10-Q
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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 June 30, 2021
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,
a
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 August 2, 2021, the registrant had 75,586,714 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.
  
  
 
21
 
Item 3.
  
  
 
35
 
Item 4.
  
  
 
35
 
PART II.
  
  
 
36
 
Item 1.
  
  
 
36
 
Item 1A.
  
  
 
36
 
Item 6.
  
  
 
84
 
  
  
 
85
 
 
i

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 initiation, timing, progress and results of our current and future preclinical studies and clinical trials and our research and development programs;
 
   
our plans and expectations regarding our pending transaction with Sanofi, a French
société anonyme
, or Sanofi S.A., and our anticipated timeframe in which to complete the transaction, and if it is completed at all;
 
   
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, cash equivalents, and investments and the period in which we expect that such cash, cash equivalents, and investments 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 and 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;
 
   
the impacts of the
COVID-19
pandemic;
 
   
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, other than our pending transaction with Sanofi S.A.
 
ii

Table of Contents
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.
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.
 
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
 
 
  
June 30,
 
 
December 31,
 
 
  
2021
 
 
2020
 
Assets
  
 
Current assets:
  
 
Cash and cash equivalents
   $ 249,471     $ 342,027  
Investments
     417,727       312,001  
Collaboration receivables
     24,030       26,598  
Prepaid expenses and other current assets
     20,958       11,741  
Restricted cash
     4,826       4,826  
    
 
 
   
 
 
 
Total current assets
     717,012       697,193  
Property and equipment, net
     18,249       15,372  
Right-of-use
assets, net
     68,123       72,957  
Goodwill
     21,359       21,359  
Intangible assets, net
     74,507       79,127  
Other assets
     5,620       3,928  
    
 
 
   
 
 
 
Total assets
   $ 904,870     $ 889,936  
    
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
                
Current liabilities:
                
Accounts payable
   $ 13,736     $ 8,839  
Accrued expenses
     15,079       13,202  
Current portion of deferred revenue
     41,014       67,563  
Current portion of operating lease liability
     11,685       11,733  
Total current liabilities
     81,514       101,337  
Contingent consideration
     112,493       152,230  
Deferred revenue, net of current portion
     252,055       228,659  
Operating lease liability, net of current portion
     46,171       50,953  
    
 
 
   
 
 
 
Total liabilities
     492,233       533,179  
    
 
 
   
 
 
 
Commitments and contingencies (Notes 3 and 12)
                
Stockholders’ equity:
                
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of
June 30, 2021 and December 31, 2020; no shares issued and
outstanding as of June 30, 2021 and December 31, 2020
              —    
Common stock, $0.001 par value; 200,000,000 shares authorized as of
June 30, 2021 and December 31, 2020; 75,343,712 shares
and 75,029,625 shares
 
issued and outstanding as of
June 30, 2021 and December 31, 2020, respectively
     75       75  
Additional
paid-in
capital
     782,144       769,965  
Accumulated deficit
     (369,617 )     (413,283
Accumulated other comprehensive income
     35       —    
    
 
 
   
 
 
 
Total stockholders’ equity
     412,637       356,757  
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 904,870     $ 889,936  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)
 
    
Three Months Ended June 30,
   
Six Months Ended June 30,
 
    
2021
    
2020
   
2021
   
2020
 
Collaboration revenue
   $ 72,649      $ 16,319     $ 107,249     $ 20,974  
Operating expenses:
                                 
Research and development
     40,477        29,002       81,617       50,442  
General and administrative
     11,921        8,601       22,738       16,060  
Change in fair value of contingent consideration
     4,242        15,347       (39,737     5,895  
    
 
 
    
 
 
   
 
 
   
 
 
 
Total operating expenses
     56,640        52,950       64,618       72,397  
    
 
 
    
 
 
   
 
 
   
 
 
 
Income (loss) from operations
     16,009        (36,631     42,631       (51,423
Other income, net
     154        343       308       853  
Income (loss) before income tax
es
     16,163        (36,288     42,939       (50,570
Income tax benefit
    
981
       —         727       —    
Net income (loss)
   $ 17,144      $ (36,288   $ 43,666     $ (50,570
    
 
 
    
 
 
   
 
 
   
 
 
 
Net income (loss) per share—basic
   $ 0.23      $ (0.58   $ 0.58     $ (0.83
    
 
 
    
 
 
   
 
 
   
 
 
 
Weighted average common shares outstanding—basic
     75,254,186        62,282,291       75,222,119       61,145,254  
    
 
 
    
 
 
   
 
 
   
 
 
 
Net income (loss) per share—diluted
   $ 0.21      $ (0.58   $ 0.55     $ (0.83
    
 
 
    
 
 
   
 
 
   
 
 
 
Weighted average common shares outstanding—diluted
     80,026,488        62,282,291       79,994,422       61,145,254  
    
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)
 
    
Three Months Ended June 30,
   
Six Months Ended June 30,
 
    
2021
   
2020
   
2021
    
2020
 
Net income (loss)
   $ 17,144     $ (36,288   $ 43,666      $ (50,570
Other comprehensive income (loss):
                                 
Unrealized gains (losses) on
available-for-sale
securities, net of tax of $0
     (42     (315     35        (201
    
 
 
   
 
 
   
 
 
    
 
 
 
Comprehensive income (loss)
   $ 17,102     $ (36,603   $ 43,701      $ (50,771
    
 
 
   
 
 
   
 
 
    
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share amounts)
 
 
  
Common Stock
 
  
Additional
Paid-in
 
  
Accumulated
 
 
Accumulated
Other
Comprehensive
 
 
Total
Stockholders’
 
 
  
Shares
 
  
Amount
 
  
Capital
 
  
Deficit
 
 
Income
 
 
Equity
 
Balances at December 31, 2020
     75,029,625      $ 75      $ 769,965      $ (413,283   $        $ 356,757  
Exercise of stock options
     188,047        —          1,550        —         —         1,550  
Stock-based compensation expense
     —          —          3,984        —         —         3,984  
Unrealized gains on
available-for-sale
securities
     —          —          —          —         77       77  
Net income
     —          —          —          26,522       —         26,522  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances at March 31, 2021
     75,217,672        75        775,499        (386,761     77       388,890  
Exercise of stock options
     98,852        —          819        —         —         819  
Issuance of common stock under employee stock purchase plan
     27,188        —          490        —         —         490  
Stock-based compensation expense
     —          —          5,336        —         —         5,336  
Unrealized losses on
available-for-sale
securities
     —          —          —          —         (42     (42
Net income
     —          —          —          17,144       —         17,144  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balances at June 30, 2021
     75,343,712      $ 75      $ 782,144      $ (369,617   $ 35     $ 412,637  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share amounts)
 
 
  
Common Stock
 
  
Additional
Paid-in
 
  
Accumulated
 
 
Accumulated
Other
Comprehensive
 
 
Total
Stockholders’
 
 
  
Shares
 
  
Amount
 
  
Capital
 
  
Deficit
 
 
Income
 
 
Equity
 
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  
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
 
  
Six Months Ended June 30,
 
 
  
2021
 
 
2020
 
Cash flows from operating activities:
  
 
Net income (loss)
   $ 43,666     $ (50,570
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                
Depreciation and amortization expense
     6,471       5,617  
Stock-based compensation expense
     9,320       9,186  
Change in fair value of contingent consideration
     (39,737     5,895  
Changes in operating assets and liabilities:
                
Collaboration receivables
     2,568       (10,535
Prepaid expenses and other assets
     (8,521     1,472  
Right-of-use
assets
     6,210       270  
Long-term prepaid rent
     (2,395    
(7,381
)  
Accounts payable
     3,900       (2,783
Accrued expenses
     1,571       4,013  
Lease liability
     (6,206     (244
Deferred revenue
     (3,153     (6,429
    
 
 
   
 
 
 
Net cash provided by (used in) operating activities
     13,694       (51,489
    
 
 
   
 
 
 
Cash flows from investing activities:
                
Purchases of investments
     (185,690     (27,409
Sales and maturities of investments
     80,000       111,277  
Purchases of property and equipment
     (3,419     (4,446
    
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     (109,109     79,422  
    
 
 
   
 
 
 
Cash flows from financing activities:
                
Proceeds from public offerings, net of underwriting discounts and commissions
     —         154,292  
Payments of public offering costs
     —         (443
Proceeds from option exercises
     2,369       5,831  
Proceeds from issuance of common stock under employee stock purchase plan
     490       —    
    
 
 
   
 
 
 
Net cash provided by financing activities
     2,859       159,680  
    
 
 
   
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash:
     (92,556     187,613  
Cash, cash equivalents and restricted cash at beginning of period
     346,853       85,530  
    
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period
   $ 254,297     $ 273,143  
    
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period:
                
Cash and cash equivalents
   $ 249,471     $ 272,193  
Restricted cash
     4,826       950  
    
 
 
   
 
 
 
Total cash, cash equivalents and restricted cash at end of period
   $ 254,297     $ 273,143  
    
 
 
   
 
 
 
Purchases of property and equipment included in accounts payable and accrued expenses
   $ 1,707     $ 718  
Offering costs included in accrued expenses
   $ —       $ 238  
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
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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. In addition, the Company is pursuing discovery efforts in diseases that affect the liver. 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, a French
société anonyme
(“Sanofi S.A.”)
The Company is developing mRNA therapeutics for the treatment of cystic fibrosis (“CF”) with two programs, MRT5005, a clinical-stage program, and a preclinical next-generation CF program. The Company is conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of single- and multiple-ascending doses of MRT5005. The clinical trial is investigating several groups receiving five once-weekly doses, as well as a group receiving five daily doses. 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 as a safety measure. In 2019, the Company reported interim data from the single-ascending dose portion of the Phase 1/2 clinical trial through
one-month
follow up post dosing. In March 2021, the Company reported the second interim data analysis. In evaluating safety and tolerability, the primary outcome measure, data to date from the ongoing Phase 1/2 clinical trial suggested that repeat dosing of MRT5005 was generally safe and well tolerated. For patients receiving MRT5005, ppFEV
1
was not negatively impacted; there was no pattern of treatment-associated increases in ppFEV
1
. The clinical trial is ongoing with evaluation of the remaining dose groups, which include a 20 mg multiple-ascending dose group and the daily dosing cohort, and the Company anticipates reporting the interim findings from the clinical trial at the North American Cystic Fibrosis Conference, being held September 30, 2021 through October 2, 2021. The Company’s preclinical next-generation CF program incorporates mRNA codon optimization and advances in lipid nanoparticle chemistry. Positive preclinical data generated from the program support the planned initiation of investigational new drug (“IND”)-enabling studies in the second half of 2021. The Company is conducting translational studies with MRT5005 and a next-generation CF candidate to support and optimize future clinical development
.
The Company is leveraging its lung delivery platform and focusing its preclinical research efforts on identifying lead product candidates in additional pulmonary diseases with unmet medical needs, including primary ciliary dyskinesia (“PCD”), pulmonary arterial hypertension and respiratory infectious diseases. Positive preclinical data from our PCD program support the anticipated initiation of
IND-enabling
studies in the second half of 2021.
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 are jointly conducting 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,
which causes
COVID-19,
and influenza. MRT5500 has been selected as the lead candidate for a vaccine against
SARS-CoV-2.
A Phase 1/2 clinical trial to evaluate MRT5500 began in the first quarter of 2021 with interim data anticipated in the third quarter of 2021. A Phase 1 clinical trial evaluating MRT5400 and MRT5401, the Company’s investigational mRNA vaccine candidates against seasonal influenza, was initiated in June 2021 with interim data expected by the end of 2021.
Since early 2020, the outbreak of the novel strain of coronavirus named
SARS-CoV-2
has spread across the globe and the
COVID-19
pandemic has had wide-reaching impacts on the global economy and business operations. The
COVID-19
pandemic has had, and the Company expects it will continue to have, an impact on its operations, the operations of its collaborators, the operations of third-party contractors and other entities with which the Company interacts, as well as on the patients who may enroll in the Company’s clinical trials. The Company continues to actively monitor
COVID-19
trends and government guidance. The ultimate impacts of the
COVID-19
pandemic are still unknow
n
 and uncertain.
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
 
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under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require 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 sal
e
s.
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 or to potentially treat or vaccinate against
COVID-19,
it 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 June 30, 2021, the unaudited condensed consolidated statements of operations and of comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020, the unaudited condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2021 and 2020 and the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020 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, 2020 has been derived from the Company’s audited financial statements for the year ended December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. 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, 2020 included in the Company’s Annual Report on Form
10-K
that was filed with the SEC on March 1, 2021.
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 June 30, 2021, the results of its operations for the three and six months ended June 30, 2021 and 2020, and its cash flows for the six months ended June 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020 are also unaudited. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.
Sales of Common Stock
The Company is a party to an Open Market Sale Agreement
SM
(the “Sales Agreement”) with Jefferies LLC under
 which the Company may issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $
100.0
 million. During the year ended December 
31
,
2020
, the Company issued and sold
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 expenses of $
0.2
 million. There were
no
shares issued or sold pursuant to the Sales Agreement during the six months ended June 
30
,
2021
. 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 Company’s universal shelf registration statement on Form
S-3.
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, 2020, and the notes thereto, which are included in the Company’s Annual Report on Form
10-K.
During the six months ended June 30, 2021, there were no material changes to the Company’s significant accounting policies.
 
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Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company adopted this new standard as of the required effective date of January 1, 2021, and its adoption had no impact on the Company’s condensed 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 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 Company adopted this new standard as of the required effective date of January 1, 2021, and its adoption had no impact on the Company’s condensed consolidated financial statements.
3. Collaboration Agreement
Sanofi Collaboration and License 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 further amended the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi (the “Second Sanofi Amendment”). The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is referred to as the “Amended Sanofi Agreemen
t
.”
Pursuant to the Amended Sanofi Agreement, the Company and Sanofi are jointly conducting 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.
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 Original Sanofi Agreement, Sanofi paid the Company an upfront payment of $45.0 million in 2018. Pursuant to the Second Sanofi Amendment, Sanofi paid 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. In March 2021, Sanofi paid the Company a milestone payment of $25.0 million upon the initiation of the Phase 1/2 clinical trial of MRT5500 and in June 2021, Sanofi paid the Company a milestone payment of $50.0 million upon the successful manufacture, release and delivery of clinical drug product to supply the Phase 1 clinical trial of MRT5400 and MRT5401. Additionally, in June 2021, the Company achieved a milestone of $4.0 million upon the start of the Phase 1 clinical trial of MRT5400 and MRT5401, which is included in collaboration receivables on the condensed consolidated balance sheet as of June 30, 2021.
 
