torc-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from                      to                     

Commission File No. 001-38359

 

resTORbio, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

81-3305277

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

500 Boylston Street, 12th Floor

Boston, MA

 

 

02116

(Address of principal executive offices)

 

(Zip Code)

(857) 315-5521

(Registrant’s telephone number, including area code)  

 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

TORC

The Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth Company

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

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

As of May 14, 2019, the registrant had 35,743,278 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

3

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2019 and 2018

4

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended March 31, 2019 and 2018

5

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

28

Signatures

30

 

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

 

our plans to develop and commercialize RTB101 alone or in combination with rapalogs, such as everolimus or sirolimus, and other product candidates for the targeted indications and patient populations, including the therapeutic potential and clinical benefits thereof;

 

our ongoing and future clinical trials for RTB101 alone or in combination with rapalogs, such as everolimus or sirolimus, whether conducted by us or by any future collaborators, including the timing of initiation of these trials and of the anticipated results;

 

the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

 

the rate and degree of market acceptance and clinical utility of any products for which we receive regulatory approval;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

our intellectual property position and strategy;

 

our ability to identify additional product candidates with significant commercial potential;

 

our plans to enter into collaborations for the development and commercialization of product candidates;

 

the potential benefits of any future collaboration;

 

our expectations related to the use of cash, cash equivalents and marketable securities;

 

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

 

developments relating to our competitors and our industry; and

 

the impact of government laws and regulations.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures or investments that we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed or incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

resTORbio, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(In thousands, except share and per share data)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,181

 

 

$

7,042

 

Marketable securities

 

 

135,910

 

 

 

100,986

 

Prepaid expenses

 

 

1,563

 

 

 

1,491

 

Other current assets

 

 

24

 

 

 

15

 

Total current assets

 

 

144,678

 

 

 

109,534

 

Restricted cash

 

 

84

 

 

 

84

 

Property and equipment, net

 

 

318

 

 

 

321

 

Total assets

 

$

145,080

 

 

$

109,939

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,364

 

 

$

2,989

 

Accrued liabilities

 

 

1,245

 

 

 

2,727

 

Total current liabilities

 

 

4,609

 

 

 

5,716

 

Other liabilities

 

 

15

 

 

 

19

 

Total liabilities

 

 

4,624

 

 

 

5,735

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized as of

   March 31, 2019 and December 31, 2018; 35,255,344 and

   28,055,344 shares issued and outstanding as of March 31, 2019 and

   December 31, 2018, respectively; 35,254,844 and 28,054,344

   shares vested as of March 31, 2019 and December 31, 2018,

   respectively

 

 

4

 

 

 

3

 

Additional paid-in capital

 

 

222,882

 

 

 

175,635

 

Accumulated deficit

 

 

(82,462

)

 

 

(71,393

)

Accumulated other comprehensive gain (loss)

 

 

32

 

 

 

(41

)

Total stockholders’ equity

 

 

140,456

 

 

 

104,204

 

Total liabilities and stockholders’ equity

 

$

145,080

 

 

$

109,939

 

 

See accompanying notes to these condensed consolidated financial statements.

3


 

resTORbio, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

8,852

 

 

$

8,106

 

General and administrative

 

 

2,839

 

 

 

2,094

 

Total operating expenses

 

 

11,691

 

 

 

10,200

 

Loss from operations

 

 

(11,691

)

 

 

(10,200

)

Other income, net

 

 

631

 

 

 

341

 

Loss before income taxes

 

 

(11,060

)

 

 

(9,859

)

Income tax expense

 

 

9

 

 

 

 

Net loss

 

$

(11,069

)

 

$

(9,859

)

Net loss per share, basic and diluted

 

$

(0.38

)

 

$

(0.46

)

Weighted-average common shares used in computing net loss

   per share, basic and diluted

 

 

29,014,750

 

 

 

21,523,072

 

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Net loss

 

$

(11,069

)

 

$

(9,859

)

Unrealized gains on marketable securities

 

 

73

 

 

 

 

Comprehensive loss

 

$

(10,996

)

 

$

(9,859

)

 

See accompanying notes to these condensed consolidated financial statements.

 

 

4


 

resTORbio, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands, except share data)

 

 

 

Common Stock

 

 

Additional

Paid In

 

 

Accumulated

 

 

Accumulated Other Comprensive

 

 

Shareholders

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income(Loss)

 

 

(Deficit)

 

Balance at December 31, 2018

 

 

28,054,344

 

 

$

3

 

 

$

175,635

 

 

$

(71,393

)

 

$

(41

)

 

$

104,204

 

Issuance of common stock upon closing of

   public offering, net of issuance costs of $3,455

 

 

7,200,000

 

 

 

1

 

 

 

46,584

 

 

 

 

 

 

 

 

 

46,585

 

Vesting of restricted shares

 

 

500

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

662

 

 

 

 

 

 

 

 

 

662

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,069

)

 

 

 

 

 

 

(11,069

)

Unrealized gain (losses) on marketable securities

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

73

 

 

 

73

 

Balance at March 31, 2019

 

 

35,254,844

 

 

$

4

 

 

$

222,882

 

 

$

(82,462

)

 

$

32

 

 

$

140,456

 

 

 

 

 

 

 

Series A Redeemable

Convertible Preferred Stock

 

 

Series B Redeemable

Convertible Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid In

 

 

Accumulated

 

 

Shareholders

Equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit)

 

Balance at December 31, 2017

 

 

15,527,951

 

