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 December 31, 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 February 10, 2020 was 36,645,650

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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 (Deficit)	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	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	40

PART II OTHER INFORMATION		42

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80

Item 3.	Defaults Upon Senior Securities	80

Item 4.	Mine Safety Disclosure	80

Item 5.	Other Information	80

Item 6.	Exhibits	80

SIGNATURES		81

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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)

	December 31,			March 31,
	2019			2019
Assets
Current assets:
Cash and cash equivalents	$	63,002		$	25,704
Short-term investments	117,877			109,107
Research and development incentives receivable	4,775			2,474
Prepaid expenses and other current assets	5,220			3,696
Total current assets	190,874			140,981
Property, plant and equipment, net	5,654			12,159
Restricted cash	1,636			1,186
Right-to-use asset - operating leases	4,731			—
Right-to-use asset - financing leases	47,528			—
Total assets	$	250,423		$	154,326

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,256		$	7,084
Accrued expenses and other current liabilities	4,557			2,801
Operating lease liabilities, current	1,011			—
Financing lease liabilities, current	2,393			—
Total current liabilities	14,217			9,885
Deferred rent, net of current portion	—			24
Financing obligation	—			6,561
Long term debt, net of debt discount	9,739			—
Operating lease liabilities, non-current	3,886			—
Financing lease liabilities, non-current	25,016			—
Total liabilities	52,858			16,470
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, $0.001 par value; 150,000,000 shares authorized as of December 31, 2019 and March 31, 2019; 36,645,650 and 31,656,950 shares issued and outstanding as of December 31, 2019 and March 31, 2019	37			32
Additional paid-in capital	295,084			198,645
Accumulated deficit	(96,509		)	(59,766		)
Accumulated other comprehensive loss	(1,047		)	(1,055		)
Total stockholders’ equity	197,565			137,856
Total liabilities and stockholders’ equity	$	250,423		$	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						Nine Months Ended
	December 31,						December 31,
	2019			2018			2019			2018
Operating expenses:
Research and development	$	11,948		$	7,857		$	27,573		$	16,760
General and administrative	4,716			2,280			12,240			6,360
Total operating expenses	16,664			10,137			39,813			23,120
Loss from operations	(16,664		)	(10,137		)	(39,813		)	(23,120		)
Other income (expense):
Research and development incentives	951			1,577			2,192			1,937
Investment income	550			882			1,804			1,775
Interest expense	(834		)	—			(1,029		)	—
Change in fair value of warrant liability	—			—			—			(5,452		)
Other income (expense)	(192		)	5			10			682
Total other income (expense), net	475			2,464			2,977			(1,058		)
Net loss attributable to common stockholders	$	(16,189	)	$	(7,673	)	$	(36,836	)	$	(24,178	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.46	)	$	(0.24	)	$	(1.13	)	$	(1.18	)
Weighted average common shares outstanding, basic and diluted	34,877,944			31,577,313			32,742,148			20,433,580

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						Nine Months Ended
	December 31,						December 31,
	2019			2018			2019			2018
Net loss	$	(16,189	)	$	(7,673	)	$	(36,836	)	$	(24,178	)
Other comprehensive loss:
Foreign currency translation gain (loss)	408			(102		)	8			(1,088		)
Net unrealized loss on short-term investments, net of tax	(25		)	(55		)	—			(54		)
Comprehensive loss	$	(15,806	)	$	(7,830	)	$	(36,828	)	$	(25,320	)

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 (DEFICIT)

(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 (deficit)
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

Issuance of common stock through ATM sales, net of offering costs	—		—			287,559		—		4,431		—			—			4,431
Issuance of common shares upon closing of follow-on public offering, net of issuance costs and underwriter fees of $4,017	—		—			4,516,561		5		57,448		—			—			57,453
Issuance of prefunded warrants to purchase common stock, net of issuance costs and underwriter fees of $1,797						—		—		28,145		—			—			28,145
Foreign currency translation adjustment	—		—			—		—		—		—			408			408
Unrealized loss on short-term investments	—		—			—		—		—		—			(25		)	(25		)
Exercise of stock options	—		—			122,184		—		357		—			—			357
Stock-based compensation expense	—		—			—		—		2,344		—			—			2,344
Net loss	—		—			—		—		—		(16,189		)	—			(16,189		)
Balances as of December 31, 2019	—		$	—		36,645,650		$	37	$	295,084	$	(96,509	)	$	(1,047	)	$	197,565

