SEC Filing | Replimune

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

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

For the transition period from to

Commission file number 001-38596

REPLIMUNE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		82-2082553
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

500 Unicorn Park

Woburn MA 01801

(Address of principal executive offices)

(Zip Code)

(781) 222-9600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		REPL		The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

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

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 x No o

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o

		Emerging growth company x

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. x

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

The number of shares of the registrant’s Common Stock, par value $0.001 per share, outstanding as of November 8, 2019 was 32,008,559

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REPLIMUNE GROUP, INC.

FORM 10-Q

INDEX

			Page No.
PART I FINANCIAL INFORMATION			3

	Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

		Condensed Consolidated Balance Sheets	3

		Condensed Consolidated Statements of Operations	4

		Condensed Consolidated Statements of Comprehensive Loss	5

		Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity	6

		Condensed Consolidated Statements of Cash Flows	7

		Notes to Unaudited Condensed Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

	Item 4.	Controls and Procedures	36

PART II OTHER INFORMATION			38

	Item 1.	Legal Proceedings	38

	Item 1A.	Risk Factors	38

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78

	Item 3.	Defaults Upon Senior Securities	78

	Item 4.	Mine Safety Disclosure	78

	Item 5.	Other Information	78

	Item 6.	Exhibits	78

SIGNATURES			80

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

REPLIMUNE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

	September 30,			March 31,
	2019			2019

Assets
Current assets:
Cash and cash equivalents	$	53,298		$	25,704
Short-term investments	56,581			109,107
Research and development incentives receivable	2,337			2,474
Prepaid expenses and other current assets	5,796			3,696
Total current assets	118,012			140,981
Property, plant and equipment, net	3,528			12,159
Research and development incentives receivable - long term	1,212			—
Restricted cash	1,636			1,186
Long term prepaid rent	15,072			—
Right-to-use asset - operating leases	4,873			—
Right-to-use asset - financing leases	7,105			—
Total assets	$	151,438		$	154,326

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,965		$	7,084
Accrued expenses and other current liabilities	3,352			2,801
Operating lease liabilities, current	631			—
Financing lease liabilities, current	34			—
Total current liabilities	11,982			9,885
Deferred rent, net of current portion	—			24
Financing obligation	—			6,561
Long term debt, net of debt discount	9,659			—
Operating lease liabilities, non-current	4,384			—
Financing lease liabilities, non-current	4,772			—
Total liabilities	30,797			16,470
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, $0.001 par value; 150,000,000 shares authorized as of September 30, 2019 and March 31, 2019; 31,719,346 and 31,656,950 shares issued and outstanding as of September 30, 2019 and March 31, 2019	32			32
Additional paid-in capital	202,359			198,645
Accumulated deficit	(80,320		)	(59,766		)
Accumulated other comprehensive loss	(1,430		)	(1,055		)
Total stockholders’ equity	120,641			137,856
Total liabilities and stockholders’ equity	$	151,438		$	154,326

The accompanying notes are an integral part of these consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

Operating expenses:
Research and development	$	8,168		$	4,962		$	15,625		$	8,898
General and administrative	4,074			2,142			7,524			4,085
Total operating expenses	12,242			7,104			23,149			12,983
Loss from operations	(12,242		)	(7,104		)	(23,149		)	(12,983		)
Other income (expense):
Research and development incentives	620			(77		)	1,241			361
Investment income	567			664			1,254			891
Interest expense	(195		)	—			(195		)	—
Change in fair value of warrant liability	—			(2		)	—			(5,452		)
Other income	111			58			202			678
Total other income (expense), net	1,103			643			2,502			(3,522		)
Net loss attributable to common stockholders	$	(11,139	)	$	(6,461	)	$	(20,647	)	$	(16,505	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.35	)	$	(0.26	)	$	(0.65	)	$	(1.11	)
Weighted average common shares outstanding, basic and diluted	31,675,323			24,574,239			31,668,414			14,831,266

The accompanying notes are an integral part of these consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

Net loss	$	(11,139	)	$	(6,461	)	$	(20,647	)	$	(16,505	)
Other comprehensive income (loss):
Foreign currency translation loss	(218		)	(139		)	(400		)	(986		)
Net unrealized gain (loss) on short-term investments, net of tax	(40		)	(34		)	25			1
Comprehensive loss	$	(11,397	)	$	(6,634	)	$	(21,022	)	$	(17,490	)

The accompanying notes are an integral part of these consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE
PREFERRED STOCK

AND STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share amounts)

(Unaudited)

															Accumulated
	Convertible									Additional					other			Total
	preferred stock					Common stock				paid-in		Accumulated			comprehensive			stockholders’
	Shares		Amount			Shares		Amount		capital		deficit			loss			equity
Balances as of March 31, 2019	—		$	—		31,656,950		$	32	$	198,645	$	(59,766	)	$	(1,055	)	$	137,856
Foreign currency translation adjustment	—		—			—		—		—		—			(182		)	(182		)
Unrealized gain on short-term investments	—		—			—		—		—		—			65			65
Exercise of stock options	—		—			6,751		—		18		—			—			18
Stock-based compensation expense	—		—			—		—		1,810		—			—			1,810
Impact of adoption of ASC 842	—		—			—		—		—		93			—			93
Net loss	—		—			—		—		—		(9,508		)	—			(9,508		)
Balances as of June 30, 2019	—		—			31,663,701		32		200,473		(69,181		)	(1,172		)	130,152
Foreign currency translation adjustment	—		—			—		—		—		—			(218		)	(218		)
Unrealized loss on short-term investments	—		—			—		—		—		—			(40		)	(40		)
Exercise of stock options	—		—			55,645		—		105		—			—			105
Stock-based compensation expense	—		—			—		—		1,781		—			—			1,781
Net loss	—		—			—		—		—		(11,139		)	—			(11,139		)
Balances as of September 30, 2019	—		$	—		31,719,346		$	32	$	202,359	$	(80,320	)	$	(1,430	)	$	120,641

Balances as of March 31, 2018	1,925,968		$	86,361		5,007,485		$	5	$	1,097	$	(28,932	)	$	(238	)	$	(28,068	)
Foreign currency translation adjustment	—		—			—		—		—		—			(847		)	(847		)
Unrealized gain on short-term investments	—		—			—		—		—		—			35			35
Stock-based compensation expense	—		—			—		—		225		—			—			225
Net loss	—		—			—		—		—		(10,044		)	—			(10,044		)
Balances as of June 30, 2018	1,925,968		86,361			5,007,485		5		1,322		(38,976		)	(1,050		)	(38,699		)
Conversion of convertible preferred stock into common stock upon closing of initial public offering	(1,925,968	)	(86,361		)	19,157,360		19		86,342		—			—			86,361
Conversion of convertible preferred stock warrants into common stock warrants	—		—			—		—		7,094		—			—			7,094
Repurchase of class A common stock upon closing of initial public offering	—		—			(26,258	)	—		—		—			—			—
Issuance of common stock upon closing of initial public offering, net of issuance costs and underwriter fees of $9,935	—		—			7,407,936		7		101,177		—			—			101,184
Foreign currency translation adjustment	—		—			—		—		—		—			(139		)	(139		)
Unrealized loss on short-term investments	—		—			—		—		—		—			(34		)	(34		)
Exercise of stock options	—		—			7,149		1		11					—			12
Stock-based compensation expense	—		—			—		—		718		—			—			718
Net loss	—		—			—		—		—		(6,461		)	—			(6,461		)
Balances as of September 30, 2018	—		$	—		31,553,672		$	32	$	196,664	$	(45,437	)	$	(1,223	)	$	150,036

The accompanying notes are an integral part of these consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Six Months Ended
	September 30,
	2019			2018

