SEC Filing | Orchard Therapeutics

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ortx-10q_20200630.htm

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 June 30, 2020

☐	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.

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 July 31, 2020, the registrant had 97,577,100 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
	Condensed Consolidated Statements of Shareholders’ Equity	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98
Item 3.	Defaults Upon Senior Securities	99
Item 4.	Mine Safety Disclosures	99
Item 5.	Other Information	99
Item 6.	Exhibits	100
Signatures		101

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, including those of our manufacturing partners, 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, including clinical trials, and the operations 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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

(unaudited)

	June 30,			December 31,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	41,174		$	19,053
Marketable securities		187,480			305,937
Trade receivables		723			1,442
Prepaid expenses and other current assets		12,760			8,530
Research and development tax credit receivable, current		12,995			14,934
Total current assets		255,132			349,896
Non-current assets:
Operating lease right-of-use-assets		18,642			19,415
Property and equipment, net		5,460			7,596
Research and development tax credit receivable		19,734			13,710
Restricted cash		4,266			4,264
Other assets		11,342			4,400
Total assets	$	314,576		$	399,281
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	15,590		$	11,984
Accrued expenses and other current liabilities		19,811			37,980
Operating lease liabilities		5,924			5,892
Notes payable, current		694			—
Total current liabilities		42,019			55,856
Notes payable, long-term		24,192			24,699
Operating lease liabilities, net of current portion		17,171			15,320
Other long-term liabilities		4,173			4,213
Total liabilities		87,555			100,088
Commitments and contingencies (see Note 11)
Shareholders’ equity:
Ordinary shares, £0.10 nominal value		12,405			12,331
Additional paid-in capital		757,296			738,481
Accumulated other comprehensive income		9,050			2,042
Accumulated deficit		(551,730	)		(453,661	)
Total shareholders’ equity		227,021			299,193
Total liabilities and shareholders’ equity	$	314,576		$	399,281

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

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Product sales, net	$	597		$	—		$	597		$	—
Costs and operating expenses:
Cost of product sales		191			—			191			—
Research and development		31,568			40,478		$	56,404			57,971
Selling, general and administrative		15,659			13,674			35,804			24,464
Total costs and operating expenses		47,418			54,152			92,399			82,435
Loss from operations		(46,821	)		(54,152	)		(91,802	)		(82,435	)
Other income (expense):
Interest income		892			1,727			2,372			3,350
Interest expense		(568	)		(245	)		(1,181	)		(245	)
Other income (expense), net		(943	)		1,368			(7,733	)		(2,118	)
Total other income (expense), net		(619	)		2,850			(6,542	)		987
Net loss before income tax		(47,440	)		(51,302	)		(98,344	)		(81,448	)
Income tax (expense) benefit		(60	)		772			275			179
Net loss attributable to ordinary shareholders		(47,500	)		(50,530	)		(98,069	)		(81,269	)
Other comprehensive income (loss)
Foreign currency translation adjustment		610			(1,443	)		6,643			1,608
Unrealized gain (loss) on marketable securities		1,385			108			364			108
Total other comprehensive income (loss)		1,995			(1,335	)		7,007			1,716
Total comprehensive loss	$	(45,505	)	$	(51,865	)	$	(91,062	)	$	(79,553	)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.48	)	$	(0.56	)	$	(0.99	)	$	(0.92	)
Weighted average number of ordinary shares outstanding, basic and diluted		99,251,314			89,712,916			99,048,498			88,369,311

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

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

	Six Months Ended
	June 30,
	2020			2019
Cash flows from operating activities:
Net loss attributable to ordinary shareholders	$	(98,069	)	$	(81,269	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		1,081			775
Non-cash share-based compensation		15,558			8,451
Impairment of long-lived assets		5,650			—
Non-cash interest expense		254			46
Non-cash consideration for licenses		791			—
Amortization of Strimvelis loss provision		(2,018	)		(2,589	)
Amortization of premium (discount) on marketable securities		169			(232	)
Other non-cash adjustments		6,984			2,860
Changes in operating assets and liabilities:
Trade receivables		642			370
Research and development tax credit receivable		(5,989	)		(9,913	)
Prepaid expenses, other current assets and other assets		(3,313	)		1,125
Operating leases, right-of-use assets		1,525			1,324
Accounts payable, accrued expenses and other current liabilities		(9,644	)		6,802
Other long-term liabilities		—			(897	)
Operating lease liabilities		(1,633	)		30
Net cash used in operating activities		(88,012	)		(73,117	)
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities		168,140			—
Purchases of marketable securities		(49,494	)		(286,399	)
Payment of construction deposit		(10,000	)		—
Receipt of funds from construction deposit		1,876			—
Purchases of property and equipment		(2,484	)		(589	)
Net cash provided by (used in) investing activities		108,038			(286,988	)
Cash flows from financing activities:
Issuance of debt from credit facility, net of debt issuance costs paid		—			24,695
Proceeds from share options and ESPP shares		2,582			1,270
Issuance of ADSs in follow-on offering, net of offering costs paid		—			130,163
Net cash provided by financing activities		2,582			156,128
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(485	)		922
Net increase (decrease) in cash, cash equivalents and restricted cash		22,123			(203,055	)
Cash, cash equivalents, and restricted cash, beginning of period		23,317			339,681
Cash, cash equivalents, and restricted cash, end of period	$	45,440		$	136,626
Supplemental disclosure of non-cash investing and financing activities
Deferred offering costs and debt issuance costs in accounts payable and accrued expenses		—			726
Property and equipment included in accounts payable and accrued expenses		125			262
Lease assets obtained in exchange for new operating lease liabilities		3,752			—
Shares issued as part of license agreement		791			—
Supplemental disclosure of cash flow information:
Cash paid for taxes		1,321			—
Cash paid for interest		927			199

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

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Statements Shareholders’ 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		—		4		—			—			4
Other comprehensive income		—		—		—		3,051			—			3,051
Net loss attributable to ordinary shareholders		—		—		—		—			(30,739	)		(30,739	)
Balance at March 31, 2019		85,867,028	$	10,924	$	591,315	$	6,214		$	(320,978	)	$	287,475
Share-based compensation expense		-		-		4,630		—			—			4,630
Exercise of share options		532,889		69		504		—			—			573
Issuance of ESPP shares		60,335		8		685		—			—			693
Issuance of ADSs in follow-on offering, net of issuance costs of $620		9,725,268		1,233		128,418		—			—			129,651
Other comprehensive income		—		—		—		(1,335	)		—			(1,335	)
Net loss attributable to ordinary shareholders		—		—		—		-			(50,530	)		(50,530	)
Balance at June 30, 2019		96,185,520	$	12,234	$	725,552	$	4,879		$	(371,508	)	$	371,157

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
Share-based compensation expense		—		—		6,079		—			—			6,079
Exercise of share options		214,299		27		643		—			—			670
Issuance of ESPP shares		53,462		7		425		—			—			432
Ordinary shares issued as part of license agreements		75,413		10		781		—			—			791
Other comprehensive income		—		—		—		1,995			—			1,995
Net loss attributable to ordinary shareholders		—		—		—		—			(47,500	)		(47,500	)
Balance at June 30, 2020		97,497,739	$	12,405	$	757,296	$	9,050		$	(551,730	)	$	227,021

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

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 $551.7 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 June 30, 2020 of $228.7 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.