torc-10q_20200331.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, 2020

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) 315-5528

(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 6, 2020, the registrant had 36,445,751 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, 2020 and December 31, 2019

3

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2020 and 2019

4

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019

5

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

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

23

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

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:

 

the ability to satisfy the conditions to the merger transaction with Adicet Bio, Inc., including the ability to obtain shareholder approval, on the proposed terms and timeframe;

 

the ability to realize the anticipated benefits of transactions related to the merger transaction with Adicet Bio, Inc. and other restructuring activities, including in connection with the merger transaction, or other initiatives in a timely manner or at all;

 

the risk of unanticipated costs, liabilities or delays relating to the merger transaction with Adicet Bio, Inc., including the outcome of any legal proceedings relating to the merger transaction;

 

the occurrence of any change, effect, event, development, matter, state of facts, series of events or circumstances that could give rise to the termination of the agreement with Adicet Bio, Inc. related to the merger transaction, including a termination of such agreement under circumstances that could require us to pay a termination fee to Adicet Bio, Inc.;

 

our plans to develop and commercialize RTB101 alone or in combination with a rapalog, 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 future clinical trials for RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, whether conducted by us or by any future collaborators

 

the timing of initiation and the anticipated results of our ongoing and future clinical trials of RTB101 alone or in combination with rapalogs, such as everolimus or sirolimus;

 

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

 

the impact of any business interruptions to our operations or to those of our clinical sites, manufacturers, suppliers, or other vendors resulting from the coronavirus disease (COVID-19) outbreak or similar public health crisis;

 

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 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.

1


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,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

61,232

 

 

$

33,774

 

Marketable securities

 

 

15,111

 

 

 

57,699

 

Prepaid expenses

 

 

1,237

 

 

 

1,707

 

Other current assets

 

 

1

 

 

 

73

 

Total current assets

 

 

77,581

 

 

 

93,253

 

Restricted cash

 

 

245

 

 

 

245

 

Property and equipment, net

 

 

380

 

 

 

414

 

Total assets

 

$

78,206

 

 

$

93,912

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,210

 

 

$

6,716

 

Accrued liabilities

 

 

1,355

 

 

 

5,483

 

Total current liabilities

 

 

2,565

 

 

 

12,199

 

Other liabilities

 

 

24

 

 

 

15

 

Total liabilities

 

 

2,589

 

 

 

12,214

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of

March 31, 2020 and December 31, 2019; none issued and outstanding

as of March 31, 2020 and December 31, 2019

 

 

 

 

 

 

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

March 31, 2020 and December 31, 2019; 36,445,751 and 36,444,732

shares issued and outstanding as of March 31, 2020 and

December 31, 2019, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

236,751

 

 

 

235,777

 

Accumulated deficit

 

 

(161,170

)

 

 

(154,132

)

Accumulated other comprehensive income

 

 

32

 

 

 

49

 

Total stockholders’ equity

 

 

75,617

 

 

 

81,698

 

Total liabilities and stockholders’ equity

 

$

78,206

 

 

$

93,912

 

 

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,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

4,841

 

 

$

8,852

 

General and administrative

 

 

2,539

 

 

 

2,839

 

Total operating expenses

 

 

7,380

 

 

 

11,691

 

Loss from operations

 

 

(7,380

)

 

 

(11,691

)

Other income, net

 

 

349

 

 

 

631

 

Loss before income taxes

 

 

(7,031

)

 

 

(11,060

)

Income tax expense

 

 

7

 

 

 

9

 

Net loss

 

$

(7,038

)

 

$

(11,069

)

Net loss per share, basic and diluted

 

$

(0.19

)

 

$

(0.38

)

Weighted-average common shares used in computing net loss

per share, basic and diluted

 

 

36,445,169

 

 

 

29,014,750

 

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Net loss

 

$

(7,038

)

 

$

(11,069

)

Net unrealized (losses) gains on marketable securities

 

 

(17

)

 

 

73

 

Comprehensive loss

 

$

(7,055

)

 

$

(10,996

)

 

See accompanying notes to these condensed consolidated financial statements.

