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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
(Mark One)
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31,
2023
OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from ___________________ to
___________________
Commission File Number:
001-38433
Homology Medicines, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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47-3468154
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Patriots Park
Bedford,
MA
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01730
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(Address of principal executive offices)
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(Zip Code)
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(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:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock, $0.0001 par value per share
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FIXX
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Nasdaq Global
Select Market
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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.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☒
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Emerging growth company
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☒
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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 May 4, 2023, the registrant had
57,794,767
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,
or the Securities Act, and Section 21E of the Securities Exchange
Act of 1934, as amended, or the Exchange Act. All statements other
than statements of historical fact contained in this Quarterly
Report on Form 10-Q, including, without limitation, statements
regarding our future results of operations and financial position,
the anticipated impact of the COVID-19 pandemic and the current
economic slowdown on our business, the anticipated use of cash and
business strategy, the potential, safety, efficacy, and regulatory
and clinical progress of our product candidates, prospective
products, product approvals, research and development costs, the
anticipated timing and likelihood of success of clinical trials,
the expected timing of the release of clinical trial data, the
timing and expectations surrounding regulatory communications, our
relationship with third-parties, our intent to engage in future
strategic partnerships, and the plans and objectives of management
for future operations and future results of anticipated products,
are forward-looking statements. These statements are neither
promises nor guarantees, but 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, though not all
forward-looking statements use these words or expressions. The
forward-looking statements in this Quarterly Report on Form 10-Q
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 on Form 10-Q 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 on Form 10-Q 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 on Form 10-Q and the
documents that we reference in this Quarterly Report on Form 10-Q
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. Unless the context requires
otherwise, we use the terms “Homology,” “the Company,” “we,” “us,”
“our” and similar designations in this Quarterly Report on Form
10-Q to refer to Homology Medicines, Inc. and its wholly-owned
subsidiary.
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. If
we are unable to achieve and sustain profitability, the market
value of our common stock will likely decline. We may never achieve
or maintain 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 our product candidates,
and if none of our candidates receives 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 time 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. Moreover, none of those trials has involved our
nuclease-free gene editing technology, prior to our initiated Phase
1 pheEDIT clinical trial. In addition, there have been a limited
number of gene therapy products approved in the United States or in
Europe and none of these products have utilized our AAVHSC
platform.
•
The regulatory approval processes of the FDA and comparable foreign
authorities are lengthy, time consuming and inherently
unpredictable, and if we are ultimately unable to obtain regulatory
approval for our product candidates, our business will be
substantially harmed.
•
Our product candidates have caused and may in the future cause
serious adverse events or undesirable side effects 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 the length of time required to
advance our product candidates through clinical trials, including
the pace at which we advance patient enrollment, and potential
regulatory approval of, or demand for, our potential
products.
•
We currently contract with third parties, including Oxford
Biomedica Solutions LLC, for the manufacture of certain materials
for our research programs, preclinical and clinical studies. This
reliance on third parties increases the risk that we will not have
sufficient quantities of such materials, product candidates, or any
medicines that we may develop and commercialize, or that such
supply will not be available to us at an acceptable cost or in
compliance with regulatory requirements, which could delay,
prevent, or impair our development or commercialization
efforts.
•
Our contract manufacturers, including Oxford Biomedica Solutions
LLC, are subject to significant regulation with respect to
manufacturing our product candidates. 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
them in any other jurisdiction, which would limit our ability to
realize their full market potential.
•
We may collaborate with third parties for the development and
commercialization of our product candidates, but there are no
assurances that we will succeed in establishing and maintaining
such collaborative relationships, which may significantly limit our
ability to develop and commercialize our product candidates
successfully, if at all.
•
If we are unable to obtain and maintain patent protection for our
technology and products or if the scope of the patent protection
obtained is not sufficiently broad, we may not be able to compete
effectively in our markets.
