prvl-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020    

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                

Commission File Number: 001-38939

 

Prevail Therapeutics Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-2129632

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

430 East 29th Street, Suite 1520

New York, New York 10016

10016

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (917) 336-9310

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, par value $0.0001 per share

PRVL

The Nasdaq Stock Market LLC

 

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 7, 2020, the registrant had 34,201,746 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 


Table of Contents

 

 

 

Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

1

 

 

 

PART I.

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements (Unaudited)

2

 

Balance Sheets

2

 

Statements of Operations

3

 

Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Deficit

4

 

Statements of Cash Flows

5

 

Notes to Unaudited Financial Statements

6

 

 

 

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

 

 

 

 

 

 

PART II.

OTHER INFORMATION

28

 

 

 

Item 1.

Legal Proceedings

28

Item 1a.

Risk Factors

28

Item 2.

Recent Sales of Unregistered Securities

76

Item 3.

Defaults Upon Senior Securities

76

Item 4.

Mine Safety Disclosures

76

Item 5.

Other Information

76

Item 6.

Exhibits

77

 

SIGNATURES

78

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements about:

 

our expectations regarding the initiation, timing, scope and results of our development activities, including our planned clinical trials;

 

 

the timing of and plans for regulatory filings;

 

our plans to obtain and maintain regulatory approvals of our product candidates in any of the indications for which we plan to develop them;

 

 

the potential benefits of our product candidates and technologies;

 

our expectations regarding our ability to identify additional gene therapy product candidates;

 

the market opportunities for our product candidates and our ability to maximize those opportunities;

 

our business strategies and goals;

 

estimates of our expenses, capital requirements and need for additional financing;

 

our expectations regarding potentially establishing manufacturing capabilities;

 

the performance of our third-party suppliers and manufacturers,

 

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and our ability to operate our business without infringing on the intellectual property rights of others;

 

 

our expectations regarding developments and projections relating to our competitors and any competing therapies that are or become available;

 

 

our ability to identify, recruit and retain key personnel;

 

the potential effects of the current COVID-19 pandemic on our business, operations and clinical development timelines and plans;

 

regulatory development in the United States and foreign countries; and

 

our expectations regarding the uses of the net proceeds from our initial public offering, or IPO; and

 

 

the sufficiency our existing cash and cash equivalents to fund our operations.

 

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target” or “will” or the negative of these terms or other similar expressions intended to identify statements about the future. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, 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. These statements are inherently, uncertain and investors are cautioned not to unduly rely upon these statements.

You should read the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 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. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

You should read this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

1


PART I—FINANCIAL INFORMATION

Prevail Therapeutics Inc.

Balance Sheets

(in thousands, except share and per share data)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

149,580

 

 

$

168,051

 

Prepaid expenses and other current assets

 

 

4,909

 

 

 

6,410

 

Total current assets

 

 

154,489

 

 

 

174,461

 

Property and equipment, net

 

 

2,725

 

 

 

2,549

 

Operating lease right-of-use assets

 

 

9,682

 

 

 

10,001

 

Other long-term assets

 

 

1,817

 

 

 

 

Restricted cash

 

 

91

 

 

 

91

 

TOTAL ASSETS

 

$

168,804

 

 

$

187,102

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,943

 

 

$

5,162

 

Accrued expenses and other current liabilities

 

 

5,452

 

 

 

5,330

 

Operating lease liabilities

 

 

1,395

 

 

 

1,341

 

Total current liabilities

 

 

10,790

 

 

 

11,833

 

Long-term operating lease liabilities

 

 

9,553

 

 

 

9,927

 

TOTAL LIABILITIES

 

 

20,343

 

 

 

21,760

 

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock - $0.0001 par value, 10,000,000 shares authorized as of March 31,

   2020 and December 31, 2019, respectively; no shares issued as of March 31,

   2020 and December 31, 2019, respectively

 

 

 

 

 

 

Common stock - $0.0001 par value, 200,000,000 shares authorized

   as of March 31, 2020 and December 31, 2019, respectively,

   34,196,456 and 34,138,750 shares issued and outstanding as

   of March 31, 2020 and December 31, 2019, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

251,135

 

 

 

249,441

 

Accumulated deficit

 

 

(102,677

)

 

 

(84,102

)

Total stockholders’ equity

 

 

148,461

 

 

 

165,342

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

168,804

 

 

$

187,102

 

 

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

2


Prevail Therapeutics Inc.

Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

$

11,417

 

 

$

8,411

 

General and administrative

 

 

 

7,862

 

 

 

1,885

 

Operating loss

 

 

 

(19,279

)

 

 

(10,296

)

Other income

 

 

 

210

 

 

 

 

Interest income

 

 

 

494

 

 

 

351

 

Total other income

 

 

 

704

 

 

 

351

 

Net loss

 

 

$

(18,575

)

 

$

(9,945

)

Net loss per share

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

$

(0.56

)

 

$

(1.73

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

 

33,267,342

 

 

 

5,740,874

 

 

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


 

3


Prevail Therapeutics Inc.

Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands except share data)

 

 

 

Series Seed

 

 

Series A

 

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Equity (Deficit)

 

For the three months ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

34,138,750

 

 

$

3

 

 

$

249,441

 

 

$

(84,102

)

 

$

165,342

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,632

 

 

 

 

 

 

1,632

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57,706

 

 

 

 

 

 

62

 

 

 

 

 

 

62

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,575

)

 

 

(18,575

)

Balance at March 31, 2020

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

34,196,456

 

 

$

3

 

 

$

251,135

 

 

$

(102,677

)

 

$

148,461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

6,480,000

 

 

$

3,524

 

 

 

8,997,085

 

 

$

76,186

 

 

 

 

 

$

 

 

 

7,209,000

 

 

$

1

 

 

$

2,496

 

 

$

(20,914

)

 

$

(18,417

)

Issuance of Series B Preferred Stock, net of

issuance costs of $166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,958,046

 

 

 

49,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

612

 

 

 

 

 

 

612

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,945

)

 

 

(9,945

)

Balance at March 31, 2019

 

 

6,480,000

 

 

$

3,524

 

 

 

8,997,085

 

 

$

76,186

 

 

 

3,958,046

 

 

$

49,834

 

 

 

7,209,000

 

 

$

1

 

 

$

3,108

 

 

$

(30,859

)

 

$

(27,750

)

 

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

 

4


Prevail Therapeutics Inc.

Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(18,575

)

 

$

(9,945

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

111

 

 

 

37

 

Stock-based compensation

 

 

1,632

 

 

 

612

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,501

 

 

 

(3,820

)

Other long-term assets

 

 

(1,817

)

 

 

 

Operating lease right-of-use asset

 

 

319

 

 

 

317

 

Accounts payable

 

 

(1,219

)

 

 

712

 

Accrued expenses and other current liabilities

 

 

122

 

 

 

(68

)

Operating lease liabilities

 

 

(320

)

 

 

(170

)

Net cash used in operating activities

 

 

(18,246

)

 

 

(12,325

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(287

)

 

 

(256

)

Net cash used in investing activities

 

 

(287

)

 

 

(256

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payment of issuance costs for preferred stock

 

 

 

 

 

(166

)

Proceeds from exercise of stock options

 

 

62

 

 

 

 

Proceeds from issuance of Series B Preferred Stock

 

 

 

 

 

50,000

 

Net cash provided by financing activities

 

 

62

 

 

 

49,834

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(18,471

)

 

 

37,253

 

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

 

 

168,142

 

 

 

63,106

 

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

 

$

149,671

 

 

$

100,359

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Deferred offering costs

 

$

 

 

$

1,337

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31,

 

 

 

2020

 

 

2019

 

Reconciliation of cash, cash equivalents and restricted cash reported within the Balance

   Sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

149,580

 

 

$

100,268

 

Restricted Cash

 

 

91

 

 

 

91

 

Total cash, cash equivalents and restricted cash

 

 

149,671

 

 

 

100,359

 

 

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

 

 

5


 

 

Prevail Therapeutics Inc.

Notes to the Financial Statements (Unaudited)

1. NATURE OF THE BUSINESS

Prevail Therapeutics Inc., or the Company, was incorporated in the State of Delaware on July 6, 2017. The Company is a clinical-stage gene therapy company engaged in the research and development of novel gene therapies for patients with neurodegenerative diseases. Since beginning operations, the Company has devoted substantially all its efforts to research and development, recruiting management and technical staff, administration, and raising capital. The Company’s lead clinical-stage program is PR001 for the treatment of Parkinson’s disease with GBA1 mutation, or PD-GBA, and neuronopathic (Type 2 or Type 3) Gaucher disease, or nGD. A second clinical-stage program is PR006 for the treatment of frontotemporal dementia with GRN mutation, or FTD-GRN.  In addition, the Company is focused on developing a broad pipeline of gene therapies for a range of neurodegenerative diseases, including PR004 for the treatment of synucleinopathies, and other programs.

The Company is subject to a number of risks common to early-stage companies in the biotechnology industry. Principal among these risks are the uncertainties in the development process, development of the same or similar technological innovations by competitors, protection of proprietary technology, dependence on key personnel, compliance with government regulations and approval requirements, and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities.

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 approved products will be commercially viable. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and contractors.

Stock Split - In June 2019, the Board of Directors of the Company approved a 1.62-for-one forward stock-split of the Company’s outstanding shares of common stock, convertible preferred stock and options outstanding and available for future issuance. The stock split became effective on June 7, 2019. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect this forward stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately increased and the respective per share value and exercise prices, if applicable, were proportionately decreased in accordance with the terms of the agreements governing such securities.

