SIO GENE THERAPIES INC. The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (i) the interim unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (ii) the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the fiscal year endedMarch 31, 2021 , included in our Annual Report on Form 10-K, filed with theSecurities and Exchange Commission (the "SEC") onJune 9, 2021 . This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "will," "would" or the negative or plural of these words or similar expressions or variations, although not all forward-looking statements contain these identifying words. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. The forward-looking statements appearing in a number of places throughout this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things:
•the timing and outcome of our exploration of potential strategic alternatives;
•our anticipated uses of cash, cash runway and future cash position;
•the timing, cost and anticipated savings benefits of internal restructurings that we have conducted or may conduct in the future, including headcount reductions;
•our public securities' potential liquidity and trading;
•continued service of, or changes required in, our officers or other key personnel;
•our estimates regarding our results of operations, financial condition, liquidity, capital requirements, prospects, growth and strategies;
•our lack of profitability and the need for additional capital;
•the impact of laws and government regulations; and
•our ability to maintain and operate our business in light of the COVID-19 pandemic;
We have based these forward-looking statements largely on our current expectations and projections about future events, including the responses we expect from the FDA and other regulatory authorities and financial trends that we believe may affect our financial condition, results of operations, business strategy, nonclinical studies and clinical trials and financial needs. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors known and unknown that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other filings with theSEC . These risks are not exhaustive. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements as predictions of future events. 17
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Overview
Historically, we were a clinical-stage company focused on developing gene therapies to radically transform the lives of patients with neurodegenerative diseases. We previously had three clinical-stage programs: AXO-AAV-GM1 for the treatment of GM1 gangliosidosis, AXO-AAV-GM2 for the treatment of GM2 gangliosidosis (including Tay-Sachs and Sandhoff diseases) and AXO-Lenti-PD for the treatment of Parkinson's disease.
Currently, we are winding down these three clinical-stage programs while also working on one pre-clinical program.
InJune 2018 , we entered into the Oxford Agreement with Oxford pursuant to which we received a worldwide, royalty-bearing, sub-licensable license under certain patents and other intellectual property controlled by Oxford to develop and commercialize AXO-Lenti-PD and related gene therapy products. InFebruary 2022 , we provided notice to Oxford to terminate the Oxford Agreement to develop and commercialize AXO-Lenti-PD and related gene therapy product candidates. We determined to terminate the Oxford Agreement and redirect resources to our AXO-AAV-GM1 and -GM2 programs, as well as other strategic initiatives, due to several factors, including the resource requirements and development timelines to reach meaningful value inflection for the program and an increasingly challenging market and regulatory environment for Parkinson's disease. We continued to incur immaterial expenses in connection with the Oxford Agreement until its termination became effective onJune 30, 2022 . InDecember 2018 , we entered into the UMMS Agreement with UMMS pursuant to which we received a worldwide, royalty-bearing, sub-licensable license under certain patent applications and any patents issuing therefrom, biological materials and know-how controlled by UMMS to develop and commercialize gene therapy product candidates, including AXO-AAV-GM1 and AXO-AAV-GM2, for the treatment of GM1 gangliosidosis and GM2 gangliosidosis (including Tay-Sachs disease and Sandhoff disease). InApril 2022 , we provided notice to UMMS to terminate the UMMS Agreement, which termination is expected to become effectiveAugust 31, 2022 . We will continue to conduct clinical operations for the AXO-AAV-GM1 and AXO-AAV-GM2 programs under the UMMS Agreement during the 90-day wind-down/termination period. In parallel with our decision to terminate the AXO-AAV-GM1 and -GM2 programs, inApril 2022 , our board of directors approved and we announced the strategic decision to explore and review a range of strategic alternatives focused on maximizing stockholder value from our existing cash and cash equivalents, including a potential sale, merger, business combination or similar transaction. In connection with these actions, and as approved by our board of directors, we began implementing a significant headcount reduction, which is expected to conclude inAugust 2022 . While we continue to conduct certain pre-clinical research and development initiatives in gene therapy, we expect to devote substantial time and resources to exploring strategic alternatives. Despite devoting significant efforts to identify and evaluate potential strategic alternatives, there can be no assurance that this strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. We have not set a timetable for completion of this strategic review process, and our board of directors has not approved a definitive course of action. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value or that we will make any additional cash distribution to our stockholders. In addition, we expect to incur additional operating expenses associated with the wind-down of the UMMS Agreement and the execution of certain other cost-saving measures. COVID-19 Business Update We are continuing to closely monitor the impact of the global COVID-19 pandemic on our business and operations. We believe that the measures we have previously implemented are appropriate, reflecting both regulatory and public health guidance, to maintain business continuity. We will continue to closely monitor and seek to comply with guidance from governmental authorities and adjust our activities as appropriate. In the conduct of our business activities during the pandemic, we took actions designed to protect the safety and well-being of patients, healthcare workers and employees. For patients previously enrolled in our clinical trials, we worked closely with clinical trial investigators and site staff to continue treatment in compliance with trial protocols and to uphold trial integrity, while working to observe government and institutional guidelines designed to safeguard the health and safety of patients, clinical trial investigators and site staff. While the COVID-19 pandemic has not resulted in a significant delay to our prior clinical development timelines to-date and has not had a significant impact to our historical operations, the COVID-19 pandemic continues to evolve, including as a result of variants. The effects of the COVID-19 pandemic, together with recent macroeconomic uncertainty, could materially impact our strategic goals to explore and review a range of strategic alternatives focused on maximizing stockholder value from our existing cash and cash equivalents, including a potential sale, merger, business combination or similar transaction. The COVID-19 pandemic and related impacts (including inflationary pressures and macroeconomic uncertainty) could result in significant and prolonged disruption of global financial markets, which has negatively impacted and may continue to reduce our ability to access capital, limiting the financial resources available to us as well as to any potential strategic counterparty. 18 -------------------------------------------------------------------------------- We do not yet know the full extent of potential impacts on our business, operations, strategic goals, or the global economy as a whole. However, these effects could harm our operations, and we will continue to monitor the COVID-19 situation closely. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition and results of operations, see the section titled "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q.
Financial Operations Overview
Revenue
We have not generated any revenue from the sale of any products, and we do not expect to generate any revenue unless and until we obtain regulatory approval of and begin to commercialize any product candidates.
Research and Development Expense
Since our inception, our operations have historically been focused primarily on organizing and staffing our company, raising capital, and acquiring, preparing for and advancing our product candidates into clinical development. Our research and development expenses include program-specific costs, as well as unallocated internal costs.
Program-specific costs include:
•direct third-party costs, which include expenses incurred under agreements with CROs and contract manufacturing organizations, the cost of consultants who assist with the development of our product candidates on a program-specific basis, investigator grants, sponsored research, manufacturing costs in connection with producing materials for use in conducting nonclinical and clinical studies, and any other third-party expenses directly attributable to the development of our prior product candidates; and
•payments for research and development milestones, which include costs incurred under our agreements with UMMS and Oxford.
Unallocated internal costs include:
•stock-based compensation expense for research and development personnel;
•personnel-related expenses, which include employee-related expenses, such as salaries, benefits and recruiting expenses, for research and development personnel; and
•other expenses, which include research and development software costs, travel expenses, laboratory facility rental costs and research and development equipment depreciation expenses, as well as the cost of consultants who assist with our research and development but are not allocated to a specific program. Our research and development expenses are expected to decrease substantially in the near term, following the previously announced discontinuation of our AXO-AAV-GM1, AXO-AAV-GM2 and AXO-Lenti-PD programs, as well as the significant reduction in workforce that we implemented inApril 2022 . The AXO-Lenti-PD program was wound down byJuly 31, 2022 and the AXO-AAV-GM1 and AXO-AAV-GM2 programs are expected to be wound down byAugust 31, 2022 , after which our research and development activities will be concentrated on one preclinical program.
General and Administrative Expense
General and administrative expenses consist primarily of employee-related
expenses such as salaries, benefits and travel expenses for our general and
administrative personnel; stock-based compensation, including stock-based
compensation allocated to us from our affiliate, Roivant Sciences Ltd. ("RSL"),
for certain RSL equity instruments granted to certain of our employees
(primarily our former CEO (the "RSL Equity Instruments"), who resigned as our
CEO in January 2022 ); non-employee benefit insurance premiums; third-party legal
and accounting fees; information technology costs; office rent, fixed asset
depreciation and other overhead costs; and consulting services.
During the fiscal year ending March 31, 2023 , we anticipate that our general and
administrative expenses will decrease compared to the fiscal year ended March
31, 2022 , primarily as a result of stock-based compensation expense associated
with the RSL Equity Instruments, for which expensing commenced upon the
liquidity event vesting condition being met upon the closing of RSL's business
combination with Montes Archimedes Acquisition Corp. ("MAAC") on September 30,
2021 and ended by March 31, 2022 .
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Results of Operations for the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended June 30,
2022 2021 Change
Operating expenses:
Research and development expenses
(includes stock-based compensation (benefit) expense of
$(401) and $432 for the three months ended June 30, 2022
and 2021, respectively) $ 5,542 $ 8,058 $ (2,516)
General and administrative expenses
(includes stock-based compensation expense of $242 and
$889 for the three months ended June 30, 2022 and 2021,
respectively) 2,992 3,859 (867)
Total operating expenses 8,534 11,917 (3,383)
Other income, net (124) (19) (105)
Loss before income tax (benefit) expense (8,410) (11,898) 3,488
Income tax benefit (4) (28) 24
Net loss $ (8,406) $ (11,870) $ 3,464 Research and Development Expenses
Our research and development expenses during the three-months ended
Three Months Ended June 30,
2022 2021 Change
Program-specific costs $ 3,484 Unallocated internal costs: Personnel-related 1,542 2,500 (958) Stock-based compensation expense (401) 432 (833) Other 917 1,150 (233) Total research and development expenses$ 5,542
Research and development expenses were$5.5 million for the three months endedJune 30, 2022 and$8.1 million for the three months endedJune 30, 2021 . The$2.5 million decrease was primarily related to decreases in: (i) program-specific costs relating to our prior AXO-Lenti-PD and AXO-AAV-GM1 and AXO-AAV-GM2 programs, which decreased$0.5 million as we began winding down clinical-stage programs subsequent to our termination of the Oxford Agreement and the UMMS Agreement; and (ii) unallocated internal costs, which decreased$2.0 million primarily due to reductions in personnel-related and stock-based compensation costs after announcing the discontinuation of clinical-stage programs and initiating a significant reduction in workforce inApril 2022 . Costs incurred during the quarter endedJune 30, 2022 included$0.6 million of severance expense.Further, the costs incurred during the quarter endedJune 30, 2022 benefitted from the reversal of$0.4 million in stock-based compensation from prior periods resulting from the workforce reduction.
General and Administrative Expenses
General and administrative expenses were$3.0 million for the three months endedJune 30, 2022 and$3.9 million for the three months endedJune 30, 2021 . The decrease of$0.9 million was primarily due to decreases of$0.6 million in stock-based compensation expense and$0.5 million in personnel-related expenses, both related to the workforce reduction that commenced inApril 2022 , partially offset by an increase of$0.3 million in professional fees primarily due to legal fees related to potential strategic alternatives. 20 --------------------------------------------------------------------------------
Other Income, net
Other income, net was$124 thousand and$19 thousand for the three months endedJune 30, 2022 and 2021, respectively. Other income for the three months endedJune 30, 2022 consisted primarily of interest income, partially offset by foreign exchange losses. Other income, net for the three months endedJune 30, 2021 consisted primarily of interest income and foreign exchange gains.
Liquidity and Capital Resources
Sources of Liquidity
Since our initial public offering in
Capital Requirements
We have not yet achieved profitability and expect to continue to incur operating and net losses, as well as negative cash flows from operations, for the foreseeable future. We have not generated any revenue to date. Until such time, if ever, as we can generate substantial product revenue, and subject to our pursuit of strategic alternatives, we expect to primarily finance our cash needs using our existing cash. For the three months endedJune 30, 2022 and the fiscal year endedMarch 31, 2022 , we incurred net losses of$8.4 million and$71.9 million , respectively. As ofJune 30, 2022 , our cash and cash equivalents totaled$54.8 million and our accumulated deficit was$871.4 million . We expect that our existing cash and cash equivalents of$54.8 million atJune 30, 2022 will enable us to fund our current operating plan beyond the twelve-month period following the date that the accompanying unaudited condensed consolidated financial statements and footnotes were issued. In order to meet longer operating requirements, including as we continue to explore and pursue strategic alternatives, we will need additional capital resources. We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Our principal operating focus is currently on pursuing a range of strategic alternatives. We believe we have sufficient cash resources, net of costs which we estimate to incur in relation to such a transaction, to complete a strategic transaction. If we do not complete a strategic transaction, we may consider dissolving the Company and liquidating the assets. In that case, we believe that our cash resources are sufficient to satisfy estimated liabilities and costs of such a process. However, the achievement of a strategic transaction and the associated costs and timing thereof is uncertain and the time, cost and reserves which may be required to be held back for future claims is uncertain so our estimates may prove incorrect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to, the timing and outcome of our exploration of, and execution upon any, potential strategic alternatives, the cost of obtaining necessary intellectual property and defending potential intellectual property disputes, realization of the anticipated benefits of our headcount reduction, and the costs of operating as a public company. We expect to primarily finance our cash needs using our existing cash. We do not currently have any committed external source of funds. We continually assess multiple options to obtain additional funding to support our operations, including proceeds from offerings of our equity securities or debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders' ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Sources of a sufficient amount of financing may not be available to us on favorable terms, if at all, and our ability to raise additional capital has been, and may continue to be, adversely impacted by, among other things, potentially 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. In addition, extreme price and volume fluctuations in the stock market in general, and the Nasdaq Global Select Market, in particular, have resulted in volatile and sometimes decreased stock prices for many companies, including us. Broad market and industry factors, including worsening economic conditions and other adverse effects or developments relating to the evolving effects of the COVID-19 pandemic, may negatively affect the market price of our common stock, regardless of our actual operating performance, and impact our ability to raise sufficient additional capital on acceptable terms, if at all. 21 --------------------------------------------------------------------------------
At-the-Market Equity Offering Program
We have engagedSVB Securities LLC as our agent to sell shares of our common stock from time to time through an at-the-market equity offering program.SVB Securities LLC is entitled to compensation for its services in an amount equal to 3% of the gross proceeds of any of our shares of common stock sold. During the three months endedJune 30, 2022 , we did not sell any shares of common stock under this program. During the three months endedJune 30, 2021 , we sold approximately 0.2 million shares of our common stock for total proceeds of approximately$0.5 million , net of brokerage fees, under this program. As ofJune 30, 2022 , we sold a total of approximately$30.4 million shares of our common stock for aggregate proceeds of approximately$92.0 million , net of brokerage fees, under and since the inception of this program.
Cash Flows
The following table sets forth a summary of our cash flows for each of the periods shown (in thousands):
Three Months
Ended
2022 2021
Net cash used in operating activities $ (8,681) $ (12,652) Net cash (used in) provided by investing activities (277) 4,163 Net cash provided by financing activities - 479 Operating Activities Cash flows from operating activities consist of net loss adjusted for non-cash items, including depreciation and stock-based compensation expenses, as well as the effect of changes in working capital and other activities. For the three months endedJune 30, 2022 , net cash used in operating activities was$8.7 million and was primarily attributable to a net loss of$8.4 million , which includes costs incurred for research and development activities, including CRO fees, manufacturing, regulatory and other clinical trial costs, as well as our general and administrative expenses, in addition to net decreases in accrued expenses and accounts payable of$3.9 million , which were partially offset by a net decrease in prepaid expenses and other current assets of$2.4 million and a decrease in income tax receivable of$1.3 million . For the three months endedJune 30, 2021 , net cash used in operating activities was$12.7 million and was primarily attributable to a net loss of$11.9 million , which includes costs incurred for research and development activities, including CRO fees, manufacturing, regulatory and other clinical trial costs, as well as our general and administrative expenses, in addition to net decreases in accrued expenses and accounts payable of$3.2 million , which were partially offset by$1.3 million of non-cash stock-based compensation expense and a net decrease in prepaid expenses and other current assets of$1.1 million .
Investing Activities
Cash used in investing activities was$0.3 million for the three months endedJune 30, 2022 , consisting of purchases of fixed assets. Cash provided by investing activities was$4.2 million for the three months endedJune 30, 2021 , consisting primarily of$4.3 million of cash proceeds from the sale of our long-term investment in Arvelle, partially offset by purchases of fixed assets.
Financing Activities
For the three months ended
Contractual Obligations
Our contractual obligations did not materially change during the three months endedJune 30, 2022 as compared to those disclosed in our Annual Report on Form 10-K for the year endedMarch 31, 2022 . 22 --------------------------------------------------------------------------------
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles ("GAAP"). The preparation of these unaudited condensed consolidated financial statements and accompanying notes requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting periods. In accordance withU.S. GAAP, we evaluate our estimates and judgments on an ongoing basis. Significant estimates include research and development accruals. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We define our critical accounting policies as those underU.S. GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. Our significant accounting policies are more fully described in Note 2, "Summary of Significant Accounting Policies," to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q and in Note 2, "Summary of Significant Accounting Policies," to our audited consolidated financial statements in our Annual Report on Form 10-K. Not all of these significant accounting policies, however, require that we make estimates and assumptions that we believe are "critical accounting estimates." We believe that our estimates relating to research and development accruals have the greatest potential impact on our consolidated financial statements and consider these to be our critical accounting policies and estimates and are "critical accounting estimates." There have been no material changes to our critical accounting policies and significant judgments and estimates as compared to the critical accounting policies and significant judgments and estimates described in our Annual Report.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see "Note 2(F)-Recent Accounting Pronouncements" in the accompanying notes to the unaudited condensed consolidated financial statements included in "Item 1-Financial Statements" of this Quarterly Report on Form 10-Q for additional information.
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