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2021 and concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of that date. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

There were no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of management, would have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm and other factors.

Item 1A. Risk Factors

You should carefully consider the risks and uncertainties described below together with all of the other information contained in this Form 10-Q. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

We are currently advancing our pipeline of programs in development. Discovering development candidates and developing investigational therapeutics is expensive, and we expect to continue to spend substantial amounts to (i) perform basic research, perform preclinical studies, and conduct clinical trials of our current and future programs, (ii) continue to develop and expand our Shielded Living Therapeutics, or SLTx, platform and infrastructure and supply preclinical studies and clinical trials with appropriate grade materials, including current good manufacturing practices, or cGMP, materials, (iii) seek regulatory approvals for our product candidates, and (iv) launch and commercialize any product candidates for which we receive regulatory approval.

Since inception, we have incurred significant operating losses. Our net loss was $19.0 million for the three months ended March 31, 2021. As of March 31, 2021, we had an accumulated deficit of $154.9 million. We have financed our operations primarily through the sale of equity securities, payments received under our collaboration agreement and proceeds from borrowings under our credit facilities. We have devoted all of our efforts to research and development. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if and as we:

·

initiate clinical trials for SIG-001, SIG-005 or any other product candidates;

·

continue our current research programs and our preclinical development of product candidates from our current research programs;

·

seek to identify additional research programs and additional product candidates;

·

comply with regulatory requirements established by the United States Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, and other comparable foreign regulatory authorities;

·

conduct preclinical studies for our product candidates;

·

seek marketing approvals for any of our product candidates that successfully complete clinical trials;

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·

ultimately establish a sales, marketing, and distribution infrastructure to commercialize any medicines for which we may obtain marketing approval;

·

further develop our SLTx platform;

·

hire additional research, development and manufacturing personnel;

·

continue to hire and retain clinical and commercial personnel;

·

add operational, financial, corporate development and management information systems and legal personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public company;

·

expand our facilities;

·

acquire or in-license product candidates, intellectual property and technologies;

·

develop an automated encapsulation system for future commercial scale manufacturing of our SLTx platform or otherwise build or expand our manufacturing capabilities or capacity, including future manufacturing facilities;

·

file, prosecute, defend, and enforce our patent claims and other intellectual property rights, including patent infringement actions brought by third parties against us regarding our investigational medicines or actions by us challenging the patent or intellectual property rights of others, and provide reimbursement of third-party expenses related to our patent portfolio; and

·

operate as a public company.

We expect that it will be many years, if ever, before we have a product candidate ready for commercialization. To become and remain profitable, we must, either directly or through collaborators, develop and eventually commercialize a medicine or medicines with significant market potential. This will require us to be successful in a range of challenging activities, including identifying product candidates, completing preclinical testing and clinical trials of product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing, and selling those medicines for which we may obtain marketing approval, and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we do, may never generate revenues that are significant or large enough to achieve profitability. We are currently in the preclinical testing stages for all of our research programs other than SIG-001. Because of the numerous risks and uncertainties associated with developing product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business, or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We will need substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce, or eliminate our research and product development programs or future commercialization efforts.

We expect our expenses to increase in connection with our ongoing activities, particularly as we identify, continue the research and development of, initiate clinical trials of, and seek marketing approval for product candidates. We expect that our cash as of March 31, 2021 of $178.8 million would enable us to fund our operating expenses, capital expenditures requirements and debt service payments into the fourth quarter of 2022. If we obtain marketing approval for SIG-001 or any other product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution to the extent that such sales, marketing, manufacturing, and distribution are not the responsibility of a collaborator. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

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If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce, or eliminate our research and product development programs or future commercialization efforts.

