The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which we filed with theSEC onMarch 12, 2021 . In addition, you should read the "Risk Factors" and "Information Regarding Forward-Looking Statements" sections of this Quarterly Report and our Annual Report on Form 10-K for the year endedDecember 31, 2020 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage biopharmaceutical company leveraging our ImmTOR™ immune tolerance platform with the goals of amplifying the efficacy of biologics, including enabling the re-dosing of life-saving gene therapies, and restoring self-tolerance in autoimmune diseases. Our ImmTOR platform encapsulates rapamycin, also known as sirolimus, an immunomodulator, in biodegradable nanoparticles and is designed to induce antigen-specific immune tolerance. We believe ImmTOR has the potential to enhance the efficacy without compromising the safety of biologic therapies, improve product candidates under development, and enable novel therapeutic modalities. We have developed a portfolio of proprietary and collaboration-driven applications of ImmTOR, and we plan to continue to develop proprietary compounds and pursue collaboration-driven development in certain disease areas, which could include strategic collaborations, out-licensing, and in-licensing transactions. We believe our ImmTOR platform has a broad range of potential applications. Enzyme therapies. Enzyme therapies are a class of biologic drugs frequently used to treat rare diseases. Through our analysis of biologic drugs, including in our preclinical studies, we have observed that enzymes are especially prone to causing undesired immune responses. Our product candidate, SEL-212, which is currently in Phase 3 clinical development, includes pegadricase, a pegylated uricase enzyme, which is an example of an immunogenic enzyme for which we are applying ImmTOR with the intention of improving the enzyme's efficacy and safety. We are also combining ImmTOR with an immunoglobulin A, or IgA, protease for the treatment of IgA nephropathy. We intend to seek, if appropriate, licenses to other enzymes that we would evaluate in combination with ImmTOR. Gene therapies. We believe gene therapies have the potential to address key unmet medical needs for many rare genetic diseases, but undesired immune responses to the viral vectors used for gene replacement, augmentation and editing may be restricting their broader use. Through our analysis of genetic diseases, we have identified applications and patient segments that we believe would benefit from our ImmTOR platform. We intend to develop ImmTOR-enabled non-immunogenic gene therapy candidates which are designed to be utilized with adeno-associated virus, or AAV, vectors. We believe our product candidates have the potential to increase transgene expression and to prevent undesired immune responses to the vector and transgene product that can occur with the first dose of gene therapy by using our ImmTOR platform. Our initial area of focus is on genetic metabolic diseases but may also include lysosomal storage diseases and genetic muscular diseases. We believe we are the first company to systematically pursue the development of AAV gene therapy product candidates with the goal of enabling repeat administration. We have engaged third parties with experience in gene therapy and rare diseases to support the development of our products. We also have licensed our ImmTOR platform to AskBio, Sarepta, and Spark for certain pre-specified targets. Restoring self-tolerance to auto-antigens. We believe that ImmTOR has the potential to restore self-tolerance in autoimmune diseases. Our first program in autoimmune diseases is in primary biliary cholangitis, or PBC. PBC has a significant unmet medical need and a well-defined target antigen, known as PDC-E2. 28 -------------------------------------------------------------------------------- Table of Contents Other products and product candidates affected by undesired immune responses. We have generated preclinical data which we believe suggests a broad potential benefit of ImmTOR for immune tolerance. For many biologic drugs, undesired immune responses limit efficacy and cause safety concerns. We intend to strategically out-license ImmTOR for use with other products that are outside our focus to larger biopharmaceutical companies. We believe our ImmTOR platform may also be of interest to biopharmaceutical companies with novel biologic development concepts or product candidates in clinical development that have demonstrated initial efficacy but are experiencing issues with safety or sustained efficacy due to inhibitory ADAs. Our Current Programs Amplifying the Efficacy of Biologics: Enzyme therapy - Chronic Refractory Gout SEL-212 is designed to be a monthly treatment for chronic refractory gout, a debilitating rare disease with an unmet medical need. SEL-212 consists of a combination of our ImmTOR platform co-administered with pegadricase. Pegadricase is an investigational recombinant pegylated uricase (urate oxidase), an enzyme not naturally found in humans, and is therefore highly immunogenic. This enzyme is designed to treat patients with symptomatic gout, refractory to standard uric acid lowering treatment, by breaking down the excess uric acid to the more soluble allantoin. In preclinical studies, we observed that ImmTOR, when co-administered with pegadricase, induced antigen-specific immune tolerance to pegadricase and substantially reduced the formation of associated ADAs. Based on our clinical data, we believe that SEL-212 has the potential to control serum uric acid, or SUA levels and