ortx-10q_20220331.htm
false Q1 --12-31 0001748907 00-0000000 P30D true true P30D P180D 2019-05-31 P3Y 0001748907 2022-01-01 2022-03-31 xbrli:shares 0001748907 2022-05-09 iso4217:USD 0001748907 2022-03-31 0001748907 2021-12-31 iso4217:GBP xbrli:shares iso4217:GBP 0001748907 us-gaap:ProductMember 2022-01-01 2022-03-31 0001748907 ortx:CollaborationMember 2022-01-01 2022-03-31 0001748907 2021-01-01 2021-03-31 iso4217:USD xbrli:shares 0001748907 2020-12-31 0001748907 2021-03-31 0001748907 us-gaap:CommonStockMember 2020-12-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 0001748907 us-gaap:RetainedEarningsMember 2020-12-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-03-31 0001748907 us-gaap:CommonStockMember 2021-01-01 2021-03-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-01-01 2021-03-31 0001748907 us-gaap:RetainedEarningsMember 2021-01-01 2021-03-31 0001748907 us-gaap:CommonStockMember 2021-03-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2021-03-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-03-31 0001748907 us-gaap:RetainedEarningsMember 2021-03-31 0001748907 us-gaap:CommonStockMember 2021-12-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2021-12-31 0001748907 us-gaap:RetainedEarningsMember 2021-12-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-03-31 0001748907 us-gaap:CommonStockMember 2022-01-01 2022-03-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-01-01 2022-03-31 0001748907 us-gaap:RetainedEarningsMember 2022-01-01 2022-03-31 0001748907 us-gaap:CommonStockMember 2022-03-31 0001748907 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0001748907 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2022-03-31 0001748907 us-gaap:RetainedEarningsMember 2022-03-31 0001748907 us-gaap:PrivatePlacementMember ortx:SecuritiesPurchaseAgreementMember 2021-02-09 2021-02-09 0001748907 us-gaap:PrivatePlacementMember ortx:SecuritiesPurchaseAgreementMember 2021-02-09 0001748907 us-gaap:PrivatePlacementMember ortx:NonVotingOrdinarySharesMember ortx:SecuritiesPurchaseAgreementMember 2021-02-09 2021-02-09 0001748907 us-gaap:PrivatePlacementMember ortx:NonVotingOrdinarySharesMember ortx:SecuritiesPurchaseAgreementMember 2021-02-09 0001748907 ortx:SecuritiesPurchaseAgreementMember 2021-02-09 2021-02-09 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2021-12-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2020-12-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2022-01-01 2022-03-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2021-01-01 2021-03-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2022-03-31 0001748907 country:GB us-gaap:ResearchAndDevelopmentExpenseMember 2021-03-31 0001748907 country:GB 2022-03-31 0001748907 country:GB 2021-12-31 0001748907 2021-01-01 2021-12-31 0001748907 ortx:FremontLeaseAgreementMember 2022-03-31 0001748907 ortx:FremontLeaseAgreementMember 2020-03-31 0001748907 ortx:FremontLeaseAgreementMember 2022-01-01 2022-03-31 0001748907 srt:MinimumMember 2022-01-01 2022-03-31 0001748907 srt:MaximumMember 2022-01-01 2022-03-31 0001748907 us-gaap:ProductMember ortx:LibmeldyMember srt:EuropeMember 2022-01-01 2022-03-31 0001748907 ortx:GovernmentalRebatesMember us-gaap:AccruedLiabilitiesMember srt:EuropeMember 2022-03-31 0001748907 ortx:StrimvelisMember 2022-01-01 2022-03-31 0001748907 ortx:StrimvelisMember 2021-01-01 2021-03-31 0001748907 ortx:StrimvelisMember 2018-12-31 0001748907 ortx:StrimvelisMember 2021-12-31 0001748907 ortx:StrimvelisMember 2020-12-31 0001748907 ortx:StrimvelisMember 2022-03-31 0001748907 ortx:StrimvelisMember 2021-03-31 0001748907 us-gaap:EmployeeStockOptionMember 2022-01-01 2022-03-31 0001748907 us-gaap:EmployeeStockOptionMember 2021-01-01 2021-03-31 0001748907 us-gaap:RestrictedStockUnitsRSUMember 2022-01-01 2022-03-31 0001748907 us-gaap:RestrictedStockUnitsRSUMember 2021-01-01 2021-03-31 0001748907 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2022-03-31 0001748907 us-gaap:MoneyMarketFundsMember 2022-03-31 0001748907 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel2Member 2022-03-31 0001748907 us-gaap:CommercialPaperMember 2022-03-31 0001748907 us-gaap:FairValueInputsLevel1Member 2022-03-31 0001748907 us-gaap:FairValueInputsLevel2Member 2022-03-31 0001748907 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member 2022-03-31 0001748907 us-gaap:CorporateDebtSecuritiesMember 2022-03-31 0001748907 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member 2021-12-31 0001748907 us-gaap:MoneyMarketFundsMember 2021-12-31 0001748907 us-gaap:CorporateDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member 2021-12-31 0001748907 us-gaap:CorporateDebtSecuritiesMember 2021-12-31 0001748907 us-gaap:CommercialPaperMember us-gaap:FairValueInputsLevel2Member 2021-12-31 0001748907 us-gaap:CommercialPaperMember 2021-12-31 0001748907 us-gaap:FairValueInputsLevel1Member 2021-12-31 0001748907 us-gaap:FairValueInputsLevel2Member 2021-12-31 0001748907 ortx:LabEquipmentMember 2022-03-31 0001748907 ortx:LabEquipmentMember 2021-12-31 0001748907 us-gaap:LeaseholdImprovementsMember 2022-03-31 0001748907 us-gaap:LeaseholdImprovementsMember 