Initial Public Offering - In June 2019, the Company completed its initial public offering, or IPO, whereby the Company sold an aggregate of 7,353,000 shares of its common stock at a price of $17.00 per share. The shares began trading on The Nasdaq Global Select Market on June 20, 2019. The aggregate net proceeds received by the Company from the offering were approximately $113.0 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company of $12.0 million. Upon the closing of the IPO, all outstanding shares of redeemable convertible preferred stock converted into 19,435,131 shares of common stock. Additionally, the Company is authorized to issue 200,000,000 shares of common stock and 10,000,000 shares of preferred stock. On June 24, 2019, the Company filed an Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, in connection with the closing of the IPO.

Liquidity and Capital Resources- Since its inception, the Company has incurred operating losses and has consistently used cash in operations. The Company has not recognized any revenue to date, devoting its efforts and capital resources to research and development of its product candidates. The Company’s activities have been primarily funded by the sale of shares of convertible preferred stock and common stock (see Note 7). The Company manages its capital resources to ensure the Company will continue as a going concern while maximizing the return to stockholders through the optimization of the debt and equity balances.

The Company’s cash and cash equivalents as of March 31, 2020 and December 31, 2019 were $149.6 million and $168.1 million respectively. In March 2019, the Company raised an aggregate of $49.8 million of net proceeds from its Series B Preferred Stock financing. In June 2019, the Company completed its IPO whereby the Company sold an aggregate of 7,353,000 shares of its common stock for aggregate net proceeds of approximately $113.0 million. Based on the Company’s cash and cash equivalents balance as of March 31, 2020, the Company estimates that its cash and cash equivalents balance will be sufficient to enable it to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of these financial statements. This estimate is based on assumptions that may prove to be incorrect, and the Company could use its available capital resources sooner than currently expected. Changing circumstances could cause the Company to consume capital resources sooner than currently anticipated, and the Company may need to spend more than currently planned due to circumstances beyond its control.

6


 

 

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The Company’s unaudited interim financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, for interim information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, or the SEC, for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. These unaudited interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The COVID-19 pandemic is expected to result in a slowdown of economic activity that is likely to interrupt business operations across the globe. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the reported amounts of assets and liabilities or the disclosure of contingent assets and liabilities. These estimates, however, may change as new events occur and additional information is obtained, and are recognized in the financial statements as soon as they become known.

Use of Estimates—The preparation of 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 financial statements, and the reported amounts of expenses during the reporting period. Significant estimates in the financial statements include, but are not limited to stock-based compensation, operating lease right-of-use assets and liabilities, the recoverability of the Company’s net deferred tax assets and related valuation allowance, and accrued liabilities related to expenses incurred for research and development from external vendors. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. The Company tracks the progress of its various research and development studies and manufacturing projects to ensure related prepaid expenses and accrued expenses are in line with progress of each. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Actual results may differ materially from those estimates or assumptions.

Cash, Cash Equivalents and Restricted Cash—The Company’s cash and cash equivalents include short-term highly liquid investments which are readily convertible into cash. These investments include money market securities and commercial paper with maturities of three months or less when acquired. The Company’s institutional money market accounts permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions, which are considered Level 1 inputs in the fair value hierarchy, as described below. The Company had cash and cash equivalents of $149.6 million as of March 31, 2020. Restricted cash represents cash on deposit with a financial institution as collateral in support of a letter of credit outstanding in favor of the Company’s landlord for office space. The restricted cash balance has been excluded from the cash balance and is classified as non-current restricted cash on the balance sheets as the lease expires after March 31, 2021.

Concentration of Credit Risk—The Company maintains cash deposits in excess of government-provided insurance limits. The Company maintains its cash balances with one high quality, accredited financial institution, and accordingly, such funds are not exposed to significant credit risk.

Leases—The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use, or ROU, assets, operating lease liabilities, and long-term operating lease liabilities in the Company’s balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide a readily determinable implicit rate, the Company’s uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives.

The Company’s facilities operating leases have lease and non-lease components for which the Company has elected to apply the practical expedient and account for each lease component and related non-lease component as one single component. Operating lease cost is recognized on a straight-line basis over the lease term.

7


 

 

Property and Equipment, NetProperty and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the estimated useful life of the asset, ranging from 3-7 years as follows:

 

Fixed Asset Type

 

Estimated useful life

Laboratory Equipment

 

7 Years

Leasehold Improvements

 

Lesser of useful life or remaining lease term

Computer Equipment

 

3 Years

Furniture and Fixtures

 

7 Years

 

Expenditures for repairs and maintenance of assets are charged to expense as incurred, while major betterments are capitalized. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts and any resulting gain or loss is included in the statements of operations.