 

$

41,674

 

 

 

4,792,716

 

 

$

39,946

 

 

 

 

4,562,640

 

 

$

1

 

 

$

1,849

 

 

$

(33,779

)

 

$

(31,929

)

Conversion of convertible preferred stock into

   common stock upon the closing of initial

   public offering

 

 

(15,527,951

)

 

 

(41,674

)

 

 

(4,792,716

)

 

 

(39,946

)

 

 

 

15,870,559

 

 

 

1

 

 

 

81,619

 

 

 

 

 

 

81,620

 

Issuance of common stock upon closing of initial

   public offering, net of issuance costs of $8,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,516,667

 

 

 

1

 

 

 

89,369

 

 

 

 

 

 

89,370

 

Vesting of restricted shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,096,449

 

 

 

 

 

 

865

 

 

 

 

 

 

865

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

316

 

 

 

 

 

 

316

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,859

)

 

 

(9,859

)

Balance at March 31, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

28,046,315

 

 

$

3

 

 

$

174,018

 

 

$

(43,638

)

 

$

130,383

 

 

See accompanying notes to these condensed consolidated financial statements.

 

5


 

resTORbio, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)  

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(11,069

)

 

$

(9,859

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Accretion on marketable securities

 

 

(247

)

 

 

 

Depreciation and amortization expense

 

 

27

 

 

 

9

 

Stock-based compensation expense

 

 

663

 

 

 

1,181

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Restricted cash

 

 

 

 

 

(84

)

Prepaid expenses and other current assets

 

 

(81

)

 

 

(264

)

Accounts payable

 

 

144

 

 

 

80

 

Accrued liabilities

 

 

(1,482

)

 

 

1,105

 

Funding advance

 

 

 

 

 

500

 

Other liabilities

 

 

(4

)

 

 

28

 

Net cash used in operating activities

 

 

(12,049

)

 

 

(7,304

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(24

)

 

 

(278

)

Maturities of marketable securities

 

 

42,500

 

 

 

 

Purchases of marketable securities

 

 

(77,104

)

 

 

 

Net cash used in investing activities

 

 

(34,628

)

 

 

(278

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offering, net of issuance costs

 

 

46,816

 

 

 

89,938

 

Net cash provided by financing activities

 

 

46,816

 

 

 

89,938

 

Net increase in cash and cash equivalents

 

 

139

 

 

 

82,356

 

Cash and cash equivalents at beginning of period

 

 

7,042

 

 

 

53,349

 

Cash and cash equivalents at end of period

 

$

7,181

 

 

$

135,705

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable

 

$

 

 

$

8

 

Conversion of redeemable convertible preferred stock into common stock

 

$

 

 

$

81,620

 

Issuance costs associated with public offering included in accounts payable

 

$

231

 

 

$

 

 

See accompanying notes to these condensed consolidated financial statements.

 

 

6


 

resTORbio, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization

resTORbio, Inc. (collectively referred to with its wholly-owned, controlled subsidiary, resTORbio Securities Corp. as “resTORbio” or the “Company”) was incorporated in the State of Delaware on July 5, 2016. The Company is a clinical-stage biopharmaceutical company developing innovative medicines that target the biology of aging to prevent or treat aging-related diseases. The Company’s principal operations are located in Boston, Massachusetts.

Since inception, the Company has been primarily involved in research and development activities. The Company devotes substantially all of its efforts to product research and development, initial market development and raising capital. The Company has not generated any product revenue related to its primary business purpose to date and is subject to a number of risks similar to those of other early stage companies, including dependence on key individuals, competition from other companies, the need for development of commercially viable products and the need to obtain adequate additional financing to fund the development of its product candidates. The Company is also subject to a number of risks similar to other companies in the life sciences industry, including regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability and dependence on key individuals.

Public Offering

On March 22, 2019, the Company completed an underwritten public offering, whereby the Company sold 7,200,000 shares of its common stock at a price of $6.95 per share. The aggregate net proceeds received by the Company from the offering were approximately $46.6 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company of $3.5 million. In addition, the Company granted the underwriters a 30-day option to purchase up to an additional 1,080,000 shares of common stock at the public offering price, less underwriting discounts and commissions. On April 10, 2019, the Company sold an additional 487,934 shares of its common stock at a price of $6.95 per share. The aggregate net proceeds received by the Company were approximately $3.1 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company of $0.3 million.

Liquidity

In the course of its development activities, the Company has sustained operating losses and expects such losses to continue over the next several years. The Company’s ultimate success depends on the outcome of its research and development activities. The Company has incurred net losses from operations since inception and has an accumulated deficit of $82.5 million as of March 31, 2019. As of March 31, 2019, the Company had $143.1 million of cash, cash equivalents, and marketable securities, which the Company believes will be sufficient to fund the Company’s current operating plan through at least the next twelve months.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the Company's financial position as of March 31, 2019 and the results of operations and cash flows for the interim periods ended March 31, 2019 and 2018. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 that was filed with the Securities and Exchange Commission (“SEC”) on March 18, 2019 (the “2018 Form 10-K”). Interim results are not necessarily indicative of results for a full year or for any other interim period. The condensed consolidated financial statements include the accounts of resTORbio, Inc. and its wholly owned subsidiary, resTORbio Securities Corp. All inter-company transactions and balances have been eliminated in consolidation.