2021-12-31 0001748907 us-gaap:FurnitureAndFixturesMember 2022-03-31 0001748907 us-gaap:FurnitureAndFixturesMember 2021-12-31 0001748907 us-gaap:OfficeEquipmentMember 2022-03-31 0001748907 us-gaap:OfficeEquipmentMember 2021-12-31 0001748907 us-gaap:ConstructionInProgressMember 2022-03-31 0001748907 us-gaap:ConstructionInProgressMember 2021-12-31 0001748907 us-gaap:LicenseMember 2022-03-31 0001748907 us-gaap:LicenseMember 2021-12-31 0001748907 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2022-03-31 0001748907 2019-05-01 2019-05-31 0001748907 2019-05-31 0001748907 2021-05-31 0001748907 ortx:TheFirstTrancheTermLoanMember 2021-05-31 0001748907 ortx:TheFirstTrancheTermLoanMember 2019-05-31 0001748907 ortx:TheFirstTrancheTermLoanMember 2021-05-01 2021-05-31 0001748907 ortx:TheSecondTrancheTermLoanMember 2021-05-31 0001748907 ortx:TheSecondTrancheTermLoanMember srt:MinimumMember 2021-05-31 0001748907 ortx:TheThirdTrancheTermLoanMember srt:MinimumMember 2021-05-31 0001748907 ortx:TheSecondTrancheTermLoanMember 2022-01-01 2022-03-31 0001748907 ortx:TheThirdTrancheTermLoanMember 2021-05-31 0001748907 ortx:TheThirdTrancheTermLoanMember 2022-01-01 2022-03-31 xbrli:pure 0001748907 ortx:LondonInterbankOfferedRateFloorMember 2021-05-01 2021-05-31 0001748907 2021-05-01 2021-05-31 0001748907 ortx:TheThirdTrancheTermLoanMember 2021-05-01 2021-05-31 0001748907 us-gaap:DebtInstrumentRedemptionPeriodTwoMember srt:MinimumMember 2021-05-31 0001748907 us-gaap:DebtInstrumentRedemptionPeriodThreeMember srt:MinimumMember 2021-05-31 0001748907 ortx:TermLoanMember 2022-01-01 2022-03-31 0001748907 ortx:TermLoanMember 2021-01-01 2021-03-31 0001748907 ortx:TwoThousandAndEighteenShareOptionAndIncentivePlanMember 2022-03-31 0001748907 ortx:TwoThousandAndTwentyInducementEquityPlanMember 2022-03-31 0001748907 ortx:TwoThousandAndEighteenEmployeeSharePurchasePlanMember 2022-03-31 0001748907 us-gaap:PerformanceSharesMember srt:ChiefExecutiveOfficerMember 2020-04-01 2020-04-30 0001748907 us-gaap:PerformanceSharesMember srt:ChiefExecutiveOfficerMember us-gaap:ShareBasedCompensationAwardTrancheOneMember 2022-01-01 2022-03-31 0001748907 us-gaap:PerformanceSharesMember srt:ChiefExecutiveOfficerMember 2022-01-01 2022-03-31 0001748907 ortx:TimeBasedRestrictedShareUnitsMember 2022-01-01 2022-03-31 0001748907 us-gaap:PerformanceSharesMember 2021-12-31 0001748907 ortx:TimeBasedRestrictedShareUnitsMember 2021-12-31 0001748907 us-gaap:PerformanceSharesMember 2022-03-31 0001748907 ortx:TimeBasedRestrictedShareUnitsMember 2022-03-31 0001748907 us-gaap:ResearchAndDevelopmentExpenseMember 2022-01-01 2022-03-31 0001748907 us-gaap:ResearchAndDevelopmentExpenseMember 2021-01-01 2021-03-31 0001748907 us-gaap:GeneralAndAdministrativeExpenseMember 2022-01-01 2022-03-31 0001748907 us-gaap:GeneralAndAdministrativeExpenseMember 2021-01-01 2021-03-31 0001748907 us-gaap:EmployeeSeveranceMember ortx:NeurometabolicDiseasesAndEarlyResearchProgramsMember 2022-01-01 2022-03-31 0001748907 ortx:NeurometabolicDiseasesAndEarlyResearchProgramsMember 2022-01-01 2022-03-31 ortx:Program 0001748907 ortx:GSKAssetPurchaseAndLicenseAgreementMember 2018-04-01 2018-04-30 0001748907 ortx:GSKAssetPurchaseAndLicenseAgreementMember 2018-04-01 2018-06-30 0001748907 ortx:GSKAssetPurchaseAndLicenseAgreementMember 2022-03-31 iso4217:EUR 0001748907 ortx:TelethonOSRLicenseAgreementsMember 2022-03-31 0001748907 ortx:TelethonOSRLicenseAgreementsMember 2022-01-01 2022-03-31 0001748907 ortx:TelethonOSRLicenseAgreementsMember 2019-05-01 2019-05-31 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2022-03-31 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2018-11-30 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2018-09-30 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2020-04-30 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember us-gaap:ResearchAndDevelopmentExpenseMember 2020-04-01 2020-04-30 ortx:Milestone 0001748907 ortx:OxfordBioMedicaLicenseDevelopmentAndSupplyAgreementMember 2020-01-01 2020-03-31 0001748907 ortx:StrategicCollaborationAgreementWithPharmingMember 2021-07-01 2021-07-01 0001748907 ortx:StrategicCollaborationAgreementWithPharmingMember srt:MaximumMember 2021-07-01 0001748907 ortx:SharePurchaseAgreementWithPharmingMember 2021-07-01 2021-07-01 0001748907 ortx:PharmingAgreementsMember 2021-07-01 2021-07-01 0001748907 ortx:ReimbursementRevenueMember us-gaap:CollaborativeArrangementMember 2022-01-01 2022-03-31 0001748907 ortx:UpfrontAndMilestonePaymentRevenueMember us-gaap:CollaborativeArrangementMember 2022-01-01 2022-03-31 0001748907 us-gaap:CollaborativeArrangementMember 2022-01-01 2022-03-31 0001748907 us-gaap:CollaborativeArrangementMember us-gaap:AccountsReceivableMember 2022-03-31 0001748907 us-gaap:CollaborativeArrangementMember 2022-03-31 0001748907 ortx:ProductManufacturingCommitmentsMember 2022-03-31 0001748907 ortx:DedicatedManufacturingAndDevelopmentResourcesMember 2022-03-31 0001748907 ortx:ExclusiveTransductionSuitesMember 2022-03-31 0001748907 exch:XNGS ortx:AmericanDepositorySharesMember us-gaap:SubsequentEventMember 2022-04-01 2022-04-30