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Table of Contents
Accounting for the Sanofi Collaboration
The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606,
Revenue from Contracts with Customer
(“ASC 606”)
.
During the six months ended June 30, 2021, the Company increased the overall transaction price by
$108.7 million. The transaction price as of June 30, 2021 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 under a securities purchase
agreement
entered into with an affiliate of Sanofi, an estimated $76.3 million in reimbursable employee costs, an estimated $167.8 million in reimbursable development costs including manufacturing costs and
out-of-pocket
costs paid to third parties and an estimated $212.0 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. Changes as a result of a contract modification or in the planned services under the Amended Sanofi Agreement may have an impact on the transaction price and on the Company’s measure of progress toward complete satisfaction of the performance obligation. The impact of changes during the six months ended June 30, 2021 resulted in a cumulative revenue
catch-up
adjustment of $20.5 million.
The following table summarizes the Company’s collaboration revenue (in thousands):
 
    
Three Months Ended June 30,
    
Six Months Ended June 30,
 
    
2021
    
2020
    
2021
    
2020
 
Collaboration revenue
   $ 72,649      $ 16,319      $ 107,249      $ 20,974  
The following table presents the balance of the Company’s contract liabilities (in thousands):
 
 
  
June 30,
 
  
December 31,
 
 
  
2021
 
  
2020
 
Contract liabilities
                 
Deferred revenue
   $ 293,069      $ 296,222  
Deferred revenue is classified as short-term or long-term in the
conde
nsed
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 June 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligation is estimated to be approximately $597.0 million, which is expected to be recognized as revenue through 2024. Revenue recognized from contract liabilities at the beginning of the period was $29.8 million and $6.4 million during the six months ended June 30, 2021 and 2020, respectively.
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.
 
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Table of Contents
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:
 
           
June 30, 2021
 
    
Estimated Life
    
Gross Carrying

Amount
    
Accumulated

Amortization
    
Net Carrying

Amount
 
           
(In thousands)
 
Definite-lived intangible assets:
                                   
MRT
     6 years      $ 45,992      $ (13,776    $ 32,216  
             
 
 
    
 
 
    
 
 
 
Indefinite-lived intangible assets:
                                   
IPR&D—CF
     Indefinite        42,291        —          42,291  
             
 
 
    
 
 
    
 
 
 
Total intangible assets, net
            $ 88,283      $ (13,776    $ 74,507  
             
 
 
    
 
 
    
 
 
 
     
           
December 31, 2020
 
    
Estimated Life
    
Gross Carrying

Amount
    
Accumulated

Amortization
    
Net Carrying

Amount
 
           
(In thousands)
 
Definite-lived intangible assets:
                                   
MRT
     6 years      $ 45,992      $ (9,156    $ 36,836  
             
 
 
    
 
 
    
 
 
 
Indefinite-lived intangible assets:
                                   
IPR&D—CF
     Indefinite        42,291        —          42,291  
             
 
 
    
 
 
    
 
 
 
Total intangible assets, net
            $ 88,283      $ (9,156    $ 79,127  
             
 
 
    
 
 
    
 
 
 
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 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—M
RT 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 $2.6 million and $3.6 million during the three months ended June 30, 2021 and 2020, respectively, and $4.6 million and $4.3 million during the six months ended June 30, 2021 and 2020, respectively, related to the definite-lived MRT intangible asset. The estimated amortization expense for the remainder of the useful life is $11.8 million, $11.2 million, $11.1 
million
and $2.7 million for the years ending December 31, 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 1st. During the six months ended June 30, 2021 and 2020, the Company did not recognize any impairment charges related to indefinite-lived IPR&D.
 
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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 six months ended June 30, 2021. Goodwill is not subject to amortization, but is tested annually for impairment or more frequently if there are indicators of impairment. During the six months ended June 30, 202
1
and 20
20
, 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 June 30, 2021 Using:
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
Assets:
                                   
Money market funds
   $         $ 167,938      $         $ 167,938  
U.S. treasuries
               359,871                  359,871  
U.S. government agency bonds
               57,856                  57,856  
    
 
 
    
 
 
    
 
 
    
 
 
 
     $         $ 585,665      $         $ 585,665  
    
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
                                   
Contingent consideration
   $         $         $ 112,493      $ 112,493  
    
 
 
    
 
 
    
 
 
    
 
 
 
     $         $         $ 112,493      $ 112,493  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
  
Fair Value Measurements

as of December 31, 2020 Using:
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
Assets:
  
  
  
  
Money market funds
   $ —        $ 273,827      $ —        $ 273,827  
U.S. treasuries
               292,001        —          292,001  
U.S. government agency bonds
     —          20,000        —          20,000  
    
 
 
    
 
 
    
 
 
    
 
 
 
     $ —        $ 585,828      $ —        $ 585,828  
    
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities:
                                   
Contingent consideration
   $ —        $ —        $ 152,230      $ 152,230  
    
 
 
    
 
 
    
 
 
    
 
 
 
     $ —        $ —        $ 152,230      $ 152,230  
    
 
 
    
 
 
    
 
 
    
 
 
 
During the six months ended June 30, 2021 and the year ended December 31, 2020, there were no transfers between Level 1, Level 2 and Level 3.
Cash equivalents as of June 30, 2021 and December 31, 2020 consisted of money market funds totaling $167.9 million and $273.8 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 investments as of June 30, 2021 and December 31, 2020 consisted of U.S. treasuries and U.S. government agency bonds and were clas
s
ified as
available-for-sale
securities. The U.S. treasuries and 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. The Company has classified its investments with maturities beyond one year as short term, based on their highly liquid nature and because such
available-for-sale
securities represent the investment of cash that is available for current operations.
The estimated amortized costs and fair value of the Company’s
available-for-sale
securities by contractual maturity are summarized as follows:
 
