0001821323--12-312021Q2false0000031464989318640200.44P3Y6M0001821323us-gaap:CommonStockMember2021-04-012021-06-300001821323us-gaap:CommonStockMember2021-01-012021-03-310001821323us-gaap:CommonStockMember2020-04-012020-06-300001821323us-gaap:CommonStockMember2020-01-012020-03-310001821323us-gaap:RestrictedStockMembersgtx:NonemployeeAndEmployeeFoundersMember2016-02-012016-02-290001821323us-gaap:OverAllotmentOptionMember2020-12-082020-12-0800018213232020-11-252020-11-250001821323us-gaap:RetainedEarningsMember2021-06-300001821323us-gaap:AdditionalPaidInCapitalMember2021-06-300001821323us-gaap:RetainedEarningsMember2021-03-310001821323us-gaap:AdditionalPaidInCapitalMember2021-03-3100018213232021-03-310001821323us-gaap:RetainedEarningsMember2020-12-310001821323us-gaap:AdditionalPaidInCapitalMember2020-12-310001821323us-gaap:RetainedEarningsMember2020-06-300001821323us-gaap:AdditionalPaidInCapitalMember2020-06-300001821323us-gaap:RetainedEarningsMember2020-03-310001821323us-gaap:AdditionalPaidInCapitalMember2020-03-3100018213232020-03-310001821323us-gaap:RetainedEarningsMember2019-12-310001821323us-gaap:AdditionalPaidInCapitalMember2019-12-310001821323us-gaap:CommonStockMember2021-06-300001821323us-gaap:CommonStockMember2021-03-310001821323us-gaap:CommonStockMember2020-12-310001821323us-gaap:CommonStockMember2020-06-300001821323sgtx:ConvertiblePreferredStocksMember2020-06-300001821323us-gaap:CommonStockMember2020-03-310001821323sgtx:ConvertiblePreferredStocksMember2020-03-310001821323us-gaap:CommonStockMember2019-12-310001821323sgtx:ConvertiblePreferredStocksMember2019-12-310001821323us-gaap:IPOMember2020-12-080001821323us-gaap:RestrictedStockMembersgtx:NonemployeeAndEmployeeFoundersMember2016-02-290001821323sgtx:EquityIncentivePlan2020Member2021-06-300001821323sgtx:EmployeeStockPurchasePlan2020Member2021-06-300001821323sgtx:EmployeeAndDirectorsMember2021-04-012021-06-300001821323sgtx:EmployeeAndDirectorsMember2021-01-012021-06-300001821323sgtx:EmployeeAndDirectorsMember2020-04-012020-06-300001821323sgtx:EmployeeAndDirectorsMember2020-01-012020-06-300001821323us-gaap:RestrictedStockMembersgtx:NonemployeeAndEmployeeFoundersMember2021-04-012021-06-300001821323us-gaap:RestrictedStockMembersgtx:NonemployeeAndEmployeeFoundersMember2021-01-012021-06-300001821323us-gaap:RestrictedStockMembersgtx:NonemployeeAndEmployeeFoundersMember2020-04-012020-06-300001821323us-gaap:RestrictedStockMembersgtx:NonemployeeAndEmployeeFoundersMember2020-01-012020-06-300001821323us-gaap:RestrictedStockMembersgtx:NonemployeeAndEmployeeFoundersMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2016-02-012016-02-290001821323us-gaap:RestrictedStockMembersgtx:NonemployeeAndEmployeeFoundersMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2016-02-012016-02-290001821323us-gaap:CollaborativeArrangementMember2020-01-012020-06-300001821323sgtx:MassachusettsInstituteOfTechnologyMember2021-04-012021-06-300001821323sgtx:MassachusettsInstituteOfTechnologyMember2021-01-012021-06-300001821323us-gaap:LeaseholdsAndLeaseholdImprovementsMember2021-06-300001821323us-gaap:FurnitureAndFixturesMember2021-06-300001821323sgtx:LaboratoryEquipmentMember2021-06-300001821323sgtx:ComputerAndSoftwareMember2021-06-300001821323us-gaap:LeaseholdsAndLeaseholdImprovementsMember2020-12-310001821323us-gaap:FurnitureAndFixturesMember2020-12-310001821323sgtx:LaboratoryEquipmentMember2020-12-310001821323sgtx:ComputerAndSoftwareMember2020-12-310001821323us-gaap:IPOMember2020-12-082020-12-080001821323us-gaap:RetainedEarningsMember2021-04-012021-06-300001821323us-gaap:RetainedEarningsMember2021-01-012021-03-310001821323us-gaap:RetainedEarningsMember2020-04-012020-06-3000018213232020-01-012020-12-310001821323us-gaap:RetainedEarningsMember2020-01-012020-03-310001821323sgtx:SeriesConvertiblePreferredStockMember2020-04-012020-06-300001821323sgtx:SeriesConvertiblePreferredStockMember2020-01-012020-06-300001821323sgtx:SeriesOneConvertiblePreferredStockMember2020-04-012020-06-300001821323sgtx:SeriesBConvertiblePreferredStockMember2020-04-012020-06-300001821323sgtx:SeriesOneConvertiblePreferredStockMember2020-01-012020-06-300001821323sgtx:SeriesBConvertiblePreferredStockMember2020-01-012020-06-300001821323sgtx:TwoThousandAndTwentyCreditFacilityMember2021-06-300001821323us-gaap:CollaborativeArrangementMember2021-03-310001821323us-gaap:CollaborativeArrangementMember2020-06-300001821323us-gaap:CollaborativeArrangementMember2020-03-310001821323us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMembersgtx:EliLillyAndCompanyLillyMember2021-01-012021-03-310001821323us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMembersgtx:EliLillyAndCompanyLillyMember2020-01-012020-12-3100018213232020-06-3000018213232019-12-310001821323us-gaap:ResearchAndDevelopmentExpenseMember2021-04-012021-06-300001821323us-gaap:GeneralAndAdministrativeExpenseMember2021-04-012021-06-300001821323us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-06-300001821323us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-06-300001821323us-gaap:ResearchAndDevelopmentExpenseMember2020-04-012020-06-300001821323us-gaap:GeneralAndAdministrativeExpenseMember2020-04-012020-06-300001821323us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-06-300001821323us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-06-300001821323us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-3000018213232021-04-012021-06-300001821323us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-3100018213232021-01-012021-03-310001821323us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300001821323us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-3100018213232020-01-012020-03-310001821323srt:MaximumMember2020-12-310001821323us-gaap:CollaborativeArrangementMember2021-04-012021-06-300001821323us-gaap:CollaborativeArrangementMember2020-04-012020-06-300001821323sgtx:ConvertiblePreferredStocksMember2020-01-012020-03-310001821323us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-12-3100018213232020-04-012020-06-300001821323sgtx:MassachusettsInstituteOfTechnologyMember2021-06-300001821323sgtx:MassachusettsInstituteOfTechnologyMember2020-12-080001821323sgtx:MassachusettsInstituteOfTechnologyMember2020-04-012020-06-300001821323sgtx:MassachusettsInstituteOfTechnologyMember2020-01-012020-06-300001821323us-gaap:CollaborativeArrangementMember2018-04-020001821323sgtx:FirstLicensedProductMembersrt:MaximumMemberus-gaap:CollaborativeArrangementMember2018-04-020001821323sgtx:AdditionalLicensedProductMemberus-gaap:CollaborativeArrangementMember2018-04-0200018213232020-01-012020-06-300001821323us-gaap:CollaborativeArrangementMember2021-01-012021-06-300001821323sgtx:ConvertiblePreferredStocksMember2020-04-012020-06-300001821323us-gaap:CollaborativeArrangementMember2021-06-300001821323us-gaap:CollaborativeArrangementMember2020-12-310001821323sgtx:FlagshipPioneeringInc.Member2021-04-012021-06-300001821323sgtx:FlagshipPioneeringInc.Member2021-01-012021-06-300001821323us-gaap:CollaborativeArrangementMember2020-01-012020-12-310001821323us-gaap:CollaborativeArrangementMember2018-04-022018-04-0200018213232021-06-3000018213232020-12-3100018213232021-07-3100018213232021-01-012021-06-30xbrli:sharesiso4217:USDsgtx:itemsgtx:customersgtx:planiso4217:USDxbrli:sharesxbrli:pure