Our operating plan may change as a result of factors currently unknown to us, and we may need to seek funding sooner than planned. Our future capital requirements will depend on many factors, including:

·

the costs of continuing to develop our SLTx platform;

·

the costs of acquiring licenses for the components of our products and engineered cell lines that will be used with our current and future product candidates;

·

the scope, progress, results, and costs of discovery, preclinical development, formulation development, and clinical trials for our current and future product candidates;

·

the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims;

·

the costs, timing, and outcome of regulatory reviews associated with SIG-001 or any other product candidates;

·

the costs of future activities, including product sales, medical affairs, marketing, manufacturing, distribution, coverage and reimbursement for SIG-001 or any other product candidates for which we receive regulatory approval;

·

the cost of developing and expanding our manufacturing capabilities and advancing these manufacturing capabilities to manufacture product candidates that are commercially viable;

·

the potential additional expenses attributable to adjusting our development plans (including any supply-related matters) due to the COVID-19 pandemic;

·

our ability to establish and maintain additional collaborations on favorable terms, if at all;

·

the success of any collaborations that we may establish and of our license agreements;

·

the achievement of milestones or occurrence of other developments that trigger payments under any additional collaboration agreements we obtain;

·

the extent to which we acquire or in-license product candidates, intellectual property and technologies; and

·

the costs of operating as a public company.

Identifying product candidates and conducting preclinical testing and clinical trials is a time- consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, even if we successfully identify and develop product candidates and those are approved, we may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of medicines that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Disruptions in the financial markets in general and more recently due to the COVID-19 pandemic could make equity and debt financing more difficult to obtain and may have a material adverse effect on our ability to meet our fundraising needs. We cannot be certain that additional

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funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidates or other research and development initiatives. Our license agreements and any future collaboration agreements may also be terminated if we are unable to meet the payment or other obligations under the agreements. We could be required to seek collaborators for SIG-001 and our other product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to SIG-001 or any other product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

LIBOR and other interest rates that are indices deemed to be “benchmarks” are the subject of recent and ongoing national, international and other regulatory guidance and proposals for reform. Some of these reforms are already effective, while others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences that cannot be predicted. Any such consequence could have a material adverse effect on our existing facilities or our future debt linked to such a “benchmark” and our ability to service debt that bears interest at floating rates of interest.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates we may develop.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, and possibly other restrictions.

If we raise funds through additional collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates we may develop, or we may have to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We are an early-stage company. We were founded in 2015 and commenced operations in 2016. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our SLTx platform, identifying product candidates, undertaking preclinical studies and have initiated clinical studies for SIG-001. We have not yet commenced clinical trials for any product candidate other than SIG-001, and the risk of failure for our programs is high. We have not yet demonstrated an ability to successfully complete any clinical trials, including large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial-scale medicine, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes about 10 to 15 years to develop a product candidate from the time it is discovered

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to when it is available for treating patients, if ever. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

Our limited operating history may make it difficult to evaluate our technologies and industry and predict our future performance. Our short history as an operating company makes any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage companies in rapidly evolving fields. If we do not address these risks successfully, our business will suffer.

In addition, we may encounter other unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. We will need to transition from a company with a research focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

We have never generated revenue from product sales and may never become profitable.

Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize our current and future product candidates. We do not anticipate generating revenues from product sales for the next several years, if ever. Our ability to generate future revenues from product sales depends heavily on our, or our collaborators’, ability to successfully:

·

complete research and preclinical and clinical development of our current and future product candidates, including addressing any clinical holds that may be placed on our development activities by regulatory authorities;

·

seek and obtain regulatory and marketing approvals for any of our product candidates for which we complete clinical trials;

·

launch and commercialize any of our product candidates for which we obtain regulatory and marketing approval by establishing a sales force, marketing, and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

·

qualify for coverage and establish adequate reimbursement by government and third-party payors for any of our product candidates for which we obtain regulatory and marketing approval;

·

develop, maintain, and enhance a sustainable, scalable, reproducible, and transferable manufacturing process for the product candidates we may develop;

·

establish and maintain supply and manufacturing capabilities or capacities internally or with third parties that can provide adequate, in both amount and quality, products, and services to support clinical development and the market demand for any of our product candidates for which we obtain regulatory and marketing approval;

·

obtain market acceptance of current or any future product candidates as viable treatment options;

·

address competing technological and market developments;

·

implement internal systems and infrastructure, as needed;

·

negotiate favorable terms in any collaboration, licensing, or other arrangements into which we may enter and performing our obligations in such collaborations;

·

maintain, protect, enforce, defend, and expand our portfolio of intellectual property rights, including patents, trade secrets, and know-how;

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·

avoid and defend against third-party interference, infringement, and other intellectual property claims; and

·

attract, hire, and retain qualified personnel.

