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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Solid Biosciences Inc.    SLDB

SOLID BIOSCIENCES INC.

(SLDB)
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SOLID BIOSCIENCES : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/05/2020 | 07:38am EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes appearing elsewhere in this
quarterly report on Form 10-Q and our audited financial statements and related
notes for the year ended December 31, 2019 included in our annual report filed
on Form 10-K on March 12, 2020.

Some of the statements contained in this discussion and analysis or set forth
elsewhere in this quarterly report on Form 10-Q, including information with
respect to our plans and strategy for our business, constitute forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, as amended. We have based these forward-looking statements on our
current expectations and projections about future events. The following
information and any forward-looking statements should be considered in light of
factors discussed elsewhere in this quarterly report on Form 10-Q particularly
including those risks identified in Part II, Item 1A "Risk Factors" and our
other filings with the Securities and Exchange Commission, or the SEC.

Our actual results and timing of certain events may differ materially from the
results discussed, projected, anticipated, or indicated in any forward-looking
statements. We caution you that forward-looking statements are not guarantees of
future performance and that our actual results of operations, financial
condition and liquidity, and the development of the industry in which we operate
may differ materially from the forward-looking statements contained in this
quarterly report on Form 10-Q. Statements made herein are made as of the date of
the filing of this Form 10-Q with the SEC and should not be relied upon as of
any subsequent date. Even if our results of operations, financial condition and
liquidity, and the development of the industry in which we operate are
consistent with the forward-looking statements contained in this quarterly
report on Form 10-Q, they may not be predictive of results or developments in
future periods. We disclaim any obligation, except as specifically required by
law and the rules of the SEC, to publicly update or revise any such statements
to reflect any change in our expectations or in events, conditions or
circumstances on which any such statements may be based or that may affect the
likelihood that actual results will differ from those set forth in the
forward-looking statements.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.

Overview


Our mission is to cure Duchenne muscular dystrophy, or Duchenne, a genetic
muscle-wasting disease predominantly affecting boys, with symptoms that usually
manifest between three and five years of age. Duchenne is a progressive,
irreversible and ultimately fatal disease that affects approximately one in
every 3,500 to 5,000 live male births and has an estimated prevalence of 10,000
to 15,000 cases in the United States alone. Duchenne is caused by mutations in
the dystrophin gene, which result in the absence or near-absence of dystrophin
protein. Dystrophin protein works to strengthen muscle fibers and protect them
from daily wear and tear. Without functioning dystrophin and certain associated
proteins, muscles suffer excessive damage from normal daily activities and are
unable to regenerate, leading to the build-up of fibrotic, or scar, and fat
tissue. There is no cure for Duchenne and, for the vast majority of patients,
there are no satisfactory symptomatic or disease-modifying treatments. Our
efforts are focused on our lead product candidate, SGT-001, a gene transfer
candidate under investigation for its ability to drive functional dystrophin
protein expression in patients' muscles and improve the course of the
disease. Based on our preclinical program that included multiple animal species
of different phenotypes and genetic variations, as well as preliminary biomarker
results, we believe that SGT-001, has the potential to slow or even halt the
progression of Duchenne, regardless of the type of genetic mutation or stage of
the disease. SGT-001 has been granted Rare Pediatric Disease Designation and
Fast Track Designation in the United States and Orphan Drug Designations in both
the United States and European Union. The safety and efficacy of SGT-001 are
currently being evaluated in a Phase I/II clinical trial called IGNITE DMD.

In the fourth quarter of 2017, we initiated IGNITE DMD, a randomized,
controlled, open-label, single-ascending dose Phase I/II clinical trial, to
evaluate SGT-001 in ambulatory and non-ambulatory males with Duchenne aged four
to 17 years. The primary objectives of IGNITE DMD are to assess the safety and
tolerability of SGT-001, as well as efficacy as defined by SGT-001
microdystrophin protein expression. The clinical trial is also designed to
assess other parameters of muscle function and mass, respiratory and
cardiovascular function, serum and muscle biomarkers associated with SGT-001
microdystrophin production, SGT-001 microdystrophin associated biochemical
properties (e.g., neuronal nitric oxide synthase, or nNOS, binding) and patient
and parent reported outcomes and quality of life measures, among other
endpoints.

In February 2019, we announced preliminary findings based on three-month biopsy
data from the first three patients dosed with 5E13 vg/kg of SGT-001, the lowest
dose outlined in the IGNITE DMD protocol and our intention to dose escalate.

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In May 2019, we announced that two patients were randomized in the second cohort
of the IGNITE DMD study, including one patient dosed with 2E14 vg/kg of SGT-001
and another added to the control group.

In August 2019, we announced that we amended the IGNITE DMD clinical trial
protocol. The changes to the protocol included adding an upper weight limit of
25 kg for at least the next patient dosed in the second cohort and removing the
matched patient control arm for the rest of the second cohort. We also announced
that a patient was dosed under this amended protocol.

