ortx-6k_20191107.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2019

(Commission File No. 001-38722)

 

ORCHARD THERAPEUTICS PLC

(Translation of registrant’s name into English)

 

108 Cannon Street

London EC4N 6EU

United Kingdom

(Address of registrant’s principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. 

Form 20-F     Form 40-F 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

INCORPORATION BY REFERENCE

 

Exhibits 99.1 and 99.2 to this Report on Form 6-K (the “Report”) shall be deemed to be incorporated by reference into the registration statements on Form F-3 (File No. 333-234439) and Form S-8 (File No. 333-230432) of Orchard Therapeutics plc and to be a part thereof from the date on which this Report is filed, to the extent not superseded by documents or reports subsequently furnished.


 

EXHIBIT INDEX

 

Exhibit

 

Description

99.1

 

Unaudited Condensed Consolidated Financial Statements as of September 30, 2019 and December 31, 2018 and for the Three Months and Nine Months Ended September 30, 2019 and 2018

 

 

 

99.2

 

Management’s Discussion and Analysis for the Three Months and Nine Months Ended September 30, 2019 and 2018

 

 

 

101

 

The following materials are formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018 (unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months and nine months ended September 30, 2019 and 2018 (unaudited), (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited), (iv) Condensed Consolidated Statements of Convertible Preferred Shares and Shareholders’ (Deficit) Equity for the three and nine months ended September 30, 2019 and 2018, and (v) Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

ORCHARD THERAPEUTICS PLC

 

 

 

Date: November 7, 2019

 

By:

 

/s/ Frank E. Thomas

 

 

 

 

Frank E. Thomas

Chief Financial Officer

 

 

 

 


EXHIBIT 99.1

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

(unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,478

 

 

$

335,844

 

Marketable securities

 

 

330,677

 

 

 

 

Trade and other receivables

 

 

5,006

 

 

 

2,153

 

Prepaid expenses and other assets

 

 

8,326

 

 

 

6,935

 

Research and development tax credit receivable, current

 

 

13,988

 

 

 

10,585

 

Total current assets

 

 

393,475

 

 

 

355,517

 

Property and equipment, net

 

 

5,714

 

 

 

5,476

 

Research and development tax credit receivable

 

 

8,240

 

 

 

 

Restricted cash

 

 

4,209

 

 

 

3,837

 

Other long-term assets

 

 

3,101

 

 

 

1,212

 

Total assets

 

$

414,739

 

 

$

366,042

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

11,595

 

 

$

18,125

 

Accrued expenses and other current liabilities

 

 

32,712

 

 

 

29,780

 

Total current liabilities

 

 

44,307

 

 

 

47,905

 

Long-term debt, net

 

 

24,609

 

 

 

 

Other long-term liabilities

 

 

6,079

 

 

 

6,799

 

Total liabilities

 

 

74,995

 

 

 

54,704

 

Commitments and contingencies (see Note 12)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Ordinary shares, £0.10 par value

 

 

12,277

 

 

 

10,924

 

Additional paid-in capital

 

 

731,268

 

 

 

587,490

 

Accumulated other comprehensive income

 

 

4,444

 

 

 

3,163

 

Accumulated deficit

 

 

(408,245

)

 

 

(290,239

)

Total shareholders’ equity

 

 

339,744

 

 

 

311,338

 

Total liabilities and shareholders’ equity

 

$

414,739

 

 

$

366,042

 

 

 

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

 

1


 

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Product sales, net

 

$

1,918

 

 

$

1,387

 

 

$

1,918

 

 

$

1,387

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

614

 

 

 

280

 

 

 

614

 

 

280

 

Research and development

 

 

28,493

 

 

 

27,731

 

 

 

86,464

 

 

 

187,893

 

Selling, general and administrative

 

 

14,223

 

 

 

7,466

 

 

 

38,687

 

 

 

19,414

 

Total costs and operating expenses

 

 

43,330

 

 

 

35,477

 

 

 

125,765

 

 

 

207,587

 

Loss from operations

 

 

(41,412

)

 

 

(34,090

)

 

 

(123,847

)

 

 

(206,200

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,169

 

 

 

2

 

 

 

5,519

 

 

 

2

 

Interest expense

 

 

(660

)

 

 

 

 

 

(905

)

 

 

 

Other income (expense), net

 

 

972

 

 

 

933

 

 

 

(1,146

)

 

 

1,334

 

Total other income (expense), net

 

 

2,481

 

 

 

935

 

 

 

3,468

 

 

 

1,336

 

Net loss before income tax

 

 

(38,931

)

 

 

(33,155

)

 

 

(120,379

)

 

 

(204,864

)

Income tax (expense) benefit

 

 

2,194

 

 

 

(733

)

 

 

2,373

 

 

 

(568

)

Net loss attributable to ordinary shareholders

 

 

(36,737

)

 

 

(33,888

)

 

 

(118,006

)

 

 

(205,432

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(613

)

 

 

(291

)

 

 

995

 

 

 

1,679

 

Unrealized gain on marketable securities

 

 

178

 

 

 

 

 

 

286

 

 

 

 

Total other comprehensive income (loss):

 

 

(435

)

 

 

(291

)

 

 

1,281

 

 

 

1,679

 

Total comprehensive loss

 

$

(37,172

)

 

$

(34,179

)

 

$

(116,725

)

 

$

(203,753

)

Net loss per share attributable to ordinary shareholders, basic and diluted

 

$

(0.38

)

 

$

(3.29

)

 

$

(1.29

)

 

$

(20.27

)

Weighted average number of ordinary shares outstanding, basic and diluted

 

 

97,817,847

 

 

 

10,294,498

 

 

 

91,553,803

 

 

 

10,132,334

 

 

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

2


 

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss attributable to ordinary shareholders

 

$

(118,006

)

 

$

(205,432

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,213

 

 

 

874

 

Non-cash share-based compensation

 

 

13,753

 

 

 

3,959

 

Non-cash consideration for licenses

 

 

 

 

 

94,776

 

Amortization of Strimvelis loss provision

 

 

(2,921

)

 

 

(4,726

)

Other non-cash adjustments

 

 

(3,693

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade and other receivables

 

 

(2,937

)

 

 

(103

)

Research and development tax credit receivable

 

 

(12,390

)

 

 

(5,763

)

Prepaid expenses, current assets and other assets

 

 

(3,548

)

 

 

(6,927

)

Accounts payable, accrued expenses and other current liabilities

 

 

3,676

 

 

 

46,283

 

Other Long-term liabilities

 

 

(356

)

 

 

5,073

 

Net cash used in operating activities

 

 

(125,209

)

 

 

(71,986

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales and maturities of marketable securities

 

 

43,249

 

 

 

 

Purchases of marketable securities

 

 

(373,080

)

 

 

 

Purchases of property and equipment

 

 

(1,528

)

 

 

(3,720

)

Net cash used in investing activities

 

 

(331,359

)

 

 

(3,720

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of debt from credit facility, net of debt issuance costs paid

 

 

24,473

 

 

 

 

Issuance of convertible preferred shares

 

 

 

 

 

149,367

 

Proceeds from share options and ESPP shares

 

 

1,741

 

 

 

27

 

Issuance of ADSs in follow-on offering, net of underwriters' discounts

 

 

130,257

 

 

 

 

Payment of offering costs

 

 

(605

)

 

 

 

Net cash provided by financing activities

 

 

155,866

 

 

 

149,394

 

Effect of exchange rate changes on cash,  cash equivalents, and restricted cash

 

 

708

 

 

 

931

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(299,994

)

 

 

74,619

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

339,681

 

 

 

89,856

 

Cash, cash equivalents, and restricted cash, end of period

 

$

39,687

 

 

$

164,475

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Property and equipment included in accounts payable and accrued expenses

 

 

29

 

 

 

 

Convertible preferred shares issued for licenses

 

 

 

 

 

93,391

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

726

 

 

 

 

 

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

 

 

3


 

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Statements of Convertible Preferred Shares and Shareholders’ (Deficit) Equity

(In thousands, except share amounts)

(unaudited)

 

 

Convertible preferred shares

 

 

Ordinary Shares

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

Balance at December 31, 2017

 

33,277,678

 

 

$

134,069

 

 

 

8,927,121

 

 

$

1,145

 

 

$

6,808

 

 

$

4,127

 

 

$

(59,744

)

 

$

86,405

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

1,104

 

 

 

 

 

 

 

 

 

1,104

 

Issuance of convertible preferred shares

 

493,496

 

 

 

2,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,249

 

Issuance of ordinary shares as part of license arrangement

 

 

 

 

 

 

 

349,770

 

 

 

45

 

 

 

(45

)

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,433

 

 

 

 

 

 

3,433

 

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,311

)

 

 

(15,311

)

Balance at March 31, 2018

 

33,771,174

 

 

$

136,318

 

 

 

9,276,891

 

 

$

1,190

 

 

$

7,867

 

 

$

7,560

 

 

$

(75,055

)

 

$

77,880

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

1,146

 

 

 

 

 

 

 

 

 

1,146

 

Issuance of convertible preferred shares

 

12,455,252

 

 

 

93,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

93,391

 

Exercise of share options

 

 

 

 

 

 

 

10,503

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

25

 

Issuance of ordinary shares as part of license arrangement

 

 

 

 

 

 

 

150,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,463

)

 

 

 

 

 

(1,463

)

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(156,233

)

 

 

(156,233

)

Balance at June 30, 2018

 

46,226,426

 

 

$

229,709

 

 

 

9,438,220

 

 

$

1,190

 

 

$

9,038

 

 

$

6,097

 

 

$

(231,288

)

 

$

14,746

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

1,709

 

 

 

 

 

 

 

 

 

1,709

 

Issuance of convertible preferred shares

 

13,942,474

 

 

 

147,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

147,089

 

Exercise of share options

 

 

 

 

 

 

 

3,542

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Issuance of ordinary shares as part of license arrangement

 

 

 

 

 

 

 

150,823

 

 

 

20

 

 

 

1,365

 

 

 

 

 

 

 

 

 

1,385

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(291

)

 

 

 

 

 

(291

)

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33,888

)

 

 

(33,888

)

Balance at September 30, 2018

 

60,168,900

 

 

$

376,798

 

 

 

9,592,585

 

 

$

1,210

 

 

$

12,116

 

 

$

5,806

 

 

$

(265,176

)

 

$

130,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

 

$

 

 

 

85,865,557

 

 

$

10,924

 

 

$

587,490

 

 

$

3,163

 

 

$

(290,239

)

 

$

311,338

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

3,821

 

 

 

 

 

 

 

 

 

3,821

 

Exercise of share options

 

 

 

 

 

 

 

1,471

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,051

 

 

 

 

 

 

3,051

 

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,739

)

 

 

(30,739

)

Balance at March 31, 2019

 

 

 

$

 

 

 

85,867,028

 

 

$

10,924

 

 

$

591,315

 

 

$

6,214

 

 

$

(320,978

)

 

$

287,475

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

4,630

 

 

 

 

 

 

 

 

 

4,630

 

Issuance of ordinary shares from exercise of share options

 

 

 

 

 

 

 

532,889

 

 

 

69

 

 

 

504

 

 

 

 

 

 

 

 

 

573

 

Issuance of ESPP shares

 

 

 

 

 

 

 

60,335

 

 

 

8

 

 

 

685

 

 

 

 

 

 

 

 

 

693

 

4


 

Issuance of ADSs in follow-on offering, net of issuance costs of $605

 

 

 

 

 

 

 

9,725,268

 

 

 

1,233

 

 

 

128,418

 

 

 

 

 

 

 

 

 

129,651

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,335

)

 

 

 

 

 

(1,335

)

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,530

)

 

 

(50,530

)

Balance at June 30, 2019

 

 

 

$

 

 

 

96,185,520

 

 

$

12,234

 

 

$

725,552

 

 

$

4,879

 

 

$

(371,508

)

 

$

371,157

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

5,302

 

 

 

 

 

 

 

 

 

5,302

 

Exercise of share options

 

 

 

 

 

 

 

332,014

 

 

 

43

 

 

 

414

 

 

 

 

 

 

 

 

 

 

 

457

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(435

)

 

 

 

 

 

(435

)

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,737

)

 

 

(36,737

)

Balance at September 30, 2019

 

 

 

$

 

 

 

96,517,534

 

 

$

12,277

 

 

$

731,268

 

 

$

4,444

 

 

$

(408,245

)

 

$

339,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

5


ORCHARD THERAPEUTICS PLC

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1. Nature of the Business

Orchard Therapeutics plc and its subsidiaries (the “Company”) is a commercial-stage fully-integrated biopharmaceutical company dedicated to transforming the lives of patients with serious and life-threatening rare diseases through ex vivo autologous hematopoietic stem cell (“HSC”) based gene therapies. The Company’s gene therapy approach seeks to transform a patient’s own, or autologous, HSCs into a gene-modified drug product to treat the patient’s disease through a single administration. The Company has acquired and developed a portfolio of ex vivo autologous HSC-based gene therapies focused on three franchises including primary immune deficiencies, neurometabolic disorders and hemoglobinopathies. The Company’s portfolio includes Strimvelis®, a gammaretroviral vector-based gene therapy and the first such treatment approved by the European Medicines Agency (“EMA”) for adenosine deaminase severe combined immunodeficiency (“ADA-SCID”), three clinical programs in advanced registrational studies in metachromatic leukodystrophy (“MLD”), Wiskott-Aldrich syndrome (“WAS”) and ADA-SCID, other clinical programs in X-linked chronic granulomatous disease (“X-CGD”), transfusion-dependent beta-thalassemia (“TDT”), and mucopolysaccharidosis type I (“MPS-I”), as well as an extensive preclinical pipeline.

The Company is a public limited company incorporated pursuant to the laws of England and Wales. In November 2018, the Company completed its initial public offering (“IPO”) of American Depositary Shares (“ADS”) in which the Company sold an aggregate of 16,103,572 ADSs representing the same number of ordinary shares at a public offering price of $14.00 per ADS. Net proceeds were $205.5 million, after deducting underwriting discounts and commissions of $15.8 million and offering expenses of $4.2 million paid by the Company. In June 2019, the Company completed a follow-on public offering of ADSs in which the Company sold an aggregate of 9,725,268 ADSs representing the same number of ordinary shares at a public offering price of $14.25 per ADS. Net proceeds were $129.7 million, after deducting underwriting discounts and commissions of $8.3 million and offering expenses of $0.6 million paid by the Company.

Orchard Therapeutics plc (formerly Orchard Rx Limited) was originally incorporated under the laws of England and Wales in August 2018 to become a holding company for Orchard Therapeutics Limited. Orchard Therapeutics Limited was originally incorporated under the laws of England and Wales in September 2015 as Newincco 1387 Limited and subsequently changed its name to Orchard Therapeutics Limited in November 2015. As part of a corporate reorganization in October 2018, all the interests in Orchard Therapeutics Limited were exchanged for the same number and class of newly issued shares of Orchard Rx Limited and, as a result, Orchard Therapeutics Limited became a wholly owned subsidiary of Orchard Rx Limited. On October 29, 2018, Orchard Rx Limited re-registered as a public limited company and changed its name to Orchard Therapeutics plc, and Orchard Therapeutics Limited changed its name to Orchard Therapeutics (Europe) Limited. Upon completion of the reorganization, the historical consolidated financial statements of Orchard Therapeutics (Europe) Limited became the historical consolidated financial statements of Orchard Therapeutics plc because the reorganization was accounted for as a reorganization of entities under common control.

On November 1, 2018, the Company’s ordinary shares and different classes of preferred shares were consolidated on a one-for-0.8003 basis. Following the share consolidation, each share was re-designated as an ordinary share on a one-for-one basis. Accordingly, all share and per share amounts for all periods presented in the condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s technology will be obtained, that any products developed will obtain necessary government or regulatory approval, or that any products, if approved, will be commercially viable. The Company operates in an environment of rapid technological innovation and substantial competition from pharmaceutical and biotechnological companies. In addition, the Company is dependent upon the services of its employees, consultants and service providers. 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.

Through September 30, 2019, the Company funded its operations primarily with proceeds from the sale of convertible preferred shares, proceeds from our credit facility, and the sale of and ADSs in the IPO and follow-on public offering. The Company has incurred recurring losses since inception. As of September 30, 2019, the Company had an accumulated deficit of $408.2 million. The Company expects to continue to generate operating losses for the foreseeable future. The viability of the Company is dependent on its ability to raise additional capital to finance its operations. If the Company is unable to obtain funding, the Company may be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans of raising additional capital to finance operations, there is no assurance that the Company

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will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all. The Company expects that its cash, cash equivalents and marketable securities on hand as of September 30, 2019 of $366.2 million, will be sufficient to fund its operations and capital expenditure requirements through at least twelve months from the issuance date of these condensed consolidated interim financial statements.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of presentation

The condensed consolidated interim financial statements of the Company are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial reporting and in accordance with Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”). All intercompany accounts and transactions between the Company and its subsidiaries have been eliminated upon consolidation.

The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 20-F filed with the SEC on March 22, 2019 (the “Annual Report”).  The balance sheet as of December 31, 2018 was derived from audited consolidated financial statements included in the Company’s Annual Report but does not include all disclosures required by U.S. GAAP. 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements.  However, these interim financial statements include all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of the Company’s management, necessary to fairly state the results of the interim period.  The interim results are not necessarily indicative of results to be expected for the full year.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual for research and development expenses, the research and development tax credit receivable, the Strimvelis loss provision, share-based compensation and income taxes. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates.

Concentration of credit risk

The Company has no significant off-balance sheet risk, such as foreign currency contracts, options contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and other receivables. The Company deposits its cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships or entities for which it has a receivable. Marketable securities held by the Company consist of U.S. government securities and highly-rated corporate bonds and commercial paper.

