Rubius Therapeutics
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K(Mark One)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 001-38586RUBIUS THERAPEUTICS, INC.(Exact name of registrant as specified in its charter)Delaware 46-2688109(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 399 Binney Street, Suite 300Cambridge, Massachusetts(Address of principal executive offices) 02139(Zip code) (617) 679-9600(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registeredCommon Stock, $0.001 Par Value NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ☒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 duringthe 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 thepast 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 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit suchfiles). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will notbe contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” inRule 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 orrevised 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 June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, there was no established public market for theregistrant’s common stock. The registrant’s common stock began trading on the NASDAQ Global Select Market on July 18, 2018. The aggregate market value ofcommon stock held by non-affiliates of the registrant computed by reference to the price of the registrant’s common stock as of July 18, 2018 (based on the lastreported sale price on the NASDAQ Global Select Market as of such date) was $718.9 million.As of February 28, 2019, the registrant had 79,529,965 shares of common stock, $0.001 par value per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2019annual meeting of shareholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 daysafter the registrant’s fiscal year end of December 31, 2018. Except with respect to information specifically incorporated by reference in this Form 10-K, the ProxyStatement is not deemed to be filed as part of this Form 10-K. Table of ContentsRubius Therapeutics, Inc.Table of Contents Page No. PART I Item 1. Business5Item 1A. Risk Factors66Item 1B. Unresolved Staff Comments126Item 2. Properties126Item 3. Legal Proceedings127Item 4. Mine Safety Procedures127 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities128Item 6. Selected Financial Data130Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations131Item 7A. Quantitative and Qualitative Disclosures about Market Risk146Item 8. Financial Statements and Supplementary Data147Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure179Item 9A. Controls and Procedures179Item 9B. Other Information179 PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation180Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters180Item 13. Certain Relationships and Related Transactions and Director Independence180Item 14. Principal Accountant Fees and Services180 PART IV Item 15. Exhibits and Financial Statement Schedules181Item 16. Form 10-K Summary183Signatures 1842 Table of ContentsFORWARD-LOOKING STATEMENTSThis Annual Report on Form 10‑K 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 factscontained in this Annual Report on Form 10‑K, including statements regarding our strategy, future operations, futurefinancial position, future revenue, projected costs, prospects, plan, objectives of management and expected market growthare forward-looking statements. You can identify these forward-looking statements by the use of words such as “outlook,”“believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,”“plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-lookingstatements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could causeactual outcomes or results to differ materially from those indicated in these statements. We believe these factors include butare not limited to those described under “Risk Factors” and include, among other things:·the success, cost and timing of our product development activities and clinical trials, including statements regarding thetiming of initiation and completion of studies or trials and related preparatory work, the period during which the resultsof the trials will become available, and our research and development programs;·our ability to advance any product candidate into or successfully complete any clinical trial;·our ability or the potential to successfully manufacture our product candidates for clinical trials or for commercial use, ifapproved;·our plans to renovate, customize and operate our recently purchased manufacturing facility;·the potential for our identified research priorities to advance our technologies;·our ability to maintain regulatory approval, if obtained, of any of our current or future product candidates, and anyrelated restrictions, limitations and/or warnings in the label of an approved product candidate;·the ability to license additional intellectual property relating to our product candidates and to comply with our existinglicense agreements;·our ability to commercialize our products in light of the intellectual property rights of others;·developments relating to cellular therapies, including red blood cell therapies;·the success of competing therapies that are or become available;·our ability to obtain funding for our operations, including funding necessary to complete further development andcommercialization of our product candidates;·the commercialization of our product candidates, if approved;·our plans to research, develop and commercialize our product candidates;·our ability to attract collaborators with development, regulatory and commercialization expertise;·future agreements with third parties in connection with the commercialization of our product candidates and any otherapproved product;·the size and growth potential of the markets for our product candidates, and our ability to serve those markets;3 Table of Contents·the rate and degree of market acceptance of our product candidates;·regulatory developments in the United States and foreign countries;·our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;·our ability to attract and retain key scientific or management personnel;·the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additionalfinancing;·the impact of laws and regulations;·our expectations regarding our ability to obtain and maintain intellectual property protection for our productcandidates;·our expectations regarding the period during which we qualify as an “emerging growth company” under the JumpstartOur Business Startups Act; and·our use of the proceeds from the initial public offering.All of our forward-looking statements are as of the date of this Annual Report on Form 10‑K only. In each case, actual resultsmay differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factorsor risks and uncertainties referred to in this Annual Report on Form 10‑K or included in our other public disclosures or ourother periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or theSEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except asrequired by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results,changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statementsoccurring after the date of this Annual Report on Form 10‑K, even if such results, changes or circumstances make it clear thatany forward-looking information will not be realized. Any public statements or disclosures by us following this AnnualReport on Form 10‑K that modify or impact any of the forward-looking statements contained in this Annual Report onForm 10‑K will be deemed to modify or supersede such statements in this Annual Report on Form 10‑K.4 Table of Contents PART IExcept where the context otherwise requires or where otherwise indicated, the terms “Rubius,” “Rubius Therapeutics,”“we,” “us,” “our,” “our company,” “the company,” and “our business” refer to Rubius Therapeutics, Inc. and itsconsolidated subsidiary. Item 1. BusinessWe are developing a new class of cellular medicines, Red Cell Therapeutics, or RCTs. Based on our vision that human redblood cells are the foundation of the next significant innovation in medicine, we have designed a proprietary platform togenetically engineer and culture RCTs that are selective, potent and ready‑to‑use cellular therapies. We believe that ourRCTs will provide life‑changing or life‑saving benefits for patients with severe diseases across multiple therapeutic areas.We have generated hundreds of RCTs using our RED PLATFORM, a highly versatile and proprietary cellular therapyplatform. We are utilizing our universal engineering and manufacturing processes to advance a broad pipeline of RCTproduct candidates into clinical trials in rare diseases, cancer and autoimmune diseases. Common design and manufacturingelements of our RCTs should enable us to achieve significant advantages in product development. We are establishingend‑to‑end manufacturing capabilities and plan to develop commercial infrastructure to further establish RubiusTherapeutics as a leading, fully integrated cellular therapy company.Our RED PLATFORM builds upon the research and findings of Flagship Pioneering’s VentureLabs innovation team alongwith the discoveries of Professors Harvey Lodish and Hidde Ploegh of the Whitehead Institute for Biomedical Research atMIT. This work demonstrated the ability to differentiate donor‑derived CD34+ hematopoietic precursor cells into enucleatedred blood cells, or RBCs, with unprecedented efficiency at a small, laboratory scale. Based on this foundation, FlagshipPioneering’s VentureLabs innovation team recognized the potential for RBCs as an optimal framework for cellular therapiesand invented methods to engineer RCTs to express biotherapeutic proteins within the cell or on the cell surface.Building upon these early discoveries, we have developed the RED PLATFORM, which enables us to engineer and cultureRCT product candidates with a wide array of biotherapeutic proteins and biological functions that enable their use acrossmultiple therapeutic areas. We have also invested considerably to scale the process of RCT manufacturing by acquiring ourown manufacturing facility, which we believe will allow for the production of large quantities of reliable and reproducibleRCT products from the initial stages of development through to commercial scale. We have and continue to build a broadportfolio of patent applications, know how, trade secrets, and other intellectual property that covers both our platformtechnologies as well as product discoveries, the breadth and depth of which is a strategic asset that could provide us withcompetitive advantages. As of February 28, 2019, we own or have an exclusive license under more than 100 patentapplications across 26 different patent families, and we own one issued U.S. patent related to the treatment ofphenylketonuria, or PKU.Although our RCT product candidates are in early stages of development and will require substantial resources todemonstrate technical feasibility and to establish clinical and regulatory validation, we believe that our RED PLATFORMcould provide beneficial treatments for our target indications, many of which have few, if any, effective treatments. Ourinitial focus will be advancing RCT product candidates with unique benefits for patients with rare diseases, cancer andautoimmune diseases based on three modalities — cellular shielding, potent cell‑cell interaction and tolerance induction. InMarch 2019, we announced that the FDA cleared our investigational new drug, or IND, application for our lead productcandidate, RTX-134, an RCT with the phenylalanine ammonia lyase (PAL) enzyme expressed within the cell for thetreatment of phenylketonuria. •Rare Diseases: We engineer RCTs that express potent enzymes within the cell for the treatment of patients suffering fromrare enzyme deficiency diseases. As they are located within the RCT, these enzymes are shielded from being neutralizedby the immune system, thereby allowing the enzymes to degrade and clear the pathogenic metabolites that build up insuch diseases. We believe these RCTs may have a longer and sustained treatment duration and could avoid theimmune‑driven reduction in efficacy and induction of adverse events associated with other therapies.5 ®Table of Contents•Cancer: We engineer RCTs to recapitulate human immunobiology via potent cell‑cell interaction by expressing hundredsof thousands of copies of one or more proteins on the cellular surface to drive enhanced and synergistic activation ofboth the adaptive and innate immune systems in an antigen-specific approach or by broadly stimulating both arms of theimmune system. We believe that these characteristics will translate into potent anti-tumor activity and limited off tissueadverse effects, because RCTs are generally confined to the vasculature and therefore, could be transformative therapiesfor patients with solid and hematological cancers.•Autoimmune Diseases: We engineer RCTs that express specific autoimmune disease associated antigens within the cell oron the cell surface in order to induce and restore immune tolerance. We believe these RCTs could prevent immunedamage that causes these diseases.Our product candidates are allogeneic, making them ready‑to‑use, and we expect them to have a predictable biodistributionand an approximate circulation time of up to 120 days, which should enable us to deliver well‑tolerated and convenientcellular therapies to a broad population.We are developing our initial RCT product candidates for PKU, a wide range of solid and hematological cancers andautoimmune diseases. In March 2019, we announced that the FDA cleared our IND for RTX‑134 for the treatment of PKU. Weexpect to begin enrolling patients for the Phase 1b clinical trial of RTX-134 during the second quarter of 2019, with initialdata expected during the second half of 2019. We expect to file our first oncology IND for RTX-240 for the treatment of solidtumors by early 2020. We are in the early stages of assessing our RCT product candidates for the treatment of autoimmunediseases. We plan to file four to five INDs by the end of 2020, with additional filings thereafter.Pending positive clinical data based on validated, approvable endpoints, we plan to advance these RCT product candidatesas well as a broader portfolio of rare disease, cancer and autoimmune therapies toward registration. We plan to seek orphandrug designation as well as pursue breakthrough therapy or Regenerative Medicine Advanced Therapy, or RMAT,designations for our RCT portfolio where appropriate, which we believe may shorten the time to market.Since we commenced operations in 2013, we have attracted a talented group of seasoned leaders to execute our strategy. Ourleadership team has more than 200 years of combined experience at pharmaceutical and biotechnology companies, has beeninvolved in filing more than a combined 80 INDs and 20 submissions for product approval and has launched more than 30pharmaceutical products. We have raised approximately $498 million in private and public financings to date. We have alsosecured a credit facility that provides for up to $75 million in additional capital.Utilizing RBCs to create cellular therapiesRBCs are the most ubiquitous cells in the human body, constituting over 80% of the body’s cells and playing a critical rolein the delivery of oxygen to tissues. To constantly replenish this population of critical cells, the human body generatesapproximately 2.5 million RBCs every second. RBCs represent the first example of a transformative cellular therapy asphysicians have been transfusing blood to patients since the early 1800s. Today, the focus around cellular therapies haslargely been directed toward T cell and other lymphocyte‑based therapies. We believe that RBC‑based therapies willtransform the cellular therapy landscape as they may represent the ideal cell type for the creation of versatile, well‑toleratedand ready‑to‑use cellular therapies. We believe such therapies could avoid many of the complications and risks oftenassociated with earlier generation cellular therapies, including the emerging category of T cell-based therapies. Thesedistinct characteristics of RBCs support their potential to serve as the foundation for a cellular therapy:•a predictable circulating time of approximately 120 days;•a well‑characterized and controllable biodistribution as RBCs are generally sequestered in the vasculature, spleen andliver. In exceptional cases, RBCs may enter the tumor microenvironment via leaky neo-vasculature;•the well‑established use of O negative blood as a universal source that can be administered to greater than 95% ofpeople;6 Table of Contents•the presence of certain surface markers, such as CD47, on RBCs provide what are referred to as “don’t eat me” signals,preventing the immune system from clearing RBCs from circulation; and•since RBCs are enucleated, they do not pose a risk of uncontrolled cell division or oncogenicity following transfusion.Today, blood transfusions remain one of the most commonly performed medical procedures, with approximately 85 millionunits of blood transfused worldwide each year. Significant infrastructure exists within most hospitals and outpatient infusioncenters worldwide to support the administration of blood and blood‑derived products. We intend to leverage thisinfrastructure to administer our products if approved.Our proprietary RED PLATFORMWe are pioneering the creation of a new transformative class of medicines that leverage the benefits of RBCs to providecellular therapies to patients with severe diseases across multiple therapeutic areas. As RBCs are enucleated, they havegenerally been considered simple oxygen delivery vehicles, rather than the backbone of a versatile cellular therapy platform.Past attempts at RBC‑based therapies, such as applying hypotonic loading or cell swelling to load an enzyme or protein intoRBCs, have had limited therapeutic applications, proven difficult to scale and reduced the in vivo half‑life of the loadedRBCs.Our discoveries and innovations in genetic engineering and cell culture processes have made it possible to now use RBCs asa foundation for the creation and development of a new class of cellular therapies. By modifying only one of our initialmanufacturing steps in which we add a gene or genes that encode biotherapeutic proteins within the cell or on the cellsurface of RCTs, we are able to rapidly develop new RCTs designed to treat different diseases. This approach allows for theconsistent generation of product candidates and a preclinical evaluation process that we believe has the potential to create abroad range of therapeutics in an efficient manner — for example, RTX‑134 required only nine months from product designto identification as our lead RCT product candidate. Our uniform approach should also enable us to leverage commonchemistry, manufacturing and controls, or CMC, and toxicology data packages to shorten development timelines. While theinitial focus of our RED PLATFORM will be in rare diseases, cancer and autoimmune diseases, we believe the versatility ofour platform will enable us to expand into broader therapeutic areas in the future.The RED PLATFORM allows us to generate a wide variety of allogeneic, ready‑to‑use RCT product candidates with auniversal and proprietary process through the following steps: (1) obtaining CD34+ hematopoietic precursor cells from theblood of O negative donors; (2) genetic engineering of the cells to express biotherapeutic proteins within the cell or on thecell surface of the RCTs; (3) expanding the number of cells and differentiating them into reticulocytes, which are enucleatedRBC precursors; and (4) formulating, characterizing and storing doses of the resulting RCT product candidate for laterinfusion into patients.7 Table of ContentsA significant advantage of differentiating the cells into reticulocytes is the ability to separate the genetic modification fromthe final RCT product candidate through the biological process of enucleation, a property unique to reticulocytes.Enucleation involves the ejection of the nucleus from the cell, and with it, all the DNA it contains, leaving behind an RCTthat expresses the protein or proteins that confer the intended therapeutic benefit. We believe this absence of genetic materialmay reduce the safety risks associated with RCTs as compared with current cellular therapies.Limitations of previous and current cellular therapiesThe field of tissue, cell and regenerative therapy has a long history, starting with blood transfusions in the early 1800s,followed by organ and bone marrow transplants in the middle of the 20 century and later the approval of cellular therapyproducts ranging from epidermal transplantation for wound care to mesenchymal stem cells for the treatment of graft versushost disease and dendritic cells for the treatment of prostate cancer.Most recently, several biotechnology companies and academic groups have demonstrated that a type of cell therapy knownas chimeric antigen receptor T cells, or CAR‑Ts, where a patient’s own T cells are genetically engineered to recognize andattack specific cancer cells, are capable of powerful and sometimes curative therapeutic effects. In addition, some groups arestudying the adoptive transfer and activation of T cell receptor, or TCR, -engineered T cells, and natural killer cells, or NKcells, for treatment of solid and hematologic cancers, while others are attempting to expand and engineer regulatory T cellsex vivo for the treatment of autoimmune diseases.A range of issues have historically limited the use of cellular therapies:•Limited therapeutic application: Given the specialized nature of these prior cellular therapies, they have been designedfor specific indications and lack the inherent flexibility to be applied broadly across multiple therapeuticareas.•Potentially serious side effects: Many previous and current cellular therapies can cause serious side effects, includingcytokine release syndrome, neurotoxicity and death. These alternative cellular therapies contain a nucleus and retain theability to expand and differentiate post‑injection, potentially raising concern of uncontrolled cell division andtransformation.•Unpredictable pharmacokinetics and biodistribution: Current cellular therapies have an uncertain lifetime post‑infusion.In some cases, the therapeutic benefits quickly wane. In others, the cells will continue to divide, expand and potentiallytransform unpredictably over an extended period of time. Additionally, these cellular therapies can extravasate in anuntargeted manner into healthy tissues throughout the body, which may result in severe adverse effects.•Costly manufacturing and delayed treatment: Most previous and current cellular therapies are autologous, meaning theymust be derived from a patient’s own cells to avoid rejection by the immune system. This results in a strictly customized,one‑to‑one manufacturing process for each individual patient, which is costly and difficult to scale, and involves acomplex supply chain that can delay treatment for critically ill patients. Moreover, this approach does not allow for anindustrialized effort that can be leveraged to rapidly develop additional product candidates.Advantages and versatility of our RED PLATFORM and RCTsOur discoveries and innovations in genetic engineering and cell culture processes allows us to leverage the inherent benefitsof RBCs. We believe our RED PLATFORM and RCTs represent a transformative step in the evolution of cellular therapies asthey are designed to confer desirable attributes for a next‑generation cellular therapy, including the following:•Broad therapeutic applications: We have engineered hundreds of RCTs to have therapeutic potential across many areas,such as rare diseases, cancer, autoimmune diseases, cardiovascular diseases, metabolic diseases and infectious diseases.These RCTs can be designed to express immune‑shielded enzymes or other proteins within the cell and8 thTable of Contentsdiverse proteins on the cell surface, including combinations of proteins for (1) potent cell‑cell interaction with T cells,NK cells or other cells; (2) tissue localization; and (3) induction of immune tolerance.•Advantageous tolerability: Since RCTs lack a nucleus, they possess no genetic material and do not divide followinginfusion into patients. As a result, we believe our RCT product candidates will pose less risk than those associated withother cellular therapies, which have caused cytokine release syndrome, neurotoxicity and death and carry the potentialrisk of inducing oncogenicity.•Ready‑to‑use cellular therapies: O negative donor blood is routinely used for blood transfusions and can be repeatedlytransfused into approximately 95% of people. Similarly, RCTs are produced from O negative donor blood stem cells andare therefore allogeneic, ready‑to‑use cellular therapies that we believe will be tolerated by almost allpatients.•Defined life in circulation and convenient dosing: RBCs have a circulating time of approximately 120 days. We expectour RCTs to benefit from this long circulation time, resulting in more consistent pharmacodynamics and convenientdosing regimens thereby improving compliance and real‑life efficacy. Furthermore, a single proposed RCT dose willconstitute less than 1% of normal red cells in a patient’s circulation.•Predictable biodistribution: RBCs normally reside only in the vasculature, the spleen and the liver and do not otherwiseextravasate into other healthy tissues. Biodistribution into the spleen allows for RCTs designed to stimulate the immunesystem to mount an attack against cancer, while biodistribution of RCTs expressing autoimmune disease‑causingantigens to specialized cells in the liver can induce tolerance and improve the signs and symptoms of autoimmunediseases. We anticipate that this predictable biodistribution will allow RCTs to trigger on‑target desired effects whileavoiding off‑tissue engagement.•Efficient product engine: Our RED PLATFORM provides a consistent product design and discovery approach wheresimply changing the added gene or genes that encode the biotherapeutic proteins that confer the intended therapeuticbenefit allows us to develop new product candidates targeting different diseases.•Scalable and flexible manufacturing: We manufacture RCTs in bioreactors that we intend to scale to thousands of liters.A single donor will allow us to manufacture up to hundreds to thousands of doses, depending on the therapeuticapplication. As a result, we expect the cost of goods sold for RCTs to be significantly lower than existing cellulartherapies, such as CAR‑Ts. We manufacture RCTs using well‑characterized and validated lentiviral vectors. Cellularengineering approaches, such as viral and non‑viral transduction systems and mRNA delivery, may also be applied toRCTs which may provide additional product benefits and cost advantages.Our strategyOur vision is to pioneer the creation of life‑changing or life‑saving and ready‑to‑use RCTs for patients with severe diseases.To achieve our vision, we are executing a strategy with the following key elements:Establish RCTs as a new class of cellular medicines, demonstrating their potential across three initial productcategories: rare diseases, cancer and autoimmune diseases. We apply a rigorous and capital‑efficient approach to prioritizeour product candidate pipeline, focusing on unmet need, feasibility, speed to proof‑of‑concept, easy‑to‑measure validatedendpoints and commercial potential. In March 2019, the FDA cleared our IND for RTX‑134 for the treatment of PKU. Weexpect to begin enrolling patients for the Phase 1b clinical trial of RTX-134 during the second quarter of 2019, with initialdata expected during the second half of 2019. In total, we plan to file a total of four to five INDs by the end of 2020, withadditional filings thereafter.Efficiently advance multiple additional RCTs as product categories are validated following positive earlyproof‑of‑concept. We expect that early clinical success of our initial RCT product candidates could translate to otherprograms within the product category, validating our approach and enabling a rapid and efficient expansion of our raredisease, cancer and autoimmune disease product categories. For example, positive early clinical proof‑of‑concept for9 Table of ContentsRTX‑134 will validate the benefits of our approach for treating rare enzyme deficiency diseases using cellular shielding ofpotent enzymes and support our ability to successfully develop additional RCTs within this product category.Pursue accelerated paths to marketing authorization. We are pursuing indications with high unmet medical needs that mayallow us to pursue accelerated paths to product registration, such as breakthrough therapy designation or RMAT designationby the FDA. Similarly, we expect to pursue accelerated routes to marketing authorization in Europe and other regions.Build a leading, fully integrated cellular therapy company. We are discovering, developing, manufacturing and maycommercialize RCT products within certain product categories. Following potential approval of multiple RCT products in aparticular category, we may leverage a dedicated commercial infrastructure to deliver our therapies to patients.Further strengthen our position as the pioneer of RCTs through continuous platform expansion and improvement. Ourproprietary RED PLATFORM allows us to rapidly identify new product candidates and includes a universal manufacturingprocess for all RCT product candidates. We will continue to invest in enhancing our platform and deepening our expertise instem cell and red cell biology and optimizing the pharmacology of RCTs with the goal of delivering new therapies targetingadditional indications. We plan to leverage our first‑mover advantage in manufacturing RCTs as we scale‑up our proprietarymanufacturing platform. To fully support later‑stage clinical development and commercial launch, we plan to ensure controlover our supply chain. As an initial investment in this strategy, we purchased a manufacturing facility and are in the processof renovating it to provide multi‑suite manufacturing capabilities.Expand patient access to RCTs through strategic partnerships. Given the breadth of the therapeutic opportunity for RCTs,we believe entering into select strategic partnerships in a subset of therapeutic areas may provide an attractive avenue forexpanding patient access to RCTs. The global reach and operational expertise within certain pharmaceutical companies maycomplement our growing organization in areas such as clinical operations and commercialization.Maintain a strong culture, continuously attract new talent and build the world’s leading center for red cell biologyresearch and engineering. We are located in one of the world’s leading hubs for biopharmaceutical innovation, whichenables us access to world‑class talent, leading academic investigators and key opinion leaders. We have leveraged ourlocation to attract scientific talent and experienced, innovative leaders and have built a strong culture that is committed todelivering on our vision. In addition, we have assembled a network of scientific advisors with deep expertise in red cellbiology, process development and manufacturing as well as clinical experience across the therapeutic areas that we areinitially targeting. We will continue to build a team of employees, advisors and collaborators with experience in thediscovery, development, manufacture and commercialization of cellular therapies.Initial therapeutic areas of focusBased upon the totality of scientific and preclinical work to date, we believe that RCTs have broad potential therapeuticapplications. Our initial focus will be advancing RCT product candidates with unique benefits for patients with rare diseases,cancer and autoimmune diseases based on three modalities — cellular shielding, potent cell‑cell interaction and toleranceinduction.10 Table of ContentsSelect RCT Modalities to Treat Rare Diseases, Cancer and Autoimmune DiseasesRare diseasesWe believe that RCTs may be used to treat certain rare diseases caused by a single genetic defect that results in theinactivation of a critical metabolic enzyme or bioactive protein. Manufacturing the missing protein or enzyme andadministering it to the patient may potentially correct this deficiency, but unfortunately many of these proteins or enzymesare highly immunogenic or poorly tolerated by patients, thereby limiting or, in some cases, preventing their therapeutic use.While biopharmaceutical companies are developing gene therapies for the treatment for several diseases caused by singlegenetic defects, this approach has historically been associated with unpredictable outcomes, including inconsistent efficacyand the potential for toxicity. In contrast, RCTs may provide the following benefits to patients suffering from rare diseases:•Highly active therapy through cellular shielding: RCT product candidates engineered to express enzymes and otherproteins within the cell, including poorly tolerated non‑human enzymes, effectively hide these proteins from theimmune system, thereby shielding them from being neutralized or causing severe adverse effects, such as anaphylaxis.We expect these cellular shielding RCT product candidates will provide well‑tolerated and predictable therapeuticbenefits, which may enable their chronic use and adoption as the preferred treatment option for a number of rarediseases.•Convenient dosing regimen: Based on RBCs’ approximate circulation time of 120 days, we expect our RCT productcandidates will have substantially longer half‑lives in patients compared to current treatments, many of which require adaily or weekly treatment regimen. This expected extended in vivo half‑life would allow for a more convenient dosingregimen of monthly to quarterly infusions, which may drive higher compliance with therapy and improve real‑lifeefficacy.Our initial RCT product candidates in rare diseases include RTX‑134 for the treatment of PKU. In March 2019, the FDAcleared our IND for RTX‑134 for the treatment of PKU. We expect to begin enrolling patients for the Phase 1b clinical trial ofRTX-134 during the second quarter of 2019, with initial data expected during the second half of 2019. We anticipateRTX‑134 will be followed by several additional programs including RTX-Uricase for the treatment of chronic refractory goutand RTX-CBS for the treatment of homocystinuria.11 Table of ContentsCancerWe believe that RCTs will have broad therapeutic applicability across a range of both solid and hematological cancers.Beyond standard chemotherapy and radiotherapy treatments that have historically been the mainstay of care, a growingnumber of small molecule, antibody, nanoparticle and cellular therapies are now being applied to the treatment of cancer.While extraordinary lifespan and quality of life gains have been made, many treatments fail to provide benefit to patients orthe disease relapses over time due to cellular escape mechanisms that make specific tumors unresponsive to these treatments.RCTs may provide the following benefits to cancer patients:•Immune activation via potent cell‑cell interaction: Our RCT product candidates have been engineered to broadlystimulate the adaptive and innate immune systems through T cell activation and NK cell activation, thereby stimulatingthese cells to attack and kill tumors. We have observed in vitro and in vivo that our RCT product candidates bind andactivate multiple existing and emerging immuno‑oncology targets. Due to both the natural presentation and the highcopy number of the expressed protein, which results in strong binding to cellular receptors, along with the ability toco‑express multiple proteins on the surface of each RCT, surface‑engineered RCTs may either (i) elicit potentimmunostimulatory effects in immunogenic tumors characterized by higher mutation rates, T cell infiltration orcheckpoint protein expression, or (ii) enable non‑immunogenic tumors to become immunogenic and then driveimmunostimulatory effects.•Antigen specific immune activation via cell surface antigen presenting: Other RCT product candidates of ours have beenengineered to express a tumor associated antigen, a co-stimulatory signal and a cytokine at the same time on the samecell. This represents a recapitulation of normal human immune biology and results in highly selective tumor cell killingand the generation and maintenance of T-cell memory.•Tumor starvation: We have developed RCT product candidates that express enzymes designed to deplete essential aminoacids from the tumor microenvironment. This approach can starve a fast‑growing tumor of a metabolite that is essentialfor its growth and proliferation. This approach has shown potential in certain pediatric cancers although enzymes usedfor this approach are often highly immunogenic and poorly tolerated. We believe that shielding these enzymes from theimmune system may reduce immunogenic side effects, prolong therapeutic exposure and thus lead to a more efficacioustherapy.•Tumor targeting and killing: Our RCT product candidates have been generated with high copy numbers oftumor‑binding and tumor‑killing proteins on their surface. By virtue of the high copy number and presentation of theseproteins via membrane attachment, we believe that these RCT product candidates will demonstrate high target bindingstrength on the surface of cancer cells to drive potent anti‑tumor responses. Selectively engaging immune cells in thevasculature may limit the on‑target/off‑tissue side effects seen with other immuno‑oncology therapies.Our first RCT product candidate in cancer is RTX-240 (formerly RTX-212), which we expect to initially study in patientswhose disease has progressed on checkpoint inhibitor therapy across a range of solid tumor types and in patients with acutemyeloid leukemia following hematopoietic stem cell transplant. Additionally, we are advancing our second product, RTX-224, in a similar setting, but with the added benefit of potentially addressing patient sub-populations with non-immunogenictumors. Finally, we are developing a number of RCTs that function as artificial antigen‑presenting cells. Our initial focus isfor the treatment of HPV16+ expressing tumors, including head and neck and cervical cancer, among others. We plan tofollow this with a range programs that could target viral antigens, cancer/testis, or CT, antigens and neoantigens.Autoimmune diseasesOur RCT product candidates have shown potential in preclinical studies for the treatment of autoimmune diseases. Availabletherapies for autoimmune diseases have significant limitations because these therapies are required to be administered on achronic, lifelong basis. Many treatments fail to provide adequate benefit to patients, and many patients’ diseases willeventually progress despite continued therapy. Furthermore, these existing treatments are associated with side effects thatinclude opportunistic infections, lymphoma and in some cases severe and even fatal infusion reactions. We believe RCTs canbe designed to more specifically modulate complex counter‑regulatory immune responses and enable greater efficacy withlower toxicity, potentially providing treatments for a number of diseases with12 Table of Contentshigh unmet need. Specifically, RCTs may provide the following benefits to patients suffering from autoimmune diseases:•Induction of peripheral tolerance: We believe the processing of RCTs that express autoimmune disease‑causing antigensby specialized cells in the liver can induce tolerance and improve the signs and symptoms of autoimmune diseases. Ourpreclinical data suggests that RBCs are capable of inducing peripheral tolerance to RBC‑bound antigens, which is theability to prevent these antigens from triggering dangerous responses to the body’s own tissues. We have observed thefeasibility of this approach in preclinical studies in models of neurodegeneration and diabetes and believe that manyproteins presented on RCTs should benefit from this tolerance induction. We believe our antigen-specific autoimmuneRCT product candidates have the potential to be curative therapies for antigen‑induced autoimmune diseases, includingType 1 diabetes.•Cytokine neutralization: The high copy number and thereby high local density of a binding protein on the surface of anRCT enables efficient sequestration and neutralization of soluble targets in circulation. This may also limit off‑targeteffects by confining the binding protein to the vasculature through expression on the RCT cell surface. In preclinicalstudies, we have observed the ability of RCTs to bind cytokines and foreign proteins with high affinity and therebyneutralize their function. For example, we have observed the ability of an RCT that expresses an anti‑TNF‑alpha proteinon its cell surface, to neutralize lethal doses of TNF‑alpha in preclinical studies.•Antibody clearance: High affinity capture of antibodies on RCTs could allow for effective neutralization and clearance ofpathological antibodies for the potential treatment of autoimmune diseases, such as idiopathic thrombocytopenia.Clearance may be enhanced when surface binding is complemented with a surface‑expressed protease, resulting in thedestruction of the pathological antibody. We have observed the ability of RCTs to bind to circulating antibodies both invitro and in vivo. We have also co‑expressed antibody binders and proteases on the surface of RCTs and observed thatthey are active.•Targeting and inhibiting immune cells: We have engineered RCTs to induce the activation of certain immune regulatorycells, which in turn alter the body’s general immune repertoire and restore the system to a tolerogenic state.We are currently assessing these RCT product candidates and expect to select our first clinical candidate for treatment ofautoimmune diseases in 2019.Our product candidate pipelineWe are building a broad and diverse pipeline of RCT product candidates in rare diseases, cancer and autoimmune diseases. InMarch 2019, the FDA cleared our IND for RTX‑134 for the treatment of PKU. We expect to begin enrolling patients for thePhase 1b clinical trial of RTX-134 during the second quarter of 2019, with initial data expected during the second half of2019. We expect to file a total of four to five INDs by the end of 2020, with additional filings thereafter. Our first productcandidates were selected based on: potential to address unmet medical needs; feasibility as determined by our preclinicalresearch and development efforts; potential to rapidly achieve proof‑of‑concept based on easy‑to‑measure validatedregulatory endpoints; and significant commercial potential.13 Table of ContentsAn overview of our programs and their status is illustrated below:Definitions: CBS—cystathionine beta synthase; OxOx—oxalate oxidase; αPD1—patients progressed on orrefractory to anti‑programmed death receptor 1 monoclonal antibody; R/R AML—acute myeloid leukemia; HSCT—hematopoietic stem cell transplant; HPV+—Human papilloma virus positive; APC—antigen presenting cellRare diseasesOur initial rare disease programs target enzyme deficiencies with limited treatment options. Our RED PLATFORM allows usto explore a broader range of human, non‑human, engineered and combinations of enzymes with higher activity than thoseavailable to companies developing native or pegylated products. Clinical trials in rare disease indications are of a relativelyshort duration, of modest size and employ validated biomarkers that can be used to highlight initial efficacy and supportproduct approval.RTX‑134 for treatment of phenylketonuriaIndication / opportunityPKU is caused by a deficiency of functional phenylalanine hydroxylase, or PAH, which is the enzyme that breaks downdietary phenylalanine, or Phe. Phe is an essential amino acid found in many foods including milk, eggs, meat and soybeans.Patients with PKU are unable to break down Phe and the resulting high levels of Phe can cause motor dysfunction,psychiatric disorders and irreversible brain damage.Newborn screening programs, which were implemented in the 1960s and 1970s, are used throughout the developed world toidentify children with PKU and, as a result, virtually all patients with PKU under the age of 40 have been diagnosed at birth.It has been estimated that the incidence of PKU in the United States is one in 12,707, which translates to approximately 300cases per year with an overall prevalence of 15,000. It has also been estimated that the prevalence14 Table of Contentsof PKU in the E.U. is 25,000. Worldwide, the estimated prevalence is more than 50,000. The clinical presentation of PKUranges from mild to severe, with blood Phe levels measured to determine disease severity. In Classic PKU, Phe levels are1,200 μmol/L or greater; in Moderate PKU, Phe levels range from 600 to 1,200 μmol/L; and in Mild PKU, Phe levels arebelow 600 μmol/L.Patients with Classic PKU comprise approximately 40% of all PKU patients in the United States, are at the greatest health riskand are the most difficult to treat. Typical symptoms in children with Classic PKU include seizures, behavioral problems anddelayed development. Without proper treatment, progressive motor dysfunction is inevitable. Studies have indicated that foreach 300 μmol/L rise in average Phe for those aged five to eight years, patient’s IQ fell by four to six points. Adults withClassic PKU exhibit a range of symptoms, including deterioration in executive function (such as language, memory,learning), attention deficit issues, depression, anxiety, impaired affect and autistic features and Parkinsonian‑like tremors.These manifestations of the disease result in a profoundly impaired quality of life and an inability to comply with treatment,potentially resulting in further deterioration of executive function.Patients with Moderate PKU represent approximately 20% of all PKU patients in the United States. They can often managetheir disease by adhering to a tightly restricted, protein free diet. However, if the disease is not managed diligently, thesepatients remain at risk of intellectual disability and are likely to exhibit signs of neuropsychological disturbances. Patientswith Mild PKU, who represent the remaining 40% of all U.S. PKU patients, are at a lower risk for impairments in executivefunction but may still benefit from treatment if Phe levels are above 120 μmol/L.Our initial target patient population for RTX‑134 will be patients with Phe levels greater than or equal to 600 μ mol/L.Limitations of current therapiesTreatment in the first decade of life is essential in realizing optimal clinical outcomes for PKU patients. The current mainstayof therapy for PKU is an extreme restriction of dietary Phe and requires that patients purchase expensive and unpalatablespecially formulated medical foods. Since breast milk contains Phe, pediatric patients are started on a low Phe regimen atbirth and plasma levels are monitored weekly until age five. In general, with great effort, parents are able to manage the dietof the youngest children with PKU and most are well controlled.Target Phe levels in adolescence and adulthood are less clear but it is generally accepted in the United States that patientswith Phe levels below 600 μmol/L are at lower risk of cognitive impairment over time. Guidelines suggest that dietaryrestrictions should continue indefinitely, however compliance tends to wane as patients age and enter school. Adolescentswith PKU may find it challenging to comply with the extreme dietary restrictions that are required to control their Phe levels,and since they are undergoing active neural maturation they are particularly at risk of cognitive impairment. Only a minorityof adult patients are well controlled based upon diet alone. Once dietary compliance falters, the odds that a patient will returnto treatment becomes less likely over time. In addition, the long‑term outcome of extreme protein restriction in patients is notclear and there are clinical studies ongoing to assess the impact on bone and renal health.Sapropterin dihydrochloride, or sapropterin, was the first therapy approved in the United States to treat PKU. Sapropterin isan oral synthetic version of BH4, a cofactor that is required for PAH activity. Administering this cofactor can be helpful forpatients with existing but ineffective PAH. Clinical data, however, suggests that sapropterin is not fully effective in loweringhigh serum levels of Phe back to normal levels and it must be used in conjunction with a low Phe diet. Sapropterin is used infewer than 15% of PKU patients, in part due to lack of efficacy in patients with more severe Classic PKU.Phenylalanine ammonia lyase, or PAL, is a naturally occurring enzyme that is primarily found in some plants and fungi andwhich converts Phe to ammonia and trans‑cinnamic acid, or TCA. TCA is subsequently converted to hippuric acid in theliver and cleared from the body through urinary excretion. Although administration of PAL has been shown to reduce Phelevels in preclinical studies and clinical trials of PKU patients, it has also been found to be highly immunogenic.15 Table of ContentsPegvaliase, a pegylated version of PAL, was approved in May 2018 by the FDA to reduce blood phenylalanineconcentrations in adult patients with phenylketonuria who have uncontrolled blood phenylalanine concentrations greaterthan 600 micromol per liter on existing management. However, in its registrational trials, neutralizing antibodies weredetected in 249 out of 284, or 88%, of the patients and many of the patients that participated in the first phase (PRISM 1)failed to reach the target of a 20% reduction in Phe, which was the entry criteria for the placebo‑controlled phase (PRISM 2).In addition, pegvaliase caused hypersensitivity reactions and anaphylaxis, which necessitated an extended tolerizationschedule resulting in months of delay to reach a