ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
Magenta Therapeutics, Inc. is a biotechnology company previously focused on improving stem cell transplantation. Our drug development pipeline included multiple clinical and preclinical product candidates that were designed to improve stem cell transplant. Our MGTA-117 product candidate was designed as an antibody drug conjugate, or ADC, to deplete CD117-expressing stem cells in the bone marrow in order to make room for subsequently transplanted stem cells or ex vivo gene therapy products. Our second targeted conditioning product candidate, MGTA-45 (formally known as CD45-ADC), was an ADC designed to selectively target and deplete both stem cells and immune cells and was intended to replace the use of chemotherapy-based conditioning prior to stem cell transplant in patients with blood cancers and autoimmune diseases. Lastly, our MGTA-145 product candidate, in combination with plerixafor, was designed to improve the stem cell mobilization process by which stem cells are mobilized out of the bone marrow and into the bloodstream to facilitate their collection for subsequent transplant back into the body.
In January 2023, we voluntarily paused dosing in our MGTA-117 Phase 1/2 clinical trial for MGTA-117 in patients with relapsed/refractory acute myeloid leukemia, or AML, and myelodysplastic syndromes, or MDS, after the last participant dosed in Cohort 3 in the clinical trial experienced a Grade 5 serious adverse event, or SAE, (respiratory failure and cardiac arrest resulting in death) deemed to be possibly related to MGTA-117. This safety event was reported to the FDA as the study’s third safety event which is of a type referred to as a “Suspected, Unexpected, Serious Adverse Reaction,” or SUSAR. The FDA subsequently placed the study on partial clinical hold in February 2023.
In February 2023, after a review of Magenta’s programs, resources and capabilities, including anticipated costs and timelines, we announced the decision to halt further development of our programs. Specifically, we discontinued the MGTA-117 Phase 1/2 clinical trial in patients with AML and MDS. We discontinued the MGTA-145 Phase 2 stem cell mobilization clinical trial in patients with sickle cell disease, or SCD. Lastly, we stopped incurring certain costs relating to MGTA-45, including manufacturing and costs relating to certain other activities that were intended to support an investigative new drug application, or IND, for MGTA-45 (previously named CD45-ADC). As a result of these decisions, we conducted a corporate restructuring that resulted in a reduction in our workforce by 84%.
Coinciding with the decisions related to our programs and across the portfolio, we announced that we intended to conduct a comprehensive review of strategic alternatives for us and our assets. As part of our strategic review process, we focused on potential strategic alternatives that include, without limitation, an acquisition, merger, business combination or other transaction, as well as strategic transactions regarding our product candidates and related assets, including, without limitation, licensing transactions and asset sales. In April 2023, we sold certain assets, including intellectual property, related to our product candidates MGTA-45, MGTA-145 and the CD117 antibodies including the clinical antibody that was used with MGTA-117, and we are continuing to explore strategic alternatives related to our other assets.
After a comprehensive review of strategic alternatives, including identifying and reviewing potential candidates for a strategic transaction, on May 2, 2023, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Dianthus Therapeutics, Inc., or Dianthus, pursuant to which our wholly-owned will merge with and into Dianthus, with Dianthus surviving as our wholly-owned subsidiary, referred to hereinafter as the Merger. The Merger was unanimously approved by our board of directors, and the board resolved to recommend approval of the Merger Agreement to our stockholders. The closing of the Merger is subject to approval by our and Dianthus’ stockholders, as well as other customary closing conditions, including the effectiveness of a registration statement filed with the SEC in connection with the transaction and Nasdaq’s approval of the listing of the shares of our common stock to be issued in connection with the transaction. If the Merger is completed, the business of Dianthus will continue as the business of the combined company.
Concurrently with the execution of the Merger Agreement, certain parties have entered into subscription agreements with Dianthus, pursuant to which they have agreed to purchase, immediately prior to the consummation of the Merger, shares of Dianthus common stock and pre-funded warrants for an aggregate purchase price of approximately $70.0 million. The consummation of the transactions contemplated by such agreements is conditioned on the satisfaction or waiver of the conditions set forth in the Merger Agreement and in the subscription agreement. The Merger and related financing are expected to close in the third quarter of 2023.
