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Table of Contents
 
 
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 September 30, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
Commission File Number:
001-38550
 
 
Translate Bio, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
Delaware
 
61-1807780
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
29 Hartwell Avenue
Lexington, Massachusetts
 
02421
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (617)
945-7361
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.001 par value
 
TBIO
 
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
 
   Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
Non-accelerated
filer
     Smaller reporting company  
Emerging growth company       
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
As of November 2, 2020, the registrant had
74,321,827
shares of common stock, $0.001 par value per share, outstanding.
 
 
 

Table of Contents
Table of Contents
 
 
  
 
  
Page
 
PART I.
  
  
 
1
 
Item 1.
  
  
 
1
 
 
  
  
 
1
 
 
  
  
 
2
 
 
  
  
 
3
 
 
  
  
 
4
 
 
  
  
 
6
 
 
  
  
 
7
 
Item 2.
  
  
 
25
 
Item 3.
  
  
 
40
 
Item 4.
  
  
 
40
 
PART II.
  
  
 
41
 
Item 1.
  
  
 
41
 
Item 1A.
  
  
 
41
 
Item 5.
  
  
 
89
 
Item 6.
  
  
 
90
 
  
 
  
 
91
 
 
i

Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on
Form 10-Q contains
forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report
on Form 10-Q, including
statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on
Form 10-Q include,
among other things, statements about:
 
 
 
the impacts of the
COVID-19
pandemic;
 
 
 
the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;
 
 
 
our estimates regarding expenses, future revenue, capital requirements and need for additional financing;
 
 
 
our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash and cash equivalents and the period in which we expect that such cash and cash equivalents will enable us to fund such operating expenses and capital expenditure requirements;
 
 
 
our plans to develop our product candidates;
 
 
 
the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for our product candidates;
 
 
 
the potential advantages of our product candidates;
 
 
 
the rate and degree of market acceptance and clinical utility of our product candidates;
 
 
 
our estimates regarding the potential market opportunity for our product candidates;
 
 
 
our commercialization, marketing and manufacturing capabilities and strategy;
 
 
 
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
 
 
 
our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
 
 
 
the impact of government laws and regulations;
 
 
 
our competitive position;
 
 
 
developments relating to our competitors and our industry; and
 
 
 
our ability to establish collaborations or obtain additional funding.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on
Form 10-Q, particularly
in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this Quarterly Report on
Form 10-Q
and the documents that we reference herein and have filed or incorporated by reference hereto completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on
Form 10-Q are
made as of the date hereof, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.
 
ii

Table of Contents
This Quarterly Report on
Form 10-Q
includes certain statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates of potential market opportunities. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
 
iii

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
 
    
September 30,
2020
   
December 31,

2019
 
Assets
    
Current assets:
    
Cash and cash equivalents
   $ 674,050     $ 84,580  
Short-term investments
     —         104,098  
Collaboration receivables
     25,139       4,596  
Prepaid expenses and other current assets
     10,822       9,391  
Restricted cash
     950       950  
  
 
 
   
 
 
 
Total current assets
     710,961       203,615  
Property and equipment, net
     15,044       12,539  
Right-of-use
assets, net
     75,650       10,400  
Goodwill
     21,359       21,359  
Intangible assets, net
     81,280       85,536  
Other assets
     4,334       2,752  
  
 
 
   
 
 
 
Total assets
   $ 908,628     $ 336,201  
  
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
    
Current liabilities:
    
Accounts payable
   $ 6,815     $ 15,968  
Accrued expenses
     11,766       7,072  
Current portion of deferred revenue
     93,164       18,100  
Current portion of operating lease liability
     12,279       530  
  
 
 
   
 
 
 
Total current liabilities
     124,024       41,670  
Contingent consideration
     123,740       103,655  
Deferred revenue, net of current portion
     242,047       25,256  
Operating lease liability, net of current portion
     53,151       12,084  
  
 
 
   
 
 
 
Total liabilities
     542,962       182,665  
  
 
 
   
 
 
 
Commitments and contingencies (Notes 3 and 12)
     
Stockholders’ equity:
        
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of September 30, 2020 and December 31, 2019; no shares issued and outstanding as of September 30, 2020 and December 31, 2019
     —         —    
Common stock, $0.001 par value; 200,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 74,251,559 shares and 60,022,067 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
     74       60  
Additional
paid-in
capital
     758,314       512,231  
Accumulated deficit
     (392,722     (359,496
Accumulated other comprehensive income
    
 
 
      741  
  
 
 
   
 
 
 
Total stockholders’ equity
     365,666       153,536  
  
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 908,628     $ 336,201  
  
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
1

TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)
 
    
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
    
2020
    
2019
   
2020
   
2019
 
Collaboration revenue
   $ 66,446      $ 1,266     $ 87,420     $ 3,914  
Operating expenses:
         
Research and development
     26,344        17,295       76,785       51,343  
General and administrative
     9,163        6,881       25,223       21,284  
Change in fair value of contingent consideration
     14,190        (19,834     20,085       (3,243
Impairment of intangible asset
     —          18,559       —         18,559  
  
 
 
    
 
 
   
 
 
   
 
 
 
Total operating expenses
     49,697        22,901       122,093       87,943  
  
 
 
    
 
 
   
 
 
   
 
 
 
Income (loss) from operations
     16,749        (21,635     (34,673     (84,029
Other income, net
     595        408       1,447       1,286  
  
 
 
    
 
 
   
 
 
   
 
 
 
Income (loss) before benefit from income taxes
     17,344        (21,227     (33,226     (82,743
Benefit from income taxes
     —          —         —         486  
  
 
 
    
 
 
   
 
 
   
 
 
 
Net income (loss)
   $ 17,344      $ (21,227   $ (33,226   $ (82,257
  
 
 
    
 
 
   
 
 
   
 
 
 
Net income (loss) per share—basic
   $ 0.24      $ (0.41   $ (0.51   $ (1.69
  
 
 
    
 
 
   
 
 
   
 
 
 
Weighted average common shares outstanding—basic
     73,183,923        51,891,157       65,187,435       48,574,275  
  
 
 
    
 
 
   
 
 
   
 
 
 
Net income (loss) per share—diluted
   $ 0.23      $ (0.41   $ (0.51   $ (1.69
  
 
 
    
 
 
   
 
 
   
 
 
 
Weighted average common shares outstanding—diluted
     76,440,293        51,891,157       65,187,435       48,574,275  
  
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
2

TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)
 
    
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
    
2020
   
2019
   
2020
   
2019
 
Net income (loss)
   $ 17,344     $ (21,227   $ (33,226   $ (82,257
Other comprehensive income (loss):
        