Even if one or more of our current and future product candidates are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA or the EMA, or other regulatory authorities to perform clinical and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved product candidates, we may not become profitable and may need to obtain additional funding to continue operations.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

Risks Related to Preclinical and Clinical Development of Our Technologies

The SLTx platform consists of novel technologies that are not yet clinically validated for human therapeutic use. The regulatory requirements applicable to our product candidates may change over time. The approaches we are taking to discover and develop novel therapeutics are unproven and may never lead to marketable products.

The regulatory approval process for novel cellular therapy product candidates such as ours is unclear and may be lengthier and more expensive than the process for other, better-known or more extensively studied product candidates, such as biologics, small molecule drugs and other more traditional pharmaceuticals.

Regulatory requirements governing cell therapy products have changed and may continue to change in the future. The FDA has established the Office of Tissues and Advanced Therapies, or OTAT, within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of cell therapy and related products, and has established the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER in its review. Our product candidates have been reviewed by OTAT to date, but this could change if the FDA changes any of its guidance or regulations. If we were to engage an NIH-funded institution to conduct a clinical trial, that institution’s biosafety committee, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules, as well as its institutional review board, or IRB, would need to review the proposed clinical trial to assess the safety of the trial. Similarly, the EMA may issue new guidelines concerning the development and marketing authorization for cell therapy medicinal products and require that we comply with these new guidelines.

Regulatory review committees and advisory groups, and any new guidelines they promulgate, may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our current or future product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of our product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a product to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results of operations and prospects would be harmed. Even if our product candidates are approved, we expect that the FDA will require us to submit follow-up data regarding our clinical trial subjects for a number of years after any approval. If this follow-up data shows negative long-term safety or efficacy outcomes for these patients, the FDA may revoke its approval or change the label of our products in a manner that could have an adverse impact on our business.

In addition, adverse developments in clinical trials of cell therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of our product candidates. As a result, it is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates.

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We may not be successful in our efforts to identify and develop product candidates. If these efforts are unsuccessful, we may never become a commercial stage company or generate any revenues.

The success of our business depends primarily upon our ability to identify, develop, and commercialize product candidates using on our SLTx platform. We have not yet commenced clinical trials for any product candidate other than SIG-001. Because most of our programs are all in the research or preclinical stage, we have not yet been able to assess safety of our product candidates in humans, and there may be long-term effects from treatment with any of our future product candidates that we cannot predict at this time. Additionally, our research programs may fail to identify product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying product candidates, our product candidates may be shown to have harmful side effects in preclinical in vitro experiments or animal model studies, they may not show promising signals of therapeutic effect in such experiments or studies or they may have other characteristics that may make the product candidates impractical to manufacture, unmarketable, or unlikely to receive marketing approval.

If any of these events occur, we may be forced to abandon our research or development efforts for a program or programs, which would have a material adverse effect on our business, financial condition, results of operations, and prospects. Research programs to identify new product candidates require substantial technical, financial, and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful, which would be costly and time-consuming.

We are early in our development efforts. It will be many years before we or our collaborators commercialize a product candidate, if ever. If we are unable to advance our product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

We are early in our development efforts and have focused our research and development efforts to date on select indications, including rare blood disorders, lysosomal diseases, endocrine and other chronic disorders, when identifying our initial targeted disease indications and our initial product candidates. Lysosomal diseases are characterized as a set of rare inherited metabolic disorders that affect the function of the lysosome. We have initiated our first in human trial for SIG-001 and dosed our first two patients in the fourth quarter of 2020 and are conducting Investigational New Drug application, or IND-enabling studies for four of our other product candidates, but there is no guarantee that the results from such IND-enabling studies will enable us to commence clinical trials of our product candidates in a timely manner, or at all. Our future success depends heavily on the successful development of our product candidates.