At or prior to the effective time of the Merger, we will enter into a Contingent Value Rights Agreement, or CVR Agreement, with a rights agent, or the Rights Agent, pursuant to which our pre-Merger common stockholders will receive one contingent value right, or CVR, for each outstanding share of our common stock held by such stockholder on such date. Each CVR will represent the contractual right to receive certain net proceeds, if any, derived from any consideration that is paid to us as a result of the disposition
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of our pre-Merger legacy assets by December 31, 2023, net of any indemnity obligations, transaction costs and certain other expenses, during the period that is three years after the closing of the Merger. The contingent payments under the CVR Agreement, if they become payable, will become payable to the Rights Agent for subsequent distribution to the holders of the CVRs subject to certain withholdings for expenses and potential indemnity claims. In the event that no such proceeds are received, holders of the CVRs will not receive any payment pursuant to the CVR Agreement. There can be no assurance that any holders of CVRs will receive any payments with respect thereto.
Our future operations are highly dependent on the success of the Merger and there can be no assurances that the Merger will be successfully consummated. There can be no assurance that the strategic review process or any transaction relating to a specific asset, including the Merger or any asset sale, will result in us pursuing such a transaction(s), or that any transaction(s), if pursued, will be completed on terms favorable to us and our stockholders in the existing entity or any possible entity that results from a combination of entities. If the strategic review process is unsuccessful, our board of directors may decide to pursue a dissolution and liquidation.
Since our inception in 2015 and until recently, we had focused substantially all of our efforts and financial resources on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying potential product candidates and undertaking preclinical studies and clinical trials, including MGTA-117, MGTA-45 and MGTA-145. We do not have any products approved for sale and have not generated any revenue from product sales.
Since our inception, we have incurred significant operating losses. Net losses were $29.2 million for the three months ended March 31, 2023 and $76.5 million for the year ended December 31, 2022. As of March 31, 2023, we had an accumulated deficit of $431.2 million.
We expect to continue to incur costs and expenditures in connection with the process of evaluating our strategic alternatives and the Merger. There can be no assurance, however, that we will be able to successfully consummate any particular strategic transaction, including the Merger. The process of continuing to evaluate strategic transactions and pursuing the Merger may be very costly, time-consuming and complex, and we have incurred, and may in the future incur, significant costs related to these processes, such as legal, accounting and advisory fees and expenses and other related charges. A considerable portion of these costs will be incurred regardless of whether any particular course of action is implemented or transaction is completed, including the Merger. Any such expenses will decrease the remaining cash available for use in our business. In addition, any strategic business combination or other transactions that we may consummate in the future, including the Merger, could have a variety of negative consequences and we may implement a course of action or consummate a transaction that yields unexpected results that adversely affects our business and decreases the remaining cash available for use in our business or the execution of our strategic plan. There can be no assurances that any particular course of action, business arrangement, transaction, including the Merger, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value or achieve the anticipated results. Any failure of such potential transaction to achieve the anticipated results could significantly impair our ability to enter into any future strategic transactions and may significantly diminish or delay any future distributions to our stockholders.
Should we resume development of product candidates, our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more product candidates. In addition, we will incur substantial research and developments costs and other expenditures to develop such product candidates, particularly as we:
•initiate and conduct preclinical studies and clinical trials of product candidates;
•develop any other future product candidates we may choose to pursue;
•seek marketing approval for product candidates that successfully complete clinical development, if any;
•maintain compliance with applicable regulatory requirements;
•develop and scale up our capabilities to support preclinical activities and clinical trials for product candidates and commercialization of product candidates for which we obtain marketing approval, if any;
•maintain, expand, protect and enforce our intellectual property portfolio;
•develop and expand our sales, marketing and distribution capabilities for product candidates for which we obtain marketing approval, if any; and
•expand our operational, financial and management systems and increase personnel, including to support our clinical development and commercialization efforts and our operations as a public company.