Unrealized gains (losses) on
available-for-sale
securities, net of tax of $0
     (540     109       (741     483  
  
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive income (loss)
   $ 16,804     $ (21,118   $ (33,967   $ (81,774
  
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
3

TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share amounts)
 
    
Common Stock
    
Additional
Paid-in
Capital
    
Accumulated
Deficit
   
Accumulated
Other
Comprehensive
Income
   
Total
Stockholders’
Equity
 
    
Shares
    
Amount
 
Balances at December 31, 2019
     60,022,067      $ 60      $ 512,231      $ (359,496   $ 741     $ 153,536  
Exercise of stock options
     15,596        —          132        —         —         132  
Stock-based compensation expense
     —          —          3,172        —         —         3,172  
Unrealized gains on
available-for-sale
securities
     —          —          —          —         114       114  
Net loss
     —          —          —          (14,282     —         (14,282
  
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances at March 31, 2020
     60,037,663        60        515,535        (373,778     855       142,672  
Issuance of common stock in connection with public offerings, net of underwriting discounts and commissions and offering costs
     8,544,982        9        153,602        —         —         153,611  
Exercise of stock options
     776,864        —          5,699        —         —         5,699  
Stock-based compensation expense
     —          —          6,014        —         —         6,014  
Unrealized losses on
available-for-sale
securities
     —          —          —          —         (315     (315
Net loss
     —          —          —          (36,288     —         (36,288
  
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances at June 30, 2020
     69,359,509        69        680,850        (410,066     540       271,393  
Issuance of common stock in connection with Securities Purchase Agreement 
     4,884,434        5        73,749        —         —         73,754  
Exercise of stock options
     7,616        —          60        —         —         60  
Stock-based compensation expense
     —          —          3,655        —         —         3,655  
Unrealized losses on
available-for-sale
securities
     —          —          —          —         (540     (540
Net income
     —          —          —          17,344       —         17,344  
  
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances at September 30, 2020
     74,251,559      $ 74      $ 758,314      $ (392,722   $     $ 365,666  
  
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
4

TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share amounts)
 
    
Common Stock
    
Additional
Paid-in

Capital
   
Accumulated
Deficit
   
Accumulated
Other
Comprehensive
Income
    
Total
Stockholders’
Equity
 
    
Shares
   
Amount
 
Balances at December 31, 2018
     45,139,955     $ 45      $ 371,257     $ (246,203   $ 196      $ 125,295  
Exercise of stock options
     154,484       —          897       —         —          897  
Stock-based compensation expense
     —         —          1,959       —         —          1,959  
Unrealized gains on
available-for-sale
securities
     —         —          —         —         155        155  
Net loss
     —         —          —         (33,198     —          (33,198
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balances at March 31, 2019
     45,294,439       45        374,113       (279,401     351        95,108  
Issuance of common stock in connection with private placement, net of placement agent fees and offering costs
     5,582,940       6        44,128       —         —          44,134  
Issuance of common stock in connection with a former employee letter agreement
     67,406       —          847       —         —          847  
Forfeited restricted common stock
     (1,334     —          (1     —         —          (1
Exercise of stock options
     66,917       —          519       —         —          519  
Stock-based compensation expense
     —         —          2,703       —         —          2,703  
Unrealized gains on
available-for-sale
securities
     —         —          —         —         219        219  
Net loss
     —         —          —         (27,832     —          (27,832
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balances at June 30, 2019
     51,010,368       51        422,309       (307,233     570        115,697  
Issuance of common stock in connection with public offering, net of underwriting discounts and commissions and offering costs
     9,000,000       9        84,002       —         —          84,011  
Forfeited restricted common stock
     (449     —          —         —         —          —    
Exercise of stock options
     10,806       —          84       —         —          84  
Stock-based compensation expense
     —         —          2,899       —         —          2,899  
Unrealized gains on
available-for-sale
securities
     —         —          —         —         109        109  
Net loss
     —         —          —         (21,227     —          (21,227
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balances at September 30, 2019
     60,020,725     $ 60      $ 509,294     $ (328,460   $ 679      $ 181,573  
  
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
5

TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
    
Nine Months Ended
September 30,
 
    
2020
   
2019
 
Cash flows from operating activities:
    
Net loss
   $ (33,226   $ (82,257
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
    
Depreciation and amortization expense
     6,374       2,951  
Stock-based compensation expense
     12,841       8,408  
Impairment of intangible asset
     —         18,559  
Change in fair value of contingent consideration
     20,085       (3,243
Deferred income tax benefit
     —         (486
Changes in operating assets and liabilities:
    
Collaboration receivables
     (20,543     125  
Prepaid expenses and other assets
     (5,766     (2,293
Right-of-use
assets
     1,338       357  
Long-term prepaid rent
 
 
 
(10,057
)
 
 
 
 (2,492
)
 
Accounts payable
     (8,560     (1,740
Accrued expenses
     4,913       2,244  
Lease liability
     (962     (270
Deferred revenue
     291,855       (1,763
  
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     258,292       (61,900
  
 
 
   
 
 
 
Cash flows from investing activities:
    
Purchases of investments
     (27,409     (138,156
Sales and maturities of investments
     130,765       116,311  
Purchases of property and equipment
     (5,434     (2,241
  
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     97,922       (24,086
  
 
 
   
 
 
 
Cash flows from financing activities:
    
Proceeds from public offerings, net of underwriting discounts and commissions
     154,292       84,600  
Payments of public offering costs
     (681     (589
Proceeds from Securities Purchase Agreement 
     73,754       —    
Proceeds from private placement, net of placement agent fees
     —         44,608  
Payments of private placement offering costs
     —         (477
Proceeds from option exercises
     5,891       1,500  
  
 
 
   
 
 
 
Net cash provided by financing activities
     233,256       129,642  
  
 
 
   
 
 
 
Net increase in cash, cash equivalents and restricted cash:
     589,470       43,656  
Cash, cash equivalents and restricted cash at beginning of period
     85,530       56,224  
  
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period
   $ 675,000     $ 99,880  
  
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period:
    
Cash and cash equivalents
   $ 674,050     $ 98,930  
Restricted cash
     950       950  
  
 
 
   
 
 
 
Total cash, cash equivalents and restricted cash at end of period
   $ 675,000     $ 99,880  
  
 
 
   
 
 
 
Supplemental disclosure of
non-cash
investing and financing activities:
    
Purchases of property and equipment included in accounts payable and accrued expenses
   $ 377     $ 2  
Issuance of common stock in connection with a former employee letter agreement
   $ —       $ 847  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
6

