10-Q
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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, 2023

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.)

245 Hammersmith Road

London W6 8PW

United Kingdon

(Address of principal executive offices)

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 ten

ordinary shares, nominal value £0.10 per share

 

ORTX

 

The Nasdaq Capital Market

Securities registered pursuant to Section 12(b) of the Act: None

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, 2023, the Registrant had 184,260,149 ordinary voting and non-voting shares, nominal value £0.10 per share, outstanding, which if all held in ADS form would be represented by 18,426,014 American Depositary Shares, each representing ten ordinary shares.

 

 


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.
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 any of our 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 pre-clinical 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.
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.
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.
We may be unable to establish effective sales and marketing capabilities, which would negatively impact our revenue.
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.
We face significant competition in our industry and there can be no assurance that our commercial products or our product candidates, if approved, will achieve acceptance in the market.
We may experience disruptions in the development of our product candidates as the result of the COVID-19 pandemic.
We may be unable to protect our intellectual property rights throughout the world.
We may become subject to claims that we are infringing certain third-party patents.
We have in the past, and in the future we may, enter into collaborations with third parties to develop or commercialize product candidates. These collaborations may not be successful.
The market price of our ADSs may be highly volatile and may fluctuate due to factors beyond our control.

 

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.


Table of Contents

 

 

Page

PART I.

FINANCIAL INFORMATION

6

Item 1.

Financial Statements (Unaudited)

6

Condensed Consolidated Balance Sheets

6

Condensed Consolidated Statements of Operations and Comprehensive Loss

7

Condensed Consolidated Statements of Shareholders' Equity

8

 

Condensed Consolidated Statements of Cash Flows

9

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

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

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II.

OTHER INFORMATION

37

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

93

Item 3.

Defaults Upon Senior Securities

93

Item 4.

Mine Safety Disclosures

93

Item 5.

Other Information

93

Item 6.

Exhibits

94

Signatures

95

 

 


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 timing, progress and results of clinical trials and pre-clinical studies for our programs and product candidates, including statements regarding the timing of initiation and completion of trials or studies and related preparatory work and the period during which the results of the trials or studies will become available;
the timing, scope and likelihood of regulatory submissions, filings and approvals, including our expectations and timing to complete our biologics license application, or BLA, for OTL-200, currently expected in mid-2023;
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, commercial products, product candidates and technology;
our plans and ability to build out our commercial infrastructure and successfully identify eligible patients for Libmeldy in Europe and our product candidates, if approved for commercial use;
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 a resident;
the adequacy, scalability and commercial viability of our manufacturing capacity, methods and processes, including those of our manufacturing partners, and our plans for future development;
the rate and degree of market acceptance and clinical utility of our commercial products and product candidates 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 on our business operations;
our competitive position;
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; and
other risks and uncertainties, including those listed under the caption “Item 1A. Risk Factors” in this 10-Q.

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.

 

 


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,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

61,487

 

 

$

68,424

 

Marketable securities

 

 

84,828

 

 

 

75,326

 

Accounts receivable

 

 

 

 

 

8,467

 

Prepaid expenses and other current assets

 

 

13,810

 

 

 

9,986

 

Research and development tax credit receivable

 

 

6,075

 

 

 

5,942

 

Total current assets

 

 

166,200

 

 

 

168,145

 

Non-current assets:

 

 

 

 

 

 

Operating lease right-of-use-assets

 

 

21,904

 

 

 

22,774

 

Property and equipment, net

 

 

8,149

 

 

 

8,138

 

Research and development tax credit receivable

 

 

769

 

 

 

 

Restricted cash

 

 

4,215

 

 

 

4,215

 

Intangible assets, net

 

 

3,518

 

 

 

3,560

 

Other assets

 

 

12,262

 

 

 

12,075

 

Total non-current assets

 

 

50,817

 

 

 

50,762

 

Total assets

 

$

217,017

 

 

$

218,907

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,772

 

 

$

9,318

 

Accrued expenses and other current liabilities

 

 

27,984

 

 

 

34,437

 

Deferred revenue, current

 

 

634

 

 

 

959

 

Operating lease liabilities

 

 

6,467

 

 

 

6,424

 

Notes payable, current

 

 

9,429

 

 

 

9,429

 

Total current liabilities

 

 

53,286

 

 

 

60,567

 

Notes payable, long-term

 

 

20,717

 

 

 

22,991

 

Deferred revenue, net of current portion

 

 

10,779

 

 

 

10,315

 

Operating lease liabilities, net of current portion

 

 

16,657

 

 

 

19,246

 

PIPE Warrant and PIPE Unit liabilities

 

 

6,186

 

 

 

 

Other long-term liabilities

 

 

7,737

 

 

 

7,524

 

Total liabilities

 

 

115,362

 

 

 

120,643

 

Commitments and contingencies (see Note 15)

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Ordinary shares (voting and non-voting), £0.10 par value;
Most recent authority to allot up to a maximum nominal value of £
13,023,851.50 of shares at March 31, 2023 and December 31, 2022, respectively;
Issued and outstanding —
184,256,359 and 126,947,225 shares at March 31, 2022 and December 31, 2022, respectively.

 

 

23,871

 

 

 

16,419

 

Additional paid-in capital

 

 

975,719

 

 

 

956,711

 

Accumulated other comprehensive income

 

 

20,361

 

 

 

26,018

 

Accumulated deficit

 

 

(918,296

)

 

 

(900,884

)

Total shareholders’ equity

 

 

101,655

 

 

 

98,264

 

Total liabilities and shareholders’ equity

 

$

217,017

 

 

$

218,907

 

 

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 March 31,

 

 

 

2023

 

 

2022

 

Product revenue, net

 

$

534

 

 

$

5,059

 

Collaboration revenue

 

 

703

 

 

 

465

 

Total revenue

 

 

1,237

 

 

 

5,524

 

Costs and operating expenses:

 

 

 

 

 

 

Cost of product revenue

 

 

367

 

 

 

1,571

 

Research and development

 

 

15,993

 

 

 

28,234

 

Selling, general and administrative

 

 

11,135

 

 

 

13,299

 

Total costs and operating expenses

 

 

27,495

 

 

 

43,104

 

Loss from operations

 

 

(26,258

)

 

 

(37,580

)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

1,029

 

 

 

69

 

Interest expense

 

 

(957

)

 

 

(675

)

Changes in fair value of PIPE Warrant and PIPE Unit liabilities

 

 

3,852

 

 

 

 

Other income (expense), net

 

 

4,910

 

 

 

(6,052

)

Total other income (expense), net

 

 

8,834

 

 

 

(6,658

)

Net Loss before income taxes

 

 

(17,424

)

 

 

(44,238

)

Income tax benefit (expense)

 

 

12

 

 

 

(58

)

Net loss attributable to ordinary shareholders

 

$

(17,412

)

 

$

(44,296

)

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

 

$

(0.12

)

 

$

(0.35

)

Weighted average ordinary shares outstanding,
   basic and diluted

 

 

141,809,004

 

 

 

127,694,785

 

Other comprehensive income:

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(5,731

)

 

 

5,595

 

Unrealized gain (loss) on marketable securities

 

 

74

 

 

 

(260

)

Total other comprehensive income (loss)

 

 

(5,657

)

 

 

5,335

 

Total comprehensive loss

 

$

(23,069

)

 

$

(38,961

)

 

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


ORCHARD THERAPEUTICS PLC

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands, except share and per share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated Other

 

 

 

 

 

 

 

 

Ordinary Shares

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Total

 

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

 

 

Balance at December 31, 2022

 

126,947,225

 

 

$

16,419

 

 

$

956,711

 

 

$

26,018

 

 

$

(900,884

)

 

$

98,264

 

Share-based compensation expense

 

 

 

 

 

 

 

3,512

 

 

 

 

 

 

 

 

 

3,512

 

Exercise of share options

 

332,209

 

 

 

43

 

 

 

(2

)

 

 

 

 

 

 

 

 

41

 

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

 

310,025

 

 

 

40

 

 

 

(206

)

 

 

 

 

 

 

 

 

(166

)

Sale of voting and non-voting ordinary shares, net of issuance costs of $889

 

56,666,900

 

 

 

7,369

 

 

 

15,704

 

 

 

 

 

 

 

 

 

23,073

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

(5,731

)

 

 

 

 

 

(5,731

)

Unrealized loss on available for sale debt securities

 

 

 

 

 

 

 

 

 

 

74

 

 

 

 

 

 

74

 

Net loss attributable to ordinary shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,412

)

 

 

(17,412

)

Balance at March 31, 2023

 

184,256,359

 

 

$

23,871

 

 

$

975,719

 

 

$

20,361

 

 

$

(918,296

)

 

$

101,655

 

 

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


ORCHARD THERAPEUTICS PLC

Condensed Consolidated Statements of Cash Flows

(In thousands, except share and per share amounts)

(unaudited)

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss attributable to ordinary shareholders

 

$

(17,412

)

 

$

(44,296

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

643

 

 

 

709

 

Share-based compensation

 

 

3,512

 

 

 

4,660

 

Non-cash interest expense

 

 

121

 

 

 

94

 

Amortization of provision on loss contract

 

 

 

 

 

(274

)

Amortization of premium on marketable securities

 

 

(592

)

 

 

187

 

Deferred income taxes

 

 

242

 

 

 

787

 

Change in fair value of warrant and tranche obligation liabilities

 

 

(3,852

)

 

 

 

Unrealized foreign currency and other non-cash adjustments

 

 

(6,197

)

 

 

5,984

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

8,599

 

 

 

(2,719

)

Research and development tax credit receivable

 

 

(769

)

 

 

13,483

 

Prepaid expenses, other current assets and other assets

 

 

(4,136

)

 

 

(62

)

Operating leases, right-of-use assets

 

 

1,114

 

 

 

1,455

 

Accounts payable, accrued expenses and other liabilities

 

 

(7,912

)

 

 

3,815

 

Deferred revenue

 

 

(107

)

 

 

(65

)

Operating lease liabilities

 

 

(2,762

)

 

 

(3,357

)

Net cash used in operating activities

 

 

(29,508

)

 

 

(19,599

)

Cash flows from investing activities:

 

 

 

 

 

 

Proceeds from sales and maturities of marketable securities

 

 

30,000

 

 

 

55,186

 

Purchases of marketable securities

 

 

(38,832

)

 

 

(29,681

)

Purchases of property and equipment

 

 

(514

)

 

 

(398

)

Net cash provided by (used in) investing activities

 

 

(9,346

)

 

 

25,107

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from employee equity plans

 

 

41

 

 

 

 

Payment of taxes on restricted stock vesting

 

 

(166

)

 

 

 

Proceeds from the issuance of shares in private placement

 

 

34,000

 

 

 

 

Payment of placement agent fees and offering costs in connection with private placement

 

 

(12

)

 

 

 

Repayment of notes payable

 

 

(2,357

)

 

 

 

Net cash provided by financing activities

 

 

31,506

 

 

 

 

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

 

 

411

 

 

 

(645

)

Net increase in cash, cash equivalents and restricted cash

 

 

(6,937

)

 

 

4,863

 

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

 

 

72,639

 

 

 

60,178

 

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

 

$

65,702

 

 

$

65,041

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

Private placement offering costs in accounts payable and accrued expenses

 

$

1,606

 

 

$

 

Intangible assets and property and equipment in accounts payable and accrued expenses

 

$

104

 

 

$

1,102

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Lease assets obtained in exchange for new operating lease liabilities

 

$

 

 

$

4,912

 

Cash paid for interest

 

$

812

 

 

$

581

 

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 and Liquidity

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”). The ADSs were listed on the Nasdaq Global Select Market on October 31, 2018, and were transferred to the Nasdaq Capital Market on September 13, 2022. The Company’s ADSs each represent ten ordinary shares of the Company. Each holder of ordinary shares is entitled to one vote per ordinary share and to receive dividends when and if such dividends are recommended by the board of directors and declared by the shareholders. The Company did not declare any dividends in 2023 or 2022. Share information presented in these condensed consolidated financial statements are presented on an ordinary share basis and not on an ADS converted basis unless otherwise indicated.

In January 2022, the Company began to generate revenue from product 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.

On March 6, 2023, the Company entered into a Securities Purchase Agreement pursuant to which the Company agreed to sell ordinary shares, non-voting ordinary shares, and warrants to purchase ordinary shares or non-voting ordinary shares in an unregistered offering (the "2023 Private Placement"). The 2023 Private Placement consists of two closings. On March 10, 2023, the Company completed the initial closing and issued and sold (i) 56,666,900 ordinary shares and non-voting ordinary shares, nominal value £0.10 per share and (ii) warrants to purchase an aggregate of 62,333,590 ordinary shares or non-voting ordinary shares, at a purchase price of $6.00 per unit, where each unit consists of ten (10) Shares and an accompanying Warrant to purchase eleven (11) Shares. The initial closing of the 2023 Private Placement resulted in gross proceeds of $34.0 million. Refer to Footnote 10 for further discussion around the 2023 Private Placement.

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, 2023, 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 placements, 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., proceeds from the sales of the Company's Libmeldy product, and reimbursements associated with 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 and 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, 2023, of $146.3 million, together with expected proceeds from sales of Libmeldy, will be sufficient to fund its operations, capital expenditures and debt service payments for at least twelve months from the date of filing of this Form 10-Q. 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

10


 

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.

2. 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 U.S. generally accepted accounting principles (“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 GAAP for complete financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”).

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 14, 2023 (the “Annual Report”). The condensed consolidated balance sheet as of December 31, 2022, was derived from audited consolidated financial statements included in the Company’s Annual Report but does not include all disclosures required by GAAP.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with 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 in thousands, except percentages, per share amounts or as otherwise noted. As a result, certain totals may not sum due to rounding.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Segment information

The Company operates in a single segment focusing on researching, developing and commercializing potentially curative gene therapies. Consistent with its operational structure, its chief operating decision maker manages and allocates resources at a global, consolidated level. Therefore, the results of the Company's operations are reported on a consolidated basis for the purposes of segment reporting.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with 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, collaboration agreement milestones, variable consideration in revenue recognition, operating lease assets and liabilities, valuation of PIPE Warrants and PIPE Units, 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. Unrealized losses are driven primarily by intercompany balances denominated in currencies other than the functional currency of the entity with the intercompany balance, and typically fluctuates concurrently with fluctuations in the U.S. Dollar, Pounds sterling, and Euro exchange rates. 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 $5.6

11


 

million for the three months ended March 31, 2023, and realized and unrealized foreign currency transaction losses of $6.1 million for the three months ended March 31, 2022, which is included in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

Cash equivalents

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

Marketable securities

Marketable securities consist of investments with original maturities greater than ninety days from 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 condensed consolidated statement of operations and the remaining impairment amount and unrealized gains are reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity. Credit losses are recognized through the use of an allowance for credit losses account and subsequent improvements in expected credit losses are recognized as a reversal of the allowance account. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis the allowance for credit loss is written off and the excess of the amortized cost basis of the asset over its fair value is recorded in the condensed consolidated statements of operations.

Accounts receivable

Accounts receivable arise from product revenue and amounts due from the Company's collaboration partners and have payment terms that generally require payment within 30 to 90 days. For some Libmeldy customers, our payment terms can range from 30 days to under one year. The amount from product revenue 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, 2023, the Company did not record any expected credit losses related to outstanding accounts receivable.

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under GAAP. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: