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, 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 August 3, 2020, the registrant had 74,243,943 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.
 
  
 
39
 
Item 4.
 
  
 
39
 
PART II.
 
  
 
40
 
Item 1.
 
  
 
40
 
Item 1A.
 
  
 
40
 
Item 6.
 
  
 
83
 
 
 
  
 
84
 
 
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, cash equivalents and short-term investments and the period in which we expect that such cash, cash equivalents and short-term 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 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

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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Table of Contents
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,
2020
 
 
December 31,
2019
 
Assets
 
 
 
 
 
 
Current assets:
   
     
 
Cash and cash equivalents
  $
 272,193
    $
84,580
 
Short-term investments
   
20,029
     
104,098
 
Collaboration receivables
   
15,131
     
4,596
 
Prepaid expenses and other current assets
   
7,918
     
9,391
 
Restricted cash
   
950
     
950
 
                 
Total current assets
   
316,221
     
203,615
 
Property and equipment, net
   
15,154
     
12,539
 
Right-of-use
assets, net
   
10,130
     
10,400
 
Goodwill
   
21,359
     
21,359
 
Intangible assets, net
   
81,280
     
85,536
 
Other assets
   
10,134
     
2,752
 
                 
Total assets
  $
454,278
    $
336,201
 
                 
Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
   
     
 
Accounts payable
  $
12,912
    $
15,968
 
Accrued expenses
   
11,126
     
7,072
 
Current portion of deferred revenue
   
27,109
     
18,100
 
Current portion of operating lease liability
   
619
     
530
 
                 
Total current liabilities
   
51,766
     
41,670
 
Contingent consideration
   
109,550
     
103,655
 
Deferred revenue, net of current portion
   
9,818
     
25,256
 
Operating lease liability, net of current portion
   
11,751
     
12,084
 
                 
Total liabilities
   
182,885
     
182,665
 
                 
Commitments and contingencies (Notes 3, 4 and 12)
 
   
 
Stockholders’ equity:
   
     
 
Preferred stock, $0.001 par value; 10,000,000 shares authorized as of June 30, 2020 and December 31, 2019,
respectively; no shares issued and outstanding as of June 30, 2020 and December 31, 2019
   
     
 
Common stock, $0.001 par value; 200,000,000 shares authorized as of June 30, 2020 and December 31, 2019;
69,359,509 shares and 60,022,067 shares issued and outstanding as of June 30, 2020 and December 31, 2019,
respectively
   
69
     
60
 
Additional
paid-in
capital
   
680,850
     
512,231
 
Accumulated deficit
   
(410,066
   
(359,496
)
Accumulated other comprehensive income
   
540
     
741
 
                 
Total stockholders’ equity
   
271,393
     
153,536
 
                 
Total liabilities and stockholders’ equity
  $
454,278
    $
336,201
 
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
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,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Collaboration revenue
  $
  16,319
    $
1,174
    $
20,974
    $
2,648
 
Operating expenses:
   
     
     
     
 
Research and development
   
29,002
     
16,625
     
50,442
     
34,048
 
General and administrative
   
8,601
     
7,850
     
16,060
     
14,403
 
Change in fair value of contingent consideration
   
15,347
     
4,889
     
5,895
     
16,591
 
                                 
Total operating expenses
   
52,950
     
29,364
     
72,397
     
65,042
 
                                 
Loss from operations
   
(36,631
   
(28,190
)    
(51,423
   
(62,394
)
Interest income
   
343
     
358
     
853
     
878
 
                                 
Loss before benefit from income taxes
   
(36,288
   
(27,832
)    
(50,570
   
(61,516
)
Benefit from income taxes
   
     
  
     
     
486
 
                                 
Net loss
  $
(36,288
  $
(27,832
)   $
(50,570
  $
(61,030
)
                                 
Net loss per share—basic and diluted
 
$
(0.58
  $
(0.57
)  
$
(0.83
  $
(1.30
)
                                 