mitigate the formation of ADAs in response to the therapeutic enzyme. Additionally, we believe that SEL-212 serves as proof of concept for the ImmTOR platform in ameliorating the unwanted immune response to an immunogenic biologic. SEL-212 has been licensed (except as toGreater China ) to Sobi, pursuant to our license and development agreement datedJune 11, 2020 with Sobi, or the Sobi License. We and Sobi commenced the Phase 3 DISSOLVE clinical program of SEL-212 inSeptember 2020 . The Phase 3 clinical program consists of two double blinded, placebo-controlled trials of SEL-212, DISSOLVE I and DISSOLVE II. Each trial is expected to enroll 105 patients, with 35 patients receiving 0.1 mg/kg of ImmTOR and 0.2 mg/kg of pegadricase, 35 patients receiving 0.15 mg/kg of ImmTOR and 0.2 mg/kg of pegadricase, and 35 patients receiving placebo. DISSOLVE I and DISSOLVE II both have a six-month primary endpoint with a six-month safety extension for DISSOLVE I. The primary endpoint of the DISSOLVE program is the maintenance of SUA levels below 6 mg/dL at six months. Secondary endpoints include tender and swollen joint counts, tophus burden, patient reported outcomes of activity limitation and quality of life and gout flare incidence. Topline data from the Phase 3 DISSOLVE clinical program is expected in the second half of 2022. The Phase 3 DISSOLVE clinical program is being conducted bySelecta and funded by Sobi. Amplifying the Efficacy of Biologics: Enzyme therapy - IgA Nephropathy The second indication in our enzyme therapy program is IgA nephropathy, an autoimmune kidney disease that occurs when immune complexes of a subclass of antibodies called immunoglobulin A1 (IgA1) accumulates in the kidneys. InOctober 2020 , we entered into an Option and License Agreement, or the IGAN Agreement, withIGAN Biosciences, Inc. , or IGAN. Pursuant to the IGAN Agreement, IGAN has granted us an exclusive license to research, evaluate, and conduct pre-clinical development activities on IGAN's proprietary IgA proteases. Previous studies in animal models conducted at independent laboratories demonstrated that IgA protease removed injurious IgA immune complexes from kidneys and reduced inflammation, fibrosis, and hematuria. These results suggest that it is an excellent candidate to potentially decrease the rate of disease progression and possibly even reverse the disease. The barrier to IgA protease commercialization is the bacterial origin of the protease, which makes it immunogenic. Our ImmTOR platform has shown in clinical studies the ability to mitigate the formation of ADAs to immunogenic enzymes, which has been observed with SEL-212. We intend to combine IgA protease with our ImmTOR platform to develop a novel combination product candidate for the treatment of IgA nephropathy and IgA-mediated diseases. We will have an option term of 24 months, during which we can elect to obtain an exclusive license to further develop and commercialize the product candidate to treat all IgA-mediated diseases, including IgA nephropathy, Linear IgA bullous dermatitis, IgA pemphigus, and Henoch-Schonlein purpura (also known as IgA vasculitis). We expect to file an Investigational New Drug, or IND, application, for this program in 2022. Amplifying the Efficacy of Biologics: Gene Therapies When used in combination with AAV gene therapy vectors, ImmTOR has been observed to inhibit the immune response to the vector and enable successful redosing in mice and non-human primates, or NHPs. Currently, the ability to re-administer systemic AAV gene therapy is limited by the development of neutralizing antibodies. The ability to safely re-dose AAV may help achieve therapeutic benefit in patients who are under-dosed; it may also help restore transgene expression in patients, particularly pediatric patients, who may lose gene expression over time as they grow. In addition, a study conducted in NHPs showed that co-administration of AAV vector and ImmTOR in NHPs enabled higher and more durable transgene expression after the first dose of gene therapy as well as robust inhibition of anti-AAV8 immunoglobulin G, or IgG, and neutralizing antibodies. The observation that co-administration of AAV vector and ImmTOR leads to higher transgene expression demonstrates the potential for dosing lower levels of AAV gene therapies when combined with ImmTOR. Thus, integrating 29 -------------------------------------------------------------------------------- Table of Contents ImmTOR into a gene therapy protocol has the potential to provide a first dose benefit by enhancing liver-directed transgene expression and durability, as well as the potential for enabling re-dosing. Our lead therapeutic gene therapy program is in methylmalonic acidemia, or MMA, an inherited disorder in which the body is unable to process certain proteins and fats (lipids) properly. This program was previously being conducted under our collaboration with AskBio. InApril 2021 , we were notified by AskBio that it intended to opt-out of development of the MMA indication. The feasibility study and license agreement with AskBio, or AskBio Collaboration Agreement, otherwise remains in effect. The previously disclosed MMA-101 manufacturing issue was resolved. Manufacturing of a new lot has been completed and is currently undergoing final release testing. We expect to file an IND for this product candidate, SEL-302, in the third quarter of 2021. ImmTOR manufacturing, controlled by us, continues to proceed in accordance with our expectations, and we have not observed any impact to any of our ImmTOR programs. In October andNovember 2020 , we and AskBio received