In November 2019, we announced that the third patient in the 2E14 vg/kg cohort
of IGNITE DMD, dosed in late October 2019, experienced a serious adverse event,
or SAE, deemed related to the study drug and that IGNITE DMD was placed on
clinical hold by the U.S. Food and Drug Administration, or FDA, as a result of
the SAE. The SAE was characterized by complement activation, thrombocytopenia, a
decrease in red blood cell count, acute kidney injury, and cardio-pulmonary
insufficiency. Neither cytokine- nor coagulopathy-related abnormalities were
observed. In December 2019, we reported that the SAE had fully resolved and the
patient had resumed his normal activities. In April 2020, we submitted a
response to the FDA that included changes to the clinical protocol designed to
enhance patient safety, as well as information related to improvements to our
manufacturing process. The FDA responded by maintaining the clinical hold and
requesting further data and analyses relating to this manufacturing process. In
June 2020, we submitted a response to the FDA that provided data related to
manufacturing process improvements. In July 2020, we announced that the FDA
responded by maintaining the clinical hold and requesting further manufacturing
information and updated safety and efficacy data for all patients dosed in the
trial, as well as providing direction on the total viral load to be administered
per patient. In October 2020, we announced that the FDA lifted the clinical hold
placed on our IGNITE DMD Phase I/II clinical trial. In connection with the
lifting of the clinical hold, we are reducing the maximum weight of the next two
patients dosed in IGNITE DMD to 18 kg per patient, with safety outcomes from
these two patients driving potential weight increase of patients dosed
subsequently. This reduction, in conjunction with the delivery of fewer viral
particles as a result of our manufacturing process improvements, will reduce
patients' total viral load while continuing dosing at the 2E14 vg/kg dose.
Additionally, to mitigate the risk of serious drug-related adverse events, we
are amending the IGNITE DMD clinical protocol to include the prophylactic use of
both anti-complement inhibitor eculizumab and C1 esterase inhibitor, and
increasing the prednisone dose in the first month post dosing. We are currently
working to complete all activities necessary to resume dosing, which we expect
to occur in the first quarter of 2021.

In December 2019, we announced preliminary findings based on three-month biopsy
data from the first two patients dosed with 2E14 vg/kg of SGT-001. Using two
independent immunofluorescence assays, 10% to 20% of microdystrophin positive
muscle fibers were determined to express SGT-001 microdystrophin in the fourth
patient and 50% to 70% of microdystrophin positive muscle fibers in the fifth
patient. Immunofluorescence also showed clear stabilization and co-localization
of nNOS and beta-sarcoglycan with SGT-001 microdystrophin in both patients.
Using western blot, the expression levels for the fourth patient were detectable
and estimated to be near the assay's level of quantification which is 5% of
non-dystrophic control samples, with one assay replicate at 5.5%. Expression for
the fifth patient was 17.5% of normal control samples. The levels of serum
creatine kinase, a highly variable biochemical marker of muscle damage, declined
from baseline in both patients.

In March 2020, we announced data from the third patient dosed in the 2E14 vg/kg
dose cohort of IGNITE DMD, including three-month biopsy data. Using
immunofluorescence assays, 50% to70% of the muscle fibers were determined to
express SGT-001 microdystrophin. Immunofluorescence also showed stabilization
and co-localization of nNOS and beta-sarcoglycan with SGT-001 microdystrophin.
Using western blot, microdystrophin expression was 8% of normal control samples.
In addition, the level of serum creatine kinase decreased from baseline.

In January 2020, we announced a reduction in workforce by approximately one third as part of a strategic plan designed to create a leaner company focused on advancing SGT-001.


Since our inception, we have devoted substantial resources to identifying and
developing SGT-001 and other product candidates, developing our manufacturing
processes, organizing and staffing our company and providing general and
administrative support for these operations. We do not have any products
approved for sale. To date, we have not generated any revenue. Our ability to
eventually generate any product revenue sufficient to achieve profitability will
depend on the successful development, approval and eventual commercialization of
SGT-001 and other product candidates. If successfully developed and approved, we
intend to commercialize SGT-001 and we may enter into licensing agreements or
strategic collaborations in select markets. If we generate product sales or
enter into licensing agreements or strategic collaborations, we expect that any
revenue we generate will fluctuate from quarter to quarter and year to year as a
result of the timing and amount of any product sales, license fees, milestone
payments and other payments. If we fail to complete the development of SGT-001
and other product candidates in a timely manner or obtain regulatory approval of
them, our ability to generate future revenue, and our results of operations and
financial position, would be materially adversely affected.

We have never been profitable, and since our inception, we have incurred significant operating losses. Our net losses were $66.9 million and $85.4 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $383.2 million. We expect to incur significant expenses and operating losses for the foreseeable future.