If we resume development of product candidates, we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for such product candidates. If we obtain regulatory
23
approval for product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution. Further, we expect to incur additional costs associated with operating as a public company.
Should we resume development of product candidates, we will need substantial additional funding to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing and distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. Additionally, because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. Accordingly, if we fail to raise capital or enter into necessary strategic agreements, or fail to ever become profitable, we may have to significantly delay, scale back or discontinue the development and commercialization of product candidates, and we may also be forced to reduce or terminate our operations.
As of March 31, 2023, we had cash, cash equivalents and marketable securities of $78.2 million. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for the next 12 months from the issuance date of this Quarterly Report on Form 10-Q. See “– Liquidity and Capital Resources.”
Impact of the COVID-19 Pandemic
The COVID-19 pandemic, including the emergence of various variants, has caused and could continue to cause significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets.
The future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations and financial condition will depend on future developments, which are uncertain and cannot be predicted with confidence. These developments may include, without limitation, changes in the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, including the adoption, administration and effectiveness of available vaccines, the effect of any restrictions within the Cambridge community or regions in which our partners are located and the direct and indirect economic effects of the pandemic and containment measures. See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.
Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts, and the development of our product candidates, which include:
•employee-related expenses, including salaries and related costs, and stock-based compensation expense, for employees engaged in research and development functions;
•expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with contract research organizations, or CROs;
•the cost of consultants and third-party contract development and manufacturing organizations, or CDMOs, that manufacture drug products for use in our preclinical studies and clinical trials;
•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies; and
•payments made under third-party licensing agreements.
We expense research and development costs to operations as incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.
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Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to consultants, central laboratories, contractors, CDMOs and CROs in connection with our preclinical and clinical development activities. We do not allocate employee costs, costs associated with our platform technology or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.
Should we resume development of product candidates, the successful development and commercialization is highly uncertain. This is due to the numerous risks and uncertainties, including the following:
•successful completion of preclinical studies and clinical trials;
•receipt and related terms of marketing approvals from applicable regulatory authorities;
•raising additional funds necessary to complete clinical development of and commercialize product candidates;
•obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for product candidates;
•making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of product candidates;
•developing and implementing marketing and reimbursement strategies;
•establishing sales, marketing and distribution capabilities and launching commercial sales of products, if and when approved, whether alone or in collaboration with others;
•acceptance of products, if and when approved, by patients, the medical community and third-party payors;
•effectively competing with other therapies;
•obtaining and maintaining third-party coverage and adequate reimbursement;
•protecting and enforcing our rights in our intellectual property portfolio;
•maintaining a continued acceptable safety profile of the products following approval; and
•the impact of the COVID-19 pandemic on our industry, the healthcare system, and our current and future operations.
Should we resume development of product candidates, a change in the outcome of any of these variables with respect to the development of such product candidates would significantly change the costs and timing associated with their development. We may never succeed in obtaining regulatory approval for any product candidates.
Research and development activities have historically been central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to decrease in the near future as we halted the development of our product candidates while we explore strategic alternatives. Should we resume development of product candidates, we expect research and development costs to increase significantly for the foreseeable future as the product candidate development programs progress.
Inflation generally affected us by increasing our cost of labor and clinical trial costs. While we do not believe that inflation had a material effect on our financial condition and results of operations during the periods presented, it may result in increased costs in the foreseeable future.
General and Administrative Expenses
General and administrative expenses primarily consist of salaries and related costs, and stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs and insurance costs, as well as professional fees for legal, patent, consulting, pre-commercialization, accounting and audit services. We expect our general and administrative expenses to decrease in the near future due to our recent workforce reductions. We do expect to incur significant costs, however, related to our exploration of strategic alternatives and the Merger, including legal, accounting and advisory expenses and other related charges.
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Restructuring and Other Charges
Restructuring and other charges consist primarily of costs incurred related to the corporate restructuring announced in February 2023, including severance and retention as well as lease termination, loss on disposal of property and equipment and impairment of assets held for sale.
Interest and Other Income, Net
Interest and other income, net, consists of interest income and miscellaneous income and expense unrelated to our core operations.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
|
(in thousands) |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
7,995 |
|
|
$ |
16,547 |
|
|
$ |
(8,552 |
) |
General and administrative |
|
|
6,132 |
|
|
|
7,287 |
|
|
|
(1,155 |
) |
Restructuring and other charges |
|
|
18,003 |
|
|
|
— |
|
|
|
18,003 |
|
Total operating expenses |
|
|
32,130 |
|
|
|
23,834 |
|
|
|
8,296 |
|
Loss from operations |
|
|
(32,130 |
) |
|
|
(23,834 |
) |
|
|
(8,296 |
) |
Interest and other income, net |
|
|
2,960 |
|
|
|
884 |
|
|
|
2,076 |
|
Net loss |
|
$ |
(29,170 |
) |
|
$ |
(22,950 |
) |
|
$ |
(6,220 |
) |
Research and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
|
(in thousands) |
|
Direct research and development expenses by program: |
|
|
|
|
|
|
|
|
|
Conditioning |
|
$ |
3,378 |
|
|
$ |
6,436 |
|
|
$ |
(3,058 |
) |
Mobilization |
|
|
217 |
|
|
|
1,132 |
|
|
|
(915 |
) |
Unallocated expenses: |
|
|
|
|
|
|
|
|
|
Personnel-related (including stock-based compensation) |
|
|
2,004 |
|
|
|
5,888 |
|
|
|
(3,884 |
) |
Consultant (including stock-based compensation) |
|
|
119 |
|
|
|
277 |
|
|
|
(158 |
) |
Facility related and other |
|
|
2,277 |
|
|
|
2,814 |
|
|
|
(537 |
) |
Total research and development expenses |
|
$ |
7,995 |
|
|
$ |
16,547 |
|
|
$ |
(8,552 |
) |
Expenses related to our conditioning program decreased primarily due to a decrease of $1.8 million in costs related to MGTA-117 and a decrease of $1.5 million in costs related to MGTA-45. The decrease in costs related to MGTA-117 was primarily due to the discontinuance of the Phase 1/2 clinical trial in patients with R/R AML and MDS. The decrease in costs related to MGTA-45 was due to the decision to halt certain activities intended to support an IND, including manufacturing. The decrease in expenses in our mobilization program was primarily due to the discontinuance of the MGTA-145 Phase 2 clinical trial in patients with SCD.
The decrease in personnel-related costs was primarily due to a decrease in headcount in our research and development function as a result of the corporate restructuring that occurred in the three months ended March 31, 2023 and a decrease in stock-based compensation. Personnel-related costs for the three months ended March 31, 2023 and 2022 included stock-based compensation expense of less than $0.1 million and $0.5 million, respectively. The decrease in facility related and other costs was primarily due to lower research and lab supplies resulting from the halting of all research activities during the first quarter of 2023.
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General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
|
(in thousands) |
|
Personnel-related (including stock-based compensation) |
|
$ |
1,808 |
|
|
$ |
3,452 |
|
|
$ |
(1,644 |
) |
Professional and consultant |
|
|
2,445 |
|
|
|
1,612 |
|
|
|
833 |
|
Facility related and other |
|
|
1,879 |
|
|
|
2,223 |
|
|
|
(344 |
) |
Total general and administrative expenses |
|
$ |
6,132 |
|
|
$ |
7,287 |
|
|
$ |
(1,155 |
) |
The decrease in personnel-related costs was due primarily to a decrease in stock-based compensation and a decrease in headcount in our general and administrative function as a result of the corporate restructuring announced in February 2023. Personnel-related costs for the three months ended March 31, 2023 and 2022 included stock-based compensation expense of $0.5 million and $1.4 million, respectively. The increase in professional and consultant costs was primarily due to higher legal and consultant costs in connection with our review of strategic alternatives and the licensing and sale of assets. The decrease in facility related and other costs was primarily due to lower recruitment fees.