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
Foreign currency translation adjustment	—		—			—		—		—		—			(102		)	(102		)
Unrealized loss on short-term investments	—		—			—		—		—		—			(55		)	(55		)
Exercise of stock options	—		—			87,000		—		153		—			—			153
Stock-based compensation expense	—		—			—		—		880		—			—			880
Net loss	—		—			—		—		—		(7,673		)	—			(7,673		)
Balances as of December 31, 2018	—		$	—		31,640,672		$	32	$	197,697	$	(53,110	)	$	(1,380	)	$	143,239

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)

	Nine Months Ended
	December 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(36,836	)	$	(24,178	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	5,935			1,823
Depreciation and amortization	191			106
Change in fair value of warrant liability	—			5,452
Net amortization of premiums and discounts on short-term investments	(899		)	(1,171		)
Noncash interest expense	94			40
Changes in operating assets and liabilities:
Research and development incentives receivable	(2,184		)	340
Prepaid expenses and other current assets	(1,520		)	(589		)
Operating lease, right-of-use-asset	421			—
Finance lease, right-of-use-asset	666			—
Long term prepaid rent	(14,051		)	—
Accounts payable	(2,585		)	(521		)
Accrued expenses and other current liabilities	1,781			(767		)
Operating lease liabilities	(303		)	—
Deferred rent	—			120
Net cash used in operating activities	(49,290		)	(19,345		)
Cash flows from investing activities:
Purchases of property, plant and equipment	(5,202		)	(752		)
Purchase of short-term investments	(119,611		)	(134,624		)
Proceeds from sales and maturities of short-term investments	111,739			58,958
Net cash provided by (used in) investing activities	(13,074		)	(76,418		)
Cash flows from financing activities:
Proceeds from issuance of common stock in follow-on public offering, net of underwriting fees and discounts	57,453			—
Proceeds from issuance of prefunded warrants to purchase common stock, net of underwriting fees and discounts	28,145			—
Proceeds from issuance of common stock through ATM sales	4,431			—
Proceeds from long-term debt	10,000			—
Payment of issuance costs	(355		)	(2,157		)
Exercise of stock options	480			165
Proceeds from issuance of common stock in initial public offering, net of underwriting fees and discounts	—			103,341
Principal payment of finance lease obligation	(22		)	—
Net cash provided by financing activities	100,132			101,349

Effect of exchange rate changes on cash, cash equivalents and restricted cash	(20		)	(1,009		)
Net increase in cash, cash equivalents and restricted cash	37,748			4,577
Cash, cash equivalents and restricted cash at beginning of period	26,890			17,661
Cash, cash equivalents and restricted cash at end of period	$	64,638		$	22,238
Supplemental disclosure of cash flow information:
Cash paid for interest	$	282		$	—
Supplemental disclosure of non-cash investing and financing activities:
Conversion of convertible preferred stock warrants into common stock warrants	$	—		$	7,094
Conversion of convertible preferred stock into common stock	$	—		$	86,361
Purchases of property and equipment included in accounts payable	$	—		$	108
Lease assets obtained in exchange for new financing lease liabilities	$	48,224		$	—
Lease assets obtained in exchange for new operating lease liabilities	$	5,152		$	—
Amounts capitalized under the built-to-suit lease transaction	$	—		$	4,932

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 l -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.

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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.

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 $16,189 and $7,673 for the three months ended December 31, 2019 and 2018, respectively and net losses of $36,836 and $24,178 for the nine months ended December 31, 2019 and 2018, respectively. In addition, as of December 31, 2019, the Company had an accumulated deficit of $96,509. The Company expects to continue to generate operating losses for the foreseeable future. As of February 13, 2020, 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.

