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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2021

OR

 

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

 

For the transition period from ___________________ to ___________________

Commission File Number: 001-38433

 

Homology Medicines, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-3468154

(State or other jurisdiction of

incorporation or organization)

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

One Patriots Park

Bedford, MA

01730

(Address of principal executive offices)

(Zip Code)

 

(781) 301-7277

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address, and former fiscal year, if changed since last report)

 

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, $0.0001 par value per share

FIXX

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 1, 2021, the registrant had 57,150,274 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, the anticipated impact of the COVID-19 pandemic on our business, the sufficiency of our cash and cash equivalents to fund our operations, business strategy, prospective products, product approvals, research and development costs, anticipated timing and likelihood of success of clinical trials, expected timing of the release of clinical trial data, the plans and objectives of management for future operations and future results of anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under “Summary Risk Factors” below and in the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

2


 

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

we have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future. We are not currently profitable, and we may never achieve or sustain profitability;
we will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of our product candidates;
we have a limited operating history and no history of commercializing genetic medicine products, which may make it difficult to evaluate the prospects for our future viability;
we are heavily dependent on the success of HMI-102, our most advanced product candidate, and if HMI-102 does not receive regulatory approval or is not successfully commercialized, our business may be harmed;
we intend to identify and develop product candidates based on our novel genetic medicines platform, which makes it difficult to predict the timelines and cost of product candidate development. No products that utilize gene editing technology have been approved in the United States or in Europe, and there have only been a limited number of human clinical trials involving a gene editing product candidate;
the clinical trial and regulatory approval processes are lengthy, time consuming and inherently unpredictable, and we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates;
the COVID-19 pandemic could continue to adversely impact our business, including our preclinical studies and clinical trials;
our product candidates may cause serious adverse events, side effects, toxicities or have other properties which may delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if any;
adverse public perception of genetic medicine, and gene editing in particular, may negatively impact regulatory approval of, or demand for, our potential products;
we and our contract manufacturers are subject to significant regulation with respect to manufacturing our products, and the manufacturing facilities on which we rely may not meet or continue to meet regulatory requirements, as applicable and as imposed to date, and have limited capacity;
even if we obtain FDA approval for our product candidates in the United States, we may never obtain approval for or commercialize it in any other jurisdiction, which would limit our ability to realize its full market potential;
our existing collaborations are important to our business and future licenses may also be important to us, and if we are unable to maintain any of these collaborations, or if these arrangements are not successful, our business could be adversely affected; and
if we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents which are sufficient to protect our product candidates, others could compete against us more directly, which would negatively impact our business.

 

3


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

5

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

5

 

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited)

5

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (Unaudited)

6

 

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020 (Unaudited)

7

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited)

8

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited)

10

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

11

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

38

 

PART II.

 

OTHER INFORMATION

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 3.

Defaults Upon Senior Securities

83

Item 4.

Mine Safety Disclosures

83

Item 5.

Other Information

84

Item 6.

Exhibits

85

Signatures

86

 

 

4


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(UNAUDITED)

 

 

 

As of

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

95,829

 

 

$

217,431

 

Short-term investments

 

 

91,722

 

 

 

 

Prepaid expenses and other current assets

 

 

4,266

 

 

 

2,133

 

Total current assets

 

 

191,817

 

 

 

219,564

 

Property and equipment, net

 

 

32,697

 

 

 

37,002

 

Right-of-use assets

 

 

5,028

 

 

 

5,897

 

Restricted cash

 

 

1,274

 

 

 

1,274

 

Total assets

 

$

230,816

 

 

$

263,737

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,522

 

 

$

4,722

 

Accrued expenses and other liabilities

 

 

10,016

 

 

 

9,803

 

Operating lease liabilities

 

 

1,959

 

 

 

2,501

 

Deferred revenue

 

 

3,208

 

 

 

5,632

 

Total current liabilities

 

 

18,705

 

 

 

22,658

 

Non-current liabilities:

 

 

 

 

 

 

Operating lease liabilities, net of current portion

 

 

11,582

 

 

 

12,941

 

Deferred revenue, net of current portion

 

 

1,958

 

 

 

32,143

 

Total liabilities

 

 

32,245

 

 

 

67,742

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized;
   
57,150,274 and 50,268,666 shares issued as of September 30, 2021 and
   December 31, 2020, respectively; and
57,149,978 and 50,265,575 shares
   outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

6

 

 

 

5

 

Additional paid-in capital

 

 

589,119

 

 

 

524,358

 

Accumulated other comprehensive loss

 

 

(5

)

 

 

 

Accumulated deficit

 

 

(390,549

)

 

 

(328,368

)

Total stockholders’ equity

 

 

198,571

 

 

 

195,995

 

Total liabilities and stockholders' equity

 

$

230,816

 

 

$

263,737

 

 

 

 

See notes to condensed consolidated financial statements.

 

5


 

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(UNAUDITED)

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Collaboration revenue

 

$

1,677

 

 

$

567

 

 

$

33,169

 

 

$

1,722

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

23,987

 

 

 

20,417

 

 

 

69,439

 

 

 

77,197

 

General and administrative

 

 

8,351

 

 

 

8,423

 

 

 

26,054

 

 

 

24,986

 

Total operating expenses

 

 

32,338

 

 

 

28,840

 

 

 

95,493

 

 

 

102,183

 

Loss from operations

 

 

(30,661

)

 

 

(28,273

)

 

 

(62,324

)

 

 

(100,461

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

53

 

 

 

41

 

 

 

143

 

 

 

1,558

 

Total other income

 

 

53

 

 

 

41

 

 

 

143

 

 

 

1,558

 

Net loss

 

$

(30,608

)

 

$

(28,232

)

 

$

(62,181

)

 

$

(98,903

)

Net loss per share-basic and diluted

 

$

(0.54

)

 

$

(0.62

)

 

$

(1.14

)

 

$

(2.19

)

Weighted-average common shares outstanding-basic and diluted

 

 

57,106,639

 

 

 

45,227,231

 

 

 

54,704,410

 

 

 

45,196,459

 

 

 

 

See notes to condensed consolidated financial statements.

 

6


 

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(UNAUDITED)

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

 

$

(30,608

)

 

$

(28,232

)

 

$

(62,181

)

 

$

(98,903

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain (loss) on available for
  sale securities, net

 

 

(7

)

 

 

(11

)

 

 

(5

)

 

 

(183

)

Total other comprehensive loss

 

 

(7

)

 

 

(11

)

 

 

(5

)

 

 

(183

)

Comprehensive loss

 

$

(30,615

)

 

$

(28,243

)

 

$

(62,186

)

 

$

(99,086

)

 

 

 

See notes to condensed consolidated financial statements.

 

7


 

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share and per share amounts)

(UNAUDITED)

 

 

 

 

Common Stock
$0.0001 Par Value

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2020

 

 

45,116,742

 

 

$

4

 

 

$

457,994

 

 

$

183

 

 

$

(199,674

)

 

$

258,507

 

Vesting of common stock from
   option exercises

 

 

15,542

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Issuance of common stock from
   option exercises

 

 

34,311

 

 

 

 

 

 

135

 

 

 

 

 

 

 

 

 

135

 

Issuance of common stock pursuant to
   employee stock purchase plan

 

 

39,471

 

 

 

 

 

 

537

 

 

 

 

 

 

 

 

 

537

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,883

 

 

 

 

 

 

 

 

 

2,883

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(202

)

 

 

 

 

 

(202

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,331

)

 

 

(35,331

)

Balance at March 31, 2020

 

 

45,206,066

 

 

$

4

 

 

$

461,561

 

 

$

(19

)

 

$

(235,005

)

 

$

226,541

 

Vesting of common stock from
   option exercises

 

 

1,011

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Issuance of common stock from
   option exercises

 

 

3,576

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,453

 

 

 

 

 

 

 

 

 

3,453

 

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

 

 

30

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,340

)

 

 

(35,340

)

Balance at June 30, 2020

 

 

45,210,653

 

 

$

4

 

 

$

465,034

 

 

$

11

 

 