Impairment of Long-Lived Assets—Long-lived assets, comprised of property and equipment, to be held and used and the right-of-use asset associated with the Company’s leased office space are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its current fair value. To date, the Company has not recorded any impairment losses on long-lived assets.

Other Long-Term Assets – At March 31, 2020 the Company had other long-term assets that primarily consisted of advanced payments made to the contract research organization responsible for conducting the Company’s PROPEL and PROCLAIM clinical trials.

Comprehensive Loss—The Company did not have items of other comprehensive loss for the three months ended March 31, 2020 and 2019, and therefore does not present a statement of comprehensive loss. The Company’s comprehensive loss equals its net loss.

Fair Value Measurements—Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A framework is used for measuring fair value utilizing a three-tier hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. 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—Unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The following table summarizes assets measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019 (and does not include cash of $0.2 million and $0.2 million):

 

 

 

Active Markets

(Level 1)

 

 

Observable

Inputs (Level 2)

 

 

Unobservable

Inputs (Level 3)

 

 

March 31, 2020

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

149,390

 

 

$

 

 

$

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

91

 

 

$

 

 

$

 

 

Total

 

$

149,481

 

 

$

 

 

$

 

 

 

8


 

 

 

 

Active Markets

(Level 1)

 

 

Observable

Inputs (Level 2)

 

 

Unobservable

Inputs (Level 3)

 

 

December 31, 2019

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

167,805

 

 

$

 

 

$

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

91

 

 

$

 

 

$

 

 

Total

 

$

167,896

 

 

$

 

 

$

 

 

 

There have been no changes to the valuation methods utilized by the Company, nor were there transfers between Level 1, Level 2 and Level 3 investments during the three months ended March 31, 2020. As of March 31, 2020 and December 31, 2019 there were no financial instruments classified as Level 3 investments.

Research and Development Costs—Research and development costs are expensed as incurred. Research and development expenses consist principally of personnel costs, including salaries, stock-based compensation, and benefits for research and development employees, costs related to third-party contract research, contract development and manufacturing organizations, other third-party research service providers, third-party license fees, other direct and indirect operational costs related to the Company’s research and development activities, including facility-related expenses. Non-refundable research and development advance payments are capitalized and expensed as the related goods are delivered or services are performed.

Stock-Based Compensation—The Company measures all stock options and other stock-based awards granted to employees, directors, consultants and other nonemployees based on the fair value on the date of the grant and recognizes compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. The Company recognizes forfeitures at the time forfeitures occur.

The Company classifies stock-based compensation expense in its statement of operations in the same way the payroll costs or service payments are classified for the related stock-based award recipient. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company lacks company specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly-traded set of peer companies and expects to continue to do so until it has adequate historical data regarding the volatility of its own traded stock price.

Income Taxes—The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or the Company’s tax returns. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of the assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions. These reserves are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies related to the tax benefit. Potential interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the statement of operations.

9


 

 

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act.  The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations.  While the Company continues to examine the impacts the CARES Act may have on its business, it does not expect it will have a material impact to its financial statements.

Net Loss per Common Share—Basic net loss per Share is computed using the “two-class” method which includes the weighted average number of shares of common stock outstanding during the period and other securities that participate in dividends (a participating security). The Company’s convertible preferred stock are participating securities as defined by ASC 260-10, Earnings per Share. During the periods where the Company incurs net losses, the Company allocates no loss to participating securities because these securities have no contractual obligation to share in the losses of the Company. Under the two-class method, basic net loss per share applicable to common stockholders is computed by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed similar to basic net loss per share except that the denominator is increased to include the number of additional shares for the potential dilutive effects of convertible debt, convertible preferred stock and stock options outstanding during the period calculated in accordance with the treasury stock method, or the two-class method, whichever is more dilutive. The Company allocates net earnings on a pari passu (equal) basis to both common and preferred stockholders. Net losses are not allocated to preferred stockholders as they do not have an obligation to share in the Company’s net losses. For all periods presented, basic and diluted net loss per share are the same, as any additional share equivalents would be anti-dilutive (Note 11).

Segment Reporting—Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the Company’s Chief Operating Decision Maker in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and manages its business as one operating segment.

Recently Issued Accounting Pronouncements (Adopted)— In August 2018, the FASB issued ASC 2018-13 Fair Value Measurement – Disclosure Framework-Changes to the Disclosure Requirement for Fair Value Measurement, or ASU 2018-13. The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in ASC 820, Fair Value Measurement, based on the concepts in the FASB Concepts Statement, including the consideration of costs and benefits. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. The Company has adopted this guidance effective January 1, 2020. The adoption of the guidance did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40), or ASU 2018-15. ASU 2018-15 updates guidance regarding accounting for implementation costs associated with a cloud computing arrangement that is a service contract. The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019. The Company has adopted this guidance effective January 1, 2020. The adoption of the guidance did not have a material impact on the Company’s financial statements.

3. LICENSE AGREEMENTS

REGENXBIO Inc.

In August 2017, the Company entered into a License Agreement, or the REGENXBIO GBA1 License, with REGENXBIO Inc., or REGENXBIO. Under the terms of the REGENXBIO GBA1 License, REGENXBIO granted the Company an exclusive, worldwide license under certain patents and patent applications to make, have made, use, import, sell and offer for sale products for the treatment of disease, including but not limited to Parkinson’s disease and Gaucher disease, whether or not caused by mutations in the gene that produces the GBA1 enzyme in humans by in vivo gene therapy using AAV9 delivering the gene (or any portion thereof) encoding for GBA1.

As consideration for the licensed rights under the REGENXBIO GBA1 License, the Company issued 2,430,000 shares of its common stock with an aggregate fair value of $0.4 million in a concurrent private placement to REGENXBIO. The Company is obligated, pursuant to the REGENXBIO GBA1 License, to pay REGENXBIO: (1) an annual maintenance fee; (2) mid-to high-single digit royalty percentages on net sales of licensed products, subject to reduction in specified circumstances; and (3) mid-teen to low-twenties royalty percentages of any sublicense fees the Company receives from sublicensees for the licensed intellectual property rights.

10


 

 

The REGENXBIO GBA1 License will expire on a country-by-country, licensed product-by-licensed product basis upon the later of (1) the expiration, lapse, abandonment or invalidation of the last valid claim of the licensed intellectual property and (2) seven years from the first commercial sale of each licensed product.

In May 2018, the Company entered into a license agreement, or the REGENXBIO Option Genes License, with REGENXBIO pursuant to which REGENXBIO granted the Company three distinct exclusive options for specified genes, or the Option Genes, exercisable at the Company’s sole discretion through May 10, 2019. Each option represented the right to obtain an exclusive, worldwide license under certain patents and patent applications to make, have made, use, import, sell and offer for sale products for the treatment or prevention of disease, including but not limited to Parkinson’s disease, whether or not caused by mutations in any Option Gene that is the subject of the applicable license, in humans by in vivo gene therapy using AAV9 delivering the applicable licensed Option Gene and/or RNA interference or antisense modalities that target the applicable licensed Option Gene. The Company also received a non-exclusive, royalty-free, worldwide research license to perform research and development activities for each Option Gene solely for purposes of evaluating whether to exercise the applicable option.

In April 2019, the Company exercised all of the options under the REGENXBIO Option Genes License and paid the additional up-front fee of $0.6 million per option for an aggregate of $1.8 million to REGENXBIO.

Under the terms of the REGENXBIO Option Genes License, the Company is required to pay REGENXBIO: (1) an annual maintenance fee; (2) mid- to high-single digit royalty percentages on net sales of the licensed product, subject to reduction in specified circumstances; and (3) mid-teen to low-twenties royalty percentages of any sublicense fees the Company receives from sublicensees for the licensed intellectual property rights. If a licensed product includes the GBA1 gene and otherwise would be subject to royalties under the REGENXBIO GBA1 License, then royalties for that licensed product will only be due under the REGENXBIO Option Genes License.

The REGENXBIO Option Genes License will expire on a country-by-country, licensed product-by-licensed product basis upon the later of (1) the expiration, lapse, abandonment or invalidation of the last valid claim of the licensed intellectual property and (2) seven years from the first commercial sale of each licensed product.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash equivalents, accounts payable and accrued expenses. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. The fair value of cash equivalents, which consisted of money-market funds, were determined using Level 1 inputs reflecting quoted prices in active markets. The carrying amount of accounts payable and accrued expenses as reported on the balance sheets as of March 31, 2020 and December 31, 2019, approximates fair value, due to the short-term duration of these instruments.

As of March 31, 2020 and December 31, 2019 there were no financial instruments classified as Level 3 investments. Further, during the three months ended March 31, 2020 and 2019 there were no transfers between Level 1, Level 2, and Level 3.

5. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consisted of the following, as of:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(in thousands)

 

Laboratory Equipment

 

$

2,017

 

 

$

1,730

 

Leasehold Improvements

 

 

887

 

 

 

887

 

Computer Equipment

 

 

36

 

 

 

36

 

Furniture and Fixtures

 

 

218

 

 

 

218

 

Gross property and equipment

 

 

3,158

 

 

 

2,871

 

Less: Accumulated depreciation

 

 

(433

)

 

 

(322

)

Property and equipment, net

 

$

2,725

 

 

$

2,549

 

 

11


 

 

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(in thousands)

 

Accrued compensation

 

$

1,192

 

 

$

2,577

 

Accrued research and development expense

 

 

2,629

 

 

 

1,595

 

Accrued professional fees

 

 

1,382

 

 

 

634

 

Other

 

 

249

 

 

 

524

 

Total accrued expenses and other current liabilities

 

$

5,452

 

 

$

5,330

 

 

7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK

General

In March 2019, the Company authorized the sale and issuance of 3,958,046 shares of Series B Preferred Stock with a par value per share of $0.0001 at a price of $12.63 per share for aggregate net proceeds of $49.8 million. Issuance costs were $0.2 million.

In June 2019, the Board of Directors of the Company approved a 1.62-for-one forward stock split of the Company’s outstanding shares of common stock and convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect this forward stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately increased and the respective per share value and exercise prices, if applicable, were proportionately decreased in accordance with the terms of the agreements governing such securities. Upon completion of the Company’s IPO in June 2019, all the outstanding preferred stock of the Company automatically converted into 19,435,131 shares of the Company’s common stock.

As of March 31, 2020 and December 31, 2019, the Company had 10,000,000 shares of preferred stock authorized and none issued and outstanding.

Reserve for future issuance

The Company has reserved the following number of shares of common stock for future issuance upon the exercise of options or grant of equity awards:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Options and restricted stock issued and outstanding

 

 

7,981,808

 

 

 

7,051,663

 

Shares available for future stock option grants

 

 

3,281,202

 

 

 

2,762,749

 

Total

 

 

11,263,010

 

 

 

9,814,412

 

 

12


 

 

8. LEASES

Lease Agreements—The Company leases office and laboratory space in its New York City location under an operating lease agreement entered in September 2017, with an original term of 49 months. In connection with the lease, the Company paid a security deposit of less than $0.1 million in the form of an unconditional and irrevocable letter of credit, which is secured with cash on deposit classified as restricted cash. The original lease was initially modified in October 2018, which extended the original term of the lease and included space on two additional floors. The Company accounted for the new agreement as a modification of the original agreement and recorded an additional right-of-use asset and corresponding lease liability based on the incremental borrowing rate determined as of the effective date of the modified lease. The additional floors were recognized as additional lease components. One of these lease components provided an incentive allowance to reimburse the Company for the cost of qualified leasehold improvement. During the year ended December 31, 2019, the Company incurred qualified costs of $0.4 million which will be recognized over the remaining lease term.  The Company was reimbursed for these qualified costs in February 2020.

In July 2019, the Company entered into a second modification to further extend the term to 76 months, rent additional space and surrender a portion of the originally leased space. The Company accounted for the new agreement as a modification of the existing agreement with the additional space recognized as a separate lease component. The Company recorded an additional right-of-use asset and a corresponding lease liability calculated based on the incremental borrowing rate determined as of the effective date of the second lease modification. The agreement does not include any options to extend or terminate the lease, and no restrictions or covenants are imposed by the lease agreement.

The Company identified and assessed the following significant assumption in recognizing the right-of-use assets and corresponding liabilities:

 

Incremental borrowing rate—The Company’s lease agreement does not provide a readily determinable implicit rate. As the Company does not have any external borrowings for comparable terms of the lease, the Company estimated the incremental borrowing rate based on the credit quality of the Company and by comparing interest rates available in the market for similar borrowings adjusted for the impact of collateral over the term of the lease.

The Company is required to pay for operating costs, including insurance, maintenance, and taxes, which are billed annually based on the Company’s share of the total rentable square footage. These additional charges are considered variable lease cost and are recognized in the period in which the costs are incurred.

The components of the lease expense were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Operating lease cost

 

$

569

 

 

$

459

 

Variable lease cost

 

 

167

 

 

 

139

 

Total lease cost

 

$

736

 

 

$

598

 

Weighted-average remaining lease term

 

5.58 years

 

 

5.92 years

 

Weighted-average discount rate

 

 

9.50

%

 

 

9.00

%

 

Cash paid for amounts included in the measurement of the lease liabilities, net of qualified costs, were $0.6 million for the three months ended March 31, 2020. Cash paid for amounts included in the measurement of the lease liabilities were $0.3 million for the three months ended March 31, 2019, respectively.

As of March 31, 2020 and December 31, 2019, the maturities of the Company’s remaining operating lease liabilities were as follows:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(in thousands)

 

2020

 

$

1,729

 

 

$

2,299

 

2021

 

 

2,379

 

 

 

2,379

 

2022

 

 

2,463

 

 

 

2,463

 

2023

 

 

2,549

 

 

 

2,549

 

2024

 

 

2,638

 

 

 

2,638

 

Thereafter

 

 

2,263

 

 

 

2,263

 

Present value adjustment

 

 

(3,073

)

 

 

(3,322

)

Present value of lease payments

 

$

10,948

 

 

$

11,269

 

 

13


 

 

9. STOCK-BASED COMPENSATION

In August 2017, the Company adopted the Prevail Therapeutics Inc. 2017 Equity Incentive Plan or the 2017 Plan under which the Company granted incentive stock options, nonqualified stock options, stock appreciate rights or the SARs, restricted stock, unrestricted stock, restricted stock awards, performance awards, or other awards that are convertible into or based on Company stock. The maximum number of shares that could have been be issued under the 2017 Plan was 2,511,000 shares as of December 31, 2017. In March 2018, the Company amended the 2017 Plan and increased the number of shares available to be issued under the 2017 Plan to 4,003,427. Shares underlying any award that are forfeited, expired, or repurchased shall be excluded from the maximum number that could have been issued. In December 2018 and April 2019, the Company amended the 2017 Plan and increased the number of shares available to be issued under the 2017 Plan to 4,862,027 and 6,029,733, respectively. Upon the effectiveness of the 2019 Plan (as defined below), no further grants were or will be made under the 2017 Plan. All outstanding stock awards under the 2017 Plan will continue to be governed by their existing terms.

In June 2019, the Company adopted the Prevail Therapeutics Inc. 2019 Equity Incentive Plan or the 2019 Plan, which superseded the 2017 Equity Incentive Plan, under which the Company may grant incentive stock options, nonqualified stock options, SARs, restricted stock, unrestricted stock, restricted stock awards, performance awards or other awards that are convertible into or based on Company stock. The aggregate number of shares that may be issued pursuant to stock awards under the 2019 Plan was 3,281,202 as of March 31, 2020. In addition, the number of shares reserved for issuance under the 2019 Plan will automatically increase on January 1 of each year, having begun on January 1, 2020 and continuing through and including January 1, 2029, by 4% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, or a lesser number of shares determined by the Company’s Board of Directors.

In June 2019 the Company adopted the 2019 Employee Stock Purchase Plan or the 2019 ESPP, under which the Company may permit employees to purchase shares of common stock. The maximum number of shares that may be issued under the 2019 ESPP was 671,387 shares as of March 31, 2020. In addition, the number of shares reserved for issuance under the 2019 ESPP will automatically increase on January 1 of each year, having begun on January 1, 2020 and continuing through and including January 1, 2027, by the lesser of (1) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (2) 1,500,000 shares or (3) such lesser number of shares as determined by the Company’s Board of Directors. No purchases were made pursuant to this plan as of March 31, 2020.

The exercise price for a stock option awarded under the 2019 Plan shall not be less than 100% of the fair market value of the Company’s common stock on the date of grant. Options granted under the 2019 Plan vest 25% after the first year and monthly thereafter over the following three years and expire ten years from the date of grant.

Stock Options

The following tables summarize stock option activity under the 2017 Plan and the 2019 Plan:

 

 

 

Number of

Awards

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Contractual

Life (Years)

 

 

Aggregate

Intrinsic

Value

 

 

 

(in thousands except share data)

 

Outstanding, December 31, 2019

 

 

5,681,422

 

 

$

3.60

 

 

 

8.6

 

 

$

69,219

 

Granted

 

 

911,500

 

 

 

16.81

 

 

 

 

 

 

 

 

 

Exercised

 

 

(57,706

)

 

 

1.07

 

 

 

 

 

 

 

 

 

Cancelled/Forfeited

 

 

(70,460

)

 

 

2.82

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2020

 

 

6,464,756

 

 

$

5.52

 

 

 

8.6

 

 

$

47,388

 

Exercisable, March 31, 2020

 

 

1,817,288

 

 

 

0.87

 

 

 

8.1

 

 

 

20,570

 

Vested and expected to vest, March 31, 2020

 

 

6,464,756

 

 

 

5.52

 

 

 

8.6

 

 

 

47,388

 

 

As of December 31, 2019, the total unrecognized compensation expense related to unvested employee and non-employee options was $14.8 million, which the Company expects to recognize over an estimated weighted-average period of 2.9 years. As of March 31, 2020, the total unrecognized compensation expense related to unvested employee and non-employee options was $24.2 million, which the Company expects to recognize over an estimated weighted-average period of 3.1 years.

14


 

 

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options on the date of grant. The Company determined the assumptions for the Black-Scholes option-pricing valuation model as discussed below. Each of these inputs is subjective and generally requires significant judgment to determine. The weighted average fair value and assumptions used to determine the fair value of stock options granted was as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Weighted average grant date fair value of common

   stock

 

$

12.15

 

 

$

1.94

 

Expected term

 

 

6.1

 

 

 

6.0

 

Risk-free interest rate

 

 

1.4

%

 

 

2.5

%

Expected volatility

 

 

85.9

%

 

 

78.5

%

Dividend rate

 

 

-

 

 

 

-

 

 

Expected Term — The expected term represents the period that the stock-based awards are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, the Company based its expected term for awards issued to employees and non-employees using the simplified method, which is presumed to be the midpoint between the vesting date and the end of the contractual term.

Risk-Free Interest Rate — The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury constant maturity notes with terms approximately equal to the stock-based awards’ expected term.

Expected Volatility — Since the Company does not have a trading history of common stock, the expected volatility was derived from the average historical stock volatilities of the common stock of several public companies within the industry that the Company considers to be comparable to its business over a period equivalent to the expected term of the stock-based awards.

Dividend Rate — The expected dividend rate is zero as the Company has not paid and does not anticipate paying any dividends in the foreseeable future.

Fair Value of Common Stock — Prior to the IPO, the fair value of the shares of common stock underlying the stock-based awards were determined by the Company’s Board of Directors with input from management. Since there was no public market for the common stock prior to June 20, 2019, the Company’s Board of Directors had determined the fair value of the common stock at the time of grant of the stock-based award by considering a number of objective and subjective factors, including having valuations of the common stock performed by a third-party valuation specialist. The fair value of the common stock is now determined by the public market.

Restricted Stock

As of March 31, 2020, and December 31, 2019, 2,349,000 shares of common stock are subject to a repurchase right by the Company.

Non-vested Restricted Stock Award (RSA) Outstanding

The following table presents a summary of the Company’s non-vested restricted stock award activity under all plans and related information for the three months ended March 31, 2020:

 

 

 

Number of

Restricted

Stock

Awards

Outstanding

 

 

Weighted

Average

Grant Date

Fair Value

Per Share

 

Non-vested restricted stock awards outstanding as of December 31, 2019

 

 

978,759

 

 

$

0.18

 

Restricted stock awards vested

 

 

(146,811

)

 

 

0.18

 

Non-vested restricted stock awards outstanding as of March 31, 2020

 

 

831,948

 

 

 

0.18

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Aggregate grant date fair value of restricted stock awards vested

 

$

25,362

 

 

$

25,367

 

15


 

 

 

Restricted stock awards are generally granted at the fair market value of the Company’s common stock on the date of grant and vest 25% after the first year and monthly thereafter over the following three years. Forfeitures are based on actual forfeitures in the given period.

There were $0.1 million of total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s equity incentive plans as of March 31, 2020. This cost is expected to be recognized over a weighted-average period of 1.3 years.

Total stock-based compensation expense is recognized for restricted stock and stock options granted to employees and non-employees and has been reported in the Company’s statements of operations as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(in thousands except share data)

 

Research and development

 

$

823

 

 

$

512

 

General and administrative

 

 

809

 

 

 

100

 

Total stock-based compensation expense

 

$

1,632

 

 

$

612

 

Convertible Preferred Stock

Immediately prior to the closing of the Company’s IPO, 19,435,131 shares of outstanding convertible preferred stock converted into 19,435,131 shares of common stock.

Preferred Stock

The Company’s amended and restated certificate of incorporation, which became effective upon the completion of the IPO, authorizes 10,000,000 shares of preferred stock, of which no shares were issued or outstanding as of March 31, 2020.

 

10. RELATED PARTY TRANSACTIONS

Since the Company’s inception in July 2017, the Company has engaged in transactions with related parties, which included OrbiMed Private Investments VI, LP, principal owners of the Company and REGENXBIO.

In August 2017, OrbiMed Private Investments VI, LP purchased the initial Common Stock of the entity. In August 2017, the Company also entered into a Series Seed Preferred Stock Purchase Agreement with OrbiMed.

In August 2017, the Company entered into a Patent License Agreement and Stock Purchase Agreement with REGENXBIO Inc. See Note 3.

In April 2019, the Company exercised all of the options under the REGENXBIO Option Gene License and paid the additional up-front fee of $0.6 million per option, or an aggregate of $1.8 million, to REGENXBIO which was recorded as research and development expense. In addition, in accordance with the REGENXBIO GBA1 License, the Company paid an annual maintenance fee of approximately $0.1 million, which was also recorded as research and development expense.

The Company incurred expenses of approximately $0.1 million and less than $0.1 million, during the three months ended March 31, 2020 and 2019 respectively, which were recorded as general and administrative expense. No payments were made to related parties for the three months ended March 31, 2020 and 2019, respectively.

16


 

 

11. NET LOSS PER SHARE

The following outstanding potentially dilutive common stock equivalents have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Redeemable convertible preferred stock (as converted)

 

 

 

 

 

19,435,131

 

Common stock options issued and outstanding

 

 

6,464,756

 

 

 

4,376,161

 

Restricted stock subject to future vesting

 

 

831,948

 

 

 

1,419,191

 

Total