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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 December 31, 2019, the consolidated statements of operations, of comprehensive loss and of convertible preferred stock and stockholders’ equity for the three and nine months ended December 31, 2019 and 2018 and the consolidated statements of cash flows for the nine months ended December 31, 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 December 31, 2019 and the results of its operations for the three and nine months ended December 31, 2019 and 2018. The financial data and other information disclosed in these consolidated notes related to the three and nine months ended December 31, 2019 and 2018 are unaudited. The results for the three and nine months ended December 31, 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 nine months ended December 31, 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 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,

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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-of-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:

	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	)

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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.

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
	December 31, 2019 Using:
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	—	$	35,853	$	—	$	35,853
Commercial paper	—		42,172		—		42,172
US Government Agency bonds	—		23,158		—		23,158
US Treasury bonds	—		28,105		—		28,105
Corporate debt securities	—		34,564		—		34,564
	$	—	$	163,852	$	—	$	163,852

	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

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During the three and nine months ended December 31, 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.

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

	Nine Months
	Ended
	December 31,
	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

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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 December 31, 2018	$	—

4. Short-term investments

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

	December 31, 2019
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Commercial paper	$	42,148	$	24	$	—		$	42,172
US Government agency bonds	13,045		—		(9		)	13,036
US Treasury bonds	28,107		—		(2		)	28,105
Corporate debt securities	34,562		5		(3		)	34,564
	$	117,862	$	29	$	(14	)	$	117,877

	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

5. Property, plant and equipment, net

	December 31,			March 31,
	2019			2019
Construction in progress	$	726		$	124
Plant and laboratory equipment	3,453			584
Leasehold improvements	368			154
Computer equipment	981			138
Office equipment	721			49
Build-to-suit lease asset	—			11,514
	6,249			12,563
Less: Accumulated depreciation and amortization	(595		)	(404		)
	$	5,654		$	12,159

Depreciation and amortization expense was $107 and $191 for the three and nine months ended December 31, 2019, respectively, and $37 and $106 for the three and nine months ended December 31, 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).

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6. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

	December 31,		March 31,
	2019		2019
Accrued research and development costs	$	1,416	$	530
Accrued compensation and benefits costs	2,099		1,510
Accrued professional fees	697		464
Deferred rent	—		24
Other	345		273
	$	4,557	$	2,801

7. Long-Term Debt

Long-term debt consisted of the following:

	December 31,
	2019
Principal amount of long-term debt	$	10,000
Unamortized debt discount	(261		)
Long-term debt, net of discount	$	9,739

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%, or (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.

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 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.

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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 $302 and $376 during the three and nine months ended December 31, 2019, which included non-cash interest expense of $81 and $94 related to the accretion of the debt discount and the final payment. As of December 31, 2019, the unamortized debt discount was $261. The Company’s annual effective interest rate of the Hercules Loan Agreement was approximately 10.1% for the period from August 8, 2019 to December 31, 2019.

There were no principal payments due or paid under the Hercules Loan Agreement during the three and nine months ended December 31, 2019.

Future payments of long-term debt, as of December 31, 2019 are as follows (fiscal years):

2021	$	—
2022	527
2023	6,558
2024	2,915
Total debt payments	$	10,000

The table of future payments of long-term debt excludes the end of term charge of $495 which is due upon the maturity of the loan.

8. Stockholders’ Equity

Common Stock

As of December 31, 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 $0.00l per share.

As of December 31, 2019 and March 31, 2019, the Company had reserved 10,472,126 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 December 31, 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 December 31, 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 December 31, 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 did not recognize any losses for the change in fair value of warrant liability within total other income (expense), net in the consolidated statements of operations for the three and nine months ended December 31, 2019, related to the change in fair value of the warrant liability. The Company recognized a loss of $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 nine months ended December 31, 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 will pay the Agent a commission of 3.0% of the gross proceeds from the sale of the Shares, if any. During the nine months ended December 31, 2019, the Company has issued and sold 287,559 shares of common stock for gross proceeds of $4,568 less offering fees of $137 for net proceeds of $4,431 under the ATM program.