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Table of Contents
    
June 30, 2021
    
December 31, 2020
 
    
Amortized Cost
    
Fair Value
    
Amortized Cost
    
Fair Value
 
Due within one year
   $ 305,053      $ 305,095      $ 201,606      $ 201,596  
Due after one year through two years
     112,639        112,632        110,395        110,405  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
available-for-sale
securities
   $ 417,692      $ 417,727      $ 312,001      $ 312,001  
    
 
 
    
 
 
    
 
 
    
 
 
 
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 valuation u
s
ing a discounted cash flow analysis based on various assumptions, including the amount and timing of cash flows, probability of achieving specified events, discount rate, 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
 
  
June 30,
 
  
December 31,
 
 
  
 
 
  
2021
 
  
2020
 
Earnout payments
    
2027 -
 2039
     $ 103,093      $ 142,250  
Milestone payments
  
 
2027 - 2031
       9,400        9,980  
             
 
 
    
 
 
 
              $ 112,493      $ 152,230  
             
 
 
    
 
 
 
The discount rate used in the valuation was 10.8% and 11.0% as of June 30, 2021 and December 31, 2020, 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, 2020
   $ 152,230  
Decrease in fair value of contingent consideration
     (39,737
    
 
 
 
Balance as of June 30, 2021
   $ 112,493  
    
 
 
 
The change in the fair value of contingent consideration was due to a large decrease in the fair value of contingent consideration during the three months ended March 31, 2021 due to the previously announced results of the second interim data analysis from the Phase 1/2 clinical trial of MRT5005. This decrease was partially offset by an increase in the fair value of contingent consideration during the three months ended June 30, 2021 due to
the
time value of money due to the passage of time and a decrease in the discount rate.
6. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
 
 
  
June 30,
 
  
December 31,
 
 
  
2021
 
  
2020
 
Laboratory equipment
   $ 18,949      $ 12,710  
Computer equipment
     932        922  
Office equipment
     941        941  
Leasehold improvements
     5,557        5,730  
Construction in progress
     2,882        5,189  
    
 
 
    
 
 
 
       29,261        25,492  
Less: Accumulated depreciation and amortization
     (11,012      (10,120
    
 
 
    
 
 
 
     $ 18,249      $ 15,372  
    
 
 
    
 
 
 
 
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Depreciation and amortization expense related to property and equipment was $1.0 million and $0.7 million during the three months ended June 30, 2021 and 2020, respectively, and $1.9 million and $1.4 million during the six months ended June 30, 2021 and 2020, respectively.
7. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
 
 
  
June 30,
 
  
December 31,
 
 
  
2021
 
  
2020
 
Accrued employee compensation and benefits
   $ 5,326      $ 5,600  
Accrued external research and development expenses
     4,420        2,805  
Accrued consultant and professional fees
     2,468        1,489  
Other
     2,865        3,308  
    
 
 
    
 
 
 
     $ 15,079      $ 13,202  
    
 
 
    
 
 
 
Included in other accrued expenses as of June 30, 2021 was $2.5 million related to a work agreement to perform a
build-out
of the Company’s office and laboratory space at 200 West Street in Waltham, Massachusetts (see Note 11).
8. Incentive Stock Options and Employee Stock Purchase Plan
2021 Inducement Stock Incentive Plan
On January 20, 2021, the Board of Directors adopted a 2021 Inducement Stock Incentive Plan (the “2021 Plan”), pursuant to which the Company may grant
non-statutory
stock options, restricted stock, restricted stock units and other stock-based awards with respect to an aggregate of
 
2,612,550 
shares of common stock. Awards under the 2021 Plan may only be granted to persons who (i) were not previously an employee or director of the Company or (ii) are commencing employment with the Company following a bona fide period of
non-employment,
in either case as an inducement material to the individual’s entering into employment with the Company and in accordance with the requirements of Nasdaq Stock Market Rule 5635(c)(4).
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, the Company’s 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 Company previously awarded grants under the 2016 Stock Incentive Plan (the “2016 Plan”). Upon the effectiveness of the 2018 Plan, 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
.
As of December 31, 2020, there were 7,457,171 shares of common stock reserved for issuance under the 2018 Plan. On January 1, 2021, the number of shares of common stock that may be issued under the 2018 Plan increased by 3,001,185 shares of common stock. During the six months ended June 30, 2021, a total of 12,848 shares issued under the 2016 Plan have been canceled and rolled over to the 2018 Plan, such that there is a total of 10,471,204 shares of common stock reserved for issuance under the 2018 Plan as of June 30, 2021. 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 20
16
Plan will be added back to the shares of common stock available for issuance under the 2018 Plan.
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.
 
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Table of Contents
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. As of June 30, 2021, 870,096 shares of common stock were reserved for issuance under this plan.
As of June 30, 2021, 54,152 shares have been issued under the 2018 ESPP.
Stock Options
The following table summarizes the Company’s stock option activity since December 31, 2020 (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, 2020
     9,557,391      $ 8.79        7.92      $ 93,256  
Granted
     3,126,560      $ 21.81                    
Exercised
     (286,899    $ 8.25                    
Forfeited
     (154,303    $ 14.68                    
    
 
 
                            
Outstanding as of June 30, 2021
     12,242,749      $ 12.06        8.07      $ 189,483  
    
 
 
                            
Exercisable as of June 30, 2021
     5,953,908      $ 8.14        7.07      $ 115,421  
Vested and expected to vest as of June 30, 2021
     12,242,749      $ 12.06        8.07      $ 189,483  
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 six months ended June 30, 2021 and 2020 was $3.8 million and $10.7 million, respectively.
The weighted average grant-date fair value per share of stock options granted was $13.56 and $5.50 during the six months ended June 30, 2021 and 2020, 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:
 
    
Six Months Ended June 30,
 
    
2021
   
2020
 
Risk-free interest rate
     1.03     0.79
Expected term (in years)
     6.1       6.1  
Expected volatility
     69.7     68.6
Expected dividend yield
     0     0
 
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Table of Contents
Stock-Based Compensation
Stock-based compensation expense was classified in the condensed consolidated statements of operations as follows (in thousands):
 
 
  
Three Months Ended June 30,
 
  
Six Months Ended June 30,
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
Research and development expenses
   $ 2,841      $ 4,091      $ 4,921      $ 5,545  
General and administrative expenses
     2,495        1,923        4,399        3,641  
    
 
 
    
 
 
    
 
 
    
 
 
 
     $ 5,336      $ 6,014      $ 9,320      $ 9,186  
    
 
 
    
 
 
    
 
 
    
 
 
 
As of June 30, 2021, total unrecognized compensation cost related to the unvested stock-based awards was $57.4 million, which is expected to be recognized over a weighted average period of 2.9 years.
9. Income Taxes
The Company recognized an income tax
benefit
of $1.0 million and $0.7
million during the three and six months ended June 30, 2021,
respectively, due to the current period income before income taxes and the application of the annual effective tax rate. The annual effective tax rate
relates primarily to an expected income tax liability due to the acceleration of revenue recognition for tax purposes related to the Amended Sanofi Agreement. There was
no
 income tax benefit recognized during the three and six months ended June 30, 2020. Net operating losses generated in
2018
and years thereafter can be carried forward indefinitely. 
10. Net Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period, including any dilutive effect from outstanding stock options.
Basic and diluted net income (loss) per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):
 
    
Three Months Ended June 30,
    
Six Months Ended June 30,
 
    
2021
    
2020
    
2021
    
2020
 
Basic net income (loss) per common share:
                                   
Numerator:
                                   
Net income (loss)
   $ 17,144      $ (36,288    $ 43,666      $ (50,570
Denominator:
                                   
Weighted average common shares outstanding—basic
     75,254,186        62,282,291        75,222,119        61,145,254  
Net income (loss) per share—basic
   $ 0.23      $ (0.58    $ 0.58      $ (0.83
Diluted net income (loss) per common share:
                                   
Numerator:
                                   
Net income (loss)
   $ 17,144      $ (36,288    $ 43,666      $ (50,570
Denominator:
                                   
Weighted average common shares
outstanding—diluted
     80,026,488        62,282,291        79,994,422        61,145,254  
Net income (loss) per share—diluted
   $ 0.21      $ (0.58    $ 0.55      $ (0.83
 
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The Company excluded 3,790 shares and 11,149 shares of restricted common stock, presented on a weighted average basis, from the calculations of basic net loss per share attributable to common stockholders for the three and six months ended June 30, 2020, respectively, because those shares had not vested. As of June 30, 2021, there are no unvested shares of restricted common stock.
The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net income (loss) per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
 
    
Six Months Ended June 30,
 
    
2021
    
2020
 
Options to purchase common stock
     3,608,932        10,494,989  
Unvested restricted common stock
               1,691  
    
 
 
    
 
 
 
       3,608,932        10,496,680  
    
 
 
    
 
 
 
11. Leases
Suite Retention Agreements
In September 2019, the Company entered into a suite retention and development agreement with Curia Massachusetts, Inc. (“Curia”), formerly known as Albany Molecular Research, Inc., under which a series of cleanroom suites were built at Curia’s manufacturing facility in accordance with the Company’s objectives (“Curia Agreement”). The Curia Agreement continues for five years after the
build-out
is completed, and the Company has the right to extend for an additional three years. The Company has determined this is a lease under ASU
No. 2016-02,
Leases (Topic 842) (“ASC 842”). Under the Curia Agreement, the Company will finance $6.0 million of the costs of the
build-out
(“Build-Out
Costs”). If
Build-Out
Costs exceed $6.0 million, the Company and Curia will share overage costs equally, up to $11.0 million, and the Company will be responsible for any amounts exceeding $11.0 million. The Company had paid $12.8 million towards the
Build-Out
Costs prior to the lease commencement date which had been recorded within other long-term assets as prepaid rent as these represented payments for lessor owned assets. The Company anticipates making additional payments of $5.6 million related to the final
Build-Out
Costs, of which $3.2 million was paid as of June 30, 2021. These costs are included within the
right-of-use
(“ROU”) assets and lease liabilities recorded at the lease commencement date. Upon the
build-out
completion date of August 31, 2020 (“Curia Lease Commencement”), the Company determined that it gained control of the space, in accordance with ASC 842, which resulted in the recording of ROU assets and related lease liabilities of approximately $66.6 million and $53.8 million, respectively, with the difference being due to the elimination of previously recorded prepaid rent. Due to an increase in the final
Build-Out
Costs, the Company recorded an increase of $1.4 million to ROU assets and lease liabilities as of June 30, 2021. As of August 31, 2020, the Company began paying monthly fees of $1.0 million, which are subject to a 3% increase on January 1 of each calendar year following the first anniversary of the
build-out
completion. The option to extend the lease for an additional three years was not included in the lease liability as of June 30, 2021 as the Company is not reasonably certain it will exercise this option.
In October 2020, the Company entered into a suite retention agreement (the “Biomere Suite Retention Agreement”) with Biomedical Research Models, Inc. (“Biomere”) under which the Company will lease two exclusive procedure rooms and one housing and maintenance room in Biomere’s Worcester, Massachusetts facility. The lease term is 13 months
 
and commenced
 on December 1, 2020 (the “Biomere Lease Commencement”). The Company can terminate the Biomere Suite Retention Agreement for convenience, and without penalty, with 60 days’ written notice. The Biomere Suite Retention Agreement does not contain any lease incentives or renewal options. Upon the Biomere Lease Commencement, the Company determined that it gained control of the space, in accordance with ASC 842, which resulted in the recording of an ROU asset and lease liability of $0.3 million. As of the Biomere Lease Commencement, the Company began paying monthly fees of less than $0.1 million.
Real Estate Lease
In June 2017, the Company entered into an operating lease for office and laboratory space at its headquarters in Lexington, Massachusetts. The Company occupies approximately 59,000 square feet of space under a
10-year
lease agreement expiring in April 2028. The Company occupied this property in March 2018. Monthly lease payments include base rent charges of $0.2 million, which are subject to a 3% annual increase each year. In June 2017, in connection with this lease agreement, the Company issued a letter of credit collateralized by cash deposits of $1.0 million, which are classified as restricted cash
on the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020.
 
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Equipment Lease
In March 2018, the Company entered into an operating lease for communications equipment for use at its office and laboratory space in Lexington, Massachusetts. The term of the lease is five years, expiring in March 2023.
The Company excludes leases with an initial term of one year or less in the recognized ROU asset and lease liabilities. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASC 842, lease and
non-lease
components are combined into a single lease component. The Company’s leases have remaining lease terms of up to seven years, excluding two five-year options to extend the real estate lease after the expiration of the initial term. The Company believes the Lexington real estate lease, together with the anticipated relocation to a space in Waltham, Massachusetts as described below, will be sufficient to meet its needs for the foreseeable future and that suitable additional space will be available as and when needed.
The components of lease cost were as follows (dollar amounts in thousands):
 
    
Six Months Ended June 30,
 
    
2021
   
2020
 
Lease cost
                
Operating lease cost
   $ 9,597     $ 1,346  
    
 
 
   
 
 
 
Total lease cost
   $ 9,597     $ 1,346  
    
 
 
   
 
 
 
Other information
                
Operating cash flows from operating leases
   $ 9,593     $ 1,320  
Operating lease liabilities arising from obtaining
right-of-use
assets
     1,376       —    
Weighted-average remaining lease term
     5 years       8 years  
Weighted-average discount rate
     12.0     17.5
Maturities of operating lease liabilities are as follows (in thousands):
 
    
June 30, 2021
    
December 31, 2020
 
2021
   $ 9,971      $ 18,067  
2022
     15,178        15,178  
2023
     15,591        15,591  
2024
     16,050        16,050  
2025
     12,029        12,029  
2026 and thereafter
     7,134        7,134  
    
 
 
    
 
 
 
Total future minimum lease payments
     75,953        84,049  
Less: imputed interest
     (18,097      (21,363
    
 
 
    
 
 
 
Present value of lease liabilities
   $ 57,856      $ 62,686  
    
 
 
    
 
 
 