We have not submitted INDs to the FDA, or similar filings to any other regulatory agency for any product candidate other than SIG-001. We have invested substantially all of our efforts and financial resources in building our SLTx platform, and the identification and preclinical development of our current product candidates. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates, which may never occur. We currently generate no revenue from sales of any product and we may never be able to develop or commercialize a marketable product.

In the first half of 2020, we submitted a Clinical Trial Application, or CTA, in the United Kingdom and an IND in the United States for SIG-001 for the treatment of Hemophilia A, which have been accepted by the Medicines and Healthcare products Regulatory Agency, or MHRA, and the FDA, respectively. Even after we receive and incorporate guidance from these regulatory authorities, the FDA or other regulatory authorities could change their position, which may require us to complete additional preclinical studies or clinical trials or impose stricter approval conditions than we currently expect. We have initiated enrollment and dosed our first two patients for our multicenter Phase 1/2 clinical study of SIG-001 in Hemophilia A in the United Kingdom, which we plan to follow by the enrollment of patients in the United States. We also plan to submit an application to initiate this study in Germany, and, if this application is cleared, to open sites for this study in Germany. In addition, we may pursue studies for SIG-001 or our other product candidates in additional jurisdictions. There are equivalent processes and risks applicable to clinical trial applications in other countries, including in Europe with respect to our CTA application for SIG-001. In addition, we completed planned manufacturing changes for SIG-001 in the first quarter of 2021. We filed amendments to our CTA and IND with the MHRA and FDA, respectively, to incorporate these changes. These amendments were recently cleared by both the MHRA and the FDA.

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Any subsequent amendments must also be submitted to the FDA or MHRA as part of the IND or CTA, respectively, and cleared by such agencies.

Commercialization of our product candidates will require additional preclinical and clinical development; regulatory and marketing approval in multiple jurisdictions, including by the FDA and the EMA; obtaining manufacturing supply, capacity and expertise; building of a commercial organization; and significant marketing efforts. The success of our current and future product candidates will depend on many factors, including the following:

·

sufficiency of our financial and other resources to complete the necessary preclinical studies, IND-enabling studies, and clinical trials;

·

successful completion of preclinical studies resulting in data that is supportive of advancing to an IND or CTA submission;

·

successful submissions of INDs or comparable foreign applications that allow commencement of our planned or future clinical trials, including resolving any clinical holds that may be imposed on such submissions;

·

successful initiation, enrollment in, and completion of, clinical trials;

·

positive results from our clinical trials that support a finding of safety and effectiveness and an acceptable risk-benefit profile in the intended populations;

·

receipt of marketing approvals from applicable regulatory authorities;

·

establishment of arrangements with third-party manufacturers for clinical supply and commercial manufacturing and, where applicable, commercial manufacturing capabilities;

·

successful development of our internal manufacturing processes and transfer to larger-scale facilities operated by either a contract manufacturing organization, or CMO, or by us;

·

obtaining and maintaining patent, trade secret, and other intellectual property protection and non-patent exclusivity for our product candidates;

·

launching commercial sales of the product candidates, if and when approved, whether alone or in collaboration with others;

·

acceptance of the products, if and when approved, by patients, the medical community, and third-party payors;

·

effectively competing with other therapies and treatment options;

·

a continued acceptable safety profile of the product candidates following approval;

·

enforcing and defending intellectual property and proprietary rights and claims; and

·

supplying the products at a price that is acceptable to the pricing or reimbursement authorities in different countries.

If we do not successfully achieve one or more of these activities in a timely manner or at all, we could experience significant delays or an inability to successfully develop or commercialize any product candidates we may develop, which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

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We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications among many potential options. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable medicines. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing, or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

We currently have only one clinical stage product candidate, SIG-001, for which we dosed our first two patients in the fourth quarter of 2020. A failure of this product candidate in clinical development would adversely affect our business and may require us to discontinue development of other product candidates, which are all based on the same SLTx platform.

While we have certain preclinical programs in development, including SIG-002 for the treatment of Type 1 Diabetes, or T1D, SIG-005 for the treatment of mucopolysaccharidosis type 1, or MPS-1, SIG-007 for the treatment of Fabry disease and SIG-009 for the treatment of Factor VII Deficiency, or FVIID, and intend to develop other product candidates, it will take additional investment and time for such programs to reach the same stage of development as SIG-001. Since all of the product candidates in our current pipeline are based on the same SLTx platform, if SIG-001 fails in development as a result of any underlying problem with our SLTx platform, then we may be required to discontinue development of all of our product candidates. If we were required to discontinue development of SIG-001 or if SIG-001 were to fail to receive regulatory approval or were to fail to achieve sufficient market acceptance, we could be prevented from or significantly delayed in achieving profitability.

We only have preliminary data from the first two patients dosed with SIG-001 and no results from our product candidates in clinical trials and any favorable preclinical results are not predictive of results that may be observed in clinical trials.

Data obtained from preclinical and clinical activities are subject to varying interpretations and analyses, which may delay, limit or prevent regulatory approval. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical development have nonetheless failed to obtain marketing approval of their product candidates. As we generate preclinical results, such results will not ensure that later preclinical studies or clinical trials will demonstrate similar results.

We have not yet initiated clinical trials for any product candidate other than SIG-001, and to date, we have not generated clinical trial results other than preliminary data from the first two patients dosed with SIG-001. At the initial dose levels, tested in the first two patients, our results to date have shown low-to-mid single digit activity levels of FVIII. There is a high failure rate for drugs and biologics proceeding through clinical trials. Even if initial clinical trials in any of our current or future product candidates are successful, these product candidates may fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through preclinical studies and initial clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials even after achieving promising results in earlier stage clinical trials.

In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development and clinical holds that may be imposed on our clinical trials. Any such adverse events may cause us to delay, limit, or terminate planned clinical trials, any of which would have a material adverse effect on our business, financial condition, results of operations, and prospects.

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If any of the product candidates we may develop, or the delivery modes we rely on to administer them, cause serious adverse events, undesirable side effects, or unexpected characteristics, such events, side effects or characteristics could delay or prevent regulatory approval of the product candidates, limit the commercial potential, or result in significant negative consequences following any potential marketing approval.

We are currently evaluating only one product candidate, SIG-001, in human clinical trials. Our product candidates are composed of engineered human cell lines, encapsulated in a biocompatible matrix sphere. To date, there have been no completed human clinical trials for product candidates arising from our SLTx platform or consisting of our cell or sphere technologies. There may be serious adverse events or undesirable side effects related to either component of our product candidates.

If any product candidates we develop are associated with serious adverse events, undesirable side effects, or unexpected characteristics, we may need to abandon their development or limit development to certain uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe, or more acceptable from a risk-benefit perspective, any of which would have a material adverse effect on our business, financial condition, results of operations, and prospects. Many product candidates that initially showed promise in early-stage testing for rare blood disorders, lysosomal diseases, endocrine and other chronic disorders have later been found to cause side effects that prevented further clinical development of the product candidates.

If our clinical trials result in a high and unacceptable severity and/or prevalence of adverse events, the FDA, the EMA or other regulatory authorities could require us to cease further development of, or deny approval of, any product candidates we are able to develop for any or all targeted indications. Even if we are able to demonstrate that all future serious adverse events are not product related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to delay, suspend or terminate any clinical trial of any product candidate we may develop, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to identify and develop product candidates, and may harm our business, financial condition, result of operations, and prospects significantly.