rare pediatric disease designation and orphan drug designation, respectively, from the FDA for MMA-101, for the treatment of MMA due to methylmalonyl-CoA mutase, or MMUT gene mutations. Our proprietary gene therapy product candidate, SEL-313, is being developed to treat ornithine transcarbamylase, or OTC deficiency, and is currently in preclinical development. OTC deficiency is a rare genetic disorder that causes ammonia to accumulate in the blood due to mutations in the OTC gene, which is critical for proper function of the urea cycle. The most severe form of the disorder presents within the first few days of life. Severe symptoms include inability to control body temperature and breathing rate, seizures, coma, developmental delays and intellectual disability. Less severe forms of the disorder are characterized by delirium, erratic behavior, aversion to high protein foods, vomiting and seizures. We expect to file an IND and/or Clinical Trial Application for SEL-313 in 2022. SEL-399 combines an empty AAV capsid (EMC -101), which is an AAV capsid containing no transgene, with ImmTOR and is being conducted in partnership with AskBio. Building on the preclinical data we have generated showing ImmTOR's effect on mitigating or reducing the formation of neutralizing antibodies to AAV gene therapies, we have commenced a clinical trial of SEL-399 in healthy adult volunteers inBelgium . The goal of the SEL-399 clinical trial is to demonstrate the appropriate dose of ImmTOR in humans to mitigate the formation of antibodies to AAV capsids used in gene therapies. An initial control cohort of healthy volunteers received a single dose ofEMC -101 inDecember 2020 and dose escalating cohorts ofEMC -101 plus ImmTOR were initiated inFebruary 2021 . Topline results are expected in the fourth quarter of 2021. Restoring Self-tolerance in Autoimmune Diseases Our lead autoimmune diseases indication is PBC, a T-cell driven autoimmune disease that causes progressive destruction of the bile ducts. Patients with PBC are in need of a highly targeted, liver-directed approach to treating the root cause of the disorder. We believe PBC has a well-defined target antigen, significant unmet medical need, and is well suited to the application of our ImmTOR immune tolerance platform, as preclinical data suggest that ImmTOR has the potential to enhance the tolerogenic environment in the liver and provide a hepatoprotective benefit. We expect to file an IND for our PBC program in the second half of 2022. Licenses and Collaborations Swedish Orphan Biovitrum InJune 2020 , we announced that we had entered into the Sobi License, pursuant to which we agreed to grant Sobi an exclusive, worldwide (except as toGreater China ) license to develop, manufacture and commercialize SEL-212, which is currently in development for the treatment of chronic refractory gout. InSeptember 2020 , pursuant to the Sobi License, Sobi paid us a one-time, up-front payment of$75 million . Sobi has also agreed to make milestone payments totaling up to$630 million to us upon the achievement of various development and regulatory milestones and sales thresholds for annual net sales of SEL-212, and tiered royalty payments ranging from the low double digits on the lowest sales tier to the high teens on the highest sales tier. Additionally, Sobi purchased an aggregate of 5,416,390 shares of our common stock at$4.6156 for aggregate gross proceeds of$25 million , which we refer to as the Sobi Private Placement. The closing of the Sobi Private Placement occurred onJuly 31, 2020 . Under the Sobi License, we will have operational oversight of the Phase 3 DISSOLVE clinical program of SEL-212 (DISSOLVE I and DISSOLVE II) that commenced inSeptember 2020 , at Sobi's expense. IGAN Biosciences InOctober 2020 , we entered into the IGAN Agreement. Pursuant to the IGAN Agreement, IGAN granted us an exclusive license to research, evaluate, and conduct pre-clinical development activities on IGAN's proprietary IgA proteases. We have an option term of 24 months, during which we can elect to obtain an exclusive license to further develop and commercialize the product to treat all IgA-mediated diseases, including IgA nephropathy, Linear IgA bullous dermatitis, IgA pemphigus, and Henoch-Schonlein purpura (also known as IgA vasculitis). 30 -------------------------------------------------------------------------------- Table of Contents Sarepta Therapeutics InJune 2020 , we entered into a research license and option agreement with Sarepta, or the Sarepta Agreement. Pursuant to the agreement, we granted Sarepta a license to research and evaluate ImmTOR in combination with Sarepta's AAV gene therapy or gene editing technology, using viral or non-viral delivery, or the Sarepta Product, to treat Duchenne Muscular Dystrophy and certain Limb-Girdle Muscular Dystrophy subtypes, or the Sarepta Indications. Sarepta will have an option term of 24 months during which it can opt-in to obtain an exclusive license to further develop and commercialize the Sarepta Product to treat at least one Sarepta Indication, with a potential to extend the option term if Sarepta pays an additional fee to us. Sarepta made an up-front payment to us upon signing of the agreement, and we are eligible to receive additional payments under the option term. If Sarepta opts-in to an exclusive license agreement, we could receive option exercise payments per indication, we would be entitled to significant development and commercial milestone payments and tiered royalties ranging from the mid-to-high single digits based on net sales. AskBio InAugust 2019 , we entered into the AskBio Collaboration Agreement. The initial proof-of-concept study being conducted under this collaboration is in SEL-399, which combines an empty AAV capsid (EMC -101), an AAV capsid containing no transgene, with ImmTOR, and is being conducted in partnership with AskBio. Building on the preclinical data we have generated showing ImmTOR's effect on mitigating or reducing the formation of neutralizing antibodies to AAV gene therapies, we have commenced a clinical trial of SEL-399 in healthy adult volunteers inBelgium . The goal of the SEL-399 clinical trial is to demonstrate the appropriate dose of ImmTOR in humans to mitigate the formation of antibodies to AAV capsids used in gene therapies, which currently precludes re-dosing. An initial control cohort of healthy volunteers received a single dose ofEMC -101 inDecember 2020 and dose escalating cohorts ofEMC -101 plus ImmTOR were initiated inFebruary 2021 . Topline results are expected in the fourth quarter of 2021. Previously, we and AskBio were developing a gene therapy for MMA, which can cause severe developmental defects and premature death as a result of an accumulation of toxic metabolites. We conducted preclinical studies for this product candidate and will leverage that work within the collaboration. InApril 2021 , we were notified by AskBio that it intended to opt-out of development of the MMA indication. The AskBio Collaboration Agreement otherwise remains in effect and we intend to continue to develop SEL-302 through clinical development. Additionally, inDecember 2019 , we entered into a License Agreement with AskBio, or the AskBio License Agreement, which provides AskBio with exclusive worldwide rights to our ImmTOR platform to research, develop and commercialize certain AAV-gene therapy products targeting the GAA gene, or derivatives thereof, to treat Pompe Disease. Spark Therapeutics InDecember 2016 , we entered into a license and option agreement with Spark Therapeutics, or the Spark License Agreement, which provides Spark with exclusive worldwide rights to our ImmTOR platform to research, develop and commercialize gene therapies for Factor VIII, an essential blood clotting protein relevant to the treatment of hemophilia A. Impact of COVID-19 We are closely monitoring how COVID-19 is affecting our employees, business, preclinical studies and clinical trials. In response to the spread of COVID-19, we have continued to have our administrative employees work outside of our offices and limited the number of staff in any given research and development laboratory. Disruptions caused by the COVID-19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials, and the incurrence of unforeseen costs as a result of preclinical study or clinical trial delays. While the COVID-19 pandemic has not had a material impact on our clinical programs as of the date of this Quarterly Report, it could have an impact on our ability to complete the Phase 3 DISSOLVE clinical program of SEL-212, our ability to commence preclinical and clinical studies of our IgA nephropathy, gene therapy, and autoimmune disease programs, and our ability to obtain supply of both active drug substances and finished drug product as well as efficient execution of the overall supply chain for SEL-212 and our other programs. We have been proactively working with our CRO, clinical sites, and principal investigators to provide patients with more convenient locations to have their SUA measured for the primary endpoint of the study, such as at local laboratories or their homes, as well as alternative sites to receive infusions of study drug. We are also working with our primary and back-up suppliers for SEL-037 (pegadricase) and SEL-110 (ImmTOR) to ensure that we have adequate supply of our materials for both our clinical and preclinical programs. We believe we will have adequate supply of all material necessary to conduct our Phase 3 DISSOLVE clinical program of SEL-212 in chronic refractory gout and to complete our clinical trial for SEL-399 in gene therapy under our collaboration with AskBio. At this time, any impact of COVID-19 on the Company's business, revenues, results of operations and financial condition will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, travel restrictions and social distancing inthe United States and other countries, business closures or 31 -------------------------------------------------------------------------------- Table of Contents business disruptions, supply chain disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions taken inthe United States and other countries to contain and treat the disease. Financial Operations To date, we have financed our operations primarily through public offerings and private placements of our securities, funding received from research grants and collaboration arrangements and our credit facility. We do not have any products approved for sale and have not generated any product sales. All of our revenue to date has been collaboration and grant revenue. Since inception, we have incurred significant operating losses. We incurred net losses of$20.0 million and$43.7 million for the six months endedJune 30, 2021 and 2020, respectively. As ofJune 30, 2021 , we had an accumulated deficit of$424.7 million . We expect to continue to incur significant expenses and operating losses for at least the next several years as we: •continue the research and development of our other product candidates as well as product candidates that we may be developing jointly with collaboration partners; •seek to enhance our ImmTOR platform and discover and develop additional product candidates; •seek to enter into collaboration, licensing and other agreements, including, but not limited to research and development, and/or commercialization agreements; •seek regulatory approvals for any product candidates that successfully complete clinical trials; •potentially establish a sales, marketing and distribution infrastructure and scales-up external manufacturing capabilities to commercialize any products for which we may obtain regulatory approval; •maintain, expand and protect our intellectual property portfolio, including through licensing arrangements; and •add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts and to support our operations as a public company. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, license and collaboration agreements, and research grants. We may be unable to raise capital when needed or on reasonable terms, if at all, which would force us to delay, limit, reduce or terminate our product development or future commercialization efforts. We will need to generate significant revenues to achieve profitability, and we may never do so. We believe that our existing cash, cash equivalents, marketable securities, and restricted cash as ofJune 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. The consolidated financial information presented below includes the accounts ofSelecta Biosciences, Inc. and our wholly owned subsidiaries,Selecta (RUS) LLC , a Russian limited liability company, orSelecta (RUS), andSelecta Biosciences Security Corporation , aMassachusetts securities corporation. All intercompany accounts and transactions have been eliminated. Collaboration and grant revenue To date, we have not generated any product sales. Our revenue consists of collaboration and grant revenue, which includes amounts recognized related to upfront and milestone payments for research and development funding under collaboration and license agreements. In addition, we earn revenue under the terms of government contracts or grants, which require the performance of certain research and development activities. We expect that any revenue we generate will fluctuate from quarter to quarter because of the timing and amount of fees, research and development reimbursements and other payments from collaborators. We do not expect to generate revenue from product sales for at least the next several years. If we or our collaborators fail to complete the development of our product candidates in a timely manner or fail to obtain regulatory approval as needed, our ability to generate future revenue will be harmed, and will affect the results of our operations and financial position. For a further description of the agreements underlying our collaboration and grant-based revenue, see Notes 2 and 12 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report. Research and development Our research and development expenses consist of external research and development costs, which we track on a program-by-program basis and primarily include CMO-related costs, fees paid to CROs and internal research and development costs, which are primarily compensation expenses for our research and development employees, lab supplies, analytical testing, 32 -------------------------------------------------------------------------------- Table of Contents allocated overhead costs and other related expenses. Our internal research and development costs are often devoted to expanding our programs and are not necessarily allocable to a specific target. We have incurred a total of$322.8 million in research and development expenses from inception throughJune 30, 2021 , with a majority of the expenses being spent on the development of SEL-212 and a prior nicotine vaccine candidate, and the remainder being spent on our various discovery and preclinical stage product candidate programs and the general expansion of our technology. We expense research and development costs as incurred. Conducting a significant amount of research and development is central to our business model. Product candidates in clinical development generally have higher development costs than those in earlier stages of development, primarily due to the size, duration and cost of clinical trials. The successful development of our clinical and preclinical product candidates is highly uncertain. Clinical development timelines, the probability of success and development costs can differ materially from our expectations. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those which we currently expect will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time to complete any clinical development. The following table sets forth the components of our research and development expenses during the periods indicated (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Research and development expenses (key projects and initiatives): SEL-212$ 5,956 $ 5,969 $ 12,680 $ 14,933 AskBio collaboration 364 598 1,177 1,574 Discovery and preclinical stage product candidate programs, collectively 2,821 195 3,392
480
Other internal research and development expenses 5,322 3,968 10,218
8,467
Total research and development expenses
$ 27,467
OnJune 11, 2020 , we and Sobi entered into the Sobi License. Pursuant to the Sobi License, clinical trial costs incurred to complete development of SEL-212, including but not limited to costs incurred while conducting and completing the Phase 3 DISSOLVE trials, will be reimbursed by Sobi. These costs, when reimbursed, will be recognized as revenue consistent with the revenue recognition methodology disclosed in Note 12 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report. The reimbursable costs exclude any costs of additional development activities required that are related to ImmTOR and that are unrelated to SEL-212. General and administrative General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, business development and support functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses, travel expenses for our general and administrative personnel and professional fees for auditing, tax and corporate legal services, including intellectual property-related legal services. Investment income Investment income consists primarily of interest income earned on our cash, cash equivalents and marketable securities. Interest expense Interest expense consists of interest expense on amounts borrowed under our credit facilities. Other income (expense) Other income was de minimis during the three and six months endedJune 30, 2021 and 2020. Change in fair value of warrant liabilities Common warrants classified as liabilities are remeasured at fair value, utilizing a Black-Scholes valuation methodology, quarterly with the change in fair value recognized as a component of earnings. Foreign currency transaction gain (loss) The functional currency of our Russian subsidiary is the Russian ruble. In addition to holding cash denominated in Russian rubles, our Russian bank accounts also hold cash balances denominated inU.S. dollars to facilitate payments to be settled inU.S. dollars or other currencies. As ofJune 30, 2021 andDecember 31, 2020 , we maintained cash of$0.3 million in Russian 33 -------------------------------------------------------------------------------- Table of Contents banks, all of which was denominated inU.S. dollars. The amounts denominated inU.S. dollars and used in transacting the day-to-day operations of our Russian subsidiary are subject to transaction gains and losses, which are reported as incurred. Results of Operations Comparison of the Three Months EndedJune 30, 2021 and 2020 Revenue The following is a comparison of revenue for the three months endedJune 30, 2021 and 2020 (in thousands, except percentages): Three Months Ended June 30, Increase 2021 2020 (decrease) Collaboration revenue $ 19,663 $ -$ 19,663 - During the three months endedJune 30, 2021 , collaboration revenue was$19.7 million , compared to no revenue recognition in 2020. During the three months endedJune 30, 2021 we recognized$19.5 million under the license agreement with Sobi which began inJuly 2020 resulting from the shipment of clinical supply and the reimbursement of costs incurred for the Phase 3 DISSOLVE clinical program. Additionally, during the second quarter, we recognized less than$0.1 million for shipments under the license agreement with Sarepta and$0.1 million resulting from the expiration of the contractual audit term under theSkolkovo Foundation grant. Research and development The following is a comparison of research and development expenses for the three months endedJune 30, 2021 and 2020 (in thousands, except percentages): Three Months Ended June 30, Increase 2021 2020 (decrease) Research and development$ 14,463 $ 10,730 $ 3,733 35 % During the three months endedJune 30, 2021 , our research and development expenses increased by$3.7 million , or 35%, as compared to 2020. The increase in cost was primarily the result of expenses incurred for consulting, salaries, and the discovery and preclinical programs, offset by a decrease of AskBio collaboration costs. General and administrative The following is a comparison of general and administrative expenses for the three months endedJune 30, 2021 and 2020 (in thousands, except percentages): Three Months Ended June 30, Increase 2021 2020 (decrease) General and administrative$ 4,748 $ 5,637
During the three months endedJune 30, 2021 , our general and administrative expenses decreased by$0.9 million , or 16%, as compared to 2020. The decrease in costs was primarily the result of reduced expense for salaries, professional fees and patent expense, offset by increased consulting and stock compensation expenses. Investment income Investment income was de minimis for each of the three months endedJune 30, 2021 and 2020, respectively. Foreign currency transaction gain (loss) We recognized minimal foreign currency fluctuations during each of the three months endedJune 30, 2021 and 2020, respectively. 34 -------------------------------------------------------------------------------- Table of Contents Interest expense Interest expense was$0.7 million and$0.2 million for the three months endedJune 30, 2021 and 2020, respectively, representing interest expense and amortization of the carrying costs of our credit facilities. Change in fair value of warrant liabilities For the three months endedJune 30, 2021 , we recognized a$4.8 million change in the fair value of warrant liabilities utilizing the Black-Scholes valuation methodology. The decrease in value was primarily driven by a decrease in the Company's share price (see Note 5). For the three months endedJune 30, 2020 , we recognized$7.5 million as a change in the fair value of warrant liabilities primarily driven by an increase in the Company's share price and volatility, offset by a decreased discount rate this quarter. Other income (expense) Other income was de minimis for each of the three months endedJune 30, 2021 and 2020. Net income (loss) Net income for the three months endedJune 30, 2021 was$4.6 million compared to a net loss of$24.1 million for the three months endedJune 30, 2020 . Comparison of the Six Months EndedJune 30, 2021 and 2020 Revenue The following is a comparison of revenue for the six months endedJune 