Equity offerings

In November 2019, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with J.P. Morgan Securities LLC and SVB Leerink LLC, as representatives of the several underwriters named therein (the “Underwriters”), relating to the issuance and sale of an aggregate of (a) 3,678,031 shares of the Company’s common stock (the “Shares”), and (b) pre-funded warrants to purchase 2,200,000 shares of the Company’s common stock (the “Pre-Funded Warrants”) to the Underwriters (the “Offering”). The Shares were sold to the purchasers at the public offering price of $13.61 per share. The Pre-Funded Warrants were sold at a public offering price of $13.6099 per Pre-Funded Warrant, which represents the per share public offering price for the Company’s common stock less a $0.0001 per share exercise price for each such Pre-

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Funded Warrant. Pursuant to the Underwriting Agreement, the Company also granted the Underwriters a 30-day option to purchase up to 881,704 additional shares of its common stock. In December 2019, the Underwriters partially exercised their purchase option and the Company issued and sold an additional 838,530 shares of its common stock. The Company received aggregate net proceeds of approximately $85,598 after deducting underwriting discounts, commissions and other offering expenses payable by the Company of approximately $5,814.

The Pre-Funded Warrants are exercisable at any time after the date of issuance. A holder of Pre-Funded Warrants may not exercise the warrant if the holder, together with its affiliates, would beneficially own more than 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise. A holder of Pre-Funded Warrants may increase or decrease this percentage by providing at least 61 days’ prior notice to the Company. As of December 31, 2019, none of the warrants had been exercised.

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.

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 December 31, 2019, of which 0 remained available for future grants as of December 31, 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

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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 December 31, 2019, 2,193,176 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 l 00% 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 December 31,				Nine Months Ended December 31,
	2019		2018		2019		2018
Risk-free interest rate	1.68	%	2.83	%	2.17	%	2.83	%
Expected term (in years)	6.1		6.1		6.0		6.1
Expected volatility	69.7	%	63.3	%	71.0	%	61.7	%
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	1,515,535		15.00		9.41
Exercised	(184,580	)	2.60
Cancelled	(136,337	)	11.26
Outstanding as of December 31, 2019	4,916,402		$	9.46	8.20	$	26,959
Options exercisable as of March 31, 2019	1,278,930		$	2.51	7.75	$	16,249
Options exercisable as of December 31, 2019	1,924,564		$	5.33	7.40	$	17,650

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 nine months ended December 31, 2019 was $1,063 and $4,480, respectively. The total fair value of options vested during the three and nine months ended December 31, 2018 was $211 and $1,042, respectively. As of December 31, 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 December 31,				Nine Months Ended December 31,
	2019		2018		2019		2018
Research and development	$	1,318	$	473	$	2,974	$	989
General and administrative	1,026		407		2,961		834
	$	2,344	$	880	$	5,935	$	1,823

As of December 31, 2019, total unrecognized compensation cost related to the unvested stock-based awards was $18,483, which is expected to be recognized over a weighted average period of 2.70 years.

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10. Net loss per share

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

	Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018

Numerator:
Net loss attributable to common stockholders	$	(16,189	)	$	(7,673	)	$	(36,836	)	$	(24,178	)
Denominator:
Weighted average common shares outstanding, basic and diluted	34,877,944			31,577,313			32,742,148			20,433,580
Net loss per share attributable to common stockholders, basic and diluted	$	(0.46	)	$	(0.24	)	$	(1.13	)	$	(1.18	)

Included within weighted average common shares outstanding are common shares issuable upon the exercise of the pre-funded warrants as the warrants are exercisable at any time for nominal consideration, and as such, the shares are considered outstanding for the purpose of calculating basic and diluted net loss per share attributable to common stockholders.

The Company’s potentially dilutive securities, which include stock options 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 Nine Months Ended December 31,
	Three and Nine Months Ended December 31,
	2019	2018

Options to purchase common stock	4,916,402	3,673,535
Warrants to purchase convertible preferred stock (as converted to common stock)	497,344	497,344
	5,413,746	4,170,879

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, nivolumab for use in the Company’s ongoing clinical trial of RP1 in combination with nivolumab. 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. In January 2020, this agreement was expanded to cover an additional cohort of 125 patients with anti-PD1 refractory melanoma.

Unless earlier terminated, the agreement will remain in effect until the latter of (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.

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As of December 31, 2019, the Company had not incurred any costs and does not expect to incur future costs in connection with this agreement.

In April 2019, the Company entered into a separate agreement with BMS on terms similar to the terms set forth in the agreement described above, pursuant to which BMS will provide to the Company, at no cost, nivolumab for use in the Company’s Phase 1 clinical trial of RP2 in combination with nivolumab.

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.

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 nine months ended December 31, 2019 and 2018, the Company did not make any payments under the terms of the agreement to Regeneron. During the three and nine months ended December 31, 2019, the Company received payments under the terms of the agreement to Regeneron of $760 and $2,008, 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 nine months ended December 31, 2018. As of December 31, 2019 and March 31, 2019, the Company recorded $1,017 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

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$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 commenced in August 2019. 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. The Company occupied the remainder of the facility, approximately 53,000 square feet used as laboratory space, on October 22, 2019. The Company recorded a right-of-use asset, which included prepaid rent costs of $18,425, and lease liability associated with the occupancy on October 22, 2019.

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 commenced in September 2019. 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 -operating leases, current operating lease liabilities and long-term operating lease liabilities. Finance leases are included in the balance sheet as right-of-use asset — finance lease, finance lease liabilities, current, and finance lease liabilities, non-current. 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 December 31, 2019		Nine Months Ended December 31, 2019
Lease cost
Finance lease costs:
Amortization of right-of-use asset	$	607	$	666
Interest on lease liabilities	591		652
Operating lease costs	262		633
Total lease cost	$	1,460	$	1,951

Finance lease costs of $90 and $149 are recognized in general and administrative expenses for the three and nine months ended December 31, 2019 and $517 in research and development expenses for both the three and nine months ended December 31, 2019. 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 December 31, 2019:

	December 31, 2019
	Operating lease		Financing lease		Total
2020 (remaining three months)	$	243	$	593	$	836
2021	1,034		2,411		3,445
2022	586		2,483		3,069
2023	596		2,558		3,154
2024	605		2,634		3,239
Thereafter	3,384		46,398		49,782
Total lease payments	6,448		57,077		63,525
Less: interest	1,551		29,668		31,219
Total lease liabilities	$	4,897	$	27,409	$	32,306

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 December 31, 2019:

2020	$	2,062
2021	2,901
2022	2,493
2023	2,568
2024	2,645
2025	2,725
Thereafter	12,770
	$	28,164

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The following table provides lease disclosure as of and for the three months ended December 31, 2019:

	December 31, 2019
Leases
Right-to-use operating lease asset	$	4,731
Right-to-use finance lease asset	47,528
Total lease assets	$	52,259

Operating lease liabilities, current	$	1,011
Finance lease liabilities, current	2,393
Operating lease liabilities, non-current	3,886
Finance lease liabilities, non-current	25,016
Total lease liabilities	$	32,306

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	516
Operating cash flows from finance leases	$	623
Financing cash flows from finance leases	$	22
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	$	48,224
Variable lease costs	$	—
Short term lease costs	$	—
Weighted-average remaining lease term - operating leases	8.6 years
Weighted-average remaining lease term - financing leases	19.6 years
Weighted-average discount rate - operating leases	7		%
Weighted-average discount rate - financing leases	8		%

The variable lease costs and short-term lease costs were insignificant for the three and nine months ended December 31, 2019.

Manufacturing commitments

The Company has entered into an agreement with a contract manufacturing organization to provide clinical trial products. As of December 31, 2019 and March 31, 2019, the Company had committed to minimum payments under these arrangements totaling $5,113 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 December 31, 2019 or March 31, 2019.

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Legal Proceedings

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

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:

	December 31, 2019		March 31, 2019
United States	$	5,136	$	11,648
United Kingdom	518		511
	$	5,654	$	12,159

14. Subsequent Events

Agreement with Bristol- Myers Squibb Company

In January 2020, the Company and BMS expanded the scope of the Clinical Trial Collaboration and Supply Agreement to provide that BMS will supply to the Company, at no cost, nivolumab for use in combination with RP1 in an additional cohort of 125 patients with anti-PD1 refractory melanoma.

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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.

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-PD-1 therapy, we have opened enrollment in all four cohorts, and completed enrollment in the melanoma cohort. 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 respond within each tumor type cohort. In January 2020 we announced our intention to open a further cohort of 125 patients with anti-PD1 refractory melanoma in this clinical trial, which we believe to be potentially registrationable (in its own right or, subject to discussion with regulatory authorities, following enrollment of additional patients). We believe that the initial clinical data in this patient group with RP1 combined with nivolumab as presented at SITC in November 2019 was encouraging and resulted in our decision to open this further cohort. We expect to present data from the competed melanoma cohort (which includes uveal and mucosal melanoma patients

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in addition to cutaneous melanoma) and further data from the non-melanoma skin cancer cohort in mid-2020. Further, we expect to present data from the initial patients recruited into the bladder and MSI-H/dMMR cohorts in the fourth quarter of 2020.

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 the primary readout from the clinical trial in 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 an additional Phase 1b clinical trial of single agent RP1 in solid organ transplant recipients with CSCC in the first quarter of 2020 which we believe to be potentially registrationable (in its own right or, subject to discussion with regulatory authorities, following enrollment of additional patients). 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.

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 initial data from this Phase 1 clinical trial in the second half of 2020. We intend to file an IND and/or foreign equivalents for RP3 and, assuming regulatory clearance, enter clinical development during 2020. IND/foreign equivalent enabling studies are currently underway.

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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 1x106 pfu/ml followed by subsequent doses of up to 10mL of 1x107 pfu/ml.

In the dose rising monotherapy part of the Phase 1/2 clinical trial, as announced at SITC, RP1 was associated with tumor destruction, including delayed systemic post-study tumor reduction of uninjected tumors without further therapy. In the combination portion of the Phase 1 part of the clinical trial, evidence of 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, were observed to be responding to therapy, and clinical activity had 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, and multiple examples of responses of uninjected tumors were seen.

We also 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.

Further, we have completed the build-out of, and obtained an occupancy certificate with respect to, our approximately 63,000 square foot manufacturing facility in Framingham, Massachusetts and expect that the facility will be operational in the first half of 2020.

On January 8, 2020, our board of directors approved the appointment of Philip Astley-Sparke as our chief executive officer in place of Dr. Robert Coffin, who elected to transition from the role of chief executive officer to the role of President and Chief Research and Development Officer.

Financial overview

Since our inception, we have devoted substantially all of our resources to developing our lmmulytic 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. On November 18, 2019, we completed a follow-on public stock offering of (i) 3,678,031 shares of our common stock at a public offering price of $13.61 per share and (ii) pre-funded warrants to purchase 2,200,000 shares of our common stock at a purchase price of $13.6099 per pre-funded warrant, the public offering price per share of common stock less the $0.0001 per share exercise price of each pre-funded warrant. On December 13, 2019 we sold 838,530 shares of our common stock to the underwriters at the public offering price in connection with the underwriters’ partial exercise of their option to purchase additional shares of our common stock. We received aggregate net proceeds of approximately $85.6 million after deducting underwriting discounts, commissions and other offering expenses of approximately $5.8 million.

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 $16.2 million and $7.7 million for the three months ended December 31, 2019 and 2018, respectively, and $36.8 million and $24.2 million for the nine months ended December 31, 2019 and 2018, respectively. As of December 31, 2019, we had an accumulated deficit of $96.5 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.

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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 December 31, 2019, we had cash and cash equivalents and short-term investments of $180.9 million. Based on our current operating plan, 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 into the second half of calendar year 2022.

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

capital.”

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.

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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: