SEC Filing | Codiak BioSciences

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2022


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

For the transition period from _______________ to _______________

Commission File Number: 001-39615

CODIAK BIOSCIENCES, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	47-4926530
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
35 CambridgePark Drive, Suite 500 Cambridge, MA	02140
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 949-4100

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

CDAK

Nasdaq Global Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of April 29, 2022, the registrant had 22,493,867 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
PART I.
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	4
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021	5
	Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41
PART II.		42
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
Signatures		44

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•

the success, cost and timing of our product development activities, preclinical studies and clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

•

the design and conduct of our clinical trials of exoSTING and exoIL-12 and planned clinical trial of exoASO-STAT6;

•

our ability to successfully advance any of our engEx product candidates into and through clinical trials, or obtain marketing approval;

•

the potential and capabilities of our engEx Platform, engEx product candidates and engEx discovery programs;

•

the potential and capability of our engEx Platform to generate additional engEx product candidates;

•

our ability to secure from Lonza Rockland, Inc. (“Lonza”), under our manufacturing arrangement with them, sufficient supply of our product candidates for, clinical trials or commercial use, if approved;

•

our ability to successfully procure from third parties sufficient supply of, our product candidates for preclinical studies, clinical trials or commercial use, if approved;

•

our ability to utilize our engEx Platform to engineer exosomes to carry various biologically active drug molecules, target specific cell types or cellular pathways or enhance the value of existing drug modalities;

•

the potential indications that we may be able to target with engineered exosomes generated from our engEx Platform;

•

the size, composition and growth potential of the patient populations and markets we intend to target with our engEx product candidates and our ability to develop and commercialize engEx product candidates to address those patient populations and markets;

•

the ability and willingness of our current and future collaborators to continue research and development activities relating to our engEx exosomes;

•

our ability to maintain regulatory approval, if obtained, of any of our current or future engEx product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;

•

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;

•

our ability to license intellectual property relating to our product candidates and to comply with our existing license and collaboration agreements;

•

our ability to commercialize our products, if approved, in light of the intellectual property rights of others;

•

developments relating to the use of exosomes to develop therapeutics;

•

the success of competing therapies that are or become available;

•

our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

•

the commercialization of our product candidates, if approved;

•

our plans to research, develop and commercialize our engEx product candidates and enhance the capabilities of our engEx Platform;

•

our ability to attract collaborators with development, regulatory and commercialization expertise;

•

future agreements with third parties in connection with the commercialization of our product candidates and any other approved product;

•

the rate and degree of market acceptance of our product candidates;

•

regulatory developments in the United States and foreign countries;

•

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

•

our ability to attract and retain key scientific or management personnel;

•

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

•

the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•

the impact of laws and regulations; and

•

the direct or indirect impact of the COVID-19 pandemic on our business, operations, development timelines and the markets and communities in which we and our partners, collaborators, vendors and customers operate.

In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Summary of the Material Risks Associated with Our Business” and under the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ("2021 Annual Report"), and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10‑Q.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances that may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in our 2021 Annual Report, and this Quarterly Report on Form 10-Q.

NOTE REGARDING COMPANY REFERENCES

Unless the context otherwise requires, the terms “Codiak,” “the Company,” “we,” “us,” and “our” in this Form 10-Q refer to Codiak BioSciences, Inc. and its consolidated subsidiaries.

Item 1. Financial Statements

CODIAK BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and per share data)


	MARCH 31,			DECEMBER 31,
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	56,494		$	76,938
Prepaid manufacturing services		7,308			7,315
Prepaid expenses and other current assets		6,111			5,918
Total current assets		69,913			90,171
Property and equipment, net of accumulated depreciation of $12,887 and $11,809		22,456			23,479
Restricted cash		4,170			4,170
Operating right-of-use assets		21,638			21,957
Prepaid manufacturing services, net of current portion		31,893			31,893
Total assets	$	150,070		$	171,670
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,516		$	1,838
Accrued expenses		6,808			9,703
Deferred revenue		442			12,963
Operating lease liabilities		2,775			2,661
Total current liabilities		11,541			27,165
Long-term liabilities:
Deferred revenue, net of current portion		30,503			30,686
Note payable, net of discount		25,514			25,430
Operating lease liabilities, net of current portion		34,133			34,884
Total liabilities		101,691			118,165
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock, $0.0001 par value; 150,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 22,493,867 and 22,383,830 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		2			2
Additional paid-in capital		381,652			378,750
Accumulated deficit		(333,275	)		(325,247	)
Total stockholders’ equity		48,379			53,505
Total liabilities and stockholders’ equity	$	150,070		$	171,670

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

CODIAK BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except share and per share data)


	THREE MONTHS ENDED MARCH 31,
	2022			2021
Revenue:
Collaboration revenue	$	12,704		$	13,191
Total revenue		12,704			13,191
Operating expenses:
Research and development		14,248			16,550
General and administrative		6,707			6,588
Total operating expenses		20,955			23,138
Loss from operations		(8,251	)		(9,947	)
Other income (expense):
Other income		819			332
Interest income		4			5
Interest expense		(600	)		(698	)
Total other income (expense), net		223			(361	)
Net loss	$	(8,028	)	$	(10,308	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.36	)	$	(0.51	)
Weighted average common shares outstanding, basic and diluted		22,436,938			20,333,398

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

CODIAK BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(Unaudited, in thousands, except share data)


	COMMON STOCK				ADDITIONAL PAID-IN		ACCUMULATED			TOTAL STOCKHOLDERS
	SHARES		AMOUNT		CAPITAL		DEFICIT			EQUITY
Balance at December 31, 2021		22,383,830	$	2	$	378,750	$	(325,247	)	$	53,505
Stock-based compensation		—		—		2,349		—			2,349
Net loss		—		—		—		(8,028	)		(8,028	)
Issuance of common stock upon at-the-market offering, net of issuance costs of $17		110,037		—		553		—			553
Balance at March 31, 2022		22,493,867	$	2	$	381,652	$	(333,275	)	$	48,379


	COMMON STOCK				ADDITIONAL PAID-IN		ACCUMULATED			TOTAL STOCKHOLDERS
	SHARES		AMOUNT		CAPITAL		DEFICIT			EQUITY
Balance at December 31, 2020		18,787,579	$	2	$	302,655	$	(288,090	)	$	14,567
Exercise of options to purchase common stock		46,807		—		316		—			316
Stock-based compensation		—		—		2,273		—			2,273
Issuance of common stock upon public offering, net of issuance costs of $560		3,162,500		—		61,868		—			61,868
Net loss		—		—		—		(10,308	)		(10,308	)
Balance at March 31, 2021		21,996,886	$	2	$	367,112	$	(298,398	)	$	68,716

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

CODIAK BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	THREE MONTHS ENDED MARCH 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(8,028	)	$	(10,308	)
Adjustments to reconcile net loss to net cash from operating activities:
Stock-based compensation expense		2,349			2,273
Non-cash interest expense		84			135
Depreciation and amortization expense		1,078			1,386
Prepaid expenses and other current assets		(193	)		273
Prepaid manufacturing services		7			-
Operating right-of-use assets		319			236
Accounts payable		(265	)		270
Accrued expenses		(2,860	)		(1,696	)
Deferred revenue		(12,704	)		(12,345	)
Operating lease liabilities		(638	)		139
Net cash used in operating activities		(20,851	)		(19,637	)
Cash flows from investing activities:
Purchases of property and equipment		(182	)		(1,526	)
Net cash used in investing activities		(182	)		(1,526	)
Cash flows from financing activities:
Proceeds from exercise of common stock options		-			316
Proceeds from issuance of common stock upon at-the-market offering, net of fees		589			62,204
Net cash provided by financing activities		589			62,520
Net (decrease) increase in cash, cash equivalents and restricted cash		(20,444	)		41,357
Cash, cash equivalents and restricted cash, beginning of period		81,108			93,085
Cash, cash equivalents and restricted cash, end of period	$	60,664		$	134,442
Supplemental disclosures:
Cash paid for interest	$	516		$	563
Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	24		$	457
Deferred offering costs included in accrued expenses	$	67		$	336

	AS OF MARCH 31,
Reconciliation to amounts within the consolidated balance sheets	2022			2021
Cash and cash equivalents	$	56,494		$	130,272
Restricted cash		4,170			4,170
Cash, cash equivalents and restricted cash at end of period	$	60,664		$	134,442

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

CODIAK BIOSCIENCES, INC.