Restructuring and Other Charges
Restructuring and other charges for the three months ended March 31, 2023 consisted primarily of costs incurred related to the corporate restructuring announced in February 2023, including severance and retention of $6.3 million, lease termination of $8.1 million related to the termination of our Cambridge, Massachusetts lease, loss on disposal of property and equipment of $3.4 million, primarily related to leasehold improvements, and impairment of assets held for sale of $0.3 million related to the planned disposition of certain lab equipment.
Interest and Other Income, Net
Interest income and other income, net for the three months ended March 31, 2023 consisted primarily of reimbursement of $1.1 million of expenses incurred under current vendor agreements during the exclusivity period prior to the sale of certain conditioning assets, interest income of $0.9 million and sublease income of $0.8 million. Interest income and other income, net for the three months ended March 31, 2022, consisted primarily of sublease income of $0.8 million and interest income of $0.1 million. The increase in interest income was due to higher interest rates.
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have not yet commercialized any product candidates, and, should we resume development of product candidates, we do not expect to generate revenue from sales of such product candidates for several years, if at all. Since our initial public offering in June 2018, we have funded our operations primarily with proceeds from the sale of our common stock in both private and public offerings.
We have a shelf registration statement on Form S-3, or the Shelf, on file with the SEC, which covers the offering, issuance and sale of up to an aggregate of $250.0 million of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We also entered into a sales agreement, as amended, with Cowen and Company, LLC, as sales agent to provide for the issuance and sale by us of up to $50.0 million of common stock from time to time in “at-the-market” offerings under the Shelf, or the ATM Program. The Shelf was declared effective by the SEC on August 12, 2022. To date, we have sold 1,644,200 shares of our common stock under the ATM Program at a weighted average price per share of $1.82 resulting in net proceeds of $2.8 million after commissions and offering costs. As of March 31, 2023, $247.0 million remained available under the Shelf, including up to $47.0 million available for sale under the ATM Program.
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Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(in thousands) |
|
Net cash used in operating activities |
|
$ |
(35,599 |
) |
|
$ |
(19,741 |
) |
Net cash provided by (used in) investing activities |
|
|
26,496 |
|
|
|
(40,144 |
) |
Net cash provided by financing activities |
|
|
— |
|
|
|
— |
|
Net decrease in cash, cash equivalents and restricted cash |
|
$ |
(9,103 |
) |
|
$ |
(59,885 |
) |
Operating Activities
During the three months ended March 31, 2023, operating activities used $35.6 million of cash, primarily resulting from our net loss of $29.2 million and net cash used by changes in our operating assets and liabilities of $19.5 million, partially offset by non-cash activities of $13.1 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2023 consisted primarily of a decrease of $15.6 million in operating lease liabilities and a decrease of $4.5 million in accounts payable and accrued expenses and other current liabilities, partially offset by a decrease of $0.6 million in prepaid expenses and other current assets. The decrease in operating lease liabilities was primarily due to a payment of $14.8 million in connection with the termination of our Cambridge, Massachusetts sublease in March 2023.
During the three months ended March 31, 2022, operating activities used $19.7 million of cash, primarily resulting from our net loss of $23.0 million, partially offset by non-cash charges of $3.2 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2022 was less than $0.1 million and consisted of a decrease of $0.7 million in operating lease liabilities partially offset by an increase of $0.5 million in accounts payable and accrued expenses and other current liabilities and a decrease of $0.1 million in prepaid expenses and other current assets.
Changes in accounts payable, accrued expenses and other current liabilities and prepaid expenses and other current assets in both periods were generally due to the timing of vendor invoicing and payments.
Investing Activities
During the three months ended March 31, 2023, net cash provided by investing activities was primarily attributable to net maturities of marketable securities of $25.2 million and proceeds from the sale of property and equipment of $1.5 million.
During the three months ended March 31, 2022, net cash used by investing activities was primarily attributable to purchases of marketable securities of $40.1 million.
Financing Activities
During the three months ended March 31, 2023 and 2022, there were no financing activities.
Funding Requirements
We currently expect our expenses to decrease in 2023 compared to 2022 due to our decision to halt further development of product candidates and conduct workforce reductions while we explore strategic alternatives, including the Merger. If we decide to resume the development of product candidates, however, we expect our expenses to increase in order to advance preclinical activities and clinical trials for product candidates in development. As of March 31, 2023, we had cash, cash equivalents and marketable securities of $78.2 million. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for the next 12 months from the issuance date of this Quarterly Report on Form 10-Q. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. In addition, our resource requirements could materially change depending on the outcome of our ongoing strategic alternative review process and the Merger. Because our resource requirements could materially change depending on the outcome of our ongoing strategic alternative review process, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including those listed above.
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Until such time, if ever, as we can generate substantial product revenue, and subject to our pursuit of a potential strategic transaction and the consummation of such potential transaction, we expect to finance our future operations through a combination of equity offerings, including sales under our ATM Program, debt financings, collaborations, strategic alliances, marketing and distribution arrangements, or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights as a common stockholder. 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 acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances, marketing and distribution arrangements, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we resume the development of product candidates and are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Nasdaq Delisting Notice
As previously disclosed, on January 31, 2023, we received a written notice from the staff of Nasdaq’s Listing Qualifications Department, notifying us that, for the 30 consecutive business day period between December 15, 2022 through January 30, 2023, the bid price for our common stock had closed below the $1.00 per share minimum bid price requirement for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5450(a)(1), or the Minimum Bid Price Requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days, or until July 31, 2023 to regain compliance with the Minimum Bid Price Requirement. If we fail to satisfy the continued listing requirements of Nasdaq, such as the Minimum Bid Price Requirement, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and may, among other things, adversely impact our ability to raise additional capital or enter into strategic transactions. See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.
Contractual Obligations and Commitments
During the three months ended March 31, 2023, there were no material changes to our contractual obligations and commitments described in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, except as described below.
Lease Obligations
In March 2023, we terminated our sublease for up to approximately 69,000 square feet of office and laboratory space in Cambridge, Massachusetts, resulting in a payment of $14.8 million and the assignment of our sub-sublease to our sublandlord.
License and Collaboration Agreements
In March 2018, we entered into a collaboration agreement with Heidelberg Pharma Research GmbH, or HDPR, whereby the parties agreed to combine our stem cell platform with proprietary antibodies across up to four exclusive targets with HDPR’s proprietary Antibody Targeted Amanitin Conjugates platform. Upon the exercise of certain license rights, we may have been obligated to pay HDPR development, regulatory and commercial milestone payments of up to $83.5 million per target as well as royalties on net sales of products licensed under the agreement. In April 2023, this collaboration agreement was terminated.
We had a license agreement with the President and Fellows of Harvard College, entered into in November 2016, for an exclusive, worldwide, royalty-bearing license for certain technologies related to conditioning and mobilization. We were obligated to pay milestone payments of up to $7.4 million for the first two licensed products upon the achievement of certain development and regulatory milestones and to pay royalties on a product-by-product and country-by-country basis on net sales of products licensed under the agreement. In April 2023, this agreement was amended and restated and a portion of the license agreement related to certain conditioning technology was assigned to a third party in connection with the sale of certain of our conditioning assets.
In November 2022, we entered into a license agreement with ImmunoGen, Inc. for an exclusive, worldwide, royalty-bearing license for certain technology related to one of our conditioning programs. Upon execution of the agreement, we made a nonrefundable payment of $4.4 million in partial consideration for the license. We were also obligated to pay milestone payments of up to $125 million in the aggregate upon the achievement of certain development, regulatory and sales-based milestones and to pay single-digit royalties on a product-by-product and country-by-country basis on net sales of products licensed under the agreement. In April 2023, this license agreement was assigned to a third party in connection with the sale of certain of our conditioning assets.
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Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that of our critical accounting policies described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022, on file with the SEC, the following involve the most judgment and complexity:
•accrued research and development expenses; and
•stock-based compensation.
Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected.