The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (i) the interim unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (ii) the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the fiscal year endedMarch 31, 2022 , included in our Annual Report on Form 10-K, filed with theSecurities and Exchange Commission (the "SEC") onJune 14, 2022 . This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "will," "would" or the negative or plural of these words or similar expressions or variations, although not all forward-looking statements contain these identifying words. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. The forward-looking statements appearing in a number of places throughout this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things: •our anticipated uses of cash, cash runway and future cash position, including the availability, timing and amount of liquidating distributions, the amounts that will need to be set aside by us and the adequacy of such reserves to satisfy our obligations;
•the amount of proceeds that might be realized from the sale or other disposition of any of our remaining assets;
•timing and stockholder approval of our planned Dissolution;
•the incurrence by the Company of expenses relating to the Dissolution;
•the timing, cost and anticipated savings benefits of internal restructurings that we have conducted or may conduct in the future, including headcount reductions;
•the timing of delisting of our common stock from Nasdaq and related limitations on future trading of our common stock prior to the Dissolution;
•our ability to retain employees, consultants and other resources to carry out the Dissolution; and
•our estimates regarding our results of operations, financial condition, liquidity and capital requirements.
We have based these forward-looking statements largely on our current expectations and projections about future events, including statements regarding the Dissolution and related matters that we believe may affect our financial condition, results of operations, business strategy and financial needs. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors known and unknown that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled "Risk Factors" set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2022 and in our other filings with theSEC . These risks are not exhaustive. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, 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. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements as predictions of future events. 16
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Overview
Until recently, we were a clinical-stage company focused on developing gene therapies to treat neurodegenerative diseases: AXO-AAV-GM1 for the treatment of GM1 gangliosidosis, AXO-AAV-GM2 for the treatment of GM2 gangliosidosis (including Tay-Sachs and Sandhoff diseases) and AXO-Lenti-PD for the treatment of Parkinson's disease. During the fiscal year covered by this report, we wound down these programs. In parallel with our decision to terminate our clinical programs, inApril 2022 , the Board of Directors approved and we announced the strategic decision to explore and review a range of strategic alternatives focused on maximizing stockholder value from our existing cash and cash equivalents, including a potential sale, merger, business combination or similar transaction. In connection with these actions, and as approved by the Board of Directors, we began implementing a significant headcount reduction, which concluded inAugust 2022 . InDecember 2022 , following assessment of potential strategic alternatives, the Board of Directors approved the dissolution and liquidation of the company (the "Dissolution"), subject to stockholder approval. We intend to file proxy materials with theSecurities and Exchange Commission and mail such materials to our stockholders as of the applicable record date expeditiously and to hold a special meeting of stockholders as soon as practicable for the purpose of obtaining stockholder approval of the Dissolution. The Dissolution contemplates an orderly wind down of our business and operations in accordance with the provisions ofDelaware law. If our stockholders approve the Dissolution, we intend to file a Certificate of Dissolution with theDelaware Secretary of State dissolving the Company, satisfy or resolve our remaining liabilities and obligations, including but not limited to contingent liabilities and claims and costs associated with the dissolution and liquidation, make reasonable provisions for unknown claims and liabilities and attempt to convert all of our remaining assets into cash or cash equivalents, and make distributions to our stockholders of cash available for distribution based upon their proportionate ownership at the time of the dissolution, subject to applicable legal requirements. The proxy materials that we file with theSEC and mail to our stockholders will contain more important information regarding the proposed Dissolution. We also expect our common stock to be delisted from the Nasdaq Capital Market inMarch 2023 . Pursuant toDelaware law, the Company will continue to exist for three years after the Certificate of Dissolution is filed or for such longer period as theDelaware Court of Chancery shall direct. If our stockholders approve the Dissolution, we will be authorized to cease operations, sell or otherwise dispose of its non-cash assets and dissolve the Company and its subsidiaries without further approval of the stockholders, unless required to obtain such approval underDelaware law. If our stockholders do not approve the Dissolution, the Board of Directors and management will continue to explore other strategic alternatives. Because the Board of Directors and management believe that they have exhausted all reasonable and viable strategic alternatives, it is possible that we would seek voluntary dissolution at a later time and potentially with diminished assets. In addition, we could cease operations, make an assignment for the benefit of creditors, turn the Company over to a third-party management company or liquidator or file for bankruptcy protection. Even if our stockholders approve the Dissolution, the Board of Directors has reserved the right, in its discretion, to the extent permitted byDelaware law, to abandon or delay implementation of the Dissolution, in order, for example, to permit the Company to pursue any new business opportunities or strategic transactions that may arise. Financial Operations Overview Revenue We have not generated any revenue from the sale of any products, and we do not expect to generate any revenue unless and until we obtain regulatory approval of and begin to commercialize any product candidates.
Research and Development Expense
Since our inception, our operations have historically been focused primarily on organizing and staffing our company, raising capital, and acquiring, preparing for and advancing our product candidates into clinical development. Until recently, our research and development expenses included program-specific costs, as well as unallocated internal costs, such as the following:
Program-specific costs include:
•direct third-party costs, which include expenses incurred under agreements with CROs and contract manufacturing organizations, the cost of consultants who assist with the development of our product candidates on a program-specific basis, investigator grants, sponsored research, manufacturing costs in connection with producing materials for use in conducting nonclinical and clinical studies, and any other third-party expenses directly attributable to the development of our prior product candidates; and 17 --------------------------------------------------------------------------------
•payments for research and development milestones, which include costs incurred under our agreements with UMMS and Oxford.
Unallocated internal costs include:
•stock-based compensation expense for research and development personnel;
•personnel-related expenses, which include employee-related expenses, such as salaries, benefits and recruiting expenses, for research and development personnel; and
•other expenses, which include research and development software costs, travel expenses, laboratory facility rental costs and research and development equipment depreciation expenses, as well as the cost of consultants who assist with our research and development but are not allocated to a specific program.
We do not expect to incur any research and development expenses in the future, as we have stopped all research and development activity.
General and Administrative Expense
General and administrative expenses consist primarily of employee-related expenses such as salaries, benefits and travel expenses for our general and administrative personnel; stock-based compensation, including stock-based compensation allocated to us from our affiliate, Roivant Sciences Ltd. ("RSL"), for certain RSL equity instruments granted to certain of our employees (primarily our former CEO (the "RSL Equity Instruments"), who resigned as our CEO inJanuary 2022 ); non-employee benefit insurance premiums; third-party legal and accounting fees; information technology costs; office rent, fixed asset depreciation and other overhead costs; and consulting services. During the fiscal year endingMarch 31, 2023 , we anticipate that our general and administrative expenses will decrease compared to the fiscal year endedMarch 31, 2022 , primarily as a result of stock-based compensation expense associated with the RSL Equity Instruments, for which expensing commenced upon the liquidity event vesting condition being met upon the closing of RSL's business combination withMontes Archimedes Acquisition Corp. ("MAAC") onSeptember 30, 2021 and ended byMarch 31, 2022 .
Results of Operations for the Three and Nine Months Ended
The following table summarizes our results of operations for the three and nine
months ended
Three Months Ended December 31, Nine Months Ended December 31, 2022 2021 Change 2022 2021 Change Operating expenses: Research and development expenses (includes stock-based compensation (benefit) expense of$0 and$130 for the three months endedDecember 31, 2022 and 2021 and$(409) and$1,051 for the nine months endedDecember 31, 2022 and 2021, respectively)$ 1,883 $ 21,287 $ (19,404) $ 7,761 $ 40,793 $ (33,032) General and administrative expenses (includes stock-based compensation expense of$227 and$1,268 for the three months endedDecember 31, 2022 and 2021 and$692 and$8,966 for the nine months ended December 31, 2022 and 2021, respectively) 2,600 4,086 (1,486) 8,533 17,693 (9,160) Total operating expenses 4,483 25,373 (20,890) 16,294 58,486 (42,192) Other (income) expense, net (464) 83 (547) (785) 105 (890) Loss before income tax benefit (4,019) (25,456) 21,437 (15,509) (58,591) 43,082 Income tax benefit - - - (4) (28) 24 Net loss$ (4,019) $ (25,456) $ 21,437 $ (15,505) $ (58,563) $ 43,058 18
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Research and Development Expenses
Our research and development expenses during the three and nine months ended
Three Months Ended December 31, Nine Months Ended December 31, 2022 2021 Change 2022 2021 Change Program-specific costs$ 1,744 $ 17,262 $ (15,518) $ 4,030 $ 28,619 $ (24,589) Unallocated internal costs: Personnel-related - 2,464 (2,464) 1,676 7,127 (5,451) Stock-based compensation expense (benefit) - 130 (130) (409) 1,051 (1,460) Other 139 1,431 (1,292) 2,464 3,996 (1,532)
Total research and development expenses
$ (19,404) $ 7,761 $ 40,793 $ (33,032)
Research and development expenses were