3
Table of Contents
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)
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As of
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March 31, 2023
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December 31, 2022
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Assets
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Current assets:
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Cash and cash equivalents
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$
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39,454
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$
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33,986
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Short-term investments
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110,571
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141,040
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Prepaid expenses and other current assets
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3,558
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5,989
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Total current assets
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153,583
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181,015
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Equity method investment
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23,036
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25,814
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Property and equipment, net
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1,062
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1,078
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Right-of-use assets
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20,200
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20,563
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Total assets
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$
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197,881
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$
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228,470
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Liabilities and stockholders' equity
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Current liabilities:
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Accounts payable
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$
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3,635
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$
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1,144
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Accrued expenses and other liabilities
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12,892
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18,715
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Operating lease liabilities
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1,626
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1,561
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Deferred revenue
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354
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1,156
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Total current liabilities
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18,507
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22,576
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Non-current liabilities:
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Operating lease liabilities, net of current portion
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27,475
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27,916
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Total liabilities
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45,982
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50,492
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Commitments and contingencies (Note
8)
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—
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Stockholders’ equity:
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Preferred stock, $0.0001 par
value,
10,000,000 shares
authorized;
no shares
issued and outstanding at March 31, 2023 and December 31,
2022
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—
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—
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Common stock, $0.0001 par
value;
200,000,000 shares
authorized;
57,794,767 and
57,483,910 shares
issued and outstanding as of
March 31, 2023 and December 31, 2022,
respectively
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6
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|
|
|
6
|
|
|
Additional paid-in capital
|
|
|
610,056
|
|
|
|
607,513
|
|
|
Accumulated other comprehensive loss
|
|
|
(182
|
)
|
|
|
(404
|
)
|
|
Accumulated deficit
|
|
|
(457,981
|
)
|
|
|
(429,137
|
)
|
|
Total stockholders’ equity
|
|
|
151,899
|
|
|
|
177,978
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
197,881
|
|
|
$
|
228,470
|
|
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 March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Collaboration revenue
|
|
$
|
802
|
|
|
$
|
802
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development
|
|
|
19,988
|
|
|
|
24,273
|
|
|
General and administrative
|
|
|
8,325
|
|
|
|
14,147
|
|
|
Total operating expenses
|
|
|
28,313
|
|
|
|
38,420
|
|
|
Loss from operations
|
|
|
(27,511
|
)
|
|
|
(37,618
|
)
|
|
Other income:
|
|
|
|
|
|
|
|
Gain on sale of business
|
|
|
—
|
|
|
|
131,249
|
|
|
Interest income
|
|
|
1,469
|
|
|
|
32
|
|
|
Total other income
|
|
|
1,469
|
|
|
|
131,281
|
|
|
Income (loss) before income taxes
|
|
|
(26,042
|
)
|
|
|
93,663
|
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
(967
|
)
|
|
Loss from equity method investment
|
|
|
(2,802
|
)
|
|
|
(591
|
)
|
|
Net income (loss)
|
|
$
|
(28,844
|
)
|
|
$
|
92,105
|
|
|
Net income (loss) per share-basic
|
|
$
|
(0.50
|
)
|
|
$
|
1.61
|
|
|
Net income (loss) per share-diluted
|
|
$
|
(0.50
|
)
|
|
$
|
1.59
|
|
|
Weighted-average common shares outstanding-basic
|
|
|
57,716,344
|
|
|
|
57,279,963
|
|
|
Weighted-average common shares outstanding-diluted
|
|
|
57,716,344
|
|
|
|
57,875,576
|
|
See notes to condensed consolidated financial
statements.
