You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q (this "report"). This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section titled "Risk Factors" and elsewhere in this report. Overview We are a clinical-stage gene therapy company pioneering the development of product candidates using our targeted and evolved AAV vectors. We seek to unlock the full potential of gene therapy using our platform, Therapeutic Vector Evolution, which combines the power of directed evolution with our approximately one billion synthetic capsid sequences to invent evolved vectors for use in targeted gene therapy products. Our targeted and evolved vectors are invented with the goal of being delivered through clinically routine, well-tolerated and minimally invasive routes of administration, of transducing diseased cells in target tissues efficiently, of having reduced immunogenicity and, where relevant, of having resistance to pre-existing antibodies. We believe these key design features will help us to potentially create targeted gene therapy product candidates with improved therapeutic profiles, and address a broad range of diseases from rare to large patient populations, including those that other gene therapies are unable to address. Each of our product candidates is created with our targeted and evolved AAV vectors. Our platform is designed to be modular, in that an evolved vector invented for a given set of diseases can be equipped with different transgene payloads to treat other diseases affecting the same tissue types. We believe this modularity will help inform the clinical development of subsequent product candidates using the same vector. We have built a deep portfolio of gene therapy product candidates initially focused in three therapeutic areas: ophthalmology (intravitreal vector), cardiology (intravenous vector) and pulmonology (aerosol vector). We have five product candidates that are in clinical trials: 4D-310 for the treatment of Fabry disease in a Phase 1/2 clinical trial, 4D-150 for the treatment of wetAMD in a Phase 1/2 clinical trial, 4D-125 for the treatment of X-linked retinitis pigmentosa ("XLRP") in a Phase 1/2 clinical trial, 4D-110 for the treatment of choroideremia in a Phase 1/2 clinical trial, and 4D-710 for the treatment of cystic fibrosis in a Phase 1/2 clinical trial.
We have funded our operations primarily through the sale and issuance of equity securities and to a lesser extent from cash received pursuant to our collaboration and license agreements.
InNovember 2021 , we completed our second underwritten public offering (the "Follow-on Offering") in which 4,750,000 shares of our common stock were sold at an offering price of$25.00 per share pursuant to an effective Registration Statement on Form S-1. The net proceeds from the Follow-on Offering were$111.1 million after deducting underwriting discounts and commissions and offering expenses. As ofMarch 31, 2022 , we had cash, cash equivalents and marketable securities of$284.5 million . We have incurred significant operating losses and expect that our operating losses will increase significantly as we, among other things, continue to advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for, and, if approved, proceed to commercialization; broaden and improve our platform; acquire, discover, validate and develop additional product candidates; maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, we expect to incur additional costs associated with operating as a public company. Our net losses were$26.3 million and$16.4 million for the three months endedMarch 31, 2022 and 2021, respectively. As ofMarch 31, 2022 , we had an accumulated deficit of$233.3 million . We do not expect positive cash flows from operations in the foreseeable future. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our 30 --------------------------------------------------------------------------------
expenditures on other research and development activities, and due to other factors such as increased inflation.
We do not have any products approved for sale and have not generated any revenue from product sales since our inception. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates, if approved. We will require substantial additional funding to support our continuing operations and further the development of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which could include income from collaborations, strategic partnerships or other strategic arrangements, for the foreseeable future. Adequate funding may not be available when needed or on terms acceptable to us, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. The global COVID-19 pandemic continues to rapidly evolve and we will continue to monitor the COVID-19 situation closely. The extent of the impact of the COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on our clinical trial enrollment, trial sites, CROs, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and the majority of our employees working remotely. We will continue to actively monitor the rapidly evolving situation related to the COVID-19 pandemic and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic may affect our business, operations and clinical development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.