TRANSLATE BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Nature of the Business and Basis of Presentation
Translate Bio, Inc. (the “Company”) is a clinical-stage messenger RNA (“mRNA”) therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction, or to prevent infectious diseases by generating protective immunity. Using its proprietary mRNA therapeutic platform (“MRT platform”), the Company creates mRNA that encodes functional proteins. The Company’s mRNA is designed to be delivered to the target cell where the cell’s own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. The Company is primarily focused on applying its MRT platform to treat pulmonary diseases caused by insufficient protein production or where production of proteins can modify disease. The Company is also pursuing the applicability of its MRT platform for the development of mRNA vaccines for infectious diseases under a collaboration with Sanofi Pasteur Inc. (“Sanofi”), the vaccines global business unit of Sanofi S.A. 
The outbreak of a novel strain of coronavirus named
SARS-CoV-2
(severe acute respiratory syndrome 2), which causes coronavirus disease
(“COVID-19”),
has presented a substantial public health and economic challenge around the world and is affecting the Company’s employees, patients, communities and business operations, as well as the U.S. economy and financial markets. While the Company has progressed certain of its preclinical programs, specifically in therapeutics for pulmonary diseases and in vaccine development under its collaboration with Sanofi, as further discussed below, in April 2020, the Company announced that enrollment and dosing had been paused in the ongoing Phase 1/2 clinical trial in patients with cystic fibrosis (“CF”) as a consequence of the
COVID-19 pandemic.
As discussed below in more details, in September 2020, the Company announced that enrollment and dosing resumed. The full extent to which the
COVID-19
pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning
COVID-19,
the actions taken in an effort to contain it or to potentially treat or vaccinate against
COVID-19
and the economic impact on local, regional, national and international markets. The Company is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, industry and workforce.
The Company is developing MRT5005 for the treatment of CF. The Company is conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of single and multiple-ascending doses of MRT5005. Percent predicted forced expiratory volume in one second (“ppFEV
1
”), which is a well-defined and accepted endpoint measuring lung function, is also being measured at
pre-defined
timepoints throughout the trial. In April 2019, the Company completed dosing of all patients in the single-ascending dose (“SAD”) portion of the Phase 1/2 clinical trial and in July 2019, the Company reported interim data from the SAD portion of the clinical trial through
one-month
follow up post dosing. MRT5005 was generally well-tolerated at low and
mid-dose
levels with no serious adverse events reported at any dose level. Marked increases in ppFEV
1
were observed after a single dose of MRT5005, primarily at the
mid-dose
level. Based on the analysis of the interim results, the Company has amended the clinical trial protocol to include one additional SAD dose group and two additional dose groups in the ongoing multiple-ascending dose (“MAD”) portion of this trial. The Company began dosing patients in the MAD portion of the trial in early 2019. In April 2020, the Company announced that enrollment and dosing had been paused in the ongoing Phase 1/2 clinical trial in patients with CF as a consequence of the
COVID-19 pandemic.
In September 2020, the Company announced that enrollment and dosing resumed. Due to the uncertain environment associated with the
COVID-19
pandemic, the Company is unable to predict the rate of enrollment and timing for reporting data.
The Company is leveraging its lung delivery platform and focusing its preclinical research efforts on identifying lead product candidates for a next-generation CF program, as well as beyond CF in additional pulmonary diseases with unmet medical need, including primary ciliary dyskinesia, idiopathic pulmonary fibrosis and pulmonary arterial hypertension.
The Company has a collaboration with Sanofi to develop infectious disease vaccines using the Company’s mRNA technology. Under the collaboration, the Company and Sanofi will jointly conduct research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens (see Note 3). Two of the target pathogens under development are
SARS-CoV-2
and influenza. The Company and Sanofi have selected MRT5500 as the lead candidate for a vaccine against
SARS-CoV-2.
A Phase 1/2 clinical trial to evaluate MRT5500 was anticipated to begin in the fourth quarter of 2020, and is now expected to begin in the first quarter of 2021 due to a delay in the manufacturing of clinical trial material. For the influenza vaccine program, lead lipid nanoparticle/mRNA formulation is being evaluated in preclinical studies to support a clinical proof of technology trial anticipated to begin mid-year 2021.
 
7

The Company is subject to risks common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
The preparation of the accompanying condensed consolidated financial statements requires the Company to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis the Company evaluates its estimates, judgments and methodologies. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the
COVID-19
pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including revenue, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning
COVID-19
and the actions taken in an effort to contain it or to potentially treat or vaccinate against
COVID-19,
as well as the economic impact on local, regional, national and international customers and markets. The Company has made estimates of the impact of
COVID-19
within its financial statements and have determined them to be immaterial. There may be changes to those estimates in future periods. Actual results may differ from these estimates.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its two wholly owned subsidiaries, Translate Bio MA, Inc. and Translate Bio Securities Corporation, from their date of incorporation. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated balance sheet as of September 30, 2020, the unaudited condensed consolidated statements of operations and of comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019, the unaudited condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. The accompanying balance sheet as of December 31, 2019 has been derived from the Company’s audited financial statements for the year ended December 31, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form
10-K
that was filed with the SEC on March 12, 2020.
The accompanying unaudited interim condensed consolidated financial presentation has been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflects all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2020, the results of its operations for the three and nine months ended September 30, 2020 and 2019, and its cash flows for the nine months ended September 30, 2020 and 2019. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2020 and 2019 are also unaudited. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period.
Sales of Common Stock
On March 13, 2020, the Company filed a universal shelf registration statement on Form
S-3
with the SEC (the “2020 Shelf”) to register for sale from time to time up to $350.0 million of common stock, preferred stock, debt securities, warrants and/or units in one of more offerings (File
No. 333-237159).
This registration statement was declared effective on May 4, 2020.
The Company is party to an Open Market Sale Agreement
SM
(the “Sales Agreement”) with Jefferies LLC (“Jefferies”) under which the Company may issue and sell shares of its common stock, from time to time, having an aggregate offering price of up to $100.0 million.
As of September 30, 2020, the Company has issued and sold an aggregate of 2,863,163 shares of its common stock pursuant to the Sales Agreement, resulting in gross proceeds of $37.9 million, before deducting commissions of $1.1 million and other offering
 
8

expenses of $0.2 million. There were no shares issued or sold pursuant to the Sales Agreement during the three months ended September 30, 2020. In the future, $62.1 million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under the 2020 Shelf.
On June 24, 2020, the Company filed a registration statement on Form
S-3ASR,
which became automatically effective upon filing with the SEC (File
No. 333-239405)
(the “June 2020 Registration Statement”). The June 2020 Registration Statement registered for sale from time to time common stock, preferred stock, debt securities, warrants and/or units in one or more offerings. On June 30, 2020, the Company issued and sold 5,681,819 shares of common stock and a stockholder of the Company sold 6,824,992 shares of common stock through a public offering pursuant to the June 2020 Registration Statement. The price to the public was $22.00 per share, resulting in gross proceeds to the Company of $125.0 million, before deducting underwriting discounts and commissions of $7.5 million and other offering expenses of $0.5 million. The Company did not receive any proceeds from the sale of shares of common stock by the stockholder.
Sanofi Pasteur Collaboration and Licensing Agreement
In 2018, the Company entered into a collaboration and license agreement with Sanofi (the “Original Sanofi Agreement”) to develop mRNA vaccines for up to five infectious disease pathogens (the “Licensed Fields”). On March 26, 2020, the Company and Sanofi amended the Original Sanofi Agreement (the “First Sanofi Amendment”) to include vaccines against
SARS-CoV-2
as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six. On June 22, 2020, the Company and Sanofi agreed to further amend the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi (the “Second Sanofi Amendment”) (see Note 3). The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is referred to as the “Amended Sanofi Agreement.”
Pursuant to the Amended Sanofi Agreement, the Company and Sanofi 
will
jointly conduct research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens. The term of the
research
collaboration expires in June 2022 with an option for Sanofi to extend for one additional year. If Sanofi elects to
e
xtend
 the collaboration
, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens, bringing the total to
 up to
ten pathogens.
Under the terms of the Amended Sanofi Agreement, the Company has granted to Sanofi exclusive, worldwide licenses under applicable patents, patent applications,
know-how
and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any infectious disease pathogen, with certain specified exceptions.
Pursuant to the Second Sanofi Amendment, Sanofi pa
id
 the Company an additional upfront payment of $300.0 million
 
in August 2020. Additionally, in connection with the execution of the Second Sanofi Amendment, the Company and an affiliate of Sanofi (the “Investor”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) for the sale and issuance of 4,884,434 shares of the Company’s common stock to the Investor at a price of $25.59 per share representing a 50 percent premium to the
20-day
moving average share price prior to signing, for an aggregate purchase price of approximately $125.0 million. The closing of the transaction contemplated by the Securities Purchase Agreement was consummated on July 20, 2020 (see Note 3).
Liquidity
In accordance with Accounting Standards Update (“ASU”)
No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40)
,
the Company
 has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
The Company’s financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through September 30, 2020, the Company has funded its operations primarily through sales of equity securities and research and development collaboration agreements. The Company has incurred recurring losses and cash outflows from operations since its inception, including net losses of $33.2 million and $82.3 million for the nine months ended September 30, 2020 and 2019, respectively. In addition, the Company had an accumulated deficit of $392.7 million as of September 30, 2020. The Company expects to continue to generate operating losses for the foreseeable future.
 
9

As of November 5, 2020, the
 
date of issuance of these unaudited interim condensed consolidated financial statements, the Company expects that its cash and cash equivalents of $
674.1
 million as of September 
30
,
2020
will be sufficient to fund its operating expenses and capital expenditure requirements
 through 2023
. The future viability of the Company beyond that point is dependent on the Company’s ability to raise additional capital to finance its operations.
Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. The Company expects that its expenses will increase in connection with its ongoing business activities. As a result, the Company will need substantial additional funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through the sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. 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.
2. Summary of Significant Accounting Policies
The significant accounting policies and estimates used in preparation of the consolidated financial statements are described in the Company’s 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.
During the nine months ended September 30, 2020, there were no material changes to the Company’s significant accounting policies.
Recently Adopted Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU
No. 2017-04,
Intangibles—Goodwill and Other:
Simplifying the Test for Goodwill Impairment (Topic 350)
, which provides for the elimination of Step 2 from the goodwill impairment test. If impairment charges are recognized, the amount recorded will be the amount by which the carrying amount exceeds the reporting unit’s fair value with certain limitations. The Company adopted this new standard as of the required effective date of January 1, 2020, and its adoption had no impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No.
2018-13,
 Fair Value Measurement (Topic 820): Disclosure Framework
 -
 
Changes to the Disclosure Requirements for Fair Value Measurement.
This new standard
 
removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this new standard as of the required effective date of January 1, 2020, and its adoption had no impact on the Company’s consolidated financial statements.
In November 2018, the FASB issued ASU
No. 2018-18,
Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606.
This update provides clarification on the interaction between Accounting Standards Codification (“ASC”) 606,
Revenue from Contracts with Customers
(“ASC 606”), and ASC 808,
Collaborative Arrangements
(“ASC 808”), including the alignment of unit of account guidance between the two topics. The Company adopted this new standard as of the required effective date of January 1, 2020, and its adoption had no impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. The guidance requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For
available-for-sale
debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This standard will be effective for the Company on January 1, 2023. The Company is currently evaluating the potential impact that the adoption of this new standard will have on its consolidated financial statements and disclosures.
In December 2019, the FASB issued ASU
No. 2019-12,
Income Taxes-Simplifying the Accounting for Income Taxes
. This new standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income
 
10

taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a
step-up
in the tax basis of goodwill. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within, with early adoption permitted. Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively. The Company does not expect the adoption of this new standard to have a material impact on its consolidated financial statements.
3. Collaboration Agreement
Sanofi Collaboration and License Agreement
In 2018, the Company and Sanofi entered into the Original Sanofi Agreement to develop mRNA vaccines and an mRNA vaccine platform for up to five infectious disease pathogens. In March 2020, the Company and Sanofi entered into the First Sanofi Amendment to include vaccines against
SARS-CoV-2
as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six.
In June 2020, the Company and Sanofi entered into the Second Sanofi Amendment, which became effective in July 2020 following early termination of the waiting period under the Hart-Scott Rodino Act, to expand the scope of the collaboration and licenses granted to Sanofi.
Under the terms of the Amended Sanofi Agreement, the Company has agreed to grant to Sanofi exclusive, worldwide licenses under applicable patents, patent applications,
know-how
and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any infectious disease pathogen, with certain specified exceptions
.
Pursuant to the Amended Sanofi Agreement, the Company and Sanofi will jointly conduct research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens. The term of the research collaboration (the “Collaboration Term”) expires in June 2022, with an option for Sanofi to extend the Collaboration Term for one additional year, followed by a technology transfer to Sanofi. If Sanofi elects to extend the Collaboration Term, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens, bringing the total to up to ten pathogens. In addition to the research and development and technology transfer, the Company is responsible for manufacturing and supplying
non-clinical
products, related materials and investigational products as required by the collaboration plan. Pursuant to the Amended Sanofi Agreement, the Company and Sanofi agreed to a governance structure to manage the activities under the collaboration. If the Company and Sanofi do not mutually agree on certain decisions, Sanofi will be able to break a deadlock without the Company’s consent under certain conditions. The collaboration includes an estimated budget. Sanofi is responsible for paying reimbursable development costs, including the Company’s employee costs, manufacturing costs, and
out-of-pocket
costs paid to third parties, up to a specified amount for each Licensed Field.
The Company and Sanofi 
retain the rights to perform their respective obligations and exercise their respective rights under the Amended Sanofi Agreement. Sanofi also granted the Company
non-exclusive,
sublicensable licenses under patent rights claiming certain improvements that Sanofi may make to the technology the Company had licensed to it or claiming certain technology arising from the collaboration and owned by Sanofi. The Company may exercise such licenses to develop, manufacture and commercialize products, other than products that use a vaccine to prevent, treat or cure a disease, disorder or condition in humans caused by an infectious disease pathogen. Sanofi may terminate these licenses to the Company if the Company materially breaches the terms of the license and the breach remains uncured for a specified period, which may be extended in certain circumstances.
Pursuant to the Original Sanofi Agreement Sanofi 
paid
the Company an upfront payment of $45.0 million
 
in 2018. Pursuant to the Second Sanofi Amendment, Sanofi pa
id
 the Company an additional upfront payment of $300.0 million in August 2020. If Sanofi chooses to exercise its option to extend the Collaboration Term for an additional year, Sanofi has agreed to pay the Company an additional
 payment of
$75.0 million. The Amended Sanofi Agreement provides that the Company is eligible to receive aggregate potential payments of up to $1.9 billion upon the achievement of additional specified development, regulatory, manufacturing and commercialization milestones, inclusive of the fee to exercise the option to extend the Collaboration Term. In particular, the Company is entitled to receive development, regulatory and sales milestone payments of up to $148.0 million for each Licensed Field, other than the
SARS-CoV-2
Licensed Field, development, regulatory and sales milestone payments of up to $250.0 million in the
SARS-CoV-2
Licensed Field, and
one-time
manufacturing milestone payments of up to $200.0 million. In addition, the Company is entitled to receive a $10.0 million milestone payment from Sanofi following completion of the technology and process transfer.
Under the terms of the Amended Sanofi Agreement, Sanofi has also agreed to pay the Company royalties on net sales of mRNA vaccines in the
SARS-CoV-2
Licensed Field in accordance with the terms of and at the same high single digits to low teens percentages set forth in the Original Sanofi Agreement, except where such vaccines are provided as a donation or transferred to a third party without any profit margin, in which case the Company will be paid royalties sufficient to cover its royalty obligations.
 
11

The Amended Sanofi Agreement provides that it will remain in effect until terminated in accordance with its terms. Either the Company or Sanofi may terminate the Amended Sanofi Agreement in its entirety if the other party is subject to certain insolvency proceedings. Either party may terminate the Amended Sanofi Agreement in its entirety or with respect to a particular Licensed Field, country or product if the other party materially breaches the Amended Sanofi Agreement and the breach remains uncured for a specified period, which may be extended in certain circumstances. Sanofi may also terminate the Amended Sanofi Agreement in its entirety or with respect to a particular Licensed Field, country or product for safety reasons or for convenience, in each case after a specified notice period. After termination of the Amended Sanofi Agreement, Sanofi may continue to manufacture and commercialize the terminated products for a specified period of time, subject to Sanofi’s payment obligations.
In connection with the execution of the Second Sanofi Amendment, the Company and the Investor entered into the Securities Purchase Agreement for the sale and issuance of 4,884,434 shares of the Company’s common stock to the Investor at a price of $25.59 per share representing a 50 percent premium to the
20-day
moving average share price prior to signing, for an aggregate purchase price of approximately $125.0 million. The closing of the transaction contemplated by the Securities Purchase Agreement was consummated
in
 July
 
2020, following early termination of the waiting period under the Hart-Scott Rodino Act. Pursuant to the terms of the Securities Purchase Agreement, the Investor agreed not to, without the prior written approval of the Company and subject to specified conditions, directly or indirectly acquire shares of the Company’s outstanding common stock, make a tender, exchange, or other offer to acquire shares of the Company’s outstanding common stock, solicit proxies or consents with respect to any matter, or undertake other specified actions related to the potential acquisition of additional equity interests in the Company (the “Standstill Restrictions”). Further, the Investor agreed not to, and to cause its affiliates not to, sell or transfer the shares without the prior written approval of the Company subject to specified conditions (the
“Lock-Up
Restrictions”). The Standstill Restrictions terminate 12 months after the closing date. The
Lock-Up
Restrictions terminate 18 months from the closing date.
Sanofi has sole responsibility for all commercialization activities for mRNA vaccines in the Licensed Fields and is obligated to bear all costs in connection with any commercialization in the Licensed Fields. The Company and Sanofi also entered into a separate supply agreement on June 22, 2020, with an effective date of December 20, 2019, governing the terms of the supply of products by the Company (the “Supply Agreement”). Pursuant to the Supply Agreement, the Company has agreed to use commercially reasonable efforts to manufacture and supply Sanofi with
non-clinical
and clinical supply of products and other research materials in certain Licensed Fields, as set forth in the Amended Sanofi Agreement. Sanofi will pay the Company for the
non-clinical
and clinical supply at the Company’s cost to manufacture plus a specified markup. The Supply Agreement will remain in effect until terminated in accordance with its terms. However, under the Amended Sanofi Agreement, the Company’s obligation to manufacture and supply products is limited to a defined duration based on the Licensed Field of the applicable product. The Supply Agreement may be terminated by the mutual consent of the parties. Sanofi may terminate the Supply Agreement for convenience after a specified notice period, or in the event that the Company does not provide the supply in a timely manner. The Company may terminate the Supply Agreement in the event of a breach by Sanofi of its payment obligations and such breach remains uncured for a specified period. As part of the Second Sanofi Amendment, the Company and Sanofi agreed to negotiate in good faith and enter into a further supply agreement in respect of supply of products in the
SARS-CoV-2
Licensed Field for use in Phase 3 clinical trials or commercial supply. 
Accounting for the Sanofi Collaboration
For accounting purposes, the Company has combined the Amended Sanofi Agreement, Securities Purchase Agreement, and Supply Agreement because the contracts were negotiated as a package with a single commercial objective, the amount of consideration to be paid in one contract depends on the price or performance of the other contracts, and the goods and services promised in the contracts are a single performance obligation in accordance with ASC 606.
The Company accounts for the Amended Sanofi Agreement under ASC 606. In determining the appropriate amount of revenue to be recognized under ASC 606, the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company identified the following promised goods or services contained in the Amended Sanofi Agreement: (i) the license it conveyed to Sanofi with respect to the Licensed Fields, (ii) the licensed
know-how
to be conveyed to Sanofi with respect to the Licensed Fields, (iii) its obligation to perform research and development on the Licensed Fields, (iv) its obligation to transfer licensed materials to Sanofi, (v) its obligation to manufacture and supply certain
non-clinical
and clinical mRNA vaccines and materials containing mRNA until the Company transfers such manufacturing capabilities to Sanofi; and (vi) the technology and process transfer. The Company assessed whether each of these promised goods or services are distinct performance obligations on their own or if they need to be combined with other promises to create a bundle that is a distinct performance obligation. The Company determined that the promised goods and services do not have standalone value and are highly interrelated. Accordingly, the promised goods and
 