6
HOMOLOGY MEDICINES, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Net income (loss)
|
|
$
|
(28,844
|
)
|
|
$
|
92,105
|
|
|
Other comprehensive gain (loss):
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) on available for
sale securities, net
|
|
|
222
|
|
|
|
7
|
|
|
Total other comprehensive gain
|
|
|
222
|
|
|
|
7
|
|
|
Comprehensive income (loss)
|
|
$
|
(28,622
|
)
|
|
$
|
92,112
|
|
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, 2022
|
|
|
57,150,274
|
|
|
$
|
6
|
|
|
$
|
593,784
|
|
|
$
|
(7
|
)
|
|
$
|
(424,132
|
)
|
|
$
|
169,651
|
|
|
Issuance of common stock from
RSU vesting
|
|
|
87,140
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Issuance of common stock from
option exercises
|
|
|
293
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
Issuance of common stock pursuant to
employee stock purchase plan
|
|
|
147,871
|
|
|
|
—
|
|
|
|
439
|
|
|
|
—
|
|
|
|
—
|
|
|
|
439
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
4,051
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,051
|
|
|
Other comprehensive gain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
7
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
92,105
|
|
|
|
92,105
|
|
|
Balance at March 31, 2022
|
|
|
57,385,578
|
|
|
$
|
6
|
|
|
$
|
598,275
|
|
|
$
|
—
|
|
|
$
|
(332,027
|
)
|
|
$
|
266,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2023
|
|
|
57,483,910
|
|
|
$
|
6
|
|
|
$
|
607,513
|
|
|
$
|
(404
|
)
|
|
$
|
(429,137
|
)
|
|
$
|
177,978
|
|
|
Issuance of common stock from
RSU vesting
|
|
|
194,525
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Issuance of common stock pursuant to
employee stock purchase plan
|
|
|
116,332
|
|
|
|
—
|
|
|
|
150
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
2,369
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,369
|
|
|
Stock-based compensation for equity method
investee
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
Other comprehensive gain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
222
|
|
|
|
—
|
|
|
|
222
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28,844
|
)
|
|
|
(28,844
|
)
|
|
Balance at March 31, 2023
|
|
|
57,794,767
|
|
|
$
|
6
|
|
|
$
|
610,056
|
|
|
$
|
(182
|
)
|
|
$
|
(457,981
|
)
|
|
$
|
151,899
|
|
See notes to condensed consolidated financial
statements.
8
HOMOLOGY MEDICINES, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(in thousands)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(28,844
|
)
|
|
$
|
92,105
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
225
|
|
|
|
348
|
|
|
Noncash lease expense
|
|
|
362
|
|
|
|
197
|
|
|
Loss from equity method investment
|
|
|
2,802
|
|
|
|
591
|
|
|
Stock-based compensation expense
|
|
|
2,369
|
|
|
|
4,051
|
|
|
(Accretion of discount) amortization of premium on short-term
investments
|
|
|
(909
|
)
|
|
|
38
|
|
|
Loss on disposal of property and equipment
|
|
|
11
|
|
|
|
—
|
|
|
Gain on sale of business
|
|
|
—
|
|
|
|
(131,249
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
2,431
|
|
|
|
507
|
|
|
Accounts payable
|
|
|
2,491
|
|
|
|
7,701
|
|
|
Accrued expenses and other liabilities
|
|
|
(5,815
|
)
|
|
|
(4,988
|
)
|
|
Accrued income taxes
|
|
|
—
|
|
|
|
967
|
|
|
Deferred revenue
|
|
|
(802
|
)
|
|
|
(802
|
)
|
|
Operating lease liabilities
|
|
|
(375
|
)
|
|
|
(150
|
)
|
|
Net cash used in operating activities
|
|
|
(26,054
|
)
|
|
|
(30,684
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchases of short-term investments
|
|
|
(25,283
|
)
|
|
|
—
|
|
|
Sales of marketable securities
|
|
|
56,883
|
|
|
|
—
|
|
|
Maturities of short-term investments
|
|
|
—
|
|
|
|
39,461
|
|
|
Proceeds from sale of business
|
|
|
—
|
|
|
|
130,000
|
|
|
Purchases of property and equipment
|
|
|
(228
|
)
|
|
|
(1,149
|
)
|
|
Net cash provided by investing activities
|
|
|
31,372
|
|
|
|
168,312
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock pursuant to employee
stock purchase plan
|
|
|
150
|
|
|
|
439
|
|
|
Proceeds from issuance of common stock from option
exercises
|
|
|
—
|
|
|
|
1
|
|
|
Net cash provided by financing activities
|
|
|
150
|
|
|
|
440
|
|
|
Net change in cash, cash equivalents and restricted cash
|
|
|
5,468
|
|
|
|
138,068
|
|
|
Cash, cash equivalents and restricted cash, beginning of
period
|
|
|
33,986
|
|
|
|
110,335
|
|
|
Cash, cash equivalents and restricted cash, end of
period
|
|
$
|
39,454
|
|
|
$
|
248,403
|
|
|
Supplemental disclosures of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
Property and equipment additions included in accounts
payable
|
|
$
|
—
|
|
|
$
|
59
|
|
|
Property and equipment additions included in accrued expenses and
other liabilities
|
|
$
|
—
|
|
|
$
|
5
|
|
|
Unrealized loss on available for sale securities, net
|
|
$
|
222
|
|
|
$
|
7
|
|
See notes to condensed consolidated financial
statements.