7


 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities, as of the date of the condensed consolidated financial statements, and the reported amounts of any expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to accrued liabilities, income taxes, and stock-based compensation expense. Management bases its estimates on historical experience, and on various other market-specific relevant assumptions that management believes to be reasonable, under the circumstances. Actual results may differ from those estimates or assumptions.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the 2018 Form 10-K. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2019.

Fair Value Measurements

Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. The authoritative accounting guidance describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable. These levels of inputs are as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3—Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The following table summarizes assets measured at fair value on a recurring basis at March 31, 2019 (in thousands):

 

 

 

 

 

 

 

Active

 

 

Observable

 

 

Unobservable

 

 

 

March 31,

 

 

Markets

 

 

Inputs

 

 

Inputs

 

Description

 

2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Cash

 

$

31

 

 

$

31

 

 

$

 

 

$

 

Money market funds (included in cash and cash equivalents)

 

 

7,150

 

 

 

7,150

 

 

 

 

 

 

 

U.S. treasury securities (included in marketable securities)

 

 

135,910

 

 

 

135,910

 

 

 

 

 

 

 

Total

 

$

143,091

 

 

$

143,091

 

 

$

 

 

$

 

8


 

The following table summarizes assets measured at fair value on a recurring basis at December 31, 2018 (in thousands):

 

 

 

 

 

 

 

Active

 

 

Observable

 

 

Unobservable

 

 

 

December 31,

 

 

Markets

 

 

Inputs

 

 

Inputs

 

Description

 

2018

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Money market funds (included in

   cash and cash equivalents)

 

$

6,804

 

 

$

6,804

 

 

$

 

 

$

 

U.S. treasury securities (included in cash and cash equivalents)

 

 

238

 

 

 

238

 

 

 

 

 

 

 

U.S. treasury securities (included in marketable securities)

 

 

100,986

 

 

 

100,986

 

 

 

 

 

 

 

Total

 

$

108,028

 

 

$

108,028

 

 

$

 

 

$

 

There have been no changes to the valuation methods utilized by the Company during the three months ended March 31, 2019 and 2018. The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of financial instruments between levels during the three months ended March 31, 2019 and 2018.

 

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which requires a lessee to recognize a right-of-use asset and a lease liability for operating leases, initially measured at the present value of the future lease payments, in the balance sheet. ASU 2016-02 also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. This new guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the potential effects of adopting the provisions of ASU 2016-02 on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (“ASU 2016-18”), which requires that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2019 and should be applied using a retrospective transition method to each period presented. Early adoption is permitted. The Company does not expect the impact of ASU 2016-18 to be material to its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Accounting for Certain Financial Instruments with Down Round Features (“ASU 2017-11”), which updates the guidance related to the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Under ASU 2017-11, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. ASU 2017-11 is effective for public entities for all annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the impact of ASU 2017-11 to be material to its consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which intends to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. For public entities, ASU 2018-07 is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition period, ASU 2018-07 is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities but no earlier than the Company’s adoption of ASU No. 2016-10, Revenue from Contracts with Customers (“ASC 606”). The Company is currently evaluating the impact that the adoption of ASU 2018-07 will have on its consolidated financial statements.

9


 

3. Marketable Securities

As of March 31, 2019, the fair value of marketable securities by type of security was as follows (in thousands):

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

Description

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. government agency securities and treasuries

 

$

135,878

 

 

$

32

 

 

$

 

 

$

135,910

 

Total

 

$

135,878

 

 

$

32

 

 

$

 

 

$

135,910

 

As of December 31, 2018, the fair value of marketable securities by type of security was as follows (in thousands):

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

Description

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. government agency treasuries and securities

 

$

101,027

 

 

$

 

 

$

41

 

 

$

100,986

 

Total

 

$

101,027

 

 

$

 

 

$

41

 

 

$

100,986

 

 

The estimated fair value and amortized cost of the Company’s available-for-sale securities by contractual maturity are summarized as follows (in thousands):

 

 

 

March 31, 2019

 

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Due in one year or less

 

$

135,878

 

 

$

135,910

 

Total

 

$

135,878

 

 

$

135,910

 

 

 

 

December 31, 2018

 

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Due in one year or less

 

$

101,027

 

 

$

100,986

 

Total

 

$

101,027

 

 

$

100,986

 

 

4. Property and equipment, net

Property and equipment, net consists of the following:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(In thousands)

 

Leasehold improvements

 

$

68

 

 

$

65

 

Machinery and equipment

 

 

38

 

 

 

38

 

Furniture and fixtures

 

 

210

 

 

 

194

 

Computers

 

 

81

 

 

 

76

 

Office equipment

 

 

11

 

 

 

11

 

Software

 

 

22

 

 

 

22

 

Total property and equipment

 

 

430

 

 

 

406

 

Less: accumulated depreciation

 

 

(112

)

 

 

(85

)

Property and equipment, net

 

$

318

 

 

$

321

 

 

Depreciation and amortization expense was $27,000 and $9,000 for the three months ended March 31, 2019 and 2018, respectively.

10


 

5. Accrued Liabilities

Accrued liabilities consist of the following:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(In thousands)

 

Accrued payroll and related expenses

 

$

557

 

 

$

1,189

 

Accrued research and development expenses

 

 

524

 

 

 

1,028

 

Other

 

 

164

 

 

 

510

 

Total accrued liabilities

 

$

1,245

 

 

$

2,727

 

 

6. License Agreements

Novartis License Agreement

On March 23, 2017, the Company entered into an exclusive license agreement with Novartis International Pharmaceutical Ltd. (“Novartis”). Under the agreement, Novartis granted the Company an exclusive, field-restricted, worldwide license, to certain intellectual property rights owned or controlled by Novartis, to develop, commercialize and sell one or more therapeutic products comprising RTB101 or RTB101 in combination with everolimus in a fixed dose combination. The exclusive field under the license agreement is for the treatment, prevention and diagnosis of disease and other conditions in all indications in humans and animals.