 

 

4


resTORbio, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

 

 

 

Common Stock

 

 

Additional

Paid In

 

 

Accumulated

 

 

Accumulated Other Compressive

 

 

Shareholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2019

 

 

36,444,732

 

 

$

4

 

 

$

235,777

 

 

$

(154,132

)

 

$

49

 

 

$

81,698

 

Vesting of restricted stock units, net of shares withheld for taxes

 

 

1,019

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

975

 

 

 

 

 

 

 

 

 

975

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,038

)

 

 

 

 

 

(7,038

)

Net unrealized losses on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

(17

)

Balance at March 31, 2020

 

 

36,445,751

 

 

$

4

 

 

$

236,751

 

 

$

(161,170

)

 

$

32

 

 

$

75,617

 

 

 

 

Common Stock

 

 

Additional

Paid In

 

 

Accumulated

 

 

Accumulated Other Compressive

 

 

Shareholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Loss) Income

 

 

Equity

 

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

)

Net unrealized gains on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

73

 

Balance at March 31, 2019

 

 

35,254,844

 

 

$

4

 

 

$

222,882

 

 

$

(82,462

)

 

$

32

 

 

$

140,456

 

 

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,

 

 

 

2020

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,038

)

 

$

(11,069

)

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

 

 

 

 

 

 

 

 

Accretion on marketable securities

 

 

71

 

 

 

(247

)

Depreciation and amortization expense

 

 

34

 

 

 

27

 

Stock-based compensation expense

 

 

975

 

 

 

663

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

542

 

 

 

(81

)

Accounts payable

 

 

(5,506

)

 

 

144

 

Accrued liabilities

 

 

(4,128

)

 

 

(1,482

)

Other liabilities

 

 

9

 

 

 

(4

)

Net cash used in operating activities

 

 

(15,041

)

 

 

(12,049

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(24

)

Maturities of marketable securities

 

 

42,500

 

 

 

42,500

 

Purchases of marketable securities

 

 

 

 

 

(77,104

)

Net cash provided by (used in) investing activities

 

 

42,500

 

 

 

(34,628

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offering, net of issuance costs

 

 

 

 

 

46,816

 

Taxes paid related to net share settlement of restricted stock units

 

 

(1

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(1

)

 

 

46,816

 

Net increase in cash, cash equivalents and restricted cash

 

 

27,458

 

 

 

139

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

34,019

 

 

 

7,126

 

Cash, cash equivalents and restricted cash at end of period

 

$

61,477

 

 

$

7,181

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

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 subsidiaries, resTORbio Securities Corp. and Project Oasis Merger Sub, Inc. (“Merger Sub”) 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 with the potential to extend healthy lifespan. The Company’s principal operations are located in Boston, Massachusetts.

In November 2019, the Company announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and the Company has stopped the development of RTB101 for clinically symptomatic respiratory illness.

In February 2020, the Company retained JMP Securities LLC as a financial advisor to assist it in its evaluation of a broad range of strategic alternatives to enhance stockholder value, including additional capital raising transactions, an acquisition, merger, business combination, licensing and/or other strategic transaction involving the Company.

On April 28, 2020, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Adicet Bio, Inc. ("Adicet") and Merger Sub pursuant to which, subject to the satisfaction or waiver of the conditions therein, Adicet will merge with and into Merger Sub (the “Merger”), with Adicet continuing as the surviving company and a wholly-owned subsidiary of resTORbio. The Merger Agreement was approved by the members of the Company's board of directors (the "Board"), and the Board resolved to recommend approval of the Merger Agreement to the Company's shareholders. The closing of the Merger is subject to approval of the Company shareholders and the satisfaction of customary closing conditions (see Note 14).

From the Company’s inception, it has devoted substantially all of its efforts to business planning, engaging regulatory, manufacturing and other technical consultants, planning and executing clinical trials and raising capital. The Company’s future operations are highly dependent on the success of the merger with Adicet.