30, 2021 and 2020 (in thousands, except percentages): Six Months Ended June 30, Increase 2021 2020 (decrease) Collaboration revenue $ 30,713 $ -$ 30,713 - % During the six months endedJune 30, 2021 , we recognized$30.6 million under the license agreement with Sobi which began inJuly 2020 resulting from the shipment of clinical supply and the reimbursement of costs incurred for the Phase 3 DISSOLVE clinical program, less than$0.1 million for shipments under the license agreement with Sarepta, and$0.1 million resulting from the expiration of the contractual audit term under theSkolkovo Foundation grant. During the six months endedJune 30, 2020 , we did not recognize revenue. Research and development The following is a comparison of research and development expenses for the six months endedJune 30, 2021 and 2020 (in thousands, except percentages): Six Months Ended June 30, Increase 2021 2020 (decrease) Research and development$ 27,467 $ 25,454 $ 2,013 8 % During the six months endedJune 30, 2021 , our research and development expenses increased by$2.0 million , or 8%, as compared to 2020. The increase in cost was primarily the result of expenses incurred for the discovery and preclinical programs, offset by a decrease of clinical supply expense for the SEL-212 clinical programs and AskBio collaboration costs. General and administrative The following is a comparison of general and administrative expenses for the six months endedJune 30, 2021 and 2020 (in thousands, except percentages): Six Months Ended June 30, Increase 2021 2020 (decrease) General and administrative$ 9,952 $ 9,735 $
217 2 %
During the six months ended
35 -------------------------------------------------------------------------------- Table of Contents Investment income Investment income was less than$0.1 million and$0.3 million , respectively during the six months endedJune 30, 2021 as compared to 2020. The decrease reflects reduced interest rates. Foreign currency transaction gain (loss) We recognized minimal foreign currency fluctuations during each of the six months endedJune 30, 2021 and 2020, respectively. Interest expense Interest expense was$1.4 million and$0.5 million for the six months endedJune 30, 2021 and 2020, respectively, representing interest expense and amortization of the carrying costs of our credit facilities. Change in fair value of warrant liabilities For the six months endedJune 30, 2021 , we recognized a$11.9 million charge for the increase in the fair value of warrant liabilities utilizing a Black-Scholes valuation methodology. The increase in value was primarily driven by an increase in the Company's share price and a small increase in the discount rate this quarter (see Note 5). For the six months endedJune 30, 2020 , we recognized$8.4 million as a change in the fair value of warrant liabilities primarily driven by an increase in the Company's share price and volatility, offset by a decreased discount rate this quarter. Other income (expense) Other income was de minimis for each of the six months endedJune 30, 2021 and 2020. Net loss Net loss for the six months endedJune 30, 2021 was$20.0 million compared to$43.7 million for the six months endedJune 30, 2020 . Liquidity and Capital Resources Since our inception, we have incurred recurring net losses. We expect that we will continue to incur losses and that such losses will increase for the foreseeable future. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, third-party funding and other collaborations and strategic alliances. From our inception throughJune 30, 2021 , we have raised an aggregate of$596.8 million to fund our operations, which includes$118.5 million from the sale of preferred stock,$11.1 million in government grant funding,$36.7 million from borrowings under our credit facility,$184.1 million from our collaborations and license agreements,$64.5 million in combined net proceeds from our initial public offering,$149.3 million in combined net proceeds from private placements and follow-on offerings of our common stock, and$32.6 million in aggregate net proceeds from "at-the-market" offerings of our common stock. As ofJune 30, 2021 , our cash, cash equivalents, restricted cash, and marketable securities were$151.5 million , of which$1.4 million was restricted cash related to lease commitments and$0.3 million was held by our Russian subsidiary designated solely for use in its operations. Our Russian subsidiary cash is consolidated for financial reporting purposes. In addition to our existing cash equivalents, we receive research and development funding pursuant to our collaboration agreements. Currently, funding from payments under our collaboration agreements represent our only source of committed external funds. Indebtedness OnAugust 31, 2020 , we entered into a term loan of up to$35.0 million , consisting of term loans in an aggregate amount of$25.0 million , or the Term A Loan, and term loans in an aggregate amount of$10.0 million , or the Term B Loan, governed by a loan and security agreement among us andOxford Finance LLC , or Oxford, as collateral agent and a lender, andSilicon Valley Bank , or SVB, as a lender. The Term A Loan was funded in full onAugust 31, 2020 , the proceeds of which were used to repay our previously existing 2017 Term Loan and for general corporate and working capital purposes. The Term B Loan will be available, subject to the collateral agent's discretion and customary terms and conditions, during the period commencing on the date we have delivered to Oxford and SVB evidence: (i) we or one of the our collaboration partners has enrolled its first patient for a Phase 1 clinical trial evaluating the treatment of MMA, and (ii) we have enrolled the first patient in each of two Phase 3 pivotal trials evaluating SEL-212, or the Second Draw Period Milestone, and ending on the earliest of (i) the date which is 30 days following the date the Second Draw Period Milestone is achieved, (ii)September 30, 2021 (iii) and the occurrence of an event of default, other than an event of default that has been waived in writing by Oxford and SVB in their sole discretion. 