                                       17

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As we seek to develop and commercialize SGT-001 and other product candidates, we
anticipate that our expenses will increase significantly and that we will need
substantial additional funding to support our continuing operations. Until such
time as we can generate significant revenue from product sales, if ever, we
expect to finance our operations through a combination of public or private
equity financings, debt financings or other sources, which may include licensing
agreements or strategic collaborations. We may be unable to raise additional
funds or enter into such agreements or arrangements when needed on favorable
terms, if at all. If we fail to raise capital or enter into such agreements as
and when needed, we may have to significantly delay, scale back or discontinue
the development or commercialization of SGT-001 or other product candidates.

Because of the numerous risks and uncertainties associated with product
development, we are unable to predict the timing or amount of increased expenses
or determine when or if we will be able to achieve or maintain profitability.
Even if we are able to generate revenue from product sales, we may not become
profitable. If we fail to become profitable or are unable to sustain
profitability on a continuing basis, then we may be unable to continue our
operations at planned levels and be forced to reduce or terminate our
operations.



Since our initial public offering, which we completed on January 30, 2018, we
have primarily financed our operations through the sale of common stock. In our
initial public offering we sold 8,984,375 shares of our common stock, including
shares of common stock issued upon the exercise in full of the underwriters'
over-allotment option, at a public offering price of $16.00 per share, resulting
in net proceeds of $129.1 million, after deducting underwriting discounts and
commissions and offering expenses. On July 30, 2019, we issued and sold in a
private placement (i) 10,607,525 shares of our common stock at a price per share
of $4.65 and (ii) 2,295,699 pre-funded warrants to purchase shares of our common
stock at a price per warrant of $4.64. Each pre-funded warrant is exercisable
for one share of common stock at an exercise price of $0.01 and the pre-funded
warrants have no expiration date. We received $57.9 million of net proceeds from
the private placement after deducting offering costs.



In October 2020, we entered into a collaboration and license agreement, or the
Collaboration Agreement, with Ultragenyx Pharmaceutical Inc., or Ultragenyx,
pursuant to which we granted Ultragenyx an exclusive worldwide license under
certain intellectual property rights controlled by us to make, have made, use,
distribute, offer for sale, sell, import and export, including to research,
develop, modify, enhance, improve, register, distribute, commercialize, or
otherwise dispose of AAV8 or other clade E AAV variant pharmaceutical products
that express our MD5 nNOS binding domain form of microdystrophin protein for the
diagnosis, treatment, cure, mitigation or prevention of Duchenne Muscular
Dystrophy and other disease indications resulting from a lack of functional
dystrophin, including Becker muscular dystrophy. In connection with the
execution of the Collaboration Agreement, we also entered into a stock purchase
agreement with Ultragenyx, pursuant to which we issued and sold 7,825,797 shares
of our common stock to Ultragenyx for an aggregate purchase price of
approximately $40 million.



As of September 30, 2020, we had cash and cash equivalents of $24.8 million.
Based upon our current and projected cash flow, we note there is substantial
doubt about our ability to continue as a going concern within one year after the
date that these financial statements are issued. As a result, in order to
continue to operate our business beyond that time, we will need to raise
additional funds. However, there can be no assurance that we will be able to
generate funds on terms acceptable to us, on a timely basis, or at all.  In
addition, we have based this estimate on assumptions that may prove to be wrong,
and we could use our available capital resources sooner than we currently
anticipate.  We believe that our existing cash and cash equivalents as of
September 30, 2020, together with the proceeds of $40.0 million received in
October 2020 from the sale of shares of our common stock to Ultragenyx  as well
as the net proceeds of $23.2 million received from the sale of shares of our
common stock in October 2020 pursuant to a sales agreement, dated March 13,
2019, or the ATM Sales Agreement, by and between us and Jefferies LLC, or
Jefferies, will enable us to fund our operating expenses into the second half of
2021.  The financial statements for the quarter ended September 30, 2020 do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from uncertainty related to our ability to continue
as a going concern.





                                       18
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The ongoing novel coronavirus pandemic, commonly referred to as COVID-19, which
began in December 2019, has spread worldwide, causing federal, state, and local
governments to implement measures to slow the spread of the outbreak through
quarantines, strict travel restriction and bans, heightened border scrutiny and
other measures. We are following, and will continue to follow, recommendations
from the U.S. Centers for Disease Control and Prevention as well as federal,
state, and local governments regarding working-from-home practices for
non-essential employees. As a result, we have modified our business practices,
including implementing a work from home policy for all employees who are able to
perform their duties remotely and restricting all nonessential travel, and we
expect to continue to take actions as may be required or recommended by
government authorities or as we determine are in the best interests of our
employees, and other business partners in light of COVID-19. The full extent of
the impact of COVID-19 on our business, results of operations and financial
condition will depend on future developments that are highly uncertain,
including the length and severity of this pandemic, the actions taken to contain
it or treat its impact and the impact on our clinical development, employees,
vendors and suppliers, all of which are uncertain and cannot be predicted. We
will continue to monitor the situation closely.

Financial operations overview

Revenue


We have not generated any revenue as we do not have any approved products and do
not expect to generate any revenue from the sale of our products for the next
few years, if ever. If our development efforts for SGT-001 or other product
candidates are successful and result in marketing approval or if we enter into
collaboration or license agreements with third parties, we may generate revenue
in the future from a combination of product sales or payments from those
collaboration or license agreements.

Operating expenses


Our operating expenses since inception have consisted primarily of research and
development activities and general and administrative costs. Personnel costs,
including salaries, benefits, bonuses and equity-based compensation expense,
comprise a significant component of each of these expense categories. We
allocate expenses associated with personnel costs based on the nature of work
associated with these resources.

Research and development expenses


Research and development expenses consist primarily of costs incurred for our
research activities, including our discovery efforts, and the development of
SGT-001 and other product candidates and include:

• expenses incurred under agreements with third parties, including contract

       research organizations, or CROs, that conduct research, preclinical and
       clinical activities on our behalf as well as contract manufacturing
       organizations, or CMOs, that manufacture SGT-001 and other product
       candidates for use in our preclinical studies and clinical trials;


    •  salaries, benefits and other related costs, including equity-based

compensation expense, for personnel engaged in research and development

functions;

• costs of outside consultants, engaged to assist in our research and

development activities, including their fees, equity-based compensation and

       related travel expenses;


    •  the costs of laboratory supplies and acquiring, developing and
       manufacturing preclinical study and clinical trial materials;

• costs incurred in seeking regulatory approval of SGT-001 and other product

       candidates;


  • expenses incurred under our intellectual property licenses; and

• facility-related research and development expenses, which include direct

       depreciation and rent costs as well as allocated expenses for rent and
       maintenance of facilities and other operating costs.


We expense research and development expenses as incurred. We recognize costs for
certain development activities, such as preclinical research and development,
based on an evaluation of the progress to completion of specific tasks using
information and data provided to us by our vendors, collaborators and
third-party service providers. Payments for these activities are based on the
terms of the individual agreements, which may differ from the pattern of costs
incurred, and are reflected in our condensed consolidated financial statements
as prepaid or accrued research and development expenses.

We typically use our employee and infrastructure resources across our product
candidates. We track outsourced development costs and milestone payments made
under our licensing arrangements by product candidates, but we do not allocate
personnel costs, license payments made under our licensing arrangements and
infrastructure costs, including facilities and lab operations to product
candidates on a program-specific basis. These costs are included in unallocated
research and development expenses in the table below.

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The following table summarizes our research and development expenses by product candidates for the respective periods:



                                              Three Months Ended          Nine Months Ended
                                                September 30,               September 30,
(In thousands)                                2020          2019          2020          2019
SGT-001                                    $    8,628$   9,323$  24,408$ 29,390
Other product candidates                           83           544           465        3,726
Unallocated research and development
expenses
Personnel related expenses                      5,179         9,357        16,512       23,335
External expenses                               2,155         3,568         7,773       11,220
Total unallocated research and
development expenses                            7,334        12,925        

24,285 34,555 Total research and development expenses $ 16,045$ 22,792$ 49,158$ 67,671





We cannot determine with certainty the duration, costs and timing of clinical
trials of SGT-001 and other product candidates or if, when or to what extent we
will generate revenue from the commercialization and sale of any of our product
candidates for which we obtain marketing approval or our other research and
development expenses. We may never succeed in obtaining marketing approval for
any of our product candidates. The duration, costs and timing of clinical trials
and development of our product candidates will depend on a variety of factors,
including:

• the scope, rate of progress, expense and results of any clinical trials of

SGT-001 or other product candidates and other research and development

activities that we may conduct;

• the imposition of regulatory restrictions on clinical trials, including

full and partial clinical holds, and the time and activities required to

lift any such holds;

• the impact of the COVID-19 outbreak on our ability to conduct clinical

trials of SGT-001 and other product candidates;

• uncertainties in clinical trial design and patient enrollment or drop out

or discontinuation rates;

• significant and changing government regulation and regulatory guidance;


  • potential additional studies requested by regulatory agencies; and


  • the timing and receipt of any marketing approvals.


Research and development activities are central to our business model. Product
candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
We expect that our research and development expenses will decrease in calendar
year 2020 as a result of the organizational changes we announced in January
2020, to create a leaner organization focused on advancing SGT-001.

General and administrative expenses


General and administrative expenses consist primarily of salaries and other
related costs, including equity-based compensation, for personnel in our
executive, finance, business development and administrative functions. General
and administrative expenses also include legal fees relating to patent and
corporate matters; professional fees for accounting, auditing, tax and
consulting services; insurance costs; travel expenses; and facility-related
expenses, which include depreciation costs and allocated expenses for rent and
maintenance of office facilities and other operating costs.

We expect that our general and administrative expenses will decrease in calendar year 2020 as a result of the organizational changes we announced in January 2020, to create a leaner organization focused on advancing SGT-001.

Restructuring charges


In January 2020, we implemented changes to our organizational structure to
create a leaner company focused on advancing SGT-001. In connection with the
restructuring, we made changes to our management team and reduced headcount by
approximately 30 percent.



Other income (expense)

Interest income

Interest income consists of interest income earned on our cash, cash equivalents and available-for-sale securities.

                                       20

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Other income


We have received funding from charitable organizations, which are not considered
to be an ongoing major or central part of our business. The amounts received are
recorded as other income as services are performed and research expenses are
incurred in the condensed consolidated statements of operations.

Income taxes


We account for income taxes using an asset and liability approach. Under the
asset and liability method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. We record
valuation allowances to reduce deferred income tax assets to the amount that is
more likely than not to be realized. We determine whether it is more likely than
not that a tax position will be sustained upon examination. If it is not more
likely than not that a position will be sustained, no amount of benefit
attributable to the position is recognized. The tax benefit to be recognized of
any tax position that meets the more likely than not recognition threshold is
calculated as the largest amount that is more than 50% likely of being realized
upon resolution of the contingency.

Critical Accounting Policies and Use of Estimates


Our management's discussion and analysis of financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of our financial statements and related disclosures requires us
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, costs and expenses and the disclosure of contingent assets and
liabilities in our financial statements. We base our estimates on historical
experience, known trends and events and various other factors that we believe
are reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. We evaluate our estimates and
assumptions on an ongoing basis. Our actual results may differ from these
estimates under different assumptions or conditions.

During the three and nine months ended September 30, 2020, there were no
material changes to our critical accounting policies. Our critical accounting
policies are described under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Critical accounting policies
and use of estimates" in our Annual Report on Form 10-K for the year ended
December 31, 2019 and the notes to the unaudited condensed consolidated
financial statements included in Part I, Item 1, "Financial Statements
(unaudited)," of this quarterly report on Form 10-Q. We believe that of our
critical accounting policies, the following accounting policies involve the most
judgment and complexity:

  • Accrued research and development expenses; and


  • Equity-based compensation.


Accordingly, we believe the policies set forth above are critical to fully
understanding and evaluating our financial condition and results of operations.
If actual results or events differ materially from the estimates, judgments and
assumptions used by us in applying these policies, our reported financial
condition and results of operations could be materially affected.

                                       21

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Results of operations

Comparison of the three months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019:



                                 Three Months Ended
                                    September 30,            Increase
(in thousands)                   2020          2019         (decrease)
Revenue                        $       -     $       -     $          -
Operating expenses:
Research and development          16,045        22,792           (6,747 )
General and administrative         5,181         6,925           (1,744 )
Total operating expenses          21,226        29,717           (8,491 )
Loss from operations             (21,226 )     (29,717 )          8,491
Other income (expense):
Interest (expense) income            (20 )         406             (426 )
Other income                           -            56              (56 )
Total other income (expense)         (20 )         462             (482 )
Net loss                       $ (21,246 )$ (29,255 )$      8,009

Research and development expenses



                                                    Three Months Ended
                                                      September 30,              Increase
(in thousands)                                     2020            2019         (decrease)
SGT-001                                         $     8,628$    9,323$       (695 )
Other product candidates                                 83            544             (461 )
Unallocated research and development expenses
Personnel related expenses                            5,179          9,357           (4,178 )
External expenses                                     2,155          3,568           (1,413 )
Total unallocated research and development
expenses                                              7,334         12,925           (5,591 )
Total research and development expenses         $    16,045$   22,792$     (6,747 )




Research and development expenses for the three months ended September 30, 2020
were $16.0 million, compared to $22.8 million for the three months ended
September 30, 2019. The decrease of $6.8 million in research and development
costs was due to a decrease in unallocated research and development costs of
$5.6 million, primarily due to a reduction in personnel and facility related
expenses as a result of the restructuring that occurred in January 2020, a
$0.7 million decrease in costs related to our lead product candidate SGT-001,
driven by a reduction in manufacturing costs of $0.2 million, and a decrease in
clinical costs of $0.5 million. The reduction in research and development was
also driven by a $0.5 million decrease in costs related to other product
candidates as we focus on advancing SGT-001.



General and administrative expenses


General and administrative expenses were $5.2 million for the three months ended
September 30, 2020, compared to $6.9 million for the three months ended
September 30, 2019. The decrease of $1.7 million was due to a decrease in
personnel related expenses of $1.5 million partially due to the restructuring
that occurred in January 2020 and a net decrease in corporate expenses of $0.2
million.

Interest (expense) income

Interest expense was less than $0.1 million for the three months ended September 30, 2020, compared to interest income of $0.4 million for the three months ended September 30, 2019. The decrease was primarily related to a reduction of available-for-sale securities included within our portfolio.

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Other income


Other income for the three months ended September 30, 2020 was $0 million
compared to $0.1 million for the three months ended September 30, 2019. Other
income relates to contributions from charitable organizations. We do not expect
these contributions to be significant in future periods.



Comparison of the nine months ended September 30, 2020 and 2019

The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019:



                                   Nine Months Ended September 30,           Increase
(in thousands)                       2020                   2019            (decrease)
Revenue                        $              -       $              -     $          -
Operating expenses:
Research and development                 49,158                 67,671          (18,513 )
General and administrative               15,957                 19,317           (3,360 )
Restructuring charges                     1,944                      -            1,944
Total operating expenses                 67,059                 86,988          (19,929 )
Loss from operations                    (67,059 )              (86,988 )         19,929
Other income (expense):
Interest income                             131                  1,281           (1,150 )
Other income                                  1                    345             (344 )
Total other income (expense)                132                  1,626           (1,494 )
Net loss                       $        (66,927 )$        (85,362 )$     18,435

Research and development expenses


                                                   Nine Months Ended September 30,          Increase
(in thousands)                                       2020                  2019            (decrease)
SGT-001                                         $        24,408$        29,390$     (4,982 )
Other product candidates                                    465                 3,726           (3,261 )
Unallocated research and development expenses
Personnel related expenses                               16,512                23,335           (6,823 )
External expenses                                         7,773                11,220           (3,447 )
Total unallocated research and development
expenses                                                 24,285                34,555          (10,270 )
Total research and development expenses         $        49,158$        67,671$    (18,513 )




Research and development expenses for the nine months ended September 30, 2020
were $49.2 million, compared to $67.7 million for the nine months ended
September 30, 2019. The decrease of $18.5 million in research and development
costs was due to a decrease in unallocated research and development costs of
$10.3 million, primarily due to a reduction in personnel and facility related
expenses as a result of the restructuring that occurred in January 2020, and a
$5.0 million decrease in costs related to our lead product candidate SGT-001,
driven by a reduction in manufacturing costs of $5.6 million partially offset by
an increase in clinical costs of $0.6 million primarily driven by clinical
consulting costs. The reduction in research and development was also driven by a
$3.2 million decrease in costs related to other product candidates as we focus
on advancing SGT-001.


General and administrative expenses


General and administrative expenses were $16.0 million for the nine months ended
September 30, 2020, compared to $19.3 million for the nine months ended
September 30, 2019. The decrease of $3.3 million was due to a decrease in
personnel related expenses of $2.8 million partially due to the restructuring
that occurred in January 2020 and a net decrease in corporate expenses of $0.5
million.



Restructuring Charges

During the nine months ended September 30, 2020, we recorded charges of $1.9
million related to severance and other employee-related costs. We paid
approximately $1.7 million during the nine months ended September 30, 2020 and
expect to pay approximately $0.3 million in the next three months.

                                       23

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Interest income


Interest income was $0.1 million for the nine months ended September 30, 2020,
compared to $1.3 million for the nine months ended September 30, 2019. The
decrease was primarily related to a reduction of available-for-sale securities
included within our portfolio.

Other income


Other income for the nine months ended September 30, 2020 was less than
$0.1 million compared to $0.3 million for the nine months ended September 30,
2019. Other income relates to contributions from charitable organizations. We do
not expect these contributions to significantly increase in future periods.



Liquidity and capital resources

Sources of liquidity


To date, we have financed our operations primarily through private placements of
preferred units and our initial public offering as well as a private placements
of shares of our common stock and pre-funded warrants to purchase shares of our
common stock. Through September 30, 2020, we raised an aggregate of
$144.6 million of gross proceeds from our sales of preferred units prior to the
completion of our initial public offering, an aggregate of $129.1 million of net
proceeds from the sale of our common stock after deducting underwriting
discounts and commission and offering expenses in our initial public offering
and an aggregate of $57.9 million of net proceeds, after deducting offering
costs, from our July 2019 private placement.

We completed our initial public offering on January 30, 2018, in which we sold
8,984,375 shares of common stock, including shares of common stock issued upon
the exercise in full of the underwriters' over-allotment option, at a public
offering price of $16.00 per share, resulting in net proceeds of $129.1 million.

On July 30, 2019, we issued and sold in a private placement (i) 10,607,525
shares of our common stock at a price per share of $4.65 and (ii) 2,295,699
pre-funded warrants to purchase shares of our common stock at a price per
warrant of $4.64. Each pre-funded warrant is exercisable for one share of common
stock at an exercise price of $0.01 and the pre-funded warrants have no
expiration date. We received $57.9 million of net proceeds from the private
placement after deducting offering costs. As of September 30, 2020, we had cash
and cash equivalents of $24.8 million and had no debt outstanding.

In October 2020, we entered into a collaboration and license agreement, or the
Collaboration Agreement, with Ultragenyx Pharmaceutical Inc., or Ultragenyx. In
connection with the execution of the Collaboration Agreement, we also entered
into a stock purchase agreement with Ultragenyx, pursuant to which we issued and
sold 7,825,797 shares of our common stock to Ultragenyx for an aggregate
purchase price of approximately $40 million.

In March 2019, we entered into the ATM Sales Agreement under which we may offer
and sell, from time to time, shares of our common stock having aggregate gross
proceeds of up to $50.0 million through Jefferies as sales agent. Any such sales
being made by any method that is deemed an "at-the-market offering" as defined
in Rule 415 promulgated under the Securities Act. We will pay Jefferies a
commission of up to 3% of the gross proceeds of any sales of common stock
pursuant to the ATM Sales Agreement. During the nine months ended September 30,
2020, we did not sell any shares under the ATM Sales Agreement. In October 2020,
we sold 6,309,632 shares pursuant to the ATM Sales Agreement resulting in net
proceeds of $23.2 million.

Cash flows

The following table summarizes our sources and uses of cash for each of the
periods presented:



                                                    Nine Months Ended
                                                      September 30,             Increase
(in thousands)                                     2020           2019         (decrease)
Cash used in operating activities               $  (57,906 )$  (71,469 )$     13,563
Cash provided by investing activities                6,660         21,661          (15,001 )
Cash provided by financing activities                    -         58,162          (58,162 )
Net (decrease)/increase in cash, cash
equivalents and restricted cash                 $  (51,246 )$    8,354$    (59,600 )




Operating activities

During the nine months ended September 30, 2020, operating activities used
$57.9 million of cash, primarily resulting from our net loss of $66.9 million
and cash used in changes in our operating assets and liabilities of $3.2 million
offset by non-cash charges of $12.2 million due primarily to equity-based
compensation of $9.1 million and depreciation expense of $3.1 million. Net cash
used in changes in our operating assets and liabilities during the nine months
ended September 30, 2020 consisted primarily of a reduction in

                                       24

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accrued expenses and other liabilities of $2.0 million and a decrease in
accounts payable of $2.6 million partially offset by a net decrease in prepaid
expenses and other assets of $1.5 million. These changes were primarily due to
the timing of payments.

During the nine months ended September 30, 2019, operating activities used
$71.5 million of cash, primarily resulting from our net loss of $85.4 million
offset by non-cash charges of $12.6 million due primarily to equity-based
compensation of $10.8 million and depreciation expense of $2.0 million as well
as $1.3 million of cash provided by changes in our operating assets and
liabilities. Net cash provided by changes in our operating assets and
liabilities during the nine months ended September 30, 2019 consisted primarily
of an increase in accrued expenses and other liabilities of $2.4 million
partially offset by an increase in prepaid expenses and other assets of
$1.1 million, which was primarily due to up-front research and development
expenses.

Investing activities

During the nine months ended September 30, 2020, investing activities provided $6.7 million of cash, consisting primarily of proceeds from maturities of available-for-sale securities partially offset by purchases of property and equipment, and available-for-sale securities.


During the nine months ended September 30, 2019, investing activities provided
$21.7 million of cash, consisting primarily of proceeds from maturities of
available-for-sale securities offset by purchases of property and equipment, and
available-for-sale securities.

Financing activities

During the nine months ended September 30, 2020, there were no financing activities.


During the nine months ended September 30, 2019, net cash provided by financing
activities was $58.2 million, due to the proceeds from a private placement of
shares of our common stock and pre-funded warrants to purchase shares of our
common stock completed on July 30, 2019, partially offset by $1.8 million of
payments made in connection with costs incurred for the private placement.

Funding requirements

We expect that our expenses will increase substantially if and as we:

• seek to enroll patients in IGNITE DMD and continue clinical development of

       SGT-001;


  • move other product candidates into clinical trials;

• continue research and preclinical development of other product candidates;


  • seek to identify additional product candidates;

• seek marketing approvals for our product candidates that successfully

       complete clinical trials, if any;


    •  establish a sales, marketing and distribution infrastructure to

commercialize any products for which we may obtain marketing approval;

• arrange for manufacture of larger quantities of our product candidates for

clinical development and potential commercialization;

• maintain, expand, protect and enforce our intellectual property portfolio;

• hire and retain additional clinical, quality control and scientific

personnel;

• build out new facilities or expand existing facilities to support our

activities;

• acquire or in-license other drugs, technologies and intellectual property;

• fund a portion of the development or commercialization of products in

collaboration with Ultragenyx pursuant to our collaboration and license

agreement with Ultragenyx; and

• add operational, financial and management information systems and personnel.



On January 30, 2018, we completed our initial public offering in which we sold
8,984,375 shares of common stock, including shares of common stock issued upon
the exercise in full of the underwriters' over-allotment option, at a public
offering price of $16.00 per share, resulting in net proceeds of $129.1 million,
after deducting underwriting discounts and commissions and offering expenses.

                                       25

--------------------------------------------------------------------------------

On July 30, 2019, we issued and sold in a private placement (i) 10,607,525 shares of our common stock at a price per share of $4.65 and (ii) 2,295,699 pre-funded warrants to purchase shares of our common stock at a price per warrant of $4.64. Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.01 and the pre-funded warrants have no expiration date. We received $57.9 million of net proceeds from the private placement after deducting offering costs.


As of September 30, 2020, we had cash and cash equivalents of $24.8 million. We
believe that our existing cash and cash equivalents as of September 30, 2020,
together with the proceeds of $40.0 million received in October 2020 from the
sale of shares of common stock to Ultragenyx as well as the proceeds of $23.2
million received from the sale of shares of common stock in October 2020
pursuant to a sales agreement, dated March 13, 2019, between the Company and
Jefferies LLC (the "ATM Sales Agreement"), will be sufficient to fund its
operating expenses and capital requirements into the second half of 2021. As a
result, in order to continue to operate our business beyond that time, we will
need to raise additional funds. However, there can be no assurance that we will
be able to generate funds on terms acceptable to us, on a timely basis, or at
all. In addition, we have based this estimate on assumptions that may prove to
be wrong, and we could use our available capital resources sooner than we
currently anticipate.

Because of the numerous risks and uncertainties associated with the development
of SGT-001 and other product candidates and programs and because the extent to
which we may enter collaborations with third parties for development of our
product candidates is unknown, we are unable to estimate the timing and amounts
of increased capital outlays and operating expenses associated with completing
the research and development of our product candidates. Our future capital
requirements will depend on many factors, including:

    •  the progress and results of IGNITE DMD and future clinical trials of
       SGT-001 and other product candidates;

• the costs, timing and outcome of regulatory review of SGT-001 and other

product candidates;

• the scope, progress, results and costs of discovery, laboratory testing,

       manufacturing, preclinical development and clinical trials for other
       product candidates that we may pursue in the future, if any;

• the costs associated with our manufacturing process development and

evaluation of third-party manufacturers;

• whether we decide to construct and validate our own manufacturing facility

and the associated costs;

• revenue, if any, received from commercial sale of SGT-001 or other product

       candidates, should any of our product candidates receive marketing
       approval;

• the costs of preparing, filing and prosecuting patent applications,

maintaining, defending and enforcing our intellectual property rights and

       defending intellectual property-related claims;


  • the outcome of any lawsuits filed against us;


  • the terms of our current and any future license agreements;


  • the success of our collaboration with Ultragenyx;

• our ability to establish and maintain additional strategic collaborations,

       licensing or other arrangements and the financial terms of such
       arrangements;


    •  the payment or receipt of milestones, royalties and other
       collaboration-based revenues, if any;

• the extent to which we acquire or in-license other product candidates,

technologies and intellectual property; and

• if and as we need to adapt our business in response to the COVID-19

pandemic and its collateral consequences.



We intend to supply our clinical development program for SGT-001 with drug
product produced at a current good manufacturing practices, or cGMP, compliant
facility located at our Contract Development Manufacturing Organization partner.
We intend to establish the capability and capacity to supply SGT-001 at
commercial scale from multiple sources.

                                       26

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Developing pharmaceutical products, including conducting preclinical studies and
clinical trials, is a time-consuming, expensive and uncertain process that takes
years to complete, and we may never generate the necessary data or results
required to obtain marketing approval for any product candidates or generate
revenue from the sale of any products for which we may obtain marketing
approval. In addition, our product candidates, if approved, may not achieve
commercial success. Our commercial revenues, if any, will be derived from sales
of products that we do not expect to be commercially available for many years,
if ever. Accordingly, we will need to obtain substantial additional funds to
achieve our business objectives.

Adequate additional funds may not be available to us on acceptable terms, or at
all. We do not currently have any committed external source of funds. To the
extent that we raise additional capital through the sale of equity securities,
our existing stockholders' ownership interest may be diluted. Any debt or
preferred equity financing, if available, may involve agreements that include
restrictive covenants that may limit our ability to take specific actions, such
as incurring additional debt, making capital expenditures or declaring
dividends, which could adversely impact our ability to conduct our business, and
may require the issuance of warrants, which could potentially dilute existing
stockholders' ownership interests.

If we raise additional funds through licensing agreements and strategic
collaborations with third parties, we may have to relinquish valuable rights to
our technology, future revenue streams, research programs, or product candidates
or grant licenses on terms that may not be favorable to us. If we are unable to
raise additional funds, we may be required to delay, limit, reduce and/or
terminate development of our product candidates or any future commercialization
efforts or grant rights to develop and market product candidates that we would
otherwise prefer to develop and market ourselves.

Recently Issued Accounting Pronouncements


See Note 2 to the condensed consolidated financial statements included elsewhere
in this quarterly report on Form 10-Q for information regarding recently adopted
and issued accounting pronouncements. See also Note 2 to our consolidated
financial statements included in our annual report on Form 10-K for the year
ended December 31, 2019.

Emerging Growth Company Status


The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an
"emerging growth company" such as us to take advantage of an extended transition
period to comply with new or revised accounting standards applicable to public
companies until those standards would otherwise apply to private companies. We
have irrevocably elected to "opt out" of this provision and, as a result, we
will comply with new or revised accounting standards when they are required to
be adopted by public companies that are not emerging growth companies.

Off-Balance Sheet Arrangements


We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
SEC.

© Edgar Online, source Glimpses

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