Cash flows from operating activities:
Net loss	$	(20,647	)	$	(16,505	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	3,591			943
Depreciation and amortization	84			69
Change in fair value of warrant liability	—			5,452
Net amortization of premiums and discounts on short-term investments	(730		)	(544		)
Noncash interest expense	14			—
Changes in operating assets and liabilities:
Research and development incentives receivable	(1,241		)	(344		)
Prepaid expenses and other current assets	(2,128		)	(1,034		)
Operating lease, right-of-use-asset	250			—
Finance lease, right-of-use-asset	60			—
Long term prepaid rent	(12,433		)	—
Accounts payable	(900		)	150
Accrued expenses and other current liabilities	669			(1,417		)
Operating lease liabilities	(144		)	—
Deferred rent	—			(12		)
Net cash used in operating activities	(33,555		)	(13,242		)
Cash flows from investing activities:
Purchases of property, plant and equipment	(1,146		)	(119		)
Purchase of short-term investments	(30,628		)	(110,850		)
Proceeds from sales and maturities of short-term investments	83,909			30,750
Net cash provided by (used in) investing activities	52,135			(80,219		)
Cash flows from financing activities:
Proceeds from long-term debt	10,000			—
Payment of issuance costs	(355		)	(2,157		)
Exercise of stock options	123			12
Proceeds from issuance of common stock in initial public offering, net of underwriting fees and discounts	—			103,341
Net cash provided by financing activities	9,768			101,196
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(304		)	(928		)
Net increase in cash, cash equivalents and restricted cash	28,044			6,807
Cash, cash equivalents and restricted cash at beginning of period	26,890			17,661
Cash, cash equivalents and restricted cash at end of period	$	54,934		$	24,468
Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible preferred stock warrants into common stock warrants	$	—		$	86,361
Conversion of convertible preferred stock into common stock	$	—		$	7,094
Net unrealized gain on short-term investments	$	25		$	1
Purchases of property and equipment included in accounts payable	$	1,825		$	—
Lease assets obtained in exchange for new financing lease liabilities	$	7,165		$	—
Lease assets obtained in exchange for new operating lease liabilities	$	5,152		$	—

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

1. Nature of the business

Replimune Group, Inc. (the “Company”) is a clinical-stage biotechnology company focused on the development of oncolytic immunotherapies to treat cancer.

Replimune Limited (“Replimune UK”) was incorporated in 2015 under the laws of England, and was the sole shareholder of Replimune, Inc. (“Replimune US”), a Delaware corporation. On July 5, 2017, Replimune Group, Inc., a Delaware corporation, was incorporated and on July 10, 2017 the shareholders of Replimune UK effected a share-for-share exchange pursuant to which they exchanged their outstanding shares in Replimune UK for shares in Replimune Group, Inc., on a one-for-one basis. In addition, the holders of warrants and stock options to purchase Replimune UK capital stock canceled their warrants to purchase shares of series seed convertible preferred stock and stock options in Replimune UK and were issued replacement warrants to purchase shares of series seed convertible preferred stock and stock options to acquire Replimune Group, Inc. capital stock on a one-for-one basis. These transactions are collectively referred to as the reorganization. Upon completion of the reorganization, the historical consolidated financial statements of Replimune UK became the historical consolidated financial statements of Replimune Group, Inc. because the reorganization was accounted for similar to a reorganization of entities under common control due to the high degree of common ownership of Replimune UK and Replimune Group, Inc. and lack of economic substance to the transaction. The Company concluded that the reorganization resulted in no change in the material rights and preferences of each respective class of equity interests and no change in the fair value of each respective class of equity interests before and after the reorganization. On December 8, 2017, Replimune UK transferred all outstanding shares of its wholly owned subsidiary, Replimune US to Replimune Group, Inc. Replimune Group. Inc., a Delaware corporation, is the sole shareholder of Replimune UK, Replimune US and Replimune Securities Corporation, a Massachusetts corporation that was incorporated in November 2017.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance and reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Forward stock split

On July 9, 2018, the Company effected a 1-for-9.94688 forward stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s Convertible Preferred Stock (see Note 8). Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this forward stock split and adjustment of the convertible preferred stock conversion ratios. Further, on July 9, 2018, the Company’s authorized shares of common stock were increased to 27,314,288. Accordingly, the authorized shares of common stock presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the newly authorized shares of common stock.

Initial public offering

On July 24, 2018, the Company completed an initial public offering (“IPO”) of its common stock and issued and sold 6,700,000 shares of common stock at a public offering price of $15.00 per share, resulting in net proceeds of $93,465 after deducting underwriting discounts and commissions but before deducting offering costs of $2,157.

Upon closing of the IPO, the Company’s outstanding convertible preferred stock automatically converted into shares of common stock (see Note 8). Upon conversion of the convertible preferred stock, the Company reclassified the carrying value of the convertible preferred stock to common stock and additional paid-in capital. The warrant to purchase shares of the Company’s series seed convertible preferred stock was converted into a warrant to purchase shares of the Company’s common stock upon the closing of the IPO. As a result, the warrant liability was remeasured a final time on the closing date of the IPO and reclassified to stockholders’ equity. Additionally, the Company repurchased 26,258 shares of class A common stock at a price equal to its par value upon the closing of the IPO.

On July 30, 2018, the Company issued and sold an additional 707,936 shares of its common stock at the IPO price of $15.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $9,876 after deducting discounts and commissions and other offering expenses.

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Also, in connection with the completion of its IPO on July 24, 2018, the Company filed an amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to authorize the issuance of up to 150,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of undesignated preferred stock, par value $0.001 per share.

Basis of presentation

The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurred recurring losses since its inception, including net losses of $11,139 and $6,461 for the three months ended September 30, 2019 and 2018, respectively and net losses of $20,647 and $16,505 for the six months ended September 30, 2019 and 2018, respectively. In addition, as of September 30, 2019, the Company had an accumulated deficit of $80,320. The Company expects to continue to generate operating losses for the foreseeable future. As of November 12, 2019, the issuance date of these consolidated financial statements, the Company expects that its cash and cash equivalents and short-term investments will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance of the condensed consolidated financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.

If the Company is unable to obtain funding it could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or it may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

2. Summary of significant accounting policies

Principles of consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and include the accounts of the Company and its wholly owned subsidiaries, Replimune UK, Replimune US and Replimune Securities Corporation, after elimination of all intercompany accounts and transactions. The consolidated financial statements reflect the capital as if Replimune Group, Inc. had been in existence for all periods presented.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses and the valuation of common stock and stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed in light of reasonable changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates or assumptions.

Unaudited interim financial information

The accompanying consolidated balance sheet as of September 30, 2019, the consolidated statements of operations, of comprehensive loss and of convertible preferred stock and stockholders’ equity for the three and six months ended September 30, 2019 and 2018 and the consolidated statements of cash flows for the six months ended September 30, 2019 and 2018 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2019 and the results of its operations for the three and six months ended September 30, 2019 and 2018. The financial data and other information disclosed in these consolidated notes related to the three and six months ended September 30, 2019 and 2018 are unaudited. The results for the three and six months ended September 30, 2019 are not necessarily indicative of results to be expected for the year ending March 31, 2020, any other interim periods or any future year or period. The financial information included herein should be read in conjunction with the financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019.

During the three and six months ended September 30, 2019, there have been no changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019, except as described below.

Debt Issuance Costs

Debt issuance costs consist of payments made to secure commitments under certain debt financing arrangements. These amounts are recognized as interest expense over the period of the financing arrangement using the effective interest method. If the financing

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arrangement is canceled or forfeited, or if the utility of the arrangement to the Company is otherwise compromised, these costs are recognized as interest expense immediately. The Company’s condensed consolidated financial statements present debt issuance costs related to a recognized debt liability as a direct reduction from the carrying amount of that debt liability.

Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued Accounting Standards Updates (“ASU”) No. 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-17 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-17 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic 606). The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company adopted ASU 2018-17 on April 1, 2019. The adoption of ASU 2018-17 did not have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within Accounting Standards Codification (“ASC”) Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2017-11 on April 1, 2019. The adoption of ASU 2017-11 did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which supersedes FASB Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842, which amends ASU 2016-02 to provide entities an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current leases guidance in Topic 842. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method that allows entities to elect to apply the standard prospectively at its effective date, versus recasting the prior periods presented.

The Company adopted ASU 2016-02, as amended, on April 1, 2019, which supersedes the current leasing guidance and upon adoption, requires lessees to recognize right-to-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Upon the adoption of the guidance, operating leases are capitalized on the balance sheet at the present value of lease payments. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 was calculated using the applicable incremental borrowing rate at the date of adoption.

The Company adopted ASU 2016-02, including several practical expedients on April 1, 2019. The Company elected the available package of practical expedients, which allows the Company to not reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of leases, and the treatment of initial direct costs. The Company also made an accounting policy election to utilize the short-term lease exemption, whereby leases with a term of 12 months or less will not follow the recognition and measurement requirements of the new standard. Upon adoption, the Company recognized total right-of-use assets of $789, with corresponding liabilities of $837 on the consolidated balance sheets. Additionally, the Company derecognized $11,514 of construction in progress assets and $6,561 of financing obligations and recorded long term prepaid rent of $5,006 on the consolidated balance sheet (see Note 12).