Components of Results of Operations
Revenue
Our revenue to date has been generated through payments from our collaboration and license agreements, primarily from upfront and milestone payments and expense reimbursement. We have not generated any revenue from the sale of approved products and do not expect to do so for the foreseeable future. The primary driver for revenue consists of revenue recognized under the agreement with uniQure. InAugust 2019 , we amended our agreement with uniQure and entered into a separate new collaboration and license agreement with uniQure. Neither party was required to pay monetary consideration in connection with the amendment or new agreement. We determined the incremental transaction price of the amendment and new agreement to be$5.1 million and recorded the amount as deferred revenue. We recognized revenue of$1.2 million related to this collaboration agreement during the three months endedMarch 31, 2022 . See Note 7 to our unaudited condensed financial statements included elsewhere in this report for further discussion regarding the accounting treatment of this transaction. Future collaboration and license revenue is highly dependent on the successful development and commercialization of products by our collaboration partners, which is uncertain, and revenue may fluctuate significantly from period to period. Additionally, we may never receive the consideration from our license agreements that is contemplated for option fees, development and sales-based milestone payments or royalties on sales of licensed products, given the contingent nature of these payments. We expect that our collaboration and license revenue in 2022 will primarily be from uniQure. 31 --------------------------------------------------------------------------------
Operating Expenses Research and Development Our research and development expenses primarily consist of costs incurred for the discovery and preclinical and clinical development of our product candidates. These expenses include salaries and personnel-related costs, including stock-based compensation of our scientific personnel performing research and development activities; laboratory supplies; research materials; fees paid to CROs to execute preclinical studies and clinical trials; fees paid to CMOs to manufacture materials for preclinical studies and clinical trials; fees related to obtaining technology licenses; consulting costs; costs related to seeking regulatory approval of our product candidates; and allocated facility-related costs, information technology costs, depreciation expense and other overhead. We expense all research and development costs in the periods in which they are incurred. We have entered into various agreements with CROs and CMOs. Costs of certain activities are recognized based on an evaluation of the progress to completion of specific tasks. Payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses and other current assets on our balance sheet. The capitalized amounts are recognized as expense as the goods are delivered or the related services are performed. We do not allocate our costs by product candidate, as a significant amount of research and development expenses includes internal costs, such as salary and other personnel-related expenses, laboratory supplies and allocated overhead, and external costs, such as fees paid to third parties to conduct research and development activities on our behalf, none of which are tracked by product candidate. In particular, with respect to internal costs, several of our departments support multiple product candidate research and development programs and, therefore, the costs cannot be allocated to a particular product candidate or development program. At this time, we cannot reasonably estimate or know the nature, timing or estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for any product candidates that successfully complete clinical trials, and incur expenses associated with hiring additional personnel to support our research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. See the section titled "Risk Factors" for additional risks regarding regulatory development and approval. General and Administrative Our general and administrative expenses consist primarily of personnel-related expenses, including salaries, employee benefit costs and stock-based compensation expense for our personnel in executive, finance and accounting, human resources, business development, legal and other administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses. We expect our general and administrative expenses to increase as a result of increased personnel-related costs, patent costs for our product candidates, consulting, legal and accounting services associated with maintaining compliance with stock exchange listing and requirements of theSEC , investor relations costs, director and officer insurance premiums and other costs associated with being a public company. Other Income (Expense), Net Our other income (expense), net primarily consists of interest income earned on our cash equivalents and marketable securities and adjustments for the change in the fair value of our derivative liability which must be remeasured at each reporting date. 32 --------------------------------------------------------------------------------
Results of Operations
Comparison of the Three Months Ended
The following tables summarize our results of operations for the periods indicated (dollars in thousands):
Three Months Ended March 31, 2022 2021 $ Change % Change Revenue$ 1,219 $ 2,000 $ (781 ) (39 )% Operating Expenses: Research and development 19,381 12,769 6,612 52 % General and administrative 8,230 5,543 2,687 48 % Total operating expenses 27,611 18,312 9,299 51 % Loss from operations (26,392 ) (16,312 ) (10,080 ) 62 % Other Income (Expense), Net 54 (94 ) 148 (157 )% Net loss$ (26,338 ) $ (16,406 ) $ (9,932 ) 61 % Revenue Revenue decreased$0.8 million , or 39%, from the three months endedMarch 31, 2021 to the three months endedMarch 31, 2022 due to a$1.6 million decrease in revenue recognized under our collaboration and license agreement with Roche offset by an increase in revenue recognized under the uniQure Agreement of$0.8 million .
Research and Development Expenses
The following table provides a breakout of research and development expenses for the periods indicated (dollars in thousands):
Three Months Ended March 31, 2022 2021 $ Change % Change Research and development trials and consumables expenses$ 7,291 $ 6,312 $ 979 16 % Payroll and personnel expenses 9,763 5,101 4,662 91 % Facilities and other research and development expenses 2,327 1,356 971 72 % Total research and development expenses$ 19,381 $ 12,769 $ 6,612 52 % Research and development expenses increased$6.6 million , or 52%, from the three months endedMarch 31, 2021 to the three months endedMarch 31, 2022 . The increase was primarily due to a$4.7 million increase in payroll and personnel expenses (including a$1.0 million increase in employee stock-based compensation) due to increased headcount of research and development personnel, and a$2.2 million increase in clinical trial costs driven by the start-up of two additional clinical Phase 1/2 trials for 4-D-150 and 4D-7010.
General and Administrative Expenses
General and administrative expenses increased$2.7 million , or 48%, from the three months endedMarch 31, 2021 to the three months endedMarch 31, 2022 . The increase was primarily due to:
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a$1.8 million increase for payroll and personnel expenses (including a$0.7 million increase in employee stock-based compensation) due to increased headcount of general and administrative personnel, and a$0.9 million increase in other costs, including consulting and facilities costs. 33 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations primarily through the sale and issuance of our equity securities, including from the sale of our common stock in our IPO and Follow-on Offering and the sale of our redeemable preferred stock and to a lesser extent from cash received pursuant to our collaboration and license agreements. InDecember 2020 , we completed our IPO and we issued and sold 9,660,000 shares of common stock at an offering price of$23.00 per share. The aggregate net proceeds from our IPO were$204.7 million after deducting underwriting discounts and commissions and other offering costs. InNovember 2021 , we completed our Follow-on Offering in which 4,750,000 shares of our common stock were sold at an offering price of$25.00 per share. The aggregate net proceeds from the Follow-on Offering were$111.1 million after deducting underwriting discounts and commissions and offering expenses. As ofMarch 31, 2022 , we had cash, cash equivalents and marketable securities of$284.5 million .
Future Funding Requirements
We have experienced recurring net losses and had an accumulated deficit of$233.3 million as ofMarch 31, 2022 . Our transition to profitability is primarily dependent upon the successful development, approval and commercialization of our product candidates and achieving a level of revenue adequate to support our cost structure. We expect to continue to incur losses for the foreseeable future. We expect that our research and development and general and administrative expenses will continue to increase for the foreseeable future. Additionally, we expect our capital expenditures will increase significantly in the future for costs associated with building additional manufacturing capacity. As a result, we will need significant additional capital to fund our operations, which we may obtain through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements. Because of the numerous risks and uncertainties associated with the development and commercialization of gene therapy product candidates, we are unable to estimate the amount of increased capital we will need to raise to support our operations and the outlays and operating expenditures necessary to complete the development of our product candidates and build additional manufacturing capacity, and we may use our available capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
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the progress of our current and future product candidates through preclinical and clinical development;
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potential delays in our preclinical studies and clinical trials, whether current or planned, due to the COVID-19 pandemic, or other factors;
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expanding our manufacturing facilities and working with our contract manufacturers to scale up the manufacturing processes for our product candidates;
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continuing our research and discovery activities;
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continuing the development of our Therapeutic Vector Evolution platform;
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initiating and conducting additional preclinical, clinical or other studies for our product candidates;
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changing or adding additional contract manufacturers or suppliers;
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seeking regulatory approvals and marketing authorizations for our product candidates;
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establishing sales, marketing and distribution infrastructure to commercialize any products for which we obtain approval;
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acquiring or in-licensing product candidates, intellectual property and technologies;
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making milestone, royalty or other payments due under any current or future collaboration or license agreements;
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obtaining, maintaining, expanding, protecting and enforcing our intellectual property portfolio;
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attracting, hiring and retaining qualified personnel;
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potential delays or other issues related to our operations;
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meeting the requirements and demands of being a public company;
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defending against any product liability claims or other lawsuits related to our products; and
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the impact of the COVID-19 pandemic and adverse macroeconomic conditions such as, but not limited to, higher inflation and increased interest rates, each of which may exacerbate the magnitude of the factors discussed above. We believe that our existing cash and cash equivalents and marketable securities will allow us to fund our planned operations for at least one year from the date of the issuance of this Quarterly Report on Form 10-Q. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than currently projected, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. See the section titled "Risk Factors" for additional risks associated with our substantial capital requirements. We do not have any committed external sources of funds. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to complete the clinical development for the product candidates for treatment of Fabry disease, XLRP, choroideremia, wetAMD , cystic fibrosis or any other indication we may pursue. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter would result in fixed payment obligations and may involve agreements that include grants of security interests on our assets and restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, granting liens over our assets, redeeming stock or declaring dividends, that could adversely impact our ability to conduct our business. Any debt financing or additional equity that we raise may contain terms that could adversely affect our common stockholders. Further, additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic and the war inUkraine . If we are unable to obtain additional funding, we expect to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or investment in internal manufacturing capabilities, which could adversely affect our business. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. 35
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