UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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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:
(Exact Name of Registrant as Specified in its Charter)
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Not Applicable |
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( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: +
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Large accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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Emerging growth company |
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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
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 July 31, 2020, the registrant had
Table of Contents
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PART I. |
1 |
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Item 1. |
1 |
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1 |
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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
2 |
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3 |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
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Item 3. |
34 |
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Item 4. |
35 |
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PART II. |
36 |
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Item 1. |
36 |
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Item 1A. |
36 |
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Item 2. |
98 |
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Item 3. |
99 |
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Item 4. |
99 |
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Item 5. |
99 |
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Item 6. |
100 |
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101 |
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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:
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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; |
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the timing, scope or likelihood of regulatory submissions, filings, and approvals; |
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our ability to develop and advance product candidates into, and successfully complete, clinical trials; |
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our expectations regarding the market opportunity for and size of the patient populations for our product candidates, if approved for commercial use; |
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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; |
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our commercialization, marketing and manufacturing capabilities and strategy; |
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the pricing and reimbursement of our commercial product and product candidates, if approved; |
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the adequacy, scalability and commercial viability of our manufacturing capacity, methods and processes, including those of our manufacturing partners, and plans for future development; |
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the rate and degree of market acceptance and clinical utility of our commercial product and product candidates, in particular, and gene therapy, in general; |
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our ability to establish or maintain collaborations or strategic relationships or obtain additional funding; |
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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, including clinical trials, and the operations of our third-party manufacturers and suppliers; |
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our competitive position; |
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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; |
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developments and projections relating to our competitors and our industry; |
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our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; the impact of laws and regulations; |
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our ability to attract and retain qualified employees and key personnel; |
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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; |
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our ability to contract with third party suppliers and manufacturers and their ability to perform adequately; |
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the expected cost savings resulting from our recently announced changes to our strategic vision; |
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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; |
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our cash runway into 2022; and |
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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)
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June 30, |
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December 31, |
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2020 |
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2019 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Trade receivables |
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Prepaid expenses and other current assets |
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Research and development tax credit receivable, current |
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Total current assets |
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Non-current assets: |
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Operating lease right-of-use-assets |
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Property and equipment, net |
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Research and development tax credit receivable |
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Restricted cash |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and shareholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease liabilities |
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Notes payable, current |
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— |
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Total current liabilities |
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Notes payable, long-term |
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Operating lease liabilities, net of current portion |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (see Note 11) |
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Shareholders’ equity: |
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Ordinary shares, £ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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( |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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Product sales, net |
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$ |
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$ |
— |
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$ |
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$ |
— |
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Costs and operating expenses: |
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Cost of product sales |
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— |
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— |
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Research and development |
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$ |
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Selling, general and administrative |
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Total costs and operating expenses |
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Loss from operations |
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( |
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( |
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Other income (expense): |
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Interest income |
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Interest expense |
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( |
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( |
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( |
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( |
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Other income (expense), net |
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( |
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( |
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( |
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Total other income (expense), net |
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( |
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( |
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Net loss before income tax |
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( |
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( |
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( |
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( |
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Income tax (expense) benefit |
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( |
) |
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Net loss attributable to ordinary shareholders |
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( |
) |
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( |
) |
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( |
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( |
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Other comprehensive income (loss) |
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Foreign currency translation adjustment |
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( |
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Unrealized gain (loss) on marketable securities |
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Total other comprehensive income (loss) |
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( |
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Total comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share attributable to ordinary shareholders, basic and diluted |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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Weighted average number of ordinary shares outstanding, basic and diluted |
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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)
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Six Months Ended |
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June 30, |
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2020 |
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2019 |
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Cash flows from operating activities: |
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Net loss attributable to ordinary shareholders |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Non-cash share-based compensation |
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Impairment of long-lived assets |
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— |
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Non-cash interest expense |
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Non-cash consideration for licenses |
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— |
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Amortization of Strimvelis loss provision |
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( |
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( |
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Amortization of premium (discount) on marketable securities |
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( |
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Other non-cash adjustments |
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Changes in operating assets and liabilities: |
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Trade receivables |
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Research and development tax credit receivable |
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( |
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( |
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Prepaid expenses, other current assets and other assets |
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( |
) |
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Operating leases, right-of-use assets |
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Accounts payable, accrued expenses and other current liabilities |
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( |
) |
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Other long-term liabilities |
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— |
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( |
) |
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Operating lease liabilities |
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( |
) |
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Net cash used in operating activities |
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( |
) |
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( |
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Cash flows from investing activities: |
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Proceeds from sales and maturities of marketable securities |
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— |
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Purchases of marketable securities |
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( |
) |
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( |
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Payment of construction deposit |
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( |
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— |
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Receipt of funds from construction deposit |
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— |
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Purchases of property and equipment |
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( |
) |
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( |
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Net cash provided by (used in) investing activities |
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( |
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Cash flows from financing activities: |
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Issuance of debt from credit facility, net of debt issuance costs paid |
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— |
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Proceeds from share options and ESPP shares |
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Issuance of ADSs in follow-on offering, net of offering costs paid |
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— |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
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( |
) |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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( |
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Cash, cash equivalents, and restricted cash, beginning of period |
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Cash, cash equivalents, and restricted cash, end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities |
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Deferred offering costs and debt issuance costs in accounts payable and accrued expenses |
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— |
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Property and equipment included in accounts payable and accrued expenses |
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Lease assets obtained in exchange for new operating lease liabilities |
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— |
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Shares issued as part of license agreement |
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— |
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Supplemental disclosure of cash flow information: |
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Cash paid for taxes |
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— |
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Cash paid for interest |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ORCHARD THERAPEUTICS PLC
Condensed Consolidated Statements Shareholders’ Equity
(In thousands, except share and per share amounts)
(unaudited)
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Ordinary Shares |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Income |
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Deficit |
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Total |
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Balance at December 31, 2018 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Share-based compensation expense |
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— |
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— |
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— |
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— |
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Exercise of share options |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Net loss attributable to ordinary shareholders |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Balance at March 31, 2019 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Share-based compensation expense |
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- |
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- |
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— |
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— |
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Exercise of share options |
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|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of ESPP shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of ADSs in follow-on offering, net of issuance costs of $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net loss attributable to ordinary shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Balance at June 30, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise of share options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net loss attributable to ordinary shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance at March 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise of share options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of ESPP shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Ordinary shares issued as part of license agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net loss attributable to ordinary shareholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance at June 30, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. While some COVID-19 restrictions have been relaxed, 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®, had been postponed by the treatment site but resumed in June 2020. 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. To date the Company has recorded impairments on long-lived assets that are due to a combination of a corporate restructuring and COVID-19 market impacts (see Note 8). 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 June 30, 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 June 30, 2020, the Company had an accumulated deficit of $