9
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 transforming the lives of patients
suffering from rare diseases by addressing the underlying cause of
the disease with one-time gene therapy and gene editing treatments.
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 through
discovery, preclinical and clinical trials, developing and
implementing manufacturing processes, building out 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 and regulatory 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
access to manufacturing capacity, successfully commercialize its
products, generate revenue, meet its obligations, and, ultimately,
attain sustainable profitable operations.
On March 9, 2023, the Company filed a Registration Statement on
Form S-3 (File No. 333-270414) (the “Shelf”) with the SEC in
relation to the registration of up to an aggregate of
$250.0
million of its 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 17, 2023. 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 of $75.0
million of its common stock from time to time in “at-the-market”
offerings under the Shelf (the “ATM”). The Company did
not
sell any shares of common stock under the ATM during the
three months ended March 31, 2023. As of March 31,
2023,
there remained $75.0
million of common stock available for sale under the
ATM.
On March 10, 2022, the Company closed a transaction with Oxford
Biomedica plc ("Oxford"), to establish a new adeno-associated virus
("AAV") vector manufacturing company, Oxford Biomedica Solutions
("OXB Solutions") that provides AAV vector process development and
manufacturing services to biotechnology companies. Under the terms
of the agreement, the Company contributed its manufacturing team of
125 employees, manufacturing facility and equipment,
manufacturing-related intellectual property and know-how and
certain other assets. Oxford paid the Company $130.0
million of upfront cash and invested $50.0
million of cash to fund OXB Solutions in exchange for an
80
percent ownership
interest, while Homology retained a
20
percent ownership interest in the new company and received a put
option on this ownership position (see Note 5).
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 March 31, 2023, 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 transaction with Oxford
(see Note 5), its collaboration and license agreement with a former
collaboration partner and its private placement with Pfizer (see
Note 11). During the three months ended March 31, 2023, the Company
incurred a loss from operations of $28.8
million and as of
March 31, 2023, had
$458.0
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 believes that cash and
cash equivalents and short-term investments as of March 31, 2023
will enable the Company to continue its operations for at least one
year from the date of this filing. 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
10
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,
2022, 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 March 31, 2023,
and consolidated results of operations for the three months ended
March 31, 2023 and 2022, and cash flows for the three months ended
March 31, 2023 and 2022. Such adjustments are of a normal and
recurring nature. The results of operations for the three months
ended March 31, 2023 are not necessarily indicative of the results
of operations that may be expected for the year ending December 31,
2023.
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
the valuation of the Company's equity method investment. 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.
The following table provides a reconciliation of cash, cash
equivalents, and restricted cash to amounts shown in the condensed
consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
39,454
|
|
|
$
|
248,127
|
|
|
Restricted cash
|
|
|
—
|
|
|
|
276
|
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
39,454
|
|
|
$
|
248,403
|
|
Short-Term Investments—Short-term
investments represent holdings of available-for-sale marketable
securities in accordance with the Company’s investment policy and
cash management strategy. Short-term investments have maturities of
greater than 90 days at the time of purchase and mature within one
year from the balance sheet date. Investments in marketable
securities are recorded at fair value, with any unrealized gains
and losses reported within accumulated other comprehensive income
as a separate component of stockholders’ equity until realized or
until a determination is made that an other-than-temporary decline
in market value has occurred. Any premium or discount arising at
purchase is amortized and/or accreted to interest income and/or
expense over the life of the underlying security. Such amortization
and accretion, together with interest on securities, are included
in interest income in the Company’s condensed consolidated
statements of operations. The cost of marketable securities sold is
determined based on the specific identification method and any
realized gains or losses on the sale of investments are reflected
as a component of other income.
11
Equity Method Investment—The
Company uses the equity method of accounting to account for an
investment in an entity that it does not control, but in which it
has the ability to exercise significant influence over operating
and financial policies. The Company's proportionate share of the
net income or loss of the entity is included in consolidated net
loss. Judgments regarding the level of influence over the equity
method investment include consideration of key factors such as the
Company's ownership interest, representation on the board of
directors or other management body and participation in
policy-making decisions.
Under the equity method of accounting, the Company’s investment is
initially recorded at fair value on the condensed consolidated
balance sheets. Upon initial investment, the Company evaluates
whether there are basis differences between the carrying value and
fair value of the Company’s proportionate share of the investee’s
underlying net assets. Typically, the Company amortizes basis
differences identified on a straight-line basis over the underlying
assets’ estimated useful lives when calculating the attributable
earnings or losses, excluding the basis differences attributable to
in-process research and development that has no alternative future
use. If the Company is unable to attribute all of the basis
differences to specific assets or liabilities of the investee, the
residual excess of the cost of the investment over the proportional
fair value of the investee’s assets and liabilities is considered
to be equity method goodwill and is recognized within the equity
investment balance, which is tracked separately within the
Company’s memo accounts. The Company subsequently records in the
condensed consolidated statements of operations its share of income
or loss of the other entity within other income/expense, which
results in an increase or decrease to the carrying value of the
investment. If the share of losses exceeds the carrying value of
the Company’s investment, the Company will suspend recognizing
additional losses and will continue to do so unless it commits to
providing additional funding; however, if there are intra-entity
profits this can cause the investment balance to go
negative.
The Company evaluates its equity method investments for impairment
whenever events or changes in circumstances indicate that a decline
in value has occurred that is other than temporary. Evidence
considered in this evaluation includes, but would not necessarily
be limited to, the financial condition and near-term prospects of
the investee, recent operating trends and forecasted performance of
the investee, market conditions in the geographic area or industry
in which the investee operates and the Company’s strategic plans
for holding the investment in relation to the period of time
expected for an anticipated recovery of its carrying value. If the
investment is determined to have a decline in value deemed to be
other than temporary it is written down to estimated fair
value.
At March 31, 2023,
the Company accounted for its investment in OXB Solutions using the
equity method of accounting (see Note 5).
Offering Costs—The
Company capitalizes incremental legal, professional accounting and
other third-party fees that are directly associated with equity
financings as other current assets until the transactions are
completed. After equity financings are complete, these costs are
recorded in stockholders’ equity as a reduction of additional
paid-in capital generated as a result of the offering.
Leases—The
Company determines if an arrangement is a lease at contract
inception. The Company’s contracts are determined to contain a
lease when all of the following criteria based on the specific
circumstances of the arrangement are met: (1) there is an
identified asset for which there are no substantive substitution
rights; (2) the Company has the right to obtain substantially all
of the economic benefits from the identified asset; and (3) the
Company has the right to direct the use of the identified
asset.
At the commencement date, operating lease liabilities and their
corresponding right-of-use assets are recorded based on the present
value of future lease payments over the expected lease term. The
Company’s lease agreements do not provide an implicit rate. As a
result, the Company utilizes an estimated incremental borrowing
rate to discount lease payments, which is based on the rate of
interest the Company would have to pay to borrow a similar amount
on a collateralized basis over a similar term. Certain adjustments
to the right-of-use asset may be required for items such as initial
direct costs paid or lease incentives received. Operating lease
cost is recognized over the expected term on a straight-line basis.
The expected lease term includes noncancelable lease periods and,
when applicable, periods covered by an option to extend the lease
if the Company is reasonably certain to exercise that option, as
well as periods covered by an option to terminate the lease if the
Company is reasonably certain not to exercise that option. Variable
lease cost is recognized as incurred. Right-of-use assets are
periodically evaluated for impairment.
The Company acts as sublessor related to a sublease of a
substantial portion of the Company's headquarters that is now
occupied by OXB Solutions (see Note 12). Fixed sublease payments
received are recorded as a reduction to lease cost. Although
Homology assigned all of its right, title and interest in, to and
under this lease to OXB Solutions, the Company remains jointly and
severally liable for the payment of rent under this lease and was
not released from being the primary obligor under such lease.
Therefore, the related right-of-use asset and operating lease
liability were not derecognized and remain on the Company’s
condensed consolidated balance sheets.
12
Research and Development Costs—Research
and development costs are charged to expense as incurred. Research
and development expense consists of expenses incurred in performing
research and development activities, including salaries and
benefits, materials and supplies, preclinical and clinical
expenses, stock-based compensation expense, depreciation of
equipment, contract services, and other outside
expenses.
Costs for certain development activities are recognized based on an
evaluation of the progress to completion of specific tasks using
information provided to the Company by its vendors on their actual
costs incurred. Payments for these activities are based on the
terms of the individual arrangements, which may differ from the
pattern of costs incurred, and are reflected in the consolidated
financial statements as prepaid expense or accrued research and
development expense.
Income Taxes—The
Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included
in the Company’s condensed consolidated financial statements and
tax returns. Deferred tax assets and liabilities are determined
based upon the differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities and
for loss and credit carryforwards, using enacted tax rates expected
to be in effect in the year in which the differences are expected
to reverse. Deferred tax assets are reduced by a valuation
allowance if it is more likely than not that these assets may not
be realized.
The Company determines whether it is more likely than not that a
tax position will be sustained upon examination. The tax benefit to
be recognized for any tax position that meets the
more-likely-than-not recognition threshold is calculated as the
largest amount of benefit that is greater than 50% likely of being
realized upon ultimate settlement. If it is not more likely than
not that a position will be sustained, none of the benefit
attributable to the position is recognized.
The Company accounts for interest and penalties related to
uncertain tax positions as part of its provision for income taxes.
Since inception, the Company has provided a valuation allowance for
the full amount of the net deferred tax assets as the realization
of the net deferred tax assets has not been determined to be more
likely than not.
The Company recorded an income tax
provision of $1.0
million for the three months ended March 31, 2022. The tax
provision predominately resulted from the gain associated with the
sale of the Company's manufacturing business due to the transaction
with Oxford (see Note 5), offset by available federal and state net
operating loss carryforwards and research and development tax
credits which are subject to certain limitations as to their
utilization. The Company did not record an income tax provision
(benefit) for the three months ended March 31, 2023.
Revenue Recognition—Revenue
is recognized in accordance with FASB Accounting Standards
Codification (“ASC”) Topic 606,
Revenue from Contracts with Customers
(“ASC 606”).
Under ASC 606, the Company recognizes revenue when its customer
obtains control of promised goods or services, in an amount that
reflects the consideration which the entity expects to receive in
exchange for those goods or services. To determine the appropriate
amount of revenue to be recognized for arrangements determined to
be within the scope of ASC 606, the Company performs the following
five steps: (i) identification of the promised goods or services in
the contract; (ii) determination of 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
only applies the five-step model to contracts when it is probable
that the entity will collect consideration it is entitled to in
exchange for the goods or services it transfers to the
customer.
The promised goods or services in the Company’s arrangements would
likely consist of a license, rights to the Company’s intellectual
property or research, development and manufacturing services.
Performance obligations are promised goods or services in a
contract to transfer a distinct good or service to the customer and
are considered distinct when (i) the customer can benefit from the
good or service on its own or together with other readily available
resources and (ii) the promised good or service is separately
identifiable from other promises in the contract. In assessing
whether promised goods or services are distinct, the Company
considers factors such as the stage of development of the
underlying intellectual property, the capabilities of the customer
to develop the intellectual property on its own or whether the
required expertise is readily available and whether the goods or
services are integral or dependent to other goods or services in
the contract.
The Company estimates the transaction price based on the amount
expected to be received for transferring the promised goods or
services in the contract. The consideration may include fixed
consideration and variable consideration. At the inception of each
arrangement that includes variable consideration, the Company
evaluates the amount of consideration to which the Company expects
to be entitled to. The Company utilizes either the most likely
amount method or expected value method to estimate the amount
expected to be received based on which method best predicts the
amount expected to be received. The amount of variable
consideration that is included in the transaction price may be
constrained and is included in the transaction price only to the
extent that it is probable that a significant reversal in the
amount of the cumulative revenue recognized will not occur in a
future period.
13
The Company’s contracts may include development and regulatory
milestone payments that are assessed under the most likely amount
method and constrained until it is probable that a significant
revenue reversal would not occur. Milestone payments that are not
within the Company’s control, such as regulatory approvals, are not
considered probable of being achieved until those approvals are
received. At the end of each reporting period, the Company
re-evaluates the probability of achievement of such development and
regulatory milestones and any related constraint, and if necessary,
adjust its estimate of the overall transaction price. Any such
adjustments are recorded on a cumulative catch-up basis, which
would affect collaboration revenue in the period of
adjustment.
For arrangements that include sales-based royalties, including
milestone payments based on the level of sales, and the license is
deemed to be the predominant item to which the royalties relate,
the Company recognizes revenue at the later of (i) when the related
sales occur, or (ii) when the performance obligation to which some
or all of the royalty has been allocated has been satisfied (or
partially satisfied). To date, the Company has not recognized any
royalty revenue resulting from the Company’s collaboration
arrangement.
The Company allocates the transaction price based on the estimated
standalone selling price of each performance obligation. The
Company must develop assumptions that require judgment to determine
the stand-alone selling price for each performance obligation
identified in the contract. The Company utilizes key assumptions to
determine the stand-alone selling price, which may include other
comparable transactions, pricing considered in negotiating the
transaction and the estimated costs. Variable consideration is
allocated specifically to one or more performance obligations in a
contract when the terms of the variable consideration relate to the
satisfaction of the performance obligation and the resulting
amounts allocated are consistent with the amounts the Company would
expect to receive for the satisfaction of each performance
obligation.
The consideration allocated to each performance obligation is
recognized as revenue when control is transferred for the related
goods or services. For performance obligations which consist of
licenses and other promises, the Company utilizes judgment to
assess the nature of the combined performance obligation to
determine whether the combined performance obligation is satisfied
over time or at a point in time and, if over time, the appropriate
method of measuring progress. The Company evaluates the measure of
progress for its over-time arrangements at each reporting period
and, if necessary, updates the measure of progress and revenue
recognized.
Net Income (Loss) per Share—Basic
net income (loss) per share is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding
during the period. Diluted net income (loss) per share is computed
using the weighted-average number of common shares outstanding
during the period and, if dilutive, the weighted-average number of
potential shares of common stock. The weighted-average number of
common shares included in the computation of diluted net income
(loss) gives effect to all potentially dilutive common equivalent
shares, including outstanding stock options, restricted stock units
and unvested shares of common stock.
Common stock equivalent shares are excluded from the computation of
diluted net income (loss) per share if their effect is
antidilutive. In periods in which the Company reports a net (loss)
attributable to common stockholders, diluted net (loss) per share
attributable to common stockholders is generally the same as basic
net (loss) per share attributable to common stockholders, since
dilutive common shares are not assumed to have been issued if their
effect is anti-dilutive.
Recent Accounting Pronouncements—The
Jumpstart Our Business Startups Act of 2012 permits an emerging
growth company 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. As an emerging growth company, the Company has
elected to take advantage of this extended transition
period.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments
(“ASU 2016-13”) to improve financial reporting by requiring more
timely recording of credit losses on loans and other financial
instruments held by financial institutions and other organizations.