The following table summarizes the financial impact on the Company’s condensed consolidated balance sheet upon the adoption of ASU 2016-02 and the cumulative effect adjustment on April 1, 2019:

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	March 31, 2019			Adjustments			April 1, 2019
Property, plant, and equipment, net	$	12,159		$	(11,514	)	$	645
Right-to-use asset	—			789			789
Long term prepaid rent	—			5,006			5,006
Lease liabilities, current	—			388			388
Lease liabilities, non-current	—			449			449
Accrued expenses	2,801			(24		)	2,777
Deferred rent, net of current portion	24			(24		)	—
Financing obligation	6,561			(6,561		)	—
Accumulated deficit	$	(59,766	)	$	93		$	(59,673	)

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this ASU require certain existing disclosure requirements in Topic 820 to be modified or removed, and certain new disclosure requirements to be added to the Topic. In addition, this ASU allows entities to exercise more discretion when considering fair value measurement disclosures. ASU 2018-13 will be effective for the Company beginning April 1, 2020 with early adoption permitted. The Company is in the process of evaluating the impact of ASU 2018-13 on its consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics. Additionally, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments — Credit Losses (Topic 326), which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The standard is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for all periods beginning after December 15, 2018. The Company is currently in the process of evaluating the impact the standard will have on its consolidated financial statements.

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3. Fair value of financial assets and liabilities

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:

	Fair Value Measurements as of
	September 30, 2019 Using:
	Level 1		Level 2		Level 3		Total

Assets
Money market funds	$	—	$	21,119	$	—	$	21,119
Commercial paper	—		29,799		—		29,799
US Government Agency bonds	—		3,999		—		3,999
US Treasury bonds	—		13,235		—		13,235
Corporate debt securities	—		9,548		—		9,548
	$	—	$	77,700	$	—	$	77,700

	Fair Value Measurements as of
	March 31, 2019 Using:
	Level 1		Level 2		Level 3		Total

Assets
Money market funds	$	—	$	2,676	$	—	$	2,676
Commercial paper	—		46,687		—		46,687
US Government Agency bonds	—		20,884		—		20,884
US Treasury bonds	—		41,057		—		41,057
Corporate debt securities	—		8,467		—		8,467
	$	—	$	119,771	$	—	$	119,771

During the three and six months ended September 30, 2019 and 2018, there were no transfers between levels.

Valuation of cash equivalents and short-term investments

Money market funds, commercial paper, US Government Agency bonds, US Treasury bonds and corporate debt securities were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy.

Valuation of Warrant Liability

The warrant liability is related to the warrants to purchase shares of series seed convertible preferred stock (see Note 8). The fair value of the warrant liability was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. Upon the closing of the IPO in July 2018, the warrant to purchase shares of the Company’s series seed convertible preferred stock was converted into a warrant to purchase shares of the Company’s common stock. As a result, the warrant liability was remeasured a final time on the closing date of the IPO and reclassified to stockholders’ equity.

The Company used the Black-Scholes option-pricing model, which incorporated assumptions and estimates, to value the warrant liability. Key estimates and assumptions impacting the fair value measurement include (i) the expected term of the warrants, (ii) the risk-free interest rate, (iii) the expected dividend yield, (iv) expected volatility of the price of the underlying series seed convertible preferred stock and (v) the fair value of the series seed convertible preferred stock on the valuation date. The Company estimated the fair value per share of the underlying series seed convertible preferred stock based, in part, on the results of third-party valuations and additional factors deemed relevant. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company estimated a 0% expected dividend yield based on the fact that the Company has never paid or declared dividends and does not intend to do so in the foreseeable future. Prior to July 2018, the Company was a private company and accordingly, lacked company-specific historical and implied volatility information of its stock, the expected stock volatility was based on the historical volatility of publicly traded peer companies for a term equal to the remaining expected term of the warrants.

Based on the terms and conditions of the warrant, upon closing of the Company’s IPO in July 2018, the warrant to purchase shares of the Company’s series seed convertible preferred stock was converted into a warrant to purchase shares of the Company’s common stock. On that date, the Company remeasured the warrant liability to fair value and reclassified the total carrying value to additional paid-in capital. The Company performed the final remeasurement of the warrant liability using the IPO price of $15.00 per share and recorded the change in fair value as a component of total other income (expense), net in the consolidated statement of operations.

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The following assumptions were used to measure the fair market value of the warrant liability upon the conversion date:

	Six Months
	Ended
	September 30,
	2018
Risk-free interest rate	2.81		%
Expected dividend yield	0		%
Expected term (in years)	7.2
Expected volatility	64.4		%
Fair value of series seed preferred stock	$	15.00

The following table presents a roll forward of the warrant liability:

	Warrant
	Liability
Balance at March 31, 2018	$	1,642
Change in fair value	5,452
Conversion of convertible preferred stock warrant into common stock warrant	(7,094		)
Balance at September 30, 2018	$	—

4. Short-term investments

Short-term investments by investment type consisted of the following:

	September 30, 2019
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Commercial paper	$	29,774	$	27	$	(2	)	$	29,799
US Government agency bonds	3,997		2		—			3,999
US Treasury bonds	13,228		7		—			13,235
Corporate debt securities	9,542		6		—			9,548
	$	56,541	$	42	$	(2	)	$	56,581

	March 31, 2019
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Commercial paper	$	46,687	$	2	$	(2	)	$	46,687
US Government agency bonds	15,889		4		—			15,893
US Treasury bonds	38,047		13		—			38,060
Corporate debt securities	8,469		—		(2		)	8,467
	$	109,092	$	19	$	(4	)	$	109,107

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5. Property, plant and equipment, net

	September 30,			March 31,
	2019			2019
Construction in progress	$	3,014		124
Plant and laboratory equipment	650			584
Leasehold improvements		154		$	154
Computer equipment	149			138
Office equipment	49			49
Build-to-suit lease asset	—			11,514
	4,016			12,563
Less: Accumulated depreciation and amortization	(488		)	(404		)
	$	3,528		$	12,159

Depreciation and amortization expense was $42 and $84 for the three and six months ended September 30, 2019, respectively, and $36 and $69 for the three and six months ended September 30, 2018, respectively.

Build-to-suit lease asset, as of March 31, 2019, included $11,514 capitalized in connection with the Company’s build-to-suit lease accounting. Upon transition to ASC 842, the Company determined that it did not control the build-to-suit lease asset and the arrangement has been accounted for under ASC 842 guidance. Upon the adoption of ASC 842, the Company derecognized $11,514 of construction in progress and $6,561 of financing obligations and recorded long term prepaid rent of $5,006 on the consolidated balance sheet (see Note 12).

6. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

	September 30,		March 31,
	2019		2019
Accrued research and development costs	$	1,080	$	530
Accrued compensation and benefits costs	1,187		1,510
Accrued professional fees	477		464
Deferred rent	—		24
Other	608		273
	$	3,352	$	2,801

7. Long-Term Debt

Long-term debt consisted of the following:

	September 30,
	2019
Principal amount of long-term debt	$	10,000
Unamortized debt discount	(341		)
Long-term debt, net of discount	$	9,659

Hercules Loan Agreement

On August 8, 2019, (the “Closing Date”) the Company and certain of its affiliates entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”) pursuant to which Hercules agreed to make available to the Company a secured term loan facility in the amount of $30,000 (the “Term Loan Facility”), subject to certain terms and conditions. The Company borrowed $10,000 under the Loan Agreement in one advance as a single tranche Term Loan on the Closing Date upon which the Company paid a $225 facility charge and incurred $130 in additional closing and legal fees. The Company may borrow the unused $20,000 available under the Term Loan Facility in two separate advances. The second advance of up to $10,000 may be borrowed between January 1, 2020 and December 15, 2020 and the third advance of up to $10,000 may be borrowed between July 1, 2020 and June 30, 2021.

Advances under the Term Loan Facility bear interest at a rate per annum equal to the greater of either (i) the prime rate as reported in The Wall Street Journal plus 2.75%, and (ii) 8.75%. The Loan Agreement includes covenants, limitations, and events of default customary for similar facilities. The term of the Loan Agreement is four years, ending August 1, 2023.

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Interest is payable on a monthly basis until March 1, 2022 (the “Amortization Date”). After the Amortization Date, payments shall consist of equal monthly installments of principal and interest payable until the secured obligations are repaid in full.

At any time the Company may prepay the principal of any advance pursuant to the terms of the Term Loan Facility subject to a prepayment charge equal to: 3.0%, if such advance is prepaid within the first twelve months following the Closing Date, 2.0%, if such advance is prepaid after twelve months but prior to twenty four months following the Closing Date, and 1.0%, if such advance is prepaid anytime thereafter. The Company will also pay a charge of equal to the product of 4.95% and the aggregate amount of any advance made pursuant to the terms of the Term Loan Facility.

The Term Loan Facility is secured by substantially all of the Company’s assets, but excluding its intellectual property, and subject to certain exceptions and exclusions.

The Loan Agreement contains customary covenants for transactions of this type and other covenants agreed to by the parties, including, among others, (i) the provision of delivery of annual and quarterly financial statements and insurance policies and restrictions on incurring debt, granting liens, making acquisitions, making loans, paying dividends, dissolving, and entering into leases and asset sales. The Loan Agreement also provides for customary events of default, including, among others, events of default relating to failure to make payment, bankruptcy, breach of covenants, breaches of representations and warranties, change of control, judgment and material adverse effects.

In connection with entering into the Hercules Loan Agreement the Company also paid Hercules $355 of upfront fees, including closing costs and legal fees associated with entering into the agreement, which were recorded as a debt discount. The debt discount is reflected as a reduction of the carrying value of long-term debt on the Company’s condensed consolidated balance sheet and is being amortized to interest expense over the term of the loan using the effective interest method.

The Company recognized aggregate interest expense under the Hercules Loan Agreement of $170 during the three and six months ended September 30, 2019, which included non-cash interest expense of $36 related to the accretion of the debt discount and the final payment. As of September 30, 2019, the unamortized debt discount was $341. The Company’s annual effective interest rate of the Hercules Loan Agreement was approximately 10.1% for the period from August 8, 2019 to September 30, 2019.

There were no principal payments due or paid under the Hercules Loan Agreement during the three and six months ended September 30, 2019.

Future payments of long-term debt, as of September 30, 2019 are as follows:

Future long-term debt payments:
2021	$	—
2022	527
2023	6,558
2024	2,915
2025	—
Total debt payments	$	10,000

8. Stockholders’ Equity

Common Stock

As of September 30, 2019 and March 31, 2019, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue up to 150,000,000 shares of common stock, par value $0.001 per share.

As of September 30, 2019 and March 31, 2019, the Company had reserved 8,394,310 and 6,873,744 shares of common stock for the exercise of outstanding stock options, the number of shares remaining available for grant under the Company’s 2018 Omnibus Incentive Compensation Plan and the Company’s Employee Stock Purchase Plan (see Note 9) and the exercise of the outstanding warrants to purchase shares of common, respectively.

Undesignated Preferred Stock

As of September 30, 2019 and March 31, 2019, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue up to 10,000,000 shares of undesignated preferred stock, par value $0.001 per share. There were no undesignated preferred shares issued or outstanding as of September 30, 2019 or March 31, 2019.

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Convertible Preferred Stock

The Company has issued series seed convertible preferred stock (the “series seed preferred stock”), series A convertible preferred stock (the “series A preferred stock”) and series B convertible preferred stock (the “series B preferred stock”). The series seed preferred stock, series A preferred stock and series B preferred stock are collectively referred to as the “preferred stock.” In connection with the closing of the IPO, the preferred stock converted into 19,157,360 shares of common stock on a 1:9.94688 basis. There was no preferred stock outstanding as of September 30, 2019.

Preferred Stock Warrants

In connection with the issuance of the series seed preferred stock, the Company issued to the holders of the series seed preferred stock warrants for the purchase of 50,000 shares of series seed preferred stock, which became fully vested and exercisable in the year of issuance. The warrants to purchase shares of series seed preferred stock were issued at an exercise price of $10.00 per share and expire on the earlier of September 16, 2025 or a qualified change of control event.

The issuance date fair value of the warrants to purchase shares of series seed preferred stock was $391 and was recorded as a liability with a corresponding reduction in the carrying value of the series seed preferred stock. The Company recognized a loss of $0 and $(2) and $0 and $(5,452) in change in fair value of warrant liability within total other income (expense), net in the consolidated statements of operations for the three and six months ended September 30, 2019 and 2018, respectively, related to the change in fair value of the warrant liability.

Upon the closing of the Company’s IPO in July 2018, all outstanding convertible preferred stock was converted into common stock and the series seed preferred stock warrants became exercisable for 497,344 shares of common stock instead of series seed preferred stock. As a result, the warrant liability was remeasured a final time on the closing date of the IPO and reclassified to stockholders’ equity.

ATM Program

In August 2019, the Company entered into a Sales Agreement (the “Sales Agreement”) with SVB Leerink LLC (the “Agent”), pursuant to which the Company may sell, from time to time, at its option, up to an aggregate amount of $75,000 of shares of the Company’s common stock, $0.001 par value per share (the “Shares”), through the Agent, as the Company’s sales agent.

Any Shares to be offered and sold under the Sales Agreement will be issued and sold (i) by methods deemed to be an “at the market offering” (“ATM”), as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended or in negotiated transactions, if authorized by the Company and (ii) pursuant to, and only upon the effectiveness of, a registration statement on Form S-3 filed by the Company with the Securities and Exchange Commission on August 8, 2019 for an offering of up to $250,000 of various securities, including shares of the Company’s common stock, preferred stock, debt securities, warrants and/or units for sale to the public in one or more public offerings.

Subject to the terms of the Sales Agreement, the Agent will use commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company cannot provide any assurances that it will issue any Shares pursuant to the Sales Agreement. The Company will pay the Agent a commission of 3.0% of the gross proceeds from the sale of the Shares, if any. As of September 30, 2019, the Company has not made any sale under the Sale Agreement.

In October and November 2019, the Company sold 287,559 shares of common stock for a gross proceeds of $4,568 less legal fees of $137 for net proceeds of $4,431 under the ATM program.

9. Stock-Based Compensation

2015 Enterprise Management Incentive Share Option Plan

The 2015 Enterprise Management Incentive Share Option Plan of Replimune UK (the “2015 Plan”) provided for Replimune UK to grant incentive stock options, non-statutory stock options, stock awards, stock units, stock appreciation rights and other stock-based awards. Incentive stock options are granted only to the Company’s employees, including officers and directors who are also employees. Non-statutory stock options are granted to employees, members of the board of directors, outside advisors and consultants of the Company.

2017 Equity Compensation Plan

In July 2017, in conjunction with the reorganization, the 2015 Plan was terminated, and all awards were cancelled with replacement awards issued under the 2017 Equity Compensation Plan (the “2017 Plan”). Subsequent to the reorganization, no additional grants will be made under the 2015 Plan and any outstanding awards under the 2015 Plan will continue with their original terms. The Company concluded that the cancellation of the 2015 Plan and issuance of replacement awards under the 2017 Plan was a modification with no change in the material rights and preferences and therefore no recorded change in the fair value of each respective award.

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The Company’s 2017 Plan provides for the Company to grant incentive stock options or non-statutory stock options, stock awards, stock units, stock appreciation rights and other stock-based awards. Incentive stock options may be granted only to the Company’s employees, including officers and directors who are also employees. Restricted stock awards and non-statutory stock options may be granted to employees, officers, members of the board of directors, advisors and consultants of the Company. The maximum number of common shares that may be issued under the 2017 Plan was 2,659,885 as of September 30, 2019, of which 0 remained available for future grants as of September 30, 2019. Shares with respect to which awards have expired, terminated, surrendered or cancelled under the 2017 Plan without having been fully exercised will be available for future awards under the 2018 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.

