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Washington, D.C. 20549
(Mark One)
For the quarterly period ended September 30, 2019
For the transition period from __________ to __________
Commission File Number: 001-38295

(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
955 Massachusetts Avenue, 4th Floor
Cambridge, Massachusetts
(Address of principal executive offices)
(Zip Code)
(857) 529-8300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockXFORThe Nasdaq Stock Market LLC
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, 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 filerAccelerated filer
Non-accelerated filerSmaller 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 November 4, 2019, the registrant had 12,456,418 shares of common stock outstanding.

X4 Pharmaceuticals, Inc.


On March 13, 2019, X4 Pharmaceuticals, Inc. (formerly Arsanis, Inc.), or the Company, completed its business combination in accordance with the terms of the Agreement and Plan of Merger, dated as of November 26, 2018, as amended on December 20, 2018 and March 8, 2019, or the Merger Agreement, by and among the Company, X4 Therapeutics, Inc. (formerly X4 Pharmaceuticals, Inc.) and Artemis AC Corp., a Delaware corporation and a wholly-owned subsidiary of the Company, or the Merger Sub, pursuant to which, among other matters, Merger Sub merged with and into X4 Therapeutics, Inc., with X4 Therapeutics, Inc. continuing as a wholly-owned subsidiary of the Company and the surviving corporation of the merger, or the Merger. Following the Merger, on March 13, 2019, the Company effected a 1-for-6 reverse stock split of its common stock, or the Reverse Stock Split, and changed its name to “X4 Pharmaceuticals, Inc.” Following the completion of the Merger, the business conducted by the Company became primarily the business conducted by X4 Therapeutics, Inc., a clinical-stage biopharmaceutical company focused on the research, development and commercialization of novel therapeutics for the treatment of rare diseases.
Unless otherwise noted, all references to common stock share and per share amounts in this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the conversion of shares in the Merger based on an exchange ratio of 0.5702 and the Reverse Stock Split. As used herein, the words “the Company,” “we,” “us,” and “our” refer to, for periods following the Merger, X4 Pharmaceuticals, Inc. (formerly Arsanis, Inc.), together with is direct and indirect subsidiaries, and for periods prior to the Merger, X4 Therapeutics, Inc. (formerly X4 Pharmaceuticals, Inc.), and its direct and indirect subsidiaries, as applicable. In addition, the word “Arsanis” refers to the Company prior to the completion of the Merger, and the word "X4" refers to X4 Therapeutics, Inc.

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that relate to future events or to our future operations or financial performance. These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. These risks, uncertainties and other factors are described in greater detail under the caption “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as updated by our Current Report on Form 8-K filed on April 11, 2019 and our other filings that we make with the Securities and Exchange Commission, or SEC.

Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
the progress, scope, cost, duration or results of our development activities, nonclinical studies and clinical trials of mavorixafor (X4P-001), X4P-002 and X4P-003 or any of our other product candidates or programs, such as the target indication(s) for development, the size, design, population, conduct, cost, objective or endpoints of any clinical trial, or the timing for initiation or completion of or availability of results from any clinical trial, including our planned trials for mavorixafor in Warts, Hypogammaglobulinemia, Infections, and Myelokathexis, or WHIM, syndrome, severe congenital neutropenia, or SCN, and Waldenström macroglobulinemia, or WM, for submission or approval of any regulatory filing or for meeting with regulatory authorities;
the potential benefits that may be derived from any of our product candidates;
the timing of and our ability to obtain and maintain regulatory approval of our existing product candidates, any product candidates that we may develop, and any related restrictions, limitations, or warnings in the label of any approved product candidates;
our plans to research, develop, manufacture and commercialize our product candidates;
the timing of our regulatory filings for our product candidates, along with regulatory developments in the United States and other foreign countries;
our commercialization, marketing and manufacturing capabilities and strategy;

our ability to attract and retain qualified employees and key personnel;
our competitive position;
our expectations regarding our ability to obtain and maintain intellectual property protection;
our estimates and expectations regarding future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements or our need for additional financing;
our ability to raise capital; and
our strategies, prospects, plans, expectations or objectives.

In addition, any forward-looking statement in this Quarterly Report represents our views only as of the date of this Quarterly Report and should not be relied upon as representing our views as of any subsequent date. We anticipate that subsequent events and developments may cause our views to change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether because of new information, future events or otherwise, after the date of this Quarterly Report.


(In thousands, except share and per share amounts)
September 30, 2019December 31, 2018
Current assets:
Cash and cash equivalents$76,251  $8,134  
Research and development incentive receivable1,730    
Prepaid expenses and other current assets1,234  1,205  
Total current assets79,215  9,339  
Property and equipment, net348  241  
Right-of-use assets2,110  —  
Restricted cash755  364  
Total assets$109,537  $9,944  
Liabilities, Convertible Preferred Stock, Redeemable Common Stock and Stockholders’ Equity
Current liabilities:
Accounts payable$1,704  $2,969  
Accrued expenses5,697  3,251  
Current portion of lease liability878  —  
Current portion of long-term debt, net of discount  1,687  
Total current liabilities8,279  7,907  
Preferred stock warrant liability  4,947  
Long-term debt, including accretion, net of discount and current portion19,986  8,145  
Deferred rent—  417  
Lease liability2,147  —  
Other liabilities18  205  
Total liabilities30,430  21,621  
Commitments and contingencies (Note 10)
Convertible preferred stock (Series Seed, A and B), $0.001 par value; 10,000,000 and 59,413,523 shares authorized as of September 30, 2019 and December 31, 2018, respectively; 0 and 40,079,567 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
Redeemable common stock, $0.001 par value; 0 and 107,364 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
Stockholders’ equity (deficit):
Common stock, $0.001 par value. 33,333,333 and 11,070,776 shares authorized as of September 30, 2019 and December 31, 2018, respectively; 12,436,205 and 351,652 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
Additional paid-in capital200,421  2,151  
Accumulated other comprehensive income (loss)(119)   
Accumulated deficit(121,207) (79,237) 
Total stockholders’ equity (deficit)79,107  (77,086) 
Total liabilities, convertible preferred stock, redeemable common stock and stockholders’ equity (deficit)
$109,537  $9,944  
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

(In thousands, except per share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
Operating expenses:
Research and development$8,589  $6,158  $23,098  $15,657  
General and administrative4,383  2,387  13,726  5,374  
Loss on transfer of non-financial assets (Note 16)4,004    4,004    
Total operating expenses16,976  8,545  40,828  21,031  
Loss from operations(16,976) (8,545) (40,828) (21,031) 
Other income (expense):
Interest income464  51  927  187  
Interest expense(688) (148) (1,599) (484) 
Change in fair value of preferred stock warrant liability  45  (288) (264) 
Change in fair value of derivative liability  (5) 183  (411) 
Loss on extinguishment of debt(566)   (566)   
Other income (expense)52    201    
Total other income (expense), net(738) (57) (1,142) (972) 
Net loss(17,714) (8,602) (41,970) (22,003) 
Accruing dividends on Series A convertible preferred stock  (756) (592) (2,244) 
Adjustment to accumulated deficit in connection with repurchase of Series Seed convertible preferred stock
Net loss attributable to common stockholders$(17,714) $(9,358) $(42,562) $(24,269) 
Net loss per share attributable to common stockholders—basic and diluted
$(1.22) $(20.39) $(4.31) $(52.92) 
Weighted average common shares outstanding—basic and diluted
14,562  459  9,866  459  

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

(In thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
Net loss$(17,714) $(8,602) $(41,970) $(22,003) 
Other comprehensive loss
Currency translation adjustments(77)   (119)   
Total comprehensive loss$(17,791) $(8,602) $(42,089) $(22,003) 

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


(In thousands, except share amounts)
Series Seed, A and B
Convertible Preferred
Common Stock
Common StockAdditional
Accumulated Other Comprehensive
Income (Loss)
(Deficit) Equity
Balance at December 31, 201840,079,567  $64,675  107,364  $734  351,652  $  $2,151  $  $(79,237) $(77,086) 
Conversion of redeemable common stock into common stock
—  —  (107,364) (734) 107,364    733  —  —  733  
Conversion of convertible preferred shares into common stock
(40,079,567) (64,675) —  —  3,808,430  4  64,671  —  —  64,675  
Exchange of common stock in connection with Merger
2,440,582  2  45,539  —  —  45,541  
Fair value of replacement equity awards—  —  817  —  —  817  
Reclassification of warrant liability to permanent equity
—  —  5,235  —  —  5,235  
Exercise of stock options16,483  —  113  —  —  113  
Stock-based compensation expense262  —  —  262  
Currency translation adjustments23  23  
Net loss—  —  (10,873) (10,873) 
Balance at March 31, 2019—  —  —  —  6,724,511  6  119,521  23  (90,110) 29,440  
Issuance of common stock and warrants for the purchase of common stock, net of issuance costs of $931
5,670,000  6  79,291  79,297  
Exercise of stock options700  5  5  
Exercise of warrants33,846  440  440  
Stock-based compensation expense433  433  
Currency translation adjustments(65) (65) 
Net loss(13,383) (13,383) 
Balance at June 30, 2019—  —  —  —  12,429,057  12  199,690  (42) (103,493) 96,167  
Exercise of stock options7,148  40  40  
Stock-based compensation expense691  691  
Currency translation adjustments(77) (77) 
Net loss(17,714) (17,714) 
Balance at September 30, 2019—  —  —  —  12,436,205  $12  $200,421  $(119) $(121,207) $79,107  


(In thousands, except share amounts)
Series Seed, A and B
Convertible Preferred
Common Stock
Common StockAdditional
Accumulated Other Comprehensive
Income (Loss)
Balance at December 31, 201738,018,968  $60,903  107,364  $734  350,607    $1,385    $(45,930) $(44,545) 
Repurchase of Series Seed convertible preferred stock, net of issuance costs of $11
(598,975) (517) (22) (22) 
Stock-based compensation128  128  
Net loss(7,367) (7,367) 
Balance at March 31, 201837,419,993  60,386  107,364  734  350,607    1,513    (53,319) (51,806) 
Exercise of stock options1,045  7  7  
Stock-based compensation expense145  145  
Net loss—  (6,034) (6,034) 
Balance at September 30, 201837,419,993  60,386  107,364  734  351,652    1,665    (59,353) (57,688) 
Issuance of Series B convertible preferred stock, net of issuance costs of $5392,659,574  4,289  —  
Stock-based compensation expense198  198  
Net loss(8,602) (8,602) 
Balance at September 30, 201840,079,567  $64,675  107,364  $734  351,652  $  $1,863  $  $(67,955) $(66,092) 

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

(In thousands)
Nine Months Ended
September 30,
Cash flows from operating activities:
Net loss$(41,970) $(22,003) 
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense1,386  471  
Depreciation and amortization expense71  77  
Loss on transfer of non-financial assets (Note 16)4,004    
Non-cash lease expense416    
Accretion of debt discount584  80  
Loss on extinguishment of debt566    
Change in fair value of preferred stock warrant liability288  264  
Change in fair value of derivative liability(183) 411  
Changes in operating assets and liabilities:
Prepaid expenses, other current assets and research and development incentive receivable290  631  
Accounts payable(3,131) 209  
Accrued expenses(595) 1,174  
Lease liabilities(540) —  
Net cash used in operating activities(38,814) (18,686) 
Cash flows from investing activities:
Cash, cash equivalents and restricted cash acquired in connection with the Merger26,406    
Proceeds from transfer of non-financial assets896  —  
Acquisition of property, equipment and intangible assets(91)   
Net cash provided by investing activities27,211    
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants605  7  
Proceeds from borrowings under loan and security agreements, net of issuance costs9,849    
Proceeds from issuance of Series B convertible preferred stock, net of issuance costs  4,461  
Repurchase of Series Seed convertible preferred stock  (1,126) 
Repayments of borrowings under loan and security agreement(9,368) (1,500) 
Proceeds from sale of common stock and warrants, net of issuance costs79,291    
Net cash provided by financing activities80,377  1,842  
Effect of exchange rate changes on cash, cash equivalents and restricted cash(266)   
Net increase (decrease) in cash, cash equivalents and restricted cash68,508  (16,844) 
Cash, cash equivalents and restricted cash at beginning of period8,498  27,048  
Cash, cash equivalents and restricted cash at end of period$77,006  $10,204  
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of property, equipment and intangible assets included in accounts payable$38  $  
Conversion of convertible preferred stock into common stock$64,675  $  
Conversion of redeemable common stock into common stock$734  $  
Conversion of convertible preferred stock warrants into common stock warrants$5,235  $  
Fair value of net assets acquired in the Merger$46,358  $  
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.


1. Nature of the Business and Basis of Presentation
X4 Pharmaceuticals, Inc. (formerly Arsanis, Inc.), together with its subsidiaries (the “Company”), is a clinical-stage biotechnology company focused on the research, development and commercialization of novel therapeutics for the treatment of rare diseases. The Company’s lead product candidate, mavorixafor (X4P-001), is a potential first-in-class, once-daily, oral inhibitor of CXCR4 and is currently in a Phase 3 clinical trial for the treatment of WHIM syndrome, a rare, inherited, primary immunodeficiency disease caused by genetic mutations in the CXCR4 receptor gene.  The Company is headquartered in Cambridge, Massachusetts.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with governmental regulations and the ability to secure additional capital to fund operations. Drug candidates currently under development will require extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
Merger with Arsanis
On November 26, 2018, Arsanis, Inc., a publicly held Delaware corporation (“Arsanis”), Artemis AC Corp., a Delaware corporation and a wholly-owned subsidiary of Arsanis (“Merger Sub”), and X4 Therapeutics, Inc. (“X4”) entered into an Agreement and Plan of Merger, as amended on December 20, 2018 and March 8, 2019 (the “Merger Agreement”), pursuant to which the Merger Sub merged with and into X4, with X4 surviving the merger as a wholly-owned subsidiary of Arsanis. The transactions described in the foregoing sentence may be referred to in these condensed consolidated financial statements as “the Merger.”
The transaction was accounted for as a reverse merger in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Under this method of accounting, X4 was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) the Company’s stockholders own a substantial majority of the voting rights in the combined organization, (ii) the Company designated a majority of the members of the initial board of directors of the combined organization and (iii) the Company’s senior management hold all key positions in the senior management of the combined organization. Accordingly, for accounting purposes, the business combination was treated as the equivalent of X4 issuing stock to acquire the net assets of Arsanis. As a result, as of the closing date of the Merger, the net assets of Arsanis were recorded at their acquisition-date fair values in the financial statements of the Company and the reported operating results prior to the business combination are those of the Company. In addition, transaction costs incurred by the Company in connection with the business combination have been expensed as incurred.
On March 13, 2019, Arsanis, X4 and Merger Sub completed the Merger pursuant to the terms of the Merger Agreement. Pursuant to the terms of the Merger Agreement, each outstanding share of X4’s common stock and preferred stock was exchanged for 0.5702 shares of Arsanis’s common stock (the “Exchange Ratio”). In addition, all outstanding options exercisable for common stock and warrants exercisable for convertible preferred stock of X4 became options and warrants exercisable for the same number of shares of common stock of Arsanis multiplied by the Exchange Ratio. In connection with the Merger, X4 changed its name to X4 Therapeutics, Inc. Following the closing of the Merger, X4 Therapeutics, Inc. became a wholly-owned subsidiary of the Company, which changed its name to X4 Pharmaceuticals, Inc. As used herein, the words “the Company” refers to, for periods following the Merger, X4 Pharmaceuticals, Inc. (formerly Arsanis, Inc.), together with is direct and indirect subsidiaries, and for periods prior to the Merger, X4 Therapeutics, Inc. (formerly X4 Pharmaceuticals, Inc.), and its direct and indirect subsidiaries, as applicable.
Immediately following the Merger, stockholders of X4 owned approximately 64% of the combined organization’s outstanding common stock. On March 14, 2019, the combined organization’s common stock began trading on The Nasdaq Capital Market under the ticker symbol “XFOR.”
Principles of Consolidation— The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including X4 Pharmaceuticals (Austria) GmbH, which is incorporated in Vienna, Austria and was

formerly named Arsanis Biosciences GmbH (“X4 GmbH”), and X4 Therapeutics, Inc. All significant intercompany accounts and transactions have been eliminated.
Reverse Stock Split— On March 13, 2019, immediately following the closing of the Merger, the Company effected a 1-for-6 reverse stock split of its common stock (the “Reverse Stock Split”). Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split. Unless otherwise noted, all references to common stock share and per share amounts have also been adjusted to reflect the exchange ratio of 0.5702.
Going Concern Assessment— In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. As of November 7, 2019, the issuance date of these condensed consolidated financial statements, the Company expects that its cash and cash equivalents will be sufficient to fund its forecasted operating expenses, capital expenditure requirements and debt service payments for at least the next twelve months from the date of these financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.
If the Company is unable to obtain funding, the Company will be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or pre-commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Statements— The condensed balance sheet at December 31, 2018 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying condensed consolidated financial statements are unaudited. The accompanying unaudited interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2018. In the opinion of management, all adjustments, consisting only of normal recurring adjustments as necessary, for the fair statement of the Company’s condensed financial position, condensed results of its operations and cash flows have been made. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.
Use of Estimates— The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the valuation of intangible assets acquired in business combinations, the valuations of common stock prior to the Merger, the valuation of stock options, preferred stock warrants (and the resulting preferred stock warrant liability), derivative instruments (and the resulting derivative liabilities), and the preferred stock repurchase liability, valuation of lease liabilities and the constraint of variable consideration from revenue transactions. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Foreign Currency and Currency Translation— For the Company's subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current exchange rates as of the balance sheet date while income and

expenses are translated at the average exchanges rates for the period. Adjustments resulting from the translation of the financial statements of the Company's foreign operations into U.S. dollars are excluded from the determination of net loss and are recorded in accumulated other comprehensive loss, a component of stockholders' equity (deficit).
Concentrations of Credit Risk and Significant Suppliers— Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and research and development incentive receivables. The Company generally maintains cash balances in various operating accounts at financial institutions that management believes to be of high credit quality in amounts that may exceed federally insured limits. The Company has not experienced losses related to its cash and cash equivalents.
The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. The Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or in the supply of active pharmaceutical ingredients and formulated drugs.
Cash and Cash Equivalents— The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents consisted of money market funds as of September 30, 2019 and December 31, 2018.
Restricted Cash—
(in thousands)
As of September 30, 2019As of December 31, 2018
Letter of credit security: Cambridge lease (a)
$264  $264  
Letter of credit security: Waltham lease (b)
Letter of credit security: Vienna Austria lease (c)
Corporate credit card collateral (d)
150  100  
Total restricted cash (non-current)$755  $364  
(a)In connection with the Company’s lease agreement for its facility in Cambridge, Massachusetts, the Company maintains a letter of credit of $264 thousand, which is secured by restricted cash, for the benefit of the landlord.
(b)In connection with the Company's lease agreement for a facility in Waltham, Massachusetts, the Company maintains a letter of credit of $250 thousand, which is secured by restricted cash for the benefit of the landlord.
(c)In connection with the Company’s lease agreement for its laboratory and office facility in Vienna, Austria, the Company maintains a letter of credit of $91 thousand, which is secured by restricted cash, for the benefit of the landlord.
(d)As of September 30, 2019, and December 31, 2018, the Company was required to maintain a separate cash balance of $150 thousand and $100 thousand, respectively, to collateralize corporate credit cards with a bank.

In accordance with the Company’s Amended and Restated Loan Agreement with Hercules Capital, Inc. (“Hercules”) as further described in Note 8, the Company is required to maintain cash in an account accessible by the lender in an amount not less than 125% of the outstanding loan balance, or if the Company’s consolidated cash is lower than this amount, all of the Company’s cash other than $2.5 million. As of September 30, 2019, the Company maintained $25 million in an account accessible by the lender in accordance with the terms of Amended and Restated Loan Agreement.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the sum to the total of amounts shown in the Company’s condensed consolidated statement of cash flows as of September 30, 2019, December 31, 2018 September 30, 2018 and December 31, 2017: 

(in thousands)September 30, 2019December 31, 2018September 30, 2018December 31, 2017
Cash and cash equivalents$76,251  $8,134  $9,840  $26,684  
Restricted cash, non-current755  364  364  364  
Total cash, cash equivalents and restricted cash$77,006  $8,498  $10,204  $27,048  
Property and Equipment— Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
Estimated Useful Life
Office furniture3 years
Computer equipment3 years
Laboratory equipment3 to 10 years
Leasehold improvementsShorter of lease term or 10 years
Estimated useful lives are periodically assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the condensed consolidated balance sheet and any resulting gains or losses are included in the condensed consolidated statements of operations and comprehensive loss in the period of disposal. Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service.
Right-of-Use Assets and Leases— Effective January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”), Topic 842, Leases (“ASC 842”), using the modified retrospective approach through a cumulative-effect adjustment and utilizing the effective date as its date of initial application, with prior periods unchanged and presented in accordance with the guidance in Topic 840, Leases (“ASC 840”).
At the inception of an arrangement, the Company determines whether the arrangement contains a lease based on the unique facts and circumstances present. Leases with a non-cancellable term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew the lease. If a lease is cancellable without penalty, the Company excludes from the lease term periods following the cancellation notice period unless it is reasonably certain that the Company will not cancel the lease.
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use operating asset may be required for items such as incentives received or accrued rent. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates it incurs to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
In accordance with the guidance in ASC 842, components of a lease are split into lease components and non-lease components. A policy election is available pursuant to which an entity may elect to not separate lease and non-lease components. Rather, each lease component and the related non-lease components are accounted for together as a single component. For new and amended leases beginning in 2019 and after, the Company has elected to account for the lease and non-lease components as a combined lease component for its office and laboratory building leases.
Impairment of Long-Lived Assets— Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less

than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value. To date, the Company has not recorded any material impairment losses on long-lived assets.
Goodwill— Business combinations are accounted for under the acquisition method. The total purchase price of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, probabilities of success, discount rates, and asset lives, among other items. Assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. The Company has determined that it operates in a single operating segment and has a single reporting unit.
The Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit was less than its carrying amount. If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company would perform a quantitative impairment test.
The Company compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. The Company has determined there were no indicators of goodwill impairment as of September 30, 2019.
Intangible Assets— In connection with the Merger, the Company acquired certain IPR&D assets, which were classified as indefinite-lived intangible assets. Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires and have not been completed at the acquisition date. The fair value of IPR&D acquired in a business combination is recorded on the Company’s condensed consolidated balance sheets at the acquisition-date fair value and is determined by estimating the costs to develop the technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the projected net cash flows to present value. IPR&D is not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned or transferred to a third party.
The projected discounted cash flow models used to estimate the Company’s IPR&D reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:
Probability of successfully completing clinical trials and obtaining regulatory approval;
Market size, market growth projections, and market share;
Estimates regarding the timing of and the expected costs to advance the Company’s clinical programs to commercialization;
Estimates of future cash flows from potential product sales; and
A discount rate reflecting the Company's weighted average cost of capital and specific risk inherent in the underlying assets.
During the quarter ended September 30, 2019, the Company entered into an out-licensing arrangement with a third party that transferred the rights to develop and commercialize one of the programs underlying an IPR&D intangible asset. In addition, the Company entered into amended out-licensing option agreements with a third party who had previously entered into an option agreement with Arsanis to license the rights to develop and commercialize two other programs underlying the IPR&D intangible assets. Following the amendment to these option agreements, the options were exercised by the third party and the in-process research and development programs were out-licensed to the third party. As of September 30, 2019, all programs' underlying IPR&D intangible assets acquired in the Merger were transferred to these third parties and the Company has no

continuing involvement in any ongoing research and development activities associated with the programs. As a result of the transfer of the IPR&D projects to third parties, the Company derecognized the IPR&D intangibles asset through a charge to "loss on transfer of non-financial assets" during the third quarter of 2019. See Note 16.
Deferred Rent— The Company’s lease agreements include payment escalations and lease incentives (including a leasehold improvement tenant allowance). For periods prior to January 1, 2019, these payments were accrued or deferred as appropriate such that rent expense was recognized on a straight-line basis over the respective lease terms. Effective January 1, 2019, upon the adoption of ASC 842, deferred rent was reclassified as a reduction to the applicable right-of-use asset as further described in Note 9.
Fair Value Measurements— Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
Prior to the Merger, the Company’s preferred stock warrant liability, derivative liability and preferred stock repurchase liability were carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above (see Note 5). The Company’s cash equivalents, consisting of money market funds invested in U.S. Treasury securities, are carried at fair value, determined based on Level 2 inputs in the fair value hierarchy described above. The carrying values of the Company