therapeutic dose. The drug’s black box warning label indicates that the firstinjection should be administered under the supervision of a healthcare provider equipped to manage anaphylaxis, and thenshould be administered as a daily subcutaneous injection, which makes compliance with the treatment regimen difficult,particularly as patients go through this extended tolerization period. Physicians are instructed, per the black box warninglabel, to prescribe auto‑injectable epinephrine, and patients are instructed to carry one at all times while on therapy.Pegvaliase is priced at $488 per 20 mg/ml syringe wholesale acquisition cost, and BioMarin Pharmaceutical, Inc. expectsthat, when taking compliance and discounts into account, the cost per patient per year is expected to be $192,000. Even inthe absence of pegvaliase treatment, the cost of care for PKU patients can add up to more than $100,000 per year, which caninclude costs for medical foods and current therapies. Additional inpatient mental health and residential medical facility carefor patients can cost between $60,000 and $200,000 per year depending on the patient’s level of intellectual and functionaldisability. These are only the most significant direct costs and do not include the indirect economic impact of an impairedability to work or maintain meaningful employment.Overall, treatment options for the majority of Classic and Moderate PKU patients are limited. We believe that an RCTproduct candidate that expresses PAL has the potential to overcome the limitations of existing therapies and offer relief topatients suffering from PKU.Product candidate description and preclinical dataRTX‑134 is an RCT product candidate that we have genetically engineered to express PAL in the cytosol of the RCT. Weexpect RTX‑134 will reduce Phe to clinically meaningful levels through infrequent, low volume intravenous infusions. Weplan to apply for orphan drug designation for RTX‑134.In preclinical studies, we have observed that PAL is highly active when expressed in the cytosol of RTX‑134 as measuredboth by reduction in Phe and concomitant generation of TCA. We have also observed that Phe uptake into RTX‑134 is notrate limiting for its activity.In Vitro Reduction of High Levels of Phe and Concomitant Generation of TCA by RTX‑134 in Human Serum16 Table of ContentsIn preclinical mouse studies, we observed that PAL expressing murine RCTs, or mRCT‑GFP‑PAL, have a circulation time ofapproximately 50 days, which is equivalent to the normal circulating time of mouse RBCs. Based upon this finding, weexpect RTX‑134 to have an approximate circulating time of up to 120 days in PKU patients, the normal circulating time ofhuman RBCs.Circulation Time of mRCT‑GFP‑PALBased on available clinical data from PKU patients and our preclinical data, we have developed a pharmacodynamic modelfor RTX‑134 to project the RTX‑134 starting dose in the first clinical trial in PKU patients.Pharmacodynamic Model Informs PAL Activity Target for RTX‑13417 Table of ContentsClinical developmentIn March 2019, we announced that the FDA cleared our IND for RTX-134 for the treatment of PKU. We expect to beginenrolling patients for the Phase 1b clinical trial of RTX-134 during the second quarter of 2019, with initial data expectedduring the second half of 2019. The clinical objectives associated with our initial Phase 1b trial of RTX-134 are preliminarysafety; longevity of cells in circulation; production of trans-cinnamic acid, a biomarker of RTX-134’s mechanism of action;and preliminary dose and schedule.Following FDA review of the data from the Phase 1b trial, we plan to investigate multi-dose administration of RTX-134 tofurther evaluate safety and magnitude of Phe reduction which is a measure of efficacy in PKU trials. Assuming favorableresults from the planned multi-dose administration phase of the trial, we expect to advance RTX‑134 to a registrational trialand to begin a pediatric trial.RTX-Uricase for treatment of chronic refractory goutIndication / opportunityGout is a metabolic and inflammatory disease often affecting middle‑aged to elderly men and postmenopausal women. Afteryears of repetitive attacks, patients develop chronic refractory gout, which is characterized by the buildup of tophi, ordeposits of uric acid crystals in the joints, kidney and heart. Tophi can lead to the development of chronic arthritis and anincreased risk of developing kidney stones, chronic renal insufficiency and cardiovascular disease. Once patients reach thisstage, they generally suffer multiple attacks every year.The prevalence of gout increases with age and risk factors include insulin resistance, obesity, and a diet rich in meat andseafood. The number of patients diagnosed with gout in the United States is estimated to be approximately eight million andis increasing with population growth. In Europe, prevalence is equal or close to that in the United States at this time.Approximately 50,000 to 60,000 gout patients in the United States per year fail all therapy and are considered chronicrefractory.Limitations of current therapiesPatients who experience at least two attacks per year or present with tophi are considered candidates for uric acid‑loweringtherapy. Three classes of therapies are currently approved for decreasing uric acid levels: xanthine oxidase inhibitors,uricosuric agents and uricase agents.The first‑line standard of care for gout is xanthine oxidase inhibition, which blocks uric acid synthesis, and is an effectivetreatment option for many. For patients who require more control or who are contraindicated, the uricosuric agent, lesinurad,may be prescribed. Lesinurad is an oral inhibitor of URAT1, which is the transporter that mediates reuptake of uric acid fromthe proximal tubules of the kidney and drives renal elimination of uric acid. Lesinurad carries a black box warning associatedwith renal toxicity and is contraindicated in patients with renal impairment.Chronic refractory patients are candidates for pegloticase, which converts uric acid into allantoin, which is then excreted viathe kidneys. Pegloticase is the only currently approved uricase agent available for the treatment of chronic refractory gout.Pegloticase, while generally considered effective, has several shortcomings. It carries a black box warning for anaphylaxisand there have been serious cardiovascular events associated with pegloticase. Furthermore, its administration isinconvenient with patients having to undergo a four‑hour premedication/infusion process once every two weeks.The economic burden of chronic refractory gout is driven by a combination of emergency room visits, bedridden days andrecurring loss of economic productivity. Over time, the progression of the disease may result in long‑term disability. Beyondthese costs, patients with recurring attacks and higher serum uric acid levels also suffer high rates of hypertension, renalimpairment, chronic kidney disease, dyslipidemia and ischemic heart disease.18 Table of ContentsOverall, treatment options for the majority of the chronic refractory gout patients are limited. We believe that an RCTproduct candidate that expresses uricase has the potential to overcome the limitations of existing therapies and offer relieffrom debilitating pain to the tens of thousands of patients suffering from chronic refractory gout. Based on the expectedtolerability profile, RTX-Uricase may also have applications in a broader chronic gout population as prior lines of therapycarry black box safety warnings.Product candidate description and preclinical dataRTX-Uricase is an RCT product candidate that we have genetically engineered to express hundreds of thousands of copies ofuricase along with a uric acid transporter that ensures optimal uptake of uric acid into the cell. We expect that RTX-Uricasewill augment a patient’s ability to clear uric acid, meaningfully reduce uric acid levels in the blood, and reduce the frequencyof painful attacks and number of tophi. We also believe that the shielding of uricase in our RCT will avoid the safetyconcerns associated with the administration of pegloticase. We anticipate that RTX-Uricase will require monthly or lessfrequent dosing with low volume intravenous infusions. We plan to file for orphan drug designation given the small,well‑defined patient population and the unmet need.Similar to the clinical candidate development approach that we used for RTX‑134, we have developed a pharmacodynamicmodel for RTX-Uricase and have determined the target uricase activity needed to achieve clinically meaningful reductions inuric acid. As part of our lead development and optimization process, we have demonstrated that RCTs expressing uricase anda transporter meet the targeted expression and activity levels and have demonstrated co‑expression of uricase and atransporter for RTX-Uricase.Clinical developmentWe plan to study RTX-Uricase in patients with chronic refractory gout to determine the safety profile, appropriate RTX-Uricase dose and dosing interval needed to achieve serum uric acid of less than 6 mg/dL. At uric acid levels below 6 mg/dL,uric acid crystals do not form and crystals already formed begin to dissolve. This target goal for demonstrating efficacy inchronic treatment refractory gout patients has been accepted by the FDA and the EMA and was the basis for approval ofpegloticase.RTX‑CBS for treatment of homocystinuriaIndication / opportunityHomocystinuria refers to a group of enzyme deficiency disorders that result in elevated levels of circulating homocysteine, orHcy, and its metabolites. The majority of homocystinuria patients suffer mutations of a gene that regulates the production ofthe enzyme known as cystathionine beta‑synthase, or CBS, which is required for the conversion of Hcy to cystathionine.Homocysteine is a highly reactive amino acid that can cause lipid peroxidation and DNA damage, cellular metabolicdisruption, programmed cell death and immune activation, which all contribute to atherogenesis, or the formation ofabnormal plaques in the inner lining of blood vessels. Elevated levels of homocysteine result in a wide range of deformingand debilitating symptoms. By age three, failure to thrive is generally apparent and partial dislocation of the lens of the eyesand severe myopia are common. Without treatment, children may suffer from progressive and severe neurodegeneration. Inaddition, many of these children will develop psychiatric disturbances and experience seizures. A failure to effectively treatpatients over time can also result in aberrant musculoskeletal development, including Marfanoid features, characterized byabnormally long limbs and digits and scoliosis, or spinal curvature. Patients with homocystinuria suffer from extremehypertension and are at an elevated risk for the development of thromboembolisms. If untreated, approximately 50% ofpatients will have a thromboembolic event and the overall mortality rate is approximately 20% by age 30.The signs and symptoms of homocystinuria typically develop within the first year of life, but some mildly affected patientsmay not develop symptoms until later in life, particularly because this is a progressive disorder. Patient population estimatesrange widely, but the National Organization for Rare Disorders suggests a worldwide prevalence of 1:344,000, which whenapplied to the combined U.S. and E.U. population of 830 million would suggest an initial19 Table of Contentstreatment market of approximately 2,400 diagnosed patients in these regions. However, this is potentially anunderrepresentation of the true population size as the literature suggests that current newborn screening tests may not beadequately sensitive or specific. This suggestion is further reinforced by the fact that patients may present withthromboembolism later in life, without a prior diagnosis. Finally, studies based on genotyping rather than clinical diagnosisconducted in Europe suggest a much higher prevalence of potentially asymptomatic patients. The burden and cost of care forhomocystinuria is high as the major clinical manifestations of the disease include mental retardation, dislocation of the opticlens, skeletal deformity and potentially fatal thromboembolic crises.Limitations of current therapiesThe general therapeutic goal for homocystinuria is to reduce serum and cellular Hcy accumulation and thus limit thedevelopment of existing symptoms and prevent the onset of new symptoms. Early diagnosis, treatment and aggressive dietrestriction have been shown to slow the progression of disease as well as to reverse some of the symptoms. Treatment practicevaries widely and compliance with diet drops with age. High‑dose pyridoxine, or vitamin B6, is a treatment capable ofrelieving some clinical symptoms of disease for approximately half of all homocystinuria patients. Even for those for whom itis effective, though, it carries the significant limitations of requiring a moderately restrictive diet and the risk of overdosing.Meanwhile, patients who do not respond to vitamin B6 treatment remain subjected to a stringent protein restricted diet alongwith a methionine‑free amino acid formulation supplement, which they are often not able to maintain.An oral betaine anhydrous solution is the only approved drug for homocystinuria. Physicians’ use of betaine varies widely inpractice and there is preclinical data to suggest that patients become non‑responsive to betaine supplementation resulting inwaning efficacy over time.Overall, treatment options for most patients with homocystinuria are limited. We believe that an RCT product candidate thatexpresses CBS has the potential to overcome the limitations of existing therapies and offer relief to patients diagnosed withhomocystinuria and ultimately reduce the risk of thromboembolisms and cardiac events in those patients that present withoutsymptoms.Product candidate description and review of preclinical dataRTX‑CBS is an RCT product candidate that we have genetically engineered to express hundreds of thousands of copies ofCBS in the cytosol of the cell. We expect RTX‑CBS will replace the patient’s missing or ineffective enzymes and rapidlydrop total plasma homocysteine, or tHcy, levels to clinically meaningful targets through infrequent, low volume intravenousinfusions.Similar to RTX‑134 and RTX-Uricase, we have established a pharmacodynamic model to determine the target CBS activityrequired for clinical activity and to project clinical dose levels and frequency. Enzyme expression refinement in RTX‑CBS isstill ongoing and we are characterizing the transport of Hcy and serine into RTX‑CBS and secretion of cystathionine out ofthe cell to determine whether or not co‑expression of a transporter may be required.Clinical developmentOur target indication for RTX‑CBS will be the treatment of patients suffering from symptomatic homocystinuria who areunresponsive to vitamin B6 therapy. Pending confirmation by the FDA, we expect that reduction in plasma tHcy levels to bebelow 50 μM will be an acceptable primary endpoint for our clinical trials. We plan to evaluate RTX-CBS in patients withsymptomatic homocystinuria based on genetic confirmation of CBS mutation and plasma tHcy equal or greater than 100 μM.In such evaluation, our goal is to determine the safety profile, appropriate dose and dosing interval of RTX‑CBS necessary tomaintain plasma tHcy below clinical target levels. As the disease is primarily diagnosed in pediatric patients and can belethal, we will explore the potential for obtaining a rare pediatric disease priority review voucher from the FDA.20 Table of ContentsRare diseases discovery researchOur RED PLATFORM has generated RCT product candidates that shield immunogenic enzymes and express transporters ontheir surface. As a result, we believe that we can design RCTs to address many rare diseases where pathogenic metabolitesbuild up. We are using the same RCT product candidate development approach as applied for RTX‑134, RTX-Uricase andRTX‑CBS to develop a portfolio of RCTs for treatment of a range of rare diseases. One example is RTX‑OxOx, whichexpresses oxalate oxidase for the treatment of second‑line hyperoxaluria, a condition characterized by recurrent kidney andbladder stones, which can result in end stage renal disease in severe cases.CancerWe believe that RCTs will have broad therapeutic applicability across a range of both solid and hematological cancers andare developing a pipeline of RCTs that target T cells, NK cells, dendritic cells, tumor cells, or combinations thereof.Our lead product candidates for the treatment of cancer are RTX-240 (formerly RTX-212) and RTX-224. RTX-240 is a RCTthat co-expresses both 4‑1BBL and IL‑15TP, a fusion of IL‑15 and IL‑15 receptor alpha, which synergizes with 4‑1BBL toactivate and expand both T cells and NK cells. We expect to file an IND for RTX-240 by early 2020. RTX-224 is acombination RCT expressing both 4‑1BBL and IL‑12. IL-12 drives the proliferation of CD8+ and CD4+ T cells, as well asNK cells. In addition, the IL-12 cytokine is known to drive antigen presentation and inhibit angiogenesis. We believe thatboth product candidates provide potentially transformative and differentiated approaches to treating patients with solid orhematological tumors whose disease responds to immunotherapies, including CAR-T, as well as tumors that are or havebecome resistant or refractory to immunotherapies, including checkpoint inhibitors. We expect to initially study RTX-240 inpatients whose disease has progressed on checkpoint inhibitor therapy across a range of solid tumor types and in patientswith acute myeloid leukemia following a hematopoietic stem cell transplant. We expect to study RTX-224 in patients with arange of both immunologically active and immunologically inactive solid tumors.Additionally, we are advancing RCTs that function as artificial antigen presenting cells, or RTX-aAPCs. Our initial focus ison displaying tumor antigens fused to major histocompatibility complex class I, or MHC I, on the surface of RCTs that alsoexpress a costimulatory signal, such as 4‑1BBL and a cytokine such as IL-12 or IL-15. We expect to study one or more ofthese RTX‑aAPCs in patients with tumors that express these antigens. Our lead aAPC program targets HPV+ tumors, of whichhead and neck and cervical cancer are the most common. Treatment options for HPV16+ refractory and relapsing disease,including head and neck, and cervical cancer are limited, and our goal is to be able to offer patients a potent and highlyspecific immune stimulation. We are also exploring tumor‑targeted RCTs that co‑express 4‑1BBL and single‑chain variable fragments, or scFvs, that bindto tumor antigens. We expect tumor‑targeted RTX‑4‑1BBL to provide a potent, selective and potentially safe treatment forhematological tumors either as a monotherapy or in combination with existing adoptive cell therapies or checkpointinhibitors. RTX-240 and RTX-224Each of RTX-240 and RTX-224 have been engineered to act as combination therapies that stimulate both the adaptive andinnate arms of the immune system. We believe this synergistic activity has the potential to provide the following therapeuticbenefits:•Improved anti‑tumor activity through broad and sustained activation of the immune system: Both RTX-240 and RTX-224drive robust stimulation of both T cells and NK cells as 4‑1BBL and the cytokines (IL-15TP or IL-12) aresimultaneously presented in high copy numbers to these immune cells, thereby simulating a potent adaptive and innateimmune response. We expect this to result in improved response rates, progression free survival, or PFS, and overallsurvival, either as monotherapy or in combination with existing immunomodulatory therapies, such as checkpointinhibitors and CAR-T.•Prevention of resistance to immunotherapy: T cells recognize and kill cancer cells via MHC I. A recognized mechanism oftumor resistance to checkpoint inhibitors is loss of MHC I expression, which makes the cancer less21 Table of Contentssusceptible to T cell mediated killing. However, loss of MHC I makes the tumor susceptible to recognition and killingby the NK cells that have been expanded and activated by RTX-240. We, therefore, expect that RTX-240 used eitheralone or in combination with immunotherapies will prevent the emergence of resistance to T cell mediated killingthrough potent NK cell activation and expansion.•Efficacious in tumors that are resistant or refractory to immunotherapy: We expect RTX-240 to provide therapeuticbenefits to patients whose disease has progressed on checkpoint inhibitors. In these patients, we expect that RTX-240will promote tumor killing through NK cell and T cell activation and expansion. The addition of IL-12 to 4-1BBL, in thecase of RTX-224, is expected to drive the upregulation of T cell and NK cell activity, as well as angiogenesis inhibitionand antigen presentation. The latter is important when addressing tumors that do not respond to existingimmunotherapies. •Tolerability: We expect RTX-240 and RTX-224 to be confined to the vasculature, spleen and liver and, in some casesof leaky neo‑vasculature, the tumor itself. We believe this makes these product candidates less likely to triggeron‑target/off‑tissue effects. Direct systemic administration of cytokines, including IL‑15, IL-12 and other interleukins, iscurrently limited by safety and tolerability concerns, which result in a narrower therapeutic window.RTX-240 and RTX-224 for the treatment of solid tumorsCurrent therapies and their limitationsCheckpoint inhibitors, such as anti‑programmed death receptor‑1 antibodies, or anti‑PD‑1 antibodies, act by inhibiting tumorsuppression of the adaptive immune system in cancer patients and have significantly extended survival in multiple solidtumor types, particularly in patients with advanced cancers. The vast potential of checkpoint inhibitors is highlighted bymarket projections that estimate sales for this class of drugs could reach $50 billion in 2024. Despite the encouragingefficacy of checkpoint inhibition for some patients, overall response rates remain relatively low and range, on average, from25% to 50%. Unfortunately, even when patients do respond, many still progress within six to 12 months depending on thecancer and the therapeutic intervention. Clinicians and biopharmaceutical companies are increasingly evaluatingcombination therapies to improve response rates and to expand the size of the treatable population.Preclinical data for RTX‑4‑1BBLWe have observed that RTX‑4‑1BBL, which expresses 4‑1BBL on the cell surface, drives potent T cell activation as measuredby a standard in vitro assay in which intracellular signaling of NFkB, a protein complex that controls immune systemresponses, is measured using Jurkat cells, a human T cell line. As presented in the following chart, we observed activation upto 15‑fold more potent than the activation generated by the agonistic anti‑4‑1BB monoclonal antibody, utomilumab, whichothers have tested in cancer patients. We used RCT‑CTRL, a cultured red cell that does not express an active protein, as anegative control. Furthermore, we observed in this in vitro assay that increasing the copy number of the 4‑1BBL protein onRTX‑4‑1BBL results in a clear dose‑response for immune activation. We have therefore engineered the expression of 4‑1BBLon our RCT product candidates to maximize T cell activation.22 Table of ContentsNFkB Activation by RTX‑4‑1BBL in Jurkat CellsWe observed that RTX‑4‑1BBL stimulates primary CD8+ and CD4+ T cells to proliferate and become activated, as measuredby the production of two cytokines released by activated T cells that are central to the human immune response, interferongamma (IFNγ) and tumor necrosis factor alpha (TNFα). RTX‑4‑1BBL stimulated a four to six‑fold and two to three‑foldincrease in CD8+ and CD4+ T cells, respectively, and up to a three‑fold increase in IFNγ and TNFα production. In contrast,utomilumab alone did not stimulate any measurable proliferation and only minimal activation of T cells when compared toRCT‑CTRL. We believe that the potent T cell stimulating activity of RTX‑4‑1BBL is due to high expression of 4‑1BBL onthe cell surface in its natural, trimeric conformation, simulating the immune synapse that is formed between APCs and T cells.23 Table of ContentsIn Vitro Proliferation and Activation of Primary CD8+ and CD4+ T Cells by RTX‑4‑1BBLIn preclinical mouse studies, we have observed that a murine version of RTX‑4‑1BBL, or mRCT‑4‑1BBL, drove potentstimulation of CD8+ T cells and key subpopulations of CD8+ T cells, such as proliferating CD8+ memory T cells, CD8+effector T cells and Granzyme B+ CD8+ T cells, which are important for improved and sustained clinical response rates incancer patients. The data presented in the following charts suggests that mRCT‑4‑1BBL is sufficient to stimulate close tomaximal T cell activation and proliferation because the mRCT‑4‑1BBL drove similar levels of activation and proliferation ofCD8+ T cells in vivo as a 25‑fold higher dose of 3H3, an anti‑mouse 4‑1BB agonistic monoclonal antibody (α4‑1BB mAb).The negative controls phosphate buffered saline, or PBS, and a murine control RCT that does not express an active protein,or mRCT‑CTRL, did not stimulate in vivo proliferation of CD8+ T cells. We believe this data supports our belief that highexpression of 4‑1BBL on the cell surface in its natural, trimeric conformation, drives RTX‑4‑1BBL’s potent T cellstimulating activity.24 Table of ContentsIn Vivo Proliferation of CD8+ T cells and Subsets Thereof by mRCT‑4‑1BBLIn a mouse model of liver toxicity, we observed favorable tolerability of mRCT‑4‑1BBL. Levels of the liver enzymesaspartate transaminase, or AST, and alanine transaminase, or ALT, were not significantly elevated following administrationof mRCT‑4‑1BBL, as compared to administration of a mRCT‑CTRL. In contrast, we observed significant elevations of theliver enzymes after administration of α4‑1BB mAb. This indicates that the potent stimulation of CD8+ T cells we observed invivo with mRCT‑4‑1BBL was not accompanied by the liver toxicities that have been associated with administration of otheranti‑4‑1BB agonists.25 Table of ContentsLiver Toxicity in Mice of mRCT‑4‑1BBL Compared to α4‑1BB Agonist mAbPreclinical data for RTX 240 RTX-240 co‑expresses 4‑1BBL and IL‑15TP on the cell surface to stimulate both an adaptive and innate immune response.Using the Jurkat human T cell line, we observed potent T cell activation with RTX-240, as shown in the following chart.Importantly, we showed that the same level of T cell activation was not induced by molar equivalent doses of utomilumab.As expected, the control RCT, or RTX‑CTRL, was also inactive.26 Table of ContentsNFkB Activation by RTX-240 in Jurkat Cells Additionally, we have observed in vitro that RTX-240 can potently expand CD8+ T cells, NK cells and key subsets of thesecells to a substantially greater extent than RTX‑4‑1BBL or RTX‑IL‑15TP alone, as shown in the following charts. In theabsence of T cell stimulation with an anti‑CD3 antibody, we observed a synergistic effect from the combination of the4‑1BBL and IL‑15TP co‑expressed on RTX-240 in expanding both CD8+ memory (2.5 fold) and NK cells by approximately10-15 fold. This was substantially higher than utomilumab, rhIL‑15, and a combination of utomilumab and rhIL‑15.In Vitro Proliferation and Activation of CD8+ Memory Cells and NK Cells by RTX‑240 In a mouse model of liver toxicity, we observed no evidence of toxicity with mRCT‑240. Levels of aspartate transaminase, orAST, and alanine transaminase, or ALT, were not significantly elevated following administration of mRCT‑240, as comparedto administration of mRCT‑CTRL. In contrast, we observed significant transaminase elevations after administration ofα4‑1BB mAb. Liver infiltration with macrophages and CD8+ T cells are considered to be critical to 4‑1BBL‑induced livertoxicity. As expected, we observed increased liver infiltration with all of these cell27 Table of Contentspopulations following treatment with 4‑1BB agonist antibodies. There was no increased liver infiltration with any of thesecell populations following mRCT‑240 treatment. Liver Toxicity in Mice of mRCT‑240 Compared to α4‑1BB Agonist mAb 4‑1BB agonistic antibodies are believed to cause liver toxicity through a multi‑step process that begins with activation ofbone marrow‑derived monocytes, which subsequently infiltrate the liver, activating Kupffer cells and then CD8+ cells. Ourdata suggest that mRCT-240 does not stimulate the bone marrow derived monocytes, consistent with the hypothesis thatactivation occurs in the bone marrow, which has limited exposure to mRCT-240.Our in vivo studies of a murine surrogate of RTX-240, mRCT-240, administered intravenously, or i.v., in a B16F10 lungmetastasis mouse model provide further evidence in support of RTX-240. In this model, tumor cells were injectedintravenously to establish metastases in the lung and then mice were treated with mRCT-240 alone or in combination with ananti‑PD‑1 antibody. mRCT-240 administered i.v. as a monotherapy reduced tumor burden in mice compared to those treatedwith mRCT‑CTRL, mRCT‑4‑1BBL and mRCT‑IL‑15TP (left chart below), thereby indicating the potential synergy that maybe achieved by expressing both 4‑1‑BBL and IL‑15TP on the cell surface of mRCT-240. The tumor burden reduction thatwas observed after administration of α4‑1BB mAb was not significantly different from mRCT-240. However, the observedeffect of α4‑1BB mAb was at the same dose level that generated hepatotoxicity in mice. As mRCT-240 did not generate livertoxicity in mice, we believe that mRCT-240, if successfully developed and approved, may have an improved therapeuticindex, or improved risk‑benefit, over agonistic 4‑1BB antibodies in cancer patients. In a separate study mRCT-240administered i.v. in combination with the anti‑PD‑1 antibody significantly reduced tumor burden in mice compared to thosetreated with the negative control mRCT‑CTRL, as well as the anti‑PD‑1 antibody alone (right chart below).28 Table of ContentsActivity of mRCT-240 in a B16F10 Lung Metastasis Mouse ModelAdditionally, mRCT‑240 administered i.v. as a monotherapy or in combination with an anti‑PD‑1 antibody reduced tumorburden in a CT26 colon cancer mouse model. Treatment with the combination of mRCT‑240 plus anti‑PD‑1 resulted in ahigher number of mice with stable disease or tumor regression compared to mRCT‑240 or anti‑PD‑1 treatment alone. Theanti‑tumor activity that was observed after administration of α4‑1BB mAb at the same dose level that generatedhepatotoxicity in mice was not significantly different from mRCT‑240. As mRCT‑240 did not generate liver toxicity in mice,we believe that mRCT‑240, if successfully developed and approved, may have an improved therapeutic index, or improvedrisk‑benefit, over agonistic 4‑1BB antibodies in cancer patients. 29 Table of ContentsActivity of mRCT-240 in a CT26 Colon Cancer Mouse Model In summary, we have observed that the combination of 4‑1BBL and IL‑15TP on RTX-240 induces potent expansion andactivation of CD8+ T cells, NK cells, and key subsets of these cells. In addition, these RTX-240‑mediated effects were muchhigher than those obtained with utomilumab, rhIL‑15, and a combination of utomilumab and rhIL‑15, suggesting the synergyof the combination on RTX-240 for expanding key cell types from both the adaptive and innate arms of the immune system.This potent activity translated into efficacy of mRCT-240 administered in in vivo cancer models of lung metastasis and coloncancer both as a monotherapy and in combination with an anti‑PD‑1 antibody. mRCT-240 did not generate hepatotoxicity inmice while an agonistic 4‑1BB mAb did. As a result, we believe that co‑expression of 4‑1BBL and IL‑15TP on RTX-240, andthe sequestration of RTX-240 in the vasculature has the potential to drive potent anti‑tumor activity with an advantageoustolerability profile. We therefore believe that the ability of RTX-240 to stimulate both the innate and adaptive immunesystems will translate into therapeutic benefits for patients with solid and hematological cancers.Clinical developmentWhile checkpoint inhibitors have revolutionized cancer treatment, their limitations are becoming increasingly evident.Responses are confined to certain tumor types and only a limited portion of patients are cured. Currently, the challenge inimmunotherapy is to extend the efficacy of checkpoint inhibitors across more tumor types as well as increase the rate andduration of response. By stimulating both arms of the immune system, RTX-240 could be an ideal combination therapy forcheckpoint inhibitors to both improve and extend responses.The MHC complex is an important nexus in the immune system because it is the way T cells recognize and kill cancer cellsbut it also blocks the killing function of NK cells. A common means of resistance to checkpoint inhibitors is loss of MHCexpression making the cancer invisible to T cells but as a result it becomes susceptible to NK cell dependent killing. Initialclinical development of RTX-240 will include patient populations which have progressed on checkpoint inhibitor therapydue to loss of MHC expression.We are currently completing IND-enabling studies and plan to file an IND for RTX-240 for the treatment of solid tumors byearly 2020.We are planning to evaluate RTX-240 as monotherapy and in combination with an anti-PD1 antibody, including in patientswhose disease has progressed on checkpoint inhibitor therapy. We plan to identify and stratify patients whose disease haslost MHC expression. Tumor types that may be included are melanoma, non‑small cell lung cancer, renal30 Table of Contentscell carcinoma, bladder cancer, and head and neck cancer among others. Success in this population could lead to pivotalstudies and development in earlier lines of therapy. RTX-240 for hematological cancer: relapsing or refractory acute myeloid leukemia, post‑HSCTCurrent therapies and their limitationsAcute myeloid leukemia, or AML, is characterized by proliferation of myeloid blasts. They replace the bone marrow so thatthere is minimal production of platelets, red cells and neutrophils. It is primarily a disease of the elderly with a median age ofdiagnosis of 68. In 2017, there were more than 20,000 new cases of AML and more than 10,000 deaths caused by AML in theUnited States.Standard first‑line AML treatment has been unchanged for over 40 years: a regimen of intensive induction and consolidationtherapy. Although most patients respond, the majority relapse over time. Therefore, many younger patients with AMLundergo hematopoietic stem cell transplant, or HSCT, which can be curative if the transplant is successful. In 2016, morethan 3,500 AML patients underwent allogeneic‑HSCT in the United States and over 6,200 underwent the procedure inEurope.Recently, additional therapies have been approved for treatment of AML, such as gemtuzumab ozogamicin, CPX‑351, and,for patients with specific mutations, midostaurin and enasidenib. Although these therapies improve response rates and enablemore patients to bridge to transplant, overall survival rates remain low.Clinical developmentThe effectiveness of allogeneic HSCT depends on both the killing of residual tumor by high dose chemotherapy and on graftversus leukemia effects. NK cells are a critical component of the graft versus leukemia effect. After bone marrow ablation andallogeneic transplantation, NK cells are the first lymphocyte population to recover, but their killing and cytokine‑secretingfunctions are limited when compared to the NK cells of healthy donors. The rate of return and function of NK cells arecorrelated with treatment outcome post‑allogeneic HSCT, so increasing the number and function of NK cells post‑allogeneicHSCT to stimulate the graft versus leukemia effect has the potential to increase survival in patients receiving allogeneicHSCT for treatment of AML. As discussed above, 4‑1BBL and IL‑15TP induce proliferation and maturation of NK cells,supporting the testing of RTX-240 in the post‑allogeneic HSCT setting.We plan to evaluate RTX-240 in AML patients post‑allogeneic HSCT using the monotherapy dose determined in our initialPhase 1 trial of RTX-240 in solid tumors. Pending feedback from the FDA, we believe the primary endpoint will berelapse‑free survival.Preclinical data for RTX-224RTX-224,our second immunotherapy product candidate, has been shown to drive both T cell and NK cell activation andexpansion by simultaneously and proximately co-expressing IL-12 and 4-1BBL. Our in vivo studies of a murine surrogate of RTX-224, mRCT-224, administered subcutaneously in an MC38 colon cancermouse model provide evidence in support of RTX-224’s immune activation and tumor control. In this model, tumor cellswere injected to establish growing tumors and then mice were treated with a control mRBC alone, mRCT-224 alone, an anti-PD1 antibody in combination with mRBC-CTRL, or with mRCT-224 in combination with an anti‑PD‑1 antibody. mRCT-224 administered as a monotherapy reduced tumor burden in mice compared to those treated with mRBC‑CTRL with orwithout and anti-PD1 antibody. Tumor control was even more pronounced when mRCT-224 was combined with an anti-PD1antibody. These studies support the potential of RTX-224 as a potent monotherapy or combination therapy.31 Table of ContentsActivity of mRCT-224 in an MC38 Colon Cancer Mouse Model The potential of RTX-224 is further illustrated by the number of tumor regressions demonstrated in the same MC38 model. Inthis case, a regression is defined as a tumor volume below 50 cubic millimeters, as measured on day 11 postrandomization. mRCT-224 administered alone resulted in 5/11 tumor regressions, while mRCT-224 administered incombination with an anti-PD1 antibody resulted in 9/11 tumor regressions.Activity As Measured by Tumor Regression of mRCT-224 in an MC38 Colon Cancer Mouse Model We saw no evidence of toxicity with mRCT‑224. Levels of interferon gamma, or IFNg, and alanine transaminase, or ALT,were not significantly elevated following administration of mRCT‑224. In contrast, we observed significant interferongamma and transaminase elevations after administration of recombinant human interleukin 12, or rhIL-12.32 Table of ContentsLiver Toxicity in Mice of mRCT‑224 Compared to rhIL-12 Histopathological examination of liver sections from RTX-224 treated mice reveal no macrophage infiltration or tissueinflammation. This is in stark contrast to control mice treated with the murine 4-1BB antibody, 3H3, where significantmacrophage infiltration and tissue damage is evident. This difference between the treated and control groups was evidentboth with and without the co-administration of an anti-PD-1 antibody. Liver Macrophage Infiltration and Fibrosis in Mice Associated with mRCT‑224 as Compared to rhIL-12 33 Table of ContentsIn summary, we have observed that the combination of 4‑1BBL and IL‑12 on RTX-224 induces efficacy in in vivo cancermodels both as a monotherapy and in combination with an anti‑PD‑1 antibody. mRCT-224 did not generate hepatotoxicityin mice while the recombinant human cytokine IL-12 did. Nor did mRCT-224 generate liver damage, while a control 4-1BBantibody did. As a result, we believe that co‑expression of 4‑1BBL and IL‑12 on RTX-224, and the sequestration of RTX-224in the vasculature has the potential to drive potent anti‑tumor activity with an advantageous tolerability profile. We thereforebelieve that the ability of RTX-224 to stimulate both the innate and adaptive immune systems will translate into therapeuticbenefits for patients with solid tumors.Clinical developmentWhile checkpoint inhibitors have revolutionized cancer treatment, their limitations are becoming increasingly evident.Responses are confined to certain tumor types and only a limited portion of patients are cured. Currently, the challenge inimmunotherapy is to extend the efficacy of checkpoint inhibitors across more tumor types as well as increase the rate andduration of response. By stimulating both arms of the immune system, RTX-224 could be an ideal combination therapy forcheckpoint inhibitors to both improve and extend responses.IL-12 is known to drive the proliferation of T cells and NK cells. In turn, these activated T-cells drive antigenpresentation. This antigen presentation may enable us to target formerly non-immunogenic tumors by enhancing theirimmune signature.We are planning to evaluate RX-224 in solid tumors as monotherapy and in combination with an anti-PD-1 antibody. Wealso plan to study RTX-224 in patients whose disease has progressed on checkpoint inhibitor therapy. Success in thispopulation could lead to pivotal studies and development in earlier lines of therapy.RCTs functioning as artificial antigen presenting cells (aAPCs)We have created RCT product candidates that function as artificial APCs, or RTX‑aAPCs, with the potential to induceselective anti‑tumor killing by stimulating the immune system to target tumors in an antigen‑specific manner.RCTs permit us to present a variety of proteins in their native state and RTX‑aAPCs take advantage of this as they co‑expressan MHC that presents a tumor‑specific peptide, or signal 1, to the immune system together with a costimulatory protein, suchas 4‑1BBL, or signal 2, that stimulates the adaptive immune system. When co-expressed and delivered simultaneously andproximately, signal 1+2 promotes T cell activation/initial proliferation and potentially memory. A third cytokine signal canalso be added to increase T cell expansion further and support the maintenance of T cell memory.The action of the construct described mimics the normal T cell‑APC interaction via the T cell receptor, or TCR, and hasshown high levels of T cell expansion and activation in preclinical studies, as well as very specific tumor killing. CD8+cytotoxic T cells respond to antigens in association with MHC I molecules, and CD4+ helper T cells respond to antigens inassociation with MHC II molecules. MHC I and MHC II tumor antigen presentation combined with potent co‑stimulation hasthe potential to generate sustained tumor‑specific killing. Our lead aAPC program targets HPV+ tumors, of which head andneck and cervical cancer are the most common. Treatment options for refractory and relapsing disease are limited, and weexpect to be able to offer patients a potent and highly specific immune stimulation. 34 Table of Contents RTX‑aAPCs Mimic the APC‑T Cell Interaction to Provide Antigen Specific Cancer Therapies We have observed that murine RCT‑MHC I (ovalbumin) co‑expressed with 4‑1BBL on the cell surface, or mRCT‑aAPC(ova), activates ovalbumin‑specific T cells in vitro and in vivo, supporting the ability to potently and selectively expand andactivate an antigen‑specific T cell in a dose dependent manner (increasing cell number per dose from right to left in thefollowing charts) using our RCTs.Activation of Ovalbumin‑Specific T Cells with mRCT‑aAPC (ova)We have also observed that ovalbumin‑specific T cells, or OTI‑T cells, that are expanded and activated by mRCT‑aAPC (ova)selectively kill ovalbumin‑expressing tumor cells, or EG7.OVA cells, while the parental cells that do not express ovalbuminare not attacked and killed.35 Table of ContentsActivity of OT1‑T Cells Expanded With mRCT‑aAPC (ova)Furthermore, we have observed in vivo in mice that mRCT‑aAPC (ova) specifically expand and activate OTI‑T cells incirculation and in the spleen. Importantly, we find that the majority of the OTI‑T cells display a central memory phenotype,which has been found to be a key population driving the effectiveness of T cell based therapies. In addition, a largeproportion of these cells are found to traffic to lymph nodes, supporting their potential to effectively mobilize within thebody and to the tumor to support a robust anti‑tumor response. In contrast, mRCT‑4‑1‑BBL without MHC I (ovalbumin) onthe cell surface does not expand or activate OTI‑T cells, thereby indicating that mRCT‑aAPCs mimic the function of antigenpresenting cells in vivo. Proliferation of OT1‑T Cells Expanded With mRCT‑aAPC (ova) In The Lymph Node and SpleenAs noted above, OTI‑T cells, that are expanded and activated by mRCT‑aAPC (ova) selectively kill ovalbumin‑expressingtumor cells, or EG7.OVA cells. In the experiment depicted below, following tumor cell inoculation, animals treated withthree doses of mRCT-aAPC (ova) reduced tumor volume compared to those dosed with mRCT-CTRL. Control wasmaintained upon tumor cell re-challenge at day 35 by EG7.OVA and at day 85 by cells from the EL4 parental cell line,potentially implying the development of broad immunological memory. Further, there was a statistically significantdifference in survival between the treatment and control cohorts.36 Table of ContentsActivity of OT1‑T Cells Expanded With mRCT‑aAPC (ova)The ability to significantly expand and activate a tumor specific T cell population to kill tumors in vivo shares characteristicswith CAR‑T therapies which administer a tumor specific T cell population that can expand, sometimes uncontrollably, in thepatient. By controlling the RTX‑aAPC dose, we believe that we can more effectively control the expansion of the tumorspecific T cells and potentially the tolerability and effects of the therapy.The potential applications of RTX‑aAPCs span both solid and hematological cancers and there are many known tumorantigens common to certain cancers that can be targeted for development. Over the mid‑term, patient specific antigens can besequenced to create personalized therapies. We believe that this may provide a more reliable and scalable approach topersonalized cellular therapy. In addition to a program in HPV 16+ tumors, we are exploring the use of known tumorantigens, such as EBV, NY‑ESO‑1 and MAGE‑A peptides, as well as tumor neo-antigens to deliver more accessible andeffective treatments than standard vaccines or alternative neo‑antigen approaches.Cancer discovery researchOur RED PLATFORM provides significant potential to develop and advance a broad portfolio of RCTs for treatment ofcancer. In addition to the lead programs described above, we are evaluating RCT product candidates that target tumors byexpressing proteins that bind specifically to known tumor antigens, such as CD19, BCMA CD33, CD38 and CD123. Thesetumor antigen targeting RCT product candidates can be designed to kill tumors directly, to increase the persistence ofexisting CAR-T and TCR based therapies, or to starve and thereby kill tumors by degrading metabolites that are critical fortumor proliferation. In addition, we are evaluating a range of combinations of co‑stimulatory ligands, such as OX40‑L,ICOS‑L and GITR‑L, and cytokines, such as IL‑7, IL‑18 and IL‑21. We believe that these approaches may provide therapeuticbenefits to patients with solid or hematological cancers.Autoimmune diseasesRCT product candidates for the induction of antigen‑specific toleranceWe have generated RCT product candidates that express antigens within the cell, on the cell surface, or as presented by majorhistocompatibility complex II, and we believe that this represents a powerful antigen‑presenting platform for the potentialtreatment of autoimmune diseases, such as Type 1 diabetes. We are also exploring antigen independent approaches that holdthe potential to simulate specific regulatory cells which then target a range of autoreactive T cells. We believe that ifsuccessful, this approach will allow us to address a wide range of autoimmune diseases. We are currently assessing several tolerance inducing RCT product candidates and expect to select our first clinicalcandidate for treatment of autoimmune diseases in 2019. We anticipate that such product candidate will focus on anindication, such as pemphigus vulgaris, where treatment effects are easily measureable and proof-of-concept can bedemonstrated in an efficient manner.37 Table of ContentsCurrent therapies and their limitationsOver the past two decades, considerable progress has been made in the treatment of a range of autoimmune disorders withmany patients enjoying an improvement in quality of life as a result. Despite their success, current therapeutic approaches toautoimmune diseases are either generally or specifically immunosuppressive and expose patients to an increased risk ofopportunistic infection and hematological cancers, as is the case with JAK inhibitors, anti‑TNF antibodies and anti‑CD20targeted antibodies. In up to one third of cases, patients with autoimmune diseases fail to respond to treatment, and mostresponding patients ultimately lose response over time.While the triggers of most autoimmune diseases remain unknown, it is generally understood that clinical disease is the resultof a loss of tolerance to one’s own cells. The accepted model of disease assumes a genetic susceptibility triggered by anenvironmental event, which leads to a breakdown of T cell‑mediated immune suppression. In principle, restoration ofperipheral tolerance should provide patients with a partial or complete cure.A range of competitive approaches to peripheral tolerance restoration have been investigated over the last few decades.These include the oral administration and direct injection of a protein or peptide with or without immunosuppression, thecreation of peptide bearing nanoparticles and the adoptive transfer of engineered regulatory T cells. Thus far, theseapproaches have not proven to be successful in late‑stage clinical trials, but the field continues to progress. Directadministration of peptides and nanoparticles suffer biodistribution, stability, presentation and orientation challenges whichlimit the effectiveness of cell‑cell signaling. To date, adoptive transfer approaches are all autologous and are hampered bysome of the same handling and scalability issues that limit the application of other cellular therapies. By contrast, RCTbreakdown by antigen presenting cells in the liver is thought to recapitulate the normal process of self / non‑self recognitiontraining that would lead to tolerance induction. When compared with contemporary and historical approaches of toleranceinduction, RCTs could represent a clinically meaningful step forward.Preclinical dataIn a commonly used preclinical mouse model of neurodegeneration, the experimental autoimmune encephalomyelitis model,or EAE model, we have observed induction of peripheral tolerance using a murine RCT displaying the model‑specificantigen associated with neuronal demyelination, the MOG 35‑55 peptide. In the experiment depicted below, murineRCT‑MOG, or mRCT‑MOG, and control mouse RBCs were administered to mice at a disease score of one. ThemRCT‑MOG‑treated animals were brought back to an average disease score of zero, while control animals continued toprogress to limited disability. More significantly, as depicted in the second experiment, following treatment withmRCT‑MOG and control mouse RBCs at a disease score of three, indicating that the animals were paralyzed, we observed aremarkable recovery curve following treatment with murine RCT‑MOG. In effect, mice exhibiting paralysis were made towalk again.mRCT‑MOG Effect on Mice with Moderate EAE (Left) and Paralyzed EAE Mice (Right)38 Table of ContentsUpon examination of the histopathology, the difference in the damage to spinal cord tissue between the control and treatedmice was notable. In addition, treatment with mRCT‑MOG cells was found to dramatically reduce the infiltration ofpathogenic Th1 and Th17 CD4+ cells that have been shown to drive disease progression.Effect of mRCT‑MOG on Th1 and Th17 Cells in the Spinal Cord in EAE MiceIn further preclinical studies in EAE mice, we observed that mouse RBCs and mRCT‑MOG cells are taken up by antigenpresenting cells, such as dendritic cells (DC) and Kupffer cells within the liver, and that mRCT‑MOG upregulates PD‑L1, animmunosuppressive marker, on APCs, while control mouse RBCs do not. The above findings suggest that red blood celluptake into APCs promotes an immunosuppressive phenotype that then drives the reduction in pathogenic Th1 and Th17 Tcells in the spinal cord, thereby providing evidence for the mechanism of action for RCT‑driven tolerance induction.Effect of mRCT‑MOG in Immunosuppressive on the Phenotype of APCs in EAE MiceBeyond observations of therapeutic effects in this disease model, we have generated evidence of the development ofimmunologic memory following treatment with mRCT‑MOG, suggesting the possibility of a cure. Using the EAE animalmodel, mice were first treated with either mRCT‑MOG or control mouse RBCs on Days 5 and 17. Following a 40‑daywashout period after which the administered mouse RBCs were no longer in circulation, the EAE mice were re‑challengedwith MOG peptide to re‑stimulate an immune response. We observed a clear improvement in survival between themRCT‑MOG treated group and the control group, indicating that RCT‑MOG treated animals maintained immunologicalmemory which protected them from the re‑challenge.39 Table of ContentsSurvival of Previously mRCT‑MOG Treated EAE Mice After a Second MOG ChallengeThe ability of antigen‑presenting RBCs to drive tolerance induction in a preclinical model of Type 1 diabetes was recentlydemonstrated by our collaborators, Professors Hidde Ploegh and Harvey Lodish. In their study, NOD/ShiltJ mice, a straingenetically engineered to develop Type 1 diabetes after 10 to 13 weeks, were either treated with control RBCs or with RBCsthat displayed a peptide consisting of the amino acids 9‑23 of insulin B‑chain on the cell surface. All mice receiving controlRBCs became hyperglycemic while most mice receiving RBCs displaying the insulin peptide were protected from Type 1diabetes onset and remained normoglycemic.Overall, we and our collaborators have generated compelling preclinical evidence in support of applying antigen‑expressingRCT product candidates to induce antigen‑specific tolerance for the treatment of a range of autoimmune diseases.Autoimmune disease discovery researchBeyond developing RCTs that express one or more antigens for the treatment in antigen‑induced autoimmune diseases, weare exploring the potential to apply RCT product candidates to stimulate specific populations of regulatory T cells directlyand direct the immune system back to a more tolerogenic state. We have also created RCT constructs that clear lethal dosesof TNF‑alpha and botulinum toxin from the bloodstream of mice, suggesting that RCTs may also provide therapeuticbenefits to patients suffering from severe inflammatory diseases.ManufacturingWe have industrialized the production of RCTs by developing and scaling up a manufacturing process by whichhematopoietic progenitor cells are expanded, then genetically engineered and subsequently differentiated and matured intofully enucleated RCTs that express biotherapeutic proteins within the cell or on the cell surface. Our standard RCTmanufacturing process includes the following steps:(1)Donors are screened for infectious diseases according to regulatory guidelines and are typed for major bloodgroup antigens. O negative blood donors are selected and administered granulocyte colony stimulating factor to mobilizetheir bone marrow.(2)CD34+ hematopoietic precursor cells are isolated from universal donor blood, collected by apheresis andpurified.40 Table of Contents(3)These precursor cells are expanded and then transduced using a lentiviral vector encoding one or more chosenbiotherapeutic proteins.(4)The cells are then exposed to a defined media formulation to promote further expansion and differentiation untilthey differentiate and mature into enucleated reticulocytes. At this stage, the enucleated reticulocytes are RCTs that expressone or more biotherapeutic proteins in the cytosol or on the cell surface.(5)The RCTs are purified to separate the mature RCTs from nucleated erythroid precursor cells, formulated andstored at 4°C or frozen.A single donor will allow us to manufacture up to thousands of doses. With approximately 7% of the U.S. population havingan O negative blood type, we believe that there is ample supply of CD34+ hematopoietic precursor cells needed to produceour RCTs. Additionally, due to the inherent properties of RBCs, RCTS can be manufactured in large bioreactors using ourproprietary cell culture processes, which could result in the cost of goods sold being significantly lower than other cellulartherapies.The FDA has reviewed our RCT manufacturing process, including in‑process control parameters. Based on guidance from theFDA, we have established a path to production of current good manufacturing practices, or cGMP, grade product candidatesfor clinical use. We expect to be able to use the same or similar manufacturing processes for all our future RCT productcandidates, which would enable us to bring RCTs into clinical development in an accelerated manner.Based on our expertise in red cell biology and advice from leading hematologists and blood transfusion experts, we havedeveloped RCT product release criteria to determine the purity, viability, red cell identity and potency of each RCT batch.These release criteria have been reviewed and accepted for clinical use by the FDA.We are manufacturing RCTs in single use bioreactors, which enable us to control critical process parameters and therebyproduce consistent RCTs that meet the established product release criteria. We currently use external suppliers for lentiviralvector production but have established an internal lentiviral vector production process. We are currently working to furtherincrease yields and to scale into larger bioreactors.In addition to the standard RCT manufacturing process, we have developed alternative proprietary processes for engineeringhematopoietic precursor cells and maturing these into RCTs. These processes may be utilized in the production of futureRCTs.Suppliers and contract manufacturing organizationsWe have entered into a clinical supply agreement with a contract manufacturing organization, or CMO, located in the UnitedStates to produce cGMP grade RTX‑134 for our initial clinical trials and have successfully transferred our manufacturingprocess to this CMO. We have secured options for additional manufacturing suites for cGMP production of the RCT productcandidates that are projected to begin clinical trials in 2020. We anticipate that these arrangements will be sufficient for themanufacture of our product candidates until our planned manufacturing facility is established and operational.We have also entered into agreements with a supplier of cGMP grade plasmids for lentiviral production as well as a supplierof lentiviral vector. We have secured cGMP lentiviral vector production slots that we believe will be sufficient to supplyRTX‑134 drug product for our planned Phase 1b trial in PKU patients, and we are continually securing additional lentiviralproduction slots for the additional RCT product candidates that are projected to enter clinical trials.Expanding our manufacturing capacity and supply chainIn 2018, we acquired a 135,000 square foot GMP manufacturing facility in Smithfield, Rhode Island. We are in the process ofrenovating and customizing this facility to contain multiple RCT GMP manufacturing suites and lentiviral vector GMPmanufacturing suites. This will enable us to manufacture multiple RCTs as well as lentiviral vectors in a cGMP compliantmanner for the clinical supply and, if approved, expand capacity for commercial supply of our RCT41 Table of Contentsproduct candidates. We plan to utilize this facility to provide clinical supply for the pivotal trial of RTX‑134 and in parallelprovide clinical supply for additional clinical trials with other RCT product candidates. Intellectual propertyWe believe the breadth and depth of our intellectual property is a strategic asset that has the potential to provide us with asignificant competitive advantage. We strive to protect and enhance the proprietary technology, inventions andimprovements that are commercially important to our business, including seeking, maintaining and defending patent rights,whether developed internally or licensed from our collaborators or other third parties. Our policy is to seek to protect ourproprietary position by, among other methods, filing patent applications in the United States and in jurisdictions outside ofthe United States related to our proprietary technology, inventions, improvements and product candidates that are importantto the development and implementation of our business. We also rely on trade secrets and know‑how relating to ourproprietary technology and product candidates, continuing innovation and in‑licensing opportunities to develop, strengthenand maintain our proprietary position in the field of engineered red cell therapeutics. We additionally rely on dataexclusivity, market exclusivity and patent term extensions when available and plan to seek and rely on regulatory protectionafforded through orphan drug designations. Our commercial success may depend in part on our ability to obtain andmaintain patent and other proprietary protection for our technology, inventions and improvements; to preserve theconfidentiality of our trade secrets; to maintain our licenses to use intellectual property owned by third parties; to defend andenforce our proprietary rights, including our patents; and to operate without infringing on the valid and enforceable patentsand other proprietary rights of third parties.We believe that we have a strong global intellectual property position and possess substantial know‑how and trade secretsrelating to our proprietary product candidates, technology and platform, including related manufacturing processes andtechnology. As for our product candidates, platform, and the processes we develop and commercialize, in the normal courseof business, we pursue, as appropriate, patent protection or trade secret protection relating to compositions, methods of use,treatment of indications, dosing, formulations and methods of manufacturing. As of February 28, 2019, our patent portfolioconsists of 26 patent families, including one owned U.S. issued patent, two allowed U.S. patent applications, 42 owned orin‑licensed U.S. pending patent applications (including provisional applications), and 70 owned or in‑licensed pendingpatent applications in jurisdictions outside of the United States (including Patent Cooperation Treaty, or PCT, applications)that, in many cases, are counterparts to the foregoing U.S. patents and patent applications. Our objective is to continue toexpand our portfolio of patents and patent applications in order to protect our product candidates and certain aspects of ourRED PLATFORM and our manufacturing processes. Examples of the products and technology areas covered by ourintellectual property portfolio are described below.Disease‑related intellectual propertyThe disease‑related patent rights in our intellectual property portfolio relate to pathological conditions and disorders andprovide coverage for RCT product candidates to specifically address those conditions and the associated disease states. Thedisease‑related patent applications for our lead programs include those described below. Each of the disease‑related patentrights and applications described below are owned by us and are not licensed from any third party:RTX‑134 for phenylketonuriaOur RTX‑134 program targets phenylketonuria, for which we have developed an RCT product candidate that expressesphenylalanine ammonia lyase, or PAL, an enzyme that metabolizes phenylalanine.•This aspect of our patent portfolio relates to RCTs that express PAL, methods of treating diseases (e.g., phenylketonuria)that involve accumulation of phenylalanine and methods of making of RCTs that express PAL.•As of February 28, 2019, the patent rights relating to this technology include one issued U.S. patent related to methods oftreating phenylketonuria with RTX‑134, one allowed U.S. patent application related to methods of decreasing bloodphenylalanine levels with RTX-134, two pending U.S. patent applications and seven pending international patentapplications that have entered the National Stage (or the Seven National Stage Applications) related to RCTcompositions of matter, methods of treating elevated phenylalanine levels and method of making42 Table of ContentsRTX‑134. We expect the issued patent and patent applications in this portfolio, if issued, to expire in 2034, excludingany patent term adjustments or extensions.RTX-Uricase for chronic refractory goutOur RTX-Uricase program targets chronic refractory gout, for which we have developed an RCT product candidate thatexpresses uricase, an enzyme that metabolizes uric acid, and a uric acid transporter.•This aspect of our patent portfolio relates to RCTs that express uricase and other enzymes that degrade uric acid, methodsof treating diseases, for example, chronic refractory gout, that involve accumulation of uric acid, and methods of makingRCTs, including RTX-Uricase, that degrade uric acid.•As of February 28, 2019, the patent rights relating to this technology includes five pending U.S. patent applications(including provisional patent applications), and seven pending international patent applications that have entered theNational Stage (i.e., the Seven National Stage Applications) related to RCT compositions of matter, methods of treatingchronic refractory gout and methods of making engineered erythroid cells that express enzymes that degrade uric acid.We expect the patent applications in this portfolio, if issued, to expire between 2034 and 2039, without taking intoaccount any patent term adjustments or extensions we may obtain.RTX‑Cystathionine beta synthase (CBS) for homocystinuriaOur RTX‑CBS program targets homocystinuria, for which we have developed an RCT product candidate that expressescystathionine beta synthase, an enzyme that metabolizes homocysteine.•This aspect of our patent portfolio relates to RCTs that express CBS and other enzymes that reduce homocysteine levels,methods of treating homocystinuria, methods of reducing homocysteine levels and methods of making RCTs, includingRTX‑CBS, that reduce homocysteine levels.•As of February 28, 2019, the patent rights relating to this technology includes four pending U.S. patent applications(including provisional patent applications) and seven pending international patent applications that have entered theNational Stage (i.e., the Seven National Stage Applications) related to RCT compositions of matter, methods of treatinghomocystinuria and methods of making engineered erythroid cells comprising enzymes that reduce homocysteine. Weexpect the patent applications in this portfolio, if issued, to expire between 2034 and 2039, without taking into accountany patent term adjustments or extensions we may obtain.Additional rare disease intellectual propertyIn addition to our rare disease programs in PKU, chronic refractory gout and homocystinuria, our patent applications alsorelate to novel RCT compositions and their use for treating additional disorders that would benefit from enzyme replacementtherapy, including disorders in carbohydrate metabolism, amino acid metabolism, organic acid metabolism, mitochondrialmetabolism, fatty acid metabolism, purine‑pyrimidine metabolism, steroid metabolism, peroxisomal function and lysosomalstorage.We expect the patent applications in this portfolio, if issued, to expire in 2034 and 2039, without taking into account anypatent term adjustments or extensions we may obtain.RTX-240 and RTX-224 for certain oncology indicationsWe have developed RTX-240, an RCT product candidate that co‑express 4‑1BBL and IL‑15TP (a fusion of the cytokineIL‑15 and IL‑15 receptor alpha), for the treatment of patients suffering from hematological or solid cancers that have lostresponse to conventional therapies, including anti‑PD‑1 therapies or other immune-oncology therapies, and prevent theemergence of resistance to checkpoint inhibitors and other immune-oncology therapies. We have developed RTX-224, anRCT product candidate that co‑express 4‑1BBL and IL‑12, for the treatment of patients suffering from hematological or solidcancers that have lost response to conventional therapies, have failed to qualify for or respond to or have lost43 Table of Contentsresponse to immunotherapy, including anti‑PD‑1 therapies or other immune-oncology therapies, and to prevent theemergence of resistance to checkpoint inhibitors and other immune-oncology therapies.•This aspect of our patent portfolio relates to RCTs that express 4‑1BBL, RCTs that express IL‑15 or IL‑15TP, RCTs thatexpress IL-12, RCTs that co‑express 4‑1BBL and IL‑15TP, RCTs that co-express 4-1BBL and IL-12, methods ofactivating CD8+ T cells and NK cells, methods of treating cancer, methods of making RCTs that express 4‑1BBL andIL‑15TP, including RTX-240, and methods of making RCTs that express 4-1BBL and IL-12, including RTX-224.•As of February 28, 2019, the patent rights relating to this technology includes nine pending U.S. patent applications(including provisional patent applications) and 12 pending international patent applications that have entered theNational Stage related to RCT compositions of matter, methods of activating immune cells, methods of treatment andmethods of making RTX-240 and RTX-224. We expect the patent applications in this portfolio, if issued, to expirebetween 2037 and 2039, without taking into account any patent term adjustments or extensions we may obtain.Additional oncology intellectual propertyWe own disease‑related patent applications directed to RCTs for use in oncology, including immuno‑oncology. These patentapplications relate to RCT compositions that comprise a variety of agents, including anti‑tumor antibodies, tumor starvationenzymes, pro‑apoptotic proteins, costimulatory molecules, immune checkpoint inhibitors, tumor antigens, MHC moleculesand numerous combinations thereof. These patent applications also cover the use of RCTs to treat cancer, including lungcancer, melanoma, renal cancer, bladder cancer, gastric cancer, squamous cell carcinoma, Hodgkin lymphoma, hepatocellularcarcinoma, Merkel cell carcinoma, colorectal cancer and acute myeloid leukemia, as well as various relapsed or refractorycancers.These disease‑related patent applications include patent applications directed to RCTs that function as artificialantigen‑presenting cells. These applications cover RCTs expressing combinations of MHC, antigen and a costimulatorymolecule, methods of activating an antigen‑specific T cell and methods of treating cancer by inducing a tumor‑specificimmune response.We expect the patent applications in this portfolio, if issued, to expire between 2034 and 2038, without taking into accountany patent term adjustments or extensions we may obtain.Autoimmune disease intellectual propertyWe own disease‑related patent applications directed to RCTs for use in treating autoimmune diseases. These patentapplications relate to RCT compositions having autoimmune antigens, anti‑cytokine antibodies, agents for cleavingautoimmune antibodies and numerous combinations thereof. The RCTs covered by these patent applications operate throughvarious mechanisms, including through induction of tolerance to self‑antigens, clearance of autoimmune antibodies from thebloodstream, clearance of cytokines from the bloodstream and inactivation of autoimmune antibodies. The patentapplications also cover the use of these RCTs to treat a number of diseases, such as pemphigus vulgaris, Type 1 diabetes,membranous nephropathy, autoimmune hepatitis, myasthenia gravis, celiac disease and neuromyelitis optica.We expect the patent applications in this portfolio, if issued, to expire between 2035 and 2038, without taking into accountany patent term adjustments or extensions we may obtain.Cardio‑metabolic disorders intellectual propertyWe own a disease‑related PCT application directed to RCT compositions and their use in treating cardiac disorders andmetabolic disorders, including diabetes, obesity heart failure, atherosclerosis and hemophilia. We expect that any nationalphase patent applications filed in connection with this PCT application, if issued, to expire in 2037, without taking intoaccount any patent term adjustments or extensions we may obtain.44 Table of ContentsInfectious disease intellectual propertyWe own disease‑related patent applications directed to RCT compositions and their use in treating infectious diseases, suchas a viral infection (e.g., cytomegalovirus or HIV) or a bacterial infection (e.g., bacteremia). We expect the patent applicationsin this portfolio, if issued, to expire between 2037 and 2039 without taking into account any patent term adjustments orextensions we may obtain.Platform‑related intellectual propertyIn addition to the disease‑related intellectual property, our intellectual property portfolio also includes know‑how and patentapplications directed to the RED PLATFORM and other technologies developed internally and exclusively in‑licensed fromthe Whitehead Institute for Biomedical Research, or WIBR, that relate to the engineering and culturing of RCTs. Exemplaryplatform technologies that are the subject of such patent applications include:•methods related to the in vitro production of enucleated red blood cells;•gene editing and transcriptional modulation systems for engineering RCTs;•targeted lipid nanoparticle compositions and RNA delivery techniques;•amplifiable nucleic acid constructs for optimizing protein production;•methods for chemically conjugating biotherapeutic proteins to cell surfaces; and•methods for increasing percent enucleation during RCT production.These platform technologies, and our intellectual property protection related thereto, are broadly applicable to our RCTproduct candidates.We continually assess and refine our intellectual property strategy as we develop new platform technologies and productcandidates. To that end, we are prepared to file additional patent applications if our intellectual property strategy requiressuch filings, or where we seek to adapt to competition or seize business opportunities. Further, we are prepared to file patentapplications, as we consider appropriate under the circumstances, relating to the new technologies that we develop. Inaddition to filing and prosecuting patent applications in the United States, we often file counterpart patent applications inadditional countries where we believe such foreign filing is likely to be beneficial, including but not limited to Australia,Brazil, Canada, China, Europe, Hong Kong, India, Israel and Japan.Individual patents extend for varying periods of time, depending upon the date of filing of the patent application, the date ofpatent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued forapplications filed in the United States are effective for 20 years from the earliest effective filing date. In addition, in certaininstances, a patent term can be extended to recapture a portion of the term effectively lost as a result of the FDA regulatoryreview period. The restoration period cannot be longer than five years and the total patent term, including the restorationperiod, must not exceed 14 years following FDA approval. The duration of patents outside of the United States varies inaccordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date.However, the actual protection afforded by a patent varies on a product‑by‑product basis, from country‑to‑country, anddepends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory‑relatedextensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.Trademark protectionAs of February 28, 2019, our trademark portfolio contains approximately 38 registrations and pending applications. For theRUBIUS THERAPEUTICS mark, we have pending applications in the United States, Canada and Brazil, as well as anInternational Registration designating China, the E.U., India, Japan and Russia. Under this International Registration, themark is pending in the E.U. and India, and registered in China, Japan and Russia. In addition, we have a U.S. trademarkregistration and a pending U.S. application for the RUBIUS mark. For the RCT mark, we have a pending U.S. application aswell as an International Registration designating China, the E.U., India, and Japan. Under this45 Table of ContentsInternational Registration, the mark is pending in China and Japan, and registered in the E.U. and India. In addition, we havea pending application for this mark in Canada. We also have pending U.S. and Canadian applications for the RED CELLTHERAPEUTICS mark as well as an International Registration designating China, the E.U., India, and Japan. Under thisInternational Registration, the mark is registered in Japan and pending in the other countries. We have a U.S. trademarkregistration for the RED PLATFORM mark, as well as an International Registration designating China, the E.U., India, Japanand Russia. Under this International Registration, the mark is registered in China, the E.U. and Russia, and pending in Indiaand Japan. In addition, we have a pending application for this mark in Canada. Finally, we have pending U.S. applicationsfor the RTX mark and the REALIZING THE POWER OF RED mark.Trade secretsWe may also rely, in some circumstances, on trade secrets to protect our technology and aspects of our platform. However,trade secrets are difficult to protect. We seek to protect our technology and product candidates, in part, by entering intoconfidentiality agreements with those who have access to our confidential information, including our employees,contractors, consultants, collaborators and advisors. We also seek to preserve the integrity and confidentiality of ourproprietary technology and processes by maintaining physical security of our premises and physical and electronic securityof our information technology systems. Although we have confidence in these individuals, organizations and systems,agreements or security measures may be breached and we may not have adequate remedies for any breach. In addition, ourtrade secrets may otherwise become known or may be independently discovered by competitors. To the extent that ouremployees, contractors, consultants, collaborators and advisors use intellectual property owned by others in their work for us,disputes may arise as to the rights in related or resulting know‑how and inventions. For this and more comprehensive risksrelated to our proprietary technology, inventions, improvements and products, please see the section on “Risk factors—Risksrelated to intellectual property.”LicensesIn January 2016, we entered into an exclusive license with WIBR that grants us an exclusive, worldwide, sublicensablelicense under patent rights comprising two patent families to research, develop, make and commercialize products andprocesses covered by such patent rights for all uses, or the WIBR License. The WIBR License also includes an option to forus to exclusively negotiate with WIBR for a license to certain improvement technologies related to the licensed subjectmatter. The WIBR License was amended in December 2017 to grant us an exclusive license to the commercialization rightsunder a third patent family jointly owned by WIBR and Tufts University, or Tufts. The WIBR License was amended in July2018 to grant us an exclusive license to the commercialization rights under a fourth patent family owned by WIBR. As ofFebruary 28, 2019, the patent portfolio licensed from WIBR consists of one allowed U.S. patent application, and a total of 13pending U.S. and foreign patent applications. We expect these WIBR‑licensed patent applications, if issued, to expirebetween 2034 and 2038, without taking into account any patent term adjustments or extensions that may be obtained.The patent rights licensed to us under the WIBR License are directed, in part, to the in vitro production of RBCs and the useof the enzyme sortase to conjugate a protein of interest to the cell surface. We have certain diligence obligations under theWIBR License, which include using commercially reasonable efforts to develop and commercialize any products under thepatents and achieving certain milestones as further described in the WIBR License. Additionally, under certaincircumstances, we may in the future be obligated to negotiate in good faith field‑limited, non‑exclusive sublicenses to allowthird parties to exploit the patent rights licensed to us under the WIBR License to develop and commercialize products thatare not competitive with our products or product candidates.WIBR retains the right with respect to all four patent families licensed to us to (i) to practice the patent rights licensed underthe agreement for research, teaching and educational purposes, including sponsored research and collaboration, and (ii) togrant non‑exclusive licenses to academic and not‑for‑profit research institutes to practice under the patent rights for research,teaching and educational purposes (excluding sponsored research), while Tufts retains such rights only with respect to thepatent family that it co‑owns. Pursuant to a Defense Advanced Research Projects Agency agreement between WIBR and aglobal biopharmaceutical company, the biopharmaceutical company funded research resulting in one of the licensed patentfamilies and WIBR granted the right to retain a worldwide, irrevocable, non‑exclusive, royalty‑free right to use this patentfamily for research and development purposes. In addition, under the46 Table of ContentsWIBR agreement, the U.S. federal government retains a royalty‑free, non‑exclusive, non‑transferable license to practice anygovernment‑funded invention claimed in the patent rights, as set forth in 35 U.S.C. §§ 201‑211 and Executive Order 12591.As partial consideration for the license, we issued 366,667 shares of our common stock to WIBR. In addition, we paid WIBRan upfront payment and are required to pay annual license maintenance fees, creditable against royalties and milestonepayments. We are obligated to pay to WIBR low single‑digit royalties based on annual net sales by us, our affiliates and oursublicensees of licensed products and licensed services that are covered by a valid claim of the licensed patent rights at thetime and in the country of sale. On a country‑by‑country basis, upon expiration of the last valid claim of the licensed patentrights covering such licensed product or licensed service in such country, our license becomes royalty‑free, perpetual andirrevocable with respect to such country. Based on the progress we make in the advancement of products covered by thelicensed patent rights, we are required to make aggregate milestone payments of up to $1.6 million upon the achievement ofspecified preclinical, clinical and regulatory milestones. In addition, we are required to pay to WIBR a percentage of thenon‑royalty payments that we receive from sublicensees of the patent rights licensed to us by WIBR. This percentage variesfrom low single digits to low double digits and will be based upon the clinical stage of the product at the time of thesublicense.Under the WIBR License, WIBR controls the prosecution and maintenance of the patent rights licensed to us and we have theright to review and comment on such prosecution and maintenance. We have the first right to enforce the patent rightslicensed to us against third party infringers. We may terminate the WIBR License for convenience upon three months priorwritten notice to WIBR. WIBR may terminate the WIBR License upon written notice to us if we, along with our affiliates andsublicensees, cease to carry on business related to the WIBR License for more than six months. WIBR may terminate theWIBR License for our material breach that remains uncured for sixty days after receiving notice thereof, if we fail to payamounts due under the agreement within thirty days after receiving notice of such failure, or if we challenge the validity orenforceability of any of the licensed patent rights.CompetitionIn addition to the product specific competitors that are described for each of the initial targets we are pursuing, we haveidentified four companies that are leveraging the RBC as a platform. Erytech Pharma SA is using hypotonic enzyme loadingto create products for use in cancer, rare diseases and immunology. The company has completed a successful Phase 3 programin acute lymphoblastic leukemia, recently failed a Phase 2 trial in acute myeloid leukemia, and completed a successfulPhase 2 program in pancreatic cancer. We believe that there are three fundamental challenges with hypotonic loading:•The hypotonic loading process may be challenging to scale as it requires delivery of hypotonically loaded blood to thepatient within 72 hours of acquisition of the blood. Thus, while not autologous, it suffers from many of the shortcomingsof autologous therapy.•Therapeutic interventions are limited to agents that can be loaded into, as opposed to expressed on, the cell surface ofRBCs.•Hypotonic loading may damage the cell and impact circulating half‑life.There are three other companies that rely on loading of mature RBCs: Orphan Technologies Ltd., which is developing arange of products aimed at rare diseases; EryDel SpA, which is in late‑stage development of dexamethasone loaded RBCs forthe treatment of ataxia telangiectasia; and SQZ Biotechnologies, which is pursuing preclinical applications in cancer,enzyme replacement therapy and immune tolerance. Taking an alternative approach, Kanyos Bio, Inc. and Anokion SA aredeveloping proteins that, when injected, fuse in vivo to the RBC binding peptide glycophorin A. The applications arepreclinical, with a focus on peripheral tolerance induction.Outside of RBC‑based competition, there are companies developing engineered enzymes and specializing in rare diseases,such as Codexis, Inc., which has a product candidate in Phase 1 development for the treatment of PKU and AegleaBioTherapeutics, Inc., which has a product candidate in a Phase 1 trial for the treatment of hyperargininemia.47 Table of ContentsThere are a number of gene therapy companies, such as BioMarin Pharmaceutical, Inc., which has active gene therapyprograms that include a preclinical PKU product candidate, and Homology Medicines, Inc., which recently declared that it isin IND‑enabling studies with a gene therapy product candidate and expects to initiate a clinical trial in PKU in the firstquarter of 2019. Moderna, Inc. is in early preclinical work with an mRNA approach to addressing PKU. In addition,Synlogic, Inc. is one of several companies developing engineered probiotic therapeutics to treat inborn errors of metabolismand has a product candidate in a Phase 1 trial for the treatment of urea cycle disorders, as well as a Phase 1/2 program for thetreatment of PKU. Finally, Agios Pharmaceuticals, Inc. declared that they are in the early discovery stage with a smallmolecule approach to PKU treatment. In addition, we anticipate competing with the largest biopharmaceutical companies inthe world, such as Novartis AG, Gilead Sciences, Inc., Amgen, Inc., F. Hoffman‑La Roche AG (Roche), Johnson & Johnson,and Pfizer Inc., which are all currently conducting research in cellular therapies.Government regulationGovernment authorities in the United States at the federal, state and local level and in other countries regulate, among otherthings, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage,record‑keeping, promotion, advertising, distribution, post‑approval monitoring and reporting, marketing and export andimport of drug and biological products, such RTX‑134 and RTX-240, and any future product candidates. Generally, before anew drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained,organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.U.S. biological product developmentIn the United States, the FDA regulates biological products under the Federal Food, Drug, and Cosmetic Act, or FDCA, thePublic Health Service Act, or PHSA, and regulations thereunder. Biologics are also subject to other federal, state and localstatutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriatefederal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Failure tocomply with the applicable U.S. requirements at any time during the product development process, approval process orpost‑market may subject an applicant to administrative or judicial sanctions. These sanctions could include, among otheractions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warningletters, product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution,injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties. Any agency orjudicial enforcement action could have a material adverse effect on us.The FDA categorizes human cell‑ or tissue‑based products as either minimally manipulated or more than minimallymanipulated, and has determined that more than minimally manipulated products must be approved by the FDA through thebiologics license application, or BLA, process before they may be legally marketed in the United States. The process requiredby the FDA before a biologic may be marketed in the United States generally involves the following:•completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted inaccordance with good laboratory practice, or GLP, requirements;•submission to the FDA of an IND, which must become effective before human clinical trials may begin;•approval by an institutional review board, or IRB, or independent ethics committee at each clinical trial site before eachtrial may be initiated;•performance of adequate and well‑controlled human clinical trials in accordance with applicable IND regulations, goodclinical practice, or GCP, requirements and other clinical trial‑related regulations to establish the safety and efficacy ofthe investigational product for each proposed indication;•submission to the FDA of a BLA;48 Table of Contents•a determination by the FDA within 60 days of its receipt of a BLA to accept the filing for review;•satisfactory completion of an FDA pre‑approval inspection of the manufacturing facility or facilities where the biologicwill be produced to assess compliance with cGMP requirements and, if applicable, current Good Tissue Practices, orcGTP, to assure that the facilities, methods and controls are adequate to preserve the drug or biologic’s identity, strength,quality and purity;•potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the BLA; and•FDA review and approval of the BLA, including consideration of the views of any FDA advisory committee, prior to anycommercial marketing or sale of the biological product in the United States.The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and wecannot be certain that any approvals for RTX‑134 and RTX-240 and any future product candidates will be granted on atimely basis, or at all.Preclinical studies and INDPreclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studiesto assess safety and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject tofederal regulations and requirements, including GLP regulations for safety and toxicology studies.An IND is a request for authorization from the FDA to administer an investigational product to humans and must becomeeffective before human clinical trials may begin. An IND sponsor must submit the results of the preclinical tests, togetherwith manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, amongother things, to the FDA as part of an IND. An IND automatically becomes effective 30 days after receipt by the FDA, unlessthe FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical holdbefore such time. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trialcan begin. If the FDA’s concerns are not resolved, submission of an IND may not result in the FDA allowing clinical trials tocommence. With gene therapy protocols, if the FDA allows the IND to proceed, but a RAC decides that full public review ofthe protocol is warranted, the FDA will request at the completion of its IND review that sponsors delay initiation of theprotocol until after completion of the RAC review process.In addition to the IND submission process, sponsors of certain clinical studies of cells containing recombinant or syntheticnucleic acid molecules, including human gene transfer studies, must comply with the NIH’s Guidelines for ResearchInvolving Recombinant or Synthetic Nucleic Acid Molecules, or NIH Guidelines. The NIH Guidelines set forth the principlesand requirements for NIH and institutional oversight of research with recombinant or synthetic nucleic acid molecules,including the standards for investigators and institutions to follow to ensure the safe handling and containment of suchmolecules. In April 2016, modifications to the NIH Guidelines went into effect, pursuant to which only a subset of humangene transfer protocols are subject to review by the RAC. Specifically, under the modified NIH Guidelines, RAC review ofthe protocol will be required only in exceptional cases where an oversight body such as an Institutional BiosafetyCommittee, or IBC, which provides local review and oversight of research utilizing recombinant or synthetic nucleic acidmolecules, or an IRB determines that the protocol would significantly benefit from RAC review, and the protocol (a) uses anew vector, genetic material, or delivery methodology that represents a first‑in‑human experience and thus presents anunknown risk, and/or (b) relies on preclinical safety data that were obtained using a new preclinical model system ofunknown and unconfirmed value, and/or (c) involves a proposed vector, gene construct, or method of delivery associatedwith possible toxicities that are not widely known and that may render it difficult for oversight bodies to evaluate theprotocol rigorously. The RAC review proceedings are public, and reports are posted publicly to the website for the NIH’sOffice of Biotechnology Activities. Although compliance with the NIH Guidelines is mandatory for research conducted at orsponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, manycompanies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Independent of RACreview, the NIH Guidelines also require all human gene transfer protocols subject to the NIH Guidelines to be registered withNIH, with limited exemptions. A study subject to the NIH Guidelines may not begin until the IBC approves the protocol, andthe IBC cannot approve the49 Table of Contentsprotocol until confirmation from the NIH that such registration is complete. In the event that RAC review is warranted, theprotocol registration process cannot be completed until RAC review has taken place.Clinical trialsThe clinical stage of development involves the administration of the investigational product to healthy volunteers orpatients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’scontrol, in accordance with GCP requirements, which include the requirement that all research subjects provide theirinformed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, amongother things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parametersto be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol,must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRBfor each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in theclinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informedconsent form that must be provided to each clinical trial subject or his or her legal representative, and must monitor theclinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completedclinical trial results to public registries.A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization toconduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit datafrom the clinical trial to the FDA in support of a BLA or NDA. The FDA will accept a well‑designed and well‑conductedforeign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements, and theFDA is able to validate the data through an onsite inspection if deemed necessary.Clinical trials generally are conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.•Phase 1 clinical trials generally involve a small number of healthy volunteers or disease‑affected patients who areinitially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of theseclinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug.•Phase 2 clinical trials involve studies in disease‑affected patients to determine the dose required to produce the desiredbenefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possibleadverse effects and safety risks are identified and a preliminary evaluation of efficacy is conducted.•Phase 3 clinical trials generally involve a large number of patients at multiple sites and are designed to provide the datanecessary to demonstrate the effectiveness of the product for its intended use, its safety in use and to establish the overallbenefit and risk relationship of the product and provide an adequate basis for product labeling.Post‑approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. Thesetrials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certaininstances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of a BLA.Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to theFDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspectedadverse events, findings from other studies or animal or in vitro testing that suggest a significant risk for human subjects andany clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol orinvestigator brochure.Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDAor the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the researchsubjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or50 Table of Contentsterminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’srequirements or if the drug or biologic has been associated with unexpected serious harm to patients. Additionally, someclinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as adata safety monitoring board or committee. This group provides authorization for whether a trial may move forward atdesignated check points based on access to certain data from the trial. Concurrent with clinical trials, companies usuallycomplete additional animal studies and also must develop additional information about the chemistry and physicalcharacteristics of the drug or biologic as well as finalize a process for manufacturing the product in commercial quantities inaccordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batchesof the product and companies must develop methods for testing the identity, strength, quality and purity of the final product,among other things. Additionally, appropriate packaging must be selected and tested and stability studies must be conductedto demonstrate that the product candidates do not undergo unacceptable deterioration over their shelf life.BLA and FDA review processFollowing completion of the clinical trials, data are analyzed to assess whether the investigational product is safe andeffective for the proposed indicated use or uses. The results of preclinical studies and clinical trials are then submitted to theFDA as part of a BLA, a request for approval to market the biological product for one or more specified indications, alongwith proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data. Theapplication may include both negative and ambiguous results of preclinical studies and clinical trials, as well as positivefindings. Data may come from company‑sponsored clinical trials intended to test the safety and efficacy of a product’s use orfrom a number of alternative sources, including studies initiated by investigators. To support marketing approval, the datasubmitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to thesatisfaction of FDA. FDA approval of a BLA must be obtained before a biologic may be marketed in the United States.Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a user fee. The FDAadjusts the PDUFA user fees on an annual basis. According to the FDA’s fee schedule, effective through December 31, 2018,the user fee for an application requiring clinical data, such as a BLA or NDA, is $2,421,495. The sponsor of an approved BLAis also subject to an annual prescription drug program fee, which for fiscal year 2018 is $304,162. Fee waivers or reductionsare available in certain circumstances, including a waiver of the application fee for the first application filed by a smallbusiness. Additionally, no user fees are assessed on BLAs for products designated as orphan drugs, unless the product alsoincludes a non‑orphan indication.The FDA reviews all submitted BLAs before it accepts them for filing, and may request additional information rather thanaccepting the BLA for filing. The FDA must make a decision on accepting a BLA for filing within 60 days of receipt. Oncethe submission is accepted for filing, the FDA begins an in‑depth review of the BLA. Under the goals and policies agreed toby the FDA under PDUFA, the FDA has ten months, from the filing date, in which to complete its initial review of an originalBLA and respond to the applicant, and six months from the filing date of an original BLA designated for priority review. TheFDA does not always meet its PDUFA goal dates for standard and priority BLAs, and the review process is often extended byFDA requests for additional information or clarification.Before approving a BLA, the FDA will conduct a pre‑approval inspection of the manufacturing facilities for the new productto determine whether they comply with cGMP requirements and, if applicable, cGTP requirements. These are FDAregulations that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues,and cellular and tissue based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant,infusion, or transfer into a human recipient. The primary intent of the cGTP requirements is to ensure that cell and tissuebased products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicabledisease. FDA regulations also require tissue establishments to register and list their products with the FDA and, whenapplicable, to evaluate donors through screening and testing. The FDA will not approve the product unless it determines thatthe manufacturing processes and facilities are in compliance with cGMP and cGTP requirements and adequate to assureconsistent production of the product within required specifications. The FDA also may audit data from clinical trials toensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel products or productswhich present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians andother experts, for review, evaluation and a recommendation as51 Table of Contentsto whether the application should be approved and under what conditions, if any. The FDA is not bound byrecommendations of an advisory committee, but it considers such recommendations when making decisions on approval.The FDA likely will reanalyze the clinical trial data as part of the review process, which could result in extensive discussionsbetween the FDA and the applicant during the process.After the FDA evaluates a BLA, it will issue an approval letter or a Complete Response Letter, or CRL. An approval letterauthorizes commercial marketing of the drug or biologic with specific prescribing information for specific indications. ACRL indicates that the review cycle of the application is complete and the application will not be approved in its presentform. A CRL usually describes all of the specific deficiencies in the BLA identified by the FDA. The CRL may requireadditional clinical data, additional pivotal Phase 3 clinical trial(s) or other significant and time‑consuming requirementsrelated to clinical trials, preclinical studies or manufacturing. If a CRL is issued, the applicant may either resubmit the BLA,addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information aresubmitted, the FDA may decide that the BLA does not satisfy the criteria for approval. Data obtained from clinical trials arenot always conclusive and the FDA may interpret data differently than we interpret the same data.If regulatory approval of a product is granted, such approval will be granted for particular indications and may entaillimitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA witha Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is asafety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to havecontinued access to such medicines by managing their safe use, and could include medication guides, physiciancommunication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other riskminimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or thedevelopment of adequate controls and specifications. Once approved, the FDA may withdraw the product approval ifcompliance with pre‑ and post‑marketing requirements is not maintained or if problems occur after the product reaches themarketplace. The FDA may require one or more Phase 4 post‑market studies or surveillance to further assess and monitor theproduct’s safety and effectiveness after commercialization, and may limit further marketing of the product based on theresults of these post‑marketing studies. In addition, new government requirements, including those resulting from newlegislation, may be established, or the FDA’s policies may change, which could impact the timeline for regulatory approvalor otherwise impact ongoing development programs.Orphan drug designationUnder the Orphan Drug Act, the FDA may grant orphan drug designation to a biological product intended to treat a raredisease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the UnitedStates, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost ofdeveloping and making the product available in the United States for this type of disease or condition will be recovered fromsales of the product.Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, theidentity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designationdoes not convey any advantage in or shorten the duration of the regulatory review and approval process.If a product that has orphan drug designation subsequently receives the first FDA approval for the disease or condition forwhich it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approveany other applications to market the same drug for the same indication for seven years from the date of such approval, exceptin limited circumstances. A product will not be considered the “same drug” if it is clinically superior to a product that hasorphan drug exclusivity. Moreover, competitors may receive approval of either a different product for the same indication orthe same product for a different indication, but which could be used off‑label in the orphan indication. Orphan drugexclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before wedo for the same product, as defined by the FDA, for the same indication we are seeking approval, or if our product isdetermined to be contained within the scope of the competitor’s product for the same indication or disease. If one of ourproducts designated as an orphan drug receives marketing approval for an indication broader than that which is designated, itmay not be entitled to orphan drug exclusivity.52 Table of ContentsExpedited development and review programsThe FDA has several programs that are intended to expedite or facilitate the process for reviewing new drugs and biologicsthat meet certain criteria. Specifically, new biologics are eligible for fast track designation if they are intended to treat aserious or life‑threatening condition and preclinical or clinical data demonstrate the potential to address unmet medicalneeds for the condition. Fast track designation applies to both the product and the specific indication for which it is beingstudied. The sponsor can request the FDA to designate the product for fast track status any time before receiving BLAapproval, but ideally no later than the pre‑BLA meeting.Any product submitted to the FDA for marketing, including under a fast track program, may be eligible for other types ofFDA programs intended to expedite development and review, such as priority review and accelerated approval. Any productis eligible for priority review if it treats a serious or life‑threatening condition and, if approved, would provide a significantimprovement in safety and effectiveness compared to available therapies. The FDA will attempt to direct additional resourcesto the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate thereview.A product may also be eligible for accelerated approval if it treats a serious or life‑threatening condition and generallyprovides a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpointthat is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversiblemorbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. As a conditionof approval, the FDA may require that a sponsor of a drug or biologic receiving accelerated approval perform adequate andwell‑controlled post‑marketing clinical trials. If the FDA concludes that a drug or biologic shown to be effective can besafely used only if distribution or use is restricted, it will require such post‑marketing restrictions, as it deems necessary toassure safe use of the product.Additionally, a drug or biologic may be eligible for designation as a breakthrough therapy if the product is intended, aloneor in combination with one or more other drugs or biologics, to treat a serious or life‑threatening condition and preliminaryclinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies onone or more clinically significant endpoints. The benefits of breakthrough therapy designation include the same benefits asfast track designation, plus intensive interaction and guidance from the FDA. The breakthrough therapy designation is adistinct status from both accelerated approval and priority review, but these can also be granted to the same productcandidate if the relevant criteria are met. The FDA must take certain actions, such as holding timely meetings and providingadvice, intended to expedite the development and review of an application for approval of a breakthrough therapy. Allrequests for breakthrough therapy designation will be reviewed within 60 days of receipt, and FDA will either grant or denythe request.Fast track designation, priority review, accelerated approval and breakthrough therapy designation do not change thestandards for approval, but may expedite the development or approval process.Regenerative medicine advanced therapy designationAs part of the 21st Century Cures Act, Congress recently amended the FDCA to create an accelerated approval pathway forcertain regenerative medicine therapies, which include cell therapies, therapeutic tissue engineering products, human celland tissue products, and combination products using any such therapies or products. Regenerative medicine therapies do notinclude those human cells, tissues and cellular and tissue based products regulated solely under section 361 of the PublicHealth Service Act and 21 CFR Part 1271. The new program is intended to facilitate efficient development and expeditereview of RMATs, which are intended to treat, modify, reverse, or cure a serious or life‑threatening disease or condition.A sponsor may request that the FDA designate a drug as an RMAT concurrently with or at any time after submission of anIND. The FDA has 60 calendar days to determine whether the drug meets the criteria, including whether there is preliminaryclinical evidence indicating that the product has the potential to address unmet medical needs for a serious orlife‑threatening disease or condition. The FDA generally expects preliminary clinical evidence to be obtained from clinicalinvestigations specifically conducted to assess the effects of the therapy on a serious condition, which could53 Table of Contentsinclude well‑designed retrospective studies or clinical case series, as appropriate, but the RMAT designation does not requireevidence to indicate that the drug may offer a substantial improvement over existing therapies. Advantages of RMATdesignation include all of the benefits of the fast track and breakthrough therapy designation programs, including earlyinteractions with sponsors. In addition, a product that receives RMAT designation may be eligible for priority review, andthe FDA may grant accelerated approval to products that have RMAT designation based on (1) previously agreed‑uponsurrogate or intermediate endpoints that are reasonably likely to predict long‑term clinical benefit; or (2) reliance upon dataobtained from a meaningful number of sites, including through expansion to additional sites, as appropriate. Another benefitof RMAT designation is that may enable to the sponsor to meet post‑approval requirements beyond the completion oftraditional confirmatory clinical trials. The FDA has indicated that post‑approval requirements for RMATs receivingaccelerated approval can potentially be met through:•Clinical evidence, clinical studies, patient registries or other sources of real world evidence, such as electronic healthrecords;•The collection of larger confirmatory data sets; or•Post‑approval monitoring of all patients treated with such therapy prior to approval of the therapy.As with breakthrough designation, an RMAT designation is not the same as an approval and does not change the statutorystandards for demonstration of safety and effectiveness needed for marketing approval.Pediatric informationUnder the Pediatric Research Equity Act, or PREA, certain BLAs and certain supplements to a BLA must contain data toassess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to supportdosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grantdeferrals for submission of pediatric data or full or partial waivers. The Food and Drug Administration Safety and InnovationAct amended the FDCA to require that a sponsor who is planning to submit a marketing application for a drug that includes anew active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initialPediatric Study Plan, or PSP, within 60 days of an end‑of‑Phase 2 meeting or, if there is no such meeting, as early aspracticable before the initiation of the Phase 3 or Phase 2/3 trial. The initial PSP must include an outline of the pediatric trialor trials that the sponsor plans to conduct, including trial objectives and design, age groups, relevant endpoints andstatistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatricassessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supportinginformation. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to anagreed‑upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected frompreclinical studies, early‑phase clinical trials and/or other clinical development programs.Post‑marketing requirementsFollowing approval of a new product, the manufacturer and the approved product are subject to continuing regulation by theFDA, including, among other things, monitoring and record‑keeping activities, reporting of adverse experiences, complyingwith promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or patientpopulations (known as “off‑label use”) and limitations on industry‑sponsored scientific and educational activities. Althoughphysicians may prescribe legally available drugs for off‑label uses, manufacturers may not market or promote such uses.Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Further, if there areany modifications to the drug or biologic, including changes in indications, labeling or manufacturing processes or facilities,the applicant may be required to submit and obtain FDA approval of a new BLA or BLA supplement, which may require thedevelopment of additional data or preclinical studies and clinical trials.The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and MitigationStrategy, or REMS, to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the BLAmust submit a proposed REMS. The FDA will not approve the BLA without an approved REMS, if required. A54 Table of ContentsREMS could include medication guides, physician communication plans or elements to assure safe use, such as restricteddistribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketingcould restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may bewithdrawn for non‑compliance with regulatory standards or if problems occur following initial marketing.FDA regulations require that biological products be manufactured in specific approved facilities and in accordance withcGMP regulations and, in some cases, cGTP regulations. We rely, and expect to continue to rely, on third parties for theproduction of clinical and commercial quantities of our products in accordance with cGMP and cGTP regulations. Thesemanufacturers must comply with cGMP and cGTP regulations that require, among other things, quality control and qualityassurance, the maintenance of records and documentation and the obligation to investigate and correct any deviations fromcGMP or cGTP. Manufacturers and other entities involved in the manufacture and distribution of approved drugs orbiologics are required to register their establishments with the FDA and certain state agencies, and are subject to periodicunannounced inspections by the FDA and certain state agencies for compliance with cGMP and, if applicable, cGTPrequirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area ofproduction and quality control to maintain cGMP and cGTP compliance. Other post‑approval requirements applicable tobiological products, include reporting of cGMP deviations that may affect the identity, potency, purity and overall safety ofa distributed product, record‑keeping requirements, reporting of adverse effects, reporting updated safety and efficacyinformation, and complying with electronic record and signature requirements.After a BLA is approved, the product also may be subject to official lot release. As part of the manufacturing process, themanufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the productis subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with arelease protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s testsperformed on the lot. The FDA also may perform certain confirmatory tests on lots of some products, such as viral vaccines,before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to theregulatory standards on the safety, purity, potency, and effectiveness of biological products.To help reduce the increased risk of the introduction of adventitious agents, the PHS Act emphasizes the importance ofmanufacturing controls for products whose attributes cannot be precisely defined. The PHS Act also provides authority to theFDA to immediately suspend biologics licenses in situations where there exists a danger to public health, to prepare orprocure products in the event of shortages and critical public health needs, and to authorize the creation and enforcement ofregulations to prevent the introduction or spread of communicable diseases within the United States.Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may resultin restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminalsanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process,approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminalsanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of anapproval, clinical hold, warning or untitled letters, product recalls, product seizures, total or partial suspension of productionor distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications withdoctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcementaction could have a material adverse effect on us.Biological product manufacturers and other entities involved in the manufacture and distribution of approved biologicalproducts are required to register their establishments with the FDA and certain state agencies, and are subject to periodicunannounced inspections by the FDA and certain state agencies for compliance with cGMP and, if applicable, cGTPrequirements and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area ofproduction and quality control to maintain cGMP compliance. Discovery of problems with a product after approval mayresult in restrictions on a product, manufacturer, or holder of an approved BLA, including withdrawal of the product from themarket. In addition, changes to the manufacturing process or facility generally require prior FDA approval before beingimplemented and other types of changes to the approved product, such as adding new indications and additional labelingclaims, are also subject to further FDA review and approval.55 Table of ContentsU.S. patent term restoration and marketing exclusivityDepending upon the timing, duration and specifics of FDA approval of RTX‑134, RTX-240 and RTX-224 and any futureproduct candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug PriceCompetition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch‑Waxman Amendments. TheHatch‑Waxman Amendments permit restoration of the patent term of up to five years as compensation for patent term lostduring product development and FDA regulatory review process. Patent‑term restoration, however, cannot extend theremaining term of a patent beyond a total of 14 years from the product’s approval date. The patent‑term restoration period isgenerally one‑half the time between the effective date of an IND and the submission date of a BLA plus the time between thesubmission date of a BLA and the approval of that application, except that the review period is reduced by any time duringwhich the applicant failed to exercise due diligence. Only one patent applicable to an approved product is eligible for theextension and the application for the extension must be submitted prior to the expiration of the patent. The United StatesPatent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent termextension or restoration. In the future, we may apply for restoration of patent term for our currently owned or licensed patentsto add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factorsinvolved in the filing of the relevant BLA.An abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA‑licensedreference biological product was created by the Biologics Price Competition and Innovation Act of 2009 as part of thePatient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or theACA. This amendment to the PHSA, in part, attempts to minimize duplicative testing. Bio similarity, which requires that thebiological product be highly similar to the reference product notwithstanding minor differences in clinically inactivecomponents and that there be no clinically meaningful differences between the product and the reference product in terms ofsafety, purity and potency, can be shown through analytical studies, animal studies and a clinical trial or trials.Interchangeability requires that a biological product be biosimilar to the reference product and that the product can beexpected to produce the same clinical results as the reference product in any given patient and, for products administeredmultiple times to an individual, that the product and the reference product may be alternated or switched after one has beenpreviously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of thereference biological product without such alternation or switch. Complexities associated with the larger, and often morecomplex, structure of biological products as compared to small molecule drugs, as well as the processes by which suchproducts are manufactured, pose significant hurdles to implementation that are still being worked out by the FDA.A reference biological product is granted four and twelve year exclusivity periods from the time of first licensure of theproduct. The FDA will not accept an application for a biosimilar or interchangeable product based on the referencebiological product until four years after the date of first licensure of the reference product, and the FDA will not approve anapplication for a biosimilar or interchangeable product based on the reference biological product until twelve years after thedate of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issuewas licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period ofexclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for asubsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, orother related entity) for a change (not including a modification to the structure of the biological product) that results in a newindication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for amodification to the structure of the biological product that does not result in a change in safety, purity or potency. Therefore,one must determine whether a new product includes a modification to the structure of a previously licensed product thatresults in a change in safety, purity or potency to assess whether the licensure of the new product is a first licensure thattriggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “firstlicensure” of a biological product is determined on a case‑by‑case basis with data submitted by the sponsor.Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted,adds six months to existing regulatory exclusivity periods. This six‑month exclusivity may be granted based on thevoluntary completion of a pediatric trial in accordance with an FDA‑issued “Written Request” for such a trial.56 Table of ContentsEuropean Union drug developmentIn the E.U., our future products also may be subject to extensive regulatory requirements. As in the United States, medicinalproducts can be marketed only if a marketing authorization from the competent regulatory agencies has been obtained.Similar to the United States, the various phases of preclinical and clinical research in the E.U. are subject to significantregulatory controls. Although the E.U. Clinical Trials Directive 2001/20/EC has sought to harmonize the E.U. clinical trialsregulatory framework, setting out common rules for the control and authorization of clinical trials in the E.U., the E.U.Member States have transposed and applied the provisions of the Directive differently. This has led to significant variationsin the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each ofthe E.U. countries where the trial is to be conducted by two distinct bodies: the National Competent Authority, or NCA, andone or more Ethics Committees, or ECs.The E.U. clinical trials legislation currently is undergoing a transition process mainly aimed at harmonizing and streamliningclinical trial authorization, simplifying adverse event reporting procedures, improving the supervision of clinical trials andincreasing their transparency. Recently enacted Clinical Trials Regulation E.U. No 536/2014 ensures that the rules forconducting clinical trials in the E.U. will be identical.European Union drug marketingMuch like the Anti‑Kickback Statute prohibition in the United States discussed below, the provision of benefits oradvantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order oruse of medicinal products is also prohibited in the European Union. The provision of benefits or advantages to physicians isgoverned by the national anti‑bribery laws of E.U. Member States, such as the UK Bribery Act 2010. Infringement of theselaws could result in substantial fines and imprisonment.Payments made to physicians in certain E.U. Member States must be publicly disclosed. Moreover, agreements withphysicians often must be the subject of prior notification and approval by the physician’s employer, his or her competentprofessional organization and the regulatory authorities of the individual E.U. Member States. These requirements areprovided in the national laws, industry codes or professional codes of conduct, applicable in the E.U. Member States. Failureto comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines orimprisonment.European Union drug review and approvalIn the European Economic Area, or EEA, which is comprised of all 28 E.U. Member States (except Croatia) and also Norway,Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, orMA. There are two types of marketing authorizations.•The Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion ofthe Committee for Medicinal Products for Human Use of the European Medicines Agency, or EMA, and is validthroughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such asbiotechnology medicinal products, orphan medicinal products, advanced‑therapy medicines, such as gene therapy,somatic cell therapy or tissue‑engineered medicines and medicinal products containing a new active substance indicatedfor the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, autoimmune and other immunedysfunctions and viral diseases. The Centralized Procedure is optional for products containing a new active substancenot yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovationor which are in the interest of public health in the E.U.•National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover theirrespective territory, are available for products not falling within the mandatory scope of the Centralized Procedure.Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can berecognized in another Member States through the Mutual Recognition Procedure. If the product has not received a57 Table of ContentsNational MA in any Member State at the time of application, it can be approved simultaneously in various MemberStates through the Decentralized Procedure. Under the Decentralized Procedure, an identical dossier is submitted to thecompetent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicantas the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draftsummary of the product characteristics, or SPC, and a draft of the labeling and package leaflet, which are sent to the otherMember States (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise noobjections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed bythe RMS, the product is subsequently granted a national MA in all the Member States (i.e., in the RMS and the MemberStates Concerned).Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member Statesof the EEA make an assessment of the risk‑benefit balance of the product on the basis of scientific criteria concerning itsquality, safety and efficacy.European Union new chemical entity exclusivityIn the E.U., new chemical entities, sometimes referred to as new active substances, qualify for eight years of data exclusivityupon marketing authorization and an additional two years of market exclusivity. The data exclusivity, if granted, preventsregulatory authorities in the E.U. from referencing the innovator’s data to assess a generic application for eight years, afterwhich generic marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved fortwo years. The overall ten‑year period will be extended to a maximum of 11 years if, during the first eight years of those tenyears, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, duringthe scientific evaluation prior to their authorization, are determined to bring a significant clinical benefit in comparison withcurrently approved therapies.European Union orphan drug designation and exclusivityIn the E.U., the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote thedevelopment of products that are intended for the diagnosis, prevention or treatment of life‑threatening or chronicallydebilitating conditions affecting not more than 5 in 10,000 persons in the E.U. community (or where it is unlikely that thedevelopment of the medicine would generate sufficient return to justify the investment) and for which no satisfactory methodof diagnosis, prevention or treatment has been authorized (or, if a method exists, the product would be a significant benefit tothose affected).In the E.U., orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and tenyears of market exclusivity is granted following medicinal product approval. This period may be reduced to six years if theorphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable notto justify maintenance of market exclusivity. Orphan drug designation must be requested before submitting an applicationfor marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, theregulatory review and approval process.European data collectionThe collection and use of personal health data in the E.U. is governed by the provisions of the Data Protection Directive, andas of May 2018 the General Data Protection Regulation, or the GDPR. This directive imposes several requirements relating tothe consent of the individuals to whom the personal data relates, the information provided to the individuals, notification ofdata processing obligations to the competent national data protection authorities and the security and confidentiality of thepersonal data. The Data Protection Directive and the GDPR also impose strict rules on the transfer of personal data out of theE.U. to the United States. Failure to comply with the requirements of the Data Protection Directive, the GDPR, and the relatednational data protection laws of the E.U. Member States may result in fines and other administrative penalties. The GDPRintroduces new data protection requirements in the E.U. and substantial fines for breaches of the data protection rules. TheGDPR regulations may impose additional responsibility and liability in relation to personal data that we process and we maybe required to put in place additional mechanisms ensuring compliance with the new data protection rules. This may beonerous and adversely affect our business, financial58 Table of Contentscondition, results of operations and prospects. For more information related to GDPR, please see “Risk Factors—Risks relatedto government regulation—European data collection is governed by restrictive regulations governing the use, processing,and cross-border transfer of personal information.”Rest of the world regulationFor other countries outside of the E.U. and the United States, the requirements governing the conduct of clinical trials,product licensing, pricing and reimbursement vary from country to country. Additionally, the clinical trials must beconducted in accordance with GCP requirements and the applicable regulatory requirements and the ethical principles thathave their origin in the Declaration of Helsinki.If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines,suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminalprosecution.Additional laws and regulations governing international operationsIf we further expand our operations outside of the United States, we must dedicate additional resources to comply withnumerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA,prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value,directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision ofthe foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligatescompanies whose securities are listed in the United States to comply with certain accounting provisions requiring thecompany to maintain books and records that accurately and fairly reflect all transactions of the corporation, includinginternational subsidiaries, and to devise and maintain an adequate system of internal accounting controls for internationaloperations.Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem.In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals areoperated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments tohospitals in connection with clinical trials and other work have been deemed to be improper payments to governmentofficials and have led to FCPA enforcement actions.Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or thesharing with certain non‑U.S. nationals, of information classified for national security purposes, as well as certain productsand technical data relating to those products. If we expand our presence outside of the United States, it will require us todedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, orselling certain products and product candidates outside of the United States, which could limit our growth potential andincrease our development costs. The failure to comply with laws governing international business practices may result in substantial civil and criminalpenalties and suspension or debarment from government contracting. The Securities and Exchange Commission also maysuspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.Coverage and reimbursementSuccessful commercialization of new drug and biologic products depends in part on the extent to which reimbursement forthose drug and biologic products will be available from government health administration authorities, private health insurersand other organizations. These bodies decide which drug and biologic products they will pay for and establishreimbursement levels. The availability and extent of reimbursement by governmental and private payors is essential for mostpatients to be able to afford a drug or biologic product. Sales of drug and biologic products depend substantially, bothdomestically and abroad, on the extent to which the costs of these products are paid for by health maintenance,59 Table of Contentsmanaged care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government healthadministration authorities, private health coverage insurers and other third‑party payors. In the United States, the important decisions about reimbursement for new drug and biologic products are made by theCenters for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, orHHS, as well as major health insurers. CMS decides whether and to what extent a new product will be covered and reimbursedunder Medicare, and private payors tend to follow CMS to a substantial degree. However, no uniform policy of coverage andreimbursement for drug and biologic products exists among third‑party payors and coverage and reimbursement levels fordrug and biologic products can differ significantly from payor to payor. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act,or the MMA, established the Medicare Part D program to provide a voluntary prescription drug and biologic benefit toMedicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entitiesthat provide coverage of outpatient prescription drugs and biologics. Unlike Medicare Parts A and B, Part D coverage is notstandardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs and biologics, andeach drug plan can develop its own formulary that identifies which drugs and biologics it will cover, and at what tier or level.However, Part D prescription drug formularies must include products within each therapeutic category and class of coveredPart D drugs, though not necessarily all the drugs and biologics in each category or class. Any formulary used by a Part Dprescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment forsome of the costs of prescription drugs and biologics may increase demand for products for which we obtain marketingapproval. Any negotiated prices for any of our products covered by a Part D prescription drug plan will likely be lower thanthe prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries,private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Anyreduction in payment that results from the MMA may result in a similar reduction in payments from non‑governmentalpayors. For a drug or biologic product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to besold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the340B drug pricing program. The required 340B discount on a given product is calculated based on the average manufacturerprice, or AMP, and Medicaid rebate amounts reported by the manufacturer. As of 2010, the ACA expanded the types ofentities eligible to receive discounted 340B pricing, although under the current state of the law these newly eligible entities(with the exception of children’s hospitals) will not be eligible to receive discounted 340B pricing on orphan drugs. As 340Bdrug pricing is determined based on AMP and Medicaid rebate data, the revisions to the Medicaid rebate formula and AMPdefinition described above could cause the required 340B discount to increase. Further, on December 27, 2018, the DistrictCourt for the District of Columbia invalidated a recent reimbursement formula change instituted by CMS under the 340Bprogram. It is unclear how this decision could affect covered hospitals who might purchase our products in the future, andaffect the rates we may charge such facilities for our approved products. The American Recovery and Reinvestment Act of2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness.The plan for the research was published in 2012 by HHS, the Agency for Healthcare Research and Quality and the NationalInstitutes for Health, and periodic reports on the status of the research and related expenditures are made to Congress.Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public orprivate payors, it is not clear what effect, if any, the research will have on the sales of our product candidates. It is alsopossible that comparative effectiveness research demonstrating benefits in a competitor’s drug could adversely affect thesales of our product candidates. If third‑party payors do not consider our products to be cost‑effective compared to otheravailable therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level ofpayment may not be sufficient to allow us to sell our drugs on a profitable basis. These current laws and state and federal healthcare reform measures that may be adopted in the future may result inadditional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for anyproduct candidates for which we may obtain regulatory approval or the frequency with which any such product candidate isprescribed or used. 60 Table of ContentsOutside of the United States, the pricing of pharmaceutical products is subject to governmental control as part of nationalhealth systems in many countries. In general, the prices of drug and biologic products under such systems are substantiallylower than in the United States. Other countries allow companies to fix their own prices for drug and biologic products, butmonitor and control company profits. Efforts to control prices and utilization of pharmaceutical products and medicaldevices will likely continue as countries attempt to manage healthcare expenditures. Accordingly, in markets outside theUnited States the reimbursement for our products may be reduced compared with the United States. Other healthcare laws Healthcare providers, physicians and third party payors will play a primary role in the recommendation and prescription ofany products for which we obtain marketing approval. Arrangements with third party payors, healthcare providers andphysicians may expose a pharmaceutical or biologics manufacturer to broadly applicable fraud and abuse and otherhealthcare laws and regulations. In the United States, these laws include, without limitation, state and federal anti‑kickback,false claims, physician transparency and patient data privacy and security laws and regulations, including but not limited tothose described below:•the federal Anti‑Kickback Statute makes it illegal for any person, including a prescription drug or biologic manufacturer(or a party acting on its behalf) to knowingly and willfully solicit receive, offer or pay any remuneration (including anykickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, that is intended to induce orreward referrals including the purchase, recommendation, order or prescription of a particular drug for which paymentmay be made under a federal healthcare program, such as the Medicare and Medicaid programs. Violation of the statutedoes not require actual knowledge of the statute or specific intent to violate it. In addition, the government may assertthat a claim, including items or services resulting from a violation of the federal Anti‑Kickback Statute, constitutes afalse or fraudulent claim for purposes of the False Claims Act;•the federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, imposecriminal and civil penalties, including through civil “qui tam” or “whistleblower” actions, against individuals or entitiesfor, among other things, knowingly presenting, or causing to be presented, claims for payment or approval fromMedicare, Medicaid, or other federal healthcare programs that are false or fraudulent; knowingly making or causing afalse statement material to a false or fraudulent claim or an obligation to pay money to the federal government; orknowingly concealing or knowingly and improperly avoiding or decreasing such an obligation. Similar to the federalAnti‑Kickback Statute, a person or entity does not need to have actual knowledge of these statutes or specific intent toviolate them in order to have committed a violation;•the federal anti-inducement law, prohibits, among other things, the offering or giving of remuneration, which includes,without limitation, any transfer of items or services for free or for less than fair market value (with limited exceptions), toa Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’sselection of a particular supplier of items or services reimbursable by a federal or state governmental program;•the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminalstatutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcarebenefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money orproperty owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor(e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device amaterial fact or making any materially false statements in connection with the delivery of, or payment for, healthcarebenefits, items or services relating to healthcare matters;•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH,and their respective implementing regulations, impose requirements on certain covered healthcare providers, healthplans and healthcare clearinghouses as well as their respective business associates that perform services for them thatinvolve the use, or disclosure of, individually identifiable health information, relating to the privacy, security andtransmission of individually identifiable health information;61 Table of Contents•the U.S. Federal Food, Drug, and Cosmetic Act, or FDCA, which prohibits, among other things, the adulteration ormisbranding of drugs, biologics and medical devices;•the federal Physician Payments Sunshine Act, created under the ACA, and its implementing regulations, which requiremanufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare,Medicaid or the Children’s Health Insurance Program to report annually to the HHS under the Open Payments Program,information related to payments or other transfers of value made to physicians and teaching hospitals, as well asownership and investment interests held by physicians and their immediate family members; and•analogous state and foreign laws and regulations, such as state and foreign anti‑kickback, false claims, consumerprotection and unfair competition laws which may apply to our business practices, including but not limited to, research,distribution, sales and marketing arrangements as well as submitting claims involving healthcare items or servicesreimbursed by any third‑party payor, including commercial insurers; state laws that require pharmaceutical and biologicsmanufacturers to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevantcompliance guidance promulgated by the federal government that otherwise restricts payments that may be made tohealthcare providers and other potential referral sources; state laws that require drug and biologic manufacturers to filereports with states regarding pricing and marketing information, such as the tracking and reporting of gifts,compensations and other remuneration and items of value provided to healthcare professionals and entities; state andlocal laws requiring the registration of pharmaceutical sales representatives; and state and foreign laws governing theprivacy and security of health information in certain circumstances, many of which differ from each other in significantways and may not have the same effect, thus complicating compliance efforts.Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it ispossible that some of our business activities could be subject to challenge under one or more of such laws. Efforts to ensurethat business arrangements comply with applicable healthcare laws involve substantial costs. It is possible that governmentaland enforcement authorities will conclude that our business practices do not comply with current or future statutes,regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actionsare instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have asignificant impact on our business, including the imposition of civil, criminal and administrative penalties, damages,disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcareprograms, integrity and oversight agreements to resolve allegations of non‑compliance, contractual damages, reputationalharm, diminished profits and future earnings, and curtailment of operations, any of which could adversely affect our ability tooperate our business. In addition, commercialization of any of our products outside the United States will also likely besubject to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.Current and future healthcare reform legislationIn both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes tothe healthcare system. In particular, in 2010 the ACA was enacted, which, among other things, increased the minimumMedicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid DrugRebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjectedmanufacturers to new annual fees and taxes for certain branded prescription drugs, and provided incentives to programs thatincrease the federal government’s comparative effectiveness research.There have been a number of significant changes to the ACA and its implementation. The Tax Cuts and Jobs Act of 2017, orTax Act, includes a provision effective January 1, 2019 repealing the tax‑based shared responsibility payment imposed bythe ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonlyreferred to as the “individual mandate”. On December 14, 2018, a U.S. District Court judge in the Northern District of Texasruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and thereforebecause the mandate was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid aswell. The Trump administration and CMS have both stated that the ruling will have no immediate effect, and on December30, 2018 the same judge issued an order staying the judgment pending appeal. It is unclear how62 Table of Contentsthis decision and any subsequent appeals and other efforts to repeal and replace the ACA will impact the ACA and ourbusiness. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. Wecontinue to evaluate the effect that the Affordable Care Act and its possible repeal and replacement could have on ourbusiness.Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities andresponsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of theACA that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcareproviders, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, President Trumpsigned an Executive Order terminating the cost‑sharing subsidies that reimburse insurers under the ACA. Several stateAttorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining orderwas denied by a federal judge in California on October 25, 2017. Moreover, on January 22, 2018, President Trump signed acontinuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA‑mandated fees,including the so called “Cadillac” tax on certain high cost employer‑sponsored insurance plans, the annual fee imposed oncertain health insurance providers based on market share, and the medical device excise tax on non‑exempt medical devices.The Bipartisan Budget Act of 2018 also amends the ACA, effective January 1, 2019, by increasing the point‑of‑sale discountthat is owed by pharmaceutical manufacturers who participate in Medicare Part D and closing the coverage gap in mostMedicare drug plans, commonly referred to as the “donut hole,” which will shift costs for name brand drugs away from Part Dparticipants back to the manufacturers, which could have a negative effect on our profits in the event any of our productsreceive FDA approval and CMS reimbursement. Similarly, CMS recently proposed regulations that would give states greaterflexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect ofrelaxing the essential health benefits required under the ACA for plans sold through such marketplaces. On November 30,2018, CMS announced a proposed rule that would amend the Medicare Advantage and Medicare Part D prescription drugbenefit regulations to reduce out of pocket costs for plan enrollees and allow Medicare plans to negotiate lower rates forcertain drugs. Among other things, the proposed rule changes would allow Medicare Advantage plans to use pre-authorization, or PA, and step therapy, or ST, for six protected classes of drugs, with certain exceptions, permit plans toimplement PA and ST in Medicare Part B drugs, change the definition of "negotiated prices," and add a definition of "priceconcession" to the regulations. It is unclear whether these proposed changes we be accepted, and if so, what effect suchchanges will have on our business.In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. InAugust 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. AJoint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillionfor the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reductionto several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year,which went into effect in 2013, and, due to subsequent legislative amendments, will remain in effect through 2027 unlessadditional Congressional action is taken. The American Taxpayer Relief Act of 2012 further reduced Medicare payments toseveral providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for thegovernment to recover overpayments to providers from three to five years. Legislative and regulatory proposals, andenactment of laws, at the foreign, federal and state levels, directed at containing or lowering the cost of healthcare, willcontinue into the future.63 Table of ContentsOther RegulationsWe are subject to numerous foreign, federal, state and local environmental, health and safety laws and regulations, includingthose governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials andwastes. In addition, our leasing and operation of real property may subject us to liability pursuant to certain U.S.environmental laws and regulations, under which current or previous owners or operators of real property and entities thatdisposed or arranged for the disposal of hazardous substances may be held strictly, jointly and severally liable for the cost ofinvestigating or remediating contamination caused by hazardous substance releases, even if they did not know of and werenot responsible for the releases.EmployeesAs of February 28, 2019, we had 142 full‑time employees, 42 of our employees have Ph.D. or M.D. degrees and 105 of ouremployees are engaged in research and development activities. None of our employees are represented by labor unions orcovered by collective bargaining agreements. We consider our employee relations to be positive.FacilitiesOur corporate headquarters is located in approximately 85,000 square feet of office and laboratory space at in Cambridge,Massachusetts. The lease term for approximately 48,000 square feet commenced on January 28, 2019 and the lease term forthe remaining 37,000 square feet is expected to commence in August 2019, following the completion of construction. Thelease terms will expire eight and nine years from the commencement date of the 48,000 square feet and the remaining 37,000square feet, respectively.In July 2018, we purchased a 135,000 square foot manufacturing facility located in Smithfield, Rhode Island which iscurrently undergoing renovation and customization.Legal proceedingsWe are not currently a party to any material legal proceedings.Corporate InformationRubius was incorporated in April 2013 as VL26, Inc. under the laws of the State of Delaware. In January 2015, the Companychanged its name to Rubius Therapeutics, Inc. Our principal executive office is located at 399 Binney Street, Cambridge,Massachusetts, and our telephone number is (617) 679-9600. Our website address is www.rubiustx.com. Our website and theinformation contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in,and are not considered part of, this Annual Report on Form 10-K. You should not rely on any such information in makingyour decision whether to purchase our common stock.On July 20, 2018, we completed our initial public offering, or IPO, pursuant to which we issued and sold 12,055,450 sharesof common stock, inclusive of 1,572,450 shares pursuant to the full exercise of the underwriters’ option to purchaseadditional shares. We received proceeds of $254.3 million after deducting underwriting discounts and commissions andother offering costs.We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain anemerging growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of thecompletion of the IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we aredeemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliatesexceeds $700.0 million as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.64 Table of ContentsFinancial Information and SegmentsThe financial information required under this Item 1 is incorporated herein by reference to the section of this Annual Reporttitled “Part II—Item 8—Financial Statements and Supplementary Data. The company manages its operations as a singlesegment for the purposes of assessing performance and making operating decisions. The company is developing red celltherapeutics for the treatment of patients with severe diseases. All of the company’s tangible assets are held in the UnitedStates. See Note 2 to our consolidated audited financial statements included in this Annual Report on Form 10-K. Forfinancial information regarding our business, see “Part II—Item 7—Management’s Discussion and Analysis of FinancialCondition and Results of Operations” of this Annual Report on Form 10-K and our consolidated audited financial statementsand related notes included elsewhere in this Annual Report on Form 10-K.Available InformationOur Internet address is www.rubiustx.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed orfurnished pursuant to Sections 13(a), 14, and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act,are available through the “Investors and Media” portion of our website free of charge as soon as reasonably practicable afterwe electronically file such material with, or furnish it to, the SEC. Information on our website is not part of this AnnualReport on Form 10-K or any of our other securities filings unless specifically incorporated herein by reference. Our filingswith the SEC may be accessed through the SEC’s Interactive Data Electronic Applications system at http://www.sec.gov. Allstatements made in any of our securities filings, including all forward-looking statements or information, are made as of thedate of the document in which the statement is included, and we do not assume or undertake any obligation to update any ofthose statements or documents unless we are required to do so by law.65 Table of Contents Item 1A. Risk Factors Our business is subject to numerous risks. You should carefully consider the risks described below, as well as the otherinformation in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and“Management’s discussion and analysis of financial condition and results of operations,” and in our other filings with theSecurities and Exchange Commission. The occurrence of any of the events or developments described below could harm ourbusiness, financial condition, results of operations and growth prospects. In such an event, the market price of our commonstock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently knownto us or that we currently deem immaterial also may impair our business operations. Risks related to our business, technology and industry We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in thefuture. We are a preclinical-stage biopharmaceutical company with a limited operating history. Investment in biopharmaceuticalproduct development is highly speculative because it entails substantial upfront capital expenditures and significant riskthat any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatoryapproval and become commercially viable. We have no products in clinical development or approved for commercial saleand have not generated any revenue from product sales to date, and we continue to incur significant research anddevelopment and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred lossesin each period since our inception in 2013. For the years ended December 31, 2018, 2017 and 2016, we reported net losses of$89.2 million, $43.8 million and $11.0 million, respectively. As December 31, 2018, we had an accumulated deficit of$150.1 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses toincrease as we continue our research and development of, and seek regulatory approvals for, our product candidates. Weanticipate that our expenses will increase substantially if, and as, we: ·conduct clinical trials for our product candidates; ·further develop our RED PLATFORM; ·continue to discover and develop additional product candidates; ·maintain, expand and protect our intellectual property portfolio; ·hire additional clinical, scientific manufacturing and commercial personnel; ·expand in-house manufacturing capabilities, including through the renovation, customization and operation of ourrecently purchased manufacturing facility; ·establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercialquantities of any product candidates for which we may obtain regulatory approval; ·acquire or in-license other product candidates and technologies; ·seek regulatory approvals for any product candidates that successfully complete clinical trials; ·establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtainregulatory approval; and 66 Table of Contents·add operational, regulatory, financial and management information systems and personnel, including personnel tosupport our product development and planned future commercialization efforts, as well as any additional infrastructurenecessary to function as a public company. To become and remain profitable, we or any potential future collaborator must develop and eventually commercializeproducts with significant market potential at an adequate profit margin after cost of goods sold and other expenses. This willrequire us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials,obtaining marketing approval for product candidates, obtaining adequate reimbursement for product candidates,manufacturing, marketing and selling products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generaterevenue that is significant or large enough to achieve profitability. If we do achieve profitability, we may not be able tosustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decreasethe value of our company and could impair our ability to raise capital, maintain our research and development efforts,expand our business or continue our operations. A decline in the value of our company also could cause our stockholders tolose all or part of their investment. Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial researchand development and other expenditures to develop and market additional product candidates. We may encounterunforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generaterevenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on ourstockholders’ equity and working capital. We will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be ableto complete the development and commercialization of our product candidates. Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantialamounts to conduct further research and development and preclinical or nonclinical testing and studies and clinical trials ofour current and future programs, to build a supply chain, to seek regulatory approvals for our product candidates and tolaunch and commercialize any products for which we receive regulatory approval, including potentially building our owncommercial organization. As of December 31, 2018, we had $404.1 million of cash, cash equivalents and investments. Basedon our current operating plan, we believe that our existing cash, cash equivalents and investments, will enable us to fund ouroperating expenses, capital expenditure requirements, including the ongoing renovation and customization of themanufacturing facility we purchased in July 2018, and debt service payments into 2021. However, our future capitalrequirements and the period for which our existing resources will support our operations may vary significantly from what weexpect, and we will in any event require additional capital in order to complete clinical development of any of our currentprograms. Our monthly spending levels will vary based on new and ongoing development and corporate activities. Becausethe length of time and activities associated with development of our product candidates is highly uncertain, we are unable toestimate the actual funds we will require for development and any approved marketing and commercialization activities. Ourfuture funding requirements, both near and long-term, will depend on many factors, including, but not limited to: ·the initiation, progress, timing, costs and results of preclinical or nonclinical testing and studies and clinical trials for ourproduct candidates; ·the clinical development plans we establish for our product candidates; ·the number and characteristics of product candidates that we develop or may in-license; ·the terms of any collaboration agreements we may choose to conclude; ·the outcome, timing and cost of meeting regulatory requirements established by the U.S. Food and Drug Administration,or FDA, the European Medicines Agency, or EMA, and other comparable foreign regulatory authorities; 67 Table of Contents·the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; ·the cost of defending intellectual property disputes, including patent infringement actions brought by third partiesagainst us or our product candidates; ·the effect of competing technological and market developments; ·the costs of establishing and maintaining a supply chain for the development and manufacture of our productcandidates; ·the cost and timing of establishing, expanding and scaling manufacturing capabilities; and ·the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we mayreceive regulatory approval in regions where we choose to commercialize our products on our own. We do not have any committed external source of funds or other support for our development efforts and we cannot becertain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product orroyalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs througha combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensingarrangements and other marketing or distribution arrangements. If we raise additional funds through public or private equityofferings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible intoor exchangeable for common stock, our stockholders’ ownership interest will be diluted. If we raise additional capitalthrough debt financing, we would be subject to fixed payment obligations and may be subject to covenants limiting orrestricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaringdividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategicalliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our productcandidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable tous. We also could be required to seek collaborators for one or more of our current or future product candidates at an earlierstage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwisewould seek to develop or commercialize ourselves. If we are unable to raise additional capital in sufficient amounts or onterms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercializationof one or more of our products or product candidates or one or more of our other research and development initiatives. Any ofthe above events could significantly harm our business, prospects, financial condition and results of operations and cause theprice of our common stock to decline. Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us torelinquish rights to our technologies or product candidates. We may seek additional capital through a combination of public and private equity offerings, debt financings, strategicpartnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale ofequity or convertible debt securities, our stockholders’ ownership interest will be diluted and the terms may includeliquidation or other preferences that adversely affect their rights as a stockholder. The incurrence of indebtedness wouldresult in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on ourability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and otheroperating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds throughstrategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rightsto our technologies or product candidates or grant licenses on terms unfavorable to us. We have a limited operating history, which may make it difficult to evaluate our technology and product developmentcapabilities and predict our future performance. We are early in our development efforts and we have not initiated clinical trials for any of our product candidates. We wereformed in 2013, have no products approved for commercial sale and have not generated any revenue from product sales. Ourability to generate product revenue or profits, which we do not expect will occur for many years, if ever, will68 Table of Contentsdepend on the successful development and eventual commercialization of our product candidates, which may never occur.We may never be able to develop or commercialize a marketable product. All of our programs require additional preclinical research and development, clinical development, regulatory approval inmultiple jurisdictions, obtaining manufacturing supply, capacity and expertise, building of a commercial organization,substantial investment and significant marketing efforts before we generate any revenue from product sales. Other programsof ours require additional discovery research and then preclinical development. In addition, our product candidates must beapproved for marketing by the FDA or certain other health regulatory agencies, including the EMA, before we maycommercialize any product. Our limited operating history, particularly in light of the rapidly evolving cellular therapeutics field, may make it difficult toevaluate our technology and industry and predict our future performance. Our short history as an operating company makesany assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficultiesfrequently experienced by early-stage companies in rapidly evolving fields. If we do not address these risks successfully, ourbusiness will suffer. Similarly, we expect that our financial condition and operating results will fluctuate significantly fromquarter to quarter and year to year due to a variety of factors, many of which are beyond our control. As a result, ourshareholders should not rely upon the results of any quarterly or annual period as an indicator of future operatingperformance. In addition, as an early-stage company, we have encountered unforeseen expenses, difficulties, complications, delays andother known and unknown circumstances. As we advance our product candidates, we will need to transition from a companywith a research focus to a company capable of supporting clinical development and if successful, commercial activities. Wemay not be successful in such a transition. Our business is highly dependent on the success of our initial product candidates targeting rare diseases, cancer andautoimmune diseases. All of our product candidates will require significant additional nonclinical and clinicaldevelopment before we can seek regulatory approval for and launch a product commercially. Our business and future success depends on our ability to obtain regulatory approval of and then successfully launch andcommercialize our initial product candidates targeting rare diseases, cancer and autoimmune diseases, including RTX-134,RTX-240 (formerly RTX-212) and others that may be selected from preclinical programs. We filed an investigational newdrug application, or IND, for RTX-134 in the first quarter of 2019 and plan to file INDs for additional Red Cell Therapeutic,or RCT, product candidates during 2020, 2021 and thereafter. In particular, RTX-134, as our first planned clinical program,may experience preliminary complications surrounding trial execution, such as complexities surrounding regulatoryacceptance of our IND, trial design and establishing trial protocols, patient recruitment and enrollment, quality and supply ofclinical doses, safety issues, a lack of clinically relevant activity, or shorter than expected circulation time of RTX-134 invivo. All of our product candidates are in the early stages of development and will require additional nonclinical and clinicaldevelopment, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficientcommercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales.In addition, because RTX-134 is our most advanced product candidate, if RTX-134 encounters safety, efficacy, supply ormanufacturing problems, developmental delays, regulatory or commercialization issues or other problems, our developmentplans and business would be significantly harmed. The successful development of cellular therapeutics, such as our RCTs, is highly uncertain. Successful development of cellular therapeutics, such as our RCTs, is highly uncertain and is dependent on numerous factors,many of which are beyond our control. Cellular therapeutics that appear promising in the early phases of development mayfail to reach the market for several reasons, including: ·nonclinical or preclinical testing or study results may show our RCTs to be less effective than desired or to have harmfulor problematic side effects or toxicities; 69 Table of Contents·clinical trial results may show our RCTs to be less effective than expected (e.g., a clinical trial could fail to meet itsprimary endpoint(s)) or to have unacceptable side effects or toxicities; ·clinical trial results may show that the relatively long circulating time of our RCTs, expected to be up to approximately120 days, compared to other therapeutics may have unacceptable side effects, toxicities or other negative consequences; ·failure to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, suchdelays may be caused by slow enrollment in clinical trials, patients dropping out of trials, length of time to achieve trialendpoints, additional time requirements for data analysis, or biologics license application, or BLA, preparation,discussions with the FDA, an FDA request for additional nonclinical or clinical data, or unexpected safety ormanufacturing issues; ·manufacturing costs, formulation issues, pricing or reimbursement issues, or other factors that make our RCT therapiesuneconomical; and ·proprietary rights of others and their competing products and technologies that may prevent our RCT therapies frombeing commercialized. The length of time necessary to complete clinical trials and to submit an application for marketing approval for a finaldecision by a regulatory authority may be difficult to predict for cellular therapies, in large part because of the limitedregulatory history. Even if we are successful in obtaining market approval, commercial success of any approved products will also depend inlarge part on the availability of insurance coverage and adequate reimbursement from third-party payors, includinggovernment payors, such as the Medicare and Medicaid programs, and managed care organizations, which may be affectedby existing and future healthcare reform measures designed to reduce the cost of healthcare. Third-party payors may limit thedefinition of the target treatment population to one smaller than that implied in the label granted by regulatory authorities,and could require us to conduct additional studies, including post-marketing studies related to the cost-effectiveness of aproduct, to qualify for reimbursement, which could be costly and divert our resources. If government and other healthcarepayors were not to provide adequate insurance coverage and reimbursement levels for one any of our products onceapproved, market acceptance and commercial success would be reduced. In addition, if any of our products are approved for marketing, we will be subject to significant regulatory obligationsregarding the submission of safety and other post-marketing information and reports and registration, and will need tocontinue to comply (or ensure that our third-party providers comply) with current good manufacturing practices, or cGMPs,and good clinical practices, or GCPs, for any clinical trials that we conduct post-approval. In addition, there is always the riskthat we or a regulatory authority might identify previously unknown problems with a product post-approval, such as adverseevents of unanticipated severity or frequency. Compliance with these requirements is costly and any failure to comply orother issues with our product candidates’ post-approval could have a material adverse effect on our business, financialcondition and results of operations. Our RCT product candidates are based on a new technology, which makes it difficult to predict the time and cost ofdevelopment and of subsequently obtaining regulatory approval, if at all. Our RCT technology is relatively new and no products based on genetically engineered red cells have been approved to datein the United States or the European Union. As such it is difficult to accurately predict the developmental challenges we mayincur for our product candidates as they proceed through product discovery or identification, preclinical studies and clinicaltrials. In addition, because we have not commenced clinical trials, we have not yet been able to assess safety in humans, andthere may be short-term or long-term effects from treatment with any product candidates that we develop that we cannotpredict at this time. Also, animal models may not exist for some of the diseases we choose to pursue in our programs.Furthermore, cellular therapies, such as our RCT product candidates, have a limited circulating time in animals as they arerecognized as foreign by the host animal and therefore cleared by the complement-mediated reticuloendothelial system,which limits the safety and toxicology assessments that we can70 Table of Contentsconduct in preclinical species. As a result of these factors, it is more difficult for us to predict the time and cost of productcandidate development, and we cannot predict whether the application of our RED PLATFORM, or any similar orcompetitive cellular technologies, will result in the identification, development, and regulatory approval of any products.There can be no assurance that any development problems we experience in the future related to our RED PLATFORM orany of our research programs will not cause significant delays or unanticipated costs, or that such development problems canbe solved. Any of these factors may prevent us from completing our preclinical studies or any clinical trials that we mayinitiate or commercializing any product candidates we may develop on a timely or profitable basis, if at all. The clinical trial requirements of the FDA, the EMA and other regulatory authorities and the criteria these regulators use todetermine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty andintended use and market of the product candidate. No products based on genetically engineered red cells have beenapproved to date by regulators. As a result, the regulatory approval process for product candidates such as ours is uncertainand may be more expensive and take longer than the approval process for product candidates based on other, better known ormore extensively studied technologies. It is difficult to determine how long it will take or how much it will cost to obtainregulatory approvals for our product candidates in either the United States or the European Union or other regions of theworld or how long it will take to commercialize our product candidates. Delay or failure to obtain, or unexpected costs inobtaining, the regulatory approval necessary to bring a potential product candidate to market could decrease our ability togenerate sufficient product revenue, and our business, financial condition, results of operations and prospects may beharmed. The FDA, the EMA and other regulatory authorities may implement additional regulations or restrictions on thedevelopment and commercialization of our product candidates, which may be difficult to predict. The FDA, the EMA and regulatory authorities in other countries have each expressed interest in further regulatingbiotechnology products, such as cellular therapies. Agencies at both the federal and state level in the United States, as well asthe U.S. Congressional committees and other governments or governing agencies, have also expressed interest in furtherregulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of our productcandidates. Adverse developments in clinical trials of cellular therapy products conducted by others may cause the FDA orother oversight bodies to change the requirements for approval of any of our product candidates. Similarly, the EMA governsthe development of cellular therapies in the European Union and may issue new guidelines concerning the development andmarketing authorization for cellular therapy products and require that we comply with these new guidelines. Theseregulatory review agencies and committees and the new requirements or guidelines they promulgate may lengthen theregulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changesin regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates orlead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required toconsult with these regulatory agencies and comply with applicable requirements and guidelines. If we fail to do so, we maybe required to delay or discontinue development of such product candidates. These additional processes may result in areview and approval process that is longer than we otherwise would have expected. Delays as a result of an increased orlengthier regulatory approval process or further restrictions on the development of our product candidates can be costly andcould negatively impact our ability to complete clinical trials and commercialize our current and future product candidatesin a timely manner, if at all. Clinical development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costsor experience delays in completing, or ultimately be unable to complete, the development and commercialization of anyproduct candidates. To obtain the requisite regulatory approvals to commercialize any product candidates, we must demonstrate throughextensive preclinical studies and clinical trials that our products are safe and effective in humans. Clinical testing isexpensive, difficult to design and implement and can take many years to complete, and its outcome is inherently uncertain.We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinicallymeaningful, and a clinical trial can fail at any stage of testing. The outcome of nonclinical studies and early clinical trialsmay not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predictfinal results. Differences in trial design between early-stage clinical trials and later-stage clinical trials make it difficult toextrapolate the results of earlier clinical trials to later clinical trials. Moreover, nonclinical and71 Table of Contentsclinical data are often susceptible to varying interpretations and analyses, and many companies that have believed theirproduct candidates performed satisfactorily in nonclinical studies and clinical trials have nonetheless failed to obtainmarketing approval of their products. Successful completion of clinical trials is a prerequisite to submitting a BLA to the FDA, a Marketing AuthorizationApplication, or MAA, to the EMA, and similar marketing applications to comparable foreign regulatory authorities, for eachproduct candidate and, consequently, the ultimate approval and commercial marketing of any product candidates. We do notknow whether any of our clinical trials will begin or be completed on schedule, if at all. We may experience delays in completing our preclinical or nonclinical testing and studies and initiating or completingclinical trials. We also may experience numerous unforeseen events during, or as a result of, any future clinical trials that wecould conduct that could delay or prevent our ability to receive marketing approval or commercialize our productcandidates, including: ·we may be unable to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiationof clinical trials; ·regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators tocommence a clinical trial or conduct a clinical trial at a prospective trial site; ·we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites andprospective contract research organizations, or CROs, the terms of which can be subject to extensive negotiation andmay vary significantly among different CROs and trial sites; ·clinical trials of any product candidates may fail to show safety, purity or potency, or produce negative or inconclusiveresults and we may decide, or regulators may require us, to conduct additional nonclinical studies or clinical trials or wemay decide to abandon product development programs; ·the number of patients required for clinical trials of any product candidates may be larger than we anticipate, enrollmentin these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail toreturn for post-treatment follow-up at a higher rate than we anticipate; ·we may need to add new or additional clinical trial sites; ·our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us ina timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require thatwe add new clinical trial sites or investigators; ·the cost of preclinical or nonclinical testing and studies and clinical trials of any product candidates may be greater thanwe anticipate or greater than our available financial resources; ·the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our productcandidates may be insufficient or inadequate; ·RCTs may circulate longer or shorter in humans than anticipated; ·our product candidates may have undesirable side effects or other unexpected characteristics, causing us or ourinvestigators, regulators or IRBs or ethics committees to suspend or terminate the trials, or reports may arise frompreclinical or clinical testing of other therapies for rare diseases, cancer and autoimmune diseases or additional diseasesthat we target that raise safety or efficacy concerns about our product candidates; ·clinical trials of our product candidates may produce negative or inconclusive results, which may result in our deciding,or regulators requiring us, to conduct additional clinical trials or abandon product development programs; and ·the FDA or other regulatory authorities may require us to submit additional data such as long-term toxicology studies orimpose other requirements before permitting us to initiate a clinical trial. 72 Table of ContentsWe could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs of the institutions in which suchtrials are being conducted, or the FDA or other regulatory authorities, or recommended for suspension or termination by theData Safety Monitoring Board, or DSMB, for such trial. A suspension or termination may be imposed due to a number offactors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols,inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition ofa clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product ortreatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations oradministrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, adelay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval ofour product candidates. Further, the FDA or other regulatory authorities may disagree with our clinical trial design and ourinterpretation of data from clinical trials, or may change the requirements for approval even after they have reviewed andcommented on the design for our clinical trials. Our product development costs will increase if we experience delays in clinical testing or marketing approvals. We do notknow whether any of our preclinical or nonclinical testing and studies or clinical trials will begin as planned, will need to berestructured or will be completed on schedule, or at all. Significant preclinical or nonclinical testing and studies or clinicaltrial delays also could shorten any periods during which we may have the exclusive right to commercialize our productcandidates and may allow our competitors to bring products to market before we do, potentially impairing our ability tosuccessfully commercialize our product candidates and harming our business and results of operations. Any delays in ournonclinical or future clinical development programs may harm our business, financial condition and prospects significantly. Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinicaltrials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timelybasis or at all, which would have an adverse effect on our business. All of our product candidates are still in the preclinical stage, and their risk of failure is high. Before we can commenceclinical trials for a product candidate, we must complete extensive preclinical testing and studies that support our plannedINDs in the United States, or similar applications in other jurisdictions. We cannot be certain of the timely completion oroutcome of our preclinical testing and studies and cannot predict if the FDA or other regulatory authorities will accept ourproposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the furtherdevelopment of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications forour preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similarapplications will result in the FDA or other regulatory authorities allowing clinical trials to begin. Our planned clinical trials or those of our future collaborators may reveal significant adverse events not seen in ourpreclinical or nonclinical studies and may result in a safety profile that could inhibit regulatory approval or marketacceptance of any of our product candidates. Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through lengthy,complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use ineach target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherentlyuncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinicaltrials of our product candidates may not be predictive of the results of later-stage clinical trials. In addition, initial success inclinical trials may not be indicative of results obtained when such trials are completed. There is typically an extremely highrate of attrition from the failure of product candidates proceeding through clinical trials. Our RCTs are produced from Onegative donor blood stem cells and we believe can therefore be used as allogeneic therapies in approximately 95% ofpatients. However, following repeated dosing some patients may develop antibodies to blood antigens on our RCTs. Theseantibodies could reduce the efficacy of our RCTs or result in undesirable side effects. Product candidates in later stages ofclinical trials also may fail to show the desired safety and efficacy profile despite having progressed through nonclinicalstudies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacksin advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earliertrials. Most product candidates that commence clinical trials are73 Table of Contentsnever approved as products and there can be no assurance that any of our current or future clinical trials will ultimately besuccessful or support further clinical development of any of our product candidates. We intend to develop RTX-240 and RTX-224, and may develop future product candidates, alone and in combination withone or more cancer therapies. The uncertainty resulting from the use of our product candidates in combination with othercancer therapies may make it difficult to accurately predict side effects in future clinical trials. If significant adverse events or other side effects are observed in any of our current or future clinical trials, we may havedifficulty recruiting patients to our clinical trials, patients may drop out of our trials, or we may be required to abandon thetrials or our development efforts of one or more product candidates altogether. Although our RCTs are designed to beenucleated, a small percentage may retain a nucleus, which could result in unexpected or undesirable side effects. We, theFDA or other applicable regulatory authorities, or an IRB may suspend clinical trials of a product candidate at any time forvarious reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks or adverse sideeffects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise inearly-stage trials have later been found to cause side effects that prevented their further development. Even if the side effectsdo not preclude the drug from obtaining or maintaining marketing approval, undesirable side effects may inhibit marketacceptance of the approved product due to its tolerability versus other therapies. Any of these developments could materiallyharm our business, financial condition and prospects. Positive results from early preclinical studies of our product candidates are not necessarily predictive of the results of laterpreclinical studies and any future clinical trials of our product candidates. If we cannot replicate the positive results fromour earlier preclinical studies of our product candidates in our later preclinical studies and future clinical trials, we maybe unable to successfully develop, obtain regulatory for and commercialize our product candidates. Any positive results from our preclinical studies of our product candidates may not necessarily be predictive of the resultsfrom required later preclinical studies and clinical trials. Similarly, even if we are able to complete our planned preclinicalstudies or any future clinical trials of our product candidates according to our current development timeline, the positiveresults from such preclinical studies and clinical trials of our product candidates may not be replicated in subsequentpreclinical studies or clinical trial results. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinicaltrials after achieving positive results in early-stage development and we cannot be certain that we will not face similarsetbacks. These setbacks have been caused by, among other things, preclinical and other nonclinical findings made whileclinical trials were underway, or safety or efficacy observations made in preclinical studies and clinical trials, includingpreviously unreported adverse events. Moreover, preclinical, nonclinical and clinical data are often susceptible to varyinginterpretations and analyses and many companies that believed their product candidates performed satisfactorily inpreclinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval. If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed orotherwise adversely affected. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion ofclinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number ofpatients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including: ·the severity of the disease under investigation; ·the patient eligibility and exclusion criteria defined in the protocol; ·the size of the patient population required for analysis of the trial’s primary endpoints; ·the proximity of patients to trial sites;74 Table of Contents ·the design of the trial; ·our ability to recruit clinical trial investigators with the appropriate competencies and experience; ·clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being studied inrelation to other available therapies, including any new drugs that may be in clinical development or approved for theindications we are investigating; ·the efforts to facilitate timely enrollment in clinical trials; ·the patient referral practices of physicians; ·the ability to monitor patients adequately during and after treatment; ·our ability to obtain and maintain patient consents; and ·the risk that patients enrolled in clinical trials will drop out of the trials before completion. Genetically defined diseases generally, and especially those for which our current rare disease product candidates aretargeted, have low incidence and prevalence. For example, the prevalence of phenylketonuria, or PKU, is estimated to be 1 in10,000 to 1 in 15,000 newborns in the United States and Europe and varies considerably in populations elsewhere around theworld. This could pose obstacles to the timely recruitment and enrollment of a sufficient number of eligible patients into ourproposed clinical and the other risks described above. In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeuticareas as our product candidates, and this competition will reduce the number and types of patients available to us, becausesome patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of ourcompetitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials atthe same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available forour clinical trials in such clinical trial site. Moreover, because our product candidates represent a departure from morecommonly used methods for our targeted therapeutic areas, potential patients and their doctors may be inclined to useconventional or newly launched competitive therapies, rather than enroll patients in any future clinical trial. Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials,which could prevent completion of these trials and adversely affect our ability to advance the development of our productcandidates. Interim top-line and preliminary data from our clinical trials that we announce or publish from time to time may change asmore patient data become available and are subject to audit and verification procedures that could result in materialchanges in the final data. From time to time, we may publish interim top-line or preliminary data from our clinical trials. Interim data from clinicaltrials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patientenrollment continues and more patient data become available. Preliminary or top-line data also remain subject to audit andverification procedures that may result in the final data being materially different from the preliminary data we previouslypublished. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adversedifferences between preliminary or interim data and final data could significantly harm our business prospects. 