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. The Company has determined the functional currency of the parent company, Orchard Therapeutics plc, is U.S. dollars because it predominantly raises finances and expends cash in U.S. dollars. The functional currency of our subsidiary operations is the applicable local currency. Transactions in foreign currencies are translated into the functional currency of the subsidiary in which they occur at the foreign exchange rate in effect on at the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into the functional currency of the relevant subsidiary at the foreign exchange rate in effect on the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies that differ from the functional currency are translated into the functional currency at the exchange rates prevailing at the date of the transaction. The Company recorded an unrealized foreign currency transaction gain of $1.1 million and $0.9 million for the three months ended September 30, 2019 and 2018, respectively, which is included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. The Company recorded an unrealized

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foreign currency transaction loss of $0.8 million and $1.3 million for the nine months ended September 30, 2019 and 2018, respectively, which is included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

The results of operations for subsidiaries, the functional currency of which is not the U.S. dollar, are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions and the balance sheet of these subsidiaries are translated at foreign exchange rates prevailing at the balance sheet date. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive loss.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents.

Marketable securities

Marketable securities consist of investments with original maturities greater than ninety days. The Company has classified its investments with maturities beyond one year as short term, based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. The Company considers its investment portfolio of investments as available-for-sale. Accordingly, these investments are recorded at fair value, which is based on quoted market prices or other observable inputs. Unrealized gains and losses are recorded as a component of other comprehensive income (loss). Realized gains and losses are determined on a specific identification basis and are included in other income (loss). Amortization and accretion of discounts and premiums is recorded in other income.

Restricted cash

Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded as restricted cash on the Company’s condensed consolidated balance sheet. The Company has an outstanding letter of credit for $3.0 million associated with a lease, and is required to hold this amount in a standalone bank account, as of September 30, 2019 and December 31, 2018. The Company is also contractually required to maintain cash collateral accounts associated with corporate credit cards and other leases in the amount of $1.2 million at September 30, 2019, and $0.9 million at December 31, 2018. The Company includes the restricted cash balance in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the condensed consolidated statements of cash flows The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the condensed consolidated balance sheet that sum to the total of the amounts reported in the unaudited condensed consolidated statement of cash flows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

35,478

 

 

$

335,844

 

Restricted cash

 

 

4,209

 

 

 

3,837

 

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

 

$

39,687

 

 

$

339,681

 

 

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Property and equipment

Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over the following estimated useful lives. Construction-in-process assets are not depreciated until they are placed into service.

 

Property and equipment:

 

Estimated useful  life

Lab equipment

 

5-10 years

Leasehold improvements

 

Shorter of lease term or estimated useful life

Furniture and fixtures

 

4 years

Office and computer equipment

 

3-5 years

 

As of September 30, 2019, the Company’s property and equipment consisted of furniture and fixtures, office and computer equipment, lab equipment, leasehold improvements, and construction-in-process. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the statement of operations and other comprehensive loss. Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of property and equipment, are expensed as incurred.

The Company evaluates assets for potential impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book values of the assets to the expected future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book values of the assets exceed their fair value. The Company has not recognized any impairment losses from inception through September 30, 2019.

Segment information

Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker, the Company’s Chief Executive Officer, views the Company’s operations and manages its business as a single operating segment, which is focused on discovering, acquiring, developing and commercializing gene therapies for patients with rare disorders. The Company had fixed assets of $2.0 million and $3.7 million located in the United Kingdom and United States, respectively, as of September 30, 2019, and $1.7 million and $3.8 million located in the United Kingdom and United States, respectively, as of December 31, 2018.

Research and development costs

Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, share-based compensation and benefits, facilities costs, depreciation, third-party license fees, and external costs of outside vendors engaged to conduct clinical development activities and clinical trials, as well as to manufacture clinical trial materials. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered. In addition, funding from research grants is recognized as an offset to research and development expense on the basis of costs incurred on the research program, to the extent that reimbursement of the costs is deemed probable. Royalties associated with the Company’s research grants will be accrued when they become probable.

Research agreement costs and accruals

The Company has entered into various research and development-related agreements. These agreements are cancelable, and related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.

Share-based compensation

The Company measures share-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is the vesting period of the respective award. Forfeitures are accounted for as they occur.

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Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in shareholders’ equity (deficit) that result from transactions and economic events other than those with shareholders. The components of accumulated other comprehensive loss are detailed as follows (in thousands):

 

 

 

Currency

Translation

 

 

Unrealized

Gain (Loss) on

Investments

 

 

Accumulated

Other

Comprehensive

Income (Loss)