inzy-10q_20200630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2020

OR

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

For the transition period from _____________________ to _____________________

Commission File Number: 001-39397

 

INOZYME PHARMA, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

38-4024528

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

321 Summer Street, Suite 400

Boston, Massachusetts

02210

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (857) 330-4340

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

 

INZY

 

Nasdaq Global Select Market

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of August 31, 2020, the registrant had 23,364,851 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” and the negative version of these words and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under the “Risk Factors” section and include, among other things:

 

our ability to favorably resolve the clinical hold with regard to our planned Phase 1/2 clinical trial of INZ-701 for ENPP1 deficiency and, if so resolved, the timing of such resolution;

 

the timing of our planned CTA submission for INZ-701;

 

the timing and conduct of our planned Phase 1/2 clinical trials of INZ-701 for ENPP1 and ABCC6 deficiencies, including statements regarding the timing of initiation and completion of the clinical trials and the period during which the results of the clinical trials will become available;

 

the timing and conduct of our planned later stage clinical trials of INZ-701 for patients with ENPP1 and ABCC6 deficiencies;

 

our plans to conduct research and preclinical testing of INZ-701 for additional indications;

 

our plans to conduct research and preclinical testing of other product candidates;

 

the timing of, and our ability to obtain and maintain, marketing approvals of INZ-701, and the ability of INZ-701 and our other product candidates to meet existing or future regulatory standards;

 

our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents and short-term investments and net proceeds of this offering;

 

the potential advantages of our product candidates;

 

the rate and degree of market acceptance and clinical utility of our product candidates;

 

our estimates regarding the potential market opportunity for our product candidates;

 

our commercialization and manufacturing capabilities and strategy;

 

our intellectual property position;

 

the impact of COVID-19 on our business and operations;

 

our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;

 

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

 

the impact of government laws and regulations;

 

our competitive position; and

 

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

i


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

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

ii


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

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

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

28

 

 

 

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

81

Item 6.

Exhibits

82

Signatures

84

 

 

 

iii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

INOZYME PHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)

(Unaudited)

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,863

 

 

$

31,605

 

Short-term investments

 

 

13,004

 

 

 

15,527

 

Prepaid expenses and other current assets

 

 

793

 

 

 

328

 

Total current assets

 

 

64,660

 

 

 

47,460

 

Property and equipment, net

 

 

846

 

 

 

298

 

Restricted cash

 

 

355

 

 

 

130

 

Deferred issuance costs

 

 

2,650

 

 

 

56

 

Total assets

 

$

68,511

 

 

$

47,944

 

Liabilities, convertible preferred stock and stockholders’ (deficit)

   equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,399

 

 

$

901

 

Accrued expenses

 

 

5,328

 

 

 

2,335

 

Total current liabilities

 

 

6,727

 

 

 

3,236

 

Deferred lease incentive

 

 

238

 

 

 

 

Total liabilities

 

 

6,965

 

 

 

3,236

 

Commitments (Note 7)

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock, $0.0001 par value – 48,850,000

   shares authorized; 48,850,000 shares issued and outstanding at

   June 30, 2020 and December 31, 2019; Liquidation preference

   of $48.9 million at June 30, 2020 and December 31, 2019

 

 

44,657

 

 

 

44,657

 

Series A-2 Convertible Preferred Stock, $0.0001 par value – 47,132,862

   shares authorized at June 30, 2020 and December 31, 2019;

   47,132,862 shares issued and outstanding at June 30, 2020;

   23,566,431 shares issued and outstanding at December 31, 2019;

   Liquidation preference of $67.4 million at June 30, 2020 and

   $33.7 million at December 31, 2019

 

 

66,908

 

 

 

33,270

 

Stockholders’ (deficit) equity:

 

 

 

 

 

 

 

 

Common Stock, $0.0001 par value – 129,000,000 shares

   authorized; 1,344,704 shares issued and outstanding

   at June 30, 2020 and 1,204,630 shares issued and

   outstanding at December 31, 2019

 

 

 

 

 

 

Additional paid in-capital

 

 

1,831

 

 

 

1,428

 

Accumulated other comprehensive income

 

 

13

 

 

 

5

 

Accumulated deficit

 

 

(51,863

)

 

 

(34,652

)

Total stockholders’ (deficit) equity

 

 

(50,019

)

 

 

(33,219

)

Total liabilities, convertible preferred stock and stockholders’ (deficit)

   equity

 

$

68,511

 

 

$

47,944

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 

1


INOZYME PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(amounts in thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

7,877

 

 

$

3,489

 

 

$

14,283

 

 

$

7,623

 

General and administrative

 

 

1,671

 

 

 

1,064

 

 

 

3,171

 

 

 

2,094

 

Total operating expenses

 

 

9,548

 

 

 

4,553

 

 

 

17,454

 

 

 

9,717

 

Loss from operations

 

 

(9,548

)

 

 

(4,553

)

 

 

(17,454

)

 

 

(9,717

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

71

 

 

 

394

 

 

 

242

 

 

 

604

 

Other income (expense), net

 

 

4

 

 

 

(14

)

 

 

1

 

 

 

(31

)

Other income (expense), net

 

 

75

 

 

 

380

 

 

 

243

 

 

 

573

 

Net loss

 

$

(9,473

)

 

$

(4,173

)

 

$

(17,211

)

 

$

(9,144

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (losses) gains on available-for-sale securities

 

 

(15

)

 

 

10

 

 

 

8

 

 

 

12

 

Total other comprehensive (loss) income

 

 

(15

)

 

 

10

 

 

 

8

 

 

 

12

 

Comprehensive loss

 

$

(9,488

)

 

$

(4,163

)

 

$

(17,203

)

 

$

(9,132

)

Net loss attributable to common stockholders—basic

   and diluted

 

$

(9,473

)

 

$

(4,173

)

 

$

(17,211

)

 

$

(9,144

)

Net loss per share attributable to common

   stockholders—basic and diluted

 

$

(7.57

)

 

$

(3.57

)

 

$

(14.01

)

 

$

(7.83

)

Weighted-average common shares outstanding—basic

   and diluted

 

 

1,251,244

 

 

 

1,170,480

 

 

 

1,228,296

 

 

 

1,167,346

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

2


INOZYME PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY

(amounts in thousands, except share data)

(Unaudited)

 

 

 

Series A Convertible

Preferred Stock

 

 

Series A-2 Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

(Deficit)

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

48,850,000

 

 

 

44,657

 

 

 

23,566,431

 

 

 

33,270

 

 

 

 

1,204,630

 

 

 

 

 

 

1,428

 

 

 

5

 

 

 

(34,652

)

 

 

(33,219

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

129

 

 

 

 

 

 

 

 

 

129

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,677

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

23

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,738

)

 

 

(7,738

)

Balance at March 31, 2020

 

 

48,850,000

 

 

$

44,657

 

 

 

23,566,431

 

 

$

33,270

 

 

 

 

1,207,307

 

 

$

 

 

$

1,562

 

 

$

28

 

 

$

(42,390

)

 

$

(40,800

)

Issuance of Series A-2 Convertible

   Preferred Stock, net of issuance costs

   of $0.1 million

 

 

 

 

 

 

 

 

23,566,431

 

 

 

33,638

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

 

120

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

137,397

 

 

 

 

 

 

149

 

 

 

 

 

 

 

 

 

149

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15

)

 

 

 

 

 

(15

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,473

)

 

 

(9,473

)

Balance at June 30, 2020

 

 

48,850,000

 

 

$

44,657

 

 

 

47,132,862

 

 

$

66,908

 

 

 

 

1,344,704

 

 

$

 

 

$

1,831

 

 

$

13

 

 

$

(51,863

)

 

$

(50,019

)

Balance at December 31, 2018

 

 

48,850,000

 

 

$

44,657

 

 

 

7,482,515

 

 

$

10,372

 

 

 

 

1,135,015

 

 

$

 

 

$

1,055

 

 

$

(2

)

 

$

(14,928

)

 

$

(13,875

)

Issuance of Series A-2 Convertible

   Preferred Stock, net of issuance costs

   of $0.1 million

 

 

 

 

 

 

 

 

16,083,916

 

 

 

22,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41

 

 

 

 

 

 

 

 

 

41

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,460

 

 

 

 

 

 

34

 

 

 

 

 

 

 

 

 

34

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,971

)

 

 

(4,971

)

Balance at March 31, 2019

 

 

48,850,000

 

 

$

44,657

 

 

 

23,566,431

 

 

$

33,270

 

 

 

 

1,170,475

 

 

$

 

 

$

1,130

 

 

$

 

 

$

(19,899

)

 

$

(18,769

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40

 

 

 

 

 

 

 

 

 

40

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,173

)

 

 

(4,173

)

Balance at June 30, 2019

 

 

48,850,000

 

 

$

44,657

 

 

 

23,566,431

 

 

$

33,270

 

 

 

 

1,170,475

 

 

$

 

 

$

1,170

 

 

$

8

 

 

$

(24,072

)

 

$

(22,894

)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


INOZYME PHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)

 

 

 

Six Months

Ended June 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(17,211

)

 

$

(9,144

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

51

 

 

 

38

 

Stock-based compensation expense

 

 

249

 

 

 

81

 

Accretion on marketable securities

 

 

(81

)

 

 

(22

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(465

)

 

 

(337

)

Accounts payable

 

 

454

 

 

 

(393

)

Accrued expenses

 

 

2,105

 

 

 

(396

)

Net cash used in operating activities

 

 

(14,898

)

 

 

(10,173

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(18,908

)

 

 

(12,771

)

Maturities of marketable securities

 

 

21,520

 

 

 

9,225

 

Purchases of property and equipment

 

 

(168

)

 

 

(43

)

Net cash provided by (used in) investing activities

 

 

2,444

 

 

 

(3,589

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of Series A-2 Convertible Preferred Stock, net of issuance

   costs

 

 

33,638

 

 

 

22,898

 

Payment of initial public offering costs

 

 

(1,855

)

 

 

 

Proceeds from exercise of stock options

 

 

154

 

 

 

34

 

Net cash provided by financing activities

 

 

31,937

 

 

 

22,932

 

Net increase in cash, cash equivalents and restricted cash

 

 

19,483

 

 

 

9,170

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

31,735

 

 

 

35,966

 

Cash, cash equivalents and restricted cash at end of period

 

$

51,218

 

 

$

45,136

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,863

 

 

$

45,136

 

Restricted cash

 

 

355

 

 

 

 

Cash, cash equivalents and restricted cash at end of period

 

$

51,218

 

 

$

45,136

 

Property and equipment unpaid at end of period

 

$

431

 

 

$

 

Deferred offering costs unpaid at end of period

 

$

738

 

 

$

 

Deferred lease incentive - non-cash

 

$

238

 

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statement. 

4


Inozyme Pharma, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

Inozyme Pharma, Inc. (the “Company”) is a rare disease biopharmaceutical company developing novel therapeutics for the treatment of diseases of abnormal mineralization impacting the vasculature, soft tissue and skeleton.

The Company is pursuing the development of therapeutics to address the underlying causes of these debilitating diseases. It is well established that two genes, ENPP1 and ABCC6, play key roles in a critical mineralization pathway and that defects in these genes lead to abnormal mineralization. The Company is initially focused on developing a novel therapy to treat rare genetic diseases of ENPP1 and ABCC6 deficiencies.

The Company’s lead product candidate, INZ-701, is a soluble, recombinant, or genetically engineered, fusion protein that is designed to correct a defect in the mineralization pathway caused by ENPP1 and ABCC6 deficiencies. This pathway is central to the regulation of calcium deposition throughout the body and is further associated with neointimal proliferation, or the overgrowth of smooth muscle cells inside blood vessels.

On July 17, 2020, the Company effected a one-for-7.4730 reverse stock split of the Company’s common stock. All share and per share amounts in the condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased in accordance with the terms of the appropriate securities agreements. Shares of common stock reserved for issuance upon the conversion of the Company’s convertible preferred stock were proportionately reduced and the respective conversion prices were proportionately increased. Stockholders entitled to fractional shares as a result of the reverse stock split will receive a cash payment in lieu of receiving fractional shares.

On July 28, 2020, the Company completed its initial public offering (“IPO”) pursuant to which it issued 7,000,000 shares of its common stock at a public ofering price of $16.00 per share, and on July 30, 2020, the Company sold an additional 1,050,000 shares pursuant to the exercise by the underwriters of their option to purchase additional shares.  The Company received net proceeds from its IPO, inclusive of the exercise by the underwriters of their option to purchase additional shares, of $116.5 million, after deducting underwriting discounts and commissions and estimated offering expenses. Upon the closing of the IPO, all 104,277,222 shares of the then outstanding preferred stock automatically converted into 13,953,850 shares of common stock.

Basis of Presentation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). All adjustments considered necessary for a fair presentation have been included.

The accompanying consolidated financial statements and footnotes to the financial statements have been prepared on the same basis as the most recently audited annual financial statements and, in the opinion of management, reflect all normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2020 and the results of its operations and its cash flows for the three and six months ended June 30, 2020 and 2019. The results for the three and six months ended June 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s final prospectus for its IPO filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission (the “SEC”) on July 24, 2020.

Liquidity

Since the Company’s incorporation in 2017 and through June 30, 2020, the Company has devoted substantially all of its efforts to raising capital, building infrastructure, developing intellectual property and conducting research and development. The Company incurred net losses of $17.2 million in the six months ended June 30, 2020 and $19.7 million in the year ended December 31, 2019 and had an accumulated deficit of $51.9 million as of June 30, 2020 and $34.7 million as of December 31, 2019. The Company had cash and cash equivalents of $50.9 million and $31.6 million, and short-term investments of $13.0 million and $15.5 million as of June 30, 2020 and December 31, 2019, respectively.

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The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurred recurring losses and negative cash flows from operations since inception and has primarily funded its operations with proceeds from the issuance of convertible preferred stock, and most recently, with proceeds from the IPO completed on July 28, 2020. The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to expand its research and development efforts.

The Company believes that its cash and cash equivalents as of June 30, 2020, together with the net proceeds of approximately $116.5 million from the IPO of the Company’s common stock completed in July 2020, will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q. The Company will need additional funding to support its planned operating activities. If the Company is unable to obtain additional funding, it would be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion, or commercialization efforts, which could adversely affect its business prospects.

2. Summary of Significant Accounting Policies

 

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Inozyme Securities Corp., which is a Massachusetts subsidiary created to buy, sell, and hold securities, and Inozyme Ireland Limited. All intercompany transactions and balances have been eliminated.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the accompanying consolidated financial statements are described in the Company’s audited consolidated financial statements for the year ended December 31, 2019 included in the Company’s final prospectus for its IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on July 24, 2020. There have been no material changes in the Company’s significant accounting policies during the three months ended June 30, 2020.

Use of Estimates

The preparation of the Company’s financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Estimates and judgments are based on historical information and other market-specific or various relevant assumptions, including, in certain circumstances, future projections that management believes to be reasonable under the circumstances. Actual results could differ materially from estimates. Significant estimates and assumptions are used for, but not limited to the accruals for research and development expenses, and for equity instruments issued prior to the completion of the Company’s IPO, stock-based compensation expense, inclusive of the measurement of fair value of equity instruments. For equity instruments issued prior to the completion of the Company’s IPO, the Company utilized various valuation methodologies in accordance with the framework of the 2013 American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its equity instruments. The Company evaluates its estimates and assumptions on an ongoing basis. All revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

 

Accrued Research and Development Costs

The Company records accrued liabilities for estimated costs of research and development activities conducted by service providers for sponsored research, preclinical studies and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in accrued expenses in the accompanying consolidated balance sheets and within research and development expense in the accompanying consolidated statements of operations and comprehensive loss.

The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with service providers. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception.

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Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist of direct and indirect internal costs related to specific projects as well as fees paid to other entities that conduct certain research and development activities on the Company’s behalf.

Deferred Issuance Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings, including the Company’s IPO, as deferred issuance costs until such financings are consummated. After consummation of such an equity financing, these costs are recorded as a reduction of the proceeds generated as a result of the offering. The Company recorded deferred issuance costs at June 30, 2020 and December 31, 2019 of $2.7 million and $0.1 million, respectively.

 

Net Loss Per Share

 

The Company follows the two-class method when computing net loss allocable to common securities per share as the Company has issued shares that meet the definition of participating securities, which include shares of: (i) Series A Convertible Preferred Stock; and (ii) Series A-2 Convertible Preferred Stock. The two-class method requires a portion of net income to be allocated to the participating securities to determine net loss allocable to the common securities. During periods of loss, there is no allocation required under the two-class method since the participating securities do not have a contractual obligation to fund the losses of the Company.

 

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding during the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, diluted net loss per share attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding after giving consideration to the dilutive effect of convertible preferred stock, restricted common stock, restricted stock units and stock options that are outstanding during the period. The Company has generated a net loss in all periods presented, therefore the basic and diluted net loss per share attributable to common stockholders are the same as the inclusion of the potentially dilutive securities would be anti-dilutive.

 

Fair Value Measurements

 

The Company categorizes its assets and liabilities measured at fair value in accordance with the authoritative accounting guidance that establishes a consistent framework for measuring fair value and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

 

Level 1- Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

 

Level 2- Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or

 

Level 3- Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

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Concentration of Credit Risk and Off-Balance Sheet Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits and limits its exposure to credit risk by placing its cash with high credit quality financial institutions. The Company’s short-term investments are comprised of corporate debt securities, U.S. Treasury and agency securities and commercial paper of corporations. The Company mitigates credit risk by maintaining a diversified portfolio and limiting the amount of investment exposure as to institution, maturity and investment type.

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.

 

3. Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

Recently Issued Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard, as amended, establishes a right-of-use model and requires a lessee to recognize on the balance sheet a right-of-use asset and corresponding lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statements of operations and comprehensive loss. As a result of the FASB’s issuance of ASU No. 2020-05, “Revenue From Contracts With Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities”, the new standard is effective for the Company on January 1, 2022, with early adoption permitted. The Company is currently assessing the impact that adopting this standard will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 and its subsequent related updates establish a new forward-looking “expected loss model” that requires entities to estimate current expected credit losses on accounts receivable and financial instruments by using all practical and relevant information. The new standard and its subsequent related updates are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact that adopting this standard will have on its consolidated financial statements but does not expect it to be material.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is currently assessing the impact that adopting this standard will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas, such as requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new standard is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently assessing the impact that adopting this standard will have on its consolidated financial statements.

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4. Balance Sheet Details

Short-term investments consisted of the following (dollar amounts in thousands):

 

 

 

June 30, 2020

 

Description

 

Maturity

 

Amortized

Costs

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Commercial paper

 

1 year or less

 

$

9,100

 

 

$

11

 

 

$

(1

)

 

$

9,110

 

Corporate debt securities

 

1 year or less

 

 

2,888

 

 

 

 

 

 

 

 

 

2,888

 

U.S. Treasury securities

 

1 year or less

 

 

1,003

 

 

 

3

 

 

 

 

 

 

1,006

 

 

 

 

 

$

12,991

 

 

$

14

 

 

$

(1

)

 

$

13,004

 

 

 

 

December 31, 2019

 

Description

 

Maturity

 

Amortized

Costs

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Commercial paper

 

1 year or less

 

$

10,903

 

 

$

3

 

 

$

 

 

$

10,906

 

Corporate debt securities

 

1 year or less

 

 

3,370

 

 

 

1

 

 

 

 

 

 

3,371

 

U.S. Treasury securities