UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of August
(Commission File No.
(Exact Name of Registrant as Specified in Its Charter)
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (1): __
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (7): __
This Report on Form 6-K (other than the information contained in the press release furnished as Exhibit 99.1 to this Report on Form 6-K) shall be deemed to be incorporated by reference into the registration statement on Form F-3 (File No. 333-259444) and registration statements on Form S-8 (File Nos. 333-242129, 333-242133, 333-259852 and 333-265634) of Freeline Therapeutics Holdings plc and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.
The information contained in the press release furnished as Exhibit 99.1 to this Report on Form 6-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, except as shall be expressly set forth by specific reference in any such filing.
INDEX
PART I |
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Page |
ITEM 1. |
Financial Statements |
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F-1 |
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B. Unaudited Condensed Consolidated Statements of Operations |
F-2 |
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C. Unaudited Condensed Consolidated Statements of Comprehensive Loss |
F-3 |
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D. Unaudited Condensed Consolidated Statements of Shareholders’ Equity |
F-4 |
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E. Unaudited Condensed Consolidated Statements of Cash Flows |
F-5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
F-7 |
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ITEM 2. |
1 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
3 |
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17 |
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PART II |
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ITEM 3. |
18 |
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FREELINE THERAPEUTICS HOLDINGS PLC
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
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June 30, |
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December 31, |
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2022 |
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2021 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Prepaid expenses and other current assets |
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Total current assets |
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NON-CURRENT ASSETS: |
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Property and equipment, net |
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Intangible assets, net |
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Operating lease right of use assets |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease liabilities, current |
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Total current liabilities |
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NON-CURRENT LIABILITIES: |
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Operating lease liabilities, non-current |
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Total liabilities |
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$ |
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$ |
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(Note 10) |
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SHAREHOLDERS’ EQUITY: |
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Ordinary shares, £ |
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— |
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— |
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Deferred shares, £ |
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— |
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— |
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Deferred shares, £ |
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Additional paid-in capital |
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Accumulated other comprehensive gain (loss) |
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( |
) |
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Accumulated deficit |
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( |
) |
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( |
) |
Total shareholders’ equity |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-1
FREELINE THERAPEUTICS HOLDINGS PLC
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
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For the Six Months Ended June 30, |
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2022 |
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2021 |
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OPERATING EXPENSES: |
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Research and development |
$ |
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$ |
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General and administrative |
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Total operating expenses |
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LOSS FROM OPERATIONS: |
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( |
) |
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( |
) |
OTHER INCOME (EXPENSE), NET: |
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Other income (expense), net |
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( |
) |
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Interest income, net |
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Benefit from R&D tax credit |
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Total other income (expense), net |
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( |
) |
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Loss before income taxes |
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( |
) |
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( |
) |
Income tax expense |
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( |
) |
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( |
) |
Net loss |
$ |
( |
) |
$ |
( |
) |
Net loss per share attributable to ordinary |
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( |
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( |
) |
Weighted average ordinary shares outstanding—basic |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
FREELINE THERAPEUTICS HOLDINGS PLC
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(expressed in U.S. Dollars, unless otherwise stated)
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For the Six Months Ended June 30, |
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2022 |
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2021 |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Other comprehensive loss: |
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Foreign currency translation adjustment |
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( |
) |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
FREELINE THERAPEUTICS HOLDINGS PLC
(in thousands, except share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
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ORDINARY |
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DEFERRED |
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DEFERRED |
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DEFERRED |
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ADDITIONAL |
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ACCUMULATED |
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ACCUMULATED |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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SHARES |
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AMOUNT |
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AMOUNT |
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AMOUNT |
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DEFICIT |
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EQUITY |
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Balance at December 31, 2020 |
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$ |
— |
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$ |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
) |
$ |
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Shares issued under employee share purchase plan |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Subdivision of £ |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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— |
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— |
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— |
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— |
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Forfeiture of ordinary shares |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Cancellation of deferred shares |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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— |
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— |
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— |
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— |
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Non-cash share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Unrealized loss on foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
|
( |
) |
Balance at June 30, 2021 |
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$ |
— |
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$ |
— |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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Balance at December 31, 2021 |
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$ |
— |
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$ |
— |
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— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
) |
$ |
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Shares issued under employee share purchase plan |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted share units |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Forfeiture of ordinary shares |
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— |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of ordinary shares, net of issuance cost of $ |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Non-cash share-based compensation |
|
— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Unrealized loss on foreign currency translation |
|
— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
|
— |
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|
( |
) |
Net loss |
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— |
|
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— |
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— |
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— |
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— |
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— |
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— |
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— |
|
|
— |
|
|
— |
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|
( |
) |
|
( |
) |
Balance at June 30, 2022 |
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|
$ |
— |
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|
$ |
— |
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|
— |
|
$ |
— |
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|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
FREELINE THERAPEUTICS HOLDINGS PLC
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
(expressed in U.S. Dollars, unless otherwise stated)
|
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For the Six Months Ended June 30, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities |
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Depreciation and amortization |
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Non-cash share-based compensation expense |
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Deferred income taxes |
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— |
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( |
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Loss on disposal of property and equipment |
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Changes in components of operating assets and liabilities |
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Accounts receivable |
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— |
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Prepaids and other current assets |
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Other non-current assets |
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( |
) |
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( |
) |
Operating lease right of use assets |
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— |
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Accounts payable |
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( |
) |
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Accrued expenses and other current liabilities |
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( |
) |
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Operating lease liabilities, net |
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— |
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Net cash used in operating activities |
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( |
) |
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( |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
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( |
) |
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( |
) |
Net cash used in investing activities |
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( |
) |
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( |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of ordinary shares |
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— |
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Proceeds from employee share purchase plan |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash, cash equivalents and |
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( |
) |
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Net decrease in cash, cash equivalents and restricted cash |
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( |
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( |
) |
Cash, cash equivalents and restricted cash |
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Beginning of period |
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End of period |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW |
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Commitment shares issued to Lincoln Park Capital Fund, LLC |
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— |
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F-5
The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods shown above:
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For the Six Months Ended June 30, |
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2022 |
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2021 |
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Cash and cash equivalents |
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$ |
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$ |
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Long-term restricted cash |
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Total cash, cash equivalents and restricted cash |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-6
FREELINE THERAPEUTICS HOLDINGS PLC
Notes to Unaudited Condensed Consolidated Financial Statements
Freeline Therapeutics Holdings plc (the “Company”) is a clinical-stage biotechnology company developing transformative adeno-associated virus (“AAV”) vector-mediated gene therapies for patients suffering from inherited systemic debilitating diseases. The Company is headquartered in the United Kingdom (“U.K.”) and has operations in Germany and the United States (“U.S.”). The Company is a public limited company incorporated pursuant to the laws of England and Wales.
