Company Quick10K Filing
Miragen Therapeutics
Price0.91 EPS-1
Shares31 P/E-1
MCap28 P/FCF-1
Net Debt-25 EBIT-42
TEV3 TEV/EBIT-0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-13
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-14
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-09
10-K 2017-12-31 Filed 2018-03-15
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-11
10-K 2016-12-31 Filed 2017-03-24
10-Q 2016-09-30 Filed 2016-10-26
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-03-21
10-Q 2015-09-30 Filed 2015-11-13
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-15
10-K 2014-12-31 Filed 2015-03-27
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-14
8-K 2020-06-22
8-K 2020-06-16
8-K 2020-05-22
8-K 2020-05-07
8-K 2020-04-27
8-K 2020-03-11
8-K 2020-02-12
8-K 2020-02-07
8-K 2020-02-06
8-K 2020-01-30
8-K 2019-12-11
8-K 2019-11-07
8-K 2019-10-31
8-K 2019-10-16
8-K 2019-08-07
8-K 2019-07-19
8-K 2019-06-20
8-K 2019-05-21
8-K 2019-05-08
8-K 2019-04-29
8-K 2019-04-26
8-K 2019-03-13
8-K 2019-02-08
8-K 2019-01-24
8-K 2019-01-10
8-K 2018-12-20
8-K 2018-12-04
8-K 2018-12-02
8-K 2018-11-07
8-K 2018-10-01
8-K 2018-08-07
8-K 2018-08-06
8-K 2018-07-10
8-K 2018-06-27
8-K 2018-06-04
8-K 2018-05-09
8-K 2018-05-08
8-K 2018-05-01
8-K 2018-04-27
8-K 2018-04-03
8-K 2018-03-26
8-K 2018-03-14
8-K 2018-02-28
8-K 2018-02-08
8-K 2018-01-31
8-K 2018-01-03

MGEN 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.2 mgen-q12020xex102.htm
EX-10.3 mgen-q12020xex103yale.htm
EX-10.4 mgen-q12020xex104svb.htm
EX-31.1 mgen-q12020xex311.htm
EX-31.2 mgen-q12020xex312.htm
EX-32.1 mgen-q12020xex321.htm

Miragen Therapeutics Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
907153351702014201620182020
Assets, Equity
4.80.8-3.1-7.1-11.0-15.02014201620182020
Rev, G Profit, Net Income
402510-5-20-352014201620182020
Ops, Inv, Fin

10-Q 1 mgen-q12020x10q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
x  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
o  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. 001-36483
 MIRAGEN THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of incorporation or organization)
 
47-1187261
(I.R.S. Employer Identification No.)
6200 Lookout Road, Boulder, CO 80301
(Address, including zip code, of principal executive offices)
 (720) 643-5200
(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, $0.01 par value
 
MGEN
 
The Nasdaq Capital 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  x    No  o
 
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   x    No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer x
Non-accelerated filer o
 
Smaller reporting company x
 
 
Emerging growth company o
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. o

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

As of May 1, 2020, there were 53,077,348 shares of the registrant’s Common Stock outstanding.



MIRAGEN THERAPEUTICS, INC.
INDEX





PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MIRAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
 
March 31,
2020
 
December 31,
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
36,103

 
$
24,846

Short-term investments

 
1,999

Accounts receivable
4

 
108

Prepaid expenses and other current assets
2,234

 
2,786

Total current assets
38,341

 
29,739

Property and equipment, net
443

 
523

Operating lease right-of-use asset, net
266

 

Total assets
$
39,050

 
$
30,262

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,629

 
$
1,096

Accrued liabilities
3,055

 
5,108

Current portion of note payable
3,977

 
3,976

Total current liabilities
8,661

 
10,180

Note payable, net of current portion
3,389

 
4,328

Total liabilities
12,050

 
14,508

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value; 100,000,000 shares authorized; 53,077,348 and 34,861,876 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
531

 
349

Additional paid-in capital
202,685

 
183,574

Accumulated deficit
(176,216
)
 
(168,169
)
Total stockholders’ equity
27,000

 
15,754

Total liabilities and stockholders’ equity
$
39,050

 
$
30,262













See accompanying notes to these condensed consolidated financial statements.

3


MIRAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
(unaudited)
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Revenue:
 
 
 
 
Collaboration revenue
 
$
681

 
$
348

Grant revenue
 
147

 
24

Total revenue
 
828

 
372

Operating expenses:
 
 
 
 
Research and development
 
6,103

 
8,751

General and administrative
 
2,723

 
3,357

Total operating expenses
 
8,826

 
12,108

Loss from operations
 
(7,998
)
 
(11,736
)
Other income (expense):
 
 
 
 
Interest and other income
 
95

 
339

Interest and other expense
 
(141
)
 
(232
)
Net loss
 
(8,044
)
 
(11,629
)
Change in unrealized gain on investments
 

 
5

Comprehensive loss
 
$
(8,044
)
 
$
(11,624
)
 
 
 
 
 
Net loss
 
$
(8,044
)
 
$
(11,629
)
Net loss per share, basic and diluted
 
$
(0.18
)
 
$
(0.38
)
Weighted-average shares used to compute basic and diluted net loss per share
 
45,476,338

 
30,886,085


























See accompanying notes to these condensed consolidated financial statements.

4


MIRAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)


 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2019
 
34,861,876

 
$
349

 
$
183,574

 
$

 
$
(168,169
)
 
$
15,754

Prior period adjustment from adoption of ASC 842
 

 

 

 

 
(3
)
 
(3
)
Issuance of common stock and warrants in a public offering, net of issuance costs
 
15,000,000

 
150

 
13,731

 

 

 
13,881

Issuance of common stock pursuant to a 2019 stock purchase agreement, net of issuance costs
 
2,200,000

 
22

 
4,027

 

 

 
4,049

Issuance of common stock under the 2017 ATM, net of issuance costs
 
975,063

 
10

 
660

 

 

 
670

Shares issued for cash upon the exercise of stock options under an equity incentive plan
 
17,238

 

 
13

 

 

 
13

Issuance of common stock for cash under employee stock purchase plan
 
23,171

 

 
16

 

 

 
16

Share-based compensation expense
 

 

 
664

 

 

 
664

Net loss
 

 

 

 

 
(8,044
)
 
(8,044
)
Balance at March 31, 2020
 
53,077,348

 
$
531

 
$
202,685

 
$

 
$
(176,216
)
 
$
27,000


 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
 
30,839,463

 
$
308

 
$
177,335

 
$
(3
)
 
$
(126,296
)
 
$
51,344

Issuance of common stock under the 2017 ATM, net of issuance costs
 
47,589

 
1

 
133

 

 

 
134

Issuance of common stock for cash under employee stock purchase plan
 
34,167

 

 
84

 

 

 
84

Share-based compensation expense
 

 

 
1,018

 

 

 
1,018

Change in unrealized gain on investments
 

 

 

 
5

 

 
5

Net loss
 

 

 

 

 
(11,629
)
 
(11,629
)
Balance at March 31, 2019
 
30,921,219

 
$
309

 
$
178,570

 
2

 
$
(137,925
)
 
$
40,956


















See accompanying notes to these condensed consolidated financial statements.

5


MIRAGEN THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Three Months Ended
March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(8,044
)
 
$
(11,629
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Share-based compensation expense
664

 
1,018

Implementation of ASC 842 and other non-cash lease expenses
75

 

Non-cash interest expense
63

 
94

Depreciation and amortization
68

 
73

Loss on sale of equipment
11

 

Amortization of premiums and discounts on available-for-sale securities
(1
)
 
(182
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
104

 
18

Prepaid expenses and other assets
436

 
(298
)
Accounts payable
410

 
(54
)
Accrued and other liabilities
(2,245
)
 
(849
)
Net cash used in operating activities
(8,459
)
 
(11,809
)
Cash flows from investing activities:
 
 
 
Purchases of short-term investments

 
(23,783
)
Maturities of short-term investments
2,000

 
21,000

Proceeds from sale of property and equipment
1

 

Purchases of property and equipment

 
(37
)
Net cash provided by (used in) investing activities
2,001

 
(2,820
)
Cash flows from financing activities:
 
 
 
Proceeds from the sale of common stock and warrants
19,754

 
138

Payment of issuance costs associated with the sale of common stock
(1,068
)
 
(4
)
Payments of principal on note payable
(1,000
)
 

Proceeds from stock purchases under employee stock purchase plan
16

 
84

Proceeds from the exercise of stock options
13

 

Net cash provided by financing activities
17,715

 
218

Net increase (decrease) in cash and cash equivalents
11,257

 
(14,411
)
Cash and cash equivalents at beginning of period
24,846

 
32,606

Cash and cash equivalents at end of period
$
36,103

 
$
18,195

 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
Cash paid for interest
$
61

 
$
136

Supplemental disclosure of non-cash investing and financing activities
 
 
 
Amortization of public offering costs
$
30

 
$
1

Change in unrealized gain on investments
$

 
$
5

 
 
 
 





See accompanying notes to these condensed consolidated financial statements.

6


MIRAGEN THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. DESCRIPTION OF BUSINESS

Miragen Therapeutics, Inc., a Delaware corporation (the “Company” or “miRagen”), is a clinical-stage biopharmaceutical company discovering and developing proprietary RNA-targeted therapies with a specific focus on microRNAs and their role in diseases where there is a high unmet medical need. The Company has three clinical stage product candidates: cobomarsen, remlarsen, and MRG-110. The Company is developing cobomarsen for the treatment of patients with certain cancers that have elevated microRNA-155, including cutaneous T-cell lymphoma and adult T-cell leukemia/lymphoma. Cobomarsen is an inhibitor of microRNA‑155, which is found at abnormally high levels in malignant cells of several blood cancers. The Company is also developing remlarsen and MRG-229, which are product candidates being developed for the treatment of patients with pathological fibrosis. These product candidates are replacements for microRNA‑29 (“miR‑29”), which is found at abnormally low levels in a number of pathological fibrotic conditions, including cutaneous, cardiac, renal, hepatic, pulmonary and ocular fibrosis, as well as in systemic sclerosis. MRG-110, an inhibitor of microRNA‑92, is the Company’s product candidate for the treatment of heart failure, wound healing, and other ischemic disease.

The Company believes its experience in microRNA biology and chemistry, drug discovery, bioinformatics, translational medicine, and drug development allows it to identify and develop microRNA-targeted drugs that are designed to regulate gene pathways to return diseased tissues to a healthy state. The Company believes its drug discovery and development strategy will enable it to progress its product candidates from preclinical discovery to confirmation of mechanism of action in humans quickly and efficiently. The elements of this strategy include identification of mechanistic biomarkers, in early-stage clinical trials to assess target engagement in humans, as well as monitoring outcomes in these early-stage clinical trials to help guide later clinical development.

Liquidity

The Company has funded its operations to date principally through proceeds received from the sale of the Company’s common stock (“Common Stock”) and other equity securities, debt financings, up-front milestones, and reimbursements received under a prior license and collaboration agreement. Since its inception and through March 31, 2020, the Company has generated an accumulated deficit of $176.2 million. As of March 31, 2020, the Company had approximately $36.1 million in cash and cash equivalents. Based on its current operating plans, management believes that the Company’s cash and cash equivalents, combined with the effect of the six-month deferral of interest-only payments and the maturity date related to the Company’s loan and security agreement with Silicon Valley Bank (the “2017 SVB Loan Agreement”) in April 2020 (see Note 7. Notes Payable), will be sufficient to fund the Company’s operations into the third quarter of 2021.

In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. The Company cannot predict what the long-term effects of this pandemic and the resulting economic disruptions may have on the Company’s liquidity and results of operations. The extent of the effect of the COVID-19 pandemic on the Company’s liquidity and results of operations will depend on a number future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. The COVID-19 pandemic may make it more difficult for the Company to enroll patients in any future clinical trials or cause the Company to further delay enrollment or announcement of results from its ongoing clinical trials. The economic uncertainty surrounding the COVID-19 pandemic may also dramatically reduce the Company’s ability to secure debt or equity financing necessary to support the Company’s operations. The Company is unable to currently estimate the financial effect of the pandemic. If the pandemic continues to be a severe worldwide crisis, it could have a material adverse effect on the Company’s business, results of operations, financial condition, and cash flows. The financial statements do not reflect any adjustments as a result of the COVID-19 pandemic.

The Company has no products approved for commercial sale, has not generated any revenue from product sales, and cannot guarantee when or if it will generate any revenue from product sales. Since its inception and through March 31, 2020, the Company has generated an accumulated deficit of $176.2 million. Substantially all of the Company’s operating losses resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with its operations. The Company expects to incur significant expenses and operating losses for at least the next several years as it continues the clinical development of, and seeks regulatory approval for, its product candidates. It is expected that operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval.

The Company will continue to require additional capital beyond its current cash runway guidance of into the third quarter of 2021 to continue its operations. The amount and timing of future funding requirements will depend on many factors, including the pace

7


and results of the Company’s clinical development efforts, equity financings, entering into license and collaboration agreements, and issuing debt or other financing vehicles. The Company’s ability to secure additional capital is dependent upon a number of factors, some of which are outside of the Company’s control, including success in developing its technology and drug product candidates, operational performance, and market conditions, including resulting from the ongoing COVID-19 pandemic.

Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on the Company’s financial condition and its ability to develop its product candidates. Changing circumstances may cause the Company to consume capital significantly faster or slower than currently anticipated. If the Company is unable to acquire additional capital or resources, it will be required to modify its operational plans. The estimates included herein are based on assumptions that may prove to be wrong, and the Company could exhaust its available financial resources sooner than currently anticipated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or for any other interim period, or for any other future year. The balance sheet as of December 31, 2019 has been derived from audited consolidated financial statements at that date but does not include all the information required by U.S. GAAP for complete financial statements. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto contained in the Company’s Form 10-K for the year ended December 31, 2019, filed with the SEC on March 13, 2020. The Company’s management performed an evaluation of its activities through the date of filing of these financial statements and concluded that there are no subsequent events requiring disclosure, other than as disclosed.

Going Concern

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.

The Company’s evaluation entails, among other things, analyzing the results of the Company’s clinical development efforts, license and collaboration agreements as well as the entity’s current financial condition including conditional and unconditional obligations anticipated within a year, and related liquidity sources at the date the financial statements are issued. This is reflected in the Company’s prospective operating budgets and forecasts and compared to the current cash and cash equivalent balance.

Use of Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with U.S. GAAP, which requires it to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although these estimates are based on the Company’s knowledge of current events and actions it may take in the future, actual results may ultimately differ from these estimates and assumptions.

Revenue Recognition

The Company accounts for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The Company enters into collaboration agreements and certain other agreements that are within the scope of ASC 606, under which the Company licenses, may license, or grants an option to license rights to certain of the Company’s product candidates

8


and performs research and development services in connection with such agreements. The terms of these agreements typically include payment of one or more of the following: non-refundable, up-front fees; reimbursement of research and development costs; developmental, clinical, regulatory, and commercial sales milestone payments; and royalties on net sales of licensed products.

In Accordance with ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine the appropriate amount of revenue to be recognized, for agreements within the scope of ASC 606, the Company performs the following five steps: (i) identification of the goods or services within the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct within the terms of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the identified performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.

The promised goods or services in the Company’s agreements typically consist of a license, or option to license, rights to the Company’s intellectual property or research and development services. Performance obligations are promises in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily available, and whether the goods or services are integral or dependent to other goods or services in the contract.

The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the inception of each agreement that includes variable consideration, the Company evaluates the amount of potential payment and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration that is included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

The Company’s contracts often include development and regulatory milestone payments that are assessed under the most likely amount method and constrained if it is probable that a significant revenue reversal would occur. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of such development and clinical milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration and other research and development revenue in the period of adjustment.

For agreements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of the Company’s collaboration or strategic alliance agreements.

The Company allocates the transaction price based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the stand-alone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, and the estimated costs. Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied

9


over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

The Company receives payments from its customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Research and Development

Research and development costs are expensed as incurred in performing research and development activities. The costs include employee-related expense including salaries, benefits, share-based compensation, restructuring charges, fees for acquiring and maintaining licenses under third-party license agreements, consulting fees, market research, costs of research and development activities conducted by third parties on the Company’s behalf, costs to manufacture or have manufactured clinical trial materials, laboratory supplies, depreciation, and facilities and overhead costs. The Company records research and development expense in the period in which the Company receives or takes ownership of the applicable goods or when the applicable services are performed. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense.

The Company records up-front and milestone payments to acquire and retain contractual rights to licensed technology as research and development expenses when incurred if there is uncertainty in the Company receiving future economic benefit from the acquired contractual rights. The Company considers future economic benefits from acquired contractual rights to licensed technology to be uncertain until such a drug candidate is approved for sale by the U.S. Food and Drug Administration or when other significant risk factors are abated.

Clinical Trial and Preclinical Study Accruals

The Company makes estimates of accrued expenses as of each balance sheet date in its condensed consolidated financial statements based on certain facts and circumstances at that time. The Company’s accrued expenses for clinical trials and preclinical studies are based on estimates of costs incurred for services provided by clinical research organizations, manufacturing organizations, and other providers. Payments under the Company’s agreements with external service providers depend on a number of factors, such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, the Company obtains information from various sources and estimates the level of effort or expense allocated to each period. Adjustments to the Company’s research and development expenses may be necessary in future periods as its estimates change.

Restructuring and Other Charges

The Company accounts for exit or disposal activities in accordance with FASB ASC Topic 420, Exit or Disposal Cost Obligations (ASC 420). A business restructuring is defined as an exit or disposal activity that includes, but is not limited to, a program that is planned and controlled by management and materially changes either the scope of a business or the manner in which that business is conducted. Business restructuring charges include (i) one-time termination benefits related to employee separations, (ii) contract termination costs, and (iii) other related costs associated with exit or disposal activities including. In 2020 and 2019, the Company implemented two phases of a restructuring plan to streamline the organization, reduce costs, and direct resources to advance the Company’s primary operating goals.

The Company recognizes and measures a liability for one-time termination benefits, for which no future service is required, once the plan of termination meets all of the following criteria for an established communication date: (i) management commits to a plan of termination, (ii) the plan identifies the number of employees to be terminated and their job classifications or functions, locations and the expected completion date, (iii) the plan establishes the terms of the benefit arrangement, and (iv) it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. For one-time termination benefits for which future service is required, a liability is measured at the communication date based on its value as of the termination date and recognized ratably over the future service period. The Company recognizes and measures a liability for other related costs in the period in which the liability is incurred.

Share-Based Compensation

The Company accounts for share-based compensation expense related to stock options granted to employees and members of its board of directors under its 2008 Equity Incentive Plan (the “2008 Plan”) and under its 2016 Equity Incentive Plan (the “2016 Plan”) by estimating the fair value of each stock option or award on the date of grant using the Black-Scholes option pricing model. The Company recognizes share-based compensation expense on a straight-line basis over the vesting term.


10


Prior to 2019, the Company determined the value of Common Stock options issued to non-employees (other than members of its board of directors) using the Black-Scholes option pricing model and adjusting the value of such awards to current fair value each reporting period until the awards were vested or a performance commitment had otherwise been reached. After adoption of Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718), on January 1, 2019, non-employee stock options are valued at the award’s inception using grant-date fair value, in the same manner of stock options granted to employees. Any outstanding and partially vested non-employee stock option shares were remeasured on January 1, 2019. The adoption of this standard had an immaterial impact on the Company’s condensed consolidated financial statements.

Cash and Cash Equivalents

All highly-liquid investments that have maturities of 90 days or less at the date of purchase are classified as cash equivalents. Cash equivalents are reported at cost, which approximates fair value due to the short maturities of these instruments.

Investments

The Company has designated its investments as available-for-sale securities and accounts for them at their respective fair values. The securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Securities that are readily available for use in current operations are classified as short-term available-for-sale securities and are reported as a component of current assets in the accompanying condensed consolidated balance sheets.

Securities that are classified as available-for-sale are measured at fair value, including accrued interest, with temporary unrealized gains and losses reported as a component of stockholders’ equity until their disposition. The Company reviews available-for-sale securities at the end of each period to determine whether they remain available-for-sale based on its then current intent. The cost of securities sold is based on the specific identification method.

The securities are subject to a periodic impairment review. An impairment charge would occur when a decline in the fair value of the investments below the cost basis is judged to be other-than-temporary.

As of March 31, 2020, the Company did not have any balances associated with available-for-sale securities. As of December 31, 2019, the Company’s short-term available-for-sale securities had an amortized cost of $2.0 million, fair value of $2.0 million, and no associated unrealized gain or loss. The Company had no long-term investments as of March 31, 2020 or December 31, 2019.

Fair Value Measurements

The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value and indicate the fair value of the hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair value determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices, for similar assets or liabilities, quoted market prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
 
March 31, 2020
 
December 31, 2019
 
Level 1
 
Level 3
 
Level 1
 
Level 3
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Money market funds (included in cash and cash equivalents)
$
36,896

 
$

 
$
25,263

 
$

U.S. treasury securities (included in short-term investments)

 

 
1,999

 

Total assets
$
36,896

 
$

 
$
27,262

 
$

Liabilities:
 
 
 
 
 
 
 
Common Stock warrants (included in accrued and other liabilities)
$

 
$
100

 
$

 
$
100


11


Fair Value of Financial Instruments

Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to the short-term nature of their maturities, such as cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses. The carrying amount of the Company’s note payable approximates its fair value (a Level 2 fair value measurement), reflecting interest rates currently available to the Company.

The Company accounts for warrants to purchase its stock pursuant to ASC Topic 470, Debt, and ASC Topic 480, Distinguishing Liabilities from Equity, and classifies warrants for Common Stock as liabilities or equity. The warrants classified as liabilities are reported at their estimated fair value and any changes in fair value are reflected in interest and other expense. The warrants classified as equity are reported at their estimated fair value with no subsequent remeasurement. The Company’s outstanding warrants are discussed in more detail in Note 10. Warrants.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, which include short-term investments that have maturities of less than three months. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts. The Company invests its excess cash primarily in deposits and money market funds held with one financial institution.

Property and Equipment

The Company carries its property and equipment at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years. Leasehold improvements are amortized over the shorter of the life of the lease (including any renewal periods that are deemed to be reasonably assured) or the estimated useful life of the assets. Construction in progress is not depreciated until placed in service. Repairs and maintenance costs are expensed as incurred and expenditures for major improvements are capitalized.

Operating Lease Right-of-Use Asset
The Company determines if an arrangement is, or contains, a lease at contract inception and during modifications or renewal of existing leases. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s existing operating lease assets and liabilities were recognized upon the date of transition to ASC 842, on January 1, 2020. Going forward the Company’s operating lease assets and liabilities will be recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. The lease payments used to determine the Company’s operating lease assets may include lease incentives, stated rent increases, and escalation clauses and are recognized in the Company’s operating lease assets in the Company’s condensed consolidated balance sheets. The Company’s operating leases are reflected in operating lease right-of-use asset and operating lease liability within accrued liabilities in the Company’s consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Refer to Note 8. Commitments and Contingencies - Lease Obligations Payable for additional information related to the Company’s operating leases.
Impairment of Long-Lived Assets

The Company assesses the carrying amount of its property and equipment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. No impairment charges were recorded during the three months ended March 31, 2020 and 2019.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of Common Stock outstanding during the period without consideration of Common Stock equivalents. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods, as the inclusion of all potential common shares outstanding is antidilutive.


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Comprehensive Loss

Comprehensive loss is comprised of net loss and adjustments for the change in unrealized gains and losses on investments. Unrealized accumulated comprehensive gains or losses are reflected as a separate component in the statement of stockholders’ equity. The Company had no realized or unrealized gains or losses during the three months ended March 31, 2020. The Company had an unrealized gain of $5 thousand and no realized gains or losses during the three months ended March 31, 2019.
Income Taxes

The Company accounts for income taxes by using an asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is recorded to the extent it is more likely than not that a deferred tax asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

The Company’s significant deferred tax assets are for net operating loss carryforwards, tax credits, accruals and reserves, and capitalized start-up costs. The Company has provided a valuation allowance for its entire net deferred tax assets since inception as, due to its history of operating losses, the Company has concluded that it is more likely than not that its deferred tax assets will not be realized.

The Company has no unrecognized tax benefits. The Company classifies interest and penalties arising from the underpayment of income taxes in the condensed consolidated statements of operations and comprehensive loss as general and administrative expenses. No such expenses have been recognized during the three months ended March 31, 2020 and 2019.

The legislation informally titled the Tax Cuts and Jobs Act of 2017 (“Tax Act”) was signed into law on December 22, 2017. The Tax Act includes significant changes to the U.S. corporate income tax system, including: (i) a federal corporate rate reduction from 35% to 21%; (ii) limitations on the deductibility of interest expense and executive compensation; (iii) elimination of the corporate alternative minimum tax (“AMT”) and a change in how existing AMT credits can be realized; (iv) change in the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (v) reduction of the orphan drug credit from 50% to 25%; and (vi) transition of U.S. international taxation from a worldwide tax system to a territorial tax system. The Tax Act did not have a material impact on the Company’s condensed consolidated financial statements primarily due to the valuation allowance recorded against its net deferred tax assets.

Segment Information

The Company operates in one operating segment and, accordingly, no segment disclosures have been presented herein. All equipment, leasehold improvements, and other fixed assets are physically located within the United States and all agreements with the Company’s partners are denominated in U.S. dollars, except where noted.

Recent Accounting Pronouncements – Adopted

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), and subsequent amendments to the initial guidance: ASU No. 2017-13, ASU No. 2018-10, and ASU No. 2018-11 (collectively, “ASC 842”). The Company adopted ASC 842 on January 1, 2020, using the optional transition method permitted by ASU No. 2018-11. The Company’s building operating lease commitments are subject to the new standard, which resulted in an operating lease liability of $0.4 million and a right-of-use asset of $0.4 million, with no material effect on the Company’s condensed consolidated statements of operations and comprehensive loss.

3. RESTRUCTURING PLAN

In August 2019, the Company began implementing two phases of a cost restructuring plan to streamline the organization, reduce costs, and direct resources to advance cobomarsen and miR-29 mimics, including remlarsen and MRG-229, while reducing investments in new discovery research. The restructuring plan identified approximately 44 positions for elimination, or approximately 50% of the Company’s then total workforce. The eliminated positions were primarily related to research and development and corresponding project, general, and administrative support. Through March 31, 2020, the Company had recorded

13


cumulative restructuring expense of $2.2 million and expects to incur approximately $0.2 million in additional restructuring expense, primarily related to retention, during the remainder of 2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company recorded $0.1 million in restructuring charges during the three months ended March 31, 2020, which was primarily related to retention transactions and recorded in research and development expenses on the condensed consolidated statements of operations and comprehensive loss.

The following table summarizes the Company’s accrued restructuring liability balance and associated activity (in thousands):
 
 
December 31, 2019
 
Additions
 
Cash Payments
 
March 31, 2020
Retention
 
$
935

 
$
119

 
$
(935
)
 
$
119

Severance and severance-related expenses
 
580

 

 
(283
)
 
297

Total restructuring liability
 
$
1,515

 
$
119

 
$
(1,218
)
 
$
416


4. STRATEGIC ALLIANCE AND COLLABORATION WITH SERVIER

In October 2011, the Company entered into a license and collaboration agreement (the “Servier Collaboration Agreement”) with Les Laboratoires Servier and Institut de Recherches Servier (collectively, “Servier”) for the research, development, and commercialization of RNA-targeting therapeutics in cardiovascular disease. Under the Servier Collaboration Agreement, the Company granted Servier an exclusive license to research, develop, manufacture, and commercialize RNA-targeting therapeutics for certain microRNA targets in the cardiovascular field.

In August 2019, Servier terminated the Servier Collaboration Agreement effective in February 2020. During the period from receipt of notice from Servier in August 2019 and termination in February 2020, the Company completed certain activities under its development plan with Servier, which included finalizing the two Phase 1 clinical trials of MRG-110. The activities for which the Company is eligible for reimbursement under the Servier Collaboration Agreement are considered a research and development performance obligation and revenue are recognized in accordance with ASC 606 through the termination date.

Accounting Analysis

The Company evaluated the Servier Collaboration Agreement in accordance with the provisions in ASC 606. The Company has accounted for amendments to the Servier Collaboration Agreement as modifications to the original contract and not as separate contracts. The Company combined the amendments with the original agreement due to the modifications not resulting in increased promised goods or services that were distinct, and the price of the contract did not increase by an amount of consideration that reflects the Company’s standalone selling prices.

The Company identified the following performance obligations under the Servier Collaboration Agreement: (i) up-front license fee for a multiple-year research collaboration, under which it jointly performed agreed upon research activities directed to the identification and characterization of named targets and oligonucleotides in the cardiovascular field (the “Research Collaboration”); (ii) research and development activities; (iii) transfer of materials; (iv) developmental, clinical, regulatory, and commercial sales milestone payments; and (v) royalties on net sales of licensed products. The Company acts as a principal as it controls the goods or services prior to transfer to the customer. The Company performed the research and development activities specified in the contracts and controlled the laboratories and resources that performed the research and development activities.

The Company concluded that the up-front license fees were not distinct from the Research Collaboration as Servier cannot obtain the benefit of the license without the Research Collaboration. This performance obligation represented the licensing of Company‑owned intellectual property related to the Company’s knowledge of microRNA therapeutics for certain specific diseases, together with research activities that were interdependent with licensed intellectual property to determine feasibility of commercialization.

As of January 1, 2019, the date of the initial application of ASC 606 by the Company, the remaining total transaction price associated with the Servier Collaboration Agreement was determined to be approximately $3.1 million consisting of maximum reimbursements of development costs under the development plan. During February 2019, the Joint Steering Committee approved an additional $1.0 million of development plan activities. As of January 1, 2019, the Company identified up to $60.4 million in development and regulatory milestones under the Servier Collaboration Agreement, and the Company had recognized $7.5 million in milestone revenue through the initial application date. The Company utilizes the most likely amount method to estimate any development

14


and regulatory milestone payments to be received. The Company considered the stage of development and the risks associated with the remaining development required to achieve these milestones, as well as whether the achievement of the milestones is outside the control of the Company. The Company determined that the remaining milestone payments were fully constrained, as a result of the uncertainty whether the milestones would be achieved by March 31, 2020. The Company also determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and, therefore, these payments have also been excluded from the transaction price. The Company re-evaluates the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. As of March 31, 2020, no adjustments to the transaction price were noted.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation or, in the case of certain variable consideration, to one or more performance obligations. Research and development activities are priced generally at the standard labor rates for the respective activity and transfer of materials are generally priced at cost. Milestone payments are individually negotiated and because of the unique nature of each milestone, there are no comparable transactions to compare to; therefore, the negotiated amounts of the milestones in the agreement are the standalone selling price.

Amounts incurred and billable, but not billed to Servier, for research and related intellectual property activities totaled $1 thousand and $0.3 million as of March 31, 2020 and December 31, 2019, respectively. These amounts are included in prepaid expenses and other current assets in the Company’s condensed consolidated balance sheets. As of March 31, 2020 and December 31, 2019, the Company had no accounts receivable balances outstanding for Servier research and related intellectual property activities. The amounts recognized in 2019 under ASC 606 did not materially differ from what the Company would have recognized under ASC 605.

During the three months ended March 31, 2020 and 2019, the Company recorded collaboration revenue related to reimbursable research and development costs under the Servier Collaboration Agreement of $0.7 million and $0.3 million, respectively.
 
 
 
 
5. PROPERTY AND EQUIPMENT

Property and equipment, net, consisted of the following:
 
 
 
 
 
March 31,
2020
 
December 31,
2019
 
(in thousands)
Lab equipment
$
2,507

 
$
2,507

Leasehold improvements
741

 
741

Computer hardware and software
403

 
457

Furniture and fixtures
166

 
166

Property and equipment, gross
3,817

 
3,871

Less: accumulated depreciation and amortization
(3,374
)
 
(3,348
)
Property and equipment, net
$
443

 
$
523


During the three months ended March 31, 2020 and 2019, depreciation and amortization expense was $0.1 million. Depreciation and amortization expense is recorded primarily in research and development expense on the condensed consolidated statements of operations and comprehensive loss.


15


6. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:
 
 
 
 
 
March 31,
2020
 
December 31,
2019
 
(in thousands)
Accrued outsourced clinical trials and preclinical studies
$
1,012

 
$
2,259

Accrued employee compensation and related taxes
524

 
508

Restructuring liability
416

 
1,515

Accrued legal fees and expenses
323

 
284

Operating lease liability
306

 

Accrued other professional service fees
282

 
254

Value of liability-classified stock purchase warrants
100

 
100

Deferred and accrued facility lease obligations

 
66

Accrued equipment and lab materials
11

 
1

Other accrued liabilities
81

 
121

Total accrued liabilities
$
3,055

 
$
5,108


7. NOTE PAYABLE

2017 Silicon Valley Bank Loan Agreement

In November 2017, the Company entered into the 2017 SVB Loan Agreement. Upon entry into the 2017 SVB Loan Agreement, the Company borrowed $10.0 million with a 30-month payment period following an 18-month interest-only payment period ending in November 2021. In April 2020, the 2017 Loan Agreement was amended to extend the interest-only payment period and extended maturity date by an additional six months. Amounts outstanding bear interest at the prime rate (3.25% and 4.75% at March 31, 2020 and December 31, 2019, respectively), with a final payment fee equal to $0.9 million due upon maturity. As of March 31, 2020, no additional amounts are available under the 2017 SVB Loan Agreement.

The Company may elect to prepay prior to maturity all or any portion of the outstanding principal amounts under the 2017 SVB Loan Agreement, subject to a prepayment charge, depending on the date of prepayment or upon the occurrence of an event of default in which the Company’s obligations to repay the outstanding principal is accelerated. The Company’s obligations under the 2017 SVB Loan Agreement are secured by a first-priority security interest, right, and title in all business assets, excluding the Company’s intellectual property, which is subject to a negative pledge.

The 2017 SVB Loan Agreement includes customary representations, warranties, and covenants (affirmative and negative), including restrictive covenants that limit the Company’s ability to: encumber or dispose of the collateral securing the loan; change the business of the Company; transfer a material portion of the Company’s assets; acquire other businesses; and merge or consolidate with or into any other business organization; incur additional indebtedness; declare or pay any cash dividend or make a cash distribution on any class of stock or other equity interest; enter into specified material transactions with Company affiliates; make non-ordinary course payments or enter into any amendment regarding subordinated debt of the Company; or become an “investment company” under the Investment Company Act of 1940, as amended; in each case subject to specified exceptions.

The 2017 SVB Loan Agreement also includes standard events of default, including payment defaults; breaches of covenants following any applicable cure period; material breaches of representations or warranties; the occurrence of a material adverse change (as defined in the 2017 SVB Loan Agreement); events relating to bankruptcy or insolvency; breaches of material third-party agreements; the occurrence of an unsatisfied material judgment against the Company; and specified governmental actions against the Company, including specified actions by the U.S. Food and Drug Administration. Upon the occurrence of an event of default, Silicon Valley Bank may declare all outstanding obligations immediately due and payable, including a prepayment charge, and take such other actions as are set forth in the 2017 SVB Loan Agreement. Upon the occurrence of an event of default, at the Silicon Valley Bank’s discretion, interest on the 2017 SVB Loan Agreement will accrue at 5.0% above the rate that is otherwise applicable thereto until the earlier of the repayment of the Company’s obligations under the 2017 SVB Loan Agreement or the cure of such event of default.


16


Amounts outstanding under the 2017 SVB Loan Agreement were as follows:
 
 
 
 
 
March 31,
2020
 
December 31,
2019
 
(in thousands)
Principal amount outstanding
$
6,667

 
$
7,667

Unamortized debt discount
(27
)
 
(32
)
Accreted final payment fee
726

 
669

Total note payable
7,366

 
8,304

Less: current maturities
(3,977
)
 
(3,976
)
Note payable, net of current portion
$
3,389

 
$
4,328


Future annual minimum principal payments under the 2017 SVB Loan Agreement as of March 31, 2020 for the respective calendar years are as follows (in thousands):
2020
$
3,000

2021
3,667

Total
$
6,667


Future annual minimum principal payments under the 2017 SVB Loan Agreement as of March 31, 2020 (after giving effect to the amendment of the 2017 SVB Loan Agreement in April 2020), for the respective calendar years would have been as follows (in thousands):
2020
$
1,000

2021
4,000

2022
1,667

Total
$
6,667


8. COMMITMENTS AND CONTINGENCIES

Indemnification Agreements

The Company has entered into indemnification agreements with each of its directors and officers whereby it has agreed to indemnify such persons for certain events or occurrences while the individual is, or was, serving as a director, officer, employee, or other agent of the Company. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.

Employment Agreements

The Company has entered into agreements with its executives and its employees that provide for base salary, severance, eligibility for bonuses, and other generally available benefits. The agreements provide that the Company may terminate the employment of its employees, including executives, at any time, with or without cause.

If an employee under an employment agreement is terminated without cause, as defined in the employment agreements, or an employee under an employment agreement resigns for good reason, as defined in the employment agreements, then the employee under the employment agreement is entitled to receive, upon the execution of a release agreement, a severance package consisting of one or more of the following provisions: (i) the equivalent of up to 3 months of the employee’s base salary in effect immediately prior to date of termination; (ii) acceleration of vesting of the equivalent of up to 3 months of vesting of the executive’s outstanding unvested stock options or other equity awards that were outstanding as of the effective date of the executive’s employment agreement; and (iii) up to 3 months of continued health coverage.

If an executive is terminated without cause or resigns for good reason within one month prior to or 12 months following a change of control, as defined in the employment agreements, the executive is entitled to receive, upon the execution of a release agreement, a severance package consisting of: (i) the equivalent of 12 months of the executive’s base salary in effect immediately prior to date of termination; (ii) the vesting in full of the executive’s then-outstanding stock options or other equity awards subject to time-

17


based vesting; and (iii) 12 months of continued health coverage. Solely in the case of the Company’s Chief Executive Officer, if such termination occurs one month before or 12 months following a change of control, then, upon the execution of a release agreement, the executive is entitled to: (i) the equivalent of 24 months of the executive’s base salary in effect immediately prior to the date of termination; (ii) the vesting in full of the executive’s outstanding stock options or other equity awards subject to time-based vesting; and (iii) 12 months of continued health coverage.

License Agreement with the University of Texas

As of March 31, 2020, the Company had one exclusive patent license agreement (the “UT License Agreement”) with the Board of Regents of The University of Texas System (the “University of Texas”). Under the UT License Agreement, the University of Texas granted the Company exclusive and nonexclusive licenses to certain patent and technology rights. At the time the UT License Agreement was entered into, the University of Texas was a minority stockholder of the Company.

In consideration of rights granted by the University of Texas, the Company is required to: (i) pay a nonrefundable up-front license documentation fee in the amount of $10 thousand; (ii) pay an annual license maintenance fee in the amount of $10 thousand starting one year from the date of the agreement; (iii) reimburse the University of Texas for actual costs incurred in conjunction with the filing, prosecution, enforcement, and maintenance of patent rights prior to the effective date; and (iv) bear all future costs of and manage the filing, prosecution, enforcement, and maintenance of patent rights. During the three months ended March 31, 2020 and 2019, the Company incurred immaterial up-front and maintenance fees, which were recorded as research and development expense. All costs related to the filing, prosecution, and maintenance of patent and technology rights are recorded as general and administrative expense when incurred.

Under the terms of the UT License Agreement, the Company may be obligated to make the following future milestone payments for each licensed product candidate: (i) up to approximately $0.6 million upon the initiation of defined clinical trials; (ii) $2.0 million upon regulatory approval in the United States; and (iii) $0.5 million per region upon regulatory approval in other specified regions. Additionally, if the Company or any of its sublicensees successfully commercializes any product candidate subject to the UT License Agreement, it is responsible for royalty payments in the low-single digits based upon net sales of such licensed products and payments at a percentage in the mid-teens of any sublicense income, subject to specified exceptions. The University of Texas’s right to these royalty payments will expire upon the expiration of the last patent claim subject to the UT License Agreement. During the three months ended March 31, 2020 and 2019, the Company did not incur any milestone payments.

The license term extends on a product-by-product and country-by-country basis until the expiration of the last to expire of the licensed patents that covers such product in such country. Upon expiration of the royalty payment obligation, the Company will have a fully-paid license in such country. The Company may also terminate each UT License Agreement for convenience upon a specified number of days’ prior notice to the University of Texas. The University of Texas also has the right to earlier terminate the UT License Agreement after a defined date under specified circumstances where the Company has effectively abandoned its research and development efforts or has no sales. The UT License Agreement will terminate under customary termination provisions including automatic termination upon the Company’s bankruptcy or insolvency, upon notice of an uncured material breach, and upon mutual written consent. All charges incurred under the UT License Agreement have been expensed to date due to the uncertainty as to future economic benefit from the acquired rights.

License Agreement with Roche Innovation Center Copenhagen A/S (formerly Santaris Pharma A/S)

The Company is party to a license agreement with Santaris Pharma A/S, which subsequently changed its name to Roche Innovation Center Copenhagen A/S (“RICC”), which was acquired by F. Hoffmann-La Roche Ltd (“Roche”), in 2014. The agreement was entered into in June 2010, was amended in October 2011, amended and restated in December 2012, and further amended in August 2019 (the “RICC License Agreement”). At the time the RICC License Agreement was entered into, Roche was a minority stockholder of the Company.

Under the RICC License Agreement, the Company has received exclusive and nonexclusive licenses from RICC to use specified technology of RICC (the “RICC Technology”) for specified uses, including research, development, and commercialization of pharmaceutical products using this technology worldwide. Under the RICC License Agreement, the Company has the right to develop and commercialize the RICC Technology directed to four specified targets and the option to obtain exclusive product licenses for up to six additional targets. The acquisition of Santaris Pharma A/S by Roche was considered a change of control under the RICC License Agreement, and as such, certain terms and conditions of the RICC License Agreement changed, as contemplated and in accordance with the RICC License Agreement. These changes primarily relate to milestone payments reflected in the disclosures below. If the Company exercises its option to obtain additional product licenses or to replace the target families, it will be required to make additional payments to RICC.


18


Under the terms of the RICC License Agreement, milestone payments were previously decreased by a specified percentage as a result of the change of control by RICC referenced above. The Company is obligated to make milestone payments for each licensed product of up to $5.2 million, which is inclusive of a potential product license option fee. Certain of these milestones will be increased by a specified percentage if the Company undergoes a change of control as defined under the RICC License Agreement. If the Company grants a third party a sublicense to the RICC Technology, it is required to remit to Roche up to a specified percentage of the up-front, milestone, and other specified payments it receives under its sublicense, and if such sublicense covers use of the RICC Technology in the United States or the entire European Union, the Company will not have any further obligation to pay the fixed milestone payments noted above.

During the three months ended March 31, 2020 and 2019, the Company did not incur expense related to any milestones reached under the RICC License Agreement.

If the Company or its sublicensee successfully commercializes any product candidate subject to the RICC License Agreements, then RICC is entitled to royalty payments in the mid-single digits on the net sales of such product, provided that if such net sales are made by a sublicensee under the RICC License Agreement, RICC is entitled to royalty payments equal to the lesser of a percentage in the mid-single digits on the net sales of such product or a specified percentage of the royalties paid to the Company by such sublicensee, subject to specified restrictions. The Company is obligated to make any such royalty payments until the later of: (i) a specified anniversary of the first commercial sale of the applicable product or (ii) the expiration of the last valid patent claim licensed by RICC under the RICC License Agreement underlying such product. Upon the occurrence of specified events, the royalty owed to RICC will be decreased by a specified percentage.

The RICC License Agreement will terminate upon the latest of the expiration of all of RICC’s royalty rights, the termination of the last miRagen target, or the expiration of its right to obtain a product license for a new target under the RICC License Agreement. The Company may also terminate the RICC License Agreement for convenience upon a specified number of days’ prior notice to RICC, subject to specified terms and conditions. Either party may terminate the RICC License Agreement upon an uncured material breach by the other party and RICC may terminate the RICC License Agreement upon the occurrence of other specified events immediately or after such event is not cured within a specified number of days, as applicable.

All charges incurred under the RICC License Agreement have been expensed to date due to the uncertainty as to future economic benefit from the acquired rights.

During the three months ended March 31, 2020 and 2019, the Company did not make any payments to RICC for raw materials to be used in its drug manufacturing process.

Subcontract Agreement with Yale University

The Company is party to a subcontract agreement that began in October 2014 and a subaward agreement that began in March 2015 (the “Yale Agreements”) with Yale University (“Yale”), which were subsequently amended. Under the Yale Agreements, the Company is providing specified services regarding the development of a proprietary compound that targets miR-29 in the indication of idiopathic pulmonary fibrosis. Yale entered into the Yale Agreements in connection with a grant that Yale received from the National Institutes of Health (“NIH”) for the development of a miR-29 mimic as a potential therapy for pulmonary fibrosis.

In consideration of the Company’s services under the Yale Agreements, Yale has agreed to reimburse the Company up to a specified amount over five years, subject to the availability of funds under the grant and continued eligibility. Under the terms of the Yale Agreements, the Company retains all rights to any and all intellectual property developed solely by the Company in connection with the Yale Agreements. Yale has also agreed to provide the Company with an exclusive option to negotiate in good faith for an exclusive, royalty-bearing license from Yale for any intellectual property developed by Yale or jointly by the parties under the Yale Agreements. Yale is responsible for filing, prosecuting, and maintaining foreign and domestic patent applications and patents on all inventions jointly developed by the parties under the Yale Agreements. Through March 31, 2020, the Company has received $1.0 million under the Yale Agreements.

The Yale Agreements terminate automatically on the date that Yale delivers its final research report to the NIH under the terms of the grant underlying the Yale Agreements. Each party may also terminate the Yale Agreements upon a specified number of days’ notice in the event that the NIH’s grant funding is reduced or terminated or upon material breach by the other party.


19


License Agreements with the t2cure GmbH

The Company is party to a license and collaboration agreement (the “t2cure Agreement”) that began in October 2010 with t2cure GmbH (“t2cure”), which was subsequently amended. Under the t2cure Agreement, the Company received a worldwide, royalty-bearing, and exclusive license to specified patent and technology rights relating to microRNA-92.

In consideration of rights granted by t2cure, the Company paid an up-front fee of $46 thousand and the Company is obligated to: (i) pay an annual license maintenance fee in the amount of €3 thousand ($3 thousand as of March 31, 2020); and (ii) reimburse t2cure for costs incurred in conjunction with the filing, prosecution, enforcement, and maintenance of patent rights.

Under the terms of the t2cure Agreement, the Company is obligated to make the following future milestone payments for each licensed product, as defined in the t2cure Agreement: (i) up to approximately $0.7 million upon the initiation of certain defined clinical trials; (ii) $2.5 million upon regulatory approval in the United States; and (iii) up to $1.5 million per region upon regulatory approval in the European Union or Japan. Additionally, if the Company or any of its sublicensees successfully commercialize any product candidate subject to the t2cure Agreement, it is responsible for royalty payments equal to percentages in the low-single digits upon net sales of licensed products, and under specified circumstances, sublicense fees equal to a percentage in the low twenties of sublicense income received by it. The Company is obligated to make any such royalty payment until the later of: (i) the tenth anniversary of the first commercial sale of the applicable product or (ii) the expiration of the last valid claim to a patent licensed by t2cure under the t2cure Agreement covering such product. If such patent claims expire prior to the end of the ten-year term, then the royalty owed to t2cure will be decreased by a specified percentage. The Company also has the right to decrease its royalty payments by a specified percentage for royalties paid to third parties for licenses to certain third-party intellectual property.

The license term extends on a country-by-country basis until the later of: (i) the tenth anniversary of the first commercial sale of a licensed product in a country and (ii) the expiration of the last to expire valid claim that claims such licensed product in such country. Upon expiration of the royalty payment obligation, the Company will have a fully-paid license in such country. The Company has the right to terminate the t2cure Agreement at will, on a country-by-country basis, after 60 days’ written notice. The t2cure Agreement will also automatically terminate upon the Company’s bankruptcy or insolvency or upon notice of an uncured material breach.

All charges incurred under the t2cure Agreement have been expensed to date, due to the uncertainty as to future economic benefit from the acquired rights.

Lease Obligation Payable

Effective January 1, 2019, the Company adopted ASC 842 using the optional transition method provided by ASU No. 2018-11, which requires recognition of a right-of-use asset and a lease liability for all leases at the transition date, based on the present value of the lease payment over the lease term.

The Company is party to a multi-year, noncancelable lease agreement that began in December 2010 for its current office and lab space. The lease agreement includes rent escalation clauses through the lease term and a Company option to extend the lease term for up to two terms of three years each. Minimum base lease payments under the lease agreement, including the impact of tenant improvement allowances, are recognized on a straight-line basis over the full term of the lease. As of March 31, 2020, the lease was scheduled to mature on December 31, 2020, but was subsequently amended in April 2020 to extend the maturity to December 31, 2021.

The Company recognized a right-of-use asset and corresponding lease liability for the lease agreement of $0.4 million as of January 1, 2020, by calculating the present value of lease payments, discounted at 6%, the Company’s estimated incremental borrowing rate, over the 12 months expected remaining term. As a result of the transition to ASC 842, the Company recorded an immaterial prior-period adjustment, as a cumulative-effect adjustment, at January 1, 2020.

The interest rate implicit in the lease contract is not readily determinable and as such, the Company’s uses an incremental borrowing rate, based on prior borrowing rates, at the implementation date. This is an internally developed rate that would be incurred to borrow, with similar collateral, over the term of the lease.

Amortization of the operating lease right-of-use asset, and corresponding reduction of operating lease obligation, amounted to $0.1 million for the three months ended March 31, 2020, and was included in operating expense. As of March 31, 2020, the remaining lease term was nine months. In April 2020, the lease was amended to extend the term to December 31, 2021.


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During the three months ended March 31, 2020 and 2019, lease rental expense, and the corresponding cash outflow, was approximately $0.1 million. Future minimum payments as of March 31, 2020 were approximately $0.3 million, through December 31, 2020. After giving effect to the April 2020 lease amendment, future minimum payments were approximately $0.7 million through December 31, 2021.

The Company is also required to pay for operating expenses related to the leased space, which were $0.1 million for the three months ended March 31, 2020 and 2019. The operating expenses are incurred separately and were not included in the present value of lease payments.

9. CAPITAL STOCK

Common Stock

The Company is authorized to issue 105,000,000 shares of its stock, of which 100,000,000 shares have been designated as Common Stock and 5,000,000 shares have been designated as preferred stock with a par value of $0.01 per share. The number of authorized shares of Common Stock may be increased or decreased by the affirmative vote of the holders of a majority of the Company’s stock who are entitled to vote. Each share of Common Stock is entitled to one vote. The holders of Common Stock are entitled to receive dividends when and as declared or paid by its board of directors.

Common Stock Purchase Agreement - Aspire Capital Fund, LLC

In December 2019, the Company entered into a common stock purchase agreement (“the Aspire Stock Purchase Agreement”), with Aspire Capital Fund, LLC (“Aspire Capital”), which provides that, subject to the terms, conditions, and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of shares of Common Stock over the 30-month term of the Aspire Stock Purchase Agreement. Upon execution of the Aspire Stock Purchase Agreement, the Company sold to Aspire Capital 1,598,465 shares of Common Stock at $0.63 per share for proceeds of $1.0 million (the “Initial Purchase Shares”). As consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement and the Initial Purchase Shares, the Company issued to 959,079 shares of Common Stock to Aspire Capital as a non-refundable commitment fee, for a total issuance of 2,557,544 shares.

In January 2020, the Company sold to Aspire Capital 2,200,000 shares Common Stock at a weighted-average price of $1.84 per share for proceeds of $4.1 million. As of May 8, 2020, the Company may sell an additional $14.9 million of shares of Common Stock to Aspire Capital. Under the Aspire Stock Purchase Agreement, the Company has the right, in its sole discretion, on any trading day selected by it, and within certain specified limitations, to present Aspire Capital with a purchase notice, directing Aspire Capital (as principal) to purchase up to 200,000 shares of Common Stock per business day at a per share price equal to the lesser of (i) the lowest sale price of Common Stock on the purchase date or (ii) the average of the three lowest closing sale prices for the Common Stock during the 10 consecutive business days ending on the business day immediately preceding the purchase date. The Company also has the right to require Aspire Capital to purchase up to an additional 30% of the trading volume of the shares for the next business day at a purchase price (the “VWAP Purchase Price”), equal to the lesser of: (i) the closing sale price of the shares on the purchase date, or (ii) ninety-seven percent (97%) of the next business day’s volume weighted average price (each such purchase, a “VWAP Purchase”). The Company shall have the right, in its sole discretion, to determine a maximum number of shares and set a minimum market price threshold for each VWAP Purchase. The Company can only require a VWAP Purchase if the Company has also submitted a regular purchase on the notice date for the VWAP Purchase. There are no limits on the number of VWAP purchases that the Company may require.  

The Aspire Stock Purchase Agreement may be terminated by the Company at any time, at the Company’s discretion, without any cost to the Company. There are no limitations on use of proceeds, financial or business covenants, restrictions on future financings, rights of first refusal, participation rights, penalties, or liquidated damages in the Aspire Stock Purchase Agreement.

Common Stock Purchase Agreement - The Leukemia & Lymphoma Society, Inc.

In August 2018, the Company and The Leukemia & Lymphoma Society, Inc. (“LLS”) entered into a Common Stock Purchase Agreement (the “LLS Stock Purchase Agreement”), which was subsequently assigned to LLS TAP Miragen, LLC (“LLS TAP”) pursuant to an Assignment and Assumption Agreement, effective October 28, 2019 (the “Assignment Agreement”), for the sale of up to $5.0 million of shares of Common Stock to LLS and its affiliates in a private placement (the “Offering”). Under the terms of the LLS Stock Purchase Agreement, the Company may raise up to approximately $5.0 million in gross proceeds by selling shares of Common Stock to LLS and its affiliates in up to five separate closings. The initial closing of the Offering was held on August 6, 2018. At the initial closing, the Company issued 150,987 shares of Common Stock at a price per share equal to $6.62. On October 31, 2019, the Company issued an additional 606,364 shares of Common Stock to LLS TAP at a price per share of

21


approximately $0.82. The Company has received aggregate net proceeds of approximately $1.4 million after expenses incurred in connection with the Offering. The price per share of Common Stock to be sold in any subsequent closing will be equal to the average of the volume weighted-average prices of a share of Common Stock on the Nasdaq Capital Market for the three trading days beginning with the first trading day after the date of achievement of the relevant milestone for each such closing. Each closing is subject to the Company’s achievement of specified operational milestones under the LLS Stock Purchase Agreement and other customary closing conditions, provided, however, that each such closing must be completed prior to December 31, 2021. Based on the modifications to its Phase 2 clinical trial of cobomarsen in CTCL in December 2019, the Company does not anticipate it will achieve any of the remaining milestones under the LLS Stock Purchase Agreement.

Common Stock Sales Agreement

In March 2017, the Company entered into a Common Stock Sales Agreement (the “ATM Agreement”) with Cowen and Company, LLC (“Cowen”) under which the Company may offer and sell, from time to time at its sole discretion, shares of its Common Stock having an aggregate offering price of up to $50.0 million through Cowen as its sales agent in an “at the market” offering.

Cowen may sell the Common Stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended, including without limitation sales made by means of ordinary brokers’ transactions on The Nasdaq Capital Market or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise directed by the Company. Cowen will use commercially reasonable efforts to sell the Common Stock from time to time, based upon instructions from the Company (including any price, time, or size limits or other customary parameters or conditions the Company may impose). The Company will pay Cowen a commission equal to 3.0% of the gross sales proceeds of any Common Stock sold through Cowen under the ATM Agreement. The Company also has provided Cowen with customary indemnification rights.

The Company is not obligated to make any sales of Common Stock under the ATM Agreement. The offering of shares of Common Stock pursuant to the ATM Agreement will terminate upon the earlier of: (i) the sale of all Common Stock subject to the ATM Agreement or (ii) termination of the ATM Agreement in accordance with its terms.

During the three months ended March 31, 2020, the Company sold, pursuant to the terms of the ATM Agreement, 975,063 shares of Common Stock, at a weighted average price of $0.72 per share, for aggregate net proceeds of approximately $0.7 million, including commissions to Cowen as sales agent. Since March 2017 and through March 31, 2020, the Company sold, pursuant to the terms of the ATM Agreement, an aggregate of 2,846,449 shares of Common Stock, at a weighted average price of $4.25 per share, for aggregate net proceeds of approximately $11.6 million, including initial expenses for executing the “at the market offering” and commissions to Cowen as sales agent.

Common Stock Public Offering

In February 2020, the Company entered into an underwriting agreement with Oppenheimer & Co. Inc. (“Oppenheimer”) as the underwriter relating to a public offering of Common Stock, pursuant to which Oppenheimer purchased 15,000,000 shares of Common Stock and warrants to purchase 7,500,000 shares of Common Stock. Each whole warrant has an exercise price of $1.10 per share and expires on the fifth anniversary of the date of issuance. The shares of common stock and warrants were sold together as a fixed combination, each consisting of one share of Common Stock and one-half warrant, with each whole warrant exercisable to purchase one whole share of Common Stock but were issued separately and were immediately separable upon issuance. The combined price to the public in the offering for each share of Common Stock and accompanying half warrant was $1.00, which resulted in approximately $13.9 million of net proceeds to the Company after deducting underwriting commissions and discounts and other estimated offering expenses payable by the Company and excluding the proceeds, if any, from the exercise of the warrants.

Series Preferred

As of March 31, 2020, the Company had no shares of preferred stock outstanding and had not designated any class or series of preferred stock. Under the Company’s amended and restated certificate of incorporation, the Company’s board of directors has the authority to designate and issue up to 5,000,000 shares of preferred stock, at its discretion, in one or more classes or series and to fix the powers, preferences and rights, and the qualifications, limitations, or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, and liquidation preferences, without further vote or action by the Company’s stockholders.


22


10. WARRANTS

Upon the issuance of warrants to purchase shares of common stock, the Company evaluates the terms of the warrant issue to determine the appropriate accounting and classification of the warrant issue pursuant to FASB ASC Topic 480, Distinguishing Liabilities from Equity, FASB ASC Topic 505, Equity, FASB ASC 815, Derivatives and Hedging, and ASC 718, Compensation - Stock Compensation. Warrants are classified as liabilities when the Company may be required to settle a warrant exercise in cash and classified as equity when the Company settles a warrant exercise in shares of its common stock.

Liability-classified warrants are valued at fair value at the date of issue and at each reporting date pursuant to FASB ASC 820, Fair Value Measurement, and are reflected as a warrant liability on the Company’s consolidated balance sheets with the change in the warrant liability during each reporting period reflected as a gain (loss) from change in fair value of warrant liability in the consolidated statement of operations.
 
Number of Underlying Shares (1)
 
Weighted Average Exercise Price at March 31, 2020
 
Remaining Contractual Life at March 31, 2020
(No. Years)
 
March 31, 2020
 
December 31, 2019
 
 
Liability-classified warrants
 
 
 
 
 
 
 
Issued April 2017
11,718

 
11,718

 
$8.53
 
5.08
 
 
 
 
 
 
 
 
Equity-classified warrants
 
 
 
 
 
 
 
Issued February 2020 (2)
7,500,000

 

 
$1.10
 
4.86
Issued November 2017
24,097

 
24,097

 
$7.15
 
4.63
Acquired February 2017

 
10,707

 
$—
 
Subtotal
7,524,097

 
34,804

 
$1.12
 
 
Total warrants
7,535,815

 
46,522

 
$1.13
 
 
____________________
(1)
If the Company subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of its common stock into a smaller number of shares, the warrant exercise price is proportionately reduced and the number of shares under outstanding warrants is proportionately increased. Additionally, if the Company combines (by combination, reverse stock split or otherwise) its outstanding shares of common stock into a smaller number of shares, the warrant exercise price is proportionately increased and the number of shares under outstanding warrants is proportionately decreased.
(2)
Subject to specified conditions, the Company may voluntarily reduce the warrant exercise price of the warrants issued in February 2020.

A summary of the Company’s warrant activity during the three months ended March 31, 2020 is as follows:
 
 
 
 
 
Common Stock Warrants
 
Number
 
Weighted Average Exercise Price
Outstanding at December 31, 2019
46,522

 
$
17.93

Granted
7,500,000

 
$
1.10

Expired
(10,707
)
 
$
52.50

Outstanding at March 31, 2020
7,535,815

 
$
1.13


Liability-Classified Warrants
Unless the warrant contract specifies otherwise, the Company uses the Black-Scholes option pricing model to determine the fair value of its warrants at the date of issue and outstanding at each reporting date. The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds commensurate with the term of the warrants. Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the warrants. Where appropriate, the Company uses the historical volatility of peer entities, due to the lack of sufficient historical data of its stock price.

In connection with the 2017 merger, the Company exchanged warrants issued in 2015 for new warrants to purchase 11,718 shares of its Common Stock. These warrants have an exercise price of $8.53 per share and expire ten years from the date of issuance.

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The fair value of the warrants issued in April 2015, was determined by the redemption amount of $0.1 million, or $8.53 per share, as stated in the warrant contract.

Equity-Classified Warrants
In connection with the Company’s public offering of its Common Stock and warrants that closed in February 2020, the Company issued warrants to purchase 7,500,000 shares of its common stock at a price of $1.10 per share that expire five years from the date of issuance. The terms of the warrants include certain provisions related to fundamental transactions, a cashless exercise provision in the event registered shares are not available, and do not include any mandatory redemption provisions. Therefore, the warrants have been classified as equity with no subsequent remeasurement as long as the warrants continue to be classified as equity.

In connection with the 2017 merger, the Company assumed 13,534 outstanding warrants to purchase shares of Common Stock at an exercise price of $52.50 per share. In June 2019, 2,827 of these warrants expired. The remaining 10,707 warrants expired on February 17, 2020. At issuance, the warrants were classified as equity and recorded at fair value with no subsequent remeasurement.

In connection with a debt financing in 2017, the Company issued detachable warrants to purchase up to 24,097 shares of the Company’s Common Stock at an exercise price of $7.15 per share that expire seven years from the date of issuance. At issuance, the warrants were classified as equity and recorded at fair value with no subsequent remeasurement.

11. SHARE-BASED COMPENSATION

Equity Incentive Plans

As of March 31, 2020, there were 1,072,787 options outstanding and no remaining equity awards available for future issuances under the 2008 Plan. All awards granted under the 2008 Plan that, after February 13, 2017, expire or terminate for any reason prior to exercise or settlement, are forfeited, or are reacquired, withheld, or not issued to satisfy a tax withholding obligation or to satisfy the exercise price of a stock award, will become available for grant under the 2016 Plan in accordance with its terms.

The 2016 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other stock awards, and performance awards that may be settled in cash, stock, or other property. All employees and non-employee directors are eligible to participate in the 2016 Plan and may receive all types of awards other than incentive stock options. Incentive stock options may be granted under the 2016 Plan only to employees (including officers) and employees of the Company’s affiliates.

The aggregate number of shares of Common Stock that may be issued under the 2016 Plan will not exceed 4,182,404 shares, which number is the sum of: (i) 1,681,294 shares, plus (ii) the number of shares subject to outstanding stock awards that were granted under the 2008 Plan, that, from and after February 13, 2017, expire or terminate for any reason prior to exercise or settlement, are forfeited because of the failure to meet a contingency or condition required to vest such shares, or are reacquired, withheld, or not issued to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award, if any, as such shares become available from time to time, plus (iii) shares from automatic increases to the share reserve, as described in more detail below. In accordance with the 2016 Plan, the share reserve will automatically increase on January 1 of each year, for a period of not more than ten years, commencing on January 1 of the year following the year in which the effective date of the 2016 Plan occurs, and ending on (and including) January 1, 2026, in an amount equal to 4% of the shares of Common Stock outstanding on December 31 of the preceding calendar year; however, the board of directors or compensation committee may act prior to January 1 of a given year to provide that there will be no January 1 increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of Common Stock than would otherwise occur pursuant to the automatic increase. On January 1, 2020, the share reserve automatically increased by 1,394,475 shares. Cumulative increases to the share reserve through January 1, 2020 consisted of 3,530,773 shares. As of March 31, 2020, there were outstanding stock options to purchase 3,732,288 shares of Common Stock and 1,895,040 shares of Common Stock available for issuance pursuant to the terms under the 2016 Plan.

Options granted under the 2008 Plan and the 2016 Plan have an exercise price equal to the market value of the Common Stock at the date of grant and expire ten years from the date of grant. Generally, options vest 25% on the first anniversary of the vesting commencement date and 75% ratably in equal monthly installments over the remaining 36 months. The Company has also granted options that vest in equal monthly or quarterly amounts over periods up to 48 months.


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A summary of Common Stock option activity is as follows:
 
Number of Options
(in thousands)
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term
(years)
 
Aggregate Intrinsic Value
(in thousands)
Outstanding at December 31, 2019
3,497

 
$
5.19

 
5.91
 
$

Granted
1,778

 
$
0.89

 
 
 
 
Exercised
(17
)
 
$
0.76

 
 
 
 
Forfeited or expired
(453
)
 
$
6.62

 
 
 
 
Outstanding at March 31, 2020
4,805

 
$
3.48

 
6.93
 
$

Vested or expected to vest at March 31, 2020
4,805

 
$
3.48

 
6.93
 
$

Exercisable as of March 31, 2020
2,099

 
$
4.84

 
5.42
 
$

Vested as of March 31, 2020
2,099

 
$
4.84

 
5.42
 
$


Fair Value Assumptions

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options granted under its equity compensation plans. The Black-Scholes model requires inputs for risk-free interest rate, dividend yield, volatility, and expected lives of the options. Because the Company has a limited history of stock purchase and sale activity, expected volatility is based on historical data from public companies that are similar to the Company in size and nature of operations. The Company will continue to use similar entity volatility information until its historical volatility is relevant to measure expected volatility for option grants. The Company accounts for forfeitures as they occur. The risk-free rate for periods within the contractual life of each option is based on the U.S. Treasury yield curve in effect at the time of the grant for a period commensurate with the expected term of the grant. The expected term (without regard to forfeitures) for options granted represents the period of time that options granted are expected to be outstanding and is derived from the contractual terms of the options granted and expected option-exercise behaviors. The fair value of the underlying Common Stock is based on the closing price of the Common Stock on The Nasdaq Capital Market at the date of grant.

Stock Options Granted

The weighted-average grant-date fair value of options granted to the Company’s employees and members of its board of directors during the three months ended March 31, 2020 and 2019 was $0.61 and $2.37, respectively. The fair value was determined by the Black-Scholes option pricing model using the following weighted-average assumptions:
 
Three Months Ended
March 31,
 
2020
 
2019
Expected term, in years
5.90

 
6.36

Expected volatility
89.7
%
 
98.5
%
Risk-free interest rate
0.9
%
 
2.6
%
Expected dividend yield
%
 
%
Weighted-average exercise price
$
0.89

 
$
2.95


Employee Stock Purchase Plan

The 2016 Employee Stock Purchase Plan (“ESPP”) allows qualified employees to purchase shares of Common Stock at a price equal to 85% of the lower of: (i) the closing price at the beginning of the offering period or (ii) the closing price at the end of the offering period. The Company expects that a new 6-month offering period will begin each August 22 and February 22. As of March 31, 2020, the Company had 947,793 shares available for issuance and 145,061 cumulative shares had been issued under the ESPP.


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Share-Based Compensation Expense

Share-based compensation related to all equity awards issued pursuant to the 2008 Plan and 2016 Plan and for estimated shares to be issued under the ESPP for the purchase periods active during each respective period is included in the condensed consolidated statements of operations and comprehensive loss as follows:
 
Three Months Ended
March 31,
 
2020
 
2019
 
(in thousands)
Research and development
$
187

 
$
395

General and administrative
477

 
623

Total share-based compensation expense
$
664

 
$
1,018


As of March 31, 2020, the Company had $4.6 million of total unrecognized employee and non-employee share-based compensation costs, which the Company expects to recognize over a weighted-average remaining period of 2.16 years.

12. NET LOSS PER SHARE

Basic net loss per share is computed by dividing the net loss available to common stockholders by the weighted-average number of Common Stock outstanding. Diluted net loss per share is computed similarly to basic net loss per share except that the denominator is increased to include the number of additional shares of Common Stock that would have been outstanding if the potential shares of Common Stock had been issued and if the additional shares of Common Stock were dilutive. Diluted net loss per share is the same as basic net loss per share of Common Stock, as the effects of potentially dilutive securities are antidilutive.

Potentially dilutive securities include the following:
 
March 31,
 
2020
 
2019
 
(in thousands)
Options to purchase Common Stock
4,805

 
4,444

Warrants to purchase Common Stock
7,536

 
49

Total
12,341

 
4,493


13. SUBSEQUENT EVENTS
In April 2020, the Company received approximately $1.7 million in loan funding under the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (the “SBA”). The unsecured loan (the “PPP Loan”) is evidenced by a promissory note of the Company (the “Note”) in the principal amount of approximately $1.7 million, to Silicon Valley Bank (the “Bank”), the lender.

Under the terms of the Note and the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the Note is two years, though it may be payable sooner in connection with an event of default under the Note. To the extent the loan amount is not forgiven under the PPP, the Company is obligated to make equal monthly payments of principal and interest. Payments of principal and interest on the PPP Loan will be deferred for the first six months of the PPP Loan term.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, the Company may apply for and be granted forgiveness for all or part of the PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the eight-week period after the loan origination for certain purposes, including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 75% of the loan amount is used for eligible payroll costs. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered eight-week period will qualify for forgiveness. The Company intends to use the PPP Loan for qualifying and other related expenses. The Company can provide no assurance that it will obtain forgiveness of the PPP Loan in whole or in part.


26


The Note may be prepaid in part or in full, at any time, without penalty. The Note provides for certain customary events of default, including (i) the Company’s failure to make a payment when due under the Note, (ii) the Company’s failure to do anything required by the Note or any other loan document, (iii) if the Company defaults on any other loan with the Bank, (iv) the Company’s failure to preserve, or account to the Bank’s satisfaction for, any of the collateral or its proceeds, (v) the Company’s failure, or anyone acting on behalf of the Company’s failure, to disclose any material fact to the Bank or the SBA, (vi) if the Company makes, or anyone acting on behalf of the Company makes, a materially false or misleading representation to the Bank or the SBA, (vii) the Company’s default on any loan or agreement with another creditor, if the Bank believes the default may materially affect the Company’s ability to pay the Note, (viii) the Company’s failure to pay any taxes when due, (ix) if the Company becomes the subject of a proceeding under any bankruptcy or insolvency law, (x) if the Company has a receiver or liquidator appointed for any part of the Company’s business or property, (xi) if the Company makes an assignment for the benefit of creditors, (xii) if the Company has any adverse change in financial condition or business operation that the Bank believes may materially affect the Company’s ability to pay the Note, (xiii) if the Company reorganizes, merges, consolidates, or otherwise changes ownership or business structure without the Bank’s prior written consent, or (xiv) if the Company becomes the subject of a civil or criminal action that the Bank believes may materially affect the Company’s ability to pay the Note. Upon the occurrence of an event of default, the Bank has customary remedies and may, among other things, require immediate payment of all amounts owed under the Note, collect all amounts owing from the Company, and file suit and obtain judgment against the Company.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements that involve substantial risks and uncertainties for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report, other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, liquidity, future revenue, projected expenses, results of operations, expectations concerning the timing and our ability to report data from ongoing and planned non-clinical studies and clinical trials, prospects, plans and objectives of management are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect,” “predict,” “potential,” “opportunity,” “goals,” or “should,” and similar expressions are intended to identify forward-looking statements. Such statements are based on management’s current expectations and involve risks and uncertainties. Actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors. Unless otherwise mentioned or unless the context requires otherwise, all references in this Quarterly Report, to “miRagen,” “company,” “we,” “us” and “our” or similar references refer to Miragen Therapeutics, Inc., and our consolidated subsidiaries.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report, and under a similar heading in any other periodic or current report we may file with the Securities and Exchange Commission, or SEC, in the future. You are advised to consult any further disclosures we make on related subjects in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our website. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report, may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
 
We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements are qualified in their entirety by this cautionary statement.



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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with our condensed consolidated financial statements and the related notes thereto included in Part I, Item 1 of this Quarterly Report and our consolidated financial statements and related notes thereto for the year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the SEC on March 13, 2020. This discussion and other parts of this report contain forward-looking statements reflecting our current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, intentions, and beliefs. See “Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this Quarterly Report.

Overview

We are a clinical-stage biopharmaceutical company discovering and developing proprietary RNA-targeted therapies with a specific focus on microRNAs and their role in diseases where there is a high unmet medical need. We have three clinical stage product candidates: cobomarsen, remlarsen, and MRG-110. We are developing cobomarsen for the treatment of patients with certain cancers that have elevated microRNA-155, or miR-155, including cutaneous T-cell lymphoma, or CTCL, and adult T‑cell leukemia/lymphoma, or ATLL. Cobomarsen is an inhibitor of miR-155, which is found at abnormally high levels in malignant cells of several blood cancers. We are also developing remlarsen and MRG-229, which are product candidates being developed for the potential treatment of patients with pathological fibrosis. These product candidates are replacements for miR‑29, which is found at abnormally low levels in a number of pathological fibrotic conditions, including cutaneous, cardiac, renal, hepatic, pulmonary and ocular fibrosis, as well as in systemic sclerosis. MRG-110, an inhibitor of microRNA-92, or miR‑92, is our product candidate for the treatment of heart failure, wound healing, and other ischemic disease.

We believe our experience in microRNA biology and chemistry, drug discovery, bioinformatics, translational medicine, and drug development allows us to identify and develop microRNA-targeted drugs that are designed to regulate gene pathways to return diseased tissues to a healthy state. We believe that our drug discovery and development strategy will enable us to progress our product candidates from preclinical discovery to confirmation of mechanism of action in humans quickly and efficiently. The elements of this strategy include identification of mechanistic biomarkers, in early-stage clinical trials to assess target engagement in humans, as well as monitoring outcomes in these early-stage clinical trials to help guide later clinical development.

Recent Developments and Anticipated Milestones

Cobomarsen is currently being evaluated for the potential treatment of patients with miR-155 elevated hematological malignancies, including CTCL and ATLL.
Cutaneous T-Cell Lymphoma (CTCL): As a result of the COVID-19 pandemic, we have seen an impact on clinical activities at some sites where the SOLAR trial is being conducted. While most clinical sites in the SOLAR trial remain active and over half of the patients had been on the trial for a sufficient period of time to provide topline data prior to the escalation of the COVID-19 pandemic, other patients have missed, or are at risk for missing, doses or in-person site visits for the collection of primary endpoint patient data. We have implemented home infusion services for this trial, as needed, and activated these services for those patients who could not receive the infusions at their clinical site. This is intended to mitigate some of the impact of the COVID-19 pandemic on the SOLAR trial. However, the collection of primary endpoint patient data requires in-person visits at clinical trial sites, which may require patients to be on the trial longer.
We are actively monitoring the effects of the COVID-19 pandemic on the SOLAR trial but cannot predict at this time when we will be able to collect uninterrupted endpoint data, with consistent dosing, in all remaining patients in the SOLAR trial. Accordingly, we no longer expect to report topline data from the SOLAR trial in the third quarter of 2020.

Adult T-Cell Leukemia/Lymphoma (ATLL): In January 2020, we announced positive data for cobomarsen in ATLL patients with residual disease from this first-in-human Phase 1 clinical trial. In this trial, cobomarsen was observed to prolong disease stabilization and median survival time in aggressive ATLL patients with persistent residual disease after chemotherapy and other therapies. The disease stabilization in these patients is marked by a decrease in biomarkers of tumor cells activation and proliferation, providing evidence of the biological mechanism effect of cobomarsen on disease stabilization. Based on these results, we announced that we are focusing our cobomarsen expansion indication efforts on ATLL and expect to request a meeting with the FDA in the second quarter of 2020 to explore a potential expedited

29


development path for cobomarsen in ATLL. Under normal circumstances, we would expect to meet with the FDA in the third quarter of 2020. However, as the FDA prioritizes its efforts on COVID-19, it is uncertain if the meeting will occur on the standard FDA timeline. We therefore cannot provide assurances that the meeting will occur as originally expected in the third quarter of 2020.

Remlarsen and MRG-229 are miR-29 mimics, or replacements for miR-29, a microRNA that is found at abnormally low levels in a number of pathologic fibrotic conditions.

Idiopathic Pulmonary Fibrosis (MRG-229): In December 2019, we announced that our preclinical pipeline development efforts will be primarily focused on the development of MRG-229 as a potential treatment for patients with idiopathic lung fibrosis, or IPF. We believe that the efficacy and safety profile of MRG-229 we have observed in preclinical studies positions it as a potentially differentiated approach for IPF. This program is supported in part by a grant in collaboration with the National Institutes of Health, or NIH, and Yale University. During the first quarter of 2020, we made progress in our preclinical studies leading to the release of additional funding by the NIH in April 2020. We expect to report additional preclinical safety and efficacy data for MRG-229 during the second quarter of 2020.

Cutaneous and Ocular Fibrosis (Remlarsen): We are currently working to complete our analysis of the one-year primary endpoint data for our Phase 2 clinical trial of remlarsen. Due to the potential impact of the COVID-19 pandemic on clinical sites, we cannot accurately predict when we will report the final topline data from this clinical trial, which was previously expected to be released in the second half of 2020.
We are also evaluating remlarsen in ocular fibrotic indications, such as corneal injury and keratitis. In preclinical studies, we have observed that topical administration of remlarsen to an injured rat cornea resulted in faster healing of the cornea and reduced scarring/hazing. Remlarsen has also been observed in in vitro studies to regulate miR-29 pharmacodynamic biomarkers in the cornea. We intend to seek a collaboration partner for the future development of remlarsen in cutaneous and ocular fibrotic indications.

MRG-110 is an inhibitor of miR-92, a microRNA expressed in endothelial cells, which has been observed in preclinical studies to be a regulator of new blood vessel creation and other wound healing processes.

Tissue Repair: During the fourth quarter of 2019, we announced data from two Phase 1 clinical trials of MRG-110 in normal human volunteers, in which administration of MRG-110 was observed to increase angiogenesis, as demonstrated by increased perfusion and histological markers of neoangiogenesis, and to reduce alpha-smooth muscle actin (α-SMA) expression, which has been shown to correlate with activation of myofibroblasts. A total of 65 subjects were exposed for up to three weeks. MRG-110 was shown to be generally safe and well tolerated, with no evidence of unwanted distal angiogenesis, acute inflammatory toxicities, or significant abnormalities in laboratory tests of the liver, kidney, or blood, and no injection site reactions. We believe that MRG-110 may have the potential to be used for the treatment of heart failure and other conditions where patients may benefit from increased vascular flow and for accelerating healing in indications such as burns, skin flaps, grafts, or laparotomy or sternotomy incisions in patients with high risk of poor wound closure.

Financial Operations Overview

Revenue

Our revenue has historically consisted primarily of up-front payments for licenses, milestone payments, and payments for other research and development services earned under a license and collaboration agreement, or the Servier Collaboration Agreement, with Les Laboratoires Servier and Institut de Recherches Servier, or collectively, Servier, for the research, development, and commercialization of RNA-targeting therapeutics in cardiovascular disease. We also recognize revenue for amounts received or receivable under certain grants we have been awarded.

In August 2019, Servier terminated the Servier Collaboration Agreement effective in February 2020. We completed certain activities under the Servier Collaboration Agreement through the effective termination date in February 2020, which included finalizing two Phase 1 clinical trials of MRG-110, for which we previously reported data. The activities eligible for reimbursement under the Servier Collaboration Agreement are considered a research and development performance obligation and revenue was recognized through the termination date.

In the future, we may generate revenue from a combination of license fees and other up-front payments, payments for research and development services, milestone payments, product sales, and royalties in connection with strategic alliances. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing of our achievement of preclinical, clinical,

30


regulatory, and commercialization milestones, the timing and amount of payments relating to such milestones, and the extent to which any of our products are approved and successfully commercialized by us or our strategic alliance collaborators, if any. If our strategic alliance collaborators do not elect or otherwise agree to fund our development costs pursuant to our strategic alliance agreements, or we or our strategic alliance collaborators, if any, fail to develop product candidates in a timely manner or to obtain regulatory approval for them, then our ability to generate future revenue, and our results of operations and financial position would be adversely affected.

Research and development expenses

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

employee-related expenses, including salaries, severance, retention, benefits, insurance, and share-based compensation expense;

expenses incurred under agreements with contract research organizations, or CROs, investigative sites that conduct our clinical trials, and other clinical trial-related vendors, and consultants;

the costs of acquiring, developing, and manufacturing and testing clinical and preclinical materials, including costs incurred under agreements with contract manufacturing organizations, or CMOs;

costs associated with non-clinical activities and regulatory operations;

license fees and milestone payments related to the acquisition and retention of certain licensed technology and intellectual property rights; and

facilities, depreciation, market research, and other expenses, which include allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory supplies.

We make non-refundable advance payments for goods and services that will be used in future research and development activities. These payments are recorded as expense in the period in which we receive or take ownership of the goods or when the services are performed.

We record up-front and milestone payments to acquire and retain contractual rights to in-licensed technology and intellectual property rights as research and development expenses when incurred if there is uncertainty in our receiving future economic benefit from the acquired contractual rights. We consider future economic benefits from acquired contractual rights to licensed technology to be uncertain until such a drug candidate is approved by the FDA, or when other significant risk factors are abated.

We expect our research and development expenses to increase for the foreseeable future as we continue to conduct our ongoing clinical trials, initiate new clinical trials, and advance our preclinical research programs. The process of conducting clinical trials and preclinical studies necessary to obtain regulatory approval is costly and time consuming. We, or our strategic alliance collaborators, if any, may never succeed in achieving marketing approval for any of our product candidates. The probability of success for each product candidate may be affected by numerous factors, including clinical data, preclinical data, competition, manufacturability, and commercial viability of our product candidates.

Successful development of future product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to maintain or enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each future product candidate, and ongoing assessments as to each future product candidate’s commercial potential. We will need to raise additional capital and may seek additional strategic alliances in the future in order to advance our various programs.

General and administrative expenses

General and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our finance, accounting, human resources, legal, business development, and other support functions, professional fees for auditing, tax, and legal services, as well as insurance, board of director compensation, and other administrative expenses.


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Other income (expense)

Other income (expense) consists primarily of interest income, interest expense, and various income or expense items of a non-recurring nature. We earn interest income from interest-bearing accounts, money market funds, and short-term investments. Interest expense is comprised of interest incurred under our note payable.

Critical Accounting Policies and Estimates

This discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policy discussed below is critical to understanding our historical and future performance, as this policy relates to the more significant areas involving our judgments and estimates.

Clinical Trial and Preclinical Study Accruals

We make estimates of our accrued expenses as of each balance sheet date in our condensed consolidated financial statements based on certain facts and circumstances at that time. Our accrued expenses for preclinical studies and clinical trials are based on estimates of costs incurred for services provided by external service providers and for other trial-related activities. The timing and amount of expenses we incur through our external service providers depend on a number of factors, such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, we obtain information from various sources and estimate the level of effort or expense allocated to each period. Adjustments to our research and development expenses may be necessary in future periods as our estimates change.

Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2019
 
Three Months Ended
March 31,
 
2020
 
2019
 
(in thousands)
Revenue
$
828

 
$
372

Research and development expenses
6,103

 
8,751

General and administrative expenses
2,723

 
3,357

Other income (expense), net
(46
)
 
107

Net loss
$
(8,044
)
 
$
(11,629
)

Revenue

Revenue was $0.8 million during the three months ended March 31, 2020, compared to $0.4 million during the three months ended March 31, 2019. The increase in revenue was due primarily to an increase in grant revenue of $0.1 million and an increase in research and development and other activities reimbursable to us under the Servier Collaboration Agreement of $0.3 million during the three months ended March 31, 2020, compared to the three months ended March 31, 2019.

Research and Development Expenses

Research and development expenses were $6.1 million during the three months ended March 31, 2020, compared to $8.8 million during the three months ended March 31, 2019. The decrease in research and development expenses of $2.7 million in 2020 was driven primarily by:

decreased personnel-related costs of $1.4 million related to share-based compensation charges and consulting and contract labor costs due to a reduction in employee headcount;

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decreased clinical development and related manufacturing expenses of $0.9 million, primarily related to reduced expenses incurred in connection with the clinical development of cobomarsen in the three months ended March 31, 2020; and

decreased other miscellaneous expenses of $0.3 million associated with the reduction in headcount, travel, and other research activities.

General and Administrative Expenses

General and administrative expenses were $2.7 million during the three months ended March 31, 2020, compared to $3.4 million during the three months ended March 31, 2019. During the three months ended March 31, 2020, our general and administrative costs decreased as compared to the three months ended March 31, 2019 primarily due to decreased personnel-related costs of $0.4 million, decreased legal expense of $0.3 million, offset by increased other professional fees of $0.1 million.

Liquidity and Capital Resources

We have funded our operations to date principally through proceeds received from the sale of our common stock and other equity securities, debt financings, and from amounts received under the Servier Collaboration Agreement. As of March 31, 2020, we had $36.1 million in cash and cash equivalents. Based on our current operating plans, we believe that our cash and cash equivalents, combined with the effect of the six-month deferral of interest-only payments and the maturity date related to the amended SVB Loan Agreement in April 2020, will be sufficient to fund our operations for the period one year following the issuance of the accompanying condensed consolidated financial statements in this Quarterly Report. We expect that our current resources will be sufficient to fund our current operations into the third quarter of 2021.

In March 2017, we entered into a Common Stock Sales Agreement, or the ATM Agreement, with Cowen and Company, LLC, or Cowen, under which we may offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through Cowen as our sales agent. Cumulative net proceeds received from the sale of 2,846,449 shares of our common stock through April 30, 2020 were approximately $11.6 million, after giving effect to commissions to Cowen as sales agent and initial expenses for executing the “at the market offering.”

In August 2018, we and the Leukemia and Lymphoma Society, or LLS, entered into a Common Stock Purchase Agreement, or the LLS Stock Purchase Agreement, for the sale of up to $5.0 million of shares of our common stock, or the LLS Offering, to LLS and its affiliates under the LLS Purchase Agreement. In October 2019, the LLS Stock Purchase Agreement was assigned to LLS TAP Miragen, LLC, or LLS TAP. Under the terms of the LLS Stock Purchase Agreement, we may raise up to approximately $5.0 million in gross proceeds by selling shares of our common stock to LLS and its affiliates, including LLS TAP, in up to five separate closings upon the achievement of specified development milestones. At the initial closing in August 2018, we issued 150,987 shares of our common stock to LLS under the LLS Stock Purchase Agreement for net proceeds of $0.9 million. Subsequently, on October 31, 2019, we issued 606,364 shares of common stock to LLS TAP for net proceeds of $0.5 million in a subsequent closing. We have received net proceeds of $1.4 million, in the aggregate to date under the LLS Stock Purchase Agreement. The price per share of our common stock to be sold in any subsequent closing will be equal to the average of the volume weighted-average prices of a share of our common stock on the Nasdaq Capital Market for the three trading days beginning with the first trading day after the date of achievement of the relevant milestone for each such closing. Each closing is subject to our achievement of specified operational milestones under the LLS Stock Purchase Agreement and other customary closing conditions, provided, however, that each such closing must be completed prior to December 31, 2021. As a result of the modifications of the SOLAR trial we announced in December 2019, we do not anticipate meeting the milestones under the LLS Stock Purchase Agreement and as such, do not expect we will receive the remaining proceeds available under the LLS Stock Purchase Agreement unless the agreement is amended, which we can provide no assurances will occur.

In December 2019, we entered into a common stock purchase agreement, or the Aspire Agreement, with Aspire Capital Fund, LLC, or Aspire Capital, which provides that, subject to the terms, conditions, and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of shares of our common stock over the 30-month term of the Aspire Agreement. Upon execution of the Aspire Agreement, we sold to Aspire Capital 1,598,465 shares of common stock at $0.63 per share for proceeds of $1.0 million as the Initial Purchase Shares. In January 2020, we sold to Aspire Capital 2,200,000 shares our common stock at a weighted-average price of $1.84 per share for proceeds of $4.1 million. After giving effect to these sales, we may sell an additional $14.9 million to Aspire Capital. Under the Aspire Agreement, we have the right, in our sole discretion, on any trading day selected by us, and within certain specified limitations, to present Aspire Capital with a purchase notice, directing Aspire Capital (as principal) to purchase up to 200,000 shares of our common stock per business day, up to $20.0 million of our common stock, in the aggregate and inclusive of the Initial Purchase Shares, at a per share price equal to the lesser of (i) the lowest sale price of our common stock on the purchase date or (ii) the average of the three lowest closing sale prices for our common

33


stock during the 10 consecutive business days ending on the business day immediately preceding the purchase date. We also have the right to require Aspire Capital to purchase up to an additional 30% of the trading volume of the shares for the next business day at a purchase price, or the VWAP Purchase Price, equal to the lesser of: (i) the closing sale price of the shares on the purchase date, or (ii) ninety-seven percent (97%) of the next business day’s volume weighted average price, or each such purchase, a VWAP Purchase. We have the right, in our sole discretion, to determine a maximum number of shares and set a minimum market price threshold for each VWAP Purchase. We can only require a VWAP Purchase if we have also submitted a regular purchase on the notice date for the VWAP Purchase. There are no limits on the number of VWAP purchases that we may require. In consideration for entering into the Aspire Agreement, concurrently with the execution of the Aspire Agreement, we issued to Aspire Capital 959,079 shares of our common stock.

In February 2020, we entered into an underwriting agreement, or the 2020 Underwriting Agreement with Oppenheimer & Co. Inc., as sole underwriter, or the Underwriter, relating to our 2020 public offering, or the 2020 Public Offering. Pursuant to the 2020 Underwriting Agreement, the Underwriter purchased 15,000,000 shares of our common stock and warrants to purchase 7,500,000 shares of our common stock. Each whole warrant has an exercise price of $1.10 per share, was exercisable immediately and expires on the fifth anniversary of the date of issuance. Though the shares of common stock and warrants were sold together as a fixed combination, each consisting of one share of our common stock and one-half warrant, with each whole warrant exercisable to purchase one whole share of our common stock, the shares of our common stock and warrants were issued separately and were immediately separable upon issuance. The combined price to the public in the 2020 Public Offering for each share of common stock and accompanying one-half warrant was $1.00, which resulted in approximately $13.9 million of net proceeds to us after deducting underwriting commissions and discounts and other estimated offering expenses payable by us and excluding the proceeds, if any, from the exercise of the warrants.

In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. We cannot predict what the long-term effects of this pandemic and the resulting economic disruptions may have on our liquidity and results of operations. The extent of the effect of the COVID-19 pandemic on our liquidity and results of operations will depend on a number of future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. The COVID-19 pandemic may make it more difficult for us to enroll patients in any future clinical trials or cause us to further delay enrollment or announcement of results from our ongoing clinical trials. The economic uncertainty surrounding the COVID-19 pandemic may also dramatically reduce our ability to secure debt or equity financing necessary to support our operations. We are unable to currently estimate the financial effect of the pandemic. If the pandemic continues to be a severe worldwide crisis, it could have a material adverse effect on our business, results of operations, financial condition, and cash flows. The financial statements included with this quarterly report on Form 10-Q do not reflect any adjustments as a result of the COVID-19 pandemic.
We have no products approved for commercial sale and have not generated any revenue from product sales. Since our inception and through March 31, 2020, we have generated an accumulated deficit of $176.2 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

We will continue to require substantial additional capital to continue our clinical development and potential commercialization activities. Accordingly, we will need substantial additional capital to continue to fund our operations. The amount and timing of future funding requirements will depend on many factors, including the pace and results of our clinical development efforts, equity financings, securing additional license and collaboration agreements, and issuing debt or other financing vehicles. Our ability to secure capital is dependent upon a number of factors, including success in developing our technology and product candidates. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidates. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate. If we are unable to acquire additional capital or resources, we will be required to modify our operational plans to complete future milestones. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner than we currently anticipate. We may be forced to reduce our operating expenses and raise additional funds to meet our working capital needs, principally through the additional sales of our securities or debt financings or entering into strategic collaborations.

We expect to incur significant expenses and increased operating losses for at least the next several years as we continue the clinical development of, and seek regulatory approval for, our product candidates. We expect that our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval.


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If we raise additional funds through the issuance of debt, the obligations related to such debt could be senior to rights of holders of our capital stock and could contain covenants that may restrict our operations. Should additional capital not be available to us in the near term, or not be available on acceptable terms, we may be unable to realize value from our assets and discharge our liabilities in the normal course of business, which may, among other alternatives, cause us to further delay, substantially reduce, or discontinue operational activities to conserve our cash resources.

Cost Restructuring Plan

In August 2019 we began implementing two phases of a cost restructuring plan to streamline the organization, reduce costs, and direct resources to advance cobomarsen and miR-29 mimics, including remlarsen and MRG-229, while reducing investments in new discovery research. The restructuring plan identified approximately 44 positions for elimination, or approximately 50% of our then total workforce. The eliminated positions were primarily related to research and development and corresponding project, general, and administrative support. Through March 31, 2020, we had recorded cumulative restructuring expense of approximately $2.2 million and we expect to incur approximately $0.2 million in additional restructuring expense, primarily related to retention, during the remainder of 2020.

Summarized cash flows for the three months ended March 31, 2020 and 2019 are as follows:
 
Three Months Ended
March 31,
 
2020
 
2019
 
(in thousands)
Net cash provided by (used in):
 
 
 
Operating activities
$
(8,459
)
 
$
(11,809
)
Investing activities
2,001

 
(2,820
)
Financing activities
17,715

 
218

Total
$
11,257

 
$
(14,411
)

Operating Activities

Net cash used in operating activities was $8.5 million for the three months ended March 31, 2020, compared to $11.8 million for the three months ended March 31, 2019. The $3.3 million decrease in the three months ended March 31, 2020 was primarily the result of a $3.6 million decrease in net loss, offset by a $0.2 million decrease in payments of current liabilities and receipts associated with accounts receivable and prepaid expenses and other assets and a $0.1 million decrease in non-cash expenses during the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

Investing Activities

Net cash provided by investing activities was $2.0 million during the three months ended March 31, 2020 compared to net cash used in investing activities of $2.8 million during the three months ended March 31, 2019. The change in cash flow from investing activities was driven primarily by a $23.8 million decrease in purchases of short-term investments and a $19.0 million decrease in the related maturities of short-term investments during the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

Financing Activities

Net cash provided by financing activities was $17.7 million for the three months ended March 31, 2020, compared to $0.2 million during the three months ended March 31, 2019. During the three months ended March 31, 2020, we received net proceeds from the sale of our common stock and warrants in a public offering of $14.0 million. Additionally, during the three months ended March 31, 2020, we received higher net proceeds from other sales or issuances of common stock by $4.5 million compared to the same period in 2019, and we made higher payments of principal of notes payable by $1.0 million compared to the same period in 2019.

Contractual Obligations and Commitments

As of March 31, 2020, we had no material commitments other than the liabilities reflected and commitments disclosed in our condensed consolidated financial statements.

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Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, an evaluation was carried out under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the quarter covered by this Quarterly Report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable level of assurance.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in legal proceedings in the ordinary course of business. We are currently not a party to any legal proceedings that we believe would have a material adverse effect on our business, financial condition, or results of operations.

ITEM 1A. RISK FACTORS

Our business, financial condition, and operating results may be affected by a number of factors, whether currently known or unknown, including but not limited to those described below. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations, and stock price. The following information should be read in conjunction with Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” of this Quarterly Report.

Risks Related to Our Financial Condition and Capital Requirements

We will need to raise additional capital, and if we are unable to do so when needed, we will not be able to continue as a going concern.

This Quarterly Report includes disclosures regarding our management’s assessment of our ability to continue as a going concern. As of March 31, 2020, we had $36.1 million of cash and cash equivalents, and we had $6.7 million of outstanding debt principal obligations under our note payable to Silicon Valley Bank. Based on our current operating plan, we believe our current resources, combined with the effect of the six month deferral of interest-only payments and the maturity date related to the amended SVB Loan Agreement in April 2020, will be sufficient to fund our operations and allow us to meet our liquidity needs into the third quarter of 2021. As a result, we will need to raise additional capital to fund our operations and service our debt obligations. If we are unable to raise additional capital when needed, we will not be able to continue as a going concern.

Developing our product candidates requires a substantial amount of capital. We expect our research and development expenses to increase in connection with our ongoing activities, particularly as we advance our product candidates through clinical trials. We will need to raise additional capital to fund our operations and such funding may not be available to us on acceptable terms, or at all.

We do not currently have any products approved for sale and do not generate any revenue from product sales. Accordingly, we expect to rely primarily on equity and/or debt financings to fund our continued operations. Our ability to raise additional funds will depend, in part, on the success of our preclinical studies and clinical trials and other product development activities, regulatory events, our ability to identify and enter into licensing or other strategic arrangements, and other events or conditions that may affect our value or prospects, as well as factors related to financial, economic and market conditions, many of which are beyond our control. There can be no assurances that sufficient funds will be available to us when required or on acceptable terms, if at all.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. We cannot predict what the long-term effects of this pandemic and the resulting economic disruptions may have on our liquidity and results of operations. The extent of the effect of the COVID-19 pandemic on our liquidity and results of operations will depend on a number of future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. The COVID-19 pandemic may make it more difficult for us to enroll patients in any future clinical trials or cause us to further delay enrollment or announcement of results from our ongoing clinical trials. The economic uncertainty surrounding the COVID-19 pandemic may also dramatically reduce our ability to secure debt or equity financing necessary to support our operations. We are unable to currently estimate the financial effect of the pandemic. If the pandemic continues to be a severe worldwide crisis, it could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

significantly delay, scale back, or discontinue the development or commercialization of our product candidates;


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seek strategic alliances, or amend existing alliances, for research and development programs at an earlier stage than otherwise would be desirable or that we otherwise would have sought to develop independently, or on terms that are less favorable than might otherwise be available in the future;

dispose of technology assets, or relinquish or license on unfavorable terms, our rights to technologies or any of our product candidates that we otherwise would seek to develop or commercialize ourselves;

pursue the sale of our company to a third party at a price that may result in a loss on investment for our stockholders; or

file for bankruptcy or cease operations altogether.

For instance, in August 2019 we began implementing two phases of a cost restructuring plan to streamline the organization, reduce costs, and direct resources to advance cobomarsen and miR-29 mimics, including remlarsen and MRG-229, while reducing investments in new discovery research. The restructuring plan identified approximately 44 positions for elimination, or approximately 50% of our then total workforce, primarily associated with research and development and corresponding project, general, and administrative support. If we are unable to raise additional capital, we may be forced to undergo additional restructuring efforts or cease some or all of our operations altogether.

Any of these events could have a material adverse effect on our business, operating results, and prospects.

Additionally, any capital raising efforts are subject to significant risks and contingencies, as described in more detail under the risk factor titled “Raising additional capital may cause dilution to our stockholders, restrict our operations, or require us to relinquish rights.

In the past, our management has concluded that, due to our need for additional capital and the uncertainties surrounding our ability to raise such funding, substantial doubt existed as to our ability to continue as a going concern, and our management may make a similar determination in the future.

In the past, our management has concluded that, due to our need for additional capital and the uncertainties surrounding our ability to raise such funding, substantial doubt existed as to our ability to continue as a going concern. Though our management has not made such a conclusion as of March 31, 2020, we cannot predict whether our management will make a similar determination regarding our ability to continue as a going concern in the future. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate. If, in the future, we are delayed in completing or are unable to complete additional funding and/or a strategic transaction, we may discontinue our development activities or operations, but there are no assurances that these actions would be sufficient to allow us to continue to operate as a going concern. Therefore, even if we resolve this uncertainty, our independent registered public accountants and/or management could conclude that uncertainty as to our ability to continue as a going concern could exist at a future date.

We have historically incurred losses, have a limited operating history on which to assess our business, and anticipate that we will continue to incur significant losses for the foreseeable future.

We are a clinical-stage biopharmaceutical company with a limited operating history. We have historically incurred net losses. During the three months ended March 31, 2020 and 2019, net loss was $8.0 million and $11.6 million, respectively. As of March 31, 2020, we had an accumulated deficit of $176.2 million.

As of March 31, 2020, we had cash and cash equivalents of $36.1 million. In March 2017, we entered into the ATM Agreement with Cowen under which we may offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through Cowen as our sales agent. Through April 30, 2020, we had sold, pursuant to the terms of the ATM Agreement, 2,846,449 shares of our common stock for aggregate net proceeds of approximately $11.6 million after deducting initial expenses for executing the “at the market offering” and commissions to Cowen as sales agent.

In August 2018, we entered into the LLS Stock Purchase Agreement with LLS for the sale of up to $5.0 million of shares of our common stock to LLS and its affiliates under the LLS Purchase Agreement. In October 2019, the LLS Stock Purchase Agreement was assigned by LLS to LLS TAP. Through April 30, 2020, we had issued an aggregate of 757,351 shares of our common stock to LLS and its affiliates in the LLS Offering, for aggregate net proceeds of approximately $1.4 million, after deducting expenses incurred in connection with the LLS Offering. As a result of the modifications of the SOLAR trial we announced in December 2019, we do not anticipate meeting the milestones under the LLS Stock Purchase Agreement and as such, do not expect we will receive the remaining proceeds available under the LLS Stock Purchase Agreement unless the agreement is amended, which we can provide no assurances will occur.

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In December 2019, we entered into the Aspire Agreement with Aspire Capital. Pursuant to this agreement, we may issue up to $20.0 million of shares of our common stock from time to time. Through April 30, 2020, we had issued an aggregate of 4,757,544 shares of common stock under the Aspire Agreement, which amount includes (i) 959,079 shares of common stock issued to Aspire Capital as consideration for its commitment to purchase shares of our common stock under the Aspire Agreement, (ii) 1,598,465 shares of common stock issued to Aspire Capital for an aggregate sale price of $1.0 million as an initial purchase under the Aspire Agreement, or the Initial Purchase Shares, and (iii) 2,200,000 shares of common stock issued to Aspire Capital for an aggregate sale price of $4.1 million as purchase shares under the terms of the Aspire Agreement.

In February 2020, we entered into the 2020 Underwriting Agreement with the Underwriter. Pursuant to the 2020 Underwriting Agreement, the Underwriter purchased 15,000,000 shares of our common stock and warrants to purchase 7,500,000 shares of our common stock. Each whole warrant has an exercise price of $1.10 per share, was exercisable immediately and expires on the fifth anniversary of the date of issuance. Though the shares of common stock and warrants were sold together as a fixed combination, each consisting of one share of our common stock and one-half warrant, with each whole warrant exercisable to purchase one whole share of our common stock, the shares of our common stock and warrants were issued separately and were immediately separable upon issuance. The combined price to the public in the 2020 Public Offering for each share of common stock and accompanying one-half warrant was $1.00, which resulted in approximately $13.9 million of net proceeds to us after deducting underwriting commissions and discounts and other estimated offering expenses payable by us and excluding the proceeds, if any, from the exercise of the warrants.

We believe that we have sufficient capital, combined with the effect of the six-month deferral of interest-only payments and the maturity date related to the amended SVB Loan Agreement in April 2020, to fund our operations in the normal course of business in order to meet our liquidity needs into the third quarter of 2021. We will continue to require substantial additional capital to continue our preclinical and clinical development and potential commercialization activities. Accordingly, we will need to raise substantial additional capital to continue to fund our operations. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts and the long-term effects of the COVID-19 pandemic. In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. The economic uncertainty surrounding the COVID-19 pandemic may dramatically reduce our ability to secure debt or equity financing necessary to support our operations. We are unable to currently estimate the financial effect of the pandemic. If the pandemic continues to be a severe worldwide crisis, it could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidates. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate. If we are unable to acquire additional capital or resources, we will be required to modify our operational plans to complete future milestones. For instance, in August 2019 we began implementing two phases of a cost restructuring plan to streamline the organization, reduce costs, and direct resources to advance cobomarsen and miR-29 mimics, including remlarsen and MRG-229, while reducing investments in new discovery research. The restructuring plan identified approximately 44 positions for elimination, or approximately 50% of our then total workforce, primarily associated with research and development and corresponding project, general, and administrative support. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner than we currently anticipate. We may be forced to reduce our operating expenses and raise additional funds to meet our working capital needs, principally through the additional sales of our securities or debt financings or entering into strategic collaborations.

We have devoted substantially all of our financial resources to identify, acquire, and develop our product candidates, including conducting clinical trials and providing general and administrative support for our operations. To date, we have financed our operations primarily through the sale of equity securities and convertible promissory notes. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations, or grants. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We expect our losses to increase as our product candidates enter more advanced clinical trials. It may be several years, if ever, before we complete pivotal clinical trials or have a product candidate approved for commercialization. We expect to invest significant funds into the research and development of our current product candidates to determine the potential to advance these product candidates to regulatory approval.

If we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of any markets in which our product candidates may receive approval, and our ability to achieve sufficient market acceptance, pricing, coverage and adequate reimbursement from third-party payors, and adequate market share for our product candidates in those markets. Even if we obtain adequate market share for our product candidates, because the potential markets in which our product candidates

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may ultimately receive regulatory approval could be very small, we may never become profitable despite obtaining such market share and acceptance of our products.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future and our expenses will increase substantially if and as we:

continue the clinical development of our product candidates;

continue efforts to discover and develop new product candidates;

continue the manufacturing of our product candidates or increase volumes manufactured by third parties;

advance our programs into larger, more expensive clinical trials;

initiate additional preclinical studies or clinical trials for our product candidates;

seek regulatory and marketing approvals and reimbursement for our product candidates;

establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval and market for ourselves;

seek to identify, assess, acquire, and/or develop other product candidates;

make milestone, royalty, or other payments under third-party license agreements;

seek to maintain, protect, and expand our intellectual property portfolio;

seek to attract and retain skilled personnel; and

experience any delays or encounter issues with the development and potential for regulatory approval of our clinical and product candidates such as safety issues, manufacturing delays, clinical trial accrual delays, longer follow-up for planned studies or trials, additional major studies or trials, or supportive trials necessary to support marketing approval.

Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

We may not be entitled to forgiveness of our recently received Paycheck Protection Program loan, and our application for the Paycheck Protection Program loan could in the future be determined to have been impermissible or could result in damage to our reputation.

In April 2020, we received proceeds of $1.7 million from a loan, or the PPP Loan, under the Paycheck Protection Program, or PPP, of the recently enacted Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, a portion of which may be forgiven, which we intend to use to retain current employees, maintain payroll and make lease and utility payments. The PPP Loan matures on April 23, 2022 and bears annual interest at a rate of 1.0%. Payments of principal and interest on the PPP Loan will be deferred for the first six months of the PPP Loan term. Thereafter, we are required to pay the lender equal monthly payments of principal and interest.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, we may apply for and be granted forgiveness for all or part of the PPP Loan. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by us during the eight-week period after the loan origination for certain purposes, including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 75% of the loan amount is used for eligible payroll costs. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered eight-week period will qualify for forgiveness. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, in accordance with the amortization schedule described above, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the U.S. Small Business Administration, or the SBA.


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In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the PPP of the CARES Act. The certification described above does not contain any objective criteria and is subject to interpretation. On April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the PPP has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that given our company’s circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loan in its entirety. In addition, receipt of a PPP Loan may result in adverse publicity and damage to reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

We have never generated any revenue from product sales and may never be profitable.

We have no products approved for commercialization and have never generated any revenue from product sales. Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaborators, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize one or more of our product candidates. We do not anticipate generating revenue from product sales for the foreseeable future. Our ability to generate future revenue from product sales depends heavily on our success in many areas, including but not limited to:

completing research and development of our product candidates;

obtaining regulatory and marketing approvals for our product candidates;

manufacturing product candidates and establishing and maintaining supply and manufacturing relationships with third parties that are commercially feasible, meet regulatory requirements and our supply needs in sufficient quantities to meet market demand for our product candidates, if approved;

marketing, launching, and commercializing product candidates for which we obtain regulatory and marketing approval, either directly or with a collaborator or distributor;

gaining market acceptance of our product candidates as treatment options;

addressing any competing products;

protecting and enforcing our intellectual property rights, including patents, trade secrets, and know-how;

negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;

obtaining coverage and adequate reimbursement from third party payors and maintaining pricing for our product candidates that supports profitability; and

attracting, hiring, and retaining qualified personnel.

Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Portions of our current pipeline of product candidates have been in-licensed from third parties, which make the commercial sale of such in-licensed products potentially subject to additional royalty and milestone payments to such third parties. We will also have to develop or acquire manufacturing capabilities or continue to contract with contract manufacturers in order to continue development and potential commercialization of our product candidates. For instance, if the costs of manufacturing our drug product are not commercially feasible, we will need to develop or procure our drug product in a commercially feasible manner in order to successfully commercialize any future approved product, if any. Additionally, if we are not able to generate revenue from the sale of any approved products, we may never become profitable.


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Raising additional capital may cause dilution to our stockholders, restrict our operations, or require us to relinquish rights.

Until such time, if ever, as we can generate substantial revenue from the sale of our product candidates, we expect to finance our cash needs through a combination of equity offerings, debt financings and license and development agreements. To the extent that we raise additional capital through the sale of equity securities or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements with third parties when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to third parties to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

To the extent that we raise additional capital through the sale of equity, including pursuant to any sales under the ATM Agreement, the Aspire Agreement, the LLS Stock Purchase Agreement, convertible debt or other securities convertible into equity, the ownership interest of our stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our stockholders. For instance, through April 30, 2020, we had sold (i) pursuant to the terms of the ATM Agreement 2,846,449 shares of our common stock for aggregate net proceeds of approximately $11.6 million, (ii) pursuant to the Aspire Agreement 3,798,465 shares of our common stock for aggregate net proceeds of approximately $4.9 million, (iii) pursuant to the LLS Stock Purchase Agreement 757,351 shares of our common stock for aggregate net proceeds of approximately $1.4 million, and (iv) pursuant to the 2020 Public Offering 15,000,000 shares of our common stock for aggregate net proceeds of approximately $13.9 million. After giving effect to these sales, we anticipate that we will continue to make sales of our common stock under the ATM Agreement and the Aspire Agreement from time to time into the foreseeable future, and we may sell shares of our common stock of up to $37.9 million and up to $14.9 million in additional aggregate value under the ATM Agreement and Aspire Agreement, respectively. As a result of the modifications of the SOLAR trial we announced in December 2019, we do not anticipate meeting the milestones under the LLS Stock Purchase Agreement and as such, do not expect we will receive the remaining $3.5 million in proceeds available under the LLS Stock Purchase Agreement unless the agreement is amended, which we can provide no assurances will occur. Sales under the ATM Agreement, the Aspire Agreement, or the LLS Stock Purchase Agreement dilute the ownership interest of our stockholders and may cause the price per share of our common stock to decrease.
 
In connection with our 2020 Public Offering and in accordance with the terms of the 2020 Underwriting Agreement, we issued warrants to purchase up to 7,500,000 shares of our common stock. The warrants issued in the 2020 Public Offering, if exercised, will dilute the ownership interest of our stockholders and may cause the price per share of our common stock to decrease.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. We cannot predict what the long-term effects of this pandemic and the resulting economic disruptions may have on our liquidity and results of operations. The economic uncertainty surrounding the COVID-19 pandemic may also dramatically reduce our ability to secure debt or equity financing necessary to support our operations.

Debt financing, if available, would likely involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, making additional product acquisitions, or declaring dividends. For instance, our loan and security agreement with Silicon Valley Bank limits our ability to enter into an asset sale, enter into any change of control, incur additional indebtedness, pay any dividends, or enter into specified transactions with our affiliates. If we raise additional funds through strategic collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates or future revenue streams or grant licenses on terms that are not favorable to us. We cannot be assured that we will be able to obtain additional funding if and when necessary to fund our entire portfolio of product candidates to meet our projected plans. If we are unable to obtain funding on a timely basis, we may be required to delay or discontinue one or more of our development programs or the commercialization of any product candidates or be unable to expand our operations or otherwise capitalize on potential business opportunities, which could materially harm our business, financial condition, and results of operations.

We have also historically received funds directly or indirectly from state and federal government grants for research and development. The grants have been, and any future government grants and contracts we may receive may be, subject to the risks and contingencies set forth below under the risk factor titled “Reliance on government funding for our programs may add uncertainty

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to our research and commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit our ability to take specified actions, increase the costs of commercialization and production of product candidates developed under those programs and subject us to potential financial penalties, which could materially and adversely affect our business, financial condition, and results of operations.” Although we might apply for government contracts and grants in the future, we cannot be certain that we will be successful in obtaining additional grants for any product candidates or programs.

Risks Related to the Development of Our Product Candidates

Clinical trials are costly, time consuming, and inherently risky, and we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

Clinical development is expensive, time consuming, and involves significant risk. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of development. Events that may prevent successful or timely completion of clinical development include but are not limited to:

inability to generate satisfactory preclinical, toxicology, or other in vivo or in vitro data or diagnostics to support the initiation or continuation of clinical trials;

delays in reaching agreement on acceptable terms with CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;

delays in obtaining required approvals from institutional review boards or independent ethics committees at each clinical trial site;

failure to permit the conduct of a clinical trial by regulatory authorities;

delays in recruiting eligible patients and/or subjects in our clinical trials;

failure by clinical sites or CROs or other third parties to adhere to clinical trial requirements;

failure by our clinical sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of the FDA or applicable foreign regulatory guidelines;

patients and/or subjects dropping out of our clinical trials;

adverse events or tolerability or animal toxicology issues significant enough for the FDA or other regulatory agencies to put any or all clinical trials on hold;

occurrence of adverse events associated with our product candidates;

changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

the cost of clinical trials of our product candidates, including manufacturing costs;

negative or inconclusive results from our clinical trials, which may result in our deciding, or regulators requiring us, to conduct additional clinical trials or abandon development programs in other ongoing or planned indications for a product candidate; and

delays in reaching agreement on acceptable terms with third-party manufacturers and the time to manufacture sufficient quantities of our product candidates acceptable for use in clinical trials.

The ongoing COVID-19 pandemic may materially affect our ability to complete our clinical trials in a timely fashion or at all. For example, as a result of the COVID-19 pandemic, we have delayed the anticipated timing of the SOLAR trial topline data availability. We cannot guarantee that we will not have to delay enrollment or any other aspect of our other proposed clinical trials as a result of the COVID-19 pandemic.

Any inability to successfully complete clinical development and obtain regulatory approval for our product candidates could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional non-clinical studies and the results obtained from studying such

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new formulation may not be consistent with previous results obtained. Clinical trial delays could also shorten any periods during which our products have patent protection and may allow competitors to develop and bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

The approach we are taking to discover and develop novel therapeutics that target microRNAs is unproven and may never lead to marketable products.

The scientific discoveries that form the basis for our efforts to discover and develop our product candidates are relatively recent. To date, neither we nor any other company has received regulatory approval to market therapeutics utilizing microRNA-targeted molecules. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. Successful development of microRNA-targeted therapeutic products by us will require solving a number of issues, including providing suitable methods of stabilizing the therapeutic product and delivering it into target cells in the human body. In addition, any product candidates that we develop may not demonstrate in patients or subjects the chemical and pharmacological properties ascribed to them in laboratory and preclinical trials, and they may interact with human biological systems in unforeseen, ineffective, or even harmful ways. For instance, our clinical and preclinical data to date has not been fully validated and we cannot assure that, after validation, our clinical trial data will be complete and consistent. If we do not successfully develop and commercialize product candidates based upon this technological approach, we may not become profitable and the value of our capital stock may decline.

Further, our focus on microRNA technology for developing product candidates as opposed to multiple, more proven technologies for drug development, increases the risk associated with our business. If we are not successful in developing an approved product using microRNA technology, we may not be able to identify and successfully implement an alternative product development strategy. In addition, work by other companies pursuing similar technologies may encounter setbacks and difficulties that regulators and investors may attribute to our product candidates, whether appropriately or not.

Our microRNA-targeted therapeutic product candidates are based on a relatively novel technology, which makes it unusually difficult to predict the time and cost of development and the time and cost, or likelihood, of subsequently obtaining regulatory approval. To date, no microRNA-targeted therapeutics have been approved for marketing in the United States.

We have concentrated our research and development efforts to date on a limited number of product candidates based on our microRNA-targeted therapeutic platform and identifying our initial targeted disease indications. Our future success depends on our successful development of viable product candidates. Only three of our product candidates, cobomarsen, remlarsen, and MRG-110, are in clinical development, and the remainder of our product candidates are in preclinical development. There can be no assurance that we will not experience problems or delays in developing our product candidates and that such problems or delays will not cause unanticipated costs, or that any such development problems can be solved. For instance, in December 2019, we decided to cease enrollment in our SOLAR trial, and we no longer believe the results of the SOLAR trial, due to the smaller number of patients than originally planned, would allow for accelerated approval in the United States. We cannot predict if we will encounter similar delays in the development of our other product candidates in the future.

Additionally, the FDA, the European Medicines Agency, and other regulatory authorities, have relatively limited experience with microRNA-targeted therapeutics. No regulatory authority has granted approval to anyone, including us, to market or commercialize microRNA-targeted therapeutics, which may increase the complexity, uncertainty, and length of the regulatory review and approval process for our product candidates. If our product candidates fail to prove to be safe and effective, and commercially viable, our product candidate pipeline would have little, if any, value, which would have a material adverse effect on our business, financial condition, or results of operations.

The clinical trial, product approval, and manufacturing requirements of the FDA, the European Medicines Agency, and other regulatory authorities, and the criteria these regulators use to evaluate the safety and efficacy of a product candidate, vary substantially according to the type, complexity, novelty, and intended use of the product candidate. The regulatory review and approval process for novel product candidates such as microRNA-targeted therapeutics could be more expensive and take longer than for other, better known or more extensively studied product candidates. It is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in either the United States or the European Union, or EU, or from other countries or regions of the world, or how long it will take to commercialize our product candidates, even if approved for marketing. Approvals by one regulatory agency may not be indicative of the likelihood of approval by other regulatory bodies. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product candidate to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results of operations, and prospects may be harmed.


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Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial viability of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay, or terminate clinical trials. They additionally may result in a delay of regulatory approval by the FDA or comparable foreign authorities, or, even in the instance that an affected product candidate is approved, may result in a restrictive drug label.

Our cobomarsen, remlarsen, and MRG-110 product candidates have been studied in only a limited number of patients with a confirmed diagnosis or healthy volunteers. Through the most recent clinical data release date in July 2019, the most common non-serious adverse events (occurring in ≥10% of subjects) in patients with mycosis fungoides, or MF, regardless of whether they were thought to be due to cobomarsen, were neutropenia, fatigue, arthralgia, injection site pain, pruritus, dry skin, nausea, diarrhea, constipation, headache, upper respiratory tract infection, nasal congestion, back pain, oropharyngeal pain, and tumor flare. Self-limited grade 3, 4 adverse events, probably or possibly related to cobomarsen included laboratory abnormalities (neutropenia, leukopenia, lymphopenia, hypokalemia, increase transaminases), pruritus, rash, tumor flare, tumor pain, and erythema. At the highest dose administered in ATLL patients, which is no longer utilized, single episodes of localized edema and exfoliative erythroderma (generalized skin scaling) in one subject, were noted as serious related adverse events. We may experience a higher rate or severity of adverse events and comparable or higher rates of discontinuation of trial participants in our future clinical trials. There is no guarantee that additional or more severe side effects will not be identified during ongoing or future clinical trials of our product candidates for current and other indications. Undesirable side effects and negative results for other indications may negatively impact the development and potential for approval of our product candidates for their proposed indications.

Additionally, even if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, potentially significant negative consequences could result, including but not limited to:

regulatory authorities may withdraw approvals of such products;

regulatory authorities may require additional warnings on the drug label;

we may be required to create a Risk Evaluation and Mitigation Strategy, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;

we could be sued and held liable for harm caused to patients or subjects; and

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of a product candidate, even if approved, and could significantly harm our business, results of operations, and prospects.

Our product development program may not uncover all possible adverse events that patients or subjects who take our product candidates may experience. The number of patients or subjects exposed to our product candidates and the average exposure time in the clinical development program may be inadequate to detect rare adverse events that may only be detected once the product is administered to more patients or subjects and for greater periods of time.

Clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of subjects and limited duration of exposure, we cannot be fully assured that rare and severe side effects of our product candidates will be uncovered. Such rare and severe side effects may only be uncovered with a significantly larger number of patients or subjects exposed to the drug. If such safety problems occur or are identified after our product candidates reach the market, the FDA may require that we amend the labeling of the product or recall the product or may even withdraw approval for the product.

Our microRNA-targeted therapeutic approach is novel. Negative public opinion and increased regulatory scrutiny of microRNA or other nucleic acid-based therapies may damage public perception of the safety of our product candidates and adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.

MicroRNA therapy remains a novel technology, with no microRNA-targeted therapeutic product approved to date in the United States. Public perception may be influenced by claims that microRNA therapy is unsafe, and microRNA therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians who specialize in the treatment of the diseases targeted by our product candidates, prescribing therapies that involve the use of our product candidates

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in lieu of, or in addition to, existing therapies with which they are familiar and for which greater clinical data may be available. More restrictive government regulations or negative public opinion regarding microRNA or other nucleic acid-based therapeutics could have an adverse effect on our business, financial condition, or results of operations and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop. Serious adverse events, or SAEs, in microRNA clinical trials for our competitors’ products, even if not ultimately attributable to the relevant product candidates, and the resulting publicity, could result in increased government regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our product candidates, stricter labeling requirements for those product candidates that are approved, and a decrease in demand for any such product candidates. For instance, in June 2016, the FDA placed a regulatory hold on the clinical trial of a microRNA- or nucleic acid-focused biopharmaceutical company with a microRNA-targeted product candidate for the treatment of hepatitis C virus due to SAEs in that trial. This company also voluntarily halted a Phase 1 clinical trial in patients with kidney disease due to unexpected toxicity issues in July 2018. Another microRNA-focused biopharmaceutical company also voluntarily halted an ongoing Phase 1 clinical trial for a microRNA-targeted therapy for multiple cancers in September 2016 due to multiple immune-related serious adverse events. We cannot predict what effect, if any, these clinical holds will have on the government and public perception of our product candidates.

We are heavily dependent on the success of our product candidates, which are in the early stages of clinical development. Some of our product candidates have produced results only in non-clinical settings, or for other indications than those for which we contemplate conducting development and seeking FDA approval, and we cannot give any assurance that we will generate data for any of our product candidates sufficiently supportive to receive regulatory approval in our planned indications, which will be required before they can be commercialized.

We have invested substantially all of our effort and financial resources to identify, acquire, and develop our portfolio of product candidates. Our future success is dependent on our ability to successfully further develop, obtain regulatory approval for, and commercialize one or more product candidates. We currently generate no revenue from sales of any products, and we may never be able to develop or commercialize a product candidate.

We currently have multiple product candidates in clinical development. Of these product candidates, cobomarsen has been predominantly administered in patients with MF. This is only one of the multiple indications for which we plan to develop this product candidate. Additionally, our clinical and preclinical data to date is not validated, and we cannot assure that, after validation, our clinical trial data will be complete and consistent. There can be no assurance that the data that we develop for our product candidates in our planned indications will be sufficiently supportive to obtain regulatory approval.

In December 2019, we decided to cease enrollment in our SOLAR trial, and we no longer believe that results from the SOLAR clinical trial, based on a smaller number of patients than originally planned, could potentially allow us to apply for accelerated approval in the United States. As a result, we cannot guarantee if we will be able to raise sufficient capital necessary to complete a Phase 3 clinical trial of cobomarsen or when, if ever, we will be able to seek approval of cobomarsen.

In addition, none of our other product candidates have advanced into a pivotal clinical trial for our proposed indications, and it may be years before any such clinical trial is initiated and completed, if at all. We are not permitted to market or promote any of our product candidates before it receives regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. We cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

Product development involves a lengthy and expensive process with an uncertain outcome, and results of earlier preclinical studies and clinical trials may not be predictive of future clinical trial results.

Clinical testing is expensive and generally takes many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Additionally, microRNAs are a new class of drug target and as such may have some potentially unknown risks from both an efficacy and safety perspective. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of larger, later-stage controlled clinical trials. Product candidates that have shown promising results in early-stage clinical trials may still suffer significant setbacks in subsequent clinical trials. Our clinical trials to date have been conducted on a small number of patients or healthy volunteers in limited numbers of clinical sites for a limited number of indications. We will have to conduct larger, well-controlled trials in our proposed indications to verify the results obtained to date and to support any regulatory submissions for further clinical development. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles despite promising results in earlier, smaller clinical trials. For instance, in June 2016, the FDA placed a regulatory hold on the clinical trial of a microRNA-focused biopharmaceutical company with a microRNA product candidate for the treatment

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of hepatitis C virus due to SAEs in that trial. This company also voluntarily halted a Phase 1 clinical trial in patients with kidney disease due to unexpected toxicity issues in July 2018. Another microRNA-focused biopharmaceutical company also voluntarily halted an ongoing Phase 1 clinical trial for a microRNA therapy for multiple cancers in September 2016 due to multiple immune-related severe adverse events. Moreover, clinical data are often susceptible to varying interpretations and analyses. We do not know whether any Phase 2, Phase 3, or other clinical trials we are conducting or may conduct will demonstrate consistent or adequate efficacy and safety with respect to the proposed indication for use sufficient to receive regulatory approval to market our drug candidates.

We may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and human resources, we may forego or delay pursuit of opportunities with some programs or product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or more profitable market opportunities. Our spending on current and future research and development programs and future product candidates for specific indications may not yield any commercially viable products. We may also enter into additional strategic collaboration agreements to develop and commercialize some of our programs and potential product candidates in indications with potentially large commercial markets. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaborations, licensing, or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a collaboration arrangement.

We may find it difficult to enroll and maintain patients or subjects in our clinical trials, in part due to the limited number of patients or subjects who have the diseases for which our product candidates are being studied. We cannot predict if we will continue to have difficulty enrolling and maintaining patients or subjects in our current or future clinical trials. Difficulty in enrolling and maintaining patients or subjects could delay or prevent clinical trials of our product candidates.

Identifying and qualifying patients or subjects to participate in clinical trials of our product candidates is essential to our success. The timing of our clinical trials depends in part on the rate at which we can recruit patients or subjects to participate in clinical trials of our product candidates, and we may experience delays in our clinical trials if we encounter difficulties in enrollment.

The eligibility criteria of our planned clinical trials may further limit the available eligible trial participants as we expect to require that patients or subjects have specific characteristics that we can measure or meet the criteria to assure their conditions are appropriate for inclusion in our clinical trials. For instance, prior to ending enrollment in our SOLAR trial in 2019, we planned to enroll approximately 65 patients per treatment group in the SOLAR trial of cobomarsen in patients with MF. Due in part to enrollment delays, we decided to end enrollment in the SOLAR trial by the end of 2019. We cannot guarantee that we will not encounter similar enrollment delays in future clinical trials. Accordingly, we may not be able to identify, recruit, enroll, and maintain a sufficient number of patients or subjects to complete our clinical trials in a timely manner because of the perceived risks and benefits of the product candidate under study, the availability and efficacy of competing therapies and clinical trials, the option for patients to choose alternate existing approved therapies, and the willingness of physicians to participate in our planned clinical trials. Our ability to enroll patients in our clinical trials may be further impacted by the COVID-19 pandemic, or any future disease pandemic. Health concerns may cause patients to be unwilling to participate in clinical trials if they view themselves at particular risk from the virus, or clinical trial sites in areas particularly impacted by the COVID-19 pandemic or any other future disease pandemic may close entirely. For instance, in our SOLAR trial, as a result of the COVID-19 pandemic, patient monitoring and dosing has been suspended at some clinical sites. We cannot guarantee that the COVID-19 pandemic, or any other future disease pandemics, will not similarly impact enrollment in any future clinical trials. If patients or subjects are unwilling or unable to participate in our clinical trials for any reason, the timeline for conducting trials and obtaining regulatory approval of our product candidates may be delayed.

If we experience delays in the completion of, or termination of, any clinical trials of our product candidates, the commercial prospects of our product candidates could be harmed, and our ability to generate product revenue from any of these product candidates could be delayed or prevented. In addition, any delays in completing our clinical trials would likely increase our overall costs, impair product candidate development, and jeopardize our ability to obtain regulatory approval relative to our current plans. Any of these occurrences may harm our business, financial condition, and prospects significantly.

We may face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use or misuse of our approved products, if any, or product candidates harm patients or subjects, or is perceived to harm patients or subjects even when such harm is unrelated to our approved products, if any, or product candidates, our

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regulatory approvals, if any, could be revoked or otherwise negatively impacted, and we could be subject to costly and damaging product liability claims. If we are unable to obtain adequate insurance or are required to pay for liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage, a material liability claim could adversely affect our financial condition.

The use or misuse of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approval exposes us to the risk of potential product liability claims. There is a risk that our product candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. Some of our microRNA-targeted therapeutic candidates have shown adverse events in clinical trials, including nausea, diarrhea, fatigue, headache, upper respiratory infection, injection site erythema, neutropenia, elevated aspartate aminotransferase, creatine kinase levels, itchiness, among others. In almost all cases, these events were mild to moderate and self-limited. There is a risk that our future product candidates may induce similar or more severe adverse events. Patients with the diseases targeted by our product candidates may already be in severe and advanced stages of disease and have both known and unknown significant preexisting and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may or may not be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact, or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which an adverse event is unrelated to our product candidates, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may delay our regulatory approval process or impact and limit the type of regulatory approvals our product candidates receive or maintain.

As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition, or results of operations.

Although we have product liability insurance, which covers our clinical trials in the United States, for up to $5.0 million per occurrence, up to an aggregate limit of $5.0 million, our insurance may be insufficient to reimburse us for any expenses or losses we may suffer. We will also likely be required to increase our product liability insurance coverage for the advanced clinical trials that we plan to initiate. If we obtain marketing approval for any of our product candidates, we will need to expand our insurance coverage to include the sale of commercial products. There is no way to know if we will be able to continue to obtain product liability coverage and obtain expanded coverage, if we require it, in sufficient amounts to protect us against losses due to liability, on acceptable terms, or at all. We may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage. Where we have provided indemnities in favor of third parties under our agreements with them, there is also a risk that these third parties could incur liability and bring a claim under such indemnities. An individual may bring a product liability claim against us alleging that one of our product candidates causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any such product liability claims may include allegations of defects in manufacturing, defects in design, failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. Any product liability claim brought against us, with or without merit, could result in:

withdrawal of clinical trial volunteers, investigators, patients or subjects, or trial sites, or limitations on approved indications;

the inability to commercialize, or if commercialized, decreased demand for, our product candidates;

if commercialized, product recalls, labeling, marketing or promotional restrictions, or the need for product modification;

initiation of investigations by regulators;

loss of revenue;

substantial costs of litigation, including monetary awards to patients or other claimants;

liabilities that substantially exceed our product liability insurance, which we would then be required to pay ourselves;

an increase in our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, if at all;

the diversion of management’s attention from our business; and


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damage to our reputation and the reputation of our products and our technology.

Product liability claims may subject us to the foregoing and other risks, which could have a material adverse effect on our business, financial condition, or results of operations.

We may not be able to develop or identify a technology that can effectively deliver our product candidates to the intended diseased cells or tissues, and any failure in such delivery technology could adversely affect and delay the development of any or all of our other product candidates.

In connection with our clinical trials of cobomarsen, remlarsen, and MRG-110, we have used various routes of administration, including intravenous, intralesional, subcutaneous, and intradermal injections. While we have observed in our clinical trials that some or all of these routes of administration may be effective in delivering adequate levels of our product candidates to produce a therapeutic response, we cannot guarantee that this will be the case in any current or future clinical trials of our product candidates.  If we fail to develop effective routes of delivery to the target diseased cells or tissues, such failure could adversely affect and delay the development of our product candidates.

Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters

A potential breakthrough therapy designation by the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

We may seek a breakthrough therapy designation from the FDA for some of our product candidates. A breakthrough therapy is defined as a drug or biological product that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and for which preliminary clinical evidence indicates that the drug or biological product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For drugs or biological products that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA could also be eligible for priority review.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review, or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one of our product candidates is designated as a breakthrough therapy, the FDA may later decide that the product candidate no longer meets the conditions for designation and the designation may be rescinded.

We may seek Fast Track designation for one or more of our product candidates, but we might not receive such designation, and even if we do, such designation may not actually lead to a faster development or regulatory review or approval process.

If a product candidate is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address unmet medical need for this condition, a product sponsor may apply for FDA Fast Track designation. If we seek Fast Track designation for a product candidate, we may not receive it from the FDA. However, even if we receive Fast Track designation, Fast Track designation does not ensure that we will receive marketing approval in any particular timeframe or at all. We may not experience a faster development or regulatory review or approval process with Fast Track designation compared to conventional FDA procedures. In addition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast Track designation alone does not guarantee qualification for the FDA’s priority review procedures.

We may attempt to obtain accelerated approval of our product candidates. If we are unable to obtain accelerated approval, we may be required to conduct clinical trials beyond those that we contemplate, or the size and duration of our pivotal clinical trials could be greater than currently planned, which could increase the expense of obtaining, reduce the likelihood of obtaining, and/or delay the timing of obtaining necessary marketing approvals. Even if we receive accelerated approval from the FDA, the FDA may require that we conduct confirmatory trials to verify clinical benefit. If our confirmatory trials do not verify clinical benefit, or if we do not comply with rigorous post-approval requirements, the FDA may seek to withdraw accelerated approval.


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We may seek accelerated approval for our product candidates, including cobomarsen. The FDA may grant accelerated approval to a product designed to treat a serious or life-threatening condition that provides meaningful therapeutic advantage over available therapies and demonstrates an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease. If granted, accelerated approval may be contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s predicted effect on irreversible morbidity or mortality or other clinical benefit. The FDA may require that any such confirmatory study be initiated or substantially underway prior to the submission of an application for accelerated approval. If such post-approval studies fail to confirm the drug’s clinical benefits relative to its risks, the FDA may withdraw its approval of the drug. If we choose to pursue accelerated approval, there can be no assurance that the FDA will agree that our proposed primary endpoint is an appropriate surrogate endpoint. Similarly, there can be no assurance that after subsequent FDA feedback that we will continue to pursue accelerated approval or any other form of expedited development, review, or approval, even if we initially decide to do so. Furthermore, if we submit an application for accelerated approval, there can be no assurance that such application will be accepted or that approval will be granted on a timely basis, or at all. The FDA also could require us to conduct further studies or trials prior to considering our application or granting approval of any type. We might not be able to fulfill the FDA’s requirements in a timely manner, which would cause delays, or approval might not be granted because our submission is deemed incomplete by the FDA. A failure to obtain accelerated approval or any other form of expedited development, review or approval for a product candidate would result in a longer time period to commercialize such product candidate, could increase the cost of development of such product candidate, and could harm our competitive position in the marketplace.

Even if we receive accelerated approval from the FDA, we will be subject to rigorous post-approval requirements, including submission to the FDA of all promotional materials prior to their dissemination. The FDA may require us to conduct a confirmatory study to verify the predicted clinical benefit. The FDA could withdraw accelerated approval for multiple reasons, including our failure to conduct any required post-approval study with due diligence, or the inability of such study to confirm the predicted clinical benefit.

A failure to obtain accelerated approval or any other form of expedited review or approval for a product candidate could result in a longer time period prior to commercializing such product candidate, increase the cost of development of such product candidate, and harm our competitive position in the marketplace.

Even if we obtain regulatory approval for a product candidate, we will remain subject to ongoing regulatory requirements.

If any of our product candidates are approved, we will be subject to ongoing regulatory requirements with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical trials, and submission of safety, efficacy, and other post-approval information, including both federal and state requirements in the United States, and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to continuously comply with FDA and comparable foreign requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMPs, regulations, and corresponding foreign regulatory manufacturing requirements. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMPs and adherence to commitments made in any new drug application or marketing authorization application.

Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the marketed product. We will be required to report adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation could result in delays in product development or commercialization, or increased costs to assure compliance. If our original marketing approval for a product candidate was granted accelerated approval by the FDA, we could be required to conduct a successful post-marketing clinical trial in order to confirm the clinical benefit of our products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of marketing approval.


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If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, the regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

issue warning letters;

impose civil or criminal penalties;

suspend or withdraw regulatory approval;

suspend any of our ongoing clinical trials;

refuse to approve pending applications or supplements to approved applications submitted by us;

impose restrictions on our operations, including closing our contract manufacturers’ facilities; or

require a product recall.

Any government investigation of alleged violations of law would be expected to require us to expend significant time and resources in response and could generate adverse publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to develop and commercialize our products, and the value of the company and our operating results would be adversely affected.

Moreover, the FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant civil, criminal, and administrative penalties.

In addition, if we were able to obtain accelerated approval of any of our drug candidates, the FDA may require us to conduct a confirmatory study to verify the predicted clinical benefit. Other regulatory authorities outside of the United States may have similar requirements. The results from the confirmatory study may not support the clinical benefit, which could result in the approval being withdrawn. While operating under accelerated approval, we will be subject to certain restrictions that we would not be subject to upon receiving regular approval.

Healthcare legislative reform measures may have a material adverse effect on our business, financial condition, or results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, was passed, which was intended to substantially change the way healthcare is financed by both governmental and private insurers, and significantly impact the U.S. pharmaceutical industry. The Affordable Care Act, among other things, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of specified branded prescription drugs, and promotes a new Medicare Part D coverage gap discount program.

There remain Congressional, executive branch, judicial, and regulatory challenges to the Affordable Care Act, and both Congress and President Trump have delayed implementation or effectively repealed some of the Affordable Care Act’s requirements through legislation, Executive Orders, failures to fund, and other actions. For example, the Tax Act included a provision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the Affordable Care Act-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. Further, on December 14, 2018, a Texas U.S. District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was

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unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall. It is unclear how such litigation and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted, and we expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand or lower pricing for our product candidates or additional pricing pressures. In addition, it is possible that additional governmental action is taken to address the COVID-19 pandemic. The CARES Act, which was signed into law in March 2020 and is designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare rate reduction sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030. In addition, on April 18, 2020, CMS announced that Qualified Health Plan (QHP) issuers under the ACA may suspend activities related to the collection and reporting of quality data that would have otherwise been reported between May and June 2020 given the challenges healthcare providers are facing responding to the COVID-19 virus.

We may be subject, directly or indirectly, to foreign, federal, and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties, sanctions, or other liability.

Our operations may be subject to various foreign, federal, and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and Physician Payments Sunshine Act, the European Union’s General Data Protection Regulation, or the GDPR, and other regulations. These laws may impact, among other things, our relationships with healthcare professionals and our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

federal civil and criminal false claims laws, including the federal False Claims Act which can be enforced by individuals through civil whistleblower or qui tams actions, and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, which imposes specified obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information without the appropriate authorization, on entities subject to the law, such as certain healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, and their respective business associates, individuals, and entities that perform services for them that involve the creation, use, maintenance, or disclosure of individually identifiable health information;

the federal Physician Payments Sunshine Act under the Affordable Care Act which requires manufacturers of drugs, devices, biologics, and medical supplies, with certain exceptions, to report annually to the Center for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers, as well as their immediate family members and applicable group purchasing organizations;

the GDPR and other EU member state data protection legislation as well as that of the United Kingdom, which requires data controllers and processors, to adopt administrative, physical, and technical safeguards designed to protect personal data, including health-related data, including mandatory contractual terms with third-party providers, requirements for establishing an appropriate legal basis for processing personal data, transparency requirements related to communications with data subjects regarding the processing of their personal data, standards for obtaining consent from individuals to

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process their personal data, notification requirements to individuals about the processing of their personal data, an individual data rights regime, mandatory data breach notifications, limitations on the retention of personal data, increased requirements pertaining to health data, and strict rules and restrictions on the transfer of personal data outside of the EU, including to the United States; and

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including governmental and private payors, to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing; state and local laws that require the registration of pharmaceutical sales representatives; and state laws governing the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reform legislation has strengthened these laws. For example, the Affordable Care Act, among other things, amends the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes, such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate the law in order to have committed a violation. Moreover, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.

If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including significant civil, criminal, and administrative penalties, disgorgement, damages, fines, contractual damages, reputational harm, diminished profits and future earnings, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Reliance on government funding for our programs may add uncertainty to our research and commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit our ability to take specified actions, increase the costs of commercialization and production of product candidates developed under those programs and subject us to potential financial penalties, which could materially and adversely affect our business, financial condition, and results of operations.

During the course of our development of our product candidates, we have been funded in part through federal and state grants, including but not limited to the funding we received from Yale University pursuant to a subcontract agreement with Yale University. In addition to the funding we have received to date, we have applied and intend to continue to apply for federal and state grants to receive additional funding in the future. Contracts and grants funded by the U.S. government, state governments and their related agencies include provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:

require repayment of all or a portion of the grant proceeds, in specified cases with interest, in the event we violate specified covenants pertaining to various matters that include a failure to achieve;

specify milestones or terms relating to use of grant proceeds, or to comply with specified laws;

terminate agreements, in whole or in part, for any reason or no reason;

reduce or modify the government’s obligations under such agreements without the consent of the other party;

claim rights, including intellectual property rights, in products and data developed under such agreements;

audit contract related costs and fees, including allocated indirect costs;


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suspend the contractor or grantee from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements;

impose qualifications for the engagement of manufacturers, suppliers, and other contractors as well as other criteria for reimbursements;

suspend or debar the contractor or grantee from doing future business with the government;

control and potentially prohibit the export of products;

pursue criminal or civil remedies under the federal False Claims Act, False Statements Act, and similar remedy provisions specific to government agreements; and

limit the government’s financial liability to amounts appropriated by the U.S. Congress on a fiscal year basis, thereby leaving some uncertainty about the future availability of funding for a program even after we have been funded for an initial period.

In addition to those powers set forth above, the government funding we may receive could also impose requirements to make payments based upon sales of our products, if any, in the future.

We may not have the right to prohibit the U.S. government from using specified technologies developed by it, and we may not be able to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that we have the right to royalty-free use of technologies that are developed under U.S. government contracts. These and other provisions of government grants may also apply to intellectual property we license now or in the future.

In addition, government contracts and grants normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:

specialized accounting systems unique to government contracts and grants;

mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;

public disclosures of some contract and grant information, which may enable competitors to gain insights into our research program; and

mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs, and environmental compliance requirements.

If we fail to maintain compliance with any such requirements that may apply to us now or in the future, we may be subject to potential liability and to termination of our contracts.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business, financial condition, or results of operations.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts, and business operations, and cause environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and