 

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, 2022

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  

 As of May 9, 2022, the registrant had 125,905,065 ordinary shares, nominal value £0.10 per share, outstanding.

 

 


 

Summary of the Material Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:

 

We have incurred net losses since inception. We expect to incur net losses for the foreseeable future and may never achieve or maintain profitability.

 

We will need additional funding, which may not be available on acceptable terms or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

 

Our gene therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost of product candidate development and of subsequently obtaining regulatory approval.

 

The results from our clinical trials for OTL-200 for metachromatic leukodystrophy, or MLD, and for any of our other product candidates may not be sufficiently robust to support marketing approval or the submission of marketing approval. Before we submit our product candidates for marketing approval, the U.S. Food and Drug Administration or the European Medicines Agency may require us to conduct additional clinical trials or evaluate patients for an additional follow-up period.

 

Interim data and ad hoc analyses are preliminary in nature. Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials.

 

Gene therapies are novel, complex and difficult to manufacture. We have limited manufacturing experience, and we rely on third-party manufacturers that are often our single source of supply. We could experience manufacturing problems that result in delays in the development or commercialization of our commercial products or our product candidates or otherwise harm our business.

 

Libmeldy, Strimvelis® and our product candidates and the process for administering Libmeldy, Strimvelis and our product candidates may cause serious or undesirable side effects or adverse events or have other properties that could delay or prevent regulatory approval, limit commercial potential or result in significant negative consequences for our company.

 

We may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates.

 

If we are unable to establish effective sales and marketing capabilities or enter into agreements with third parties to market, sell and gain reimbursement for Libmeldy and any product candidates that may be approved, our product revenues may be adversely affected and our business may suffer.

 

If the size and value of the market opportunities for our commercial products or product candidates are smaller than our estimates, or if we have difficulty in finding patients that meet eligibility requirements for Libmeldy or any of our product candidates, if approved, our product revenues may be adversely affected and our business may suffer.

 

We face significant competition in our industry and there can be no assurance that Libmeldy or our product candidates, if approved, will achieve acceptance in the market over existing established therapies. In addition, our competitors may develop therapies that are more advanced or effective than ours, which may adversely affect our ability to successfully market or commercialize any of our products or product candidates.

 

Business interruptions resulting from the ongoing COVID-19 pandemic have caused and may continue to cause a disruption to the development of our product candidates and adversely impact our business.

 

We may not be able to protect our intellectual property rights throughout the world.

 

We may become subject to claims that we are infringing certain third-party patents, for example, patents relating to lentiviral vectors, or other third-party intellectual property rights, any of which may prevent or delay our development and commercialization efforts and have a material effect on our business.

 

We have entered into collaborations with third parties to develop or commercialize product candidates and we may enter into additional collaborations in the future. If these collaborations are not successful, our business could be adversely affected.

 

The market price of our ADSs may be highly volatile and may fluctuate due to factors beyond our control.