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 June 30, 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 July 31, 2021, there were 32,057,253 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)

5

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020

6

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2021 and 2020

7

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market and Risk

34

Item 4.

Controls and Procedures

34

PART II - Other Information

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

94

Item 3.

Defaults upon Senior Securities

94

Item 4.

Mine Safety Disclosures

95

Item 5.

Other Information

95

Item 6.

Exhibits

95

Signatures

96

S

2

Table of Contents

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.
Our business may be adversely affected if the FDA does not lift the clinical hold on our Phase 1/2 clinical trial of SIG-001 in Hemophilia A or if the FDA or other regulators request additional preclinical studies or clinical trials for SIG-001 or other product candidates that cause significant delays in or end development of such programs.
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 only have preliminary data from the 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.
We reported a serious adverse event in the third patient dosed in our Phase 1/2 clinical trial of SIG-001. This or any other serious adverse events, undesirable side effects or unexpected characteristics caused by any of the product candidates we may develop, or the delivery modes we rely on to administer them, 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, SIG-005 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, SIG-005 or any other product candidates.

3

Table of Contents

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 resolution of the clinical hold on our Phase 1/2 clinical trial for SIG-001 in Hemophilia A, the timing and enrollment of our clinical trials for SIG-001 and SIG-005, 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.

4

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)

June 30, 

December 31, 

    

2021

   

2020

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash

$

162,406

$

202,229

Accounts receivable (inclusive of $63 and $63 from a related party at June 30, 2021 and December 31, 2020, respectively)

 

178

 

177

Prepaid expenses and other current assets

 

3,611

 

1,729

Restricted cash—current

 

75

 

75

Total current assets

 

166,270

 

204,210

Property and equipment, net

 

3,630

 

2,991

Right‑of‑use assets

 

14,928

 

16,731

Restricted cash

 

1,293

 

1,118

Total assets

$

186,121

$

225,050

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

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

4,661

$

1,988

Accrued expenses and other current liabilities

 

8,693

 

7,892

Lease liabilities, current portion

 

5,075

 

5,361

Deferred revenue from related party, current portion

 

25,957

 

31,777

Total current liabilities

 

44,386

 

47,018

Deferred revenue from related party, net of current portion

 

272

 

Lease liability, net of current portion

 

10,279

 

11,893

Long‑term debt, net of discount

 

19,941

 

19,807

Other liabilities

 

176

 

176

Total liabilities

$

75,054

$

78,894

Commitments and contingencies (Note 9)

 

  

 

  

Stockholders’ equity

 

  

 

  

Common stock, par value $0.001 per share; 175,000,000 shares authorized at June 30, 2021 and December 31, 2020; 31,864,020 and 31,464,989 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

32

 

31

Preferred stock, par value $0.001 per share; 25,000,000 shares authorized at June 30, 2021 and December 31, 2020; no shares issued and outstanding at June 30, 2021 and December 31, 2020

 

 

Additional paid‑in capital

 

286,373

 

282,053

Accumulated deficit

 

(175,338)

 

(135,928)

Total stockholders’ equity

 

111,067

 

146,156

Total liabilities, convertible preferred stock and stockholders’ equity

$

186,121

$

225,050

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

5

Table of Contents

Sigilon Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited, in thousands, except per share data)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Revenue

 

  

 

  

 

  

 

  

Collaboration revenue (inclusive of $2,662, $5,606, $1,951 and $5,417 from a related party for the three and six months ended June 30, 2021 and 2020, respectively)

$

2,704

$

1,951

$

5,662

$

5,417

Operating expenses:

 

 

 

 

Research and development

 

17,751

 

12,452

 

33,736

25,726

General and administrative

4,992

2,818

10,532

5,689

Total operating expenses

 

22,743

 

15,270

 

44,268

 

31,415

Loss from operations

 

(20,039)

 

(13,319)

 

(38,606)

 

(25,998)

Other income (expense), net:

 

  

 

  

 

  

 

  

Interest income

 

71

35

 

157

238

Interest expense

 

(494)

(196)

 

(982)

(404)

Other income (expense)

 

25

(11)

 

21

(27)

Change in fair value of preferred stock warrant liability

 