Going Concern
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development require significant additional research and development efforts, including clinical testing and regulatory approval, prior to any commercialization. These efforts require significant amounts of capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from any product sales.
The Company has funded its operations primarily with proceeds from the sale of its equity securities. The Company has incurred recurring losses since its inception, including net losses of $
The net cash used in operating and investing activities was $
The Company continues to assess its business plans and the impact the COVID-19 pandemic, including related changes in economic, capital market or political conditions, may have on its ability to advance the testing, development and manufacturing of its drug candidates, including as a result of adverse impacts on the research sites, service providers, vendors, or suppliers on whom it relies, or to raise financing to support the development of its drug candidates. No assurances can be given that this analysis will enable it to avoid part or all of any impact from the spread of COVID-19, including variant strains of COVID-19, or its consequences, including downturns in business sentiment generally or in its sector in particular, or with respect to interest rates and inflationary conditions. The COVID-19 pandemic has presented a substantial public health and economic challenge around the world. The Company’s business operations have been impacted to varying degrees. In addition, the responses to COVID-19 by healthcare providers and regulatory agencies have caused disruptions, including interruptions in the Company’s preclinical and clinical trial activities, as well as delays and other disruptions in its manufacturing and supply chain, which the Company also expects will continue in future quarters. The Company cannot presently predict the scope and severity of any potential business disruptions, but if the Company or any of the third parties on whom it relies or with whom it conducts business were to experience business disruptions, its ability to conduct business in the manner and on the timelines presently planned could be materially and adversely impacted.
F-7
The Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements as of and for the year ended December 31, 2021 in the Annual Report on Form 20-F. There have been no material changes to the significant accounting policies during the six months ended June 30, 2022, except as described below.
Leases
Effective
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, current lease liabilities and, if applicable, long-term lease liabilities. The Company has elected to utilize the practical expedient to not recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as incentives received, initial direct costs, or prepayments. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The Company has elected to apply the package of three expedients to all of its leases requiring (1) no reassessment of whether any expired or existing contracts are or contain leases, (2) the lease classification of any expired or existing leases, or (3) the capitalization of initial direct costs for any existing leases.
Assumptions made by the Company at the commencement date are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the stand-alone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.
Entities may elect the practical expedient to not separate lease and non-lease components. The Company has elected this practical expedient to account for the lease and non-lease components together as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only. All the Company’s leases are classified as operating leases.
Operating lease costs are recognized on a straight-line basis over the lease term, and they are categorized within research and development and general and administrative expenses in the consolidated statements of operations. The operating lease cash flows are categorized under net cash used in operating activities in the consolidated statements of cash flows.
The Company subleases certain leased office spaces to third parties and recognizes sublease income on a straight-line basis over the sublease term within research and development.
F-8
Prepaid expenses and other current assets consisted of the following (in thousands):
|
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June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
U.K. R&D tax credit |
|
$ |
|
|
$ |
|
||
Prepaid tax |
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Insurance |
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||
Capacity fee |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Property and equipment, net consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Office equipment and computers |
|
$ |
|
|
$ |
|
||
Fixtures and fittings |
|
|
|
|
|
|
||
Laboratory equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Depreciation and amortization expense was $
Other non-current assets consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Restricted cash |
|
$ |
|
|
$ |
|
||
Deferred offering cost |
|
|
|
|
|
|
||
Deferred tax asset |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Restricted cash consisted of collateral deposits for the office space leased by Freeline Therapeutics GmbH.
F-9
Accrued expenses and other liabilities consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Compensation and benefits |
|
$ |
|
|
$ |
|
||
External research and development expenses |
|
|
|
|
|
|
||
Professional services |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Ordinary Shares
As of June 30, 2022, the Company’s authorized capital consisted of
Registered Direct Offering
On March 10, 2022, the Company entered into a purchase agreement with its majority shareholder, Syncona Portfolio Limited, a subsidiary of Syncona Limited, and certain other existing shareholders providing for the issuance and sale by the Company of
Lincoln Park Capital
On March 18, 2022, the Company entered into a purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) under which the Company may at its discretion, sell to Lincoln Park up to $
Open Market Sale AgreementSM
On November 17, 2021, the Company entered into an Open Market Sale AgreementSM (the "Sales Agreement") with Jefferies LLC ("Jefferies") pursuant to which the Company may issue and sell ADSs having aggregate offering sales proceeds of up to $
F-10
Deferred Shares
Deferred shares are a unit of equity that confer to their holder effectively
Deferred shares are not included in the Company’s potentially dilutive securities as they are not ordinary shares and have
The table below reflects the number of ordinary shares and deferred shares issued and outstanding at June 30, 2022 and December 31, 2021.
