SEC Filing | Orchard Therapeutics

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10-Q

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


☐	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.

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

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

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:

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly, such as quoted market prices, interest rates, and yield curves.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company believes that the carrying amount reflected on the consolidated balance sheets for research and development tax incentive receivable, trade receivables, accounts payable, and accrued expenses approximate fair value due to their short-term maturities. The carrying value of the Company’s outstanding notes payable approximates fair value (a Level 2 fair value measurement), reflecting interest rates currently available to the Company.