Notes to CONDENSED Consolidated Financial Statements

(Unaudited)

1. Nature of the Business

Codiak BioSciences, Inc. (collectively, with its consolidated subsidiaries, any of "Codiak", "we", "us", or the "Company") was incorporated in Delaware on June 12, 2015 and is headquartered in Cambridge, Massachusetts. Codiak is a clinical-stage biopharmaceutical company focused on pioneering the development of exosome-based therapeutics, a new class of medicines with the potential to transform the treatment of a wide spectrum of diseases with high unmet medical need. Exosomes have evolved as intercellular transfer mechanisms for complex, biologically active macromolecules and have emerged in recent years as a compelling potential drug delivery vehicle. By leveraging its deep understanding of exosome biology, the Company has developed its engineering and manufacturing platform (the "engEx Platform"), to expand upon the innate properties of exosomes to design, engineer and manufacture novel exosome therapeutics. Codiak has utilized its engEx Platform to generate a deep pipeline of engineered exosomes ("engEx exosomes") aimed at treating a broad range of diseases, including oncology and infectious disease and rare disease. In September 2020, Codiak initiated clinical trials for its two lead product candidates, exoSTING and exoIL-12, which are being developed to address solid tumors. In November 2021, Codiak announced that the U.S. Food and Drug Administration ("FDA"), cleared its Investigational New Drug Application ("IND") for exoASO-STAT6. This will be Codiak’s first systemically delivered exosome therapeutic candidate. To its knowledge, exoSTING, exoIL-12 and exoASO-STAT6 are the first engineered exosomes to enter clinical development.

Since its inception, the Company has devoted substantially all of its resources to its research and development efforts, including activities to develop its engEx Platform, advance engEx product candidates into clinical trials, to perform preclinical research to identify potential engEx product candidates, to perform process development to refine Codiak’s exosome engineering and manufacturing processes, and to provide general and administrative support for these operations.

The Company has primarily funded its operations with proceeds from the sales of common stock, redeemable convertible preferred stock, collaborative and research arrangements with Jazz and Sarepta and its Loan and Security agreement with Hercules Capital, Inc. ("Hercules"). As of March 31, 2022, the Company has raised an aggregate of $168.2 million through the issuance of its redeemable convertible preferred stock and convertible debt, net of issuance costs, $24.6 million from its term loan facility with Hercules, net of issuance costs, and received $66.0 million in payments from its collaborations with Jazz and Sarepta. On October 16, 2020, the Company completed its initial public offering ("IPO"), pursuant to which it issued and sold 5,500,000 shares of its common stock at a public offering price of $15.00 per share, resulting in net proceeds of $74.4 million, after deducting underwriting discounts and commissions and other offering expenses. On February 17, 2021, the Company completed a follow-on public offering, pursuant to which it issued and sold 3,162,500 shares of its common stock (inclusive of the exercise of the underwriter’s option to purchase 412,500 additional shares of common stock) at a public offering price of $21.00 per share, resulting in aggregate net proceeds of $61.7 million, after deducting underwriting discounts and commissions and other offering expenses. During the three-month period ended March 31, 2022, the Company raised $0.6 million, utilizing an “at-the-market” offering facility, pursuant to which it sold 110,037 shares of its common stock.

The Company has incurred significant operating losses and negative cash flows from operations since inception and expects to continue to incur operating losses for the foreseeable future. In addition, the Company anticipates that its expenses will increase significantly in connection with ongoing activities to support its engEx Platform development, drug discovery and preclinical and clinical development, in addition to creating a portfolio of intellectual property and providing administrative support.

The Company does not expect to generate significant revenue from sales of its engEx product candidates unless and until clinical development has been successfully completed and regulatory approval is obtained. If the Company obtains regulatory approval for any of its investigational products, it expects to incur significant commercialization expenses.

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company expects that its cash and cash equivalents of $56.5 million as of March 31, 2022 will be insufficient to allow the Company to fund its current operating plan through at least the next 12 months from the issuance of these financial statements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date these financial statements are issued. Accordingly, the Company will be required to raise additional funds through a public equity financing, establish collaborations with, or license its technology to other companies, seek alternative means of financial support or both, in order to continue to fund its operations in the future. There can be no assurance, however, that additional fund raising will be successful and available on terms acceptable to the Company, or at all. If the Company is unable to raise capital when needed or on attractive terms, it may be forced to delay, reduce or eliminate certain costs related to its operations and research and development programs.

The Company is subject to those risks associated with any biopharmaceutical company that has substantial expenditures for research and development. There can be no assurance that the Company’s research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations.

2. Summary of Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements that accompany these notes have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting, consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 Annual Report"). Any reference in these notes to applicable guidance is meant to refer to the authoritative accounting principles generally accepted in the US as found in the Accounting Standard Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB"). This report should be read in conjunction with the consolidated financial statements in our 2021 Annual Report on Form 10-K for the fiscal year 2021 as filed with the SEC on March 10, 2022.

The consolidated financial statements include the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

We have made estimates and judgments affecting the amounts reported in our consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our estimates, including critical accounting policies or estimates related to revenue recognition, stock-based compensation, accrued expenses, leases, gain upon derecognition, contingent consideration, prepaid manufacturing assets and impairment assessments. We base our estimates on historical experience and various relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results that we experience may differ materially from our estimates.

Recently Adopted Accounting Pronouncements

The accounting policies the Company follows are set forth in its audited financial statements for fiscal year 2021. There have been no material changes to these accounting policies except as noted below for new accounting pronouncements adopted at the beginning of fiscal year 2022.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes (ASU 2019-12), as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12, also clarifies and simplifies other aspects of the accounting for income taxes. The Company adopted this standard on January 1, 2022. The adoption of this standard did not have a material impact on the Company's financial position or results of operations.

3. Derecognition of Business

Arrangement Summary

On November 1, 2021, the Company entered into an Asset Purchase Agreement ("APA") with Lonza Rockland, Inc. ("Lonza"). Under the terms of the APA, Lonza acquired all of the assets, properties and rights related to the Company’s business of manufacturing exosomes for use in clinical and non-clinical studies and the associated laboratory facility, with the exception of any activities associated with exosome modification and formulation. The closing of the transactions contemplated by the APA (the "Lonza Closing") occurred on November 15, 2021. At the Lonza Closing, certain specialized manufacturing and quality personnel of the Company became employees of Lonza (the "Transferred Employees").

In connection with the Lonza Closing, the Company entered into a Manufacturing Services Agreement ("MSA") with Lonza which became effective on November 15, 2021. Pursuant to the terms of the MSA, Lonza became the exclusive manufacturing partner for the production of the Company’s exosome products, subject to limited exceptions. As consideration for the transactions contemplated by the APA and the associated ancillary agreements, the Company is entitled to approximately $65.0 million worth of exosome manufacturing services for its clinical programs during the next four years. To the extent the Company elects to use any free and/or discounted manufacturing services available under the MSA, it would be responsible for bearing any accompanying materials costs, external costs and a handling fee. Lonza is permitted to terminate the MSA with 12 months advance notice provided at any time after November 15, 2023. Accordingly, the Company’s ability to utilize the free and discounted manufacturing services available under the MSA in periods beyond November 15, 2024 is subject to Lonza’s right to terminate. The MSA may also be terminated upon the occurrence of certain other events, including customary termination provisions.

Concurrently with the Lonza Closing, the Company and Lonza executed a License and Collaboration Agreement (the "License Agreement") on November 15, 2021. Pursuant to the terms of the License Agreement, the Company granted to Lonza an exclusive, worldwide, perpetual and sublicensable license to its high-throughput exosome manufacturing intellectual property in the contract development and manufacturing field. The Company is eligible to receive from Lonza a double-digit percentage of future sublicensing revenues per the terms of the License Agreement. No sublicensing revenue had been received by the Company or earned by Lonza through March 31, 2022.

Also contemporaneous with the Lonza Closing, the Company and Lonza entered into a Sublease Agreement (the "Sublease Agreement"), pursuant to which Lonza subleased the premises at which the Company’s exosome manufacturing operations were located. The initial lease term commenced on November 15, 2021 and continues through November 30, 2024. Under the terms of the Sublease Agreement, Lonza is obligated to pay the Company approximately $1.0 million of fixed rent charges per year, subject to a 2.8% annual increase, plus certain operating expenses and other costs. The Company retained the primary obligation under the original lease upon execution of the Sublease Agreement.

Upon termination of the MSA on or prior to December 31, 2025, some aspects of the transactions contemplated by the APA and related ancillary agreements are required to be reverted, including with respect to certain assets, properties and rights that were transferred to Lonza. Upon termination or expiration of the Sublease Agreement at any time after December 31, 2025, some aspects of the transactions contemplated by the APA and related ancillary agreements are subject to potential reversion at Lonza’s option, including with respect to certain assets, properties and rights that were transferred to Lonza.

Accounting Analysis

The APA and pertinent elements of the MSA, the License Agreement and the Sublease Agreement comprise a single transaction because they were entered into in contemplation of one another and designed to achieve an overall commercial effect. Together, the related transactions consummated amongst the multiple contracts culminate in the transfer of the Company’s exosome manufacturing operations to Lonza (the "Lonza Transfer Transaction").

The Lonza Transfer Transaction represents the disposition of a business. Accordingly, the Company applied the derecognition guidance in ASC 810 in accounting for the transaction since Lonza is not a customer for any aspect of the arrangement. The Company’s control over the exosome manufacturing business transferred to Lonza was lost upon the closing of the APA and related ancillary agreements on November 15, 2021. Therefore, the Company recognized a gain upon derecognition on November 15, 2021.

The gain was calculated as the difference between: (i) the fair value of the non-cash consideration and (ii) the carrying amount of the underlying group of assets. Because Lonza is entitled to terminate the MSA for any or no reason with 12 months’ notice after November 15, 2023, the Company determined that any non-cash consideration scheduled beyond November 15, 2024 is contingent consideration since its ability to utilize the associated free and discounted manufacturing services is subject to Lonza’s right to terminate. The Company also treated the sublicensing revenue that may become payable under the License Agreement as contingent consideration as the receipt of any such amounts is dependent on Lonza engaging in sublicensing transactions, which is not expected to be material. Neither of the elements of contingent consideration is required to be accounted for as a derivative instrument because either the payments do not meet the definition of a derivative or qualify for a scope exception from derivative accounting.

Consequently, the consideration attributable to the Lonza Transfer Transaction is limited to the non-cash consideration due to the Company under the MSA and the sublicensing fees to which the Company is entitled under the License Agreement. The Company recorded the aggregate consideration, including the contingent consideration, at its fair value as of November 15, 2021. The aggregate fair value of the non-cash consideration represents the total discounted cash flows associated with the manufacturing expenditures expected to be avoided over the period the free and discounted services are available. The value of the costs that would otherwise be incurred was determined in reference to comparable costs charged by unrelated third-parties. The Company also incorporated a breakage factor in deriving the estimated fair value of the non-cash consideration to reflect expectations around utilization by the Company and termination by Lonza. The Company classified the MSA as a Level 3 fair value measurement for the periods presented. The discounted cash flow approach relies primarily on Level 3 unobservable inputs, whereby expected future cash flows are discounted using a rate that includes assumptions regarding an entity’s average cost of debt and equity, incorporates expected future cash flows based on internal business plans, and applies certain assumptions about risk and uncertainties. As of November 15, 2021, the Company estimated the aggregate fair value of such non-cash consideration, including the associated contingent consideration, to be approximately $39.2 million. The Company does not expect to earn any significant sublicensing fees or other consideration from the transaction.

Amounts payable under the Sublease Agreement based on the contractually stated rates approximate the fair value of the associated rights conveyed as of November 15, 2021. Therefore, the Company has accounted for the Sublease Agreement separately from the disposition of the business. No amount has been allocated from the other consideration in the arrangement to this element.

The Company has recorded the aggregate fair value of the non-cash consideration as a prepaid manufacturing services asset as of November 15, 2021. The Company will amortize the prepaid manufacturing services asset as requested services are rendered by Lonza under the MSA, subject to impairment assessments. Such amount is classified as current or noncurrent based on the timing of when the associated services are expected to be utilized by the Company. Amounts expected to be consumed within the 12 months following March 31, 2022 are classified within current assets as prepaid manufacturing services as of March 31, 2022, while the remainder is classified as a noncurrent asset as of March 31, 2022. The Company has not utilized any of the prepaid manufacturing services as of March 31, 2022.

4. Fair Value Measurements

The following tables present information about the Company’s assets measured at fair value on a recurring basis, and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):


	MARCH 31, 2022
	TOTAL		LEVEL 1		LEVEL 2		LEVEL 3		NOT SUBJECT TO LEVELING(1)
Assets:
Cash equivalents:
Money market funds	$	1	$	—	$	—	$	—	$	1
	$	1	$	—	$	—	$	—	$	1


	DECEMBER 31, 2021
	TOTAL		LEVEL 1		LEVEL 2		LEVEL 3		NOT SUBJECT TO LEVELING(1)
Assets:
Cash equivalents:
Money market funds	$	67,603	$	—	$	—	$	—	$	67,603
	$	67,603	$	—	$	—	$	—	$	67,603

(1)

Certain cash equivalents that are valued using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

As of March 31, 2022 and December 31, 2021, the Company’s cash equivalents consisted of money market funds invested in US Treasury securities with original maturities of less than 90 days from the date of purchase.

5. Accrued Expenses

Accrued expenses consist of the following (in thousands):


	MARCH 31, 2022		DECEMBER 31, 2021
Accrued employee compensation	$	3,470	$	5,142
Accrued external research and development costs		1,852		2,420
Accrued professional services and consulting		988		1,523
Accrued facilities costs		90		190
Other expenditures		408		428
	$	6,808	$	9,703

6. Leases

The Company has several long-term non-cancelable lease arrangements for its facilities, expiring at various times through 2029. Certain arrangements have free rent periods or escalating rent payment provisions; costs under such arrangements are recognized on a straight-line basis over the life of the leases. The Company has two locations in Massachusetts, its office and laboratory, located in Cambridge and manufacturing space, located in Lexington, which is currently being leased and operated by Lonza (Note 3).

Operating Leases

4 Hartwell Place

On March 5, 2019, the Company entered into a lease for manufacturing space at 4 Hartwell Place, in Lexington, Massachusetts. Under the terms of the lease, the Company leases 18,707 square feet for $0.9 million per year in base rent, which is subject to a 2.6% annual rent increase during the initial lease term, plus certain operating expenses and taxes. The lease term commenced in July 2019 and will end in December 2029. The Company has the option to extend the lease twice, each for a five-year period, on the same terms and conditions as the current lease, subject to a change in base rent based on market rates. The Company had fully occupied the space as of December 31, 2020. Upon execution of the lease agreement, the Company provided a security deposit of $0.4 million which is held in the form of a letter of credit and was classified as non-current restricted cash as of March 31, 2022 and December 31, 2021. The lease provided the Company with a tenant improvement allowance of $1.3 million, which is being amortized as a reduction to rent expense over the remaining lease term. As of March 31, 2021, the Company had received all $1.3 million of the tenant improvement allowance. Costs incurred related to the allowance are capitalized as leasehold improvements.

On November 15, 2021, the Company entered into an amendment to the lease (the "Master Lease Amendment") for the property located at 4 Hartwell Place in Lexington, Massachusetts. The only change to the terms of the lease was to increase the base rent by $0.1 million per year. There were no initial direct costs incurred, incremental incentives received or any other payments made to or by the Company with respect to the Master Lease Amendment. The Company accounted for the changes made to the lease agreement as a lease modification. The Company determined that the associated lease should continue to be accounted for as an operating lease with a lease term commensurate with the initial lease term which ends in December 2029. The Company remeasured the lease liability as of November 15, 2021 based on the then-current applicable incremental borrowing rate resulting in an increase of $1.0 million which was offset by an equal adjustment made to the corresponding right-of-use asset.