The agreement may be terminated by either party upon a material breach by the other party that is not cured within 60 days after written notice. The Company may terminate the agreement in its entirety or on a product-by-product or country-by-country basis with or without cause with 60 days’ prior written notice.

Novartis may terminate the portion of the agreement related to everolimus if the Company fails to use commercially reasonable efforts to research, develop and commercialize a product utilizing everolimus for a period of three years. Novartis may terminate the license agreement upon the Company’s bankruptcy, insolvency, dissolution or winding up.

As additional consideration for the license, the Company is required to pay up to an aggregate of $4.3 million upon the satisfaction of clinical milestones, up to an aggregate of $24 million upon the satisfaction of regulatory milestones for the first indication approved, and up to an aggregate of $18 million upon the satisfaction of regulatory milestones for the second indication approved. In addition, the Company is required to pay up to an aggregate of $125 million upon the satisfaction of commercial milestones, based on the amount of annual net sales. The Company is also required to pay tiered royalties ranging from a mid single-digit percentage to a low teen-digit percentage on annual net sales of products. These royalty obligations last on a product-by-product and country-by-country basis until the latest of (i) the expiration of the last valid claim of a Novartis patent covering a subject product, (ii) the expiration of any regulatory exclusivity for the subject product in a country, or (iii) the 10th anniversary of the first commercial sale in the country, and are subject to a reduction after the expiration of the last valid claim of a Novartis patent or the introduction of a generic equivalent of a product in a country.

Milestone payments to Novartis will be recorded as research and development expenses in the condensed consolidated statements of operations once achievement of each associated milestone has occurred. In May 2017, the Company initiated a Phase 2b clinical trial for a first indication, triggering the first milestone payment under the agreement. Accordingly, the Company paid the related $0.3 million payment in May 2017. As of March 31, 2019, none of the remaining development milestones, regulatory milestones, sales milestones, or royalties had been reached. In May 2019, the Company initiated a Phase 3 clinical trial for the first indication, triggering a milestone payment of $2.5 million under the agreement.

7. Research Funding Agreement

On March 6, 2018, the Company and the Silverstein Foundation for Parkinson’s with GBA (the “Silverstein Foundation”) entered into a research funding agreement (the “Funding Agreement”). One of the Company’s directors is a co-founder and current trustee of the Silverstein Foundation. Under the terms of the Funding Agreement, the Silverstein Foundation will partially fund the preclinical research, development work, and Phase 2 clinical trial expenses (the “Research”) to be conducted and borne by the Company in connection with the development of RTB101, alone or in combination with other products (the “Product”).

 

11


 

Upon execution of the Funding Agreement, the Silverstein Foundation paid the Company an upfront sum of $0.5 million (the “Funding Amount”). The Company is entitled to use the Funding Amount solely to conduct the Research and is obligated to repay the Funding Amount in full to the Silverstein Foundation if it successfully conducts a positive Phase 3 clinical trial of the Product for Parkinson’s Disease. The Company is solely responsible for commencing and conducting the Research and will furnish periodic progress updates to the Silverstein Foundation throughout the term of the Funding Agreement. After completing the Research, the Company must provide the Silverstein Foundation with a formal report describing the work performed and the results of the Research.

The Company recognizes proceeds received from the Silverstein Foundation as a reduction to research and development expenses, rather than as revenue, in the condensed consolidated statements of operations and comprehensive loss because the corresponding Funding Agreement does not contain specified performance obligations other than to conduct research on a particular program or in a particular field and no obligations to deliver specified products or technology.

For funds received under the Funding Agreement, the Company recognizes a reduction in research and development expenses in an amount equal to the qualifying expenses incurred in each period up to the amount funded by the Silverstein Foundation. Funding that has been received by the Company in advance of incurring qualifying expenses is recorded in the condensed consolidated balance sheet as funding advance. No qualifying expenses were incurred during the three months ended March 31, 2019 and 2018. As of March 31, 2019, $0.5 million qualifying expenses have been incurred. Therefore, all amounts received have been recorded as a reduction of the research and development expense.

8. Preferred Stock and Common Stock

As of March 31, 2019, the Company had 10,000,000 shares of preferred stock authorized and none issued and outstanding.

Reserve for future issuance

The Company has reserved the following number of shares of common stock for future issuance upon the exercise of options, vesting of restricted stock units or grant of equity awards:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Options issued and outstanding

 

 

1,706,317

 

 

 

1,122,677

 

Unvested restricted stock units

 

 

24,960

 

 

 

24,960

 

Options available for future grants

 

 

1,889,155

 

 

 

1,350,582

 

Shares available for issuance under the 2018 ESPP

 

 

555,583

 

 

 

275,030

 

Total

 

 

4,176,015

 

 

 

2,773,249

 

 

 

9. Stock-based Compensation

In 2017, the Company adopted the 2017 Stock Incentive Plan (the “2017 Plan”). Under the 2017 Plan, a total of 537,914 shares of the Company’s common stock were reserved for the issuance of stock options to employees, directors, and consultants under terms and provisions established by the Board of Directors (the “Board”). Under the terms of the 2017 Plan, options were granted at an exercise price not less than fair market value. The terms of options granted under the 2017 Plan may not exceed ten years. The Board determined the terms and conditions of a Restricted Stock Award, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any. On October 11, 2017, the Company increased the number of shares of common stock available for issuance under the 2017 Plan from 537,914 shares to 630,662 shares. On November 29, 2017, the Company increased the number of shares of common stock available for issuance under the 2017 Plan from 630,662 shares to 1,866,009 shares.

