# Solid Biosciences Inc. (SLDB) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Solid Biosciences Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1707502/000156459022009963/sldb-10k_20211231.htm
Accession: 0001564590-22-009963
Filing date: 2022-03-14
Report date: 2021-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/SLDB/
All MD&A years: /company/SLDB/mda/
Next year: /company/SLDB/mda/fy2022/ (FY 2022)

Overview

Our mission is to cure Duchenne muscular dystrophy, or Duchenne, a genetic muscle-wasting disease predominantly affecting boys, with symptoms that usually manifest between three and five years of age. Duchenne is a progressive, irreversible and ultimately fatal disease that affects approximately one in every 3,500 to 5,000 live male births and has an estimated prevalence of 5,000 to 15,000 cases in the United States alone. Duchenne is caused by mutations in the dystrophin gene, which result in the absence or near-absence of dystrophin protein. Dystrophin protein works to strengthen muscle fibers and protect them from daily wear and tear. Without functioning dystrophin and certain associated proteins, muscles suffer excessive damage from normal daily activities and are unable to regenerate, leading to the build-up of fibrotic, or scar, and fat tissue. There is no cure for Duchenne and, for the vast majority of patients, there are no satisfactory symptomatic or disease-modifying treatments.

Our efforts are focused on our lead product candidate, SGT-001, a gene transfer candidate under investigation for its ability to drive functional dystrophin protein expression in patients’ muscles and improve the course of the disease, as well as SGT-003, our next-generation gene therapy candidate for the treatment of Duchenne.

In addition, we are actively involved in engaging with the Duchenne patient, clinical and research communities to support advancement of therapies for patients with Duchenne. In November 2021, in collaboration with REGENXBIO, we formally launched the Pathway Development Consortium, or the PDC, a multistakeholder initiative which aims to identify, develop, expand and maintain pathways to effective therapies for patients diagnosed early in life with rare diseases, including Duchenne. The PDC seeks to achieve these goals by bringing together a broad and diverse group of stakeholders from the rare disease and AAV gene therapy communities, including patients, industry, regulators, academia and payers, among others, for meaningful scientific and policy discussions.

To date, nine patients have been dosed in IGNITE DMD with SGT-001. In 2021, we dosed three patients in February (Patient 7), April (Patient 8) and November (Patient 9) in the 2E14 vg/kg cohort with SGT-001. All three patients were dosed with our second generation manufacturing process. Patients 7 and 9 were safely dosed, with transient and manageable adverse events, none of which were serious. Patient 8 experienced a systemic inflammatory response which has since fully resolved. The event was classified as a serious adverse event, or SAE, and considered to be drug related. The type of event is described in our Investigators Brochure and is not considered unexpected. Following the dosing of Patient 8, we conducted an extensive review of all clinical data from IGNITE DMD, which resulted in a strengthened risk mitigation plan that was submitted to the U.S. Food and Drug Administration, or the FDA, and implemented prior to the dosing of the Patient 9.

In 2021, we reported long-term biomarker data from biopsies of skeletal muscle from IGNITE DMD patients four through six taken 24 months, 18 months and 12 months post-dosing, respectively. In addition, we reported interim safety and efficacy data for motor function as assessed by North Star Ambulatory Assessment, or NSAA, and 6-Minute Walk Test, or 6MWT, pulmonary function as assessed by pulmonary function tests, or PFTs, including forced vital capacity, or FVC, peak expiratory flow, or PEF, forced expiratory volume in one second, or FEV1, as well as patient reported outcome measures, or PROMs, as assessed by the key functional domains of the Pediatric Outcomes Data Collection Instrument, or PODCI at the 12-month and 18-month post-dosing time points.  

In March 2022, we announced two-year interim safety and efficacy data from the first three Patients (Patients 4-6) treated with SGT-001 in the 2E14 vg/kg dose cohort of IGNITE DMD. Results suggested durable benefit 24-months post-administration of SGT-001, when compared to natural history. These data were consistent with results reported at the 12-month and 18-month time periods for the same patients. The average age of Patients 4-6 at the two year timepoint was 10.4 years. Data from Patients 4-6 suggested sustained motor function at two years post-infusion, as assessed by 6MWT and NSAA, against expected natural history declines. In addition, the data suggested improved pulmonary function, as measured by FVC and PEF, and sustained or improved PROMs as assessed in key functional domains of the PODCI when compared to both baseline and natural history. In March 2022, we also reported data from skeletal muscle biopsies collected three months after infusion of SGT-001 from the most recently dosed Patients 7-9.  The range by immunofluorescence of 1% to 50% and

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by western blot of Below the 5% Limit of Quantification (BLQ) to 6.8%, were within the range of previously dosed Patients 4-6 in the high dose cohort. Microdystrophin expression levels for all six patients dosed in the high dose cohort (Patients 4-9) ranged from 1 to 70% by immunofluorescence and BLQ to 17.5% by western blot. All six patients dosed with SGT-001 in the high dose cohort have demonstrated microdystrophin expression and proper membrane localization.

No new drug-related safety findings have been identified in Patients 1-9 in post-dosing periods of 90 days to approximately four years. We continue to follow dosed patients and collect data to support the potential benefit of SGT-001.

SGT-003 is our next-generation gene transfer candidate. It is comprised of our nNOS binding domain microdystrophin transgene and muscle-specific promoter present in SGT-001 and uses a lead candidate novel, rationally designed AAV capsid, developed for enhanced muscle tropism, to deliver these components to target tissues. We believe that the properties of this novel capsid may allow for enhanced benefit over therapies using traditional capsids, potentially both in terms of efficacy and safety.

We intend to initiate IND-enabling studies for SGT-003 in 2022 to support a planned IND submission in early 2023.

In addition to our gene transfer candidates, we have development programs focusing on platform technologies, including dual gene expression, a technology that allows us to package multiple transgenes into one vector, as well as novel capsids. These programs are part of our ongoing research efforts to develop innovative technologies that we believe may hold potential to translate into meaningful treatments and drive our future pipeline expansion.  Preclinical data in both wild-type and disease animal models demonstrate that we have developed a library of novel capsids that have shown increased muscle tropism with concomitant decreased liver biodistribution resulting in improved efficiency compared with AAV9.

Since our inception, we have devoted substantial resources to identifying and developing SGT-001, SGT-003 and our other product candidates, developing our manufacturing processes, organizing and staffing our company and providing general and administrative support for these operations. We have incurred significant losses every year since our inception. We do not have any products approved for sale. To date, we have not generated any revenue from product sales. Our ability to eventually generate any product revenue sufficient to achieve profitability will depend on the successful development, approval and eventual commercialization of SGT-001, SGT-003 and our other product candidates. If successfully developed and approved, we intend to commercialize SGT-001 and SGT-003 in the United States and European Union and may enter into licensing agreements or strategic collaborations in other markets. If we generate product sales or enter into licensing agreements or strategic collaborations, we expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of any product sales, license fees, milestone payments and other payments. If we fail to complete the development of SGT-001, SGT-003 and our other product candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Due to our significant research and development expenditure, licensing and patent investment, and general administrative costs associated with our operations, we have generated substantial operating losses in each period since our inception. Our net losses were $72.2 million, $88.3 million and $117.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, we had an accumulated deficit of $476.8 million. We expect to incur significant expenses and operating losses for the foreseeable future.

In January 2020, we announced a reduction in workforce by approximately 30% as part of a strategic plan designed to create a leaner company focused on advancing SGT-001.

As we seek to develop and commercialize SGT-001, SGT-003 or any other product candidates, we anticipate that our expenses will increase significantly and that we will need substantial additional funding to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity financings, debt financings or other sources, which may include licensing agreements or strategic collaborations. We may be unable to raise additional funds or enter into such agreements or arrangements when needed on favorable terms, if at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of SGT-001, SGT-003 or our other product candidates.

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

In October 2020, we entered into a collaboration and license agreement, or the Collaboration Agreement, with Ultragenyx Pharmaceutical Inc., or Ultragenyx, pursuant to which we granted Ultragenyx an exclusive worldwide license

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under certain intellectual property rights controlled by us to make, have made, use, distribute, offer for sale, sell, import and export, including to research, develop, modify, enhance, improve, register, distribute, commercialize, or otherwise dispose of AAV8 or other clade E AAV variant pharmaceutical products that express our MD5 nNOS binding domain form of microdystrophin protein for the diagnosis, treatment, cure, mitigation or prevention of Duchenne and other disease indications resulting from a lack of functional dystrophin, including Becker muscular dystrophy. On a product-by-product basis, we have the option to fund 30% of the development costs in the United States and European Union and share 30% of the net income and net losses on net sales of such Licensed Product in the United States and European Union. In connection with the execution of the Collaboration Agreement, we also entered into a stock purchase agreement with Ultragenyx, pursuant to which we issued and sold 7,825,797 shares of our common stock to Ultragenyx for an aggregate purchase price of approximately $40 million.

During the year ended December 31, 2020, we sold 6,309,632 shares pursuant to an “at-the-market offering” sales agreement, dated March 13, 2019, or the ATM Sales Agreement, by and between us and Jefferies LLC, or Jefferies, resulting in net proceeds of $23.2 million.

In December 2020, we completed a private placement of shares of common stock resulting in net proceeds to us of $86.2 million, after deducting offering costs.

In March 2021, we issued and sold in a public offering 25,000,000 shares of our common stock at a price per share to the public of $5.75, including the full exercise by the underwriters of an option to purchase additional shares of common stock. We received net proceeds of approximately $134.9 million after deducting underwriter discounts and commissions and offering expenses.  

As of December 31, 2021, we had cash, cash equivalents, and available-for-sale securities of $207.8 million. We believe that our cash, cash equivalents, and available-for-sale securities as of December 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently anticipate.

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

Financial operations overview

Revenue

Collaboration revenue

Collaboration revenue was $13.6 million for the year ended December 31, 2021. We recognized this revenue related to research services and cost reimbursement from the Collaboration Agreement. There was no revenue in the year ended December 31, 2020. 

Product revenue

We have not generated any product revenue to date and do not expect to generate any product revenue from the sale of our products for the foreseeable future, if ever. If our development efforts for SGT-001, SGT-003 or our other product candidates are successful and result in marketing approval, we may generate product revenue in the future from product sales.

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Operating expenses

We classify our operating expenses into two categories: research and development, and general and administrative expenses. Personnel costs, including salaries, benefits, bonuses and equity-based compensation expense, comprise a significant component of each of these expense categories. We allocate expenses associated with personnel costs based on the nature of work associated with these resources.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of SGT-001, SGT-003 and our other product candidates and include:

[[GREPCENT_TABLE]]
[["","\u2022","expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research and preclinical activities on our behalf, as well as contract manufacturing organizations, or CMOs, that manufacture SGT-001, SGT-003 and our other product candidates for use in our preclinical studies and clinical trials;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","salaries, benefits and other related costs, including equity-based compensation expense, for personnel engaged in research and development functions;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","costs of outside consultants, engaged to assist in our research and development activities, including their fees, equity-based compensation and related travel expenses;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","costs incurred in seeking regulatory approval of SGT-001, SGT-003 and our other product candidates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","expenses incurred under our intellectual property licenses; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","facility-related research and development expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs."]]
[[/GREPCENT_TABLE]]

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

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

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["(in thousands)","","2021","","","2020"],["SGT-001","","$","22,826","","","$","29,526"],["SGT-003 and other product candidates","","","948","","","","3,114"],["Unallocated research and development expenses"],["Personnel related expenses","","","24,515","","","","22,009"],["External expenses","","","10,450","","","","10,232"],["Total unallocated research and development expenses","","","34,965","","","","32,241"],["Total research and development expenses","","$","58,739","","","$","64,881"]]
[[/GREPCENT_TABLE]]

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We cannot determine with certainty the duration, costs and timing of clinical trials of SGT-001 and our other product candidates, including SGT-003, or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates for which we obtain marketing approval or our other research and development expenses. We may never succeed in obtaining marketing approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

[[GREPCENT_TABLE]]
[["","\u2022","the scope, rate of progress, expense and results of any clinical trials of SGT-001 or other product candidates including SGT-003 and other research and development activities that we may conduct;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the imposition of regulatory restrictions on clinical trials, including full and partial clinical holds and the time and activities required to lift any such holds;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","uncertainties in clinical trial design and patient enrollment or drop out or discontinuation rates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","significant and changing government regulation and regulatory guidance;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","potential additional studies or clinical trials requested by regulatory agencies;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the timing and receipt of any marketing approvals; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights."]]
[[/GREPCENT_TABLE]]

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as we proceed with clinical trials for SGT-001, initiate clinical trials for SGT-003 and other product candidates and continue to identify and develop additional product candidates.