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Ordinary shares |
|
|
|
|
|
|
||
Deferred shares of £0.00001 |
|
|
|
|
|
|
||
Deferred shares of £100,000 |
|
|
|
|
|
|
||
Total ordinary and deferred shares |
|
|
|
|
|
|
||
F-11
2020 Equity Incentive Plan
On July 31, 2020, the Company adopted an equity incentive plan (the “2020 Plan”). The 2020 Plan provides for the grant of options, share appreciation rights (“SARs”), restricted shares, dividend equivalents, restricted share units (“RSUs”), and other share-based awards. The maximum number of equity awards originally authorized under the 2020 Plan was
Any equity awards granted under the 2020 Plan or any prior equity incentive plan that expire, lapse, or are terminated, exchanged for cash, surrendered, repurchased or cancelled, without having been fully exercised, or forfeited, will be added back to shares issuable under the 2020 Plan, subject to certain conditions.
The Company has typically granted equity awards under the 2020 Plan that vest over a
2021 Equity Inducement Plan
On September 27, 2021, the Company adopted an equity inducement plan (the “Inducement Plan”). The purpose of the Inducement Plan is to enhance the Company’s ability to attract employees who are expected to make important contributions to the Company by providing these individuals with equity ownership opportunities. Awards under the Inducement Plan are granted as an inducement material to employees entering into employment with the Company. The Inducement Plan provides for the grant of options, SARs, restricted shares, dividend equivalents, RSUs, and other share-based awards. On May 30, 2022, the Board amended the Inducement Plan to authorize an additional
2020 Employee Share Purchase Plan
On July 31, 2020, the Company adopted an employee share purchase plan (the “ESPP”). The purpose of the ESPP is to provide employees the opportunity to purchase ordinary shares or ADSs at
F-12
Employee Shares
The Company measures all non-cash share-based awards using the fair value on the date of grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. Prior to the Company’s initial public offering (“IPO”), the Company granted share-based compensation in the form of ordinary shares, collectively referred to as Employee Shares, to employees and non-employees with both performance and service-based vesting conditions. The Company records expense for these awards using the straight-line method.
A summary of the changes in the Employee Shares from December 31, 2021 through June 30, 2022 is as follows.
|
|
Number of |
|
|
Weighted |
|
||
Unvested balance as of December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
— |
|
|
|
|
|
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested balance as of June 30, 2022 |
|
|
|
|
$ |
|
||
As of June 30, 2022, there was $
Share Options Valuation
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the share options granted to employees and directors during the six months ended June 30, 2022 were as follows:
|
|
For the Six Months |
|
|
|
|
2022 |
|
|
Expected option life (years) |
|
|
||
Expected volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Expected dividend yield |
|
|
— |
|
Share Options
|
|
Number of |
|
|
Weighted |
|
|
Weighted Average Remaining Contractual Term (in years) |
|
|
Aggregate Intrinsic Value (in thousands) |
|
||||
Outstanding as of December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Expired |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Canceled or Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding as of June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Exercisable as of June 30, 2022 |
|
|
|
|
|
|
|
|
— |
|
|
|
- |
|
||
Vested and expected to vest as of June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
F-13
The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s ordinary shares for those share options that had exercise prices lower than the fair value of the Company’s ordinary shares.
The weighted-average grant-date fair value used for the share options granted during the six months ended June 30, 2022 was $
As of June 30, 2022, there was $
Restricted Share Units
The Company has granted (i) RSUs that generally vest over a period of four years from the date of grant and (ii) RSUs to certain new employees in order to compensate them for equity awards forfeited to their previous employers. The latter RSUs generally vest over a period of under
|
|
Number of |
|
|
Weighted |
|
||
Outstanding as of December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Exercised |
|
|
( |
) |
|
|
|
|
Canceled or Forfeited |
|
|
( |
) |
|
|
|
|
Outstanding as of June 30, 2022 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Share-based Compensation Expense
Non-cash share-based compensation expense recorded as research and development and general and administrative expenses is as follows (in thousands):
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Research and development |
|
$ |
|
|
$ |
|
||
General and administrative |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Basic and diluted net loss per share attributable to ordinary shareholders was calculated as follows (in thousands, except share and per share amounts):
|
|
June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Numerator |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss attributable to ordinary shareholders—basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator |
|
|
|
|
|
|
||
Weighted-average number of ordinary shares used in net loss |
|
|
|
|
|
|
||
per share—basic and diluted |
|
|
|
|
|
|
||
Net loss per share attributable to ordinary shareholders—basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
F-14
The Company’s potentially dilutive securities, which include unvested Employee Shares, share options and RSUs, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of ordinary shares outstanding used to calculate both basic and diluted net loss per share attributable to ordinary shareholders is the same.
|
|
June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Unvested ordinary shares |
|
|
|
|
|
|
||
Share options |
|
|
|
|
|
|
||
Restricted share units |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
F-15
Manufacturing and Commercial Supply Agreement
In June 2020, the Company entered into a dedicated manufacturing and commercial supply agreement (the “Manufacturing Agreement”) with a supplier pursuant to which the supplier will reserve certain amounts of manufacturing capacity in its manufacturing facility to supply the Company with its lead product candidate, FLT180a for the treatment of hemophilia B. As consideration for the reserved manufacturing capacity, the Company is required to pay the supplier an annual capacity access fee, subject to inflationary annual increases, excluding any purchase commitment or other fees. Further, the Company was required to make an advance, non-refundable payment to the supplier upon execution of the Manufacturing Agreement. The advance payment is recorded within prepaid, other current assets and other non-current assets and will be applied as a credit towards the annual capacity access fee over eight calendar quarters beginning January 1, 2021.
The Company has committed to an annual minimum purchase commitment throughout the term of the Manufacturing Agreement. The term of the Manufacturing Agreement is effective as of June 30, 2020 and will continue until December 31, 2027. The term will automatically renew for successive
This contract has been included within the contractual obligations table below.
Legal Proceedings
From time to time, the Company may be a party to litigation or subject to claims incident to the ordinary course of business. Regardless of the outcome, litigation is subject to inherent uncertainties and could adversely impact the Company’s reputation, operations, and its operating results or overall financial condition. Currently, there are no pending material legal proceedings to which the Company is a party or to which any of its property is subject, and the Company did not have contingency reserves established for any liabilities as of June 30, 2022 and December 31, 2021. When appropriate in management’s estimation, the Company will record adequate reserves in its financial statements for pending litigation.
Operating Lease Agreements
The following table summarizes the Company’s costs included in the statements of operations related to right of use lease assets entered into through June 30, 2022 (in thousands):
Lease Cost |
|
For the Six Months |
|
|
Operating lease cost |
|
|
|
|
Research and development |
|
$ |
|
|
General and administrative |
|
|
|
|
Short-term lease cost |
|
|
|
|
Sublease income |
|
|
( |
) |
Total lease cost |
|
$ |
|
|
|
|
|
|
|
Other Information |
|
For the Six Months |
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
Weighted-average remaining lease term-operating leases |
|
|
|
|
Weighted-average discount rate-operating leases |
|
|
% |
|
F-16
Contractual Obligations
The following table summarizes the Company’s contractual obligations as of June 30, 2022, and the effects that such obligations are expected to have on its liquidity and cash flows in future periods (in thousands):
Maturity of Contractual Obligation |
|
|
|
|||||
Years Ended December 31, |
|
Operating Leases |
|
|
Purchase Obligations |
|
||
2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total payments |
|
|
|
|
|
|
||
Less: imputed interest |
|
|
( |
) |
|
|
— |
|
Less: foreign exchange (gain)/loss |
|
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
$ |
|
||
The Company recorded rent expense of
Indemnification Agreements
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.
In accordance with the Articles of Association in force on June 30, 2022, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance that may enable it to recover a portion of any amounts paid for future potential claims.
The Company analyzed its transactions with related parties for the six months ended June 30, 2022 and 2021, and determined it had the following material transactions.
Syncona
On March 10, 2022, the Company entered into a purchase agreement with its majority shareholder, Syncona Portfolio Limited, a subsidiary of Syncona Limited, and certain other existing shareholders providing for the issuance and sale by the Company of $
F-17
During the fourth quarter of 2021, the Company undertook a detailed strategic review of its programs and operations. On December 13, 2021, the Company announced its intention to reduce expenses and extend its existing cash runway through a prioritization of its programs and an approximately
The Company accrued $
The liabilities recorded in connection with the restructuring charges are summarized as follows (in thousands):
|
|
Six Months Ended June 30, 2022 |
|
|
Accrued restructuring charges at beginning of period |
|
$ |
|
|
Severance payments |
|
|
( |
) |
Additional restructuring charges |
|
|
|
|
Accrued restructuring charges at end of period |
|
$ |
— |
|
There have been no subsequent events at the date of issue of this balance sheet.
F-18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 6-K contains forward-looking statements that involve substantial risks and uncertainties. Forward-looking statements are any statements other than statements of historical fact. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements contained in this report are based upon information available to us as of the date of this report and, while we believe we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:
1
The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements contained in this report speak only as of the date of this report. You should refer to the section titled “Risk Factors” elsewhere in this report on Form 6-K and Item 3.D. “Key Information—Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2021, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by 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 report.
2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for Freeline Therapeutics Holdings plc (“us,” “we,” “our,” “Freeline,” or “the Company”), together with our unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2022 and June 30, 2021 and accompanying notes thereto, included elsewhere in this report on Form 6-K, and our audited consolidated financial statements and the related notes as of and for the fiscal year ended December 31, 2021 included in our Annual Report on Form 20-F for the year ended December 31, 2021 (the “Annual Report”), which is available through the U.S. Securities and Exchange Commission’s (“SEC”) Electronic Data Gathering and Analysis Retrieval (“EDGAR”) system at http://www.sec.gov.
Some of the information contained in this MD&A, including, but not limited to, information with respect to our plans and strategy for our business and our expectations with respect to liquidity and capital resources, includes forward-looking statements. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks and uncertainties described in the section titled “Risk Factors” elsewhere in this report on Form 6-K and Item 3.D. “Key Information—Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in our Annual Report. Our actual results could differ materially from the results described in or implied by these forward-looking statements.
Overview
We are a clinical-stage, fully integrated, next generation, systemic AAV-based gene therapy company with the ambition of transforming the lives of patients suffering from inherited systemic debilitating diseases. We aim to deliver one-time gene therapy treatments that provide functional cures through permanently sustained physiological protein levels, leveraging the high expression enabled by our proprietary gene therapy platform. Our initial focus is on developing treatments for monogenic diseases with high unmet need.
Since our inception in May 2015, we have devoted substantially all our resources to conducting preclinical studies and clinical trials, organizing and staffing our company, planning our business initiatives, raising capital and establishing our intellectual property portfolio. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily with proceeds from the sale of our equity securities, including net proceeds from our initial public offering, or IPO, in August 2020, and subsequent issuances. Through June 30, 2022, we had received net cash proceeds of approximately $473.9 million from sales of our equity securities.
We have incurred operating losses since inception, including a net loss of $51.1 million and $74.8 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $407.5 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and recurring increasing operating losses for the foreseeable future as we advance our product candidates through preclinical and clinical development, seek regulatory approval, pursue commercialization of any approved product candidates, invest further in our gene therapy platform and seek to identify new gene therapy product candidates. To date, we have developed our product candidates internally, resulting in increased research and development spending but also enabling us to manage our product candidates efficiently through the development and manufacturing process. Our operating losses stem primarily from manufacturing and clinical development activities reflecting the advancement of the portfolio into the clinical phase, and they will continue to increase with our growth initiatives as we progress our product candidates through clinical trials. Furthermore, since the closing of our IPO in 2020, we have incurred and expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, and other expenses that we did not incur as a private company. As a result, we will need substantial additional funding to support our continuing operations and pursue our
3
growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through equity offerings, debt financings, government or third-party funding, marketing and distribution agreements and other collaborations, strategic alliances and licensing arrangements. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.
As of June 30, 2022, we had cash and cash equivalents of $90.0 million. Based on our current operational plans and assumptions, we expect that our current cash and cash equivalents will be sufficient to fund operations for at least 12 months from the issuance date of the unaudited condensed consolidated financial statements contained in this report on Form 6-K. See “—Liquidity and Capital Resources—Funding Requirements” below.
During the fourth quarter of 2021, we undertook a detailed strategic review of our programs and operations. Following this review, we decided to halt further development of our preclinical studies of FLT210, our liver-directed gene therapy product candidate for the treatment of hemophilia A. In an effort to streamline our operations, we also implemented an approximately 25% reduction in the size of our workforce. These changes followed our program optimization, and we believe they will enable us to better focus our time and resources on the highest value activities. We accrued $2.4 million of charges relating to our workforce reduction in the fourth quarter of 2021, which were paid or charged during the six months ended June 30, 2022.
The development of our product candidates and gene therapy platform could be disrupted and materially adversely affected in the future by COVID-19 or another pandemic, epidemic or outbreak of an infectious disease, global hostilities, changes in economic, capital market and political conditions, including fluctuations in commodity prices, inflation, interest rates and foreign currency exchange rates, or disruptions in global supply chains and labor markets. Our business operations have been impacted to varying degrees by the COVID-19 pandemic, which has caused disruptions, including interruptions in our preclinical and clinical trial activities, as well as delays and other disruptions in our manufacturing and supply chain, which we also expect will continue in future quarters.
For example, we have experienced delays in enrollment in our clinical trials, including our ongoing Phase 1/2 MARVEL-1 clinical trial of FLT190 for the treatment of Fabry disease, due to the COVID-19 pandemic. Our ongoing Phase 1/2 B-LIEVE dose confirmation trial of FLT180a for the treatment of hemophilia B, our ongoing Phase 1/2 GALILEO-1 clinical trial of FLT201 for the treatment of Gaucher disease Type 1 and our planned MARVEL-2 long-term clinical study of FLT190 also could be delayed due to government orders and site policies on account of the pandemic. Additionally, some patients in our current or future clinical trials may be unwilling or unable to travel to study sites, enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Any or all of these events would delay our ability to conduct preclinical studies, commence or complete clinical trials or release clinical trial results, including the completion of post-marketing requirements and commitments, make the ongoing collection of data for patients enrolled in studies more difficult or intermittent and could delay our ability to obtain regulatory approval and commercialize our product candidates.
Furthermore, a COVID-19 resurgence, including due to variant strains of COVID-19, could affect our employees or the employees of research sites and service providers on whom we rely as well as those of companies with which we do business, including our suppliers and contract manufacturing organizations, or CMOs, thereby disrupting our business operations. Some of our contract research organizations, or CROs, and contract laboratories provide COVID-19 clinical trial support, testing and vaccine testing. As a result, we have experienced delayed lead times in both the production of some of the materials we require for our clinical testing and for access to testing from our CROs. Additionally, as a result of the COVID-19 pandemic and responses to it, in many cases we have been unable to perform audits of the facilities of our material and service providers to ensure their processes, methods and equipment are compliant with current good manufacturing practices, or cGMP. If any of our material and service providers are found to be noncompliant with cGMP, we may experience delays or disruptions in manufacturing while we work with these third parties to remedy any such violation or identify suitable replacement providers. Continued or sustained delays due to COVID-19, including variant strains of COVID-19, and the responses to it could result in significant delays in our manufacturing, clinical and research operations. We have implemented remote working
4
policies for those employees who can perform their work remotely. Quarantines and travel restrictions imposed by governments in the jurisdictions in which we and the companies with which we do business operate could materially impact the ability of employees who cannot perform their work remotely to access preclinical and clinical sites, laboratories, manufacturing sites and offices.
We continue to assess our business plans and the impact the COVID-19 pandemic, including related changes in economic, capital market or political conditions, may have on our ability to advance the testing, development and manufacturing of our drug candidates, including as a result of adverse impacts on the research sites, service providers, vendors, or suppliers on whom we rely, or to raise financing to support the development of our drug candidates. No assurances can be given that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19, including variant strains of COVID-19, or its consequences, including downturns in business sentiment generally or in our sector in particular, or with respect to the interest rates and inflationary conditions. We cannot presently predict the scope and severity of any potential business disruptions, but if we or any of the third parties on whom we rely or with whom we conduct business were to experience business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely impacted.
Recent Developments
Clinical Trial Updates
On July 10, 2022, we presented safety and initial efficacy data from the first dose cohort in the Phase 1/2 B-LIEVE dose confirmation trial of FLT180a at the International Society on Thrombosis and Haemostasis, or ISTH, Congress held in London, United Kingdom.
As of the data cut-off of May 23, 2022, a one-time FLT180a dose of 7.7e11 vg/kg generated a rapid increase of coagulation factor IX, or FIX, reaching levels in the normal range (93, 92 and 80 IU/dL) for the three patients in cohort 1 through days 77, 56 and 36, respectively. Patients stopped FIX prophylaxis and did not require FIX replacement or experience bleeding following treatment with FLT180a.
The treatment and the prophylactic immune management regimen were well tolerated. No serious adverse events or infusion reactions were observed, and there was no evidence of FIX inhibitors. All adverse events, or AEs, were mild, and most were transient. AEs related to immune management were consistent with the known profiles of corticosteroids and tacrolimus.
Dosing of cohort two was completed in June, with early results showing a similar initial response to FLT180a. Based on the data from cohort one and consistent with the advice of the independent Data Monitoring Committee of the B-LIEVE trial, patients in cohort two received the same dose of FLT180a and prophylactic immune management regimen that were used in the first cohort.
As the data evolved since the data cut-off for cohort one, two patients experienced a decrease in FIX expression together with a mild and transient increase in liver enzymes. All patients continued to have expression levels above baseline, and no patient had experienced a bleed or required FIX supplementation.
On July 10, 2022, we announced that the availability of other treatment options and the need to prioritize our valuable resources dictate that we evaluate strategic options for FLT180a. These include, but are not limited to, seeking a partner that would enable the continuation of FLT180a through Phase 3 development. We expect to report updated safety and efficacy data from the B-LIEVE trial in the second half of 2022.
Dosing in the second dose cohort in the Phase 1/2 MARVEL-1 dose-finding clinical trial of FLT190 and a further program update are expected in the second half of 2022.
Dosing in the Phase 1/2 GALILEO-1 dose-finding clinical trial of FLT201 is expected in the second half of 2022 with initial safety and efficacy data expected in the first half of 2023.
5
Executive Leadership Changes
Nicole Jones was appointed as our Chief People Officer, effective July 11, 2022.
Stephen P. Diamond, Jr. left his position as our Senior Vice President, General Counsel and Company Secretary effective July 15, 2022. Mr. Diamond’s departure was not related to any matter connected with our operations, policies or practices.
2021 Equity Inducement Plan
On May 30, 2022, our board of directors amended our equity inducement plan, or the Inducement Plan, to authorize an additional 2,000,000 shares under the Inducement Plan. The maximum number of equity awards authorized under the Inducement Plan is 3,400,000 shares.
6
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the research and development of our product candidates. Research and development expenses consist of:
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as a prepaid expense or accrued research and development expenses.
Certain of our direct research and development expenses are not tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs and CMOs in connection with our preclinical development, manufacturing and clinical development activities. License fees and other costs incurred after a product candidate has been selected that are directly related to a product candidate are included in direct research and development expenses for that program. License fees and other costs incurred prior to designating a product candidate are included in other program expense. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee research and discovery as well as to manage our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.
Research and development activities are central to our business model. Our research and development expenses may decrease in the near term as a result of the program prioritization and workforce reduction announced in December 2021. However, product candidates in later stages of clinical development generally have higher development costs
7
than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. As a result, we expect that our research and development expenses will continue to increase over the mid- to long-term as we seek to: (i) expedite clinical development and attempt to obtain marketing approval for our product candidates; (ii) initiate additional clinical trials of our product candidates; (iii) improve the efficiency and scalability of our manufacturing processes and supply chain; (iv) continue to discover and develop additional product candidates; and (v) prepare for regulatory filings related to our product candidates. We also expect to incur additional expenses related to milestone, royalty payments and maintenance fees payable to third parties with whom we have entered into license agreements to acquire the rights related to our product candidates.
The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with development and commercialization, including the following:
A change in the outcome of any of these variables with respect to the development of our product candidates could mean a significant change in the costs and timing associated with such development. For example, if the U.S. Food and Drug Administration, the European Medicines Agency, the U.K. Medicines and Healthcare products Regulatory Agency or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to commit significant additional financial resources and time to the completion of clinical development of that product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, non-cash share-based compensation expense, travel and other expenses incurred by personnel in executive, finance and administrative functions. These expenses include professional fees for legal, consulting, accounting and audit services.
We have incurred and expect to continue to incur additional accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.
8
Other Income (Expense), Net
Other Income (Expense), Net
Other income (expense), net consists primarily of realized and unrealized foreign currency transaction gains and losses.
Interest Income, Net
Interest income, net consists of interest income on cash and cash equivalents held in our banking institutions.
Income Tax Expense
We are subject to corporate taxation in the United States, Germany, Ireland and the United Kingdom. Due to the nature of our business, we have generated losses since inception and therefore have not paid corporation tax in either the United Kingdom or Ireland. Our income tax expense represents income taxes in the United States and Germany.
As a company that carries out extensive research and development activities, we seek to benefit from the U.K. research and development tax credit cash rebate, or U.K. R&D tax credit, regimes. The amount of benefits received depends on whether we qualify for a tax credit either as a Small and Medium Enterprise, or SME, or under the Research and Development Expenditure Credit, or RDEC, program. We record the U.K. R&D tax credit benefit within other income (expense), net. The U.K. R&D tax credit is fully refundable to us and is not dependent on current or future taxable income. As a result, we have recorded the entire benefit from the U.K. R&D tax credit as a benefit, which is included in our net loss before income tax and accordingly, not reflected as part of the income tax provision. If, in the future, any U.K. R&D tax credits generated are needed to offset a corporate income tax liability in the United Kingdom, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other income (expense), net.
Qualifying expenditures largely comprise employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive income. Based on criteria established by HM Revenue & Customs, or HMRC, we expect a portion of expenditures being carried out in relation to our pipeline research and development, clinical trials management and manufacturing development activities to be eligible for the RDEC regime for the six months ended June 30, 2022 and 2021. We will assess whether it is possible to qualify under the more favorable SME regime for future accounting periods.
Unsurrendered U.K. losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of U.K. taxable profits. We had accumulated tax losses for carry forward in the United Kingdom of $258.1 million as of December 31, 2021. We have not recognized any deferred tax assets to date in relation to U.K. losses. This treatment is based on the Company being loss making while the clinical programs are not at a commercial stage. We believe there is no reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized.
In the event we generate revenues in the future, we may benefit from the U.K. “patent box” regime that allows profits attributable to revenues from patents or patented products to be taxed at an effective U.K. corporate tax rate of 10% (at current rates).
Value Added Tax, or VAT, in the United Kingdom is broadly charged on all taxable supplies of goods and services by VAT-registered businesses. Under current rates, an amount of 20% (the standard rate of VAT) of the value, as determined for VAT purposes, of the goods or services supplied is added to all sales invoices and is payable to HMRC. Similarly, VAT paid on purchase invoices is generally reclaimable from HMRC. A similar system exists in Germany with differing rates of VAT or Umsatzsteuer (USt) as it is known locally in Germany. Currently the standard rate is 19% in Germany.
9
Results of Operations
Comparison of the Six Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
Six Months Ended June 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
$ |
38,785 |
|
|
$ |
48,132 |
|
|
$ |
(9,347 |
) |
General and administrative |
|
|
16,278 |
|
|
|
24,615 |
|
|
|
(8,337 |
) |
Total operating expenses |
|
|
55,063 |
|
|
|
72,747 |
|
|
|
(17,684 |
) |
Loss from operations |
|
|
(55,063 |
) |
|
|
(72,747 |
) |
|
|
17,684 |
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|||
Other income (expense), net |
|
|
2,973 |
|
|
|
(3,367 |
) |
|
|
6,340 |
|
Interest income, net |
|
|
335 |
|
|
|
265 |
|
|
|
70 |
|
Benefit from R&D tax credit |
|
|
721 |
|
|
|
1,050 |
|
|
|
(329 |
) |
Total other income (expense), net |
|
|
4,029 |
|
|
|
(2,052 |
) |
|
|
6,081 |
|
Loss before income taxes |
|
|
(51,034 |
) |
|
|
(74,799 |
) |
|
|
23,765 |
|
Income tax expense |
|
|
(46 |
) |
|
|
(16 |
) |
|
|
(30 |
) |
Net loss |
|
$ |
(51,080 |
) |
|
$ |
(74,815 |
) |
|
$ |
23,735 |
|
10
Research and Development Expenses
The following table summarizes our research and development expenses for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
Six Months Ended June 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Direct research and development expenses by program: |
|
|
|
|
|
|
|
|
|
|||
FLT180a |
|
$ |
7,303 |
|
|
$ |
7,632 |
|
|
$ |
(329 |
) |
FLT201 |
|
|
3,054 |
|
|
|
7,923 |
|
|
|
(4,869 |
) |
FLT190 |
|
|
3,350 |
|
|
|
1,607 |
|
|
|
1,743 |
|
Pre-clinical and discovery |
|
|
2,947 |
|
|
|
4,610 |
|
|
|
(1,663 |
) |
Unallocated research and development expenses: |
|
|
|
|
|
|
|
|
|
|||
Personnel expenses |
|
|
11,544 |
|
|
|
14,557 |
|
|
|
(3,013 |
) |
Other expenses |
|
|
9,417 |
|
|
|
9,288 |
|
|
|
129 |
|
Non-cash share-based compensation expense |
|
|
1,170 |
|
|
|
2,515 |
|
|
|
(1,345 |
) |
Total research and development expenses |
|
$ |
38,785 |
|
|
$ |
48,132 |
|
|
$ |
(9,347 |
) |
Research and development, or R&D, expenses were $38.8 million for the six months ended June 30, 2022, a decrease of approximately $9.3 million, from $48.1 million for the six months ended June 30, 2021. The decrease in research and development expenses was primarily attributable to the following:
We generally expect these costs to increase year on year to support our plan to advance our pipeline assets through clinical development, although these costs may decrease during the year ended December 31, 2022 due to our strategic prioritization and reduction in workforce.
11
General and Administrative Expenses
The following table summarizes our general and administrative expenses for six months ended June 30, 2022 and 2021 (in thousands):
|
|
Six Months Ended June 30, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Legal and professional fees |
|
$ |
4,585 |
|
|
$ |
7,030 |
|
|
$ |
(2,445 |
) |
Personnel expenses |
|
|
6,159 |
|
|
|
9,116 |
|
|
|
(2,956 |
) |
Facilities and other expense |
|
|
3,869 |
|
|
|
5,297 |
|
|
|
(1,427 |
) |
Non-cash share-based compensation expense |
|
|
1,665 |
|
|
|
3,173 |
|
|
|
(1,508 |
) |
Total general and administrative expenses |
|
$ |
16,278 |
|
|
$ |
24,615 |
|
|
$ |
(8,337 |
) |
General and administrative expenses were $16.3 million for the six months ended June 30, 2022, a decrease of $8.3 million from $24.6 million for the six months ended June 30, 2021. The decrease in general and administrative expenses was primarily attributable to the following:
Total Other Income (Expense), Net
Total other income (expense), net was $4.0 million for the six months ended June 30, 2022, an increase of $6.1 million, from an expense of $2.1 million for the six months ended June 30, 2021. The increase was primarily due to foreign exchange adjustment, which was partially offset by decreases in the U.K. R&D tax credit benefit we received and in interest income, net.
Liquidity and Capital Resources
Since our inception, we have not generated any revenue from product sales or any other sources and have incurred significant operating losses in each period and on an aggregate basis. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. We have funded our operations to date primarily with proceeds from the sale of preferred shares, ordinary shares and ADSs. Through June 30, 2022, we had received aggregate net cash proceeds of $473.9 million from sales of our equity securities.
As of June 30, 2022, we had cash and cash equivalents of $90.0 million. Based on our current operational plans and assumptions, we expect that our current cash and cash equivalents will be sufficient to fund operations for at least 12 months from the issuance date of the unaudited condensed consolidated financial statements contained in this report on Form 6-K.
We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years.
12
Cash Flows
The following table summarizes our cash flows for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash used in operating activities |
|
$ |
(43,203 |
) |
|
$ |
(67,582 |
) |
Net cash used in investing activities |
|
|
(939 |
) |
|
|
(2,660 |
) |
Net cash provided by financing activities |
|
|
27,438 |
|
|
|
105 |
|
Effect of exchange rate changes on cash, cash equivalents and |
|
|
(11,072 |
) |
|
|
4,716 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
$ |
(27,776 |
) |
|
$ |
(65,421 |
) |
Net Cash Used in Operating Activities
Net cash used in operating activities was $43.2 million for the six months ended June 30, 2022, a decrease of $24.4 million, from $67.6 million for the six months ended June 30, 2021, primarily resulting from a decrease of $23.7 million in our net loss to $51.1 million from $74.8 million offset by non-cash charges of $2.8 million and net cash used resulting from changes in our operating assets and liabilities of $4.0 million.
Net Cash Used in Investing Activities
Net cash used in investing activities was $0.9 million for the six months ended June 30, 2022, a decrease of $1.8 million, from $2.7 million for the six months ended June 30, 2021, primarily driven by a decrease in purchases of property and equipment associated with our facility leases.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $27.4 million for the six months ended June 30, 2022, consisting of proceeds from the issuances of ADSs in the registered direct offering and pursuant to the Sales Agreement described below. Net cash provided by financing activities was $0.1 million for the six months ended June 30, 2021.
Funding Requirements
We expect our expenses to decrease in connection with our ongoing activities in the near term as a result of our program prioritization and workforce reduction. However, our expenses will increase over the mid- to long-term as we:
As a publicly-traded company, we are incurring and expect to continue to incur significant legal, accounting, investor relations and other expenses that we were not required to incur as a private company. In addition, the
13
Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and Nasdaq, requires public companies to implement specified corporate governance practices and other rules that were not applicable to us as a private company. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting for the year ending December 31, 2022. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To maintain compliance with Section 404, we are engaging in a process to document and evaluate our internal control over financial reporting, which has been both costly and challenging. In this regard, we will need to continue to dedicate internal resources and engage outside consultants to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are continuing to function as documented and maintain a continuous reporting and improvement process for internal control over financial reporting. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
On September 10, 2021, we filed a shelf registration on Form F-3 (File No. 333-259444) with the SEC, which was declared effective on September 22, 2021, or the Shelf Registration. Under the Shelf Registration, we may offer and sell up to $250.0 million of a variety of securities including ordinary shares (including ordinary shares represented by ADSs), preference shares, purchase contracts, warrants, units or any combination of such securities from time to time during the three-year period that commenced upon the Shelf Registration becoming effective.
On November 17, 2021, we entered into an Open Market Sale AgreementSM, or Sales Agreement, with Jefferies LLC, or Jefferies, pursuant to which we may issue and sell ADSs having aggregate offering sales proceeds of up to $75.0 million, from time to time, in “at-the-market” offerings pursuant to which Jefferies will act as sales agent and/or principal. During the six months ended June 30, 2022, we issued 3,037,616 ADSs pursuant to the Sales Agreement, raising approximately $3.2 million in net proceeds.
On March 10, 2022, we entered into a purchase agreement with our majority shareholder, Syncona Portfolio Limited, a subsidiary of Syncona Limited, and certain other existing shareholders providing for the issuance and sale of $26.1 million of our ADSs at a price of $1.05 per ADS in a registered direct offering. The offering closed on March 15, 2022. We received net proceeds of approximately $24.2 million from the offering, after deducting offering expenses payable by us.
On March 18, 2022, we entered into a purchase agreement with Lincoln Park Capital Fund, LLC, or Lincoln Park, under which we may at our discretion, sell to Lincoln Park up to $35.0 million of our ADSs over a 36-month period, subject to certain daily limits, applicable prices, and conditions. In addition, under the purchase agreement, we issued 954,208 ADSs to Lincoln Park as consideration for its commitment to purchase ADSs under the purchase agreement.
Based on our current operational plans and assumptions, we expect that our current cash and cash equivalents will be sufficient to fund operations for at least 12 months from the issuance date of the unaudited condensed consolidated financial statements. Our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations. 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.
Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates and programs, 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:
14
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity, current ownership interests will be diluted. If we raise additional funds through government or third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, 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. Debt 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. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
Internal Control over Financial Reporting
We have evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that the information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the
15
possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, our disclosure controls and procedures were effective.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this report on Form 6-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Emerging Growth Company Status Accounting Election
As an emerging growth company, we have elected to use the extended transition period under the JOBS Act until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We intend to rely on certain of the other exemptions and reduced reporting requirements provided by the JOBS Act. As an emerging growth company, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b), and (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).
16
RISK FACTORS
Except as set forth below, there have been no material changes to the Company’s risk factors as disclosed in Item 3.D. “Key Information—Risk Factors,” in our Annual Report on Form 20-F for the fiscal year ended December 31, 2021.
We have not maintained compliance with the minimum bid price requirement of $1.00 per share for continued listing on the Nasdaq. If we continue to fail to meet this requirement and Nasdaq determines to delist our ADSs, the delisting would adversely affect the market liquidity of our ADSs and the market price of our ADSs could decrease.
Our ADSs are listed on the Nasdaq. In order to maintain our listing, we must meet minimum financial and other requirements, including the minimum bid price requirement of $1.00 per share for continued listing, as set forth in Nasdaq Listing Rule 5450(a)(1). On May 31, 2022, we received a letter from the Nasdaq indicating that, based upon the closing bid price of our ADSs for the prior 30 consecutive business days, the Company is not currently in compliance with the $1.00 minimum bid price requirement. The notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 days, or until November 28, 2022, to regain compliance with the minimum bid price requirement by having the closing bid price of our ADSs meet or exceed $1.00 per ADS for at least ten consecutive business days. Nasdaq’s notice has no immediate effect on the listing of our ADSs on the Nasdaq.
There can be no assurance that we will meet the minimum bid price requirement or any other requirement in the future. The failure to maintain our listing on the Nasdaq would have an adverse effect on the market price and liquidity of our ADSs. Without a Nasdaq listing, shareholders may have a difficult time getting a quote for the sale or purchase of our ADSs, the sale or purchase of our ADSs would likely be made more difficult, and the trading volume and liquidity of our ADSs could decline. Delisting from the Nasdaq could also result in negative publicity and could make it more difficult for us to raise additional capital.
17
EXHIBIT INDEX
Exhibit |
|
Description |
|
|
|
4.1+ |
|
|
|
|
|
99.1* |
|
|
|
|
|
101 |
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The following materials formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and 2021, (ii) Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the six month periods ended June 30, 2022 and 2021 and, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2022 and 2021 and (iv) Notes to Unaudited Condensed Consolidated Financial Statements. |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document). |
* Furnished herewith.
+ Indicates management contract or compensatory plan.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
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FREELINE THERAPEUTICS HOLDINGS PLC |
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By: |
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/s/ Michael J. Parini |
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Name: |
Michael J. Parini |
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Title: |
Chief Executive Officer |
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By: |
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/s/ Paul M. Schneider |
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Name: |
Paul M. Schneider |
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Title: |
Chief Financial Officer |
Date: August 9, 2022
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