ASU 2016-13 requires the measurement of all expected credit losses
for financial assets held at the reporting date based on historical
experience, current conditions and reasonable and supportable
forecasts. ASU 2016-13 also requires enhanced disclosures to help
investors and other financial statement users better understand
significant estimates and judgments used in estimating credit
losses, as well as the credit quality and underwriting standards of
an organization’s portfolio. The Company adopted ASU 2016-13 on
January 1, 2023. The adoption of ASU 2016-13 did not have a
material impact on the Company's condensed consolidated financial
statements and related disclosures.
14
3. SHORT-TERM INVESTMENTS
The Company may invest its excess cash in fixed income instruments
denominated and payable in U.S. dollars, including U.S. treasury
securities, commercial paper, corporate debt securities and
asset-backed securities in accordance with the Company’s investment
policy that primarily seeks to maintain adequate liquidity and
preserve capital.
The following table summarizes the Company’s short-term investments
as of
March 31, 2023 and December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2023
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
|
(in thousands)
|
|
|
Commercial paper
|
|
$
|
31,297
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31,297
|
|
|
US Treasury securities
|
|
|
57,340
|
|
|
|
17
|
|
|
|
(155
|
)
|
|
|
57,202
|
|
|
Corporate debt securities
|
|
|
22,116
|
|
|
|
1
|
|
|
|
(45
|
)
|
|
|
22,072
|
|
|
Total
|
|
$
|
110,753
|
|
|
$
|
18
|
|
|
$
|
(200
|
)
|
|
$
|
110,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
|
(in thousands)
|
|
|
Commercial paper
|
|
$
|
57,138
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
57,138
|
|
|
US Treasury securities
|
|
|
65,160
|
|
|
|
—
|
|
|
|
(335
|
)
|
|
|
64,825
|
|
|
Corporate debt securities
|
|
|
19,146
|
|
|
|
—
|
|
|
|
(69
|
)
|
|
|
19,077
|
|
|
Total
|
|
$
|
141,444
|
|
|
$
|
—
|
|
|
$
|
(404
|
)
|
|
$
|
141,040
|
|
The Company utilizes the specific identification method in
computing realized gains and losses. The Company
had
no
realized gains and losses on its available-for-sale securities for
the
three months ended March 31, 2023 and 2022. The
contractual
maturity dates of all of the Company’s investments are
less than one year.
15
4. FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist of cash and cash
equivalents, short-term investments, restricted cash and accounts
payable. The carrying amount of cash, restricted cash and accounts
payable are each considered a reasonable estimate of fair value due
to the short-term maturity.
Assets measured at fair value on a recurring basis were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
March 31,
2023
|
|
|
Quoted Prices
(Unadjusted) in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
(in thousands)
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
$
|
39,454
|
|
|
$
|
39,454
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total cash equivalents
|
|
$
|
39,454
|
|
|
$
|
39,454
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
31,297
|
|
|
$
|
—
|
|
|
$
|
31,297
|
|
|
$
|
—
|
|
|
US Treasury securities
|
|
|
57,202
|
|
|
|
—
|
|
|
|
57,202
|
|
|
|
—
|
|
|
Corporate debt securities
|
|
|
22,072
|
|
|
|
—
|
|
|
|
22,072
|
|
|
|
—
|
|
|
Total short-term investments
|
|
$
|
110,571
|
|
|
$
|
—
|
|
|
$
|
110,571
|
|
|
$
|
—
|
|
|
Total financial assets
|
|
$
|
150,025
|
|
|
$
|
39,454
|
|
|
$
|
110,571
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
December 31,
2022
|
|
|
Quoted Prices
(Unadjusted) in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
(in thousands)
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
$
|
33,967
|
|
|
$
|
33,967
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total cash equivalents
|
|
$
|
33,967
|
|
|
$
|
33,967
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
57,138
|
|
|
$
|
—
|
|
|
$
|
57,138
|
|
|
$
|
—
|
|
|
US Treasury securities
|
|
|
64,825
|
|
|
|
—
|
|
|
|
64,825
|
|
|
|
—
|
|
|
Corporate debt securities
|
|
|
19,077
|
|
|
|
|