12

services represent one performance obligation. Additionally, Sanofi’s right to exercise its option to extend the research term and have the Company conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens were determined at the time of the modification to not represent material rights, based on the criteria of ASC 606, and therefore do not represent a separate performance obligation.
Under ASC 606, the Company recognized revenue using the
cost-to-cost
input method, which it believes best depicts the transfer of control to the customer. Under the
cost-to-cost
input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the progress of completion. The estimate of the Company’s measure of progress and estimate of variable consideration to be included in the transaction price will be updated at each reporting date as a change in estimate. The amount related to the unsatisfied portion will be recognized as that portion is satisfied over time. The Company has estimated the completion of manufacturing activities to be in 2024.
The Company has accounted for the Second Sanofi Amendment as a modification to the existing agreement and not as a separate agreement because the additional goods and services are not distinct and therefore form a single performance obligation that is partially satisfied at the date of the contract modification. The effect that the modification has on the transaction price, and on the Company’s measure of progress toward complete satisfaction of the performance obligation, was recognized as a cumulative
catch-up
adjustment of $30.9 million on the modification date.
During the three and nine months ended September 30, 2020, the Company increased the overall transaction price by $491.8 million and $534.7 million, respectively. The transaction price as of September 30, 2020 includes the upfront,
non-refundable
payments of $345.0 million for the transfer of the combined license, supply and development obligations under the Original Sanofi Agreement and Second Sanofi Amendment, the premium paid in consideration for common stock of $51.2 million
,
which represents the excess of the price paid compared to the fair value of the Company’s common stock on the closing date,
 
under the Securities Purchase Agreement, an estimated $71.8 million in reimbursable employee costs, an estimated $155.7 million in reimbursable development costs including manufacturing costs and
out-of-pocket
costs paid to third parties and an estimated $62.0 million in milestone payments. Under ASC 606, at the end of each reporting period, the Company
re-evaluates
the variable consideration determined using either the expected value or most likely outcome approach and
re-evaluates
the probability that the consideration associated with each milestone or reimbursement will not be subject to a significant reversal in the cumulative amount of revenue recognized, and, if necessary, adjusts the estimate of the overall transaction price. The estimated collaboration budget is consistently
re-evaluated
and changes to the budget, if any, require approval by the Joint Steering Committee. If an approved change occurs, the Company will
re-evaluate
the transaction price which could potentially affect the cumulative amount of revenue recognized. As a result of the Second Sanofi Amendment, the Company revised the budget and collaboration plan. 
The following table summarizes the Company’s collaboration revenue (in thousands):
 
    
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
 
    
2020
    
2019
    
2020
    
2019
 
Collaboration revenue
   $ 66,446      $ 1,266      $ 87,420      $ 3,914  
The following table presents the balance of the Company’s contract liabilities (in thousands):
 
    
September 30,
2020
    
December 31,
2019
 
Contract liabilities
     
Deferred revenue
   $ 335,211      $ 43,356  
Deferred revenue is classified as short-term or long-term in the consolidated balance sheets based on the Company’s estimate of revenue that will be recognized within the next twelve months which is determined by the cost-to-cost input method which measures the extent of progress towards satisfying the performance obligation. As of September 30, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligation is estimated to be approximately $589.2 million, which is expected to be recognized as revenue through 2024. Revenue recognized from contract liabilities at the beginning of the period was $3.5 million and $1.8 million during the nine months ended September 30, 2020 and 2019, respectively.
 
13

4. Intangible Assets and Goodwill
Acquisition of Shire’s MRT Program
In December 2016, the Company entered into an asset purchase agreement (as amended in June 2018) with Shire Human Genetic Therapies, Inc. (“Shire”), a subsidiary of Takeda Pharmaceutical Company Ltd., pursuant to which Shire sold equipment to and assigned to the Company all of its rights to certain patent rights, permits, real property leases, contracts, regulatory documentation, books and records, and materials related to Shire’s mRNA therapy platform (the “MRT Program”), including its cystic fibrosis transmembrane conductance regulator program.
Intangible Assets, Net
The acquisition of Shire’s MRT Program was accounted for in accordance with the acquisition method of accounting for business combinations. The total purchase consideration transferred was allocated to the tangible and identifiable intangible assets acquired based on their estimated fair values. The tables below present the Company’s definite-lived intangible assets that are subject to amortization and indefinite-lived intangible assets:
 
           
September 30, 2020
 
    
Estimated
Life
    
Gross Carrying

Amount
    
Accumulated

Amortization
   
Impairment

Charge
   
Net Carrying

Amount
 
           
(In thousands)
 
Definite-lived intangible assets:
            
MRT
     6 years      $ 45,992      $ (7,003   $        $ 38,989  
Indefinite-lived intangible assets:
                                
IPR&D - CF
     Indefinite        42,291                          42,291  
Total intangible assets, net
      $ 88,283      $ (7,003   $        $ 81,280  
     
 
 
    
 
 
   
 
 
   
 
 
 
 
           
December 31, 2019
 
    
Estimated
Life
    
Gross Carrying

Amount
    
Accumulated

Amortization
   
Impairment

Charge
   
Net Carrying

Amount
 
           
(In thousands)
 
Definite-lived intangible assets:
  
  
  
 
 
MRT
  
 
8 years
 
  
$
45,992
 
  
$
(2,747
 
$
  
 
 
$
43,245
 
Indefinite-lived intangible assets:
  
  
 
 
  
 
 
 
 
 
 
 
 
 
 
IPR&D - CF
  
 
Indefinite
 
  
 
42,291
 
  
 
—  
 
 
 
—  
 
 
 