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, 2020 and the results of operations and cash flows for the interim periods ended March 31, 2020 and 2019. 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, 2019 that was filed with the Securities and Exchange Commission (“SEC”) on March 12, 2020 (the “2019 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 subsidiaries, resTORbio Securities Corp. and Project Oasis Merger Sub, Inc. All inter-company transactions and balances have been eliminated in consolidation.

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.

7


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, 2019, and the notes thereto, which are included in the 2019 Form 10-K. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2020.

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, 2020 (in thousands):

 

 

 

 

 

 

 

Active

 

 

Observable

 

 

Unobservable

 

 

 

March 31,

 

 

Markets

 

 

Inputs

 

 

Inputs

 

Description

 

2020

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Cash

 

$

17

 

 

$

17

 

 

$

 

 

$

 

Money market funds (included in

   cash and cash equivalents)

 

 

61,215

 

 

 

61,215

 

 

 

 

 

 

 

U.S. treasury securities (included

   in marketable securities)

 

 

15,111

 

 

 

15,111

 

 

 

 

 

 

 

Total

 

$

76,343

 

 

$

76,343

 

 

$

 

 

$

 

 

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

 

 

 

 

 

 

 

Active

 

 

Observable

 

 

Unobservable

 

 

 

December 31,

 

 

Markets

 

 

Inputs

 

 

Inputs

 

Description

 

2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Money market funds (included in

   cash and cash equivalents)

 

$

33,774

 

 

$

33,774

 

 

$

 

 

$

 

U.S. treasury securities (included

   in marketable securities)

 

 

57,699

 

 

 

57,699

 

 

 

 

 

 

 

Total

 

$

91,473

 

 

$

91,473

 

 

$

 

 

$

 

 

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). ASU 2018-13 modifies fair value disclosure requirements, specifically around level transfers and valuation of Level 3 assets and liabilities. ASU 2018-13 is effective for financial statements issued for annual and interim periods beginning after December 15, 2019 for all entities. Early adoption of all or part of ASU 2018-13 is permitted. Effective January 1, 2020, the Company adopted the standard. The adoption did not have a material impact on the Company’s consolidated financial statements.

8


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. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years. For non-public entities and emerging growth companies that choose to take advantage of the extended transition period, the guidance was effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted for all entities. In November 2019, the FASB issued ASU No. 2019-10, which deferred the effective date for nonpublic entities and emerging growth companies that choose to take advantage of the extended transition period to annual reporting periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early application continues to be allowed. The adoption of this standard is expected to have an impact on the amount of the Company’s assets and liabilities presented. The Company expects to utilize the new transition method described in ASU No. 2018-11 and use the effective date as the Company’s date of initial application for the new standard. The Company expects to elect the available package of practical expedients in transition which would allow it to not re-assess whether existing or expired arrangements contain a lease, the lease classification of existing or expired leases, or whether previous initial direct costs would qualify for capitalization under the new lease standard. As of December 31, 2019, the Company has not elected to early adopt the guidance and is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. For nonpublic entities and emerging growth companies that choose to take advantage of the extended transition period, the guidance is effective for annual reporting periods beginning after December 15, 2020. Early adoption is permitted for all entities. In November 2019, the FASB issued ASU No. 2019-10, which deferred the effective date for nonpublic entities and emerging growth companies that choose to take advantage of the extended transition period, to annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. Based on the composition of the Company’s investment portfolio as of March 31, 2020, current market conditions and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the Company’s 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, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities but no earlier than the Company’s adoption of ASC 606. The Company does not expect the impact of ASU 2018-07 to be material to its consolidated financial statements.