 
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As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate which are the rates incurred to borrow on a collateralized basis over a term equal to the lease payments in a similar economic environment in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date and for all subsequent leases the Company used an appropriate incremental borrowing rate upon commencement date.
In October 2020, the Company entered into a suite retention agreement with Azzur Cleanrooms-on-Demand – Burlington, LLC (“Azzur”) under which it will lease two exclusive cleanroom suites in Azzur’s Burlington, Massachusetts facility (the “Azzur Agreement”). The lease term is
 24
months and commenced on August 1, 2021, with the option to extend the term with three months’ notice prior to the termination date. Upon commencement, the Company will pay monthly fees of 
$0.4 
million, which are subject to a
4%
 increase on July 1, 2022. As of June 30, 2021, the Company’s commitment under this agreement is
$8.8 
million through June 2023. The Company can terminate the Azzur Agreement for convenience, and without penalty, with three months’ written notice. The Azzur Agreement does not contain any lease incentives or renewal options. The Company has determined this is a lease under ASC 842. As of June 30, 2021, the Company has determined that it does not have control of the space, as defined in ASC 842, during the build-out and as such, this Azzur Agreement was
 not
included in the ROU assets or lease liabilities on the Company’s condensed consolidated balance sheet.
On November 3, 2020 (the “Lease Commencement Date”), the Company entered into a
ten-year
lease agreement for approximately 138,444 square feet of office and laboratory space located at 200 West Street in Waltham, Massachusetts (the “Waltham Lease Agreement”). The Waltham Lease Agreement includes an extension option of one period of 10 years. The Waltham Lease Agreement includes a work agreement to perform a
build-out
arrangement, with a construction period from March 2021 to December 2021. Under the Waltham Lease Agreement, the Company has improvement allowances of $26.3 million, plus an additional tenant allowance of up to $15 per square foot, should the Company elect to use those. In April 2021, the Company entered into a contract with the Richmond Group for $36.8 million for the
build-out
of this office and laboratory space. The Company expects to spend between $10.5 million and $12.5 
million on the construction of lessor assets, which represents the cost of the project that exceeds the tenant allowances. The Company has paid
$2.3
million towards the construction of lessor assets, which is included in other long-term assets in the condensed consolidated balance sheet as of June 30, 2021. Initial base rent, which commences 12 months after the Lease Commencement Date, shall be
$5.7 million for the first year and approximately $8.0 million for the second year and thereafter shall be subject to a 3% annual increase. In December 2020, in connection with this Waltham Lease Agreement, the Company issued a letter of credit collateralized by cash deposits of $3.9 
million, which are classified as restricted cash on the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020. The Company has determined this is a lease under ASC 842. As of June 30, 2021, the Company has determined that it does not have control of the space, as defined in ASC 842, during the
build-out
and as such, this Waltham Lease Agreement
was not
included in the ROU assets or lease liabilities on the Company’s condensed consolidated balance sheet
.
12. Commitments and Contingencies
Research, Supply and License Agreements
Roche Master Supply Agreement
The Company is a party to a master supply agreement with Roche Diagnostics Corporation (“Roche”) pursuant to which Roche will custom manufacture certain products for the Company. The agreement specifies a minimum purchase requirement for certain custom manufactured products through December 31, 2024. As of June 30, 2021, the Company’s purchase commitments under the agreement totaled $10.5 million, with $3.5 million committed as payments each year from 2022 to 2024. Research and development expenses related to this agreement totaled $1.3 million and $1.3 million during the three months ended June 30, 2021 and 2020, respectively, and $5.7 million and $2.6 million during the six months ended June 30, 2021 and 2020, respectively.
MIT Research Agreement
In September 2019, the Company entered into a research agreement with the Massachusetts Institute of Technology (“MIT”) pursuant to which the Company is obligated to reimburse MIT up to $4.1 million for specified direct and indirect costs to be incurred from January 2020 through December 2022 for specified research activities conducted for the Company (the “2019 MIT Agreement”). As of June 30, 2021 and 2020, the Company paid MIT $2.4 million and $1.2 million, respectively, towards the total committed amount. Research and development expenses related to this agreement were $0.3 million during each of the three months ended June 30, 2021 and 2020 and $0.7 million during each of the six months ended June 30, 2021 and 2020. There were no amounts payable by the Company under the agreement as of June 30, 2021. The 2019 MIT Agreement expires in December 2022 and may be extended thereafter by mutual agreement of the parties.
 
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MIT Exclusive Patent License Agreement
The Company is a party to an exclusive patent license agreement with MIT pursuant to which the Company received an exclusive license under the licensed patent rights to develop, manufacture and commercialize any product containing both Certain RNA sequences and certain lipid products, referred to as a “licensed product”. Under the licensed patent rights, the Company is permitted to develop, manufacture and commercialize the licensed products for the delivery of coding RNA components to treat disease in humans.
The Company has the right to grant sublicenses under this license. The patent rights licensed to the Company by MIT include claims that cover certain of the Company’s customized lipid nanoparticles used for delivery of coding RNA components in its MRT platform, including products that may be developed under the Company’s collaboration with Sanofi.
The Company is also obligated to make milestone payments to MIT aggregating up to $1.375 million upon the achievement of specified clinical and regulatory milestones with respect to each licensed product and $1.250 
million upon the Company’s first commercial sale of each licensed product, and to pay royalties of a low single-digit percentage to MIT based on the Company’s, and any of its affiliates’ and sublicensees’, net sales of licensed products. The royalties are p
a
yable on a product-by-product and country-by-country basis, and may be reduced in specified circumstances. The Company’s obligation to make royalty payments extends with respect to a licensed product in a country until four years past the expiration of the last-to-expire patent or patent application licensed from MIT covering the licensed product in the country. In addition, the Company is obligated to pay MIT a low double-digit percentage of the portion of income from sublicensees that the Company ascribes to the MIT-licensed patents, excluding royalties on net sales and research support payments. Pursuant to such provision, during the six months ended June 30, 2021, the Company paid
 $
3.4
million to MIT which included
$
2.5 
million as MIT’s share of sublicense income with respect to the payments the Company received in 2020 under the Second Sanofi Amendment and the Securities Purchase Agreement and
 $0.9
million as MIT’s share of sublicense income with respect to the milestones the Company achieved in 2021 under the Amended Sanofi Agreement. Future amounts that the Company may owe to MIT will depend upon the relative value of the patents the Company licensed from MIT and sublicensed to Sanofi as compared to the other rights that the Company licensed to S