42,291
 
IPR&D - OTC
  
 
Indefinite
 
  
 
18,559
 
  
 
—  
 
 
 
(18,559
 
 
—  
 
Total intangible assets, net
  
  
$
106,842
 
  
$
(2,747
 
$
(18,559
 
$
85,536
 
 
14

Identifiable intangible assets acquired in the acquisition of Shire’s MRT Program consisted of
in-process
research and development (“IPR&D”), which included ongoing projects that could further the Company’s preclinical and clinical development activities related to CF, ornithine transcarbamylase (“OTC”) deficiency and other potential rare diseases. As of the date of acquisition, the IPR&D was determined to be indefinite-lived.
Upon commencement of the Original Sanofi Agreement, the IPR&D
 -
 
MRT intangible asset was reclassified from indefinite-lived to definite-lived intangible assets and the Company began amortization of this intangible asset. Amortization will be recorded over the intangible asset’s estimated life based on an economic consumption model. The Company recorded amortization expense of $0 and $0.4 million during the three months ended September 30, 2020 and 2019, respectively, and $4.3 million and $1.2 million during the nine months ended September 30, 2020 and 2019, respectively, related to the definite-lived MRT intangible asset. The estimated aggregate amortization expense for each of the five succeeding fiscal years is $7.5 million, $10.6 million,
$11.3 million
,
$11.2 million and $2.7 million for the years ending December 31, 2020, 2021, 2022, 2023 and 2024, respectively.
Indefinite-lived IPR&D is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company tests its indefinite-lived IPR&D annually for impairment on October 1
st
. The Company determined that the discontinuation of the development of MRT5201 in September 2019 was an indicator of impairment and
,
as a result, retested the indefinite-lived IPR&D related to the OTC deficiency program for impairment. The Company determined that there was
no
residual value to the indefinite-lived IPR&D related to the OTC deficiency program and, as a result, the Company recorded an impairment charge of $18.6 million during the three months ended September 30, 2019, representing the entire value of the indefinite-lived IPR&D related to the OTC deficiency program. Concurrent with the impairment charge, the Company removed the contingent consideration liability related to this program.  
Goodwill
The excess of the fair value of the consideration transferred over the fair value of identifiable assets acquired in the acquisition of Shire’s MRT Program was allocated to goodwill in the amount of $21.4 million. There have been no changes to the carrying amount of goodwill during the nine months ended September 30, 2020. Goodwill is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. The Company tests its goodwill annually for impairment on October 1
st
. During the nine months ended September 30, 2020 and 2019, the Company did not recognize any impairment charges related to goodwill.
5. Fair Value of Financial Assets and Liabilities
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):
 
    
Fair Value Measurements

as of September 30, 2020 Using:
 
    
Level 1
    
Level 2
    
Level 3
    
Total
 
Assets:
           
Money market funds
   $         $ 636,615      $         $ 636,615  
U.S. government agency bonds
                                       
  
 
 
    
 
 
    
 
 
    
 
 
 
   $         $ 636,615      $         $ 636,615  
  
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
           
Contingent consideration
   $         $         $ 123,740      $ 123,740  
  
 
 
    
 
 
    
 
 
    
 
 
 
   $         $         $ 123,740      $ 123,740  
  
 
 
    
 
 
    
 
 
    
 
 
 
 
    
Fair Value Measurements

as of December 31, 2019 Using:
 
    
Level 1
    
Level 2
    
Level 3
    
Total
 
Assets:
           
Money market funds
   $ —        $ 56,591      $ —        $ 56,591  
U.S. government agency bonds
     —          104,098        —          104,098  
  
 
 
    
 
 
    
 
 
    
 
 
 
   $ —        $ 160,689      $ —        $ 160,689  
  
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
           
Contingent consideration
   $ —        $ —        $ 103,655      $ 103,655  
  
 
 
    
 
 
    
 
 
    
 
 
 
   $ —        $ —        $ 103,655      $ 103,655  
  
 
 
    
 
 
    
 
 
    
 
 
 
 
15

During the nine months ended September 30, 2020 and the year ended December 31, 2019, there were no transfers between Level 1,
Level 
2 and Level 3.
Cash equivalents as of
September 
30, 2020 and December 31, 2019 consisted of money market funds totaling $636.6 million and $56.6 million, respectively. The money market funds were valued using inputs observable in active markets for similar securities, which represent a Level 2 measurement in the fair value hierarchy. The Company’s short-term investments as of December 31, 2019 consisted of U.S. government agency bonds and were classified as
available-for-sale
securities. The U.S. government agency bonds were valued using inputs observable in active markets for similar securities, which represent a Level 2 measurement in the fair value hierarchy.
Valuation of Contingent Consideration
The contingent consideration liability related to the acquisition of Shire’s MRT Program in 2016 was classified as a Level 3
measurement
within the fair value hierarchy. The Company may be required to pay future consideration to Shire contingent upon the achievement of potential future milestones and earnout payments.
The fair value of the liability to make potential future milestone and earnout payments was estimated by the Company at each reporting date based, in part, on the results of a third-party valuation using a discounted cash flow analysis based on various assumptions, including the probability of achieving specified events, discount rates, and the period of time until earnout payments are payable and the conditions triggering the milestone payments are met. The actual settlement of contingent consideration could differ from current estimates based on the actual occurrence of these specified events.
The following table presents the unobservable inputs and fair value of the components of the contingent consideration (dollar amounts in thousands):
 
    
Unobservable
 
Inputs
  
Fair Value at
 
    
Projected Year of
Payment
  
September 30,
2020
    
December 31,
2019
 
Earnout payments
   2026
-
2039
     115,079      $ 96,097  
Milestone payments
   2026
-
2032
     8,661        7,558  
     
 
 
    
 
 
 
      $ 123,740      $ 103,655  
     
 
 
    
 
 
 
The discount rate used in the third-party valuation was 12.5% and 13.5% as of September 30, 2020 and December 31, 2019, respectively.
The following table presents a roll-forward of the total acquisition-related contingent consideration liability (in thousands):
 
    
Fair Value
 
Balance as of December 31, 2019
   $ 103,655  
Increase in fair value of contingent consideration
     20,085  
  
 
 
 
Balance as of September 30, 2020
   $ 123,740  
  
 
 
 
The increase in the fair value of contingent consideration was primarily due to the time value of money due to the passage of time and a decrease in the discount rate.
 
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Table of Contents
6. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
 
    
September 30,

2020
    
December 31,

2019
 
Laboratory equipment
   $ 11,763      $ 9,044  
Computer equipment
     892        779  
Office equipment
     942        883  
Leasehold improvements
     5,730        5,635  
Construction in progress
     5,094        3,460  
  
 
 
    
 
 
 
     24,421        19,801  
Less: Accumulated depreciation and amortization
     (9,377      (7,262
  
 
 
    
 
 
 
   $ 15,044      $ 12,539  
  
 
 
    
 
 
 
Depreciation and amortization expense related to property and equipment was $0.8 million and $0.6 million during the three months ended September 30, 2020 and 2019, respectively, and $2.1 million and $1.8 million during the nine months ended September 30, 2020 and 2019, respectively.
7. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
 
    
September 30,
2020
    
December 31,
2019
 
Accrued employee compensation and benefits
   $ 4,918      $ 3,547  
Accrued external research and development expenses
     2,058        1,763  
Accrued consultant and professional fees
     1,358        1,390  
Other
     3,432        372  
  
 
 
    
 
 
 
   $ 11,766      $ 7,072  
  
 
 
    
 
 
 
Included in other accrued expenses as of September 30, 2020 are costs related to entering into the Second Sanofi Agreement.
8. Incentive Stock Options and Restricted Stock
2018 Equity Incentive Plan
On March 7, 2018, the
Company’s
Board of Directors (the “Board of Directors”), subject to stockholder approval, adopted, and on June 15, 2018, its stockholders approved, the 2018 Equity Incentive Plan (the “2018 Plan”), which became effective on June 27, 2018. The 2018 Plan provides for the grant of incentive stock options,
non-qualified
stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards.
The number of shares initially reserved for issuance under the 2018 Plan is the sum of 2,512,187, plus the number of shares (up to 1,013,167 shares) equal to the sum of (i) the number of shares remaining available for issuance under the 2016 Stock Incentive Plan, as amended (the “2016 Plan”), upon the effectiveness of the 2018 Plan, which was 360,514 shares, and (ii) the number of shares of common stock subject to outstanding awards under the 2016 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right. The number of shares of common stock that may be issued under the 2018 Plan will automatically increase on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2028, by an amount equal to the lowest of (i) 3,349,582 shares, (ii) 4% of the outstanding shares of common stock on such date and (iii) an amount determined by the Board of Directors. As of December 31, 2019, there were 4,829,847 shares of common stock reserved for issuance under the 2018 Plan. On January 1, 2020, the number of shares of common stock that may be issued under the 2018 Plan increased by 2,400,829 shares of common stock. During the nine months ended September 30, 2020, a total of 99,329 shares issued under the 2016 Plan have been cancelled and rolled over to the 2018 Plan, such that there is a total of 7,330,005 shares of common stock reserved for issuance under the 2018 Plan as of September 30, 2020. The shares of common stock underlying any awards that are forfeited, canceled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, repurchased or are otherwise terminated by the Company under the 2018 Plan will be added back to the shares of common stock available for issuance under the 2018 Plan.
 
17

The 2018 Plan is administered by the Board of Directors. The exercise prices, vesting periods and other restrictions are determined at the discretion of the Board of Directors, except that the exercise price per share of options may not be less than 100% of the fair market value of the common stock on the date of grant. Stock options awarded under the 2018 Plan expire 10 years after the grant date, unless the Board of Directors sets a shorter term. Awards granted to employees, officers, members of the Board of Directors and consultants typically vest over a period of one to four years.
Typically, unvested stock options are forfeited upon the recipient ceasing to provide services to the Company.
2018 Employee Stock Purchase Plan
On March 7, 2018, the Board of Directors, subject to stockholder approval, adopted, and on June 15, 2018, the Company’s stockholders approved the 2018 Employee Stock Purchase Plan (the “2018 ESPP”), which became effective on June 27, 2018. A total of 418,697 shares of common stock were initially reserved for issuance under this plan. The number of shares of common stock that may be issued under the 2018 ESPP will automatically increase on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2019 and continuing for each fiscal year until, and including, the fiscal year commencing on January 1, 2029, by an amount equal to the lowest of (i) 837,395 shares, (ii) 1% of the outstanding shares of common stock on such date and (iii) an amount determined by the Board of Directors. In December 2019, the Board of Directors elected to add no shares of common stock to the 2018 ESPP. As of September 30, 2020, 870,096 shares of common stock were reserved for issuance under this plan.
2016 Stock Incentive Plan
The 2016 Plan provided for the grant of stock options, stock appreciation rights, restricted stock and restricted stock units. Shares that are expired, terminated, surrendered or canceled under the 2016 Plan without having been exercised will be available for future grants of awards under the 2018 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards under the 2018 Plan.
The 2016 Plan is administered by the Board of Directors. The exercise prices, vesting periods and other restrictions were determined at the discretion of the Board of Directors, except that the exercise price per share of options could not be less than 100% of the fair market value of the common stock on the date of grant. Stock options awarded under the 2016 Plan expire 10 years after the grant date, unless the Board of Directors set a shorter term. Stock options and restricted stock granted to employees, officers, members of the Board of Directors and consultants typically vest over a four-year period.
Upon the effectiveness of the 2018 Plan on June 27, 2018, no further awards will be made under the 2016 Plan, but awards outstanding under the 2016 Plan will continue to be governed by their existing terms.
Stock Options
The following table summarizes the Company’s stock option activity since December 31, 2019 (in thousands, except share and per share amounts):
 
    
Number of

Shares
    
Weighted

Average

Exercise

Price
    
Weighted

Average

Remaining

Contractual

Term
    
Intrinsic

Value
 
                  
(in years)
        
Outstanding as of December 31, 2019
     8,646,378      $ 8.06        8.42      $ 3,687  
Granted
     2,992,734      $ 9.22        
Exercised
     (800,076    $ 7.36        
Forfeited
     (529,492    $ 8.59        
Outstanding as of September 30, 2020
     10,309,544      $ 8.42        8.04      $ 55,026  
  
 
 
          
Exercisable as of September 30, 2020
     4,915,617      $ 7.96        7.23      $ 27,795  
Vested and expected to vest as of September 30, 2020
     10,309,544      $ 8.42        8.04      $ 55,026  
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2020 and 2019 was $10.7 million and $0.6 million, respectively.
 
18

The weighted average grant-date fair value per share of stock options granted was $5.65 and $5.58 during the nine months ended September 30, 2020 and 2019, respectively.
Stock Option Valuation
The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company completed its initial public offering in July 2018 and therefore lacks company-specific historical and implied volatility information before that date. 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 such time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to
non-employees
is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees and directors:
 
    
Nine Months Ended
September 30,
 
    
2020
   
2019
 
Risk-free interest rate
     0.77     2.39
Expected term (in years)
     6.1       6.0  <