36 -------------------------------------------------------------------------------- Table of Contents The 2020 Term Loan is secured by a lien on substantially all of our assets, other than intellectual property, provided that such lien on substantially all assets includes any rights to payments and proceeds from the sale, licensing or disposition of intellectual property. We also granted Oxford a negative pledge with respect to our intellectual property. The 2020 Term Loan contains customary covenants and representations, including but not limited to financial reporting obligations and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries. The 2020 Term Loan also contains other customary provisions, such as expense reimbursement, non-disclosure obligations as well as indemnification rights. The events of default under the 2020 Term Loan include, but are not limited to, our failure to make any payments of principal or interest under the 2020 Term Loan or other transaction documents, our breach or default in the performance of any covenant under the 2020 Term Loan or other transaction documents, the occurrence of a material adverse event, making a false or misleading representation or warranty in any material respect under the 2020 Term Loan, our insolvency or bankruptcy, any attachment or judgment on our assets of at least approximately$0.5 million , or the occurrence of any default under any of our agreements or obligations involving indebtedness in excess of approximately$0.5 million . If an event of default occurs, Oxford and SVB are entitled to take enforcement action, including acceleration of amounts due under the 2020 Term Loan. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility. For a further description of the 2020 Term Loan, see Note 9 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report. Plan of operations and future funding requirements As of the date of this Quarterly Report, we have not generated any product sales. We do not know when, or if, we will generate revenue from product sales. We will not generate significant revenue from product sales unless and until we obtain regulatory approval and commercialize one of our current or future product candidates. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses, and general overhead costs. We expect that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to risks in the development of our products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We expect that we will need substantial additional funding to support our continuing operations. As ofJune 30, 2021 , we had an accumulated deficit of$424.7 million . We anticipate operating losses to continue for the foreseeable future due to, among other things, costs related to research, development of our product candidates, conducting preclinical studies and clinical trials, and our administrative organization. We will require substantial additional financing to fund our operations and to continue to execute our strategy, and we will pursue a range of options to secure additional capital. We are exploring various sources of funding such as strategic collaborations and the issuance of equity to fund our operations. If we raise additional funds through strategic collaborations and alliances, which may include existing collaboration partners, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. To the extent that we raise additional capital through the sale of equity, the ownership interest of our existing shareholders will be diluted and other preferences may be necessary that adversely affect the rights of existing shareholders. We believe that our existing cash, cash equivalents, marketable securities and restricted cash as ofJune 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2023. Additionally, while the potential economic impact brought by and the duration of the COVID-19 pandemic may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital as and when needed. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including: •the number of product candidates that we pursue; •our collaboration agreements remaining in effect, our entering into additional collaboration agreements and our ability to achieve milestones under these agreements; •the cost of manufacturing clinical supplies of our product candidates; •our headcount growth and associated costs; •the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates; 37
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Table of Contents •the costs, timing and outcome of regulatory review of our product candidates; •the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; •the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; •the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; •the effect of competing technological and market developments; and •the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates. As noted above, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity future funding requirements is uncertain as of the filing date of this Quarterly Report as this continues to evolve globally.
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