2018 Omnibus Incentive Compensation Plan

On July 9, 2018, the Company’s board of directors adopted, and the Company’s stockholders approved, the 2018 Omnibus Incentive Compensation Plan (the “2018 Plan”), which became effective immediately prior to the effectiveness of the registration statement for the Company’s IPO. The 2018 Plan provides for the issuance of incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights and other stock-based awards. The number of shares initially reserved for issuance under the 2018 Plan is 3,617,968 shares, which is equal to the sum of (i) 3,486,118 shares of the Company’s common stock, plus (ii) the number of shares of the Company’s common stock reserved for issuance under the 2017 Plan that remain available as of the effective date of the 2018 Plan (not to exceed 131,850 shares of the Company’s common stock). If any options or stock appreciation rights, including outstanding options and stock appreciation rights granted under the 2017 Plan (up to 2,520,247 shares), terminate, expire, or are canceled, forfeited, exchanged, or surrendered without having been exercised, or if any stock awards, stock units or other stock-based awards, including outstanding awards granted under the 2017 Plan, are forfeited, terminated, or otherwise not paid in full in shares of common stock, the shares of the Company’s common stock subject to such grants will be available for purposes of our 2018 Plan. On April 1, 2019, the number of shares reserved for issuance under the 2018 Plan automatically increased by 1,266,370 shares pursuant to the terms of the 2018 Plan. As of September 30, 2019, 2,492,426 shares remained available for future grants under the 2018 Plan.

The 2015 Plan, the 2017 Plan and the 2018 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. However, the board of directors shall administer and approve all grants made to non-employee directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, except that the exercise price per share of incentive stock options may not be less than 100% of the fair market value of the common stock on the date of grant (or 110% of fair value in the case of an award granted to employees who hold more than 10% of the total combined voting power of all classes of stock at the time of grant) and the term of stock options may not be greater than five years for an incentive stock option granted to a 10% stockholder and greater than ten years for all other options granted. Stock options awarded under both plans expire ten years after the grant date, unless the board of directors sets a shorter term. Vesting periods for both plans are determined at the discretion of the board of directors. Incentive stock options granted to employees and non-statutory options granted to employees, officers, members of the board of directors, advisors, and consultants of the Company typically vest over four years.

Employee Stock Purchase Plan

On July 9, 2018, the Company’s board of directors adopted and the Company’s stockholders approved the Employee Stock Purchase Plan (the “ESPP”), which became effective immediately prior to the effectiveness of the registration statement for the Company’s IPO. The total shares of common stock initially reserved for issuance under the ESPP is limited to 348,612 shares. In addition, as of the first trading day of each fiscal year during the term of the ESPP (excluding any extensions), an additional number of shares of the Company’s common stock equal to 1% of the total number of shares outstanding on the last trading day in the immediately preceding fiscal year or 697,224 shares, whichever is less (or such lesser amount as determined by the Company’s board of directors) will be added to the number of shares authorized under the ESPP. In accordance, on April 1, 2019, the number of shares reserved for issuance under the ESPP automatically increased by 316,592 shares, for a total of 665,204 shares reserved for the ESPP. If the total number of shares of common stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the ESPP, then the plan administrator will allocate the available shares pro-rata and refund any excess payroll deductions or other contributions to participants.

Stock option valuation

The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company lacks company- specific historical and implied volatility information. Therefore, it estimated its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. 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 the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

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The following table presents, on a weighted-average basis, the assumptions that the Company used to determine the grant-date fair value of stock options granted to employees and directors:

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Risk-free interest rate	1.68	%	2.83	%	2.30	%	2.83	%
Expected term (in years)	6.1		6.1		6.0		6.1
Expected volatility	70.2	%	61.5	%	71.4	%	61.5	%
Expected dividend yield	0	%	0	%	0	%	0	%

Stock options

The following table summarizes the Company’s stock option activity:

			Weighted		Weighted
			Average		Average	Aggregate
	Number of		Exercise		Contractual	Intrinsic
	Shares		Price		Term (Years)	Value
Outstanding as of March 31, 2019	3,721,784		$	7.14	8.61	$	30,150
Granted	1,200,035		15.22		9.54
Exercised	(62,396	)	1.97
Cancelled	(120,087	)	10.91
Outstanding as of September 30, 2019	4,739,336		9.16		8.36	$	25,610
Options exercisable as of March 31, 2019	1,278,330		$	2.51	7.75	$	16,249
Options exercisable as of September 30, 2019	1,836,004		4.90		7.59	$	16,930

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

The total fair value of options vested during the three and six months ended September 30, 2019 was $3,206 and $3,417, respectively. The total fair value of options vested during the three and six months ended September 30, 2018 was $785 and $830, respectively. As of September 30, 2019, there were no outstanding unvested service-based stock options held by non-employees.

Stock-Based Compensation

Stock-based compensation expense was classified in the consolidated statements of operations as follows:

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Research and development	$	815	$	389	$	1,656	$	515
General and administrative	966		329		1,935		428
	$	1,781	$	718	$	3,591	$	943

As of September 30, 2019, total unrecognized compensation cost related to the unvested stock-based awards was $19,185, which is expected to be recognized over a weighted average period of 2.22 years.

10. Net loss per share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows:

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	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018

Numerator:
Net loss attributable to common stockholders	$	(11,139	)	$	(6,461	)	$	(20,647	)	$	(16,505	)
Denominator:
Weighted average common shares outstanding, basic and diluted	31,675,323			24,574,239			31,668,414			14,831,266
Net loss per share attributable to common stockholders, basic and diluted	$	(0.35	)	$	(0.26	)	$	(0.65	)	$	(1.11	)

The Company’s potentially dilutive securities, which include stock options, convertible preferred stock and warrants to purchase shares of series seed preferred stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Common A stock has been excluded from the computation of diluted net loss per share because the shares have nominal economic participation rights. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

	Three and Six Months Ended
	September 30,
	2019	2018

Options to purchase common stock	4,739,336	3,667,881
Warrants to purchase convertible preferred stock (as converted to common stock)	497,344	497,344
	5,236,680	4,165,225

11. Significant agreements

Agreement with Bristol-Myers Squibb Company

In February 2018, the Company entered into an agreement with Bristol-Myers Squibb Company (“BMS”). Pursuant to the agreement, BMS will provide to the Company, at no cost, a compound for use in the Company’s ongoing clinical trial. Under the agreement, the Company will sponsor, fund and conduct the clinical trial in accordance with an agreed-upon protocol. BMS granted the Company a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its intellectual property to its compound in the clinical trial and agreed to manufacture and supply its compound, at its cost and for no charge to the Company, for use in the clinical trial.

Unless earlier terminated, the agreement will remain in effect until (i) the completion of the clinical trial, (ii) all related clinical trial data have been delivered to both parties and (iii) the completion of any statistical analyses and bioanalyses contemplated by the clinical trial protocol or any analysis otherwise agreed upon by the parties. The agreement may be terminated by either party (x) in the event of an uncured material breach by the other party, (y) in the event the other party is insolvent or in bankruptcy proceedings or (z) for safety reasons. Upon termination, the licenses granted to the Company to use BMS’s compound in the clinical trial will terminate.

As of September 30, 2019, the Company had not incurred any costs and does not expect to incur future costs in connection with this agreement.

Agreement with Regeneron Pharmaceuticals, Inc.

In May 2018, the Company entered into an agreement with Regeneron Pharmaceuticals, Inc. (“Regeneron”). The Company and Regeneron are each independently developing compounds for the treatment of certain tumor types. Pursuant to the agreement, the Company and Regeneron will undertake one or more clinical trials using a combination of the compounds being developed by each entity. Under the agreement, each study will be conducted under terms set out in a separately agreed upon study plan that will identify the name of the sponsor and which party will manage the particular clinical trial, and include the protocol, the budget and a schedule of clinical obligations. In June 2018, under the terms of the agreement between the Company and Regeneron, the parties agreed to the first study plan. The Company and Regeneron have agreed to the protocol, budget, sample testing and clinical obligations schedule under the study plan. Development and supply costs associated with the study plan will be split equally between the Company and Regeneron.

Pursuant to the terms of the agreement, each party granted the other party a non-exclusive license under its respective intellectual property and agreed to contribute the necessary resources needed to fulfill its respective obligations, in each case, under the terms of the agreed-upon or to-be agreed upon study plans. Development costs of a particular clinical trial will be split equally between the Company and Regeneron.

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The agreement may be terminated by either party if (i) there is no active study plan for which a final study report has not been completed, (ii) the parties have not entered into a study plan for an additional clinical trial within a period of time after the delivery of the most recent final study report or (iii) in the event of a material breach.

The Company will account for costs incurred as part of the study, including costs to supply compounds for use in the study, as research and development expenses within the consolidated statement of operations. The Company will recognize any amounts received from Regeneron in connection with this agreement as an offset to research and development expense within the consolidated statement of operations.

Under the terms of the agreement, on a quarterly basis the Company and Regeneron true-up costs of the study and make corresponding payments to the party that incurred the majority of the costs. During the three and six months ended September 30, 2019 and 2018, the Company did not make any payments under the terms of the agreement to Regeneron. During the three and six months ended September 30, 2019, the Company received payments under the terms of the agreement to Regeneron of $337 and $912, respectively, which were recorded as an offset to research and development expenses on the consolidated statement of operations. The Company did not receive any payments under the terms of the agreement to Regeneron during the three and six months ended September 30, 2018. As of September 30, 2019 and March 31, 2019, the Company recorded $760 and $337 of receivables from Regeneron in connection with this agreement in prepaid expenses and other current assets in the consolidated balance sheet, respectively.

12. Commitments and contingencies

Leases

In December 2015, the Company entered into a lease agreement for office space in Woburn, Massachusetts, which expires on March 30, 2021. The Company has the option to extend the lease agreement for successive periods of five years. Monthly lease payments, inclusive of base rent and ancillary charges, total $7. Monthly base rent is subject to increase each year in proportion to the Consumer Price Index.

In April 2016, the Company entered into a lease agreement for office and laboratory space in Abingdon, England, which expires on April 3, 2026. The Company has the right to terminate the lease as of April 4, 2021 upon at least nine months’ prior written notice. Monthly lease payments are inclusive of base rent, ancillary charges, non-rent shared tenant occupancy costs and the respective value added tax to be paid. Monthly lease payments include base rent of approximately $23 through December 3, 2016 and $31 thereafter. Monthly base rent is subject to increase after April 2021 in proportion to the Retail Price Index.

In June 2018, the Company entered into an agreement to lease approximately 63,000 square feet of office, manufacturing and laboratory space within a previously occupied building with approximately 106,000 square feet of rentable space in Framingham, Massachusetts. Pursuant to the lease agreement, the lease term commenced in December 2018, subject to the landlord completing certain agreed upon landlord improvements. The rent commencement date and lease commencement date is estimated to be eight months after the commencement of the lease term. The initial lease term is ten years from the rent commencement date and includes two optional five-year extensions. Annual lease payments during the first year are $2,373 with increases of 3.0% each year.

Upon transition to ASC 842, the Company determined that it did not control the build-to-suit lease asset and the arrangement has been accounted for under ASC 842 guidance. Upon the adoption of ASC 842, the Company derecognized $11,514 of construction in progress and $6,561 of financing obligations and recorded long term prepaid rent of $5,006 on the consolidated balance sheet as landlord owned tenant improvements were determined to be lease payments and included as prepaid rent on the balance sheet. Subsequent to the transition, construction was completed associated with approximately 10,500 square feet of the leased space in Framingham, Massachusetts and the Company occupied the building as office space beginning August 1, 2019. This space was determined to be a separate unit of account and is classified as a financing lease. The Company recorded a right-of-use asset and lease liability associated with the occupied space as of August 1, 2019. The right-of-use asset was recorded including $2,368 of prepaid rent of costs incurred prior to the commencement date.

In June 2019, the Company entered into an agreement to lease approximately 18,700 square feet of office space in Woburn, Massachusetts. Pursuant to the lease agreement, the lease term commenced in August 2019. The rent commencement date is to be one month after the commencement of the lease term. The initial lease term is ten years from the rent commencement date and includes an optional five-year extension. Annual lease payments during the first year are $488 with increases of approximately 1.6% each year. The Company recorded a right-of-use asset and a lease liability of $4,363 upon the commencement date of the lease and the lease is classified as an operating lease.

The Company determines if an arrangement is a lease at inception. Operating leases are included in our balance sheet as right-of- use assets from operating leases, current operating lease liabilities and long-term operating lease liabilities. Certain of the Company’s lease agreements contain renewal options; however, the Company does not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing the lease at inception or when a triggering event occurs. As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component. Some of the Company’s lease agreements contain rent escalation clauses (including index-based escalations). The Company recognizes the minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement. The Company amortizes this expense over the term of the lease beginning with the date of initial possession, which is the date the Company can enter the leased space and begin to make improvements in preparation for its intended use. Variable lease components represent amounts that are not fixed in nature and are not tied to an index or rate, and are recognized as incurred.

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	Three Months Ended September 30, 2019		Six Months Ended September 30, 2019
Lease cost	$	378	$	492
Total lease cost	$	378	$	492

The following table summarizes the maturity of the Company’s lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating and financing lease liabilities recognized on our balance sheet as of September 30, 2019:

	September 30, 2019
Maturity lease liabilities	Operating lease		Financing lease		Total
2020 (remaining six months)	$	474	$	197	$	671
2021	1,009		402		1,411
2022	586		414		1,000
2023	596		426		1,022
2024	605		439		1,044
Thereafter	3,384		7,709		11,093
Total lease payments	6,654		9,587		16,241
Less: interest	1,639		4,781		6,420
Total lease liabilities	$	5,015	$	4,806	$	9,821

The following disclosure is provided for periods prior to adoption of ASU 2016-02. Future annual minimum lease payment commitments as of March 31, 2019 were as follows, which included payments for the lease agreement in Framingham, Massachusetts which has not commenced under ASC 842, and therefore has not been recorded on the Company’s condensed consolidated balance sheet as of September 30, 2019:

Future annual minimum lease payment commitments:
2020	$	2,062
2021	2,901
2022	2,493
2023	2,568
2024	2,645
2025	2,725
Thereafter	12,770
	$	28,164

The following table provides lease disclosure as of and for the three months ended September 30, 2019:

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Leases	September 30, 2019
Right-to-use operating lease asset	$	4,873
Right-to-use financing lease asset	7,105
Total lease assets	$	11,978

Operating lease liabilities, current	$	631
Finance lease liabilities, current	34
Operating lease liabilities, non-current	4,384
Finance lease liabilities, non-current	4,772
Total lease liabilities	$	9,821

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from leases	$	327
Right-to-use asset obtained in exchange for new operating lease liabilities	$	5,152
Right-to-use asset obtained in exchange for new financing lease liabilities	$	7,165
Variable lease costs	$	—
Short term lease costs	$	—
Weighted-average remaining lease term - operating leases	19.8 years
Weighted-average remaining lease term - financing leases	8.7 years
Weighted-average discount rate - operating leases	8		%
Weighted-average discount rate - financing leases	7		%

The variable lease costs and short term lease costs were insignificant for the three and six months ended September 30, 2019.

Rent expense was $492 and $606 for the three months and six months ended September 30, 2019, respectively and $33 and $55 for the three and six months ended September 30, 2018.

Manufacturing commitments

The Company has entered into an agreement with a contract manufacturing organization to provide clinical trial products. As of September 30, 2019 and March 31, 2019, the Company had committed to minimum payments under these arrangements totaling $6,116 and $4,694 through March 31, 2020, respectively.

Indemnification agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and therefore it has not accrued any liabilities related to such obligations in its consolidated financial statements as of September 30, 2019 or March 31, 2019.

Legal Proceedings

The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities.

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13. Geographic Information

The Company operates in two geographic regions: the United States (Massachusetts) and the United Kingdom (Oxfordshire).

Information about the Company’s long-lived assets held in different geographic regions is presented in the table below:

	September 30, 2019		March 31, 2019
United States	$	3,022	$	11,648
United Kingdom	506		511
	$	3,528	$	12,159

14. Subsequent Events

ATM Program

In October and November 2019, the Company sold 287,559 shares of common stock for a gross proceeds of $4,568 less legal fees of $137 for net proceeds of $4,431 under the ATM program.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and related notes appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended March 31, 2019, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

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

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

Overview

We are a clinical-stage biotechnology company committed to applying our leading expertise in the field of oncolytic immunotherapy to transform the lives of cancer patients. We use our proprietary Immulytic platform to design and develop product candidates that are intended to maximally activate the immune system against cancer.

Oncolytic immunotherapy, which we intend to establish as the fourth cornerstone of cancer treatment, is an emerging class of cancer treatment that exploits the ability of certain viruses to selectively replicate in and directly kill tumors, as well as induce a potent, patient-specific, anti-tumor immune response. Such oncolytic, or “cancer killing,” viruses have the potential to generate an immune response targeted to an individual patient’s particular set of tumor antigens, including neo-antigens that are uniquely present in tumors. Our product candidates incorporate multiple mechanisms of action into a practical “off-the-shelf” approach that is intended to maximize the immune response against a patient’s cancer and to offer significant advantages over personalized vaccine approaches. We believe that the bundling of multiple approaches for the treatment of cancer into single therapies will simplify the development path of our product candidates, while also improving patient outcomes at a lower cost to the healthcare system than the use of multiple different drugs.

The foundation of our Immulytic platform consists of a proprietary, engineered strain of herpes simplex virus 1, or HSV-1, that has been “armed” with a fusogenic protein intended to substantially increase anti-tumor activity. Our platform enables us to incorporate various genes whose expression is intended to augment the inherent properties of HSV-1 to both directly destroy tumor cells and induce an anti-tumor immune response. We believe our lead product candidate, RP1, will be effective at killing tumors and inducing immunogenic, or immune-stimulating, tumor cell death and that it will be highly synergistic with immune checkpoint blockade therapies.

We are conducting a Phase 1/2 clinical trial with RP1, our lead product candidate, in approximately 150 patients. We have completed enrollment of the Phase 1 dose escalation part of this clinical trial in which we assessed the safety and tolerability of RP1 administered alone in 22 patients with mixed advanced solid tumor types. Following the review of the data by the Safety Review Committee, or SRC, we have determined the dose regimen to be administered in the Phase 2 part of this clinical trial. We have also completed enrollment of the Phase 1 expansion cohort of 14 patients in which we assessed the safety and tolerability of RP1 administered in combination with an anti-PD-1 therapy at the determined Phase 2 dose level. On November 8, 2019, we presented the safety and initial efficacy data from the Phase 1 portion of this clinical trial at The Society for Immunotherapy of Cancer, or SITC, including what we believe to be encouraging efficacy data in RP1’s lead indications of cutaneous squamous cell carcinoma, or CSCC, and melanoma.

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The Phase 2 part of this clinical trial is designed to assess the safety and efficacy of RP1 in combination with an anti-PD-1 therapy in four cohorts of approximately 30 patients with melanoma, non-melanoma skin cancers, bladder cancer and MSI-H/dMMR tumors. Following SRC review of the Phase 1 data to date, including data from the expansion cohort receiving RP1 in combination with anti-PD1 therapy, we have opened enrollment in the United States and the United Kingdom in all four cohorts. In the Phase 2 part of the clinical trial, we are also evaluating efficacy as well as safety under the clinical trial protocol, primarily on the basis of the proportion of patients who have a response within each tumor type cohort. Responses are either defined as a partial response (a 30% or greater reduction in tumor size) or a complete response (a complete eradication of the disease). By the second half of 2020 we expect to have analyzed data from all four cohorts and to determine whether to pursue further development in indications beyond the recently announced expanded programs in CSCC and melanoma.

This Phase 1/2 clinical trial is being conducted as a collaboration with Bristol-Myers Squibb Company, or BMS, under which it has granted us a non-exclusive, royalty-free license to, and is supplying at no cost, its anti-PD-1 therapy, nivolumab, for use in combination with RP1 in this clinical trial.

We have also entered into a collaboration agreement with Regeneron Pharmaceuticals, Inc., or Regeneron, under which we intend to conduct clinical development of our product candidates in combination with cemiplimab, an anti-PD-1 therapy developed by Regeneron. For each clinical trial conducted under this collaboration, Regeneron will fund one-half of the clinical trial costs, supply cemiplimab at no cost, and grant us a non-exclusive, royalty-free license to cemiplimab for use in the applicable clinical trial. The first clinical trial under this collaboration is a randomized, controlled Phase 2 clinical trial of RP1 in combination with cemiplimab, versus cemiplimab alone, in approximately 240 patients in CSCC. This clinical trial is currently underway in the United States and Australia. We recently disclosed what we believe to be encouraging initial data in this indication from the Phase 1/2 clinical trial being conducted in combination with nivolumab. If compelling clinical data are generated demonstrating the benefits of the combined treatment in this clinical trial, we believe the data from this Phase 2 clinical trial could support a filing with regulatory authorities for marketing approval. Recruitment into this controlled Phase 2 clinical trial is expected to take approximately eighteen to twenty four months and we expect to be in a position to report the primary endpoint readout in the first half of 2022.

After assessing the initial data from the Phase 1/2 clinical trial which we presented at SITC, we recently announced our intention to initiate two additional skin cancer clinical trials. Following evidence of activity as a monotherapy, in the first quarter of 2020 we intend to initiate a new potentially registrationable (in its own right or, subject to discussion with regulatory authorities, following enrollment of additional patients) Phase 1b clinical trial of single agent RP1 in solid organ transplant recipients with CSCC. We intend to enroll approximately 30 patients in this clinical trial to assess the safety and efficacy of RP1 in liver and kidney transplant recipients with recurrent CSCC. The protocol for this clinical trial has been accepted by the Federal Drug Administration, or FDA, and added to our Investigational New Drug application, or IND. Further, we plan to conduct a potentially registrationable (in its own right or, subject to discussion with regulatory authorities, following enrollment of additional patients) Phase 2 clinical trial in up to 150 patients with melanoma who have previously failed immune checkpoint blockade therapies. Subject to continued discussions with our collaboration partners and the FDA, these patients will either be enrolled into a new clinical trial, or as an expansion of our current clinical trial in combination with nivolumab. We expect to release data from this clinical trial in the second half of 2021. The Phase 1 part of our Phase 1/2 clinical trial with RP1 was conducted in a late stage patient group who had exhausted standard of care. We believe that the melanoma data in this patient group when recombining RP1 with anti-PD-1 therapy was encouraging and has resulted in the decision to pursue this further study.

We are also developing additional product candidates, RP2 and RP3, built on our Immulytic platform, that are further engineered to enhance anti-tumor immune responses and intended to address additional tumor types. RP2 has been engineered to express an antibody-like molecule that blocks the activity of CTLA-4, a protein that inhibits the immune response to tumors. RP3 is engineered with the intent of not only blocking the activity of CTLA-4, but also to further stimulate an anti-tumor response through activation of the immune co-stimulatory pathways through expression of the ligands for CD40 and 4-1BB.

We initiated the Phase 1 clinical trial with RP2 in October 2019. The Phase 1 clinical trial of RP2 is also being conducted as a collaboration with BMS, under which BMS has granted us a non-exclusive, royalty-free license to, and will supply at no cost, nivolumab, for use in combination with RP2. We expect to release data from this Phase 1 clinical trial in the second half of 2020 and to potentially initiate a Phase 2 clinical trial of RP2 in 2021. We intend to file an IND and/or foreign equivalents for RP3 and, assuming regulatory clearance, enter clinical development during 2020. IND enabling studies are currently underway.

Recent Developments

As announced at SITC, the Phase 1 part of our Phase 1/2 clinical trial of RP1 enrolled 36 patients with advanced heavily pre-treated cancers who were refractory to available therapy. Treatment with RP1 alone was given up to five times at various dose levels injected into a single tumor to determine the recommended Phase 2 dose (N=22), following which RP1 was given up to eight times at the recommended dose in combination with nivolumab starting with the second dose of RP1 (N=14). Based on the data, which we believe showed a favorable safety profile for both RP1 alone and in combination with nivolumab, the RP1 dosing regimen moved forward into Phase 2 development with an initial dose of up to 10mL of 1x10^6 pfu/ml followed by subsequent doses of up to 10mL of 1x10^7 pfu/ml.

In the dose rising monotherapy part of the Phase 1/2 clinical trial, RP1 was associated with tumor destruction, including delayed systemic post-study tumor reduction without further therapy. In the combination portion of the Phase 1 part of the clinical trial, anti-tumor activity was observed in multiple patients with a variety of tumor types, particularly in CSCC and melanoma, but also in microsatellite instability high (MSI-H) colorectal cancer and esophageal cancer patients. Additionally, the first three of four patients with anti-CTLA-4 and anti-PD-1 refractory cutaneous melanoma treated with RP1 combined with nivolumab, two from the Phase 1 part of the clinical trial and one from the Phase 2 part of the clinical trial, are responding to therapy, and clinical activity has been seen in four of the first five patients treated with CSCC. Of what we believe to be of particular note, substantial tumor reduction was observed in a number of patients after just the first dose of RP1, but before the introduction of nivolumab two weeks later.