 

We are not currently in compliance with the minimum bid price rule of the Nasdaq Global Select Market, and a delisting could limit the liquidity of our ADSs, increase their volatility and hinder our ability to raise capital.

 

The summary risk factors described above should be read together with the text of the full risk factors below, in the section entitled “Risk Factors” in Part II, Item 1.A. and the other information set forth in this Quarterly Report on Form 10-Q, as well as in other documents that we file with the U.S. Securities and Exchange Commission. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial, may also materially adversely affect our business, financial condition, results of operations and future growth prospects.

i


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 Loss

2

 

Condensed Consolidated Statements of Cash Flows

3

 

Condensed Consolidated Statements of Shareholders’ (Deficit) 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

31

Item 4.

Controls and Procedures

32

PART II.

OTHER INFORMATION

32

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

96

Item 3.

Defaults Upon Senior Securities

96

Item 4.

Mine Safety Disclosures

96

Item 5.

Other Information

96

Item 6.

Exhibits

96

Signatures

97

 


ii


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or 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 10-Q are based upon information available to our management as of the date of this 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 10-Q include, but are not limited to, statements about:

 

the initiation, timing, progress and results of our preclinical studies and clinical trials, 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 Libmeldy (OTL-200) and our product candidates, if approved, for commercial use;

 

the implementation of our business model and our strategic plans for our business;

 

our plans and ability to build out our commercial infrastructure, including our ability to successfully identify patients and market and sell Libmeldy in Europe and any of our product candidates for which we receive marketing approval;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

the pricing and reimbursement of Libmeldy and any of our product candidates, if approved, including reimbursement for patients treated in a country where they are not resident;

 

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 products and product candidates, in particular, and gene therapy, in general;

 

our ability to establish or maintain collaborations or strategic relationships;

 

our ability to obtain additional funding for our operations;

 

the impact of the COVID-19 global pandemic on our business operations, including clinical trials, regulatory strategy, and the operations of our third-party manufacturers, suppliers and partners;

 

the scope of protection we and our licensors are able to establish and maintain for intellectual property rights covering our commercial products 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 contract with third party suppliers, clinical sites and manufacturers and their ability to perform adequately;

 

our projected 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 ability to comply with the listing requirements of The Nasdaq Stock Market; and

 

other risks and uncertainties, including those listed under the caption “Item 1A. Risk Factors” in this 10-Q.  

iii


 

You should refer to the section titled “Item 1A. Risk Factors” in this 10-Q 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 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 10-Q and the documents that we reference in this 10-Q and have filed as exhibits to this 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.

 

 

iv


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,775

 

 

$

55,912

 

Marketable securities

 

 

138,241

 

 

 

164,195

 

Accounts receivable

 

 

4,105

 

 

 

1,480

 

Prepaid expenses and other current assets

 

 

20,923

 

 

 

23,011

 

Research and development tax credit receivable

 

 

13,394

 

 

 

30,723

 

Total current assets

 

 

237,438

 

 

 

275,321

 

Non-current assets:

 

 

 

 

 

 

 

 

Operating lease right-of-use-assets

 

 

27,368

 

 

 

24,316

 

Property and equipment, net

 

 

4,454

 

 

 

4,767

 

Restricted cash

 

 

4,266

 

 

 

4,266

 

Intangible assets, net

 

 

3,993

 

 

 

4,149

 

Research and development tax credit receivable

 

 

3,255

 

 

 

 

Other assets

 

 

10,731

 

 

 

9,590

 

Total non-current assets

 

 

54,067

 

 

 

47,088

 

Total assets

 

$

291,505

 

 

$

322,409

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,854

 

 

$

10,008

 

Accrued expenses and other current liabilities

 

 

25,983

 

 

 

24,318

 

Deferred revenue, current

 

 

889

 

 

 

346

 

Operating lease liabilities

 

 

7,042

 

 

 

7,335

 

Notes payable, current

 

 

3,143

 

 

 

786

 

Total current liabilities

 

 

46,911

 

 

 

42,793

 

Notes payable, long-term

 

 

29,813

 

 

 

32,086

 

Deferred revenue, net of current portion

 

 

11,554

 

 

 

12,519

 

Operating lease liabilities, net of current portion

 

 

20,798

 

 

 

19,278

 

Other long-term liabilities

 

 

6,783

 

 

 

5,783

 

Total liabilities

 

 

115,859

 

 

 

112,459

 

Commitments and contingencies (see Note 15)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Ordinary shares, £0.10 par value, authority to allot up to a maximum nominal value of £13,023,851.50 of shares at March 31, 2022 and December 31, 2021, respectively; 125,904,945 and 125,674,095 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.

 

 

16,283

 

 

 

16,253

 

Additional paid-in capital

 

 

945,302

 

 

 

940,675

 

Accumulated other comprehensive income

 

 

8,581

 

 

 

3,246

 

Accumulated deficit

 

 

(794,520

)

 

 

(750,224

)

Total shareholders’ equity

 

 

175,646

 

 

 

209,950

 

Total liabilities and shareholders’ equity

 

$

291,505

 

 

$

322,409

 

 

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,

 

 

 

2022

 

 

2021

 

Product revenue, net

 

$

5,059

 

 

$

 

Collaboration revenue

 

 

465

 

 

 

 

Total revenues

 

 

5,524

 

 

 

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

1,571

 

 

 

 

Research and development

 

 

28,234

 

 

 

21,035

 

Selling, general and administrative

 

 

13,299

 

 

 

14,051

 

Total costs and operating expenses

 

 

43,104

 

 

 

35,086

 

Loss from operations

 

 

(37,580

)

 

 

(35,086

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

69

 

 

 

171

 

Interest expense

 

 

(675

)

 

 

(538

)

Other income (expense), net

 

 

(6,052

)

 

 

1,358

 

Total other income (expense), net

 

 

(6,658

)

 

 

991

 

Net loss before income tax

 

 

(44,238

)

 

 

(34,095

)

Income tax expense

 

 

(58

)

 

 

(1,087

)

Net loss attributable to ordinary shareholders

 

 

(44,296

)

 

 

(35,182

)

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

 

$

(0.35

)

 

$

(0.31

)

Weighted average ordinary shares outstanding, basic and diluted

 

 

127,694,785

 

 

 

114,829,272

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

5,595

 

 

 

(64

)

Unrealized loss (gain) on marketable securities

 

 

(260

)

 

 

(113

)

Total other comprehensive (loss) income:

 

 

5,335

 

 

 

(177

)

Total comprehensive loss

 

$

(38,961

)

 

$

(35,359

)

 

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,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss attributable to ordinary shareholders

 

$

(44,296

)

 

$

(35,182

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

709

 

 

 

495

 

Share-based compensation

 

 

4,660

 

 

 

6,268

 

Non-cash interest expense

 

 

94

 

 

 

101

 

Amortization of provision on loss contract

 

 

(274

)

 

 

(446

)

Amortization of premium on marketable securities

 

 

187

 

 

 

343

 

Deferred income taxes

 

 

787

 

 

 

781

 

Unrealized foreign currency and other non-cash adjustments

 

 

5,984

 

 

 

1,743

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,719

)

 

 

887

 

Research and development tax credit receivable

 

 

13,483

 

 

 

(3,554

)

Prepaid expenses, other current assets and other assets

 

 

(62

)

 

 

1,399

 

Operating leases, right-of-use assets

 

 

1,455

 

 

 

1,252

 

Accounts payable, accrued expenses and other current liabilities

 

 

3,815

 

 

 

(8,905

)

Deferred revenue

 

 

(65

)

 

 

 

Operating lease liabilities

 

 

(3,357

)

 

 

(4,424

)

Net cash used in operating activities

 

 

(19,599

)

 

 

(39,242

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales and maturities of marketable securities

 

 

55,186

 

 

 

47,200

 

Purchases of marketable securities

 

 

(29,681

)

 

 

(130,387

)

Purchases of property and equipment

 

 

(398

)

 

 

(339

)

Net cash provided by (used in) investing activities

 

 

25,107

 

 

 

(83,526

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from employee equity plans, net of taxes withheld

 

 

 

 

 

2,526

 

Proceeds from the issuance of ordinary shares in private placement

 

 

 

 

 

150,000

 

Payment of placement agent fees and offering costs

 

 

 

 

 

(6,092

)

Net cash provided by financing activities

 

 

 

 

 

146,434

 

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

   restricted cash

 

 

(645

)

 

 

82

 

Net increase in cash, cash equivalents and restricted cash

 

 

4,863

 

 

 

23,748

 

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

 

 

60,178

 

 

 

59,401

 

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

 

$

65,041

 

 

$

83,149

 

Supplemental disclosure of non-cash activities

 

 

 

 

 

 

 

 

Property and equipment and intangible assets included in

    accounts payable and accrued expenses

 

$

1,102

 

 

$

4,834

 

Offering costs included in accounts payable and accrued expenses

 

 

 

 

 

198

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Lease assets obtained in exchange for new operating lease liabilities, net

 

 

4,912

 

 

 

 

Cash paid for interest

 

 

581

 

 

 

482

 

 

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

 

3


 

ORCHARD THERAPEUTICS PLC

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands, except share amounts)

(unaudited)

 

 

 

Ordinary Shares

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

Balance at December 31, 2020

 

 

98,283,603

 

 

$

12,507

 

 

$

771,194

 

 

$

373

 

 

$

(605,640

)

 

$

178,434

 

Share-based compensation expense

 

 

 

 

 

 

 

 

6,268

 

 

 

 

 

 

 

 

 

6,268

 

Exercise of share options

 

 

1,319,493

 

 

 

172

 

 

 

2,650

 

 

 

 

 

 

 

 

 

2,822

 

Vesting of restricted stock units, net of shares withheld for taxes

 

 

45,746

 

 

 

6

 

 

 

(302

)

 

 

 

 

 

 

 

 

(296

)

Sale of ordinary shares and non-voting ordinary shares, net of issuance costs of $6,290

 

 

24,115,755

 

 

 

3,310

 

 

 

140,401

 

 

 

 

 

 

 

 

 

143,711

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

(64

)

 

 

 

 

 

(64

)

Unrealized loss on available for sale debt securities

 

 

 

 

 

 

 

 

 

 

 

(113

)

 

 

 

 

 

(113

)

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,182

)

 

 

(35,182

)

Balance at March 31, 2021

 

 

123,764,597

 

 

$

15,995

 

 

$

920,211

 

 

$

196

 

 

$

(640,822

)

 

$

295,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

125,674,095

 

 

$

16,253

 

 

$

940,675

 

 

$

3,246

 

 

$

(750,224

)

 

$

209,950

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,660

 

 

 

 

 

 

 

 

 

4,660

 

Exercise of share options

 

 

222,381

 

 

 

28

 

 

 

(29

)

 

 

 

 

 

 

 

 

(1

)

Vesting of restricted stock units, net of shares withheld for taxes

 

 

3,217

 

 

 

1

 

 

 

(4

)

 

 

 

 

 

 

 

 

(3

)

Ordinary shares issued as part of a consulting agreement

 

 

5,252

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

5,595

 

 

 

 

 

 

5,595

 

Unrealized loss on available for sale debt securities

 

 

 

 

 

 

 

 

 

 

 

(260

)

 

 

 

 

 

(260

)

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,296

)

 

 

(44,296

)

Balance at March 31, 2022

 

 

125,904,945

 

 

$

16,283

 

 

$

945,302

 

 

$

8,581

 

 

$

(794,520

)

 

$

175,646

 

 

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 company dedicated to transforming the lives of people affected by severe diseases through the development of innovative, potentially curative gene therapies. The Company’s ex vivo autologous hematopoietic stem cell (“HSC”) gene therapy approach harnesses the power of genetically modified blood stem cells and seeks to correct the underlying cause of disease in a single administration. The Company has a portfolio that includes a commercial-stage product and research and development-stage product candidates.

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.

In December 2020, the Company received standard marketing authorization from the European Commission for Libmeldy™ (atidarsagene autotemcel), for the treatment of early onset metachromatic leukodystrophy (“MLD”), characterized by biallelic mutations in the arylsulfatase-A (ARSA) gene leading to a reduction of the ARSA enzymatic activity in children with (i) late infantile or early juvenile forms, without clinical manifestations of the disease, or (ii) the early juvenile form, with early clinical manifestations of the disease, who still have the ability to walk independently and before the onset of cognitive decline.

 

On February 9, 2021, the Company issued and sold (i) 20,900,321 ordinary shares, nominal value £0.10 per share, at a purchase price of $6.22 per share (the “Purchase Price”), which was the closing sale price of the Company’s ADSs on the Nasdaq Global Select Market on February 4, 2021, and (ii) 3,215,434 non-voting ordinary shares, nominal value £0.10 per share, at the Purchase Price (together (i) and (ii) the “Private Placement”). The Private Placement resulted in net proceeds to the Company of $143.7 million after deducting placement agent fees of $6.0 million and other issuance costs of $0.3 million. The ordinary shares and non-voting ordinary shares were sold pursuant to a securities purchase agreement entered into between the Company and the purchasers named therein on February 4, 2021.

The Company’s business 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 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 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.

Through March 31, 2022, the Company funded its operations primarily with proceeds from the sale of equity securities, including ADSs in the Company’s initial public offering (“IPO”) and follow-on offering, ordinary shares in the private placement, and convertible preferred shares. The Company has also financed its operations through proceeds from the Company’s senior term facilities agreement with MidCap Financial (Ireland) Limited, research grants from the California Institute of Regenerative Medicine (“CIRM”), upfront payments from the Company’s collaboration agreement and share purchase agreement with Pharming Group N.V., and proceeds associated two UK 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. The Company has incurred recurring losses since its inception. As of March 31, 2022, the Company had an accumulated deficit of $794.5 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, 2022 of $199.0 million will be sufficient to fund its operations and capital expenditure requirements for 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. 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. 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 March 30, 2022 (the “Annual Report”). The condensed consolidated balance sheet as of December 31, 2021 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.

Amounts reported are computed based on thousands, except percentages, per share amounts or as otherwise noted. As a result, certain totals may not sum due to rounding.

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, share-based compensation, operating lease assets and liabilities, and income taxes. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. The future developments of the COVID-19 pandemic may also directly or indirectly impact the Company’s business, including impacts due to quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. Actual results could differ from the Company’s estimates. 

Foreign currency

The financial statements of the Company’s subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for shareholders’ equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other comprehensive income (loss) in shareholders’ equity. Foreign currency transaction gains and losses are included in other income (expense), net in the results of operations. The Company recorded realized and unrealized foreign currency transaction losses of $6.1 million and gains of $1.4 million for the three months ended March 31, 2022 and 2021, respectively, which is included in other income (expense), net in the condensed consolidated statements of operations and 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.

6


 

Marketable securities

Marketable securities consist of investments with original maturities greater than ninety days at the date of acquisition. 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 the statement of operations; 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 the condensed consolidated statements of operations.

United Kingdom research and development tax credit

As a company that carries out research and development activities, the Company is able to submit tax credit claims from two UK 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 Credit (“RDEC”) program depending on eligibility. 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.

Each reporting period, management evaluates which tax relief programs the Company is expected to be eligible for and records a reduction to research and development expense for the portion of the expense that it expects to qualify under the programs, that it plans to submit a claim for, and it has reasonable assurance that the amount will ultimately be realized. Based on criteria established by HM Revenue and Customs (“HMRC”), management of the Company expects a proportion of expenditures being undertaken in relation to its pipeline research, clinical trials management and manufacturing development activities to be eligible for the research and development tax relief programs for the year ended December 31, 2022. The Company expects when if files it claim for the years ended December 31, 2021 and 2022, it will qualify under the SME regime.

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 whether the nature of the activities and expenditures will qualify for credit under the tax relief programs and whether the claims will ultimately be realized based on the allowable reimbursable expense criteria established by the UK government which are subject to interpretation. At each period end, the Company estimates the reimbursement available to the Company based on available information at the time.

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 in the condensed consolidated statement of operations and comprehensive loss. 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 periods. (amounts in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Balance at beginning of period

 

$

30,723

 

 

$

17,344

 

Recognition of credit claims as offset to research and development expense

 

 

3,337

 

 

 

3,554

 

Receipt of credit claims

 

 

(16,474

)

 

 

 

Foreign currency translation

 

 

(937

)

 

 

147

 

Balance at end of period

 

$

16,649

 

 

$

21,045

 

As of March 31, 2022, the Company’s tax incentive receivable from the UK government was $16.7 million, of which $13.4 million was classified as current.  As of December 31, 2021, the Company’s tax incentive receivable from the UK government was $30.7 million, all of which was classified as current.

7


 

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, 2022 and December 31, 2021. 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, 2022 and December 31, 2021.

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 (amounts in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Cash and cash equivalents

 

$

60,775

 

 

$

55,912

 

Restricted cash

 

 

4,266

 

 

 

4,266

 

Total cash, cash equivalents and restricted

   cash shown in the statement of cash flows

 

$

65,041

 

 

$

60,178

 

 

The Company has $7.9 million in an escrow account associated with construction on the Fremont facility, for which the Company has ceased construction and build-out and subleased to a third-party. Subject to the terms of the lease and reduction provisions, this amount will be returned to the Company upon qualifying construction expenditure or will be returned in late 2022 to the extent construction expenses have not been incurred. The Company deposited $10.0 million into the account in the first quarter of 2020 and has received $2.1 million in receipts from the escrow funds for costs incurred to date. Of the $7.9 million remaining in the escrow account, the entire balance is classified within prepaid expenses condensed consolidated balance sheet based on the timing of when the Company expects funds to be returned from the escrow agent.

 

Accounts receivable

 

Accounts receivable arise from product revenues and amounts due from the Company's collaboration partners and have standard payment terms that generally require payment within 30 to 90 days. The amount from product revenues represents amounts due from distributors in Europe, which are recorded net of reserves for trade discounts and allowances, and other incentives to the extent such amounts are payable to the customer by the Company. The Company monitors economic conditions to identify facts or circumstances that may indicate that its receivables are at risk of collection. The Company provides reserves against accounts receivable for estimated losses, if any, that may result from a customer's inability to pay based on the composition of its accounts receivable, current economic conditions, and historical credit loss activity. Amounts determined to be uncollectible are charged or written-off against the reserve. During the three months ended March 31, 2022, the Company did not record any expected credit losses related to outstanding accounts receivable.

 

Product revenues, net

Libmeldy

 

In January 2022, the Company began generating product revenue from sales of Libmeldy in Europe following the approval of Libmeldy by the European Commission in December 2020 for the treatment of early onset metachromatic leukodystrophy (“MLD”), characterized by biallelic mutations in the arylsulfatase-A (ARSA) gene leading to a reduction of the ARSA enzymatic activity in children with (i) late infantile or early juvenile forms, without clinical manifestations of the disease, or (ii) the early juvenile form, with early clinical manifestations of the disease, who still have the ability to walk independently and before the onset of cognitive decline.

 

The Company recognizes revenue when control of promised goods is transferred to a customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. Control of the product transfers upon infusion of the product. To determine revenue recognition, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations. The Company only applies the five-step model to contracts when collectability of the consideration to which we are entitled in exchange for the goods the Company transfers to the customer is determined to be probable.

8


 

 

Amounts are recorded as accounts receivable when the right to the consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. As of March 31, 2022, the Company has not capitalized any costs to obtain any of contracts.

 

The Company recognizes product revenues, net of variable consideration related to certain allowances and accruals, when the customer takes control of the product, which is at a point in time once the patient has been infused. Product revenue is recorded at the net sales price, or transaction price. The Company records product revenue reserves, which are classified as a reduction in product revenues, to account for the components of variable consideration. Variable consideration includes the following components: government rebates, including performance-based rebates, trade discounts and allowances, and other incentives, which are described below.

 

These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as a liability. The Company's estimates of reserves established for variable consideration are calculated based upon an application of the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. These estimates reflect the Company's historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and current expectations around final pricing. The amount of variable consideration that is included in the transaction price may be subject to constraint and is included in net product revenues only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration received may ultimately differ from the Company's estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment. The following is a summary of the types of variable consideration the Company records:

 

Government rebates: The Company is subject to statutory government rebates on sales in certain European countries as well as estimated rebates in certain European countries because final pricing has not yet been negotiated. The Company records reserves for rebates in the same period the related product revenue is recognized, resulting in a reduction of product revenues and a current liability that is included in accrued expenses on the Company’s condensed consolidated balance sheet. The Company is also subject to potential rebates in connection with performance criteria agreed upon with certain payors. The estimate for rebates is based on statutory discount rates, industry pricing data, current expectations around final pricing to be obtained, and historical experience of the performance of the Company’s products during clinical trials The Company classifies rebates within accrued expenses in the accompanying condensed consolidated balance sheets.

 

Trade discounts and allowances: The Company may offer customers discounts, such as prompt pay discounts to remit payment in accordance with the stated terms of the invoice and fees for distribution services. These discounts are explicitly stated in the contracts and recorded in the period the related product revenue is recognized. The Company estimates which customers will earn these discounts and fees and deducts these discounts and fees in full from gross product revenues and accounts receivable at the time the Company recognizes the related revenues. The Company classifies trade discounts and allowances as a reduction of accounts receivable within the accompanying condensed consolidated balance sheets.

 

Product returns: Based on the timing of revenue recognition upon treatment with the patient, the Company does not expect any returns of the Company’s products.

 

Other incentives: While the Company does not currently have any other incentives that have been recorded to date, the Company may enter into future arrangements that have other incentives that will be recorded as a reduction of revenue.  

Strimvelis

The Company’s product sales of Strimvelis are currently distributed exclusively at the San Raffaele Hospital in Milan, Italy. The hospital will purchase and pay for the products and submit a claim to the payer. The Company’s contracted sales with the hospital contains a single performance obligation and the Company recognizes revenue from product sales when the Company has satisfied its performance obligation, which is upon transferring control of the products to the hospital. The Company evaluated the variable consideration under ASC 606 and there is currently no variable consideration included in the transaction price for the products. Costs to manufacture and deliver the product and those associated with administering the therapy are included in cost of product sales. As the product is sold in direct relation to a scheduled treatment, the Company estimates there is limited risk of product return, including the risk of product expiration.

 

9


 

 

Disaggregated Product Revenue Disclosures

During the quarter ended March 31, 2022, the Company recognized $5.1 million of product revenues related to Libmeldy, all related to sales in Europe, which is net of $1.4 million of product revenue reserves primarily related to governmental rebates, that have been recognized in accrued expenses in the accompanying condensed consolidated balance sheet. There were no Strimvelis sales during the three months ended March 31, 2022 or 2021.

Strimvelis loss provision

As part of its transaction with Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development LTD (together, “GSK”), 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 12). 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 reduction in research and development expense. The Company has made an estimate of the expected future losses associated with Strimvelis and 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 updates to estimates of potential future losses.

The following table below outlines the changes to the Strimvelis loss provision for the periods ended March 31, 2022 and 2021 (amounts in thousands):  

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Balance at beginning of period

 

$

3,419

 

 

$

4,482

 

Amortization of loss provision

 

 

(276

)

 

 

(446

)

Foreign currency translation

 

 

(86

)

 

 

40

 

Balance at end of period

 

$

3,057

 

 

$

4,076

 

 

Of the balance as of March 31, 2022 noted in the table above, $0.9 million is classified as current, and $2.1 million is classified as non-current.

Net loss per share

Basic net loss per share is computed by dividing the net loss by the weighted average number of voting and non-voting ordinary shares outstanding for the period. Diluted net loss is computed by adjusting net loss based on the potential impact of dilutive securities. Diluted net loss per share is computed by dividing the diluted net loss 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 potential ordinary share equivalents 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,

 

 

 

2022

 

 

2021

 

Share options

 

 

13,113,339

 

 

 

12,935,554

 

Unvested performance-based restricted share units

 

 

500,989

 

 

 

717,167

 

 

 

 

13,614,328

 

 

 

13,652,721

 

 

 

10


 

 

 

Recently adopted accounting pronouncements

In November 2021, the FASB issued ASU No. 2020-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires increased transparency in the disclosures about government assistant in the notes to the financial statements. This ASU is effective for the Company beginning January 1, 2022, and interim periods within that year, with early adoption permitted. The Company adopted and applied the amendments of this ASU to its disclosures. The application of this ASU did not have a material impact on its financial position, results of operations or cash flows.

3. Fair value measurements and marketable securities

The following tables present information about the Company’s financial assets that have been measured at fair value as of March 31, 2022 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, 2022, there were no transfers between Level 1 and Level 2 financial assets.

The following table summarizes the Company’s cash equivalents and marketable securities as of March 31, 2022 (amounts in thousands):

 

 

 

Fair Value Measurements at March 31, 2022 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

19,426

 

 

$

 

 

$

 

 

$

19,426

 

Commercial paper