3. Marketable Securities

As of March 31, 2020, 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

 

$

15,079

 

 

$

32

 

 

$

 

 

$

15,111

 

Total

 

$

15,079

 

 

$

32

 

 

$

 

 

$

15,111

 

9


As of December 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 treasuries and securities

 

$

57,650

 

 

$

49

 

 

$

 

 

$

57,699

 

Total

 

$

57,650

 

 

$

49

 

 

$

 

 

$

57,699

 

 

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, 2020

 

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Due in one year or less

 

$

15,079

 

 

$

15,111

 

Total

 

$

15,079

 

 

$

15,111

 

 

 

 

December 31, 2019

 

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Due in one year or less

 

$

57,650

 

 

$

57,699

 

Total

 

$

57,650

 

 

$

57,699

 

 

4. Property and equipment, net

Property and equipment, net consists of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(In thousands)

 

Leasehold improvements

 

$

17

 

 

$

17

 

Furniture and fixtures

 

 

397

 

 

 

397

 

Computers

 

 

125

 

 

 

125

 

Office equipment

 

 

11

 

 

 

11

 

Software

 

 

22

 

 

 

22

 

Total property and equipment

 

 

572

 

 

 

572

 

Less: accumulated depreciation

 

 

(192

)

 

 

(158

)

Property and equipment, net

 

$

380

 

 

$

414

 

 

Depreciation and amortization expense was $34,000 and $27,000 for the three months ended March 31, 2020 and 2019, respectively.

5. Accrued Liabilities

Accrued liabilities consist of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

(In thousands)

 

Accrued payroll and related expenses

 

$

526

 

 

$

1,643

 

Accrued restructuring costs (See Note 13)

 

 

96

 

 

 

516

 

Accrued research and development expenses

 

 

627

 

 

 

3,171

 

Other

 

 

106

 

 

 

153

 

Total accrued liabilities

 

$

1,355

 

 

$

5,483

 

 

10


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. 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. As of March 31, 2020, none of the remaining development milestones, regulatory milestones, sales milestones, or royalties had been reached or were probable of achievement.

7. Research Funding Agreement

National Institute of Health

In May 2019, the Company was awarded a 5-year grant for up to $1.5 million from the National Institutes of Health (the “NIH”) to study RTB101 and the regulation of antiviral immunity in the elderly. The Company is entitled to use the award solely to conduct the research. The Company is solely responsible for commencing and conducting the research and will furnish periodic progress updates to the NIH throughout the term of the award. After completing the research, the Company must provide the NIH with a formal report describing the work performed and the results of the research.

For funds received under the NIH 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 NIH. Qualifying expenses incurred by the Company in advance of funding by the NIH are recorded in the consolidated balance sheets as other current assets. As of December 31, 2019, $0.1 million qualifying expenses have been incurred and $41,000 have been funded by the NIH. Therefore, $61,000 is included in other current assets on the accompanying balance sheet as of December 31, 2019. As of March 31, 2020, $0.3 million qualifying expenses have been incurred and $0.3 million have been funded by the NIH. Therefore, $0 is included in other current assets on the accompanying balance sheet as of March 31, 2020.

11


8. Preferred Stock and Common Stock

As of March 31, 2020, 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,

2020

 

 

December 31,

2019

 

Options issued and outstanding

 

 

2,302,435

 

 

 

2,562,800

 

Unvested restricted stock units

 

 

753,863

 

 

 

828,935

 

Options available for future grants

 

 

2,007,250

 

 

 

215,043

 

Shares available for issuance under the 2018 ESPP

 

 

920,030

 

 

 

555,583

 

Total

 

 

5,983,578

 

 

 

4,162,361

 

 

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 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. On January 1, 2020, 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 3,322,473 to 4,780,262 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.

12


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,

 

 

 

2020

 

 

2019

 

Research and development

 

$

400

 

 

$

277

 

General and administrative

 

 

575

 

 

 

386

 

Total stock-based compensation expense

 

$

975

 

 

$

663

 

 

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, 2019

 

 

215,043

 

 

 

2,562,800

 

 

$

7.85

 

 

 

8.84

 

 

 

 

 

Shares reserved for issuance

 

 

1,457,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options cancelled

 

 

260,365

 

 

 

(260,365

)

 

 

8.57

 

 

 

 

 

 

 

 

 

Restricted stock units cancelled

 

 

74,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, March 31, 2020

 

 

2,007,250

 

 

 

2,302,435

 

 

 

7.76

 

 

 

8.55

 

 

$

21

 

Exercisable, March 31, 2020

 

 

 

 

 

 

577,853

 

 

 

10.75

 

 

 

7.17

 

 

 

12

 

Vested and expected to vest, March 31, 2020

 

 

 

 

 

 

2,302,435

 

 

 

7.76

 

 

 

8.55

 

 

 

21

 

 

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, 2020. No options were exercised during the three months ended March 31, 2020.

During the three months ended March 31, 2020, the Company did not grant options to purchase common shares. The expense related to options granted to employees and directors for the three months ended March 31, 2020 was $0.9 million. The expense related to options granted to non-employees for the three months ended March 31, 2020 was $1,000. The expense related to options granted to employees and directors was $0.6 million for the three months ended March 31, 2019. The expense related to options granted to non-employees was $7,000 for the three months ended March 31, 2019.

As of March 31, 2020, the total unrecognized compensation expense related to unvested options granted to employees and directors was $7.3 million, which the Company expects to recognize over an estimated weighted-average period of 2.6 years. As of March 31, 2020, the total unrecognized compensation expense related to unvested non-employee options was $15,000, which the Company expects to recognize over an estimated weighted-average period of 1.92 years.

13


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,

 

 

 

2020

 

2019

 

Employees:

 

 

 

 

 

 

Fair value of common stock

 

N/A

 

$8.53 - $8.90

 

Expected term (in years)

 

N/A

 

 

6.1

 

Expected volatility

 

N/A

 

93.7% - 94.8%

 

Risk-free interest rate

 

N/A

 

2.5% - 2.6%

 

Expected dividend yield

 

N/A

 

0.0%

 

Non-employees:

 

 

 

 

 

 

Fair value of common stock

 

$0.96 - $1.07

 

$6.82 - $8.61

 

Expected term (in years)

 

7.2 - 9.0

 

8.2 - 10.0

 

Expected volatility

 

99.6% - 101.7%

 

91.3% - 94.9%

 

Risk-free interest rate

 

0.6% - 0.9%

 

2.4% - 2.6%

 

Expected dividend yield

 

0.0%

 

0.0%

 

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. In December 2019, the Company granted 813,335 restricted stock units to employees with a weighted-average grant date fair value of $1.27.

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

 

 

 

Number of

Restricted

Stock Units

Outstanding

 

Unvested shares — December 31, 2019

 

 

828,935

 

Vested, net of shares withheld for taxes

 

 

(1,019

)

Cancelled

 

 

(74,053

)

Unvested shares — March 31, 2020

 

 

753,863

 

 

The Company recognized $71,000 and $14,000 of stock-based compensation expense related to restricted stock units during the three months ended March 31, 2020 and 2019. As of March 31, 2020, there was $1.0 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 3.50 years. There were no restricted stock units granted to employees or non-employees during the three months ended March 31, 2020 and 2019.

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 originally reserved for issuance under the 2018 ESPP were 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. On January 1, 2020, 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 555,583 to 920,030 shares. No shares have been issued under the 2018 ESPP during the three months ended March 31, 2020 and 2019.

14


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, 2020 and December 31, 2019.

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, 2020 and 2019, 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,

 

 

 

2020

 

 

2019

 

Options issued and outstanding

 

 

2,302,435

 

 

 

1,706,317

 

Unvested restricted stock

 

 

 

 

 

500

 

Unvested restricted stock units

 

 

753,863

 

 

 

24,960

 

Total

 

 

3,056,298

 

 

 

1,731,777

 

 

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, 2020 and 2019.

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 did not receive any funding from the Silverstein Foundation during the three months ended March 31, 2020 and 2019.

13. Reduction in Workforce

In December 2019, the Company’s Board of Directors approved a restructuring plan to reduce operating costs and better align the Company’s workforce with its business needs following the Company’s November 2019 announcement regarding that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint, and that the Company has stopped the development of RTB101 in this indication.

Under the restructuring plan, the Company reduced its workforce by 8 employees (approximately 22% of total employees). Affected employees are eligible to receive severance payments and outplacement services in connection with the reduction. In January 2020, the Company further reduced its workforce by 2 employees. During the quarter ended March 31, 2020, the Company recorded additional restructuring charges of approximately $0.1 million related to severance payments and other employee-related costs. During the quarter ended March 31, 2020, $0.5 million of the estimated restructuring charges were paid.

15


The following table shows the total amount expected to be incurred and the liability related to the 2019 restructuring as of March 31, 2020:

 

 

 

One-time Employee

Termination Benefits

 

 

 

(In thousands)

 

Accrued restructuring costs beginning balance

 

$

516

 

Restructuring charges incurred during the year

 

 

112

 

Amounts paid during the year

 

 

(532

)

Accrued restructuring costs as of March 31, 2020

 

$

96

 

 

The Company expects the remaining accrued restructuring costs of $96,000 will be paid within the next 12 months. No other restricting costs are expected to be incurred.

The following table summarizes the restructuring charges reported in the consolidated statements of operations and comprehensive loss for the quarter ended March 31, 2020:

 

 

 

Cash

 

 

Non-cash

 

 

Total Expenses

 

 

 

(In thousands)

 

Research and development

 

$

112

 

 

$

 

 

$

112

 

General and administrative

 

 

 

 

 

 

 

 

 

Total

 

$

112

 

 

$

 

 

$

112

 

 

14. Subsequent Event

On April 28, 2020, the Company entered into an agreement and plan of merger with Adicet Bio, Inc., a Delaware company (“Adicet"), and Project Oasis Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of the Company ("Merger Sub"), pursuant to which, subject to the satisfaction or waiver of the conditions therein, Merger Sub will merge with and into Adicet, with Adicet surviving as a wholly-owned subsidiary of the Company. The Merger Agreement was approved by the members of the board of directors of the Company (the "Board") and the Board resolved to recommend approval of the Merger Agreement to the Company’s shareholders. The closing of the Merger is subject to approval of the Company's shareholders and the satisfaction of certain closing conditions. Certain of the Company’s stockholders who collectively own approximately 24% of the outstanding shares of the Company’s common stock have entered into voting agreements, pursuant to which they have agreed, among other things, and subject to the terms and conditions of the agreements, to vote in favor of the Merger.

Subject to the terms of the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of the Company’s common stock issued and outstanding immediately prior to the Effective Time shall be entitled to one contractual contingent value right issued by the Company subject to and in accordance with the terms and conditions of a Contingent Value Rights Agreement. The transaction is expected to close in the second half of 2020. If the Company is unable to satisfy the closing conditions in Adicet’s favor or if other mutual closing conditions are not satisfied, Adicet will not be obligated to complete the Merger. Under certain circumstances, the Company would be required to pay Adicet a termination fee of $6.1 million

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, 2019. 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, 2019, as supplemented by our subsequent filings with the SEC. Unless the context indicated otherwise, all references herein to our company include our wholly-owned subsidiaries, resTORbio Securities Corp and Project Oasis Merger Sub, Inc.

Overview

We are a clinical-stage biopharmaceutical company developing innovative medicines that target the biology of aging to prevent or treat age-related diseases with the potential to extend healthy lifespan. Our lead program selectively inhibits the target of rapamycin complex 1, or TORC1, an evolutionarily conserved pathway that contributes to the age-related 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. Inhibition of TORC1 has been observed to extend lifespan and healthspan in aging preclinical species and to enhance immune, neurologic and cardiac functions, suggesting potential benefits in several aging-related diseases. 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 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 escalating doses of sirolimus (2 mg, 4 mg and 6 mg) once weekly for 4 weeks in patients with PD. To date, patients have been enrolled in three cohorts and dosed once weekly with 300 mg of RTB101 alone, 2 mg of sirolimus alone, or a combination of 300 mg RTB101 and 2 mg of sirolimus. Results of an interim study analysis indicated that all 3 dosing regimens were well tolerated and RTB101 300 mg once weekly was observed to cross the blood brain barrier. Sirolimus at the dose of 2 mg, alone or in combination with RTB101, was not detected in the CSF. Data from the first three cohorts in the study suggest that the concentrations of RTB101 observed in the CSF four hours after dosing were highest when RTB101 was given as a monotherapy. Enrollment and dosing of the RTB101 300 mg in combination with sirolimus 4 mg once weekly cohort has been completed. In April 2020, we announced that we postponed enrollment in the fifth cohort a consequence of the COVID-19 level 4 alert in New Zealand, where all non-essential services have been closed and people have been instructed to stay home. Enrollment of four of the five planned once-weekly dosing arms of RTB101 300 mg, sirolimus 2 mg, RTB101 300 mg in combination with sirolimus 2 mg, and RTB101 300 mg in combination with sirolimus 4 mg has been completed. We plan to analyze the data from the four completed dosing arms and data from the four completed cohorts is expected by mid-2020. Notwithstanding the foregoing, on April 30, 2020, we elected to terminate the study and have no plans to dose patients in the fifth dosing arm.

RTB101 was previously in development for preventing clinically symptomatic respiratory illness in adults age 65 and older. In November 2019, we announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and that we have stopped the development of RTB101 for clinically symptomatic respiratory illness. As a result, we implemented a restructuring plan to reduce operating costs and better align the workforce with our business needs following the data release.

In February 2020, we retained JMP Securities LLC as a financial advisor to assist in our evaluation of a broad range of strategic alternatives to enhance stockholder value, including additional capital raising transactions, an acquisition, merger, business combination, licensing and/or other strategic transaction involving us.

After a comprehensive review of strategic alternatives, on April 28, 2020, we entered into the Merger Agreement with Adicet Bio, Inc. (“Adicet”), pursuant to which, if all of the conditions to closing are satisfied or waived, Adicet will become a wholly-owned subsidiary of resTORbio (the “Merger”). The Merger Agreement was unanimously approved by the members of our Board and the Board resolved to recommend approval of the Merger Agreement to our shareholders. Consummation of the Merger is subject to certain closing conditions, a number of which are not within our control. Certain of our stockholders who collectively own approximately 24% of the outstanding shares of our common stock have entered into voting agreements, pursuant to which they have agreed, among other things, and subject to the terms and conditions of the agreements, to vote in favor of the Merger.

17


Subject to the terms of the Merger Agreement, at the Effective Time each share of our common stock issued and outstanding immediately prior to the Effective Time shall be entitled to one contractual contingent value right issued by us subject to and in accordance with the terms and conditions of a Contingent Value Rights Agreement. The transaction is expected to close in the second half of 2020. Refer to Note 14, Subsequent Events, to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

From our inception, we have devoted substantially all of our efforts to business planning, engaging regulatory, manufacturing and other technical consultants, planning and executing clinical trials and raising capital. Our future operations are highly dependent on the success of the merger with Adicet.

Novartis License Agreement

On March 23, 2017, we entered into a license agreement with Novartis, pursuant to which we were granted an exclusive, field-restricted, worldwide license to certain intellectual property rights owned or controlled by Novartis, including patents, patent applications, proprietary information, know-how and other intellectual property, to develop, commercialize and sell one or more therapeutic products comprising RTB101 or RTB101 and everolimus in a fixed dose combination. Under the license agreement, we have been licensed a patent portfolio of ten patent families directed to composition of matter of RTB101 and its salts, formulations of everolimus and methods of using RTB101 and everolimus to enhance the immune response among others. The exclusive field for RTB101 under the license agreement is for the treatment, prevention and diagnosis of diseases and other conditions in all indications in humans and animals.

As consideration for the license, we issued Novartis Institutes for Biomedical Research, Inc., or NIBR, 2,587,992 shares of our Series A Preferred Stock.

The agreement may be terminated by either party upon a material breach of obligation by the other party that is not cured with 60 days after written notice. We 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 we fail 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 our bankruptcy, insolvency, dissolution or winding up.

As additional consideration for the license, we are 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, we are required to pay up to an aggregate of $125 million upon the satisfaction of commercial milestones, based on the amount of annual net sales. We are 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 are recorded as research and development expenses in our consolidated statements of operations and comprehensive loss once achievement of each associated milestone has occurred or the achievement is considered probable. In May 2017, we initiated a Phase 2b clinical trial for a first indication, triggering the first milestone payment under the agreement. Accordingly, we paid the related $0.3 million payment in May 2017. In May 2019, we initiated a Phase 3 clinical trial for the first indication, triggering a milestone payment of $2.5 million under the agreement. As of March 31, 2020, none of the remaining development milestones, regulatory milestones, sales milestones, or royalties had been reached or were probable of achievement. The remaining clinical milestones are the initiation of the Phase 2 and Phase 3 clinical trials for the second indication. We also enter into contracts in the normal course of business with various third parties for preclinical research studies, clinical trials, testing and other services. These contracts generally provide for termination upon notice, and therefore we believe that our noncancelable obligations under these agreements are not material.

Financial Operations Overview

Revenue

We have not generated any revenue from the sale of our products, and we do not expect to generate any revenue unless and until we obtain regulatory approval of and commercialize RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus.

18


Operating Expenses

Research and Development

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

 

personnel costs, which include salaries, benefits and stock-based compensation expenses;

 

expenses incurred under agreements with consultants, third-party contract organizations and investigative clinical trial sites that conduct research and development activities on our behalf;

 

costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers;

 

laboratory and vendor expenses related to the execution of preclinical studies and clinical trials; and

 

lab supplies and equipment used for internal research and development activities.

We have not provided program costs since inception because historically we have not tracked or recorded our research and development expenses on a program-by-program basis. We use our personnel and infrastructure resources across multiple research and development programs directed toward developing our TORC1 program and for identifying and developing product candidates. We manage certain activities such as contract research and manufacturing of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, and our discovery programs through our third-party vendors, and do not track the costs of these activities on a program-by-program basis.

We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.

We expect our research and development expenses to decrease substantially for the foreseeable future as we are no longer developing RTB101 for the prevention of clinically symptomatic respiratory illness in adults age 65 and older and for the treatment of Parkinson’s disease. We will continue to invest in research and development activities related to developing our product candidates, however at a much lower expense rate. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of the current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:

 

successful completion of preclinical studies and Investigational New Drug-enabling studies;

 

successful enrollment in, and completion of, clinical trials;

 

receipt of regulatory approvals from applicable regulatory authorities;

 

establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

obtaining and maintaining patent and trade secret protection and non-patent exclusivity;

 

launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;

 

acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;

19


 

effectively competing with other therapies and treatment options;

 

a continued acceptable safety profile following approval;

 

enforcing and defending intellectual property and proprietary rights and claims;

 

the impact of any business interruptions to our operations or to those of our clinical sites, manufacturers, suppliers, or other vendors resulting from the coronavirus disease (COVID-19) outbreak or similar public health crisis; and

 

achieving desirable medicinal properties for the intended indications.

A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.

General and Administrative

General and administrative expenses consist primarily of personnel costs, costs related to maintenance and filing of intellectual property, depreciation expense and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation expense. We expect our general and administrative expenses to increase for the foreseeable future due to anticipated increases related to our potential Merger with Adicet and as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, The Nasdaq Global Select Market, additional insurance expenses, investor relations activities and other administration and professional services.

Other Income, Net

Other income, net, consists primarily of interest income earned on cash, cash equivalents and marketable securities.

Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2019

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

4,841