(i) program-specific costs relating to our prior AXO-Lenti-PD and AXO-AAV-GM1 and AXO-AAV-GM2 programs, which decreased$15.5 million as we wound down our clinical-stage programs subsequent to our termination of the Oxford Agreement and the UMMS Agreement; and (ii) unallocated internal costs, which decreased$3.9 million primarily due to reductions in personnel-related costs after announcing the discontinuation of our clinical-stage programs and initiating a significant reduction in workforce inApril 2022 . Research and development expenses were$7.8 million for the nine months endedDecember 31, 2022 and$40.8 million for the nine months endedDecember 31, 2021 . The$33.0 million decrease was primarily related to decreases in: (i) program-specific costs relating to our prior AXO-Lenti-PD and AXO-AAV-GM1 and AXO-AAV-GM2 programs, which decreased$24.6 million as we wound down our clinical-stage programs subsequent to our termination of the Oxford Agreement and the UMMS Agreement; and (ii) unallocated internal costs, which decreased$8.4 million primarily due to reductions in personnel-related costs after announcing the discontinuation of our clinical-stage programs and initiating a significant reduction in workforce inApril 2022 . Personnel-related costs incurred during the nine months endedDecember 31, 2022 included$0.7 million of severance expense. Other costs incurred during the nine months endedDecember 31, 2022 included$0.7 million related to the early termination of the laboratory space lease inDurham, North Carolina and$0.6 million of losses on sales of equipment and furniture related to the termination of that lease. Further, stock-based compensation expense incurred during the nine months endedDecember 31, 2022 benefited from the reversal of$0.4 million from prior periods resulting from the workforce reduction.
General and Administrative Expenses
General and administrative expenses were$2.6 million for the three months endedDecember 31, 2022 and$4.1 million for the three months endedDecember 31, 2021 . The decrease of$1.5 million was primarily due to decreases of$1.0 million in stock-based compensation expense,$0.4 million of which results from prior year expense associated with RSL equity instruments held by our former Chief Executive Officer, and$0.6 million in personnel-related expenses related to the workforce reduction that commenced inApril 2022 . General and administrative expenses were$8.5 million for the nine months endedDecember 31, 2022 and$17.7 million for the nine months endedDecember 31, 2021 . The decrease of$9.2 million was primarily due to a decrease of$8.3 million in stock-based compensation expense,$6.3 million of which results from prior year expense associated with RSL equity instruments held by our former Chief Executive Officer, and a decrease of$1.7 million in personnel-related expenses.
Other (Income) Expense, net
Other (income) expense, net was$(0.5) million and$83 thousand for the three months endedDecember 31, 2022 and 2021, respectively. Other income, net for the three months endedDecember 31, 2022 consisted primarily of$0.5 million of interest income. Other expense, net for the three months endedDecember 31, 2021 consisted primarily of foreign exchange losses. 19 -------------------------------------------------------------------------------- Other (income) expense, net was$(0.8) million and$105 thousand for the nine months endedDecember 31, 2022 and 2021, respectively. Other income, net for the nine months endedDecember 31, 2022 consisted primarily of$0.8 million of interest income. Other expense, net for the nine months endedDecember 31, 2021 consisted primarily of foreign exchange losses and interest expense, partially offset by interest income.
Liquidity and Capital Resources
Sources of Liquidity
Since our initial public offering inJune 2015 , our operations have been financed primarily through sales of common stock and pre-funded warrants, as well as borrowings under our credit facilities. As ofDecember 31, 2022 , we had$46.1 million of cash and cash equivalents available to us.
Capital Requirements
We have not yet achieved profitability and expect to continue to incur operating and net losses, as well as negative cash flows from operations, including through the date of the proposed Dissolution.
For the nine months endedDecember 31, 2022 and the fiscal year endedMarch 31, 2022 , we incurred net losses of$15.5 million and$71.9 million , respectively. As ofDecember 31, 2022 , our cash and cash equivalents totaled$46.1 million and our accumulated deficit was$878.5 million . If the Dissolution is not approved by our stockholders, and notwithstanding the factors listed below, we expect that our existing cash and cash equivalents of$46.1 million atDecember 31, 2022 will enable us to fund our current operating plan beyond the twelve-month period following the date that the accompanying unaudited condensed consolidated financial statements and footnotes were issued, although our future capital requirements, cash flows, and results of operations could be affected by and will depend on many factors that are currently unknown to us, including the outcome of our review and evaluation of any additional strategic alternatives or changes in our business strategy. If the Dissolution is not approved by our stockholders, to the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, collaboration agreements, debt financings or licensing arrangements. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling convertible debt securities, further dilution to our existing stockholders may result. If we raise funds through licensing arrangements, we may be required to relinquish rights to our technologies or drug candidates, or grant licenses on terms that are not favorable to us. Our common stock may also be delisted from the Nasdaq Capital Market inMarch 2023 if we do not regain compliance with the minimum bid price requirement, in which case our ability to raise additional funds by issuing equity securities would be even more limited.
At-the-Market Equity Offering Program
We have engagedSVB Securities LLC as our agent to sell shares of our common stock from time to time through an at-the-market equity offering program.SVB Securities LLC is entitled to compensation for its services in an amount equal to 3% of the gross proceeds of any of our shares of common stock sold. During the nine months endedDecember 31, 2022 , we did not sell any shares of common stock under this program. During the nine months endedDecember 31, 2021 , we sold approximately 0.7 million shares of our common stock for total proceeds of approximately$1.6 million , net of brokerage fees, under this program. As ofDecember 31, 2022 , we sold a total of approximately$30.4 million shares of our common stock for aggregate proceeds of approximately$92.0 million , net of brokerage fees, under and since the inception of this program.
Cash Flows
The following table sets forth a summary of our cash flows for each of the periods shown (in thousands):
Nine Months
Ended
2022
2021
Net cash used in operating activities $ (18,686) $ (42,524) Net cash (used in) provided by investing activities (100) 4,007 Net cash provided by financing activities - 1,441 20
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Operating Activities
Cash flows from operating activities consist of net loss adjusted for non-cash items, including depreciation and stock-based compensation expenses, as well as the effect of changes in working capital and other activities. For the nine months endedDecember 31, 2022 , net cash used in operating activities was$18.7 million and was primarily attributable to a net loss of$15.5 million , which includes costs incurred for research and development activities, including CRO fees, manufacturing, regulatory and other clinical trial costs, as well as our general and administrative expenses, in addition to net decreases in accrued expenses and accounts payable of$10.1 million , which were partially offset by a net decrease in prepaid expenses and other current assets of$4.4 million , a decrease in income tax receivable of$1.3 million and the disposal of$0.9 million of fixed assets. For the nine months endedDecember 31, 2021 , net cash used in operating activities was$42.5 million and was primarily attributable to a net loss of$58.6 million , which includes costs incurred for research and development activities, including CRO fees, manufacturing, regulatory and other clinical trial costs, as well as our general and administrative expenses, in addition to a net decrease of$1.4 million in accrued expenses, which were partially offset by$10.0 million of non-cash stock-based compensation expense, an increase in accounts payable of$5.3 million and a decrease in prepaid expenses and other current assets of$2.1 million .
Investing Activities
Cash used in investing activities was$0.1 million for the nine months endedDecember 31, 2022 , consisting of$0.3 million of purchases of fixed assets, partially offset by proceeds of$0.2 million from dispositions of fixed assets. Net cash provided by investing activities was$4.0 million for the nine months endedDecember 31, 2021 , consisting primarily of$4.3 million of cash proceeds from the sale of our long-term investment in Arvelle, partially offset by purchases of fixed assets.
Financing Activities
For the nine months endedDecember 31, 2022 , net cash provided by financing activities was zero. For the nine months endedDecember 31, 2021 , net cash provided by financing activities was$1.4 million and consisted of net proceeds from the issuance and sale of our shares of common stock under our share sales agreement withSVB Securities LLC .
Contractual Obligations
As ofDecember 31, 2022 , our real property lease obligations have been reduced to zero as a result of agreements reached during the six months endedSeptember 30, 2022 for the early termination of lease agreements for an office facility inNew York, New York and for a research and development facility and related office space inDurham, North Carolina .
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles ("GAAP"). The preparation of these unaudited condensed consolidated financial statements and accompanying notes requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting periods. In accordance withU.S. GAAP, we evaluate our estimates and judgments on an ongoing basis. Significant estimates include research and development accruals. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We define our critical accounting policies as those underU.S. GAAP that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. Our significant accounting policies are more fully described in Note 2, "Summary of Significant Accounting Policies," to our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q and in Note 2, "Summary of Significant Accounting Policies," to our audited consolidated financial statements in our Annual Report on Form 10-K. Not all of these significant accounting policies, however, require that we make estimates and assumptions that we believe are "critical accounting estimates." We believe that our estimates relating to research and development accruals have the greatest potential impact on our consolidated financial statements and consider these to be our critical accounting policies and estimates and are "critical accounting estimates." There have been no material changes to our critical accounting policies and significant judgments and estimates as compared to the critical accounting policies and significant judgments and estimates described in our Annual Report. 21
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Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see "Note 2(F)-Recent Accounting Pronouncements" in the accompanying notes to the unaudited condensed consolidated financial statements included in "Item 1-Financial Statements" of this Quarterly Report on Form 10-Q for additional information.
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