Additionally, if we successfully develop a product candidate and it receives marketing approval, the FDA could require us to adopt a Risk Evaluation and Mitigation Strategy, or REMS, to ensure that the benefits of treatment with such product candidate outweighs the risks for each potential patient, which may include, among other things, a medication guide outlining the risks of the product for distribution to patients, a communication plan to health care practitioners, extensive patient monitoring, or distribution systems and processes that are highly controlled, restrictive, and more costly than what is typical for the industry. Furthermore, if we or others later identify undesirable side effects caused by any product candidate that we develop, several potentially significant negative consequences could result, including:

·

regulatory authorities may suspend or withdraw approvals of such product candidate, or may refuse to approve supplemental applications for such product candidate;

·

regulatory authorities may require additional warnings on the label, such as a Boxed Warning or contraindication, or limit the approved use of such product candidate;

·

regulatory authorities may impose additional restriction on the marketing of, or the manufacturing processes for, the particular product candidate;

·

we may be required to recall the product or change the way it is administered in patients;

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we may be required to conduct additional clinical trials;

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we could be sued and held liable for harm caused to patients; and

·

our reputation may suffer.

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Any of these events could prevent us from achieving or maintaining market acceptance of our current and future product candidates and could have a material adverse effect on our business, financial condition, results of operations, and prospects.

If clinical trials of our current and future product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidates.

Before obtaining marketing approval from regulatory authorities for the sale of any of our current and future product candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results.

We and our collaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to complete such clinical trials, receive marketing approval or commercialize our current and future product candidates, including:

·

delays in reaching a consensus with regulators on trial design;

·

regulators, IRBs, or independent ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

·

delays in reaching or failing to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

·

difficulties in recruiting investigators of appropriate competence and experience for our clinical trials;

·

the number of patients required for clinical trials of any of our current and future product candidates may be larger than we anticipate; enrollment of suitable participants in these clinical trials may be delayed or slower than we anticipate; or patients may drop out of these clinical trials at a higher rate than we anticipate;

·

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

·

regulators, IRBs, or independent ethics committees may impose a clinical hold and require that we or our investigators suspend or terminate clinical research or clinical trials of any of our current and future product candidates for various reasons,

·

noncompliance with regulatory requirements, a finding of undesirable side effects or other unexpected characteristics, or that the participants are being exposed to unacceptable health risks or after an inspection of our clinical trial operations or trial sites;

·

failure to perform clinical trials in accordance with study protocols, Good Clinical Practice, or GCP, requirements, and other regulatory requirements;

·

the cost of clinical trials of any of our current and future product candidates may be greater than we anticipate;

·

delays in having patients complete participation in a trial or return for post-treatment follow-up;

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·

delays in participation in a trial as a result of failure to deliver treatment doses to clinical trial sites in a timely manner, the logistical burden of dose delivery or failure by clinical trial sites to store treatment doses according to protocols;

·

clinical trial sites deviating from trial protocol or dropping out of a trial;

·

selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data;

·

occurrence of serious adverse events associated with any of our current and future product candidates that are viewed to outweigh their potential benefits;

·

occurrence of serious adverse events in trials of the same class of agents conducted by other sponsors;

·

the supply or quality of any of our current and future product candidates or other materials necessary to conduct clinical trials of any of our current and future product candidates may be insufficient or inadequate, including as a result of delays in the testing, validation, manufacturing, and delivery of any of our current and future product candidates to the clinical sites by us or by third parties with whom we have contracted to perform certain of those functions;

·

changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; and

·

clinical trials of any of our current and future product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development or research programs altogether.

In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials. We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a Data Safety Monitoring Board for such trial or by the FDA or comparable foreign regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to comply with these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial.

If we or our collaborators are required to conduct additional clinical trials or other testing of any of our current and future product candidates beyond those that we currently contemplate, if we or our collaborators are unable to successfully complete clinical trials or other testing of any product candidates we may develop, or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we or our collaborators may:

·

be delayed in obtaining marketing approval for any such product candidates or not obtain marketing approval at all;

·

lose the support of collaborators, requiring us to bear more of the costs associated with research and development;

·

obtain approval for indications or patient populations that are not as broad as intended or desired;

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·

obtain marketing approval in some countries but not others;

·

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

·

be subject to changes in the way the product is administered;

·

be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;

·

have regulatory authorities withdraw, or suspend, their approval of the product or impose restrictions on its distribution in the form of a REMS or through modification to an existing REMS;

·

be subject to lawsuits; or

·

experience damage to our reputation.