$

(270,345

)

 

$

194,704

 

Vesting of common stock from
   option exercises

 

 

1,011

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Issuance of common stock from
   option exercises

 

 

3,706

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

Issuance of common stock pursuant to
   employee stock purchase plan

 

 

44,377

 

 

 

 

 

 

401

 

 

 

 

 

 

 

 

 

401

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,346

 

 

 

 

 

 

 

 

 

3,346

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

(11

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,232

)

 

 

(28,232

)

Balance at September 30, 2020

 

 

45,259,747

 

 

$

4

 

 

$

468,795

 

 

$

 

 

$

(298,577

)

 

$

170,222

 

 

 

 

 

8


 

 

 

Common Stock
$0.0001 Par Value

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2021

 

 

50,265,575

 

 

$

5

 

 

$

524,358

 

 

$

 

 

$

(328,368

)

 

$

195,995

 

Vesting of common stock from
   option exercises

 

 

1,011

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Issuance of common stock from
   option exercises

 

 

55,277

 

 

 

 

 

 

143

 

 

 

 

 

 

 

 

 

143

 

Issuance of common stock pursuant to
   employee stock purchase plan

 

 

48,792

 

 

 

 

 

 

446

 

 

 

 

 

 

 

 

 

446

 

Issuance of common stock pursuant to
   ATM, net of discounts and issuance costs

 

 

114,914

 

 

 

 

 

 

1,454

 

 

 

 

 

 

 

 

 

1,454

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,883

 

 

 

 

 

 

 

 

 

3,883

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

 

(23

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,073

)

 

 

(1,073

)

Balance at March 31, 2021

 

 

50,485,569

 

 

$

5

 

 

$

530,288

 

 

$

(23

)

 

$

(329,441

)

 

$

200,829

 

Issuance of common stock in follow-on offering,
net of discounts and issuance costs

 

 

6,596,306

 

 

 

1

 

 

 

49,743

 

 

 

 

 

 

 

 

 

49,744

 

Vesting of common stock from
   option exercises

 

 

1,011

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Issuance of common stock from
   option exercises

 

 

4,071

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,473

 

 

 

 

 

 

 

 

 

4,473

 

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

25

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,500

)

 

 

(30,500

)

Balance at June 30, 2021

 

 

57,086,957

 

 

$

6

 

 

$

584,510

 

 

$

2

 

 

$

(359,941

)

 

$

224,577

 

Vesting of common stock from
   option exercises

 

 

773

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Issuance of common stock from
   option exercises

 

 

117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock pursuant to
   employee stock purchase plan

 

 

62,131

 

 

 

 

 

 

380

 

 

 

 

 

 

 

 

 

380

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,226

 

 

 

 

 

 

 

 

 

4,226

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,608

)

 

 

(30,608

)

Balance at September 30, 2021

 

 

57,149,978

 

 

$

6

 

 

$

589,119

 

 

$

(5

)

 

$

(390,549

)

 

$

198,571

 

 

 

 

See notes to condensed consolidated financial statements.

9


 

HOMOLOGY MEDICINES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(UNAUDITED)

 

 

 

Nine months ended September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(62,181

)

 

$

(98,903

)

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

 

 

 

 

 

 

Depreciation

 

 

6,280

 

 

 

5,909

 

Noncash lease expense

 

 

869

 

 

 

686

 

Stock-based compensation expense

 

 

12,582

 

 

 

9,682

 

Accretion of discount (amortization of premium) on short-term investments

 

 

664

 

 

 

(197

)

Loss on disposal of property and equipment

 

 

6

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(2,133

)

 

 

938

 

Accounts payable

 

 

(1,123

)

 

 

486

 

Accrued expenses and other liabilities

 

 

225

 

 

 

924

 

Deferred revenue

 

 

(32,609

)

 

 

(590

)

Operating lease liabilities

 

 

(1,901

)

 

 

(1,655

)

Net cash used in operating activities

 

 

(79,321

)

 

 

(82,720

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of short-term investments

 

 

(97,391

)

 

 

(19,991

)

Maturities of short-term investments

 

 

