ortx-10q_20200331.htm
false Q1 --12-31 0001748907 Large Accelerated Filer 00-0000000 0 0 2019-05-31 0001748907 2020-01-01 2020-03-31 xbrli:shares 0001748907 2020-05-04 iso4217:USD 0001748907 2020-03-31 0001748907 2019-12-31 iso4217:GBP xbrli:shares 0001748907 2019-01-01 2019-03-31 iso4217:USD xbrli:shares 0001748907 2018-12-31 0001748907 2019-03-31 0001748907 us-gaap:CommonStockMember 2018-12-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001748907 us-gaap:RetainedEarningsMember 2018-12-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001748907 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001748907 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001748907 us-gaap:CommonStockMember 2019-03-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001748907 us-gaap:RetainedEarningsMember 2019-03-31 0001748907 us-gaap:CommonStockMember 2019-12-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001748907 us-gaap:RetainedEarningsMember 2019-12-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0001748907 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0001748907 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0001748907 us-gaap:CommonStockMember 2020-03-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0001748907 us-gaap:RetainedEarningsMember 2020-03-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2019-12-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2018-12-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2020-01-01 2020-03-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-03-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2020-03-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2019-03-31 0001748907 country:GB 2020-03-31 0001748907 country:GB 2019-12-31 0001748907 2019-01-01 2019-12-31 0001748907 ortx:FremontLeaseAgreementMember 2020-03-31 0001748907 us-gaap:AccumulatedTranslationAdjustmentMember 2019-12-31 0001748907 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-12-31 0001748907 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2019-12-31 0001748907 us-gaap:AccumulatedTranslationAdjustmentMember 2020-01-01 2020-03-31 0001748907 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-01-01 2020-03-31 0001748907 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2020-01-01 2020-03-31 0001748907 us-gaap:AccumulatedTranslationAdjustmentMember 2020-03-31 0001748907 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-03-31 0001748907 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2020-03-31 0001748907 us-gaap:EmployeeStockOptionMember 2020-01-01 2020-03-31 0001748907 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-03-31 0001748907 us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-03-31 0001748907 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-03-31 0001748907 srt:ScenarioPreviouslyReportedMember 2019-01-01 2019-03-31 0001748907 ortx:OtherPresentationAdjustmentsMember 2019-01-01 2019-03-31 0001748907 srt:RestatementAdjustmentMember us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 2019-03-31 0001748907 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2020-03-31 0001748907 us-gaap:MoneyMarketFundsMember 2020-03-31 0001748907 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel2Member 2020-03-31 0001748907 us-gaap:CommercialPaperMember 2020-03-31 0001748907 us-gaap:FairValueInputsLevel1Member 2020-03-31 0001748907 us-gaap:FairValueInputsLevel2Member 2020-03-31 0001748907 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member 2020-03-31 0001748907 us-gaap:CorporateDebtSecuritiesMember 2020-03-31 0001748907 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2019-12-31 0001748907 us-gaap:MoneyMarketFundsMember 2019-12-31 0001748907 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001748907 us-gaap:USTreasuryAndGovernmentMember 2019-12-31 0001748907 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001748907 us-gaap:CorporateDebtSecuritiesMember 2019-12-31 0001748907 us-gaap:FairValueInputsLevel1Member 2019-12-31 0001748907 us-gaap:FairValueInputsLevel2Member 