35 CambridgePark Drive

On March 22, 2019, the Company entered into a non-cancelable property lease for its corporate headquarters, which included office and laboratory space at 35 CambridgePark Drive, in Cambridge, Massachusetts. Under the terms of the lease, the Company leases 68,258 square feet for $4.9 million per year in base rent, which is subject to a 3.0% annual rent increase during the initial lease term, plus certain operating expenses and taxes. The Company accounts for this lease as an operating lease. The lease term commenced on March 26, 2019 and is expected to end in November 2029. The Company has the option to extend the lease for a 10-year period on the same terms and conditions as the current lease, subject to a change in base rent based on market rates. The Company occupied the space in February 2020 as its new corporate headquarters. Upon execution of the lease agreement, the Company provided a security deposit of $3.7 million which is held in the form of a letter of credit and is classified as non-current restricted cash as of March 31, 2022 and December 31, 2021. The lease provides the Company with a tenant improvement allowance of $12.3 million, subject to reduction for a 2% construction oversight fee due to the landlord, which is being amortized as a reduction to rent expense over the remaining lease term. The Company has received all $12.3 million of the tenant improvement allowance. Costs incurred related to the allowance are capitalized as leasehold improvements.

Subleases

4 Hartwell Place

On November 15, 2021, the Company entered into a sublease agreement with Lonza for the entirety of its leased space at 4 Hartwell Place in Lexington, Massachusetts. Under the terms of the Sublease Agreement, Lonza is obligated to pay the Company base rent of $1.0 million per year, subject to a 2.8% annual increase, plus certain operating expenses and other costs. The initial lease term commenced on November 15, 2021 and continues through November 30, 2024. Lonza has the option to extend the sublease term for five 12-month periods on the same terms and conditions as the current sublease, subject to an increase of 2.8% in the annual fixed rent charges. Additionally, Lonza has the right to have the associated master lease assigned to it beginning on January 1, 2026, subject to the landlord’s consent. As of March 31, 2022, the Company has not been legally released from its primary obligations under the original lease. Therefore, the Company continues to account for the original lease as it did before commencement of the sublease, inclusive of the effects of the Master Lease Amendment. The Company determined that the sublease term is commensurate with the initial sublease term because it is not reasonably certain that any of the extension options will be exercised.

35 CambridgePark Drive

On April 27, 2020, the Company entered into a sublease for 23,280 square feet of its leased space at 35 CambridgePark Drive. Under the terms of the sublease, the sublessee was to pay the Company $1.3 million per year, which was subject to a 3.0% annual rent increase, plus certain operating expenses. The lease term commenced on May 18, 2020 and was expected to end in May 2022. Effective July 1, 2021, the sublessee exercised its option to extend the sublease for a one-year period through May 2023, on the same terms and conditions as the current sublease, subject to a change in base rent based on the greater of (i) an increase of 3% of the annual rent owed by the sublessee in year two, and (ii) market rent for the subleased premises. Upon execution of the sublease agreement, the sublessee provided the Company a security deposit of $0.3 million which is held in the form of a letter of credit.

During the three months ended March 31, 2022 and 2021, the Company recognized sublease income of $0.8 million and $0.4 million, respectively, which is presented in other income.

The components of operating lease costs were as follows (in thousands):


	FOR THE THREE MONTHS ENDED MARCH 31,
	2022			2021
Operating lease costs	$	1,240		$	1,209
Short-term lease costs		4			6
Variable lease costs		642			669
Sublease income		(822	)		(357	)
	$	1,064		$	1,527

Variable lease costs were primarily related to operating expenses, taxes and utilities associated with the operating leases, which were assessed based on the Company’s proportionate share of such costs for the leased premises.

Additional lease information is summarized in the following table (in thousands, except lease term and discount rate):


	FOR THE THREE MONTHS ENDED MARCH 31,
	2022			2021
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,558		$	1,483
Weighted-average remaining lease term - operating leases (years)		7.7			8.7
Weighted-average discount rate - operating leases		10.1	%		10.0	%

Undiscounted cash flows used in calculating the Company’s operating lease liabilities and amounts to be received under the sublease at 35 CambridgePark Drive and 4 Hartwell Place as of March 31, 2022 are as follows (in thousands):


Fiscal Year	OPERATING LEASE PAYMENTS		SUBLEASE RECEIPTS		NET OPERATING LEASE PAYMENTS
2022 (remainder of the year)	$	4,694	$	2,281	$	2,413
2023		6,436		1,965		4,471
2024