5,000

 

 

 

228,620

 

Purchases of property and equipment

 

 

(2,058

)

 

 

(2,778

)

Net cash (used in) provided by investing activities

 

 

(94,449

)

 

 

205,851

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock in follow-on public offering,
   net of discounts and issuance costs

 

 

49,744

 

 

 

 

Proceeds from issuance of common stock pursuant to ATM,
   net of discounts and issuance costs

 

 

1,454

 

 

 

 

Proceeds from issuance of common stock pursuant to employee stock purchase plan

 

 

825

 

 

 

938

 

Proceeds from issuance of common stock from option exercises

 

 

145

 

 

 

160

 

Net cash provided by financing activities

 

 

52,168

 

 

 

1,098

 

Net change in cash, cash equivalents and restricted cash

 

 

(121,602

)

 

 

124,229

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

218,705

 

 

 

55,048

 

Cash, cash equivalents and restricted cash, end of period

 

$

97,103

 

 

$

179,277

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

Reclassification of liability for common stock vested

 

$

12

 

 

$

21

 

Property and equipment additions included in accounts payable

 

$

34

 

 

$

677

 

Property and equipment additions included in accrued expenses and other liabilities

 

$

 

 

$

126

 

Unrealized gain (loss) on available for sale securities, net

 

$

(5

)

 

$

(183

)

 

 

 

See notes to condensed consolidated financial statements.

10


 

HOMOLOGY MEDICINES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(UNAUDITED)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of Business—Homology Medicines, Inc. (the “Company”) is a clinical-stage genetic medicines company dedicated to translating proprietary gene therapy and gene editing technology into novel treatments for patients with rare genetic diseases with significant unmet medical needs by curing the underlying cause of the disease. The Company was founded in March 2015 as a Delaware corporation. Its principal offices are in Bedford, Massachusetts.

Since its inception, the Company has devoted substantially all of its resources to recruiting personnel, developing its technology platform and advancing its pipeline of product candidates, developing and implementing manufacturing processes, building out internal manufacturing and research and development space, and maintaining and building its intellectual property portfolio. The Company is subject to a number of risks similar to those of other companies conducting high-risk, early-stage research and development of product candidates. Principal among these risks are dependency on key individuals and intellectual property, competition from other products and companies, and the technical risks associated with the successful research, development and manufacturing of its product candidates. The Company’s success is dependent upon its ability to continue to raise additional capital in order to fund ongoing research and development, conduct clinical trials, obtain regulatory approval of its products, further expand its manufacturing capacity, successfully commercialize its products, generate revenue, meet its obligations, and, ultimately, attain profitable operations.

On April 2, 2018, the Company completed its initial public offering (“IPO”) with the sale of 10,350,000 shares of its common stock, including shares 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 $150.8 million, after deducting underwriting discounts and commissions and offering expenses. Upon the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock automatically converted into 24,168,656 shares of common stock at the applicable conversion ratio then in effect.

On April 12, 2019, the Company completed a follow-on public offering of its common stock. The Company sold 5,555,556 shares of its common stock at a public offering price of $22.50 per share and received net proceeds of $116.9 million, after deducting underwriting discounts and commissions and offering expenses. In addition, on April 26, 2019 and May 7, 2019, in connection with the exercise in full of the underwriters’ option to purchase additional shares, the Company issued an aggregate of 833,333 shares of its common stock at a public offering price of $22.50 per share and received net proceeds of $17.6 million, after deducting underwriting discounts and commissions.

On April 6, 2021, the Company completed a follow-on public offering of its common stock. The Company sold 6,596,306 shares of its common stock at a price of $7.58 per share and received net proceeds of $49.7 million, after deducting offering expenses of $0.3 million. Under the terms of the underwriting agreement, the Company also granted the underwriter an option exercisable for 30 days to purchase up to an additional 989,445 shares of its common stock at a price of $7.58 per share. The underwriters did not exercise this option. The offering closed on April 9, 2021. The shares were sold pursuant to the Company’s effective shelf registration statement on Form S-3, as amended, and a related prospectus supplement filed with the SEC on April 8, 2021.

On November 9, 2020, the Company entered into a common stock purchase agreement (the “Stock Purchase Agreement”) with Pfizer Inc. (“Pfizer”), pursuant to which the Company sold to Pfizer 5,000,000 shares of the Company’s common stock through a private placement transaction (the “Private Placement”) at a purchase price of $12.00 per share, for an aggregate purchase price of $60.0 million (see Note 11).

On March 12, 2020, the Company filed a Registration Statement on Form S-3 (File No. 333-237131) (as amended, the “Shelf”) with the Securities and Exchange Commission (“SEC”) in relation to the registration of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof for a period up to three years from the date of the filing. The Shelf became effective on March 12, 2020. The Company also simultaneously entered into a sales agreement with Cowen and Company, LLC (“Cowen”), as sales agent, providing for the offering, issuance and sale by the Company of up to an aggregate $150.0 million of its common stock from time to time in “at-the-market” offerings under the Shelf (the “ATM”). In connection with the filing of certain post-effective amendments to the Shelf, the sales agreement prospectus supplement now covers the offering, issuance and sale by the Company of up to an aggregate $148.4 million of its common stock. During the nine months ended September 30, 2021, the Company sold 114,914 shares of common stock under the Sales Agreement, at an average price of approximately $14.00 per share, raising

11


 

aggregate net proceeds of approximately $1.5 million after deducting an aggregate commission of 3% and issuance costs of $0.1 million. As of September 30, 2021, there remained $148.4 million of common stock available for sale under the ATM.

To date, the Company has not generated any revenue from product sales and does not expect to generate any revenue from the sale of product in the foreseeable future. Through September 30, 2021, the Company has financed its operations primarily through public offerings of its common stock, the issuance of convertible preferred stock, and with proceeds from its collaboration and license agreement with Novartis Institutes of BioMedical Research, Inc. (“Novartis”) (see Note 10) and its private placement with Pfizer. During the nine months ended September 30, 2021, the Company incurred a net loss of $62.2 million and as of September 30, 2021, had $390.5 million in accumulated deficit. The Company expects to incur additional operating losses and negative operating cash flows for the foreseeable future.

Based on current projections, management still believes that cash and cash equivalents and short-term investments as of September 30, 2021 will enable the Company to continue its operations into the first quarter of 2023. In the absence of a significant source of recurring revenue, the continued viability of the Company beyond that point is dependent on its ability to continue to raise additional capital to finance its operations. There can be no assurance that the Company will be able to obtain sufficient capital to cover its costs on acceptable terms, if at all.

Basis of Presentation— The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2020, included in the Company's Annual Report on Form 10-K on file with the SEC.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary for a fair statement of the Company’s financial position as of September 30, 2021, and consolidated results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 2021 and 2020. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021. 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation—The Company’s condensed consolidated financial statements include the accounts of the Company and its subsidiary, Homology Medicines Securities Corporation, a wholly owned Massachusetts corporation, for the sole purpose of buying, selling, and holding securities on the Company’s behalf. All intercompany balances and transactions have been eliminated in the condensed consolidated financial statements.

Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and the disclosure of contingent assets and liabilities as of and during the reporting period. The Company bases its estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, revenue recognition, accrued research and development expenses and useful lives assigned to property and equipment. The Company assesses estimates on an ongoing basis; however, actual results could materially differ from those estimates.

Comprehensive Income (Loss) —Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s only element of other comprehensive income (loss) is unrealized gains and losses on available-for-sale investments.

Cash and Cash Equivalents and Restricted Cash—Cash and cash equivalents consist of standard checking accounts, money market accounts and certain investments. The Company considers all highly liquid investments with original or remaining maturities at the time of purchase of 90 days or less to be cash equivalents. Restricted cash consists of cash serving as collateral for letters of credit issued for security deposits for the Company’s facility leases in Bedford, Massachusetts.

12


 

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the condensed consolidated statements of cash flows:

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

95,829

 

 

$

178,003

 

Restricted cash

 

 

1,274

 

 

 

1,274

 

Total cash, cash equivalents and restricted cash

 

$

97,103