2019-12-31 0001748907 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0001748907 us-gaap:CommercialPaperMember 2019-12-31 0001748907 ortx:LabEquipmentMember 2020-03-31 0001748907 ortx:LabEquipmentMember 2019-12-31 0001748907 us-gaap:LeaseholdImprovementsMember 2020-03-31 0001748907 us-gaap:LeaseholdImprovementsMember 2019-12-31 0001748907 us-gaap:FurnitureAndFixturesMember 2020-03-31 0001748907 us-gaap:FurnitureAndFixturesMember 2019-12-31 0001748907 us-gaap:OfficeEquipmentMember 2020-03-31 0001748907 us-gaap:OfficeEquipmentMember 2019-12-31 0001748907 us-gaap:ConstructionInProgressMember 2020-03-31 0001748907 us-gaap:ConstructionInProgressMember 2019-12-31 0001748907 2019-05-01 2019-05-31 0001748907 2019-05-31 0001748907 ortx:TheFirstTrancheTermLoanMember 2019-05-01 2019-05-31 0001748907 ortx:TheSecondTrancheTermLoanMember 2019-05-31 0001748907 ortx:TheThirdTrancheTermLoanMember 2019-05-31 0001748907 ortx:TheSecondTrancheTermLoanMember srt:MinimumMember 2019-05-31 0001748907 ortx:TheThirdTrancheTermLoanMember srt:MinimumMember 2019-05-31 0001748907 ortx:TheSecondTrancheTermLoanMember 2020-01-01 2020-03-31 0001748907 ortx:TheThirdTrancheTermLoanMember 2020-01-01 2020-03-31 xbrli:pure 0001748907 ortx:LondonInterbankOfferedRateFloorMember 2019-05-01 2019-05-31 0001748907 us-gaap:DebtInstrumentRedemptionPeriodTwoMember srt:MinimumMember 2019-05-31 0001748907 us-gaap:DebtInstrumentRedemptionPeriodThreeMember srt:MinimumMember 2019-05-31 0001748907 ortx:TermLoanMember 2020-01-01 2020-03-31 0001748907 ortx:TermLoanMember 2019-01-01 2019-03-31 0001748907 ortx:TwoThousandAndEighteenShareOptionAndIncentivePlanMember 2020-03-31 0001748907 ortx:TwoThousandAndEighteenEmployeeSharePurchasePlanMember 2020-03-31 0001748907 us-gaap:RestrictedStockUnitsRSUMember 2020-03-31 0001748907 us-gaap:RestrictedStockUnitsRSUMember 2019-10-01 2019-12-31 0001748907 us-gaap:ResearchAndDevelopmentExpenseMember 2020-01-01 2020-03-31 0001748907 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-03-31 0001748907 us-gaap:GeneralAndAdministrativeExpenseMember 2020-01-01 2020-03-31 0001748907 us-gaap:GeneralAndAdministrativeExpenseMember 2019-01-01 2019-03-31 0001748907 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2020-01-01 2020-03-31 ortx:Program 0001748907 ortx:GSKAssetPurchaseAndLicenseAgreementMember 2018-04-01 2018-04-30 0001748907 ortx:GSKAssetPurchaseAndLicenseAgreementMember 2018-04-01 2018-06-30 0001748907 ortx:GSKAssetPurchaseAndLicenseAgreementMember 2020-03-31 iso4217:GBP iso4217:EUR 0001748907 ortx:GSKAssetPurchaseAndLicenseAgreementMember 2020-01-01 2020-03-31 0001748907 ortx:TelethonOSRLicenseAgreementsMember 2019-05-01 2019-05-31 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2016-11-30 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2018-11-30 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2018-09-30 0001748907 us-gaap:SubsequentEventMember ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2020-04-30 ortx:Milestone 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2020-01-01 2020-03-31 0001748907 srt:MaximumMember us-gaap:NaturalDisastersAndOtherCasualtyEventsMember 2020-01-01 2020-03-31 0001748907 srt:MaximumMember us-gaap:NaturalDisastersAndOtherCasualtyEventsMember 2019-01-01 2019-12-31 0001748907 us-gaap:NaturalDisastersAndOtherCasualtyEventsMember 2020-01-01 2020-03-31 0001748907 ortx:GSKMember 2020-01-01 2020-03-31 0001748907 ortx:GSKMember 2019-01-01 2019-12-31 0001748907 ortx:GSKMember 2019-01-01 2019-03-31 0001748907 ortx:GSKMember ortx:StrimvelisMember 2020-01-01 2020-03-31 0001748907 ortx:GSKMember ortx:StrimvelisMember 2019-01-01 2019-03-31 0001748907 us-gaap:SubsequentEventMember ortx:OfficeWorkforceMenloParkCaliforniaMember 2020-05-03 2020-05-04 0001748907 us-gaap:SubsequentEventMember ortx:OfficeWorkforceMenloParkCaliforniaMember srt:ScenarioForecastMember 2020-04-01 2020-06-30 0001748907 us-gaap:SubsequentEventMember ortx:OfficeWorkforceMenloParkCaliforniaMember srt:ScenarioForecastMember 2020-07-01 2020-09-30