In connection with the Company’s initial public offering completed in January 2018, the Board adopted and the Company’s stockholders approved the 2018 Stock Incentive Plan (“2018 Plan”), which became effective on the date immediately preceding the date on which the Company’s registration statement became effective. The 2018 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights, and other stock-based awards. The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2018 Plan. The number of shares of common stock that were reserved for issuance under the 2018 Plan were 2,200,260 shares. The 2018 Plan provides that the number of shares reserved and available for

12


 

issuance under the plan will automatically increase each January 1, beginning on January 1, 2019, by 4% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Board. On January 1, 2019, as a result of the foregoing evergreen provision, the number of shares of common stock available for issuance under the 2018 Plan automatically increased from 2,200,260 to 3,322,473 shares.

Since the date of effectiveness of the 2018 Plan, the Company has not and will not grant any further awards under the 2017 Plan. However, any shares of common stock subject to awards under the 2017 Plan that expire, terminate, or otherwise are surrendered, canceled, forfeited or repurchased without having been fully exercised or resulting in any common stock being issued will become available for issuance under the 2018 Plan.

Stock-based Compensation Expense

Total stock-based compensation expense is recognized for stock options granted to employees and non-employees and has been reported in the Company’s condensed consolidated condensed statements of operations as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Research and development

 

$

277

 

 

$

625

 

General and administrative

 

 

386

 

 

 

556

 

Total stock-based compensation expense

 

$

663

 

 

$

1,181

 

 

Stock Options

The following table summarizes stock option activity under the Plans:

 

 

 

Shares

Available for

Grant

 

 

Number of

Options

Outstanding

 

 

Weighted-

Average

Exercise Price

per Option

 

 

Weighted-

Average

Remaining

Contract Term

 

 

Aggregate

Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Outstanding, December 31, 2018

 

 

1,350,582

 

 

 

1,122,677

 

 

$

11.63

 

 

 

9.22

 

 

 

 

 

Shares reserved for issuance

 

 

1,122,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options granted(1)

 

 

(604,440

)

 

 

604,440

 

 

 

8.58

 

 

 

 

 

 

 

 

 

Options cancelled

 

 

20,800

 

 

 

(20,800

)

 

 

9.91

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2019

 

 

1,889,155

 

 

 

1,706,317

 

 

 

10.57

 

 

 

9.30

 

 

$

627

 

Exercisable, March 31, 2019

 

 

 

 

 

 

194,221

 

 

 

11.62

 

 

 

8.70

 

 

 

202

 

Vested and expected to vest, March 31, 2019

 

 

 

 

 

 

1,706,317

 

 

 

10.57

 

 

 

9.30

 

 

 

627

 

 

(1)

The Company granted 9,840 stock options to non-employees during the three months ended March 31, 2019.

The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of March 31, 2019. No options were exercised during the three months ended March 31, 2019.

During the three months ended March 31, 2019, the Company granted options to employees and directors to purchase an aggregate of 594,600 common shares with a weighted-average grant date fair value of $6.65 per share. During the three months ended March 31, 2019, the Company granted options to non-employees to purchase an aggregate of 9,840 common shares with a weighted-average grant date fair value of $5.79 per share. The expense related to options granted to employees and directors for the three months ended March 31, 2019 was $0.6 million. The expense related to options granted to non-employees for the three months ended March 31, 2019 was $7,000. The expense related to options granted to employees, directors and non-employees was $0.3 million and $3,000, respectively, for the three months ended March 31, 2018.

As of March 31, 2019, the total unrecognized compensation expense related to unvested options granted to employees and directors was $10.7 million, which the Company expects to recognize over an estimated weighted-average

13


 

period of 3.30 years. As of March 31, 2019, the total unrecognized compensation expense related to unvested non-employee options was $0.2 million, which the Company expects to recognize over an estimated weighted-average period of 2.99 years.

The fair value of stock options for employees and non-employees was estimated using a Black-Scholes option pricing model with the following assumptions:

 

 

 

Three Months Ended

March 31,

 

 

2019

 

 

2018

Employees:

 

 

 

 

 

 

Fair value of common stock

 

$8.53 - $8.90

 

 

$13.17 - $15.45

Expected term (in years)

 

 

6.1

 

 

5.8 - 6.6

Expected volatility

 

93.7% - 94.8%

 

 

76.1% - 77.7%

Risk-free interest rate

 

2.5% - 2.6%

 

 

2.4% - 2.7%

Expected dividend yield

 

0.0%

 

 

0.0%

Non-employees:

 

 

 

 

 

 

Fair value of common stock

 

$6.82 - $8.61

 

 

$9.58 - $15.45

Expected term (in years)

 

8.2 - 10.0

 

 

9.2 - 10.0

Expected volatility

 

91.3% - 94.9%

 

 

77.9% - 78.1%

Risk-free interest rate

 

2.4% - 2.6%

 

 

2.7% - 2.8%

Expected dividend yield

 

0.0%

 

 

0.0%

Restricted Stock

On April 17, 2018, the Company granted 2,000 shares of restricted stock to a consultant. The restrictions will lapse in four equal quarterly installments and will be fully vested on the first anniversary of such grant. Compensation expenses of such unvested shares will be remeasured at fair value until vested at each reporting date.

The summary of restricted stock activity and related information follows:

 

 

 

Number of

Restricted

Shares

Outstanding

 

Unvested shares — December 31, 2018

 

 

1,000

 

Vested

 

 

(500

)

Unvested shares — March 31, 2019

 

 

500

 

 

The Company recognized $1,000 and $0.9 million of stock-based compensation expense related to restricted shares during the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, there was $159 of unrecognized stock-based compensation expense related to unvested restricted stock. This amount is expected to be recognized over a remaining weighted-average period of 0.05 years. There were no restricted stock awards during the three months ended March 31, 2019 and 2018.

Restricted Stock Units

In May 2018, the Company granted 24,960 restricted stock units to an employee with a grant date fair value of $9.03 per share.

14


 

The summary of restricted stock unit activity and related information follows:

 

 

 

Number of

Restricted

Stock Units

Outstanding

 

Unvested shares — December 31, 2018

 

 

24,960

 

Granted

 

 

 

Vested

 

 

 

Unvested shares — March 31, 2019

 

 

24,960

 

 

The Company recognized $14,000 of stock-based compensation expense related to restricted stock units during the three months ended March 31, 2019. As of March 31, 2019, there was $0.2 million of unrecognized stock-based compensation expense related to unvested restricted stock units. This amount is expected to be recognized over a remaining weighted-average period of 3.14 years. There were no restricted stock units granted to employees or non-employees during the three months ended March 31, 2019 and 2018.

2018 Employee Stock Purchase Plan

The Board adopted and the Company’s stockholders approved the 2018 Employee Stock Purchase Plan (“2018 ESPP”), which became effective on the date immediately preceding the date on which the Company’s registration statement became effective. The 2018 ESPP enables eligible employees to purchase shares of the Company’s Common Stock at a discount. The number of shares of common stock that are reserved for issuance under the 2018 ESPP are 275,030 shares. The 2018 ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2019 and increasing each January 1 thereafter through January 1, 2028, by the least of (i) 1% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31; (ii) 543,926 shares or (iii) such number of shares as determined by the ESPP administrator. On January 1, 2019, as a result of the foregoing evergreen provision, the number of shares of common stock available for issuance under the 2018 ESPP automatically increased from 275,030 to 555,583 shares.

10. Commitments and Contingences

Litigation

The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities as of March 31, 2019 and December 31, 2018.

11. Net Loss per Share

The Company computes basic and diluted losses per share using a methodology that gives effect to the impact of outstanding participating securities (the “two-class” method). Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period and excludes any dilutive effects of share-based awards. Diluted net loss per share is computed giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options, convertible preferred stock, and unvested restricted common stock. As the Company had net losses for the three months ended March 31, 2019 and 2018, there is no income allocation required under the two-class method or dilution attributed to weighted average shares outstanding in the calculation of diluted loss per share.

The following potentially dilutive securities have been excluded from the calculation of diluted net loss per share because including them would have had an anti-dilutive effect (in common stock equivalent shares):

 

 

 

As of March 31,

 

 

 

2019

 

 

2018

 

Options issued and outstanding

 

 

1,706,317

 

 

 

667,590

 

Total

 

 

1,706,317

 

 

 

667,590

 

 

15


 

 

12. Related Party Transactions

Since the Company’s incorporation in July 2016, the Company has engaged in transactions with related parties.

The Company is a party to an intellectual property license agreement with Novartis. In addition, NIBR, an affiliate of Novartis, is a shareholder of the Company (See Note 6). No payments have been made to Novartis during the three months ended March 31, 2019 and 2018.

The Company is a party to a Funding Agreement with the Silverstein Foundation, an entity in which one of the Company’s directors is a co-founder and current trustee. The Company received $0 and $0.5 million from the Silverstein Foundation during the three months ended March 31, 2019 and 2018, respectively.

13. Subsequent Event

In April 2019, the Company amended its multi-year lease agreement to relocate its office space in Boston, Massachusetts under an operating lease agreement. The amended lease term is for a period of seven years from the date of relocation. The initial annual base rent of the relocation premises is $0.6 million per year, increasing 2% annually. In connection with the lease amendment, the Company issued a new letter of credit for the benefit of the landlord in the amount of $0.2 million.

In May 2019, the Company was awarded a 5-year grant for up to $1.5 million from the National Institutes of Health.

16


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying footnotes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2018. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q includes forward-looking statements that involve risks and uncertainties. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those set forth in Item 1A, “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2018, as supplemented by our subsequent filings with the SEC. Unless the context indicated otherwise, all references herein to our company include our wholly-owned subsidiary, resTORbio Securities Corp.