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We also recently announced that biomarker data further confirmed the mechanism of action of RP1 alone and in combination with nivolumab, suggesting that RP1 provides broad anti-tumor immune activation. These biomarkers included assessment of the levels of CD8+T cells and PD-L1, increases of which were observed in serial tumor biopsies across tumor types. The kinetics of virus detection also suggested that robust virus replication in tumors occurs.

Financial overview

Since our inception, we have devoted substantially all of our resources to developing our Immulytic platform and our lead product candidate, RP1, building our intellectual property portfolio, conducting research and development of our product candidates, business planning, raising capital and providing general and administrative support for our operations. To date, we have financed our operations primarily with proceeds from the sale of equity securities. We do not have any products approved for sale and have not generated any revenue from product sales. On July 24, 2018, we completed our initial public offering (IPO) of our common stock and issued and sold 6,700,000 shares of our common stock at a public offering price of $15.00 per share, resulting in net proceeds of approximately $93.5 million after deducting underwriting discounts and commissions but before deducting offering costs. On July 30, 2018, we issued and sold an additional 707,936 shares of our common stock at the IPO price of $15.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of approximately $9.9 million after deducting discounts and commissions and other offering expenses.

Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. Our net losses were $11.1 million and $6.5 million for the three months ended September 30, 2019 and 2018, respectively, and $20.6 million and $16.5 million for the six months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, we had an accumulated deficit of $80.3 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.

We anticipate that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. In addition, we expect to incur additional costs associated with continuing to operate as a public company. We expect that our expenses and capital requirements will increase substantially if and as we:

· conduct our current and future clinical trials with RP1;

· progress the preclinical and clinical development of RP2 and RP3;

· establish, equip, and operate our own in-house manufacturing facility;

· seek to identify and develop additional product candidates;

· seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any;

· establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

· maintain, expand and protect our intellectual property portfolio;

· acquire or in-license other drugs and technologies;

· hire and retain additional clinical, quality control, scientific and finance personnel; and

· add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and as we continue to operate as a public company.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for RP1 or our other product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership in any jurisdiction (which we currently do not intend to do in the United States), we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing, and distribution.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or 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 and commercialization of one or more of our product candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate 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.

As of September 30, 2019, we had cash and cash equivalents and short-term investments of $109.9 million. We believe that our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements through at least 12 months from the issuance of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

See “—Liquidity and capital resources” and “Risk factors—Risks related to our financial position and need for additional capital.”

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Components of our results of operations

Revenue

To date, we have not generated any revenue from product sales as we do not have any approved products and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for RP1 or any other product candidates that we may develop in the future are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from those collaboration or license agreements.

Operating expenses

Our expenses since inception have consisted solely of research and development costs and general and administrative costs.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts on the development of RP1 and our other product candidates, and include:

· expenses incurred under agreements with third parties, including CROs that conduct research, preclinical activities and clinical trials on our behalf as well as CMOs that manufacture our product candidates for use in our preclinical and clinical trials;

· salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

· costs of outside consultants, including their fees, stock-based compensation and related travel expenses;

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

· costs related to compliance with regulatory requirements in connection with the development of RP1 and our other product candidates; and

· facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

These costs will be partially offset by our agreement with Regeneron.

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

Our direct external research and development expenses are tracked on a program-by-program basis and consist of costs, such as fees paid to consultants, contractors, CMOs, and CROs in connection with our preclinical and clinical development activities. To date, we have not allocated expenses to our earlier-stage programs for RP2 and RP3. In addition, we do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.

The table below summarizes our research and development expenses by product candidate or development program for each of the periods presented:

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	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(Amounts in thousands)
RP1	$	3,324	$	1,900	$	6,385	$	3,607
Unallocated research and development expenses	4,844		3,062		9,240		5,291
Total research and development expenses	$	8,168	$	4,962	$	15,625	$	8,898

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 initiate additional clinical trials of RP1, begin enrollment for clinical trials of RP2 and complete preclinical development and pursue initial stages of clinical development of RP3 and continue to discover and develop additional product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

· the scope, rate of progress, expense and results of our ongoing clinical trials of RP1, as well as of any future clinical trials of RP2 and RP3 or other product candidates and other research and development activities that we may conduct;

· the number and scope of preclinical and clinical programs we decide to pursue;

· our ability to maintain our current research and development programs and to establish new ones;

· uncertainties in clinical trial design and patient enrollment rates;

· the successful completion of clinical trials with safety, tolerability, and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;

· the receipt of regulatory approvals from applicable regulatory authorities;

· our success in establishing, equipping, and operating a manufacturing facility, or securing manufacturing supply through relationships with third parties;

· our ability to obtain and maintain patents, trade secret protection, and regulatory exclusivity, both in the United States and internationally;

· our ability to protect our rights in our intellectual property portfolio;

· the commercialization of our product candidates, if and when approved;

· the acceptance of our product candidates, if approved, by patients, the medical community, and third-party payors;

· our ability to successfully develop our product candidates for use in combination with third-party products or product candidates;

· negative developments in the field of immuno-oncology;

· competition with other products; and

· significant and changing government regulation and regulatory guidance.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant trial delays due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development. We may never succeed in obtaining regulatory approval for any of our product candidates.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services; travel expenses; and facility- related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of 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 headcount to support our continued research and development and potential commercialization of our product candidates. We also expect to incur increased expenses associated with continuing to operate as a public company, including costs of

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accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements; director and officer insurance costs; and investor and public relations costs.

Other income (expense), net

Research and development incentives

Research and development incentives consists of reimbursements of research and development expenditures. We participate, through our subsidiary in the United Kingdom, in the research and development program provided by the United Kingdom tax relief program, such that a percentage of up to 14.5% of our qualifying research and development expenditures are reimbursed by the United Kingdom government, and such incentives are reflected as other income.

Change in fair value of warrant liability

In connection with the issuance of the series seed preferred stock, we issued to the series seed preferred stockholders warrants to purchase shares of series seed preferred stock. Prior to the completion of our IPO, we classified the warrants as a liability on our condensed consolidated balance sheets. We remeasured the warrant liability to fair value at each reporting date and recognized changes in the fair value of the warrant liability as a component of other income (expense), net in our condensed consolidated statements of operations.

Effective upon the completion of our IPO, the warrants to purchase shares of series seed preferred stock became exercisable for shares of common stock instead of shares of preferred stock, and the warrant liability was reclassified to additional paid-in capital. As a result, effective upon the completion of our IPO, we no longer recognize changes in the fair value of the warrant liability as other income (expense), net in our condensed consolidated statements of operations.

Investment income

Investment income consists of income earned on our cash and cash equivalents and short-term investments.

Interest expense

Interest expense consists of amortization of debt discount and cash paid for interest under the Term Loan Facility.

Other income (expense), net

Other income (expense), net consists primarily of realized and unrealized foreign currency transaction gains and losses.

Income taxes

Since our inception and through September 30, 2019, we have not recorded any income tax benefits for the net losses we incurred in each jurisdiction in which we operate, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards will not be realized.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act. The Tax Act includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). Under the Tax Act, our deferred tax assets and liabilities (before valuation allowance) were remeasured at the lower federal tax rate, resulting in an increase to our income tax provision with an equal and offsetting reduction in our valuation allowance. We completed our final determination of the remeasurement of our deferred tax assets and liabilities for the year ended March 31, 2019 under SEC Staff Accounting Bulletin No. 118 and we have not recorded any adjustments to the provisional amounts recorded at March 31, 2018.

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Results of operations

Comparison of the three months ended September 30, 2019 and 2018

The following table summarizes our results of operations for the three months ended September 30, 2019 and 2018:

	Three Months Ended
	September 30,
	2019			2018			Change
	(Amounts in thousands)
Operating expenses:
Research and development	$	8,168		$	4,962		$	3,206
General and administrative	4,074			2,142			1,932
Total operating expenses	12,242			7,104			5,138
Loss from operations	(12,242		)	(7,104		)	(5,138		)
Other income (expense):
Research and development incentives	620			(77		)	697
Investment income	567			664			(97		)
Change in fair value of warrant liability	—			(2		)	2
Interest expense	(195		)	—			(195		)
Other income	111			58			53
Total other income (expense), net	1,103			643			460
Net loss	$	(11,139	)	$	(6,461	)	$	(4,678	)

Research and development expenses

		Three Months Ended