Weighted average common shares outstanding—basic and diluted
   
62,282,291
     
48,749,627
     
61,145,254
     
46,866,842
 
                                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(In thousands)
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Net loss
  $
(36,288
  $
(27,832
)   $
(50,570
  $
(61,030
)
 
Other comprehensive income (loss):
   
     
     
     
 
Unrealized gains
(
losses
)
 
on
available-for-sale
securities, net of tax of $0
   
(315
   
219
     
(201
   
374
 
                                 
Comprehensive loss
  $
(36,603
  $
(27,613
)   $
(50,771
  $
(60,656
)
 
                                 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
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
l
osses
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
 
                                                 
    
Common Stock
    
Additional
Paid-in
   
Accumulated
   
Accumulated
Other
Comprehensive
    
Total
Stockholders’
 
    
Shares
   
Amount
    
Capital
   
Deficit
   
Income
    
Equity
 
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
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Table of Contents
TRANSLATE BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Six Months Ended June 30,
 
 
2020
 
 
2019
 
Cash flows from operating activities:
 
 
 
 
 
 
Net loss
  $
(50,570
  $
(61,030
)
 
Adjustments to reconcile net loss to net cash used in operating activities:
   
     
 
Depreciation and amortization expense
   
5,617
     
1,960
 
Stock-based compensation expense
   
9,186
     
5,509
 
Change in fair value of contingent consideration
   
5,895
     
16,591
 
Deferred income tax benefit
   
     
(486
)
Changes in operating assets and liabilities:
   
     
 
Collaboration receivables
   
(10,535
   
177
 
Prepaid expenses and other assets
   
(5,909
   
(1,766
)
Right-of-use
assets
   
270
     
234
 
Accounts payable
   
(2,783
   
(1,858
)
Accrued expenses
   
4,013
     
600
 
Lease liability
   
(244
   
(170
)
Deferred revenue
   
(6,429
   
(1,206
)
                 
Net cash used in operating activities
   
(51,489
   
(41,445
)
                 
Cash flows from investing activities:
 
 
 
 
 
 
Purchases of investments
   
(27,409
   
(38,438
)
Sales and maturities of investments
   
111,277
     
55,756
 
Purchases of property and equipment
   
(4,446
   
(1,793
)
                 
Net cash provided by investing activities
   
79,422
     
15,525
 
                 
Cash flows from financing activities:
 
 
 
 
 
 
Proceeds from public offering
s
, net of
underwriting discounts and
 
commissions
   
154,292
     
 
Payments of public offering costs
   
(443
   
 
Proceeds from private placement, net of placement agent fees
   
     
44,608
 
Payments of private placement offering costs
   
     
(474
)
Proceeds from option exercises
   
5,831
     
1,416
 
                 
Net cash provided by financing activities
   
159,680
     
45,550
 
                 
Net increase in cash, cash equivalents and restricted cash
:
   
187,613
     
19,630
 
Cash, cash equivalents and restricted cash at beginning of period
   
85,530
     
56,224
 
                 
Cash, cash equivalents and restricted cash at end of period
  $
273,143
    $
75,854
 
                 
Cash, cash equivalents and restricted cash at end of period:
 
 
 
 
 
 
Cash and cash equivalents
  $
272,193
    $
74,904
 
Restricted cash
   
950
     
950
 
                 
Total cash, cash equivalents and restricted cash at end of period
  $
273,143
    $
75,854
 
                 
Supplemental disclosure of
non-cash
investing and financing activities:
 
 
 
 
 
 
Purchases of property and equipment included in accounts payable and accrued expenses
  $
718
    $
59
 
Offering costs included in accrued expenses
 
$
238
 
 
$
 
 
 
Deferred offering costs included in accounts payable and accrued expenses
  $
    $
123
 
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.
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Table of Contents
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. 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 Company’s MRT platform may also be applied to produce various classes of treatments, such as therapeutic antibodies for infectious diseases and other diseases.
 
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, enrollment and dosing has been paused in the Company’s Phase 1/2 clinical trial in patients with cystic fibrosis (“CF”) as a consequence of the response to the
COVID-19
pandemic. 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 have been paused in the ongoing Phase 1/2 clinical trial in patients with CF as a consequence of the response to the
COVID-19
pandemic. The Company and the clinical trial sites are assessing the potential for patients to safely return to the clinic for study enrollment and dosing. At this time the Company is unable to predict the 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 14). Two of the target pathogens under development are
SARS-CoV-2
and influenza. Multiple
COVID-19
vaccine candidates are being evaluated
in vivo
for immunogenicity and neutralizing antibody activity to support lead candidate selection with the goal to
initiate
a
first-in-human
clinical trial in the fourth quarter of 2020. The Company is conducting preclinical studies with a lead candidate for influenza to support an anticipated investigational new drug filing
 
with clinical trial initiation anticipated
mid-year
2021.
 
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Table of Contents
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 June 30, 2020, the unaudited condensed consolidated statements of operations and of comprehensive loss for the three and six months ended June 30, 2020 and 2019, the unaudited condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2020 and 2019 and the unaudited condensed consolidated statements of cash flows for the six months ended June 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 June 30, 2020, the results of its operations for the three and six months ended June 30, 2020 and 2019, and its cash flows for the six months ended June 30, 2020 and 2019. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2020 and 2019 are also unaudited. The results for the three and six months ended June 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
In July 2019, the Company filed a universal shelf registration statement on Form
S-3
with the SEC (the “2019 Shelf”) to register for sale from time to time up to $250.0 million of common stock, preferred stock, debt securities, warrants and/or units in one or more offerings, which became effective on July 19, 2019 (File No.
 333-232543).
 
In July 2019, the Company entered into 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 $50.0 million. The offer and sales of shares under the Sales Agreement were also registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the 2019 Shelf. 
7

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. Upon the effectiveness of the 2020 Shelf, the Company deregistered the 2019 Shelf and no more sales may be made pursuant to the 2019 Shelf.
On March 
13
,
2020
, the Company entered into Amendment No. 
1
to the Open Market Sale Agreement
SM
with Jefferies, which increased the aggregate dollar amount of shares of common stock that the Company may issue and sell pursuant to the Sales Agreement from $
50.0
 million to $
100.0
 million, which became effective when the
2020
Shelf was declared effective. As of
June
 
30
,
2020
, the Company ha
s
issued and sold
an aggregate of 2,863,163 shares of its common stock, resulting in gross proceeds of
$
37.9
 million
, before deducting commissions of $1.1 million and other offering expenses of $0.2 million.
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 14).
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 have agreed to jointly conduct research and development activities to advance mRNA vaccines
targeting
up to seven infectious disease pathogens. The term of the collaboration expires in June 2022 with an option for Sanofi to extend for one additional year. If Sanofi elects to so extend, 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 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 pathogens, with certain specified exceptions.
Pursuant to the Second Sanofi Amendment, Sanofi agreed to pay the Company an additional upfront payment of $300.0 million, which was received in
August
2020. Additionally, in connection with the execution of the Second Sanofi Amendment, the Company and Sanofi, a French corporation,
 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, the effective date (see Note 14).
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.
 
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Table of Contents
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 June 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 $
50.6
million and $
61.0
 million for the six months ended June 30, 2020 and 2019, respectively. In addition, the Company had an accumulated deficit of $
410.1
 million as of June 30, 2020. The Company expects to continue to generate operating losses for the foreseeable future.
As of August 6, 2020, the date of issuance of these unaudited interim condensed consolidated financial statements, the Company expects that its cash, cash equivalents and short-term investments of $292.2 million as of June 30, 2020
, together with the upfront payment of $300.0 million from Sanofi under the Second Sanofi Amendment and the aggregate purchase price of approximately $125.0 million from the Investor under the Securities Purchase Agreement, both received
as of August 6
,
2020,
 
will be sufficient to fund its operating expenses and capital expenditure requirements
for at least
the
next 36 months.
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 six months ended June 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.
 
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Table of Contents
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 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.
 
On June 22, 2020, the Company and Sanofi entered into the Second Sanofi Amendment, which became effective on July 20, 2020, to expand the scope of the collaboration and licenses granted to Sanofi (see Note 14).
 
In this Note 3, the Company is describing matters in relation to the Original Sanofi Agreement, as amended by the First Sanofi Amendment. Certain of those matters have been amended in accordance with the Second Sanofi Amendment, resulting in rights and obligations that may be different than those set forth in this Note 3, as further described in Note 14.
Pursuant to the
Original
Sanofi Agreement
, as amended by the First Sanofi Amendment
, the Company and Sanofi  agreed to collaborate to perform certain research and development activities to advance mRNA vaccines and mRNA vaccine platform development during a three-year research term, which
could have
been
 
extended by mutual agreement.
The
Company
was
obligated to manufacture and supply certain
non-clinical
and clinical product until the Company
transferred
such manufacturing capabilities to Sanofi, which the Company originally estimated to take up to eight years to complete. The collaboration activities
were
subject to a collaboration plan to be updated annually. During March 2020, the joint steering committee revised the collaboration timeline and the Company
estimated
the completion of the transfer of manufacturing capabilities to be six years
 from the date of the Original Sanofi Agreement
, or 2024.
Pursuant to the
Original
Sanofi Agreement,
as amended by the First Sanofi Amendment,
the Company and Sanofi agreed to a governance structure, including committees and working groups, to manage the activities under the collaboration. If the Company and Sanofi
d
i
d
not mutually agree on certain decisions, Sanofi would be able to break a deadlock without the Company’s consent. The collaboration
included
an estimated budget. Sanofi
was
responsible for paying reimbursable development costs, including the Company’s employee costs,
out-of-pocket
costs paid to third parties and manufacturing costs, up to a specified amount for the Licensed Field
. During the second quarter of 2020, the joint steering committee revised the estimated budget to include reimbursable manufacturing costs for
 
development of the vaccine against
SARS-CoV-2
.
Under the terms of the
Original
Sanofi Agreement,
as amended by the First Sanofi Amendment,
the Company 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 of four of the Licensed Fields. In addition, pursuant to the terms of the
Original
Sanofi Agreement
, as amended by the First Sanofi Amendment,
and subject to certain limitations, Sanofi
had
options to add up to two additional infectious disease pathogens within the granted licenses to the Licensed Fields by exercising either option or both options during a specified option term and paying the Company a $5.0 million fee per added pathogen, subject to certain limitations on the pathogens. If, prior to the exercise of the options by Sanofi, the Company receive
d
 a bona fide third-party offer to acquire rights to the field to which an option relates, the Company
was required to
notify Sanofi of such offer, and if Sanofi
did
not exercise its option as to the applicable field, such field
would
no longer be subject to the option.
 
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Table of Contents
The Company and Sanofi retained the rights to perform their respective obligations and exercise their respective rights under the Original Sanofi Agreement, as amended by the First Sanofi Amendment. Sanofi also granted the Company
non-exclusive,
sublicensable licenses under patent rights claiming certain improvements that Sanofi could have made to the technology the Company had licensed to it or claiming certain technology arising from the collaboration and owned by Sanofi. The Company could have exercised 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
could
have terminated these licenses to the Company if the Company materially breached the terms of the license and the breach remained uncured for a specified period, which
could
have been extended in certain circumstances.
The Original Sanofi Agreement, as amended by the First Sanofi Amendment, provided that the Company
was
 
eligible to receive aggregate potential payments of up to $805.0 million from Sanofi, which include
d
 the $45.0 million upfront payment the Company received in 2018, potential milestone payments and potential option exercise payments. Sanofi
would
also pay the Company $5.0 million with respect to each additional Licensed Field for which it exercise
d
 an option.
Under the First Sanofi Amendment,
Sanofi did not pay an upfront fee to the Company with respect to the addition of
SARS-CoV-2
as a Licensed Field.
 
As part of the Original Sanofi Agreement
,
 Sanofi ha
d
 also agreed to pay the Company milestone payments upon the achievement of specified development, regulatory and commercialization milestones. In particular, the Company
was
entitled to receive development and regulatory milestone payments of up to $63.0 million per Licensed Field and sales milestone payments of up to $85.0 million per Licensed Field. In addition, the Company
was
 entitled to receive a $10.0 million milestone payment from Sanofi following completion of the technology and process transfer.
Notwithstanding the foregoing, milestone payments provisions of the Original Sanofi Agreement, as amended by the First Sanofi Agreement, did not apply to vaccine products for the prevention, treatment or cure of
SARS-CoV-2
that are purchased by a governmental authority while
SARS-CoV-2
is a declared pandemic.
Among other changes to the provisions described in this Note 3, this provision regarding milestone payments
has been amended under the Second Sanofi Amendment (see Note 14).
Pursuant to the Original Sanofi Agreement, as amended by the First Sanofi Amendment, Sanofi had agreed to pay the Company a tiered royalty on worldwide net sales of all mRNA vaccines within each Licensed Field ranging from a high single-digit percentage to a low teens percentage, depending on quarterly net sales by Sanofi, its affiliates and its sublicensees. The royalty
percentage payable
to the Company could have been reduced with respect to a product once the relevant licensed patent rights expire
d
or if additional licensed technology
wa
s required, but such royalty
percentage
could not fall below the Company’s royalty obligations to third parties plus a royalty of a low single-digit percentage. Royalty payments were payable on a
product-by-product
and
country-by-country
basis beginning on the launch of the product in the country until the later of the expiration of the last valid claim covering such product 
or 10
years after the launch of such product in such country. Notwithstanding the foregoing, pursuant to the Original Sanofi Agreement, as amended by the First Sanofi Amendment, royalty payments
would
 not apply to vaccine products for the prevention, treatment or cure of
SARS-CoV-2
that are purchased by a governmental authority while
SARS-CoV-2
is a declared pandemic, and instead the parties
would
negotiate in good faith royalty terms to apply to such vaccine products, which royalty terms were to reflect the economic conditions applicable to commercializing such vaccine products, and in no event would be higher than those set out in the Original Sanofi Agreement.
Among other changes to the provisions described in this Note 3, the provision regarding royalties payable in respect of SARS-CoV-2 vaccine products
has been amended under the Second Sanofi Amendment (see Note 14).
The Original Sanofi Agreement, as amended by the First Sanofi Amendment, provided that it would remain in effect until terminated in accordance with its terms. Either the Company or Sanofi could have terminated the Original Sanofi Agreement, as amended by the First Sanofi Amendment, in its entirety if the other party was subject to certain insolvency proceedings. Either party could have terminated the Original Sanofi Agreement, as amended by the First Sanofi Amendment, in its entirety or with respect to a particular Licensed Field, country or product if the other party materially breached the Original Sanofi Agreement, as amended by the First Sanofi Amendment, and the breach remained uncured for a specified period, which could have been extended in certain circumstances. Sanofi could have also terminated the Original Sanofi Agreement, as amended by the First Sanofi Amendment, 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 Original Sanofi Agreement, as amended by the First Sanofi Amendment, Sanofi could have continued to manufacture and commercialize the terminated products for a specified period of time, subject to Sanofi’s payment obligations.
Moreover, under the Original Sanofi Agreement, as amended by the First Sanofi Amendment, in the event that the Company and Sanofi were unable to mutually agree on terms relating to the conduct of clinical development and commercialization of a product related to
SARS-CoV-2
 
vaccine products
,
the Company had the right to terminate and revoke the license granted to Sanofi with respect to
SARS-CoV-2
with
sixty (60) days
written notice, and
SARS-CoV-2
would
 have ceased to be a Licensed Field. Upon any such termination and revocation by the Company, the Company and Sanofi had agreed to negotiate in good faith a termination agreement with respect to the Company’s use of any technology arising from the collaboration that
was
 owned by Sanofi or jointly owned by the Company and Sanofi, that
was
necessary or useful to the further development or commercialization of a product directed to
SARS-CoV-2.
Among other changes to the provisions described in this Note 3, the provision regarding termination of the SARS-CoV-2 Licensed Field
has been amended under the Second Sanofi Amendment (see Note 14).
 
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 such commercialization.
 
11

The Company and Sanofi 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, th
e
 
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. The Supply Agreement will remain in effect until terminated in accordance with its terms. However, 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
The Company accounts for the Original Sanofi Agreement, as amended by the First Sanofi Amendment, 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 Original Sanofi Agreement, as amended by the First Sanofi Amendment: (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 services represent one performance obligation. Sanofi’s right to exercise options for up to two additional infectious disease pathogens within the granted licenses to the Licensed Fields are accounted for separately as they do not represent material rights, based on the criteria of ASC 606. Upon the exercise of any option by Sanofi, the contract promises associated with an option target would use a separate proportional performance model for purposes of revenue recognition under ASC 606. There is no significant financing component or
non-cash
consideration included in the Original Sanofi Agreement, as amended by the First Sanofi Amendment.
Under ASC 606, at the end of each reporting period, the Company
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. In March 2020
 
and in June 2020,
the joint steering committee agreed to a revised budget and collaboration plan. As a result, during the
six
months ended
June
 
30
, 2020, the Company increased the overall transaction price by $42.9 million. The transaction price includes the upfront,
non-refundable
payment of $45.0 million for the transfer of the combined license, supply and development obligations under the Original Sanofi Agreement, an estimated $34.3 million in reimbursable employee costs, an estimated $100.7 million in reimbursable development costs including
out-of-pocket
costs paid to third parties and manufacturing costs and an estimated $14.0 million in milestone payments.
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 extent of progress towards 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.
 
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Table of Contents
The following table summarizes the Company’s collaboration revenue (in thousands):
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Collaboration revenue
  $
 16,319
    $
1,174
    $
20,974
    $
2,648
 
The following table presents the balance of the Company’s contract liabilities (in thousands):
 
June 30,
2020
 
 
December 31,
2019
 
Contract liabilities
   
     
 
Deferred revenue
  $
 36,927
    $
43,356
 
The Company considers the total consideration expected to be earned in the next 12 months for services to be performed as short-term deferred revenue, and consideration that is expected to be earned subsequent to 12 months from the balance sheet date as long-term deferred revenue. The Company expects to complete its obligations and recognize all net revenues from the collaboration over six years. Revenue recognized from contract liabilities was $6.4 million and $1.2 million during the six months ended June 30, 2020 and 2019,
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.
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, 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
 
                                         
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Table of Contents
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 $3.6
 m
illion and $0.3 million during the three months ended June 30, 2020 
and
2019,
respectively, and $4.3 million and $0.8 million during the six months ended June 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 $11.6 million, $8.3 million, $8.4 million, $10.9 million and $4.0 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 is not investing any additional funds in this program and has reallocated all resources previously dedicated to the OTC deficiency program to other programs within the Company. 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 year ended December 31, 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 (see Note 5). As a result of the termination of the planned Phase 1/2 clinical trial for MRT5201 in patients with OTC deficiency, the Company had recorded $0.9 million in short-term receivables, which was received during the quarter ended June 30
,
2020, related to refundable advance payments for this program with one of the Company’s contract research organizations.
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, 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 six months ended June 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 June 30, 2020 Using:
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
Assets:
   
     
     
     
 
Money market funds
  $
    $
191,447
    $
    $
191,447
 
U.S. government agency bonds
   
     
20,029
     
     
20,029