General and administrative expenses

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

We expect that our general and administrative expenses will increase in the future as we increase our general and administrative personnel headcount to support our research and development activities and activities related to the potential commercialization of SGT-001 and our other product candidates, including SGT-003.

Restructuring charges

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

Other income (expense), net

Other income (expense), net consists of interest income earned on our cash, cash equivalents, and available-for-sale securities, and funding from charitable organizations, net of financing leases interest expense.

Income taxes

We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements but have not been reflected in taxable income. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value.

We account for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood

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that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Critical accounting policies and use of estimates

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

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

As discussed in Note 2 to our consolidated audited financial statements, under Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers , an entity 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, we perform the following five steps: (i) identification of the contract(s) with the customer, (ii) identification of the promised goods or services in the contract and determination of whether the promised goods or services are performance obligations, (iii) measurement of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply 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.

When optional goods or services are offered, we assess the options to determine whether the options grant the customer a material right. This determination includes whether the option is priced at an amount that the customer would not have received without entering into the contract. If we conclude the option conveys a material right, it is accounted for as a separate performance obligation. In identifying performance obligations in a contract, we identify those promises that are distinct. Promised goods or services are considered distinct when the customer can benefit from the goods or services on their own, or together with readily available resources, and the goods or services are separately identifiable from other promises in the contract. If a promise is not distinct, it is combined with other promises in the contract until the combined group of promises is capable of being distinct.

We estimate the transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, we evaluate the amount of the potential payments and the likelihood that the payments will be received. If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price. For contracts that include sales-based royalties for licensed compounds, we recognize revenue at the date when the related sales occur. Finally, we determine whether the contract contains a significant financing component by analyzing the promised consideration relative to the standalone selling price of the promised goods and services and the timing of payment relative to the transfer of the promised goods and services. At each reporting date, we reassess the transaction price and probability of achievement of the performance obligations and the associated constraints on transaction price. If necessary, we adjust the transaction price, recording a cumulative catch-up based on progress for the amount that was previously constrained.

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Revenue is recognized when (or as) control of a performance obligation is transferred to the customer. When combined performance obligations contain a promised license and related services or other promises, management judgment is required to determine the appropriate timing of revenue recognition. In doing so, we must identify the predominant promise or promises in the contract to determine whether revenue is recognized at a point in time or over time. If over time, we must determine the appropriate measure of progress. If a license is deemed to be the predominant promise in a performance obligation, we must determine the nature of the license, whether functional or symbolic intellectual property, to conclude whether point-in-time or over-time revenue recognition is most appropriate. The determination of functional or symbolic intellectual property requires an assessment of whether the customer is able to exploit and benefit from the license in its current condition, or if the utility of the license is dependent on or influenced by our ongoing activities or being associated with us.

At each reporting date, we calculate the measure of progress for the performance obligations transferred over time. The calculation generally uses an input measure based on costs incurred to-date relative to estimated total costs to complete the transfer of the performance obligation. The measurement of progress is then used to calculate the total revenue earned, including any cumulative catch-up adjustment. A 10% increase or decrease in the transaction price impacts net revenues from collaborators by a corresponding increase or decrease of approximately $1.3 million. A 10% increase or decrease in the total forecasted costs to be incurred over the period the transfer of goods or services occurs impacts net revenues from collaborators by a corresponding decrease or increase of approximately $0.5 million.

Accrued research and development expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:

[[GREPCENT_TABLE]]
[["","\u2022","CROs in connection with performing research activities on our behalf and conducting clinical trials and preclinical studies on our behalf;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","vendors in connection with preclinical development activities;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","vendors related to product manufacturing and development and distribution of clinical and preclinical supplies; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","third parties under our intellectual property licenses."]]
[[/GREPCENT_TABLE]]

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing fees, we estimate the time period over which services will be performed, and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period.

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Equity-based compensation

In connection with the completion of our initial public offering, we adopted the 2018 Omnibus Incentive Plan, or the 2018 Plan, which provides for the issuance of share-based awards, including options to purchase common stock. The 2018 Plan provides for the awarding of up to 5,001,000 shares of common stock for equity awards. On June 16, 2020, our stockholders approved the 2020 Equity Incentive Plan, or the 2020 Plan, which consists of (i) 3,000,000 shares of common stock and (ii) additional shares of common stock (up to 4,879,025) as is equal to (i) the number of shares reserved under the 2018 Plan that remained available for grant under the 2018 Plan as of immediately prior to the date the 2020 Plan was approved by our stockholders and (ii) the number of shares subject to awards granted under the 2018 Plan which awards expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right. On June 16, 2021, our stockholders approved an amendment to the 2020 Plan to reserve an additional 7,000,000 shares of common stock for issuance under the plan. Under the 2020 Plan, stock options may not be granted at less than fair value on the date of grant. At December 31, 2021, 8,557,152 shares remained available for future issuance under the 2020 Plan.

In June 2021, the Company’s stockholders also approved the 2021 Employee Stock Purchase Plan, or the ESPP, which provides for 1,102,885 shares to be available for purchase by eligible employees according to its terms. At December 31, 2021, 1,058,204 shares remained available for future issuance under the ESPP.

We measure all stock options and other stock-based awards granted to employees, directors and non-employees based on the fair value on the date of the grant and recognize compensation expense of those awards, over the requisite service period, which is generally the vesting period of the respective award. Forfeitures are accounted for as they occur. We apply the straight-line method of expense recognition to all awards with only service-based vesting conditions. We have not issued any awards with performance-based vesting conditions. For stock-based awards granted to non-employees, compensation expense is recognized over the period during which services are rendered by such non-employees until completed.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. We historically have been a private company and lack company-specific historical and implied volatility information. Therefore, we estimate our expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded stock price. For options with service-based vesting conditions, the expected term of our stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. Through December 31, 2018, the expected term of stock options granted to non-employees is equal to the contractual term of the option award and effective January 1, 2019, the “simplified” method is used. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future, if ever.

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Results of operations

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,","","","Increase","","","%"],["","","2021","","","2020","","","(decrease)","","","Change"],["(in thousands)"],["Revenue","","$","13,620","","","$","-","","","$","13,620","","","N/A"],["Operating expenses:"],["Research and development","","","58,739","","","","64,881","","","","(6,142",")","","","(9",")%"],["General and administrative","","","27,135","","","","21,581","","","","5,554","","","","26","%"],["Restructuring expense","","","-","","","","1,944","","","","(1,944",")","","","(100",")%"],["Total operating expenses","","","85,874","","","","88,406","","","","(2,532",")","","","(3",")%"],["Loss from operations","","","(72,254",")","","","(88,406",")","","","16,152","","","","18","%"],["Other income (expense):"],["Interest income","","","64","","","","115","","","","(51",")","","","(44",")%"],["Other income","","","2","","","","1","","","","1","","","","100","%"],["Total other income (expense)","","","66","","","","116","","","","(50",")","","","(43",")%"],["Net loss","","$","(72,188",")","","$","(88,290",")","","$","16,102","","","","18","%"]]
[[/GREPCENT_TABLE]]

Collaboration revenue

Collaboration revenue for the year ended December 31, 2021 was $13.6 million, compared to no collaboration revenue for the year ended December 31, 2020. The increase in collaboration revenue was related to research services and cost reimbursement received under the Collaboration Agreement with Ultragenyx, which we entered into in the fourth quarter of 2020.

Research and development expenses

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,","","","Increase","","","%"],["","","2021","","","2020","","","(decrease)","","","Change"],["(in thousands)"],["SGT-001","","$","22,826","","","$","29,526","","","$","(6,700",")","","","(23",")%"],["SGT-003 and other product candidates","","","948","","","","3,114","","","","(2,166",")","","","(70",")%"],["Unallocated research and development expenses"],["Personnel related expenses","","","24,515","","","","22,009","","","","2,506","","","","11","%"],["External expenses","","","10,450","","","","10,232","","","","218","","","","2","%"],["Total unallocated research and development expenses","","","34,965","","","","32,241","","","","2,724","","","","8","%"],["Total research and development expenses","","$","58,739","","","$","64,881","","","$","(6,142",")","","","(9",")%"]]
[[/GREPCENT_TABLE]]

Research and development costs for the year ended December 31, 2021 were $58.7 million, compared to $64.9 million for the year ended December 31, 2020. The decrease of $6.1 million in research and development costs was due to a decrease in SGT-001 research and development costs of $6.7 million primarily due to the impacts of COVID-19, and a decrease of SGT-003 and other product candidates costs of $2.2 million primarily due to license fees incurred in 2020 in conjunction with the Ultragenyx Collaboration agreement. This was partially offset by an increase in unallocated expenses of $2.7 million primarily driven by personnel related expenses from an increase in headcount in 2021.

101

General and administrative expenses

General and administrative expenses were $27.1 million for the year ended December 31, 2021, compared to $21.6 million for the year ended December 31, 2020. The increase of $5.5 million was due to an increase in personnel related expenses of $4.1 million due to the increase in headcount in 2021 and an increase in consulting fees of $1.4 million.

Restructuring charges

During the year ended December 31, 2021 we recorded no expense related to restructuring compared to $1.9 million of restructuring charges as of December 31, 2020. The restructuring charges related to severance and other employee-related costs in connection with the restructuring that occurred in January 2020. We paid approximately $1.8 million during the year ended December 31, 2020 and $0.1 million during the year ended December 31, 2021.

Interest income

Interest income was $0.1 million and $0.1 million for the years ended December 31, 2021 and 2020, respectively. There was no change as the portfolio of available-for-sale securities remained consistent.

Other income

Other income relates to contributions from charitable organizations. We do not expect these contributions to reoccur in future periods.

Results of Operations—Years Ended December 31, 2020 and 2019

Discussion and analysis of the year ended December 31, 2020 compared to the year ended December 31, 2019 is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 15, 2021 (“2020 Form 10-K”).

Liquidity and capital resources

Sources of liquidity

To date, we have financed our operations primarily through the sale of redeemable preferred units and member units, the sale of common stock and prefunded warrants to purchase shares of our common stock in private placements and the sale of common stock in our initial public offering and a follow-on public offering. Through December 31, 2021, we raised an aggregate of $144.6 million of gross proceeds from our sales of preferred units prior to the completion of our initial public offering, and an aggregate of $471.3 million of net proceeds from the sale of our common stock through public offerings, including our IPO, our ATM Sales Agreement, private placements including the stock purchase agreement with Ultragenyx, as detailed in the following paragraphs.

On July 30, 2019, we issued and sold in a private placement (i) 10,607,525 shares of our common stock at a price per share of $4.65 and (ii) 2,295,699 pre-funded warrants to purchase shares of our common stock at a price per warrant of $4.64. Each pre-funded warrant is exercisable for one share of common stock at an exercise price of $0.01 and the pre-funded warrants have no expiration date. We received $57.9 million of net proceeds from the private placement after deducting offering costs. On October 2, 2020, 137,460 of these pre-funded warrants were exercised.

On October 22, 2020, we entered into the Collaboration Agreement with Ultragenyx. In connection with the execution of the Collaboration Agreement, we also entered into a stock purchase agreement with Ultragenyx, pursuant to which we issued and sold 7,825,797 shares of our common stock to Ultragenyx for an aggregate purchase price of approximately $40 million.

On December 15, 2020, we issued and sold in a private placement 24,324,320 shares of our common stock at a price per share of $3.70. We received $86.2 million of net proceeds from the private placement after deducting offering costs.  

On March 13, 2019, we entered into the ATM Sales Agreement, which was amended in August 2021, under which we may offer and sell, from time to time, shares of our common stock having aggregate gross proceeds of up to $75.0 million through Jefferies as sales agent. Any such sales being made by any method that is deemed an “at-the-market offering” as defined in Rule 415 promulgated under the Securities Act. We will pay Jefferies a commission of up to 3% of the gross

102

proceeds of any sales of common stock pursuant to the ATM Sales Agreement. During the year ended December 31, 2020, we sold 6,309,632 shares pursuant to the ATM Sales Agreement resulting in net proceeds of $23.2 million. During the year ended December 31, 2021, we did not sell any shares pursuant to the ATM Sales Agreement

On March 23, 2021, we issued and sold in a public offering 25,000,000 shares of our common stock at a price per share of $5.75, including the full exercise by the underwriters of an option to purchase additional shares of common stock, or the March 2021 Offering. We received net proceeds of approximately $134.9 million after deducting underwriter discounts and commissions and offering expenses.  

As of December 31, 2021, we had cash, cash equivalents and available-for-sale securities of $207.8 million and had no debt outstanding.

Cash flows

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["","","2021","","","2020"],["(in thousands)"],["Cash used in operating activities","","$","(77,764",")","","$","(56,599",")"],["Cash (used in) provided by investing activities","","","(91,086",")","","","6,600"],["Cash provided by financing activities","","","134,985","","","","128,700"],["Net (decrease) increase in cash and cash equivalents","","$","(33,865",")","","$","78,701"]]
[[/GREPCENT_TABLE]]

Operating activities

During the year ended December 31, 2021, operating activities used $77.8 million of cash, primarily resulting from our net loss of $72.2 million offset by non-cash charges of $17.5 million due primarily to equity-based compensation of $13.4 million and depreciation expense of $3.0 million and marketable securities of $1.1 million. Net cash used by changes in our operating assets and liabilities was $23.1 million which included a decrease in deferred revenue of $12.6 million and an increase in accounts receivable of $0.1 million as a result of the Ultragenyx Collaboration Agreement, a decrease in prepaid and other non-current assets of $9.3 million and a decrease in accrued other liabilities and non-current liabilities of $2.3 partially offset by an increase in accounts payable of $1.2 million due to the timing of payments.

During the year ended December 31, 2020, operating activities used $56.6 million of cash, primarily resulting from our net loss of $88.3 million offset by non-cash charges of $15.5 million due primarily to equity-based compensation of $11.6 million and depreciation expense of $3.9 million as well as cash provided by changes in our operating assets and liabilities. Net cash provided by changes in our operating assets and liabilities included a decrease in accounts payable, accrued expenses and non-current liabilities of $4.6 million due to the timing of payments and an increase in deferred revenue of $20.8 million as a result of the Ultragenyx Collaboration Agreement. Net cash provided by changes in our operating assets and liabilities also consisted primarily of an increase in prepaid expenses and other assets of $0.1 million which was primarily due to an increase in prepayments related to research and development activities.

Investing activities

During the year ended December 31, 2021, investing activities used $91.1 million of cash, consisting primarily of net purchases of available-for-sale securities of $141.2 million and the purchase of property and equipment of $1.3 million partially offset by the sale of available-for-sale securities of $51.4 million.

During the year ended December 31, 2020, investing activities provided $6.6 million of cash, consisting primarily of net proceeds on the sale and maturity of available-for-sale securities partially offset by purchases of property and equipment.

Financing activities

During the year ended December 31, 2021, net cash provided by financing activities was $135.0 million as a result of the March 2021 Offering.

103

During the year ended December 31, 2020, net cash provided by financing activities was $128.7 million, due to the net proceeds from our private placement of shares of our common stock that we completed in December 2020 and sales under the ATM Sales Agreement as well as proceeds from the issuance of common stock to Ultragenyx.

A discussion of changes in our cash flow from the year ended December 31, 2019 to the year ended December 31, 2020 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2020 Form 10-K.

Funding requirements

We expect our expenses to increase substantially in connection with our ongoing development activities related to SGT-001, SGT-003 and our other product candidates. In addition, we have incurred and expect to continue to incur additional costs associated with operating as a public company. We expect that our expenses will increase substantially if and as we:

[[GREPCENT_TABLE]]
[["","\u2022","continue to enroll patients in IGNITE DMD and continue clinical development of SGT-001;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","move SGT-003 or our other product candidates into clinical trials;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","continue research and preclinical development of SGT-003 or our other product candidates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","seek to identify additional product candidates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","seek marketing approvals for our product candidates that successfully complete clinical trials, if any;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","arrange for manufacture of larger quantities of our product candidates for clinical development and potential commercialization;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","maintain, expand, protect and enforce our intellectual property portfolio;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","hire and retain additional clinical, quality control and scientific personnel;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","build out new facilities or expand existing facilities to support our activities;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","acquire or in-license other drugs, technologies and intellectual property;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","fund a portion of the development or commercialization of products in collaboration with Ultragenyx pursuant to the Collaboration Agreement; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","add operational, financial and management information systems and personnel."]]
[[/GREPCENT_TABLE]]

As of December 31, 2021, we had cash, cash equivalents and available-for-sale securities of $207.8 million.  We believe that our existing cash, cash equivalents and available-for-sale securities as of December 31, 2021 will be sufficient to fund our operating expenses and capital requirements into the third quarter of 2023. As a result, in order to continue to operate our business beyond that time, we will need to raise additional funds. However, there can be no assurance that we will be able to generate funds on terms acceptable to us, on a timely basis, or at all.  In addition, we have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently anticipate.

Because of the numerous risks and uncertainties associated with the development of SGT-001, SGT-003 and other product candidates and programs and because the extent to which we may enter collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including:

[[GREPCENT_TABLE]]
[["","\u2022","the progress and results of IGNITE DMD and future clinical trials of SGT-001, SGT-003 and our other product candidates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the costs, timing and outcome of regulatory review of SGT-001, SGT-003 and our other product candidates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the scope, progress, results and costs of discovery, laboratory testing, manufacturing, preclinical development and clinical trials for SGT-003 and our other product candidates that we may pursue in the future, if any;"]]
[[/GREPCENT_TABLE]]

104

[[GREPCENT_TABLE]]
[["","\u2022","the costs associated with our manufacturing process development and evaluation of third-party manufacturers;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","revenue, if any, received from commercial sale of SGT-001, SGT-003 or our other product candidates, should any of our product candidates receive marketing approval;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the costs of preparing, filing and prosecuting patent applications, maintaining, defending and enforcing our intellectual property rights and defending intellectual property-related claims;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the outcome of any lawsuits filed against us;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the terms of our current and any future license agreements and collaborations;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the success of our collaboration with Ultragenyx;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","our ability to establish and maintain additional strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the payment or receipt of milestones, royalties and other collaboration-based revenues, if any;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","the extent to which we acquire or in-license other product candidates, technologies and intellectual property; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","if and as we need to adapt our business in response to the COVID-19 pandemic and its collateral consequences."]]
[[/GREPCENT_TABLE]]

We are supplying, and expect to continue to supply, our clinical development program for SGT-001 with drug product produced at a cGMP compliant facility located at one of our CDMO partners. We intend to establish the capability and capacity to supply SGT-001 at commercial scale from multiple sources.

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

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

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

Contractual obligations and commitments

We lease certain office space, lab space and lab equipment in Massachusetts. These leases are used for our continuing operations.  For a description of the Company’s lease obligations, refer to Note 10 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K.

We will lease our new corporate headquarters starting in May 2022, which consists of approximately 49,869 square feet of office, laboratory, research and development and manufacturing space in Charlestown, Massachusetts. The lease for our new corporate headquarters has an initial term of approximately ten years that expires in 2032 with an option to extend the lease for an additional five years.

We enter into contracts in the normal course of business with CROs and CMOs for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts are cancelable by us upon prior notice of 30 days.

105

Unconditional purchase commitments of $0.8 million represent minimum payments due within a year to purchase goods that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed or variable price provisions, and the approximate timing of the transaction.

Recently issued accounting pronouncements

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K, such standards will not have a material impact on our consolidated financial statements or do not otherwise apply to our operations.

Emerging growth company status

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