Product development costs will also increase if we or our collaborators experience delays in clinical trials or other testing or in obtaining marketing approvals. We do not know whether our clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Significant clinical trial delays, including those caused by the COVID-19 pandemic or similar events (including new strains of the COVID-19 virus), also could shorten any periods during which we may have the exclusive right to commercialize any product candidates we may develop, could allow our competitors to bring products to market before we do, and could impair our ability to successfully commercialize any product candidates we may develop, any of which may harm our business, financial condition, results of operations, and prospects.

Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in review, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of our product candidates.

If we experience delays or difficulties in the enrollment and dosing of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

Identifying and qualifying patients to participate in clinical trials of SIG-001 or any other product candidates is critical to our success. The timing of our clinical trials depends on our ability to recruit patients to participate in our studies as well as the dosing of such patients and completion of required follow-up periods. For example, hemophilia trials often take longer to enroll due to the availability of existing treatments. There are also a number of other product candidates in development by our competitors, who compete for the same limited patient populations. If we or our collaborators are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA, the EMA or other analogous regulatory authorities outside the United States, or as needed to provide appropriate statistical power for a given trial, we may not be able to initiate or continue clinical trials for our current and future product candidates. Enrollment may be particularly challenging for some of the rare diseases we are targeting in our most advanced programs. For example, the severe or moderate Hemophilia A patient population is estimated to be approximately 10,000 patients in the United States and approximately 95,000 worldwide and the incidence of FVIID is estimated to be between one in 300,000 and one in 500,000, worldwide. The approximate incidence of MPS-1 is one in 100,000 live births and only approximately 4,000 to 5,000 patients with Fabry disease are known in the United States. Additionally, we may face similar challenges or delays in our other or potential future clinical trials. If patients are unwilling to participate in our

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studies because of negative publicity from adverse events related to the biotechnology or cell therapy, engineered cell therapy or encapsulated cell therapy fields, competitive clinical trials for similar patient populations or for other reasons, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of SIG-001 or any other product candidates may be delayed. These delays could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether. Furthermore, our ability to enroll patients may be significantly delayed by the evolving COVID-19 pandemic and we do not know the extent and scope of such delays at this point.

Patient enrollment is also affected by other factors, including:

·

severity of the disease under investigation;

·

size of the patient population and process for identifying patients;

·

design of the trial protocol;

·

availability and efficacy of approved medications for the disease under investigation;

·

convenience and ease of administration compared to approved medications for the disease under investigation and the willingness of patients to undergo the surgical procedures necessary to administer our product candidates, such as laparoscopy;

·

ability to obtain and maintain patient informed consent;

·

risk that enrolled patients will drop out before completion of the trial;

·

eligibility and exclusion criteria for the trial in question;

·

perceived risks and benefits of the product candidate under trial;

·

efforts to facilitate timely enrollment in clinical trials;

·

patient referral practices of physicians;

·

ability to monitor patients adequately during and after treatment;

·

proximity and availability of clinical trial sites for prospective patients; and

·

factors we may not be able to control, such as current or potential pandemics that may limit patients, principal investigators or staff or clinical site availability (e.g., outbreak of COVID-19).

Our ability to successfully initiate, enroll, and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:

·

difficulty in establishing or managing relationships with CROs and physicians;

·

different standards for the conduct of clinical trials;

·

different standard-of-care for patients with a particular disease;

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·

difficulty in locating qualified local consultants, physicians, and partners; and

·

potential burden of complying with a variety of foreign laws, medical standards, and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment.

Enrollment delays in our clinical trials may result in increased development costs for SIG-001 or any other product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing. If we or our collaborators have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit, or terminate clinical trials for SIG-001 or our other product candidates, or expand to additional jurisdictions, which could impose additional challenges on our company and expose us to risks. If we are not successful in conducting our clinical trials as planned, it would have an adverse effect on our business, financial condition, results of operations, and prospects.

Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize SIG-001 or any other product candidate in the United States or any other jurisdiction, and any such approval may be for a more narrow indication than we seek.

We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if SIG-001 and any other product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials, and the review process.

Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings or a REMS. These regulatory authorities may require labeling that includes precautions or contraindications with respect to conditions of use, or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of any product candidates we may develop. Any of the foregoing scenarios could materially harm the commercial prospects for SIG-001 or any other product candidates and materially adversely affect our business, financial condition, results of operations, and prospects.

To date, we have not submitted a biologics license application, or BLA, or other marketing authorization application to the FDA or similar drug approval submissions to comparable foreign regulatory authorities for any product candidate. Marketing approval by the FDA in the United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of SIG-001 or any other product candidates in those countries. The foreign regulatory approval process involves all of the risks associated with FDA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our product candidates will be unrealized.

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Interim, topline or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data becomes available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose preliminary or topline data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available.

From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. To date, we only have preliminary data from the first two patients dosed with SIG-001. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which may harm our business, financial condition, results of operations, and prospects.

Our product candidates may be considered combination products involving a proprietary delivery approach, which may result in additional regulatory and other risks.

Because our SLTx platform represents a novel approach to cell-based therapy development, we could be asked to perform additional preclinical or clinical studies, as well as develop additional manufacturing procedures and protocols, before we are able to obtain regulatory approvals for our product candidates. Our product candidates are comprised of both allogeneic human cells, which means the cells are obtained from a human donor other than the patient, and sphere components, and therefore we expect our product candidates to be regulated as biologic combination products, such as a biologic-device combination products for administration directly to the abdominal cavity or, as a novel cell-based therapies, which may subject our product candidates to additional regulatory requirements, such as CMC, preclinical or clinical requirements. If FDA regulates our product candidates as biologic-device combination products, we anticipate each component would be subject to the FDA medical requirements for that type of component. If that is the case, our delivery system device would be subject to FDA device requirements regarding design, performance, and validation, and human factor testing, as well as manufacturing requirements, including the FDA’s Quality System regulations applicable to medical devices. Additionally, products that are regulated as biologic-device combination products would require coordination within the FDA for review of the product candidate’s device and biologic components. The determination whether a combination product requires a single marketing application or two separate marketing applications for each component is made by the FDA on a case-by-case basis. Although a single marketing application may be sufficient for the approval of a combination product, the FDA may determine that separate marketing applications are necessary. This determination could significantly increase the resources and time required to bring our combination product to market. Although the FDA has systems in place for the review and approval of combination products such as ours, we may experience delays in the development and commercialization of our product candidates due to regulatory timing constraints and uncertainties in the product development and approval process, as well as coordination between two different centers within FDA responsible for review of the different components of the combination product.

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Failure to obtain marketing approval in foreign jurisdictions would prevent SIG-001 or any other product candidates from being marketed in such jurisdictions, which, in turn, would materially impair our ability to generate revenue.

In order to market and sell SIG-001 or any other product candidates in the European Union, or the EU, and other foreign jurisdictions, including the United Kingdom, we or our third-party collaborators must obtain separate marketing approvals (a single one for the EU and a separate one for the United Kingdom, albeit potentially under a 67 day process following a positive CHMP opinion from the EU) and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing and/or clinical trials. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product candidate be approved for reimbursement before the product candidate can be approved for sale in that country. We or these third parties may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our medicines in any jurisdiction, which would materially impair our ability to generate revenue.

Even if we, or any collaborators we may have, obtain marketing approvals for any product candidates we develop, the terms of approvals and ongoing regulation of our product candidates could require the substantial expenditure of resources and may limit how we, or they, manufacture and market our product candidates, which could materially impair our ability to generate revenue.

Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, import, export, adverse event reporting, storage, recordkeeping, advertising, and promotional activities for such product candidate, will be subject to extensive and ongoing requirements imposed by the FDA, EMA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, facility registration and drug listing requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping, and with respect to any medical device components of our product candidates, compliance with applicable provisions of the FDA’s Quality System regulation. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product.

Accordingly, assuming we, or any collaborators we may have, receive marketing approval for one or more product candidates we develop, we, and such collaborators, and our and their contract manufacturers will continue to expend time, money,