Overview

We are a clinical-stage biopharmaceutical company developing innovative medicines that target the biology of aging to prevent or treat aging-related diseases. Our lead program selectively inhibits the target of rapamycin complex 1, or TORC1, an evolutionarily conserved pathway that contributes to the decline in function of multiple organ systems. Our lead product candidate, RTB101, is an oral, selective, and potent inhibitor of TORC1. RTB101 inhibits the phosphorylation of multiple targets downstream of TORC1. TORC1 inhibition has been shown to be of therapeutic benefit in multiple aging-related conditions in preclinical species including immunosenescence (aging-related decline in immune function), suggesting potential benefits in several aging-related diseases. In two Phase 2 clinical trials enrolling over 900 elderly people, RTB101 was observed to improve immune function by upregulation of antiviral gene expression and to reduce the incidence of respiratory tract infections, or RTIs. In May 2019, we initiated our Phase 3 program to evaluate the safety and efficacy of RTB101 in decreasing the percent of elderly subjects with clinically symptomatic respiratory illness, defined as clinical symptoms consistent with an RTI based on prespecified diagnostic criteria, with or without laboratory-confirmation of a pathogen. Our PROTECTOR Phase 3 program includes two randomized, double-blinded, placebo-controlled clinical trials that will evaluate RTB101 10mg once daily for 16 weeks during winter cold and flu season to subjects 65 years of age and older, excluding current smokers and chronic obstructive pulmonary disease, or COPD, patients. The primary endpoint is the reduction in the percentage of subjects with clinically symptomatic respiratory illness with or without laboratory-confirmation of a pathogen. PROTECTOR 1, the first Phase 3 clinical trial, initiated in the southern hemisphere is expected to enroll approximately 1,000 subjects. PROTECTOR 2, the second Phase 3 clinical trial, is planned to begin in the northern hemisphere in the fourth quarter of 2019 and is expected to enroll approximately 1,600 subjects. Based on current enrollment expectations for the Phase 3 program, we expect top-line data from both PROTECTOR Phase 3 studies in mid-2020.

In April of 2019, we initiated a Phase 1b/2a clinical trial of RTB101 alone or in combination with sirolimus in Parkinson’s disease, or PD. PD is a progressive neurodegenerative disease that affects approximately 7.5 million people worldwide. The incidence of PD increases rapidly in people 60 years of age and older, with a mean age at diagnosis of 70.5 years. Glucocerebrosidase, or GBA1, gene mutations are the most common of the currently known PD genetic mutations and up to 10 percent of people with PD in the United States carry it. Patients with PD develop shaking, rigidity, slowness of movement and difficulty walking. PD may be attributed in part to neuronal damage caused by the accumulation within neurons of abnormal aggregates containing the protein α-synuclein. Preclinical studies in mouse models of PD have shown that mTOR inhibition can induce autophagy, reduce α-synuclein accumulation and decrease neuronal cell death. Therefore, induction of autophagy with RTB101 in combination with a rapalogs, such as sirolimus, may have therapeutic benefit for patients with PD. The four-week, multicenter, 2:1 randomized, double-blind, placebo-controlled Phase 1b/2a trial is evaluating the safety and tolerability of RTB101 alone or in combination with sirolimus in PD. We plan to enroll 45 patients with mild to moderate PD who are already on standard-of-care therapy, including those with and without glucocerebrosidase mutations. Patients are expected to be enrolled into five cohorts and dosed once-weekly with RTB101 300mg alone or in combination with three dose levels of sirolimus (2 mg, 4 mg and 6 mg). The planned primary endpoint of the trial is safety and tolerability, and secondary endpoints will include exposure in blood, plasma and cerebrospinal fluid, or CSF. The planned exploratory endpoints include biomarkers in plasma and CSF, and various clinical assessments. We expect data from this trial in 2020.

The decline in immune function that occurs during aging, or immunosenescence, increases susceptibility to a variety of diseases, including RTIs, that significantly contribute to morbidity and mortality in the elderly. Our initial focus is on the development of RTB101 as a first-in-class immunotherapy designed to improve immune function and thereby reduce respiratory illness in the elderly regardless of the causative pathogen. Our TORC1 immunotherapy approach is supported by two randomized, placebo-controlled Phase 2 clinical trials which enrolled more than 900 elderly subjects and provided

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statistically significant (defined as nominal p < 0.05) and clinically meaningful results. In 2018, we reported results from our exploratory dose-ranging randomized, placebo-controlled Phase 2b clinical trial in 652 elderly patients at increased risk of RTI-associated morbidity and mortality defined as aged 85 and over, or 65-84 with one or more comorbidities including: asthma, COPD, type 2 diabetes mellitus, or T2DM, or current smoker. The results from this trial demonstrated a statistically significant and clinically meaningful 30.6% reduction in the percentage of patients with one or more laboratory-confirmed RTIs, the primary endpoint of the trial, in the RTB101 10 mg once daily cohort compared to the placebo cohort. Prespecified analyses of the patient populations enrolled in the trial demonstrated (i) a statistically significant 52.1% reduction in the percentage of patients with severe laboratory-confirmed RTI symptoms in the RTB101 10 mg once daily cohort compared to the placebo cohort, (ii) a statistically significant 66.7%, 68.9%, and 25.3% reduction in the prespecified endpoint of patients 85 and older, 65 and older with asthma and 65 and older with T2DM, respectively, with one or more laboratory-confirmed RTIs in the RTB101 10 mg once daily cohort compared to the placebo cohort, and (iii) no reduction in the incidence of laboratory-confirmed RTIs in patients who were current smokers or with COPD in the RTB101 10 mg once daily cohort compared to the placebo cohort. The lack of efficacy observed in current smokers and patients with COPD is consistent with preclinical data suggesting that mTOR inhibition exacerbates cigarette smoke-induced lung inflammation in COPD. The combination of RTB101 + everolimus and the RTB101 10 mg twice daily did not meet the primary endpoint, suggesting that less TORC1 inhibition with RTB101 10 mg once daily may be more beneficial for reducing the incidence of RTIs in high risk elderly patients. We believe the collective results from our Phase 2a and Phase 2b clinical trials enrolling more than 900 elderly subjects suggest that RTB101 10 mg once daily, if successfully developed and approved, may improve the function of the aging immune system and reduce the incidence of clinically symptomatic respiratory illness in elderly patients. In our Phase 3 program, we expect to enroll elderly subjects 65 and older, excluding current smokers and COPD patients.

We observed additional positive results from prespecified analyses for any infection and urinary tract infections, or UTIs, in our Phase 2b trial, such as (i) a statistically significant 23.6% reduction in the percentage of patients with any infection in the RTB101 10 mg once daily cohort compared to the placebo cohort, (ii) a statistically significant 74.6% reduction in the percentage of patients with one or more UTIs in the RTB101 10 mg twice daily cohort and (iii) a 34.4% reduction in patients with one or more UTIs in the RTB101 10 mg once daily cohort. Recent scientific findings, including those published in the scientific journals Cell, Nature and Science, suggest that aging and aging-related conditions, such as immunosenescence, may be attributable not only to random cellular wear and tear, but also to specific intra-cellular signaling pathways, including the mTOR pathway. mTOR is a protein kinase that signals via two multiprotein complexes, known as TORC1 and TORC2. TORC1 inhibition has been observed to prolong lifespan, enhance immune function, ameliorate heart failure, enhance memory and mobility, decrease adiposity, and delay the onset of aging-related diseases in multiple animal studies. Specifically, with respect to enhanced immune function, TORC1 inhibition was observed in preclinical studies to rejuvenate blood, or hematopoietic, stem cell function, increase infection-fighting white blood cell production and enhance antibody-mediated, or adaptive, immunity. On the other hand, TORC2 inhibition has been observed to decrease lifespan in preclinical studies and cause unwanted side effects of hyperlipidemia and hyperglycemia in certain animals and humans. Therefore, based on these observations and data from more than 900 patients enrolled in our Phase 2a and Phase 2b clinical trials, we believe our TORC1 program has the potential to improve immune function and counteract immunosenescence in the elderly.

The reduced ability of elderly subjects to effectively detect and fight infections is most commonly manifested in their susceptibility to RTIs and the negative effects such infections have on their overall health. RTIs are the second leading cause of hospitalization in people age 85 and over, and the fourth leading cause in people age 65 and over, contributing to high healthcare costs that are three to five times higher than for the elderly population than for the younger population. Furthermore, antibiotics, which are ineffective against viruses, are often prescribed indiscriminately to treat RTIs, which may cause side effects and contribute to the growing global problem of antibiotic resistance. As the elderly represent the fastest growing population in the world, we believe there is significant unmet medical need for innovative therapeutic options for reducing the incidence of RTIs by improving the function of the aging immune system.

We believe our approach to addressing RTIs in the elderly possesses several clinical and commercial advantages. Our TORC1 program offers an immunotherapy approach that has the potential to address a broad range of viral and bacterial pathogens. Statistically significant and clinically meaningful reductions in RTI incidence were observed in our Phase 2a and Phase 2b clinical trials with RTB101 10mg once daily. We believe the risk-to-benefit ratio of our program observed in clinical studies to date is well-suited to the elderly due to the following observations: our oral product candidates were well-tolerated in elderly subjects, none of the participants in the active treatment arms experienced a serious adverse event that was related to the study drug, and the doses being investigated in our Phase 2b clinical trial were 60 to 240 times lower than maximum tolerated doses established in prior clinical trials for other indications. In May 2019, we initiated our Phase 3 program to evaluate the safety and efficacy of RTB101 in decreasing the percent of elderly subjects with clinically symptomatic respiratory illness, defined as clinical symptoms consistent with an RTI based on prespecified diagnostic

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criteria, with or without laboratory-confirmation of a pathogen. We plan to conduct pivotal clinical trials and to seek regulatory approval for commercialization of RTB101 in the United States and Europe. Separate pivotal trials may be conducted to support potential approvals in Japan and China. In some markets, we may collaborate with third parties for the development and commercialization of our product candidates.

Since our inception in July 2016, we have devoted substantially all of our resources to: identifying, acquiring, and developing our product candidate portfolio; organizing and staffing our company; raising capital; developing manufacturing capabilities; conducting clinical trials; and providing general and administrative support for these operations. To date, we have primarily financed our operations through the issuance and sale of our redeemable convertible preferred stock and our common stock. In March 2019, we completed an underwritten public offering. We received aggregate net proceeds from the offering of approximately $46.6 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. In addition, we granted the underwriters a 30-day option to purchase up to an additional 1,080,000 shares of common stock at the public offering price, less underwriting discounts and commissions. In April 2019, we sold an additional 487,934 shares of common stock at a price of $6.95 per share. We received aggregate net proceeds of approximately $3.1 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

We have never generated revenue and have incurred significant net losses since inception. Our net losses were $37.6 million and $11.1 million, for the year ended December 31, 2018 and for the three months ended March 31, 2019, respectively. As of March 31, 2019, we had an accumulated deficit of $82.5 million. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:

 

invest significantly to further develop and seek regulatory approval for RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, including to advance our product candidate into a Phase 3 program;

 

expand our pipeline of potential product candidates, including the initiation of at least one additional proof of concept trial in an additional indication;

 

require the manufacture of larger quantities of our product candidates for clinical development and potentially commercialization;

 

hire additional clinical, scientific, management and administrative personnel;