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2020

OR

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

For the transition period from                       to                    

Commission File Number: 001-38722

 

ORCHARD THERAPEUTICS PLC

(Exact Name of Registrant as Specified in its Charter)

 

 

England and Wales

Not Applicable

( State or other jurisdiction of

incorporation or organization)

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

108 Cannon Street

London, United Kingdom

EC4N 6EU

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: +44 (0) 203 808-8286

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

American Depositary Shares, each representing one

ordinary share, nominal value £0.10 per share

 

ORTX

 

The Nasdaq Global Select Market

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, 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  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  ☒    No  

As of May 4, 2020, the registrant had 97,263,817 ordinary shares, nominal value £0.10 per share, outstanding.

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

2

 

Condensed Consolidated Statements of Cash Flows

3

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

29

PART II.

OTHER INFORMATION

30

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

91

Item 3.

Defaults Upon Senior Securities

91

Item 4.

Mine Safety Disclosures

92

Item 5.

Other Information

92

Item 6.

Exhibits

93

Signatures

94

 

i


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains express or implied forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. In some cases, forward-looking statements may be identified by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this Quarterly Report on Form 10-Q are based upon information available to our management as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

 

the timing, progress and results of clinical trials and preclinical studies for our programs and product candidates, including statements regarding the timing of initiation and completion of trials or studies and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

 

the timing, scope or likelihood of regulatory submissions, filings, and approvals;

 

our ability to develop and advance product candidates into, and successfully complete, clinical trials;

 

our expectations regarding the market opportunity for and size of the patient populations for our product candidates, if approved for commercial use;

 

the implementation of our business model and our strategic plans for our business, commercial product, product candidates and technology, including the execution of recent revisions to our vision and growth strategy;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

the pricing and reimbursement of our commercial product and product candidates, if approved;

 

the adequacy, scalability and commercial viability of our manufacturing capacity, methods and processes, and plans for future development;

 

the rate and degree of market acceptance and clinical utility of our commercial product and product candidates, in particular, and gene therapy, in general;

 

our ability to establish or maintain collaborations or strategic relationships or obtain additional funding;

 

the impact of the COVID-19 global pandemic and related downturn of the U.S. and global economies, as well as on our business operations and that of our third-party manufacturers and suppliers;  

 

our competitive position;

 

the scope of protection we and/or our licensors are able to establish and maintain for intellectual property rights covering our commercial product and product candidates;

 

developments and projections relating to our competitors and our industry;

 

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; the impact of laws and regulations;

 

our ability to attract and retain qualified employees and key personnel;

 

our ability to raise capital, particularly in light of the impact of the COVID-19 global pandemic and the related impact on the US and global economies;

 

our ability to contract with third party suppliers and manufacturers and their ability to perform adequately;

 

the expected cost savings resulting from our recently announced changes to our strategic vision;

 

our projected financial performance and financial condition, including the sufficiency of our cash, cash equivalents and investments to fund operations in future periods and future liquidity, working capital and capital requirements;

 

our cash runway into 2022; and

 

our risks and uncertainties, including those listed under the caption “Item 1A. Risk Factors.”

 

 

You should refer to the section titled “Item 1A. Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot be assured that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, these statements should not be regarded as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

ii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

(unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,098

 

 

$

19,053

 

Marketable securities

 

 

236,767

 

 

 

305,937

 

Trade receivables

 

 

709

 

 

 

1,442

 

Prepaid expenses and other current assets

 

 

19,547

 

 

 

8,530

 

Research and development tax credit receivable, current

 

 

14,047

 

 

 

14,934

 

Total current assets

 

 

298,168

 

 

 

349,896

 

Non-current assets:

 

 

 

 

 

 

 

 

Operating lease right-of-use-assets

 

 

21,932

 

 

 

19,415

 

Property and equipment, net

 

 

8,679

 

 

 

7,596

 

Research and development tax credit receivable

 

 

16,164

 

 

 

13,710

 

Restricted cash

 

 

4,266

 

 

 

4,264

 

Other assets

 

 

5,638

 

 

 

4,400

 

Total assets

 

$

354,847

 

 

$

399,281

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

13,479

 

 

$

11,984

 

Accrued expenses and other current liabilities

 

 

25,122

 

 

 

37,980

 

Operating lease liabilities

 

 

6,202

 

 

 

5,892

 

Total current liabilities

 

 

44,803

 

 

 

55,856

 

Long-term debt, net

 

 

24,794

 

 

 

24,699

 

Operating lease liabilities, net of current portion

 

 

17,492

 

 

 

15,320

 

Other long-term liabilities

 

 

3,204

 

 

 

4,213

 

Total liabilities

 

 

90,293

 

 

 

100,088

 

Commitments and contingencies (see Note 12)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Ordinary shares, £0.10 nominal value

 

 

12,361

 

 

 

12,331

 

Additional paid-in capital

 

 

749,368

 

 

 

738,481

 

Accumulated other comprehensive income

 

 

7,055

 

 

 

2,042

 

Accumulated deficit

 

 

(504,230

)

 

 

(453,661

)

Total shareholders’ equity

 

 

264,554

 

 

 

299,193

 

Total liabilities and shareholders’ equity

 

$

354,847

 

 

$

399,281

 

 

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 March 31,

 

 

 

2020

 

 

2019

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

24,836

 

 

$

17,493

 

Selling, general and administrative

 

 

20,145

 

 

 

10,790

 

Total costs and operating expenses

 

 

44,981

 

 

 

28,283

 

Loss from operations

 

 

(44,981

)

 

 

(28,283

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

1,480

 

 

 

1,623

 

Interest expense

 

 

(613

)

 

 

 

Other income (expense), net

 

 

(6,790

)

 

 

(3,486

)

Total other income (expense), net

 

 

(5,923

)

 

 

(1,863

)

Net loss before income tax

 

 

(50,904

)

 

 

(30,146

)

Income tax (expense) benefit

 

 

335

 

 

 

(593

)

Net loss attributable to ordinary shareholders

 

 

(50,569

)

 

 

(30,739

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

6,034

 

 

 

3,051

 

Unrealized loss on marketable securities

 

 

(1,021

)

 

 

 

Total other comprehensive income (loss):

 

 

5,013

 

 

 

3,051

 

Total comprehensive loss

 

$

(45,556

)

 

$

(27,688

)

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

 

$

(0.51

)

 

$

(0.35

)

Weighted average number of ordinary shares outstanding, basic and diluted

 

 

98,713,126

 

 

 

87,010,596

 

 

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)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss attributable to ordinary shareholders

 

$

(50,569

)

 

$

(30,739

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

482

 

 

 

366

 

Non-cash share-based compensation

 

 

9,479

 

 

 

3,821

 

Amortization of Strimvelis loss provision

 

 

(1,691

)

 

 

(1,525

)

Other non-cash adjustments

 

 

6,537

 

 

 

3,224

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade receivables

 

 

670

 

 

 

2,177

 

Research and development tax credit receivable

 

 

(3,385

)

 

 

(5,242

)

Prepaid expenses, other current assets and other assets

 

 

(2,500

)

 

 

58

 

Operating leases, right-of-use assets

 

 

1,025

 

 

 

41

 

Accounts payable, accrued expenses and other current liabilities

 

 

(8,903

)

 

 

(16,089

)

Other long-term liabilities

 

 

 

 

 

(499

)

Operating lease liabilities

 

 

(1,047

)

 

 

645

 

Net cash used in operating activities

 

 

(49,902

)

 

 

(43,762

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales and maturities of marketable securities

 

 

68,143

 

 

 

 

Payment of construction deposit

 

 

(10,000

)

 

 

 

Purchases of property and equipment

 

 

(1,329

)

 

 

(529

)

Net cash provided by (used in) investing activities

 

 

56,814

 

 

 

(529

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of share options

 

 

1,438

 

 

 

5

 

Net cash provided by financing activities

 

 

1,438

 

 

 

5

 

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

   restricted cash

 

 

(303

)

 

 

3,852

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

8,047

 

 

 

(40,434

)

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

 

 

23,317

 

 

 

339,681

 

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

 

$

31,364

 

 

$

299,247

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Property and equipment included in accounts payable and accrued expenses

 

$

382

 

 

$

 

Lease assets obtained in exchange for new operating lease liabilities

 

$

3,752

 

 

$

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

485

 

 

$

 

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 and per share amounts)

(unaudited)

 

 

 

Ordinary Shares

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

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

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

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

 

 

$

591,316

 

 

$

6,214

 

 

$

(320,978

)

 

$

287,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

96,923,729

 

 

$

12,331

 

 

$

738,481

 

 

$

2,042

 

 

$

(453,661

)

 

$

299,193

 

Share-based compensation expense

 

 

 

 

 

 

 

 

9,479

 

 

 

 

 

 

 

 

 

9,479

 

Exercise of share options

 

 

230,836

 

 

 

30

 

 

 

1,408

 

 

 

 

 

 

 

 

 

1,438

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

5,013

 

 

 

 

 

 

5,013

 

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,569

)

 

 

(50,569

)

Balance at March 31, 2020

 

 

97,154,565

 

 

$

12,361

 

 

$

749,368

 

 

$

7,055

 

 

$

(504,230

)

 

$

264,554

 

 

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

 

4


 

ORCHARD THERAPEUTICS PLC

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1. Nature of the Business

Orchard Therapeutics plc (the “Company”) is a global gene therapy leader dedicated to transforming the lives of people affected by rare diseases through the development of innovative, potentially curative gene therapies. The Company’s ex vivo autologous gene therapy approach utilizes genetically modified blood stem cells and seeks to correct the underlying cause of disease in a single administration. The Company’s gene therapy product candidate pipelines span multiple therapeutic areas where the disease burden on children, families and caregivers is immense and current treatment options are limited or do not exist.

The Company is a public limited company incorporated pursuant to the laws of England and Wales. The Company has American Depositary Shares (ADSs) registered with the U.S. Securities and Exchange Commission (the “SEC”) and has been listed on the Nasdaq Global Select Market since October 31, 2018. The Company’s ADSs each represent one ordinary share of the Company.

The Company is subject to risks and uncertainties common to development-stage companies in the biotechnology industry. There can be no assurance that the Company’s research and development will be successfully initiated or completed, that adequate protection for the Company’s technology will be obtained, that any products developed will obtain necessary government regulatory approval or that any products, if approved, will be commercially viable. The Company operates in an environment of rapid scientific and technological innovation and substantial competition from pharmaceutical and biotechnology 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 in gaining regulatory approval, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

 

The Company is subject to risks associated with the COVID-19 pandemic. In an effort to halt the outbreak of COVID-19, a number of countries, including the United States, United Kingdom and Italy where the Company operates, have placed significant restrictions on travel. Limitations on travel and other social distancing measures have had an effect on the Company’s preclinical and clinical activities and regulatory timelines. Commercial activity associated with the Company’s EMA-approved gene therapy for ADA-SCID, Strimvelis®, has been postponed by the treatment site and scheduled patients are continuing to receive enzyme replacement therapy until treatment with Strimvelis can occur. Any prolonged material disruptions to the Company’s employees, suppliers, contract manufacturers, vendors, patients, government sponsored funding programs or the Company’s marketable securities could impact operating results and could lead to impairments; however, there has been no material impairments to date. The capital markets have experienced significant volatility as a result of the pandemic and the Company’s ability to access the capital markets in the future could be impacted if disruptions in the capital markets continue.

Through March 31, 2020, the Company funded its operations primarily with proceeds from the sale of convertible preferred shares and ADSs in the Company’s initial public offering (“IPO”) and a subsequent follow-on offering, as well as with certain grant and reimbursement payments and a drawdown on its credit facility, described in note 6 below. The Company has incurred recurring losses since its inception. As of March 31, 2020, the Company had an accumulated deficit of $504.2 million. The Company expects to continue to generate operating losses for the foreseeable future. The Company expects that its cash, cash equivalents, and marketable securities on hand as of March 31, 2020 of $263.9 million, will be sufficient to fund its operations and capital expenditure requirements through at least the next twelve months. 

The Company will seek additional funding through private or public equity financings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements, or any combination thereof. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders and ADS holders. The future 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 will 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, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

5


 

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 10-K filed with the SEC on February 27, 2020 (the “Annual Report”).  The condensed consolidated balance sheet as of December 31, 2019 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.

The change in other receivables reported in the condensed consolidated statement of cash flows for the three months ended March 31, 2019 previously included in changes in trade and other receivables has been presented in changes in prepaid expenses, current assets and other assets to conform with current period presentation. The change in the Company’s research and development tax credit receivable in the condensed consolidated statement of cash flows for the three months ended March 31, 2019 previously included in changes in research and development tax credit receivable, prepaids, and other assets has been presented as a separate line item within operating cash flows to conform to current period presentation.

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, operating lease assets and liabilities, and income taxes. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company has made estimates of the impact of COVID-19 within the Company’s financial statements and there may be changes to those estimates in future periods. As of the date of issuance of these unaudited condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. Actual results may differ from these estimates.

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 the U.S. dollar because it predominantly raises finances and expends cash in U.S. dollars. The functional currency of the Company’s 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 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 realized and unrealized foreign currency transaction losses of $6.8 million and $3.5 million for the three months ended March 31, 2020 and 2019, respectively, which is included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

6


 

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 in which this rate approximates to the foreign exchange rates ruling at the dates of the transactions and the balance sheets 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 debt 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 also recorded in other income (loss).

When the fair value is below the amortized cost of the asset an estimate of expected credit losses is made, and is limited to the amount by which fair value is less than amortized cost. The credit-related impairment amount is recognized in net income; the remaining impairment amount and unrealized gains are reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity. Credit losses are recognized through the use of an allowance for credit losses account and subsequent improvements in expected credit losses are recognized as a reversal of the allowance account. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis the allowance for credit loss is written off and the excess of the amortized cost basis of the asset over its fair value is recorded in net income.

United Kingdom Research and development tax credit

As a company that carries out extensive research and development activities, the Company seeks to benefit from two U.K. research and development tax relief programs, the Small and Medium-sized Enterprises research and development tax credit (“SME”) program and the Research and Development Expenditure (“RDEC”) program. Qualifying expenditures largely comprise employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which the Company does not receive income.

Based on criteria established by U.K. HM Revenue and Customs (“HMRC”), management of the Company expects a proportion of expenditures being incurred in relation to its pipeline research, clinical trials management and manufacturing development activities to be eligible for research and development tax credits for the 2020 fiscal year. The Company has qualified under the more favorable SME regime for the year ended December 31, 2019 and expects to qualify under the SME regime for the year ending December 31, 2020.

The RDEC and SME credits are not dependent on the Company generating future taxable income or on the ongoing tax status or tax position of the Company. The Company has assessed its research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the research and development incentive program described above. At each period end, the Company estimates the reimbursement available to the Company based on available information at the time.

7


 

The Company recognizes credits from the research and development incentives when the relevant expenditure has been incurred and there is reasonable assurance that the reimbursement will be received. Such credits are accounted for as reductions in research and development expense. The following table below outlines the changes to the research and development tax credit receivable, including amounts recognized as an offset to research and development expense during the period, for the periods ended March 31, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended

 

 

 

2020

 

 

2019

 

Balance at beginning of period

 

$

28,644

 

 

$

10,585

 

Recognition of credit claims as offset to research and development expense

 

 

3,417

 

 

 

5,236

 

(Receipt) of credit claims

 

 

 

 

 

 

Foreign currency translation

 

 

(1,850

)

 

 

273

 

Balance at end of period

 

$

30,211

 

 

$

16,094

 

As of March 31, 2020, the Company’s tax incentive receivable from the U.K. government was $30.2 million, of which $14.0 million was classified as current and $16.2 million was classified as long-term. As of December 31, 2019, the Company’s tax incentive receivable from the U.K. government was $28.6 million, of which $14.9 million was classified as current, and $13.7 million was classified as noncurrent.

Restricted cash and construction deposits

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 March 31, 2020 and December 31, 2019. The Company is also contractually required to maintain cash collateral accounts associated with corporate credit cards and other leases in the amount of $1.3 million at March 31, 2020, and December 31, 2019.

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:

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

27,098

 

 

$

19,053

 

Restricted cash

 

 

4,266

 

 

 

4,264

 

Total cash, cash equivalents and restricted

   cash shown in the statement of cash flows

 

$

31,364

 

 

$

23,317

 

 

The Company also has a deposit of $10.0 million in an escrow account associated with the construction of the Company’s leased facility in Fremont, California, which subsequent to March 31, 2020, the Company has ceased construction and build-out of and intends to consider its options relating to the lease, including subleasing the facility. Subject to the terms of the lease and reduction provisions, this amount may be decreased to nil over time upon qualifying construction expenditure. The deposit is classified in other current assets on the consolidated balance sheet.

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, certain milestone payments, and external costs of outside vendors engaged to conduct preclinical and clinical development activities and clinical trials, as well as costs to develop a manufacturing process, perform analytical testing and 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. Royalties to third parties associated with our research grants will be accrued when they become probable.

8


 

Research agreement costs and accruals

The Company has entered into various research and development contracts. These agreements are cancelable, and related costs are recorded as research and development expenses as incurred. When billing terms under these contracts do not coincide with the timing of when the work is performed, the Company is required to make estimates of outstanding obligations as of period end to those third parties.  Any accrual estimates are based on a number of factors, including the Company’s knowledge of the progress towards completion of the research and development activities, invoicing to date under the contracts, communication from the research institution or other companies of any actual costs incurred during the period that have not yet been invoiced, and the costs included in the contracts. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the estimates made by the Company. The historical accrual estimates made by the Company 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 of the shares and options 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.

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 income (loss) are detailed as follows (in thousands):

 

 

 

Currency

Translation

 

 

Unrealized

Gain (Loss)

on

Investments

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

Balance at December 31, 2019

 

$

1,776

 

 

$

266

 

 

$

2,042

 

Other comprehensive (loss) income, net of tax

 

 

6,034

 

 

 

(1,021

)

 

 

5,013

 

Balance at March 31, 2020

 

$

7,810

 

 

$

(755

)

 

$

7,055

 

 

Leases

The Company determines if an arrangement is a lease at contract inception. Operating lease assets represent a right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease liabilities with a term greater than one year and their corresponding right-of-use assets are recognized on the balance sheet at the commencement date of the lease based on the present value of lease payments over the expected lease term. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. The Company made an accounting policy election to not record a right-of-use asset or lease liability for leases with a term of one year or less. To date, the Company has not identified any material short-term leases, either individually or in the aggregate.

As the Company’s leases do not provide an implicit rate, the Company utilized the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company estimated the incremental borrowing rate based on the Company’s currently outstanding credit facility as inputs to the analysis to calculate a spread, adjusted for factors that reflect the profile of secured borrowing over the expected term of the lease.

The components of a lease should be split into three categories: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, utilities, performance of manufacturing services, purchase of inventory, etc.), and non-components (e.g., property taxes, insurance, etc.). Then the fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components. Although separation of lease and non-lease components is required, certain practical expedients are available to entities. Entities electing the practical expedient would not separate lease and non-lease components. Rather, they would account for each lease component and the related non-lease component together as a single component. The Company has elected not to apply the practical expedient and with respect to its lease of manufacturing space at a contract manufacturing organization, the Company has instead allocated the consideration between the lease and non-lease components of the contract. The Company calculated the fair value of the lease component using financial information readily available as part of its master services arrangement. The remainder of the consideration was allocated to the non-lease components.

9


 

Strimvelis loss provision

As part of the GSK transaction (as defined in Note 8), the Company is required to maintain commercial availability of Strimvelis in the European Union until such time that an alternative gene therapy is available (see Note 8). Strimvelis is not currently expected to generate sufficient cash flows to overcome the costs of maintaining the product and certain regulatory commitments; therefore, the Company initially recorded a liability associated with the loss contract of $18.4 million in 2018. The Company recognizes the amortization of the loss provision on a diminishing balance basis based on the actual net loss incurred associated with Strimvelis and the expected future net losses to be generated until such time as Strimvelis is no longer commercially available. The amortization of the provision is recorded as a credit to research and development expense. The Company has made an estimate of the expected future losses associated with Strimvelis and will adjust this estimate as facts and circumstances change regarding the commercial availability and costs of maintaining and selling Strimvelis. The Company does not update the accrued loss provision for any subsequent adjustment of the future losses, however, the timing of recognizing the amortization of what was originally recorded is adjusted for the updated future losses. The following table below outlines the changes to the Strimvelis loss provision for the periods ended March 31, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Balance at beginning of period

 

$

6,790

 

 

$

10,339

 

Amortization of loss provision

 

$

(1,691

)

 

$

(1,527

)

Foreign currency translation

 

 

(348

)

 

 

299

 

Balance at end of period

 

$

4,751

 

 

$

9,111

 

 

Of the balance as of March 31, 2020 noted in the table above, $1.9 million is classified as current, and $2.8 million is classified as non-current.

Net income (loss) per share

Basic net income (loss) per share attributable to ordinary shareholders is computed by dividing the net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the period. Diluted net income (loss) attributable to ordinary shareholders is computed by adjusting net income (loss) attributable to ordinary shareholders based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to ordinary shareholders is computed by dividing the diluted net income (loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the period, including potential dilutive ordinary shares. For purpose of this calculation, outstanding options and unvested restricted shares are considered potential dilutive ordinary shares. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all shares convertible into ordinary shares outstanding would have been anti-dilutive.

The following securities, presented based on amounts outstanding at each period end, are considered to be ordinary share equivalents, but were not included in the computation of diluted net loss per ordinary share because to do so would have been anti-dilutive:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Share options

 

 

12,688,361

 

 

 

11,148,997

 

Unvested performance-based restricted share units

 

 

511,324

 

 

 

573,672

 

 

 

 

13,199,685

 

 

 

11,722,669

 

 

10


 

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU 2016-02 supersedes the lease guidance under FASB ASC Topic 840, Leases, resulting in the creation of FASB ASC Topic 842, Leases (“ASC 842”). As we are no longer an emerging growth company as of December 31, 2019, ASC 842 became effective for us in 2019, as of January 1, 2019. During the nine months ended September 30, 2019, while we were still an emerging growth company, we applied ASC 840 to our leases. Our previously reported consolidated cash flow statement for the three months ended March 31, 2019 has been recast to reflect adoption of ASC 842 effective January 1, 2019. The following table summarizes the impact of the adoption to the Company’s operating cash flows in our previously issued condensed consolidated statement of cash flows. There was no impact to the condensed consolidated statement of comprehensive loss for the three months ended March 31, 2019 as a result of the adoption of ASC 842. The table also includes other presentation adjustments within operating cash flows made to conform to current period presentation (in thousands):

 

 

 

As previously

reported

 

 

ASC 842

adjustments

 

 

Other

presentation

adjustments

 

 

As recast

 

Cash flows from operating activities:

 

$

(30,739

)

 

$

 

 

$

 

 

$

(30,739

)

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

366

 

 

 

 

 

 

 

 

 

366

 

Non-cash share-based compensation

 

 

3,821

 

 

 

 

 

 

 

 

 

3,821

 

Amortization of Strimvelis loss provision

 

 

(1,525

)

 

 

 

 

 

 

 

 

(1,525

)

Other non-cash adjustments

 

 

 

 

 

 

 

 

3,224

 

 

 

3,224

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade receivables

 

 

1,873

 

 

 

 

 

 

304

 

 

 

2,177

 

Research and development tax credit receivable

 

 

(4,871

)

 

 

 

 

 

(371

)

 

 

(5,242

)

Prepaid expenses, current assets and other assets

 

 

 

 

 

(9

)

 

 

67

 

 

 

58

 

Operating leases, right-of-use assets

 

 

 

 

 

41

 

 

 

 

 

 

41

 

Accounts payable, accrued expenses and other current liabilities

 

 

(12,794

)

 

 

(71

)

 

 

(3,224

)

 

 

(16,089

)

Other long-term liabilities

 

 

107

 

 

 

(606

)

 

 

 

 

 

(499

)

Operating lease liabilities

 

 

 

 

 

645

 

 

 

 

 

 

645

 

Net cash used in operating activities

 

$

(43,762

)

 

$

 

 

$

 

 

$

(43,762

)

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The new standard became effective for us on January 1, 2020. This guidance did not have a significant impact on our consolidated financial statements and related disclosures. The Company has a U.K. research and development tax credit receivable that is subject to this guidance; however, there has been no allowance recorded for this receivable.

3. Fair Value Measurements and Marketable Debt Securities

The following tables present information about the Company’s financial assets that have been measured at fair value as of March 31, 2020 and indicate the fair value of the hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair value determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted market prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. During the three months ended March 31, 2020, there were no transfers between Level 1 and Level 2 financial assets.

11


 

The following table summarizes the Company’s cash equivalents and marketable debt securities as of March 31, 2020, in thousands:

 

 

 

Fair Value Measurements at March 31, 2020 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,638

 

 

$

 

 

$

 

 

$

6,638

 

Commercial paper

 

 

 

 

 

13,000

 

 

 

 

 

 

13,000

 

Total cash equivalents

 

$

6,638

 

 

$

13,000

 

 

$

 

 

$

19,638

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 

 

$

216,849

 

 

$

 

 

$

216,849

 

Commercial paper

 

 

 

 

 

19,918

 

 

 

 

 

$

19,918

 

Total marketable securities