1

 

(34)

Total other expense, net

 

(398)

 

(171)

 

(804)

 

(227)

Net loss and comprehensive loss

$

(20,437)

$

(13,490)

$

(39,410)

$

(26,225)

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

$

(0.65)

$

(2.54)

$

(1.25)

$

(5.09)

Weighted average common stock outstanding—basic and diluted

 

31,571,704

 

5,320,427

 

31,529,939

 

5,152,477

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

6

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)

Issuance of common stock upon exercise of stock options

 

21,817

26

26

Stock‑based compensation expense

 

696

696

Net loss

 

(13,490)

(13,490)

Payment of deferred offering costs

(3)

Balances at June 30, 2020

 

36,336,001

$

117,149

 

5,336,554

$

5

$

5,063

$

(107,545)

$

(102,477)

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

Issuance of common stock upon exercise of stock options

 

362,068

486

 

486

Stock‑based compensation expense

 

1,986

 

1,986

Net loss

 

(20,437)

 

(20,437)

Balances at June 30, 2021

 

$

 

31,864,020

$

32

$

286,373

$

(175,338)

$

111,067

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

7

Table of Contents

Sigilon Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

Six Months Ended June 30, 

     

2021

     

2020

Cash flows from operating activities:

 

  

 

  

Net loss

$

(39,410)

 

$

(26,225)

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

 

 

Depreciation and amortization expense

 

510

 

410

Stock‑based compensation expense

 

3,690

 

1,363

Non‑cash lease expense

 

2,367

 

1,487

Non‑cash interest expense

 

134

 

11

Change in fair value of preferred stock warrant liability

 

 

34

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

(1)

 

3

Prepaid expenses and other current assets

 

(1,882)

 

(1,589)

Accounts payable

 

3,046

 

624

Accrued expenses and other current liabilities

 

898

 

(933)

Other liabilities

 

 

105

Lease liabilities

 

(2,464)

 

(1,639)

Deferred revenue

 

(5,548)

 

(5,160)

Net cash used in operating activities

 

(38,660)

 

(31,509)

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

 

(997)

 

(256)

Net cash used in investing activities

 

(997)

 

(256)

Cash flows from financing activities:

 

  

 

  

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

 

26,943

Payments of deferred offering costs

 

(622)

(21)

Proceeds from the exercise of common stock options

 

631

146

Net cash provided by financing activities

 

9

 

27,068

Net increase in cash and restricted cash

 

(39,648)

 

(4,697)

Cash and restricted cash at beginning of period

 

203,422

 

76,645

Cash and restricted cash at end of period

$

163,774

 

$

71,948

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for interest

$

845

 

$

392

Supplemental disclosures of noncash investing and financing activities:

 

 

Lease assets obtained in exchange for lease liabilities

$

564

 

$

1,183

Purchases of property and equipment included in accounts payable

$

187

 

$

76

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

8

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 Consolidated 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 Consolidated 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.

9

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 June 30, 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 $20.4 million and $39.4 million for the three and six months ended June 30, 2021, respectively, and $54.6 million for the year ended December 31, 2020. In addition, as of June 30, 2021, the Company had an accumulated deficit of $175.3 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 $162.4 million as of June 30, 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

10

Table of Contents

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.

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 June 30, 2021 and December 31, 2020, all of the Company’s accounts receivable were related to two customers. One of these receivables, which represented 35% and 36% of the Company’s total receivables as of June 30, 2021 and December 31, 2020, respectively, 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

11

Table of Contents

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 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 and six months ended June 30, 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 June 30, 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 June, 30 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.

12

Table of Contents

4. Property and Equipment, Net

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

June 30, 

December 31, 

    

2021

    

2020

Laboratory equipment

$

5,408

$

4,325

Leasehold improvements

 

60

 

60

Furniture and fixtures

 

620

 

620

Computers and software

 

96

 

30

 

6,184

 

5,035

Less: Accumulated depreciation and amortization

 

(2,554)

 

(2,044)

Total property and equipment, net

$

3,630

$

2,991

Depreciation and amortization expense for the three and six months ended June 30, 2021 and 2020 was $0.3 million, $0.5 million, $0.2 million and $0.4 million, respectively.

5. Accrued Expenses and Other Current Liabilities

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

June 30, 

December 31, 

    

2021

2020

Employee compensation and benefits

$

3,334

$

2,910

External research and development costs

 

4,284

 

3,584

Legal and professional fees

 

733

 

1,155

Other

 

342

 

243

Total accrued expenses and other current liabilities

$

8,693

$

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 June 30, 2021 and December 31, 2020, long-term debt consisted of the following (in thousands):

    

June 30, 

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

 

(759)

 

(893)

Long‑term debt, net of discount and current portion

$

19,941

$

19,807

As of June 30, 2021 and December 31, 2020, the interest rate applicable to borrowings under the 2020 Credit Facility was 8.40%.

13

Table of Contents

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

June 30, 

    

2021

2021 (Remaining six months)

$

2022

 

1,666

2023

 

6,667

2024

6,667

2025

5,000

$

20,000

As of June 30, 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 two equity compensation plans under which awards are currently authorized for issuance: the 2020 Employee Stock Purchase Plan and the 2020 Equity Incentive Plan. The Company also has outstanding stock-based awards under its 2016 Equity Incentive Plan but is no longer granting awards under this plan. As of June 30, 2021, there were 614,649 shares available for issuance under the 2020 Employee Stock Purchase Plan and 2,078,500 shares available for issuance under the 2020 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 a 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

 

Six months ended

 

June 30, 

 

June 30, 

 

2021

2020

 

2021

2020

 

Risk-free interest rate

 

1.05

%  

 

0.45

%

 

0.72

%  

 

0.88

%

Expected dividend yield

 

0.00

%  

 

0.00

%

 

0.00

%  

 

0.00

%

Expected term (in years)

 

5.9

 

6.1

 

6.1

 

6.0

Expected volatility

 

78.09

%  

 

84.56

%

 

78.34

%  

 

83.38

%

14

Table of Contents

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

 

1,160,236

 

34.99

 

 

Options cancelled

 

(575,616)

 

18.76

 

 

Options exercised

 

(399,031)

 

1.67

 

Balances at June 30, 2021

4,058,046

11.97

8.0

18,106

Vested and expected to vest at June 30, 2021

 

4,058,046

$

11.97

 

8.0

$

18,106

Exercisable at June 30, 2021

 

1,962,757

$

4.28

 

7.2

$

12,810

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 and six months ended June 30, 2021 and 2020 were $3.6 million, $4.7 million, $0.2 million and $0.9 million, respectively. The weighted average grant date fair value of stock options during the three and six months ended June 30, 2021 and 2020 were $8.35, $23.56, $6.64 and $6.58, 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.

15

Table of Contents

The aggregate intrinsic value of restricted stock awards that vested during the six months ended June 30, 2020 was $2.6 million. There were no restricted stock awards that vested during the three and six months ended June 30, 2021 and the three months ended June 30, 2020. 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

Six months ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

Research and development

$

871

$

274

$

1,710

$

520

General and administrative

 

1,115

 

422

 

1,980

 

843

$

1,986

$

696

$

3,690

$

1,363

As of June 30, 2021, total unrecognized stock-based compensation expense related to unvested stock-based awards was $24.3 million, which is expected to be recognized over a weighted average period of 3.3 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.

16

Table of Contents

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, 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 June 30, 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

17

Table of Contents

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. There was not a change in the timeline to completion during three months ended June 30, 2021.

During the three months and six months ended June 30, 2021 and 2020, the Company recognized $2.6 million, $5.5 million, $1.9 million and $5.2 million, respectively, of collaboration revenue. As of June 30, 2021 and December 31, 2020, the Company recorded as a contract liability deferred revenue of $26.2 million and $31.8 million, respectively, of which, $26.0 million and $31.8 million, respectively, were current liabilities in the accompanying balance sheet. As of June 30, 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 1.75 years and 1.5 years, respectively.

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 June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Deferred revenues at beginning of period

$

28,859

$

41,392

$

31,777

$

44,690

Revenues deferred during the period

 

 

 

 

Revenues recognized during the period

 

(2,630)

 

(1,862)

 

(5,548)

 

(5,160)

Deferred revenues at end of period

$

26,229

$

39,530

$

26,229

$

39,530

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.

18

Table of Contents

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 June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Numerator:

 

  

 

  

 

  

 

  

Net loss

$

(20,437)

$

(13,490)

$

(39,410)

$

(26,225)

Net loss attributable to common stockholders

$

(20,437)

$

(13,490)

$

(39,410)

$

(26,225)

Denominator:

 

 

 

 

Weighted average common stock outstanding—basic and diluted

 

31,571,704

 

5,320,427

 

31,529,939

 

5,152,477

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

$

(0.65)

$

(2.54)

$

(1.25)

$

(5.09)

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 June 30, 

 

Six Months Ended June 30, 

    

2021

    

2020

 

2021

    

2020

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

 

10,201,185

10,201,185

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

 

5,948,143

5,948,143

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

 

37,036

37,036

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

 

11,111

11,111

Warrants to purchase common stock

19,044

19,044

Stock options to purchase common stock

 

4,058,046

4,094,722

4,058,046

4,094,722

 

4,077,090

 

20,292,197

4,077,090

 

20,292,197

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. Subsequent to the initial public offering and until June 2021 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 and six months ended June 30, 2021 and 2020, the Company incurred expenses of $0.1 million, $0.1 million, $0.2 million and $0.4 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 and $0.2 million for the three and six months ended June 30, 2020, respectively, for ongoing consulting services. As of June 30, 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.

19

Table of Contents

As described in Note 8 above, the Company entered into the 2018 Lilly Agreement with Lilly in April 2018. During the three and six months ended June 30, 2021 and 2020, the Company recognized $2.7 million, $5.6 million, $2.0 million and $5.4 million, respectively, of related party revenue associated with the Lilly collaboration agreements. As of June 30, 2021 and December 31, 2020, the Company had deferred revenue related to the collaboration agreements with Lilly of $26.2 million and $31.8 million, respectively. At June 30, 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 and $0.2 million during the three and six months ended June 30, 2021. The Company received cash payments of $0.1 million and $0.2 million during the three months and six months ended June 30, 2021.

20

Table of Contents

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 $20.4 million and $39.4 million for the three months and six ended June 30, 2021. As of June 30, 2021, we had an accumulated deficit of $175.3 million and cash totaling $162.4 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 four 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

21

Table of Contents

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 moderately severe to severe Hemophilia A. For this indication, we designed human cells to express high levels of FVIII. 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. We initiated enrollment and dosed three patients for our multicenter Phase 1/2 clinical study of SIG 001 in Hemophilia A in the United Kingdom and United States. In July 2021, in light of a serious adverse event, or an SAE, reported in our Phase 1/2 study of SIG-001 in Hemophilia A, the FDA placed our study of SIG-001 on a clinical hold. While we continue to investigate the SAE, all three patients enrolled in this study will continue to be followed per study protocol with such data reviewed by the Safety Review Committee for SIG-001.

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 the FDA, MHRA and ANVISA. We submitted a Clinical Trial Application, or CTA, for SIG-005 in the United Kingdom and Brazil in the second and third quarters of 2021, respectively.

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

22

Table of Contents

preclinical studies described above in collaboration with Lilly. Lilly is responsible for the clinical development of SIG-002, including the clinical development plan.

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.

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, the effects of any variants as new strains evolve, vaccination efforts, 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 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

23

Table of Contents

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

24

Table of Contents

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:

resolution of the clinical hold on our Phase 1/2 clinical trial of SIG-001 in Hemophilia A;
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;
obtaining and maintaining third-party insurance coverage and adequate reimbursement;

25

Table of Contents

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)

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.

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.

26

Table of Contents

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 and six months ended June 30, 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 on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 18, 2021

Results of Operations

Comparison of the Three Months ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020:

Three Months Ended

June 30, 

Increase

    

2021

    

2020

    

(Decrease)

(in thousands)

Revenue

 

 

  

 

  

Collaboration revenue

$

2,704

$

1,951

$

753

Operating expenses:

 

 

 

Research and development

 

17,751

 

12,452

 

5,299

General and administrative

 

4,992

 

2,818

 

2,174

Total operating expenses

 

22,743

 

15,270

 

7,473

Loss from operations

 

(20,039)

 

(13,319)

 

(6,720)

Other income (expense):

 

 

 

Interest income

 

71

35

 

36

Interest expense

 

(494)

(196)

 

(298)

Other expense

 

25

(11)

 

36

Change in fair value of preferred stock warrant liability

 

1

 

(1)

Total other expense, net

 

(398)

 

(171)

 

(227)

Net loss and comprehensive loss

$

(20,437)

$

(13,490)

$

(6,947)

Revenue

Revenue was $2.7 million for the three months ended June 30, 2021, compared to $2.0 million for the three months ended June 30, 2020. The increase in revenue of $0.7 million was due to an increase in collaboration revenue from our collaboration agreement with Lilly, primarily related to the research and development activities performed under this agreement. In June 2020, a revised estimate of total costs to complete the activities under the 2018 Lilly Agreement was presented to the JRC, which considered an extension in the expected timeline to complete the research and development activities and anticipated increased material costs given our experiences to date. This resulted in an increase to total estimated costs expected to be incurred of $11.7 million. This increase in total estimated costs impacted both our estimated transaction price for the 2018 Lilly Agreement, as Lilly is obligated to reimburse us for the costs in excess of $47.5 million

27

Table of Contents

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 $10.6 million based on the allocation of total transaction price to each performance obligation under the 2018 Lilly Agreement. The remainder of the increase to total estimated costs was allocated to the transaction price for the Phase 1 Supply performance obligation. As a result, revenue recognized for the three months ended June 30, 2020, using the input measure, was lower as compared to revenue recognized for the three months ended June 30, 2021 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 June 30, 2021 and 2020:

Three Months Ended

June 30, 

Increase

    

2021

    

2020

    

(Decrease)

(in thousands)

Direct research and development expenses by program:

  

  

  

SIG‑001

$

1,545

$

2,014

$

(469)

SIG‑002

 

2,137

 

2,771

 

(634)

SIG‑005

1,777

1,777

SIG‑007

938

938

Platform and pipeline development

 

5,876

 

4,082

 

1,794

Unallocated expenses

 

 

  

 

Personnel expenses (including stock‑based compensation)

 

4,370

 

2,988

 

1,382

Facility related and other

 

1,108

 

597

 

511

Total research and development expenses

$

17,751

$

12,452

$

5,299

Research and development expenses were $17.8 million for the three months ended June 30, 2021, compared to $12.5 million for three months ended June 30, 2020. The increase in research and development expenses was primarily related to ongoing platform and 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. Platform and pipeline development increased primarily due to further development of device and delivery engineering for our platform, which was partially offset by SIG-005 and SIG-007 being presented separately. Personnel expenses increased by $1.4 million primarily as a result of the increase in headcount in our research and development function and increases in stock-based compensation. Stock-based compensation expense increased to $0.9 million from $0.3 million for the three months ended June 30, 2021 and 2020, respectively. These increases in research and development were offset by decreases in our SIG-001 and SIG-002 programs. The decrease in SIG-001 of $0.5 million was due to timing of manufacturing activities. The decrease of $0.6 million related to program SIG-002 was due the revision of the estimated timeline for the completion of certain activities under the 2018 Lilly Agreement during the first quarter of 2021.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2021 were $5.0 million, compared to $2.8 million for the three months ended June 30, 2020. General and administrative expenses for the three months ended June 30, 2021 versus June 30, 2020 increased by $0.8 million as a result of the costs of operating as a publicly traded company. Personnel expenses increased by $1.0 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 $1.1 million from $0.4 million for the three months ended June 30, 2021 and 2020, respectively. The remaining increase in general and administrative expenses of $0.1 million was primarily due to an increase in rent expense.

28

Table of Contents

Other expense, net

Other expense, net, for the three months ended June 30, 2021 and 2020 was $0.4 million and $0.2 million, respectively. The increase was primarily due to the increase in interest expense on the outstanding borrowings under our 2020 Credit Facility and 2019 Credit Facility. This increase was partially offset by an increase in interest income.

Comparison of the Six Months ended June 30, 2021 and 2020

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:

Six Months Ended

June 30, 

Increase

    

2021

    

2020

    

(Decrease)

(in thousands)

Revenue