75 Table of ContentsIf we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines orpenalties or incur costs that could have a material adverse effect on the success of our business. We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratoryprocedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our research anddevelopment activities involve the use of biological and hazardous materials and produce hazardous waste products. Wegenerally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk ofcontamination or injury from these materials, which could cause an interruption of our commercialization efforts, researchand development efforts and business operations, environmental damage resulting in costly clean-up and liabilities underapplicable laws and regulations governing the use, storage, handling and disposal of these materials and specified wasteproducts. Although we believe that the safety procedures utilized by our third-party manufacturers for handling anddisposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannotguarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such anevent, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal orother applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore,environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannotpredict the impact of such changes and cannot be certain of our future compliance. In addition, we may incur substantialcosts in order to comply with current or future environmental, health and safety laws and regulations. These current or futurelaws and regulations may impair our research, development or production efforts. Failure to comply with these laws andregulations also may result in substantial fines, penalties or other sanctions. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries toour employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provideadequate coverage against potential liabilities. We do not carry specific biological waste or hazardous waste insurancecoverage, workers compensation or property and casualty and general liability insurance policies that include coverage fordamages and fines arising from biological or hazardous waste exposure or contamination. If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limitcommercialization of our product candidates. We face an inherent risk of product liability as a result of testing our product candidates in clinical trials and will face aneven greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or areperceived to cause injury or are found to be otherwise unsuitable during clinical trials, manufacturing, marketing or sale. Anysuch product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn ofdangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under stateconsumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incursubstantial liabilities or be required to limit commercialization of our product candidates. Even successful defense wouldrequire significant financial and management resources. Regardless of the merits or eventual outcome, liability claims mayresult in: ·inability to bring a product candidate to the market; ·decreased demand for our products; ·injury to our reputation; ·withdrawal of clinical trial participants and inability to continue clinical trials; ·initiation of investigations by regulators; ·costs to defend the related litigation; ·diversion of management’s time and our resources; 76 Table of Contents·substantial monetary awards to trial participants or patients; ·product recalls, withdrawals or labeling, marketing or promotional restrictions; ·loss of revenue; ·exhaustion of any available insurance and our capital resources; ·the inability to commercialize any product candidate; and ·declines in our share price. Since we have not yet commenced clinical trials, we do not yet hold clinical trial or product liability insurance. Our inabilityto obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claimscould prevent or inhibit the commercialization of products we develop, alone or with collaborators. If and when coverage issecured, our insurance policies may also have various exclusions, and we may be subject to a product liability claim forwhich we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceedour coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficientcapital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnificationagainst losses, such indemnification may not be available or adequate should any claim arise. The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failedprior treatments and may be small, and our estimates of the prevalence of our target patient populations may beinaccurate. Cancer and autoimmune therapies are sometimes characterized as first-line, second-line, third-line and even fourth-line, andthe FDA often approves new therapies initially only for last-line use. Initial approvals for new cancer and autoimmunetherapies are often restricted to later lines of therapy, and in the case of cancer specifically, for patients with advanced ormetastatic disease. This will limit the number of patients who may be eligible for such new therapies, which may include ourproduct candidates. Our projections of both the number of people who have the diseases we are targeting, as well as the subset of people withthese diseases in a position to receive our therapies, if approved, are based on our beliefs and estimates. These estimates havebeen derived from a variety of sources, including scientific literature, input from key opinion leaders, patient foundations, orsecondary market research databases, and may prove to be incorrect. Further, new studies may change the estimatedincidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Additionally, thepotentially addressable patient population for our product candidates may be limited or may not be amenable to treatmentwith our product candidates. For instance, we expect our product candidates targeting rare diseases to target the smallerpatient populations that suffer from the respective diseases we seek to treat. Furthermore, regulators and payors may furthernarrow the therapy-accessible treatment population. Even if we obtain significant market share for our product candidates,because certain of the potential target populations are small, we may never achieve profitability without obtaining regulatoryapproval for additional indications. We expect to develop RTX-240 and RTX-224, and potentially future product candidates, alone and in combination withother therapies, and safety or supply issues with combination-use products may delay or prevent development and approvalof our product candidates. We intend to develop RTX-240 and RTX-224, and likely other product candidates, alone and in combination with one ormore cancer therapies, both approved and unapproved. Even if any product candidate we develop were to receive marketingapproval or be commercialized for use in combination with other existing therapies, we would continue to be subject to therisks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the therapy used incombination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with theseexisting therapies. Combination therapies are commonly used for the treatment of cancer, and we would be subject to similarrisks if we develop any of our product candidates for use in combination with other drugs or for77 Table of Contentsindications other than cancer. Similarly, if the therapies we use in combination with our product candidates are replaced asthe standard of care for the indications we choose for any of our product candidates, the FDA or similar regulatory authoritiesoutside of the United States may require us to conduct additional clinical trials. The occurrence of any of these risks couldresult in our own products, if approved, being removed from the market or being less successful commercially. We may also evaluate RTX-240 and RTX-224 or any other future product candidates in combination with one or more cancertherapies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the UnitedStates. We will not be able to market and sell RTX-240, RTX-224 or any product candidate we develop in combination withany such unapproved cancer therapies that do not ultimately obtain marketing approval. The regulations prohibiting thepromotion of products for unapproved uses are complex and subject to substantial interpretation by the FDA and othergovernment agencies. In addition, there are additional risks similar to the ones described for our products currently indevelopment and clinical trials that result from the fact that such cancer therapies are unapproved, such as the potential forserious adverse effects, delay in their clinical trials and lack of FDA approval. If the FDA or similar regulatory authorities outside of the United States do not approve these other drugs or revoke theirapproval of, or if safety, efficacy, manufacturing, or supply issues arise with, the drugs we choose to evaluate in combinationwith RTX-240, RTX-224 or any product candidate we develop, we may be unable to obtain approval of or market RTX-240,RTX-224 or any product candidate we develop. Cellular therapies are a novel approach and negative perception of any product candidates that we develop couldadversely affect our ability to conduct our business or obtain regulatory approvals for such product candidates. Cellular therapies in general, and RCTs in particular, remain novel and unproven therapies, with no genetically engineeredred cell therapy approved to date in the United States or the European Union. RCTs may not gain the acceptance of thepublic or the medical community. For example, CAR-Ts and other cellular therapies have in some cases caused severe sideeffects and even mortality and their broader use may therefore be limited. Although our RCTs are fundamentally differentthan these earlier cellular therapies, they may be viewed in the same vein, limiting their market acceptance. Further, withrespect to our RTX-240 and RTX-224 programs, the use of potent T cell and NK cell stimulation as a potential treatment forsolid or hematological cancers is a recent scientific development and may not become broadly accepted by physicians,patients, hospitals, cancer treatment centers and others in the medical community. Our success will depend upon physicians who specialize in the treatment of diseases targeted by our product candidatesprescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments withwhich they are more familiar and for which greater clinical data may be available. Adverse events in clinical trials of ourproduct candidates or in clinical trials of others developing similar products and the resulting publicity, as well as any otheradverse events in the field of cellular therapies, could result in a decrease in demand for any product that we may develop. Inaddition, responses by the U.S., state or foreign governments to negative public perception or ethical concerns may result innew legislation or regulations that could limit our ability to develop or commercialize any product candidates, obtain ormaintain regulatory approval or otherwise achieve profitability. More restrictive statutory regimes, government regulationsor negative public opinion would have an adverse effect on our business, financial condition, results of operations andprospects and may delay or impair the development and commercialization of our product candidates or demand for anyproducts we may develop. We face significant competition from other biotechnology and pharmaceutical companies, and our operating results willsuffer if we fail to compete effectively. The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be ableto develop other compounds, drugs, cellular or gene therapies that are able to achieve similar or better results. Our potentialcompetitors include major multinational pharmaceutical companies, established biotechnology companies, specialtypharmaceutical companies and universities and other research institutions. Many of our competitors have substantiallygreater financial, technical and other resources, such as larger research and development staff, experienced marketing andmanufacturing organizations and well-established sales forces. Smaller or early-stage companies may also78 Table of Contentsprove to be significant competitors, particularly through collaborative arrangements with large, established companies.Established pharmaceutical companies may also invest heavily to accelerate discovery and development of noveltherapeutics or to in-license novel therapeutics that could make the product candidates that we develop obsolete. Mergersand acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentratedin our competitors. Competition may increase further as a result of advances in the commercial applicability of technologiesand greater availability of capital for investment in these industries. Our competitors, either alone or with collaborativepartners, may succeed in developing, acquiring or licensing on an exclusive basis drug, biologic, cellular or gene therapyproducts that are more effective, safer, more easily commercialized or less costly than our product candidates or may developproprietary technologies or secure patent protection that we may need for the development of our technologies and products.We believe the key competitive factors that will affect the development and commercial success of our product candidatesare efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement. We anticipate competing with the largest biopharmaceutical companies in the world, such as Novartis AG, GileadSciences, Inc., Amgen, Inc., F. Hoffman-La Roche AG (Roche), Johnson & Johnson, GlaxoSmithKline plc, Sanofi S.A., andPfizer Inc., which are all currently conducting research in cellular therapies, either alone or in partnerships with other parties,and all of which have greater financial and human resources than we currently have. In addition to these fully integratedbiopharmaceutical companies, we also compete with those companies whose products target the same indications as ourproduct candidates. Many third parties compete with us in developing various approaches to rare diseases, cancer andautoimmune therapies. They include pharmaceutical companies, biotechnology companies, academic institutions and otherresearch organizations. Any treatments developed by our competitors could be superior to our RCT product candidates. It ispossible that these competitors will succeed in developing technologies that are more effective than our RCTs or that wouldrender our cancer targeted RCTs obsolete or noncompetitive. We anticipate that we will face increased competition in thefuture as additional companies enter our market and scientific developments surrounding other rare diseases, cancer andautoimmune therapies continue to accelerate. In addition, we have identified four companies that are leveraging the red blood cell as a platform. Erytech Pharma SA isusing hypotonic enzyme loading to create products for use in cancer, rare disease and immunology. There are three othercompanies that rely on loading proteins into mature red cells: Orphan Technologies Ltd., which is developing a range ofproducts aimed at rare diseases; EryDel SpA, which is in late-stage development of dexamethasone loaded red blood cells, orRBCs for the treatment of ataxia telangiectasia; and SQZ Biotechnologies Companies, which is pursuing preclinicalapplications in cancer, enzyme replacement therapy and immune tolerance using a variety of cell-based approaches. Outside of RBC based competition, there are companies developing engineered enzymes and specializing in rare diseases,such as Codexis, Inc., which has a product candidate in a Phase 1 trial for the treatment of PKU and Aeglea BioTherapeutics,Inc., which has a product candidate in a Phase 1 trial for the treatment of hyperargininemia. There are a number of genetherapy companies, such as BioMarin Pharmaceutical, Inc., which has active gene therapy programs that include a preclinicalPKU product candidate, and Homology Medicines, Inc., which recently declared that it is in IND enabling studies with agene therapy product candidate and expects to initiate a clinical trial in PKU in the first quarter of 2019. In addition,Moderna, Inc. is in early preclinical work with an mRNA approach to addressing PKU and Synlogic, Inc. is one of severalcompanies developing engineered probiotic therapeutics to treat inborn errors of metabolism and has a product candidate ina Phase 1 trial for the treatment of urea cycle disorders, as well as a product candidate in a Phase 1/2 trial for the treatment ofPKU. Finally, Agios Pharmaceuticals, Inc. declared that it is in the early discovery stage with a small molecule approach toPKU treatment.Even if we obtain regulatory approval to market our product candidates, the availability and price of our competitors’products could limit the demand and the price we are able to charge for our product candidates. We may not be able toimplement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctanceof physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other newdrug or biologic products or choose to reserve our product candidates for use in limited circumstances. 79 Table of ContentsEven if a product candidate we develop receives marketing approval, it may fail to achieve the degree of marketacceptance by physicians, patients, third-party payors and others in the medical community necessary for commercialsuccess. If any product candidate we develop receives marketing approval, whether as a single agent or in combination with othertherapies, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors, and othersin the medical community. For example, other cancer treatments like chemotherapy, radiation therapy and immunotherapyare well established in the medical community, and doctors may continue to rely on these therapies. If the product candidateswe develop do not achieve an adequate level of acceptance, we may not generate significant product revenues and we maynot become profitable. The degree of market acceptance of any product candidate, if approved for commercial sale, willdepend on a number of factors, including: ·efficacy, safety and potential advantages compared to alternative treatments; ·convenience and ease of administration compared to alternative treatments; ·the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; ·public perception of new therapies, including cellular therapies; ·the strength of marketing and distribution support; ·the ability to offer our products, if approved, for sale at competitive prices; ·the ability to obtain sufficient third-party insurance coverage and adequate reimbursement, including with respect to theuse of the approved product as a combination therapy; ·adoption of a companion diagnostic and/or complementary diagnostic; and ·the prevalence and severity of any side effects. We will need to grow the size of our organization, and we may experience difficulties in managing this growth. As of Februrary 28, 2019, we had 142 full-time employees. As our research, development, manufacturing andcommercialization plans and strategies develop, and as we transition into operating as a public company, we expect to needadditional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significantadded responsibilities on members of management, including: ·identifying, recruiting, compensating, integrating, maintaining and motivating additional employees; ·managing our internal research and development efforts effectively, including identification of clinical candidates,scaling our manufacturing process and navigating the clinical and FDA review process for our product candidates; and ·improving our operational, financial and management controls, reporting systems and procedures. Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our abilityto effectively manage any future growth, and our management may also have to divert a disproportionate amount of itsattention away from day-to-day activities in order to devote a substantial amount of time to managing these growthactivities. We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain organizations, advisorsand consultants to provide certain services, including many aspects of regulatory affairs, clinical management andmanufacturing. There can be no assurance that the services of these organizations, advisors and consultants will80 Table of Contentscontinue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if weare unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided byconsultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not beable to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurancethat we will be able to manage our existing consultants or find other competent outside contractors and consultants oneconomically reasonable terms, or at all. If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultantsand contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize ourproduct candidates and, accordingly, may not achieve our research, development and commercialization goals. If we lose key management personnel, or if we fail to recruit additional highly skilled personnel, our ability to identify anddevelop new or next generation product candidates will be impaired, could result in loss of markets or market share andcould make us less competitive. Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability toattract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on ourmanagement, scientific and medical personnel, including David R. Epstein, our Chairman, Pablo J. Cagnoni, our ChiefExecutive Officer, Torben Straight Nissen, our President, Andrew Oh, our Chief Financial Officer, Chris Carpenter, our ChiefMedical Officer and Spencer Fisk, our Senior Vice President of Manufacturing. The loss of the services of any of ourexecutive officers, other key employees, and other scientific and medical advisors, and our inability to find suitablereplacements could result in delays in product development and harm our business. We conduct our operations at our facilities in Cambridge, Massachusetts and Smithfield, Rhode Island. The New Englandregion is headquarters to many other biopharmaceutical companies and many academic and research institutions.Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualifiedpersonnel on acceptable terms or at all. To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have providedrestricted stock and stock options that vest over time. The value to employees of stock options that vest over time may besignificantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient tocounteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of ourmanagement, scientific and development teams may terminate their employment with us on short notice. Employment of ourkey employees is at-will, which means that any of our employees could leave our employment at any time, with or withoutnotice. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our otheremployees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel. Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses. Our operations, and those of our CROs, contract manufacturing organizations, or CMOs, and other contractors andconsultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods,hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters orbusiness interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptionscould seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-partymanufacturers to produce and process our product candidates on a patient by patient basis. Our ability to obtain clinicalsupplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made ornatural disaster or other business interruption. Regulators globally are also imposing greater monetary fines for privacy violations. For example, in 2016, the EuropeanUnion adopted a new regulation governing data practices and privacy called the General Data Protection Regulation, orGDPR, which became effective on May 25, 2018. The GDPR applies to any company that collects and uses personal81 Table of Contentsdata in connection with offering goods or services to individuals in the European Union or the monitoring of their behavior.Non-compliance with the GDPR may result in monetary penalties of up to €20 million or 4% of worldwide revenue,whichever is higher. The GDPR and other changes in laws or regulations associated with the enhanced protection of certaintypes of personal data, such as healthcare data or other sensitive information, could greatly increase the cost of providing ourproduct candidates, if approved, or even prevent us from offering our product candidates, if approved, in certain jurisdictions. Our internal computer systems, or those used by our CROs, CMOs or other contractors or consultants, may fail or suffersecurity breaches. Despite the implementation of security measures, our internal computer systems and those of our future CROs, CMOs andother contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. While we havenot experienced any such material system failure or security breach to date, if such an event were to occur and causeinterruptions in our operations, it could result in a material disruption of our development programs and our businessoperations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in ourregulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we currently relyon third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating totheir computer systems could also have a material adverse effect on our business. To the extent that any disruption or securitybreach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential orproprietary information, we could incur liability and the further development and commercialization of our productcandidates could be delayed. Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or otherimproper activities, including noncompliance with regulatory standards and requirements. We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors,consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/ornegligent conduct that fails to comply with the laws of the FDA and other similar foreign regulatory bodies, provide true,complete and accurate information to the FDA and other similar foreign regulatory bodies, comply with manufacturingstandards we have established, comply with healthcare fraud and abuse laws in the United States and similar foreignfraudulent misconduct laws, or report financial information or data accurately or to disclose unauthorized activities to us. Ifwe obtain FDA approval of any of our product candidates and begin commercializing those products in the United States, ourpotential exposure under such laws will increase significantly, and our costs associated with compliance with such laws arealso likely to increase. These laws may impact, among other things, our current activities with principal investigators andresearch patients, as well as proposed and future sales, marketing and education programs. Our relationships with healthcare providers and physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civilpenalties, contractual damages, reputational harm and diminished profits and future earnings. Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in therecommendation and prescription of pharmaceutical products. Arrangements with third-party payors and customers canexpose pharmaceutical manufactures to broadly applicable fraud and abuse and other healthcare laws and regulations,including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, which may constrain thebusiness or financial arrangements and relationships through which such companies sell, market and distributepharmaceutical products. In particular, the promotion, sales and marketing of healthcare items and services, as well as certainbusiness arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting,marketing and promotion, structuring and commission(s), certain customer incentive programs and other businessarrangements generally. Activities subject to these laws also involve the improper use of information82 Table of Contentsobtained in the course of patient recruitment for clinical trials. The applicable federal, state and foreign healthcare laws andregulations laws that may affect our ability to operate include, but are not limited to: ·the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving,offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly,in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order orrecommendation of any good, facility, item or service for which payment may be made, in whole or in part, under afederal healthcare program, such as the Medicare and Medicaid programs. A person or entity can be found guilty ofviolating the statute without actual knowledge of the statute or specific intent to violate it. In addition, a claimincluding items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false orfraudulent claim for purposes of the False Claims Act, or FCA. The Anti-Kickback Statute has been interpreted to applyto arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formularymanagers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some commonactivities from prosecution; ·federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit, amongother things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims forpayment to, or approval by, Medicare, Medicaid, or other federal healthcare programs, knowingly making, using orcausing to be made or used a false record or statement material to a false or fraudulent claim or an obligation to pay ortransmit money to the federal government, or knowingly concealing or knowingly and improperly avoiding, decreasingor concealing an obligation to pay money to the federal government. Manufacturers can be held liable under the FCAeven when they do not submit claims directly to government payors if they are deemed to “cause” the submission offalse or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions onbehalf of the federal government alleging violations of the FCA and to share in any monetary recovery; ·the federal anti-inducement law, prohibits, among other things, the offering or giving of remuneration, which includes,without limitation, any transfer of items or services for free or for less than fair market value (with limited exceptions), toa Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’sselection of a particular supplier of items or services reimbursable by a federal or state governmental program; ·the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminalstatutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcarebenefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money orproperty owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor(e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device amaterial fact or making any materially false statements in connection with the delivery of, or payment for, healthcarebenefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entitycan be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it; ·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH,and their respective implementing regulations, which impose, among other things, requirements on certain coveredhealthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates thatperform services for them that involve the use or disclosure of, individually identifiable health information, relating tothe privacy, security and transmission of individually identifiable health information without appropriate authorization.HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directlyapplicable to business associates, and gave state attorneys general new authority to file civil actions for damages orinjunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated withpursuing federal civil actions; ·the federal Physician Payment Sunshine Act, created under the Patient Protection and Affordable Care Act, and itsimplementing regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for83 Table of Contentswhich payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certainexceptions) to report annually to the United States Department of Health and Human Services, or HHS, informationrelated to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists,podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physiciansand their immediate family members; ·the U.S. Federal Food, Drug, and Cosmetic Act, or FDCA, which prohibits, among other things, the adulteration ormisbranding of drugs, biologics and medical devices; ·federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activitiesthat potentially harm consumers; and ·analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply tosales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmentalthird-party payors, including private insurers, and may be broader in scope than their federal equivalents; state andforeign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary complianceguidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict paymentsthat may be made to healthcare providers; state and foreign laws that require drug manufacturers to report informationrelated to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures;and state and foreign laws governing the privacy and security of health information in certain circumstances, many ofwhich differ from each other in significant ways and often are not preempted by HIPAA, thus complicating complianceefforts. The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensiverecord-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceuticalproducts. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment ofhealthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcementbodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, whichhas led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring businessarrangements comply with applicable healthcare laws, as well as responding to possible investigations by governmentauthorities, can be time- and resource-consuming and can divert a company’s attention from the business.On January 31, 2019, the HHS and HHS Office of Inspector General proposed an amendment to one of the existing Anti-Kickback safe harbors (42 C.F.R. 1001.952(h)) which would prohibit certain pharmaceutical manufacturers from offeringrebates to pharmacy benefit managers, or PBMs, in the Medicare Part D and Medicaid managed care programs. The proposedamendment would remove protection for "discounts" from Anti-Kickback enforcement action, and would include criminaland civil penalties for knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or reward thereferral of business reimbursable under federal health care programs. At the same time, HHS also proposed to create a new safeharbor to protect point-of-sale discounts that drug manufacturers provide directly to patients, and adds another safe harbor toprotect certain administrative fees paid by manufacturers to PBMs. If this proposal is adopted, in whole or in part, it couldaffect the pricing and reimbursement for any products for which we receive approval in the future. The failure to comply with any of these laws or regulatory requirements subjects entities to possible legal or regulatoryaction. Depending on the circumstances, failure to meet applicable regulatory requirements can result in civil, criminal andadministrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation infederal and state funded healthcare programs, contractual damages and the curtailment or restricting of our operations, as wellas additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreementto resolve allegations of non-compliance with these laws. Any action for violation of these laws, even if successfullydefended, could cause a pharmaceutical manufacturer to incur significant legal expenses and84 Table of Contentsdivert management’s attention from the operation of the business. Prohibitions or restrictions on sales or withdrawal of futuremarketed products could materially affect business in an adverse way. We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter employeemisconduct, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controllingunknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuitsstemming from a failure to be in compliance with such laws or regulations. Efforts to ensure that our business arrangementswill comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcementauthorities will conclude that our business practices may not comply with current or future statutes, regulations or case lawinterpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us,and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on ourbusiness, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines,possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages,reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adverselyaffect our ability to operate our business and our results of operations. In addition, the approval and commercialization ofany of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcarelaws mentioned above, among other foreign laws. We may not be successful in our efforts to identify additional product candidates. Due to our limited resources and accessto capital, we must prioritize development of certain product candidates, which may prove to be wrong and may adverselyaffect our business. Although we intend to explore other therapeutic opportunities, in addition to the product candidates that we are currentlydeveloping, we may fail to identify viable new product candidates for clinical development for a number of reasons. If we failto identify additional potential product candidates, our business could be materially harmed. Research programs to pursue the development of our existing and planned product candidates for additional indications andto identify new product candidates and disease targets require substantial technical, financial and human resources whetheror not they are ultimately successful. Our research programs may initially show promise in identifying potential indicationsand/or product candidates, yet fail to yield results for clinical development for a number of reasons, including: ·the research methodology used may not be successful in identifying potential indications and/or product candidates; ·potential product candidates may, after further study, be shown to have harmful adverse effects or other characteristicsthat indicate they are unlikely to be effective drugs; or ·it may take greater human and financial resources than we will possess to identify additional therapeutic opportunitiesfor our product candidates or to develop suitable potential product candidates through internal research programs,thereby limiting our ability to develop, diversify and expand our product portfolio. Because we have limited financial and human resources, we intend to initially focus on research programs and productcandidates for a limited set of indications. As a result, we may forego or delay pursuit of opportunities with other productcandidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success.Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable marketopportunities. Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for ourproduct candidates or to develop suitable potential product candidates through internal research programs, which couldmaterially adversely affect our future growth and prospects. We may focus our efforts and resources on potential productcandidates or other potential programs that ultimately prove to be unsuccessful. 85 Table of ContentsIf we fail to develop additional product candidates, our commercial opportunity will be limited. Developing and obtaining regulatory approval for and commercializing any additional product candidates we identify willrequire substantial additional funding beyond the net proceeds from our IPO completed in July 2018 and is prone to the risksof failure inherent in medical product development. We cannot provide you any assurance that we will be able tosuccessfully advance additional product candidates, if any, through the development process. Even if we receive FDA approval to market additional product candidates for the treatment of the diseases we target, wecannot assure our stockholders that any such product candidates will be successfully commercialized, widely accepted in themarketplace or more effective than other commercially available alternatives. If we are unable to successfully develop andcommercialize additional product candidates, our commercial opportunity will be limited. Moreover, a failure in obtainingregulatory approval of additional product candidates may have a negative effect on the approval process of other productcandidates of ours or result in losing approval of any approved product candidate. A variety of risks associated with marketing our product candidates internationally could materially adversely affect ourbusiness. We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect thatwe will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals,including: ·differing regulatory requirements in foreign countries; ·unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements; ·economic weakness, including inflation, or political instability in particular foreign economies and markets; ·compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; ·foreign taxes, including withholding of payroll taxes; ·foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and otherobligations incident to doing business in another country; ·difficulties staffing and managing foreign operations; ·workforce uncertainty in countries where labor unrest is more common than in the United States; ·potential liability under the Foreign Corrupt Practices Act, or FCPA, or comparable foreign regulations; ·challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do notrespect and protect intellectual property rights to the same extent as the United States; ·production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and ·business interruptions resulting from geo-political actions, including war and terrorism. These and other risks associated with our international operations may materially adversely affect our ability to attain ormaintain profitable operations. 86 Table of ContentsWe currently have no marketing and sales organization and have no experience in marketing products. If we are unable toestablish marketing and sales capabilities or enter into agreements with third parties to market and sell our productcandidates, we may not be able to generate product revenue. We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. We maydevelop an in-house marketing organization and sales force, which will require significant capital expenditures, managementresources and time. In the event we develop and deploy these capabilities, we will have to compete with otherpharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. In addition to establishing internal sales, marketing and distribution capabilities, we may pursue collaborative arrangementsregarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish ormaintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenuewe receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no controlover the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we hadcommercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with thesales and marketing efforts of our product candidates. There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintainrelationships with third-party collaborators to commercialize any product in the United States or overseas. Comprehensive tax reform legislation could adversely affect our business and financial condition. On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, or the TCJA, that significantly reformsthe Internal Revenue Code of 1986, as amended, or the Code. The TCJA, among other things, contains significant changes tocorporate taxation, including reduction of the corporate tax rate from a top marginal tax rate of 35% to a flat rate of 21%,limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses),limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating losscarrybacks and modifying or repealing many business deductions and credits (including reducing the business tax credit forcertain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as“orphan drugs”). We continue to examine the impact this tax reform legislation may have on our business. However, theeffect of the TCJA on our business, whether adverse or favorable, is uncertain and may not become evident for some period oftime. We urge investors to consult with their legal and tax advisers regarding the implications of the TCJA on an investmentin our common stock. Our ability to use net operating losses and research and development credits to offset future taxable income may be subjectto certain limitations. As of December 31, 2018, we had U.S. federal and state net operating loss, or NOL, carryforwards of $93.2 million and$93.9 million, respectively, which may be available to offset future taxable income. The federal NOLs include $37.2million which expire at various dates through 2037 and $56.0 million which carryforward indefinitely. The state NOLsexpire at various dates through 2038. As of December 31, 2018, we also had U.S. federal and state research and developmenttax credit carryforwards of $3.0 million and $1.1 million, respectively, which may be available to offset future tax liabilitiesand begin to expire in 2034 and 2031, respectively. In addition, in general, under Sections 382 and 383 of the Code andcorresponding provisions of state law, a corporation that undergoes an “ownership change” is subject to limitations on itsability to utilize its pre-change net operating loss carryforwards or tax credits, or NOLs or credits, to offset future taxableincome or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one ormore stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by morethan 50 percentage points over its lowest ownership percentage within a specified testing period. Our existing NOLs orcredits may be subject to limitations arising from previous ownership changes, including in connection with our recentprivate placements, IPO and other transactions. In addition, future changes in our stock ownership, many of which are outsideof our control, could result in an ownership change under Sections 382 and 383 of the Code and our ability to utilize NOLsor credits may be impaired. Our NOLs or credits may also be impaired under state law. Accordingly, we may not be able toutilize a material portion of our NOLs or credits. Furthermore, our ability to utilize our NOLs or credits is conditioned uponour attaining profitability and87 Table of Contentsgenerating U. S. federal and state taxable income. As described above under “Risk factors—Risks related to our business,technology and industry,” we have incurred significant net losses since our inception and anticipate that we will continue toincur significant losses for the foreseeable future; and therefore, we do not know whether or when we will generate the U.S.federal or state taxable income necessary to utilize our NOLs or credits that are subject to limitation by Sections 382 and 383of the Code. The reduction of the corporate tax rate under the TCJA caused a reduction in the economic benefit of our netoperating loss carryforwards and other deferred tax assets available to us. Under the TCJA, net operating loss carryforwardsgenerated after December 31, 2017 will not be subject to expiration. Unstable market and economic conditions may have serious adverse consequences on our business, financial condition andstock price. As widely reported, global credit and financial markets have experienced extreme volatility and disruptions in the pastseveral years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines ineconomic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance thatdeterioration in credit and financial markets and confidence in economic conditions will not occur. Our general businessstrategy may be adversely affected by any such economic downturn, volatile business environment or continuedunpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it maymake any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessaryfinancing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financialperformance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a riskthat one or more of our current service providers, manufacturers and other partners may not survive these difficult economictimes, which could directly affect our ability to attain our operating goals on schedule and on budget. As of December 31, 2018, we had cash, cash equivalents and investments of $404.1 million. While we are not aware of anydowngrades, material losses, or other significant deterioration in the fair value of our cash equivalents and investments sinceDecember 31, 2018, no assurance can be given that further deterioration of the global credit and financial markets would notnegatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives. Furthermore, ourstock price may decline due in part to the volatility of the stock market and the general economic downturn. Risks related to government regulation We are very early in our development efforts. All of our product candidates are still in preclinical development. If we areunable to advance our product candidates to clinical development, obtain regulatory approval and ultimatelycommercialize our product candidates or experience significant delays in doing so, our business will be materially harmed. We are very early in our development efforts, and all of our product candidates are still in preclinical development. We haveinvested substantially all of our efforts and financial resources in the identification and preclinical development of RCTs,including the development of our initial product candidates, RTX-134, RTX-240, and RTX-224. Our ability to generateproduct revenues, which we do not expect will occur for many years, if ever, will depend on the successful development andeventual commercialization of our product candidates, which may never occur. We currently generate no revenue from salesof any products, and we may never be able to develop or commercialize a marketable product. In addition, certain of ourproduct candidate development programs contemplate the development of companion diagnostics, which are assays or teststo identify an appropriate patient population. Companion diagnostics are subject to regulation as medical devices and mustthemselves be approved for marketing by the FDA or certain other foreign regulatory agencies before we may commercializeour products. The success of our product candidates will depend on several factors, including the following: ·successful completion of preclinical studies; ·approval of INDs for our planned clinical trials or future clinical trials; 88 Table of Contents·successful enrollment in, and completion of, clinical trials; ·successful development of companion diagnostics for use with certain of our product candidates; ·receipt of regulatory approvals from applicable regulatory authorities; ·establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers for clinicalsupply and commercial manufacturing; ·obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates; ·launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration withothers; ·acceptance of the product candidates, if and when approved, by patients, the medical community and third-party payors; ·effectively competing with other therapies; ·obtaining and maintaining third-party insurance coverage and adequate reimbursement; ·enforcing and defending intellectual property rights and claims; and ·maintaining a continued acceptable safety profile of the product candidates following approval. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or aninability to successfully commercialize our product candidates, which would materially harm our business. If we do notreceive regulatory approvals for our product candidates, we may not be able to continue our operations. We may rely on third parties to conduct investigator-sponsored clinical trials of our product candidates. Any failure by athird party to meet its obligations with respect to the clinical development of our product candidates may delay or impairour ability to obtain regulatory approval for other product candidates. We may rely on academic and private non-academic institutions to conduct and sponsor clinical trials relating to our productcandidates. We will not control the design or conduct of the investigator-sponsored trials, and it is possible that the FDA ornon-U.S. regulatory authorities will not view these investigator-sponsored trials as providing adequate support for futureclinical trials, whether controlled by us or third parties, for any one or more reasons, including elements of the design orexecution of the trials or safety concerns or other trial results. Such arrangements will likely provide us certain information rights with respect to the investigator-sponsored trials,including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from theinvestigator-sponsored trials. However, we would not have control over the timing and reporting of the data frominvestigator-sponsored trials, nor would we own the data from the investigator-sponsored trials. If we are unable to confirm orreplicate the results from the investigator-sponsored trials or if negative results are obtained, we would likely be furtherdelayed or prevented from advancing further clinical development of our product candidates. Further, if investigators orinstitutions breach their obligations with respect to the clinical development of our product candidates, or if the data provesto be inadequate compared to the first-hand knowledge we might have gained had the investigator-sponsored trials beensponsored and conducted by us, then our ability to design and conduct any future clinical trials ourselves may be adverselyaffected. Additionally, the FDA or non-U.S. regulatory authorities may disagree with the sufficiency of our right of reference to thepreclinical, manufacturing or clinical data generated by these investigator-sponsored trials, or our interpretation ofpreclinical, manufacturing or clinical data from these investigator-sponsored trials. If so, the FDA or other non-U.S.89 Table of Contentsregulatory authorities may require us to obtain and submit additional preclinical, manufacturing, or clinical data before wemay initiate our planned trials and/or may not accept such additional data as adequate to initiate our planned trials. Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we willbe successful in obtaining regulatory approval of our product candidates in other jurisdictions. Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we willbe able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatoryapproval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if theFDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must alsoapprove the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures varyamong jurisdictions and can involve requirements and administrative review periods different from, and greater than, those inthe United States, including additional nonclinical studies or clinical trials as clinical trials conducted in one jurisdictionmay not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, aproduct candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases,the price that we intend to charge for our products is also subject to approval. We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the UnitedStates have requirements for approval of product candidates with which we must comply prior to marketing in thosejurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result insignificant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certaincountries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketingapprovals, our target market will be reduced and our ability to realize the full market potential of our product candidates willbe harmed. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates,we will not be able to commercialize, or will be delayed in commercializing, our product candidates, and our ability togenerate revenue will be materially impaired. Our product candidates and the activities associated with their development and commercialization, including their design,testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution,import and export are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States andby comparable authorities in other countries. Before we can commercialize any of our product candidates, we must obtainmarketing approval. We have not received approval to market any of our product candidates from regulatory authorities inany jurisdiction and it is possible that none of our product candidates or any product candidates we may seek to develop inthe future will ever obtain regulatory approval. We, as a company, have no experience in filing and supporting theapplications necessary to gain regulatory approvals and expect to rely on third-party CROs and/or regulatory consultants toassist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data andsupporting information to the various regulatory authorities for each therapeutic indication to establish the drug candidate’ssafety and efficacy. Securing regulatory approval also requires the submission of information about the drug manufacturingprocess to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our product candidates may notbe effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities orother characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. The process of obtaining regulatory approvals, both in the United States and abroad, is expensive, may take many years ifadditional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors,including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policiesduring the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatoryreview for each submitted IND, Premarket Approval, or PMA, BLA or equivalent application types, may cause delays in theapproval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion inthe approval process and may refuse to accept any application or may decide that our data are90 Table of Contentsinsufficient for approval and require additional preclinical, clinical or other studies. Our product candidates could be delayedin receiving, or fail to receive, regulatory approval for many reasons, including the following: ·the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinicaltrials; ·we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a drugcandidate is safe and effective for its proposed indication or a related companion diagnostic is suitable to identifyappropriate patient populations; ·the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreignregulatory authorities for approval; ·we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; ·the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinicalstudies or clinical trials; ·the data collected from clinical trials of our product candidates may not be sufficient to support the submission of anBLA or other submission or to obtain regulatory approval in the United States or elsewhere; ·the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities ofthird-party manufacturers with which we contract for clinical and commercial supplies; and ·the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change ina manner rendering our clinical data insufficient for approval. Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatoryapproval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinicaltrial results may result in our failing to obtain regulatory approval to market our product candidates, which wouldsignificantly harm our business, results of operations and prospects. We expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. As aresult, our ability to develop product candidates and obtain regulatory approval may be significantly impacted. For example, the general approach for FDA approval of a new biologic or drug is for sponsors to seek licensure or approvalbased on dispositive data from well-controlled, Phase 3 clinical trials of the relevant product candidate in the relevant patientpopulation. Phase 3 clinical trials typically involve hundreds of patients, have significant costs and take years to complete.We believe that we may be able to utilize FDA’s accelerated approval program for our product candidates given the limitedalternatives for treatments for certain rare diseases, cancer and autoimmune diseases, but the FDA may not agree with ourplans. The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of thesafety and efficacy data to support approval. The opinion of the Advisory Committee, although not binding, may have asignificant impact on our ability to obtain approval of any product candidates that we develop based on the completedclinical trials. Moreover, approval of genetic or biomarker diagnostic tests may be necessary in order to advance some of our productcandidates to clinical trials or potential commercialization. In the future regulatory agencies may require the developmentand approval of such tests. Accordingly, the regulatory approval pathway for such product candidates may be uncertain,complex, expensive and lengthy, and approval may not be obtained. In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer ormore limited indications than we request, may not approve the price we intend to charge for our products, may91 Table of Contentsgrant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidatewith a label that does not include the labeling claims necessary or desirable for the successful commercialization of thatproduct candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our productcandidates. If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercialprospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired. Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit thecommercial profile of an approved label, or result in significant negative consequences following marketing approval, ifany. Undesirable side effects caused by our product candidates could cause us to interrupt, delay or halt preclinical studies orcould cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label orthe delay or denial of regulatory approval by the FDA or other regulatory authorities. While we have not yet initiated clinicaltrials for any of our product candidates, as is the case with many treatments for rare diseases, cancer and autoimmune diseases,it is likely that there may be side effects associated with their use. Results of our trials could reveal a high and unacceptableseverity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and theFDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of ourproduct candidates for any or all targeted indications. The treatment-related side effects could affect patient recruitment orthe ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrencesmay harm our business, financial condition and prospects significantly. Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patientsand limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with asignificantly larger number of patients exposed to the product candidate. If our product candidates receive marketingapproval and we or others identify undesirable side effects caused by such product candidates (or any other similar drugs)after such approval, a number of potentially significant negative consequences could result, including: ·regulatory authorities may withdraw or limit their approval of such product candidates; ·regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication; ·we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; ·we may be required to change the way such product candidates are distributed or administered, conduct additionalclinical trials or change the labeling of the product candidates; ·regulatory authorities may require a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, whichcould include medication guides, physician communication plans, or elements to assure safe use, such as restricteddistribution methods, patient registries and other risk minimization tools; ·we may be subject to regulatory investigations and government enforcement actions; ·we may decide to remove such product candidates from the marketplace; ·we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and ·our reputation may suffer. 92 Table of ContentsWe believe that any of these events could prevent us from achieving or maintaining market acceptance of the affectedproduct candidates and could substantially increase the costs of commercializing our product candidates, if approved, andsignificantly impact our ability to successfully commercialize our product candidates and generate revenues. Breakthrough Therapy Designation, Fast Track Designation or Regenerative Medicine Advanced Therapy Designation bythe FDA, even if granted for any of our product candidates, may not lead to a faster development, regulatory review orapproval process, and it does not increase the likelihood that any of our product candidates will receive marketingapproval in the United States. We may seek a Breakthrough Therapy Designation for some of our product candidates. A breakthrough therapy is defined asa therapy that is intended, alone or in combination with one or more other therapies, to treat a serious or life-threateningdisease or condition, and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvementover existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early inclinical development. For therapies that have been designated as breakthrough therapies, interaction and communicationbetween the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development whileminimizing the number of patients placed in ineffective control regimens. Therapies designated as breakthrough therapies bythe FDA may also be eligible for priority review and accelerated approval. Designation as a breakthrough therapy is withinthe discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation asa breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receiptof a Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review orapproval compared to therapies considered for approval under conventional FDA procedures and does not assure ultimateapproval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDAmay later decide that such product candidates no longer meet the conditions for qualification or decide that the time periodfor FDA review or approval will not be shortened. We may seek Fast Track Designation for some of our product candidates. If a therapy is intended for the treatment of a seriousor life-threatening condition and the therapy demonstrates the potential to address unmet medical needs for this condition,the therapy sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant thisdesignation, so even if we believe a particular product candidate is eligible for this designation; we cannot assure ourstockholers that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience afaster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw FastTrack Designation if it believes that the designation is no longer supported by data from our clinical development program.Fast Track Designation alone does not guarantee qualification for the FDA’s priority review procedures. We may seek Regenerative Medicine Advanced Therapy, or RMAT, designation for one or more of our product candidates.In 2017, the FDA established the RMAT designation as part of its implementation of the 21st Century Cures Act to expeditereview of any drug that meets the following criteria: it qualifies as a RMAT, which is defined as a cell therapy, therapeutictissue engineering product, human cell and tissue product, or any combination product using such therapies or products, withlimited exceptions; it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; andpreliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease orcondition. Like Breakthrough Therapy Designation, RMAT designation provides potential benefits that include morefrequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review andpriority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogateor intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from ameaningful number of sites, including through expansion to additional sites. RMAT-designated products that receiveaccelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinicalevidence, clinical trials, patient registries, or other sources of real world evidence, such as electronic health records; throughthe collection of larger confirmatory data sets; or via post-approval monitoring of all patients treated with such therapy priorto approval of the therapy. There is no assurance that we will be able to obtain RMAT designation for any of our productcandidates. RMAT designation does not change the FDA’s standards for product approval, and there is no assurance thatsuch designation will result in expedited review or approval or that the approved indication will not be narrower than theindication covered by the designation. Additionally, RMAT designation can be revoked if the criteria for eligibility cease tobe met as clinical data emerges.93 Table of Contents We may seek priority review designation for one or more of our other product candidates, but we might not receive suchdesignation, and even if we do, such designation may not lead to a faster development or regulatory review or approvalprocess. If the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product wouldprovide a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priorityreview. A priority review designation means that the goal for the FDA to review an application is six months, rather than thestandard review period of ten months. We may request priority review for our product candidates. The FDA has broaddiscretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe aparticular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, apriority review designation does not necessarily result in expedited development or regulatory review or approval process ornecessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priorityreview from the FDA does not guarantee approval within the six-month review cycle or at all. We may fail to obtain and maintain orphan drug designations from the FDA for our current and future product candidates,as applicable. Our strategy includes filing for orphan drug designation where available for our product candidates. Under the Orphan DrugAct, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which isdefined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greaterthan 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug or biologicwill be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financialincentives, such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. Inaddition, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease for whichit has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve anyother applications, including a full new drug application, or NDA, or BLA, to market the same drug or biologic for the sameindication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product withorphan drug exclusivity or where the original manufacturer is unable to assure sufficient product quantity. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader thanthe orphan-designated indication or may be lost if the FDA later determines that the request for designation was materiallydefective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the orphan-designated disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may noteffectively protect the product from competition because different drugs with different active moieties may receive and beapproved for the same condition, and only the first applicant to receive approval will receive the benefits of marketingexclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later drug with thesame active moiety for the same condition if the FDA concludes that the later drug is clinically superior if it is shown to besafer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens thedevelopment time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approvalprocess. In addition, while we may seek orphan drug designation for our product candidates, we may never receive suchdesignations. Even if we receive regulatory approval of any product candidates or therapies, we will be subject to ongoing regulatoryobligations and continued regulatory review, which may result in significant additional expense and we may be subject topenalties if we fail to comply with regulatory requirements or experience unanticipated problems with our productcandidates. If any of our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing,labeling, packaging, storage, advertising, promotion, sampling, record-keeping, export, import, conduct of post-marketingstudies and submission of safety, efficacy and other post-market information, including both federal and state requirements inthe United States and requirements of comparable foreign regulatory authorities. In addition,94 Table of Contentswe will be subject to continued compliance with cGMP and GCP requirements for any clinical trials that we conduct post-approval. Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatoryauthority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations.As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance withcGMP and adherence to commitments made in any BLA, other marketing application, and previous responses to inspectionobservations. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas ofregulatory compliance, including manufacturing, production and quality control. Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicateduses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costlypost-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the productcandidate. The FDA may also require a risk evaluation and mitigation strategies, or REMS, program as a condition ofapproval of our product candidates, which could entail requirements for long-term patient follow-up, a medication guide,physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patientregistries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves ourproduct candidates, we will have to comply with requirements including submissions of safety and other post-marketinginformation and reports and registration. The FDA may impose consent decrees or withdraw approval if compliance with regulatory requirements and standards is notmaintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems withour product candidates, including adverse events of unanticipated severity or frequency, or with our third-partymanufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to theapproved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safetyrisks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequencesinclude, among other things: ·restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market or voluntary ormandatory product recalls; ·fines, warning letters or holds on clinical trials; ·refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspensionor revocation of license approvals; ·product seizure or detention or refusal to permit the import or export of our product candidates; and ·injunctions or the imposition of civil or criminal penalties. The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market.Products may be promoted only for the approved indications and in accordance with the provisions of the approved label.The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses and acompany that is found to have improperly promoted off-label uses may be subject to significant liability. The policies of theFDA and of other regulatory authorities may change and additional government regulations may be enacted that couldprevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existingrequirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, wemay lose any marketing approval that we may have obtained which would adversely affect our business, prospects andability to achieve or sustain profitability. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation oradministrative or executive action, either in the United States or abroad. For example, certain policies of the currentadministration may impact our business and industry. Namely, the current administration has taken several executive actions,including the issuance of a number of executive orders, that could impose significant burdens on, or otherwise95 Table of Contentsmaterially delay, the FDA’s ability to engage in routine regulatory and oversight activities, such as implementing statutesthrough rulemaking, issuance of guidance and review and approval of marketing applications. It is difficult to predict howthese executive actions, including any executive orders, will be implemented, and the extent to which they will impact theFDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage inoversight and implementation activities in the normal course, our business may be negatively impacted. Healthcare insurance coverage and reimbursement may be limited or unavailable in certain market segments for ourproduct candidates, if approved, which could make it difficult for us to sell any product candidates or therapies profitably. The success of our product candidates, if approved, depends on the availability of adequate coverage and reimbursementfrom third-party payors. In addition, because our product candidates represent new approaches to the treatment of thediseases they target, we cannot be sure that coverage and reimbursement will be available for, or accurately estimate thepotential revenue from, our product candidates or assure that coverage and reimbursement will be available for any productthat we may develop. Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or partof the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs,such as Medicare and Medicaid, and commercial payors are critical to new product acceptance. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decidewhich drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-partypayor may depend upon a number of factors, including the third-party payor’s determination that use of a product is: ·a covered benefit under its health plan; ·safe, effective and medically necessary; ·appropriate for the specific patient; ·cost-effective; and ·neither experimental nor investigational. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. As aresult, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequatereimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment ratesmight not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptablyhigh. Further, even if one payor provides coverage for a given product, other payors may not provide coverage for thatproduct. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-upevaluations required following the use of product candidates. Patients are unlikely to use our product candidates unlesscoverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates.Because our product candidates may have a higher cost of goods than conventional therapies, and may require long-termfollow-up evaluations, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability maybe greater. There is significant uncertainty related to insurance coverage and reimbursement of newly approved products. It isdifficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for ourproduct candidates. Payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, theMiddle Class Tax Relief and Job Creation Act of 2012 required that the Centers for Medicare & Medicaid Services, the96 Table of Contentsagency responsible for administering the Medicare program, or CMS, reduce the Medicare clinical laboratory fee schedule by2% in 2013, which served as a base for 2014 and subsequent years. In addition, effective January 1, 2014, CMS also beganbundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatientsetting. Additional state and federal healthcare reform measures are expected to be adopted in the future, any of which couldlimit the amounts that federal and state governments will pay for healthcare products and services, which could result inreduced demand for certain pharmaceutical products or additional pricing pressures. Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reducehealthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approvedproducts and, as a result, they may not cover or provide adequate payment for our product candidates. There has beenincreasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices.Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designedto, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, reviewthe relationship between pricing and manufacturer patient programs, and reform government program reimbursementmethodologies for drugs. For example, in October 2017, California became the first state to pass legislation requiringpharmaceutical manufacturers to announce planned drug price increases. While this legislation does not directly affect drugprices, it puts further pressure on pharmaceutical manufacturers in setting prices. At least one state, Oregon, has recentlypassed a similar law, requiring pharmaceutical manufacturers to disclose cost components, and other states are likely tofollow. Additionally, the Trump administration recently released a “Blueprint”, or plan, to reduce the cost of drugs. TheTrump administrations’ Blueprint contains certain measures that the U.S. Department of Health and Human Services isalready working to implement. At the state level, legislatures are increasingly passing legislation and implementingregulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursementconstraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, insome cases, designed to encourage importation from other countries and bulk purchasing. We expect to experience pricingpressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, theincreasing influence of health maintenance organizations, cost containment initiatives and additional legislative changes. Ongoing healthcare legislative and regulatory reform measures may have a material adverse effect on our business andresults of operations. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future byrequiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling;(iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were tobe imposed, they could adversely affect the operation of our business. In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. Forexample, in March 2010, the Patient Protection and Affordable Care Act, or the ACA, was passed, which substantiallychanges the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S.pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-costbiosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug RebateProgram are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaidrebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individualsenrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain brandedprescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree tooffer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during theircoverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certainprovisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. OneExecutive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grantexemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burdenon states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical97 Table of Contentsdevices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. On June14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than$12 billion in ACA risk corridor payments to third-party payors who argued were owed to them. The effects of this gap inreimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially our business, are notyet known. Moreover, on May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federalframework for certain patients to access certain investigational new drug products that have completed a Phase I clinical trialand that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatmentwithout enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There isno obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to TryAct, but the manufacturer must develop an internal policy and respond to patient requests according to that policy. Weexpect that additional foreign, federal and state healthcare reform measures will be adopted in the future, any of which couldlimit the amounts that federal and state governments will pay for healthcare products and services, which could result inlimited coverage and reimbursement and reduced demand for our products, once approved, or additional pricing pressures. These laws, and future state and federal healthcare reform measures may be adopted in the future, any of which may result inadditional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of ourproduct candidates for which we may obtain regulatory approval or the frequency with which any such product candidate isprescribed or used. European Union drug marketing and reimbursement regulations may materially affect our ability to market and receivecoverage for our products in the European member states. We intend to seek approval to market our product candidates in both the United States and in selected foreign jurisdictions.If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules andregulations in those jurisdictions. In some foreign countries, particularly those in the European Union, the pricing ofpharmaceutical products is subject to governmental control and other market regulations which could put pressure on thepricing and usage of our product candidates. In these countries, pricing negotiations with governmental authorities can takeconsiderable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of ourproduct candidates will depend significantly on the availability of adequate coverage and reimbursement from third-partypayors for our product candidates and may be affected by existing and future healthcare reform measures. Much like the Anti-Kickback Statute prohibition in the United States, the provision of benefits or advantages to physiciansto induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal productsis also prohibited in the European Union. The provision of benefits or advantages to physicians is governed by the nationalanti-bribery laws of European Union Member States, such as the UK Bribery Act 2010. Infringement of these laws couldresult in substantial fines and imprisonment. Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreementswith physicians often must be the subject of prior notification and approval by the physician’s employer, his or hercompetent professional organization and/or the regulatory authorities of the individual European Union Member States.These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in theEuropean Union Member States. Failure to comply with these requirements could result in reputational risk, publicreprimands, administrative penalties, fines or imprisonment. In addition, in most foreign countries, including the European Economic Area, the proposed pricing for a drug must beapproved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely fromcountry to country. For example, the European Union provides options for its member states to restrict the range of medicinalproducts for which their national health insurance systems provide reimbursement and to control the prices of medicinalproducts for human use. Reference pricing used by various European Union member states and parallel distribution, orarbitrage between low-priced and high-priced member states, can further reduce prices. A member state98 Table of Contentsmay approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on theprofitability of the company placing the medicinal product on the market. In some countries, we may be required to conducta clinical trial or other studies that compare the cost-effectiveness of any of our product candidates to other availabletherapies in order to obtain or maintain reimbursement or pricing approval. There can be no assurance that any country thathas price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricingarrangements for any of our products. Historically, products launched in the European Union do not follow price structures ofthe United States and generally prices tend to be significantly lower. Publication of discounts by third-party payors orauthorities may lead to further pressure on the prices or reimbursement levels within the country of publication and othercountries. If pricing is set at unsatisfactory levels or if reimbursement of our products is unavailable or limited in scope oramount, our revenues from sales by us or our strategic partners and the potential profitability of any of our productcandidates in those countries would be negatively affected. European data collection is governed by restrictive regulations governing the use, processing, and cross-border transfer ofpersonal information. The collection and use of personal health data in the European Union, or EU, was previously governed by the provisions ofthe Data Protection Directive, which has been replaced by the GDPR as of May 2018. The GDPR imposes a broad range of strict requirements on companies subject to the GDPR, such as us, includingrequirements relating to having legal bases for processing personal information relating to identifiable individuals andtransferring such information outside the European Economic Area, or the EEA, including to the United States, providingdetails to those individuals regarding the processing of their personal information, keeping personal information secure,having data processing agreements with third parties who process personal information, responding to individuals’ requeststo exercise their rights in respect of their personal information, reporting security breaches involving personal data to thecompetent national data protection authority and affected individuals, appointing data protection officers, conducting dataprotection impact assessments, and record-keeping. The GDPR substantially increases the penalties to which we could besubject in the event of any non-compliance, including fines of up to 10 million Euros or up to 2% of our total worldwideannual turnover for certain comparatively minor offenses, or up to 20 million Euros or up to 4% of our total worldwideannual turnover for more serious offenses. Given the new law, we face uncertainty as to the exact interpretation of the newrequirements, and we may be unsuccessful in implementing all measures required by data protection authorities or courts ininterpretation of the new law.In particular, national laws of member states of the EU are in the process of being adapted to the requirements under theGDPR, thereby implementing national laws which may partially deviate from the GDPR and impose different obligationsfrom country to country, so that we do not expect to operate in a uniform legal landscape in the EU. Also, in the field ofhandling genetic data, the GDPR specifically allows national laws to impose additional and more specific requirements orrestrictions, and European laws have historically differed quite substantially in this field, leading to additional uncertainty.If we begin conducting trials in the EEA, we must also ensure that we maintain adequate safeguards to enable the transfer ofpersonal data outside of the EEA, in particular to the United States in compliance with European data protection lawsincluding the GDPR. We expect that we will continue to face uncertainty as to whether our efforts to comply with ourobligations under European privacy laws will be sufficient. If we are investigated by a European data protection authority,we may face fines and other penalties. Any such investigation or charges by European data protection authorities could havea negative effect on our existing business and on our ability to attract and retain new clients or pharmaceutical partners. Wemay also experience hesitancy, reluctance, or refusal by European or multi-national clients or pharmaceutical partners tocontinue to use our products and solutions due to the potential risk exposure as a result of the current (and, in particular,future) data protection obligations imposed on them by certain data protection authorities in interpretation of current law,including the GDPR. Such clients or pharmaceutical partners may also view any alternative approaches to compliance asbeing too costly, too burdensome, too legally uncertain, or otherwise objectionable and therefore decide not to do businesswith us. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations. 99 Table of ContentsLaws and regulations governing any international operations we may have in the future may preclude us from developing,manufacturing and selling certain products outside of the United States and require us to develop and implement costlycompliance programs. If we expand our operations outside of the United States, we must dedicate additional resources to comply with numerouslaws and regulations in each jurisdiction in which we plan to operate. The FCPA prohibits any U.S. individual or businessfrom paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official,political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist theindividual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed inthe United States to comply with certain accounting provisions requiring the company to maintain books and records thataccurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise andmaintain an adequate system of internal accounting controls for international operations. Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem.In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals areoperated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments tohospitals in connection with clinical trials and other work have been deemed to be improper payments to governmentofficials and have led to FCPA enforcement actions. Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or thesharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain productsand technical data relating to those products. If we expand our presence outside of the United States, it will require us todedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, orselling certain products and product candidates outside of the United States, which could limit our growth potential andincrease our development costs. The failure to comply with laws governing international business practices may result in substantial civil and criminalpenalties and suspension or debarment from government contracting. The Securities and Exchange Commission, or SEC, alsomay suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and othertrade laws and regulations. We can face serious consequences for violations. Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade lawsand regulations, which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinicalresearch organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising,offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value toor from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civilpenalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation,reputational harm, and other consequences. We have direct or indirect interactions with officials and employees ofgovernment agencies or government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S.activities to increase in time. We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses,patent registrations, and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of ourpersonnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities. Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain keyleadership and other personnel, prevent new products and services from being developed or commercialized in a timelymanner or otherwise prevent those agencies from performing normal business functions on which the operation of ourbusiness may rely, which could negatively impact our business. The ability of the FDA to review and approve new products can be affected by a variety of factors, including governmentbudget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and100 Table of Contentsstatutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. Inaddition, government funding of the SEC and other government agencies on which our operations may rely, including thosethat fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved bynecessary government agencies, which would adversely affect our business. For example, over the last several years,including most recently from December 22, 2018 to January 25, 2019, the U.S. government has shut down several times andcertain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other governmentemployees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the abilityof the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on ourbusiness. Risks related to our intellectual property If we are unable to obtain and maintain patent protection for any product candidates we develop or for our REDPLATFORM, our competitors could develop and commercialize products or technology similar or identical to ours, andour ability to successfully commercialize any product candidates we may develop, and our technology may be adverselyaffected. Our success depends in large part on our ability to obtain and maintain patent protection in the United States and othercountries with respect to our product candidates, RED PLATFORM and other technologies we may develop. We seek toprotect our proprietary position by in-licensing intellectual property and filing patent applications in the United States andabroad relating to our product candidates and RED PLATFORM, as well as other technologies that are important to ourbusiness. Given that the development of our technology and product candidates is at an early stage, our intellectual propertyportfolio with respect to certain aspects of our technology and product candidates is also at an early stage. For example, wedo not own or in-license any issued patents directed to the composition of matter of any of the RCT product candidates thatwe have thus far developed using our RED PLATFORM. In addition, we do not own or in-license any issued patents coveringthe methods and processes of our RED PLATFORM. We have filed or intend to file patent applications on these aspects ofour technology and our product candidates; however, there can be no assurance that any such patent applications will issueas granted patents. Furthermore, in some cases, we have only filed provisional patent applications on certain aspects of ourtechnology and product candidates and each of these provisional patent applications is not eligible to become an issuedpatent until, among other things, we file a non-provisional patent application within 12 months of the filing date of theapplicable provisional patent application. Any failure to file a non-provisional patent application within this timeline couldcause us to lose the ability to obtain patent protection for the inventions disclosed in the associated provisional patentapplications. Composition of matter patents for biological and pharmaceutical products are generally considered to be the strongest formof intellectual property protection for those types of products, as such patents provide protection without regard to anymethod of use. We cannot be certain, however, that the claims in our pending patent applications covering the compositionof matter of our product candidates will be considered patentable by the United States Patent and Trademark Office, or theUSPTO, or by patent offices in foreign countries, or that the claims in any of our issued patents will be considered valid andenforceable by courts in the United States or foreign countries. Furthermore, in some cases, we may not be able to obtainissued claims covering compositions of matter relating to our product candidates and RED PLATFORM, as well as othertechnologies that are important to our business, and instead may need to rely on filing patent applications with claimscovering a method of use and/or method of manufacture. Method of use patents protect the use of a product for the specifiedmethod. This type of patent does not prevent a competitor from making and marketing a product that is identical to ourproduct for an indication that is outside the scope of the patented method. Moreover, even if competitors do not activelypromote their products for our targeted indications, physicians may prescribe these products “off-label” for those uses that arecovered by our method of use patents. Although off-label prescriptions may infringe or contribute to the infringement ofmethod of use patents, the practice is common and such infringement is difficult to prevent or prosecute. There can be noassurance that any such patent applications will issue as granted patents, and even if they do issue, such patent claims may beinsufficient to prevent third parties, such as our competitors, from utilizing our technology. Any failure to obtain or maintainpatent protection with respect to our101 Table of Contentsproduct candidates and RED PLATFORM could have a material adverse effect on our business, financial condition, results ofoperations, and prospects. If any of our owned or in-licensed patent applications do not issue as patents in any jurisdiction, we may not be able tocompete effectively. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability toprotect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect thevalue of our intellectual property or narrow the scope of our owned and licensed patents. With respect to our patent portfolio,as of February 28, 2019, all of the patent rights that we own or in-license are currently pending patent applications exceptthat we own one issued U.S. patent directed to methods of treating phenylketonuria with RTX-134. With respect to both in-licensed and owned intellectual property, we cannot predict whether the patent applications we and our licensors arecurrently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will providesufficient protection from competitors or other third parties. The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute,maintain, enforce, or license all necessary or desirable patents and patent applications at a reasonable cost or in a timelymanner. It is also possible that we will fail to identify patentable aspects of our research and development output in time toobtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have accessto confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators,outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other thirdparties, any of these parties may breach such agreements and disclose such output before a patent application is filed, therebyjeopardizing our ability to seek patent protection. In addition, our ability to obtain and maintain valid and enforceablepatents depends on whether the differences between our inventions and the prior art allow our inventions to be patentableover the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries,and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, orin some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimedin any of our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file forpatent protection of such inventions. If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, ourability to prevent our competitors from commercializing similar or identical technology and product candidates would beadversely affected. The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legaland factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity,enforceability, and commercial value of our patent rights are highly uncertain. Our owned or in-licensed pending and futurepatent applications may not result in patents being issued which protect our product candidates, RED PLATFORMtechnology, or other technologies or which effectively prevent others from commercializing competitive technologies andproduct candidates. No consistent policy regarding the scope of claims allowable in patents in the biotechnology field has emerged in the UnitedStates. The patent situation outside of the United States is even more uncertain. Changes in either the patent laws or theirinterpretation in the United States and other countries may diminish our ability to protect our inventions and enforce ourintellectual property rights, and more generally could affect the value of our intellectual property. In particular, our ability tostop third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual propertywill depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions andimprovements. With respect to both licensed and company-owned intellectual property, we cannot be sure that patents willbe granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in thefuture, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will becommercially useful in protecting our products and the methods used to manufacture those products. Moreover, even ourissued patents do not guarantee us the right to practice our technology in relation to the commercialization of our products.The area of patent and other intellectual property rights in biotechnology is an evolving one with many risks anduncertainties, and third parties may have blocking patents that could be used to102 Table of Contentsprevent us from commercializing our patented product candidates and practicing our proprietary technology. Our issuedpatent and those that may issue in the future may be challenged, invalidated, or circumvented, which could limit our abilityto stop competitors from marketing related products or limit the length of the term of patent protection that we may have forour product candidates. In addition, the rights granted under any issued patents may not provide us with protection orcompetitive advantages against competitors with similar technology. Furthermore, our competitors may independentlydevelop similar technologies. For these reasons, we may have competition for our product candidates. Moreover, because ofthe extensive time required for development, testing and regulatory review of a potential product, it is possible that, beforeany particular product candidate can be commercialized, any related patent may expire or remain in force for only a shortperiod following commercialization, thereby reducing any advantage of the patent. Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scopecan be reinterpreted after issuance. Even if patent applications we own or license issue as patents, they may not issue in aform that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us,or otherwise provide us with any competitive advantage. Any patents that we own or in-license may be challenged, narrowed,circumvented, or invalidated by third parties. Consequently, we do not know whether our product candidates, REDPLATFORM technologies or other technologies will be protectable or remain protected by valid and enforceable patents.Our competitors or other third parties may be able to circumvent our patents by developing similar or alternativetechnologies or products in a non-infringing manner which could materially adversely affect our business, financialcondition, results of operations and prospects. The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and patents that we own orlicense may be challenged in the courts or patent offices in the United States and abroad. We or our licensors may be subjectto a third party preissuance submission of prior art to the USPTO or to foreign patent authorities or become involved inopposition, derivation, revocation, reexamination, post-grant and inter partes review, or interference proceedings or othersimilar proceedings challenging our owned or licensed patent rights. An adverse determination in any such submission,proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our owned or in-licensed patentrights, allow third parties to commercialize our product candidates, RED PLATFORM technologies or other technologies andcompete directly with us, without payment to us, or result in our inability to manufacture or commercialize products withoutinfringing third-party patent rights. Moreover, we, or one of our licensors, may have to participate in interference proceedingsdeclared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in aforeign patent office, that challenge our or our licensor’s priority of invention or other features of patentability with respectto our owned or in-licensed patents and patent applications. Such challenges may result in loss of patent rights, loss ofexclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit our ability to stopothers from using or commercializing similar or identical technology and products, or limit the duration of the patentprotection of our product candidates, RED PLATFORM and other technologies. Such proceedings also may result insubstantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable tous. In addition, given the amount of time required for the development, testing, and regulatory review of new productcandidates, patents protecting such product candidates might expire before or shortly after such product candidates arecommercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others fromcommercializing products similar or identical to ours. We may in the future co-own patent rights relating to future product candidates and our RED PLATFORM with third parties.Some of our in-licensed patent rights are, and may in the future be, co-owned with third parties. In addition, our licensors mayco-own the patent rights we in-license with other third parties with whom we do not have a direct relationship. Our exclusiverights to certain of these patent rights are dependent, in part, on inter-institutional or other operating agreements between thejoint owners of such patent rights, who are not parties to our license agreements. For example, under our license agreementwith the Whitehead Institute for Biomedical Research, or WIBR, as amended (or the WIBR License) we license certainpatents rights co-owned by WIBR and Tufts University, or Tufts. Our rights to Tufts’ interest in such patent rights depends onan inter-institutional agreement between WIBR and Tufts, pursuant to which WIBR controls the licensing of such patentrights. If our licensors do not have exclusive control of the grant of licenses under any such third-party co-owners’ interest insuch patent rights or we are otherwise unable to secure such exclusive rights, such co-owners may be able to license theirrights to other third parties, including our competitors, and103 Table of Contentsour competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patent rights in order to enforce such patent rights against third parties, and such cooperation may not beprovided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financialconditions, results of operations, and prospects. Our rights to develop and commercialize our product candidates and RED PLATFORM are subject, in part, to the termsand conditions of licenses granted to us by others. We rely upon licenses to certain patent rights and proprietary technology from third parties that are important or necessary tothe development of our product candidates and RED PLATFORM. For example, under the WIBR License, WIBR grants us anexclusive, worldwide, sublicensable license under four patent families to research, develop, make, and commercializeproducts and processes covered by such patent rights for all uses. The portfolio of patent rights licensed to us under theWIBR License is directed, in part, to the in vitro production of red blood cells, including the use of the enzyme sortase toconjugate a protein of interest to the cell surface. Patent rights that we in-license may be subject to a reservation of rights byone or more third parties. For example, our in-licensed patent rights from WIBR under the WIBR License were funded in partby the U.S. government. As a result, the U.S. government may have certain rights to such intellectual property. Furthermore,pursuant to a Defense Advanced Research Projects Agency Agreement between WIBR and a global biopharmaceuticalcompany, the biopharmaceutical company funded research resulting in one of the patent families licensed to us under theWIBR License and retained a worldwide, irrevocable, non-exclusive, royalty-free right to use the inventions andtechnologies covered by this patent family for research and development purposes. WIBR also retains the right with respectto all four patent families licensed to us to (i) to practice the patent rights licensed under the agreement for research, teachingand educational purposes, including sponsored research and collaboration, and (ii) to grant non-exclusive licenses toacademic and not-for-profit research institutes to practice under the patent rights for research, teaching and educationalpurposes (excluding sponsored research), while Tufts retains such rights only with respect to the patent family that it co-owns. In addition, subject to the terms of any such license agreements, we do not have the right to control the preparation, filing,prosecution and maintenance, and we may not have the right to control the enforcement, and defense of patents and patentapplications covering the technology that we license from third parties. For example, under the WIBR License, WIBRcontrols prosecution of the patent rights licensed to us, and we control enforcement of the patent rights. We cannot be certainthat our in-licensed patent applications (and any patents issuing therefrom) that are controlled by our licensors will beprepared, filed, prosecuted, maintained, enforced, and defended in a manner consistent with the best interests of our business.If our licensors fail to prosecute, maintain, enforce, and defend such patents rights, or lose rights to those patent applications(or any patents issuing therefrom), the rights we have licensed may be reduced or eliminated, our right to develop andcommercialize any of our product candidates and RED PLATFORM technologies that are subject of such licensed rightscould be adversely affected, and we may not be able to prevent competitors from making, using and selling competingproducts. Moreover, we cannot be certain that such activities by our licensors have been or will be conducted in compliancewith applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. Inaddition, even where we have the right to control patent prosecution of patents and patent applications we have licensed toand from third parties, we may still be adversely affected or prejudiced by actions or inactions of our licensees, our licensorsand their counsel that took place prior to the date upon which we assumed control over patent prosecution. Finally, subjectto the terms of any such license agreements, the licensor may be able to terminate the license without our consent. Forexample, under the WIBR License, WIBR may terminate the WIBR License upon written notice to us if we, along with ouraffiliates and sublicensees, cease to carry on business related to the WIBR License for more than six months. WIBR may alsoterminate the WIBR License for our material breach that remains uncured for sixty days after receiving notice thereof, if wefail to pay amounts due under the agreement within thirty days after receiving notice of such failure, or if we challenge thevalidity or enforceability of any of the licensed patent rights. 104 Table of ContentsSome intellectual property may have been discovered through government funded programs and thus may be subject tofederal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies.Compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S.manufacturers. Our in licensed patent rights from WIBR under the WIBR License were funded in part by the U.S. government and aretherefore subject to certain federal regulations. When new technologies are developed with U.S. government funding, theU.S. government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing theU.S. government to use the invention or to have others use the invention on its behalf. The U.S. government’s rights may alsopermit it to disclose the funded inventions and technology to third parties and to exercise march in rights to use or allowthird parties to use the technology we have licensed that was developed using U.S. government funding. The U.S.government may exercise its march in rights if it determines that action is necessary because we fail to achieve practicalapplication of the government-funded technology, or because action is necessary to alleviate health or safety needs, to meetrequirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may besubject to certain requirements to manufacture products embodying such inventions in the United States in certaincircumstances and if this requirement is not waived. Any exercise by the U.S. government of such rights or by any third partyof its reserved rights could have a material adverse effect on our competitive position, business, financial condition, results ofoperations, and prospects. If we fail to comply with our obligations in the agreements under which we license intellectual property rights from thirdparties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rightsthat are important to our business. The WIBR License imposes, and we expect our future license agreements will impose, various development, diligence,commercialization, and other obligations on us in order to maintain the licenses. In spite of our efforts, WIBR or a futurelicensor might conclude that we have materially breached our obligations under such license agreements and seek toterminate the license agreements, thereby removing or limiting our ability to develop and commercialize products andtechnology covered by these license agreements. If these in-licenses are terminated, or if the underlying patent rightslicensed thereunder fail to provide the intended exclusivity, competitors or other third parties would have the freedom toseek regulatory approval of, and to market, products identical to ours and we may be required to cease our development andcommercialization of certain of our product candidates or of our current RED PLATFORM technologies. Any of theforegoing could have a material adverse effect on our competitive position, business, financial conditions, results ofoperations, and prospects. Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including: ·the scope of rights granted under the license agreement and other interpretation-related issues; ·the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject tothe licensing agreement; ·the sublicensing of patent and other rights under our collaborative development relationships; ·our diligence obligations under the license agreement and what activities satisfy those diligence obligations; ·the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectualproperty by our licensors and us and our partners; ·whether and the extent to which inventors are able to contest the assignment of their rights to our licensors; and ·the priority of invention of patented technology. The agreements under which we currently license intellectual property or technology from third parties are complex, andcertain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract105 Table of Contentsinterpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevantintellectual property or technology, or increase what we believe to be our financial or other obligations under the relevantagreement, either of which could have a material adverse effect on our business, financial condition, results of operations,and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintainour current licensing arrangements on commercially acceptable terms, we may be unable to continue to utilize our REDPLATFORM or successfully develop and commercialize the affected product candidates, which could have a materialadverse effect on our business, financial conditions, results of operations, and prospects. We may not be able to protect our intellectual property and proprietary rights throughout the world. Filing, prosecuting, and defending patents on our product candidates, RED PLATFORM technologies and othertechnologies in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries maynot protect our rights to the same extent as the laws of the United States. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States, or from selling or importing products madeusing our inventions in and into the United States or other jurisdictions. Competitors may use our technologies injurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwiseinfringing products to territories where we have patent protection but enforcement is not as strong as that in the UnitedStates. These products may compete with our products, and our patents or other intellectual property rights may not beeffective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreignjurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcementof patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products,which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violationof our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietaryrights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of ourbusiness, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at riskof not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate,and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforceour intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercialadvantage from the intellectual property that we develop or license. Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to thirdparties. In addition, many countries limit the enforceability of patents against government agencies or governmentcontractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value ofsuch patent. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to ourbusiness, our competitive position may be impaired, and our business, financial condition, results of operations, andprospects may be adversely affected. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission,fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reducedor eliminated for non-compliance with these requirements. Periodic maintenance fees, renewal fees, annuity fees, and various other government fees on patents and applications will bedue to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of ourowned or licensed patents and applications. In certain circumstances, we rely on our licensing partners to pay these fees dueto U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government agencies require compliance with severalprocedural, documentary, fee payment, and other similar provisions during the patent application process. We are alsodependent on our licensors to take the necessary action to comply with these requirements with respect to our licensedintellectual property. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means inaccordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment orlapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. Insuch an event, potential competitors might be able to enter the market106 Table of Contentswith similar or identical products or technology, which could have a material adverse effect on our business, financialcondition, results of operations, and prospects. Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect ourproducts. Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties andcosts surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming thatother requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimedinvention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to thepatent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted inSeptember 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirementsfor patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardlessof whether a third party was the first to invent the claimed invention. A third party that files a patent application in theUSPTO after March 2013, but before us could therefore be awarded a patent covering an invention of ours even if we hadmade the invention before it was made by such third party. This will require us to be cognizant going forward of the timefrom invention to filing of a patent application. Since patent applications in the United States and most other countries areconfidential for a period of time after filing or until issuance, we cannot be certain that we or our licensors were the first toeither (i) file any patent application related to our product candidates, RED PLATFORM or other technologies or (ii) inventany of the inventions claimed in our or our licensor’s patents or patent applications. The America Invents Act also includes a number of significant changes that affect the way patent applications will beprosecuted and also may affect patent litigation. These include allowing third party submission of prior art to the USPTOduring patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grantproceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiarystandard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidatea patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold aclaim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district courtaction. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would nothave been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the AmericaInvents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our owned orin-licensed patent applications and the enforcement or defense of our owned or in-licensed issued patents, all of which couldhave a material adverse effect on our business, financial condition, results of operations, and prospects. In addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticalsare particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available incertain circumstances and weakened the rights of patent owners in certain situations. This combination of events has createduncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S.Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable waysthat could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce ourintellectual property in the future. Issued patents covering our product candidates, and any patents that may issue covering our RED PLATFORMtechnologies and other technologies, could be found invalid or unenforceable if challenged in court or beforeadministrative bodies in the United States or abroad. If we or one of our licensors initiated legal proceedings against a third party to enforce a patent covering our productcandidates, RED PLATFORM technologies or other technologies, the defendant could counterclaim that such patent isinvalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity orunenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of severalstatutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertioncould be an allegation that someone connected with prosecution of the patent withheld relevant information107 Table of Contentsfrom the USPTO, or made a misleading statement, during prosecution. Third parties may raise claims challenging the validityor enforceability of our owned or in-licensed patents before administrative bodies in the United States or abroad, evenoutside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review,interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., oppositionproceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to our patents in such a waythat they no longer cover our product candidates, RED PLATFORM technologies, or other technologies. The outcomefollowing legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, forexample, we cannot be certain that there is no invalidating prior art, of which we or our licensing partners and the patentexaminer were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity orunenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates, REDPLATFORM or other technologies. Such a loss of patent protection would have a material adverse impact on our business,financial condition, results of operations, and prospects. If we do not obtain patent term extension and/or data exclusivity for any product candidates we may develop, our businessmay be materially harmed. Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we maydevelop, one or more of our owned or in-licensed U.S. patents may be eligible for limited patent term extension under theHatch-Waxman Act. The Hatch-Waxman Act permits a patent term extension of up to five years as compensation for patentterm lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patentbeyond a total of 14 years from the date of product approval, only one patent may be extended and only those claimscovering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar extensions ascompensation for patent term lost during regulatory review processes are also available in certain foreign countries andterritories, such as in Europe under a Supplementary Patent Certificate. However, we may not be granted an extension in theUnited States and/or foreign countries and territories because of, for example, failing to exercise due diligence during thetesting phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration ofrelevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope ofpatent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of anysuch extension is shorter than what we request, our competitors may obtain approval of competing products following ourpatent expiration, and our business, financial condition, results of operations and prospects could be materially harmed. We may be subject to claims challenging the inventorship of our patents and other intellectual property. We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in ourowned or in-licensed patent rights, trade secrets, or other intellectual property as an inventor or co-inventor. For example, weor our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others whoare involved in developing our product candidates, RED PLATFORM or other technologies. Litigation may be necessary todefend against these and other claims challenging inventorship or our licensors’ ownership of our owned or in-licensedpatent rights, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in additionto paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right touse, intellectual property that is important to our product candidates, RED PLATFORM and other technologies. Even if weare successful in defending against such claims, litigation could result in substantial costs and be a distraction tomanagement and other employees. Any of the foregoing could have a material adverse effect on our business, financialcondition, results of operations and prospects. If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. In addition to seeking patents for our product candidates, RED PLATFORM and other technologies, we also rely on tradesecrets and confidentiality agreements to protect our unpatented know-how, technology, and other proprietary informationand to maintain our competitive position. Trade secrets and know-how can be difficult to protect. We expect our trade secretsand know-how to over time be disseminated within the industry through independent development, the108 Table of Contentspublication of journal articles describing the methodology, and the movement of personnel from academic to industryscientific positions. We currently, and may continue in the future continue to, rely on third parties to assist us in developing and manufacturingour product candidates. Accordingly, we must, at times, share know-how and trade secrets, including those related to ourRED PLATFORM, with them. We may in the future also enter into research and development collaborations with thirdparties that may require us to share know-how and trade secrets under the terms of our research and development partnershipsor similar agreements. We seek to protect our know-how, trade secrets and other proprietary technology, in part, by enteringinto non-disclosure and confidentiality agreements, and including in our vendor and service agreements terms protecting ourconfidential information, know-how and trade secrets, with parties who have access to such information, such as ouremployees, scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and otherthird parties. We also enter into confidentiality and invention or patent assignment agreements with our employees andconsultants as well as train our employees not to bring or use proprietary information or technology from former employers tous or in their work, and we remind former employees when they leave their employment of their confidentiality obligations.However, we cannot guarantee that we have entered into such agreements with each party that may have or have had accessto our trade secrets or proprietary technology and processes. We also seek to preserve the integrity and confidentiality of ourdata and other confidential information by maintaining physical security of our premises and physical and electronicsecurity of our information technology systems. Despite our efforts, any of the aforementioned parties may breach the agreements and disclose our proprietary information,including our trade secrets, or there may be a lapses or failures in our physical and electronic security systems which lead toour proprietary information being disclosed, and we may not be able to obtain adequate remedies in the event of any suchbreaches. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken toprotect our proprietary technologies will be effective. If any of our scientific advisors, employees, contractors and consultantswho are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequateremedies for any such breach or violation, and we could lose our trade secrets as a result. Moreover, if confidentialinformation that is licensed or disclosed to us by our partners, collaborators, or others is inadvertently disclosed or subject toa breach or violation, we may be exposed to liability to the owner of that confidential information. Enforcing a claim that aparty illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome isunpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect tradesecrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other thirdparty, we would have no right to prevent them from using that technology or information to compete with us. If any of ourtrade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitiveposition would be materially and adversely harmed. We may not be successful in obtaining, through acquisitions, in-licenses or otherwise, necessary rights to our productcandidates, RED PLATFORM technologies or other technologies. We currently have rights to certain intellectual property, through licenses from third parties, to develop our productcandidates and RED PLATFORM technologies. Some pharmaceutical companies, biotechnology companies, and academicinstitutions are competing with us in the field of cellular therapeutics and red cell technologies and may have patents andhave filed and are likely filing patent applications potentially relevant to our business. In order to avoid infringing thesethird-party patents, we may find it necessary or prudent to obtain licenses to such patents from such third party intellectualproperty holders. We may also require licenses from third parties for certain technologies that we are evaluating for use withour current or future product candidates. However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that we identify asnecessary for our current or future product candidates and our RED PLATFORM at a reasonable cost or on reasonable terms,if at all. The licensing or acquisition of third party intellectual property rights is a competitive area, and several moreestablished companies may pursue strategies to license or acquire third party intellectual property rights that we mayconsider attractive or necessary. These established companies may have a competitive advantage over us due to their size,capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceiveus to be a competitor may be unwilling to assign or109 Table of Contentslicense rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that wouldallow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existingintellectual property rights we have, we may be required to expend significant time and resources to redesign our technology,product candidates, or the methods for manufacturing them or to develop or license replacement technology, all of whichmay not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop orcommercialize the affected product candidates or continue to utilize our existing RED PLATFORM technology, which couldharm our business, financial condition, results of operations, and prospects significantly. We may be subject to claims that our employees, consultants, or advisors have wrongfully used or disclosed alleged tradesecrets of their current or former employers or claims asserting ownership of what we regard as our own intellectualproperty. Many of our employees, consultants, and advisors are currently or were previously employed at universities or otherbiotechnology or pharmaceutical companies, including our licensors, competitors and potential competitors. Although wetry to ensure that our employees, consultants, and advisors do not use the proprietary information or know-how of others intheir work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property,including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation maybe necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages,we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims,litigation could result in substantial costs and be a distraction to management. In addition, while it is our policy to require our employees and contractors who may be involved in the conception ordevelopment of intellectual property to execute agreements assigning such intellectual property to us, we may beunsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property thatwe regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreementsmay be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us,to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effecton our business, financial condition, results of operations, and prospects. Third-party claims of intellectual property infringement, misappropriation or other violation against us, our licensors orour collaborators may prevent or delay the development and commercialization of our product candidates, REDPLATFORM and other technologies. The field of cellular therapeutics is competitive and dynamic. Due to the focused research and development that is takingplace by several companies, including us and our competitors, in this field, the intellectual property landscape is in flux, andit may remain uncertain in the future. As such, there may be significant intellectual property related litigation andproceedings relating to our owned and in-licensed, and other third party, intellectual property and proprietary rights in thefuture. Our commercial success depends in part on our, our licensors’ and our collaborators’ ability to avoid infringing,misappropriating and otherwise violating the patents and other intellectual property rights of third parties. There is asubstantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology andpharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivationand reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions.As discussed above, recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partesreview and post-grant review have been implemented. As stated above, this reform adds uncertainty to the possibility ofchallenge to our patents in the future. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist relating to red celltechnologies and therapeutic proteins, including enzymes, and in the fields in which we are developing our productcandidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases thatour product candidates, RED PLATFORM technologies and other technologies may give rise to claims of110 Table of Contentsinfringement of the patent rights of others. We cannot assure you that our product candidates, RED PLATFORMtechnologies and other technologies that we have developed, are developing or may develop in the future will not infringeexisting or future patents owned by third parties. We may not be aware of patents that have already been issued and that athird party, for example, a competitor in the fields in which we are developing our product candidates, RED PLATFORM andother technologies might assert are infringed by our current or future product candidates, RED PLATFORM or othertechnologies, including claims to compositions, formulations, methods of manufacture or methods of use or treatment thatcover our product candidates, RED PLATFORM or other technologies. It is also possible that patents owned by third parties of which we are aware, but which we do not believe are relevant to ourproduct candidates, RED PLATFORM or other technologies, could be found to be infringed by our product candidates, REDPLATFORM or other technologies. In addition, because patent applications can take many years to issue, there may becurrently pending patent applications that may later result in issued patents that our product candidates, RED PLATFORM orother technologies may infringe. We cannot provide any assurances that third-party patents do not exist which might beenforced against our current technology, including our RED PLATFORM technologies, manufacturing methods, productcandidates, or future methods or products resulting in either an injunction prohibiting our manufacture or future sales, or,with respect to our future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties,which could be significant. Third parties may have patents or obtain patents in the future and claim that the manufacture, use or sale of our productcandidates, RED PLATFORM or other technologies infringes upon these patents. We are aware of an issued patent outsidethe United States that is directed to erythrocytes that comprise exogeneous polypeptides. While we believe that we havereasonable defenses against a claim of infringement, including that certain claims in this patent are invalid, there can be noassurance that we will prevail in any such action by the holder of the patent. In the event that any third party claims that weinfringe their patents or that we are otherwise employing their proprietary technology without authorization and initiateslitigation against us, even if we believe such claims are without merit, a court of competent jurisdiction could hold that suchpatents are valid, enforceable and infringed by our product candidates, RED PLATFORM or other technologies. In this case,the holders of such patents may be able to block our ability to commercialize the applicable product candidate or technologyunless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be heldinvalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. Even if we are ableto obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to usmight be non-exclusive, which could result in our competitors gaining access to the same intellectual property. If we areunable to obtain a necessary license to a third-party patent on commercially reasonable terms, we may be unable tocommercialize our product candidates, RED PLATFORM, or other technologies, or such commercialization efforts may besignificantly delayed, which could in turn significantly harm our business. Defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be asubstantial diversion of management and other employee resources from our business, and may impact our reputation. In theevent of a successful claim of infringement against us, we may be enjoined from further developing or commercializing ourinfringing product candidates, RED PLATFORM, or other technologies. In addition, we may have to pay substantialdamages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from thirdparties, pay royalties and/or redesign our infringing product candidates or technologies, which may be impossible or requiresubstantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize ourproduct candidates, RED PLATFORM, or other technologies, which could harm our business significantly. Engaging in litigation to defend against third parties alleging that we have infringed, misappropriated or otherwise violatedtheir patents or other intellectual property rights is very expensive, particularly for a company of our size, and time-consuming. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings moreeffectively than we can because of greater financial resources. Patent litigation and other proceedings may also absorbsignificant management time. Uncertainties resulting from the initiation and continuation of patent litigation or otherproceedings against us could impair our ability to compete in the marketplace. The occurrence of any of the foregoing couldhave a material adverse effect on our business, financial condition or results of operations. 111 Table of ContentsWe may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which couldbe expensive, time-consuming, and unsuccessful. Competitors may infringe our patents or the patents of our licensing partners, or we may be required to defend against claimsof infringement. In addition, our patents or the patents of our licensing partners also may become involved in inventorship,priority or validity disputes. To counter or defend against such claims can be expensive and time-consuming. In aninfringement proceeding, a court may decide that a patent owned or in-licensed by us is invalid or unenforceable, the otherparty’s use of our patented technology falls under the safe harbor to patent infringement under 35 U.S.C. §271(e)(1), or mayrefuse to stop the other party from using the technology at issue on the grounds that our owned and in-licensed patents donot cover the technology in question. An adverse result in any litigation proceeding could put one or more of our owned orin-licensed patents at risk of being invalidated or interpreted narrowly. Even if we establish infringement, the court maydecide not to grant an injunction against further infringing activity and instead award only monetary damages, which may ormay not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection withintellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosureduring this type of litigation. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us toincur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could bepublic announcements of the results of hearings, motions, or other interim proceedings or developments, and if securitiesanalysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of ourcommon stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resourcesavailable for development activities or any future sales, marketing, or distribution activities. We may not have sufficientfinancial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able tosustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resourcesand more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuationof patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in ourmarkets of interest and our business may be adversely affected. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic ordetermined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names,which we need to build name recognition among potential partners or customers in our markets of interest. At times,competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to buildbrand identity and possibly leading to market confusion. If we assert trademark infringement claims, a court may determinethat the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademarkinfringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of suchtrademarks. In addition, there could be potential trade name or trademark infringement claims brought by owners of otherregistered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names.Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may notbe able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietaryrights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective andcould result in substantial costs and diversion of resources and could adversely affect our business, financial condition,results of operations and prospects. Intellectual property rights do not necessarily address all potential threats. The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rightshave limitations and may not adequately protect our business or permit us to maintain our competitive advantage. Forexample: ·others may be able to make products that are similar to our product candidates or utilize similar technology but that arenot covered by the claims of the patents that we license or may own;112 Table of Contents ·we, or our current or future licensors or collaborators, might not have been the first to make the inventions covered by theissued patent or pending patent application that we license or own now or in the future; ·we, or our current or future licensors or collaborators, might not have been the first to file patent applications coveringcertain of our or their inventions; ·others may independently develop similar or alternative technologies or duplicate any of our technologies withoutinfringing our owned or licensed intellectual property rights; ·it is possible that our current or future pending owned or licensed patent applications will not lead to issued patents; ·issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges byour competitors or other third parties; ·our competitors or other third parties might conduct research and development activities in countries where we do nothave patent rights and then use the information learned from such activities to develop competitive products for sale inour major commercial markets; ·we may not develop additional proprietary technologies that are patentable; ·the patents of others may harm our business; and ·we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party maysubsequently file a patent covering such intellectual property. Should any of these events occur, they could have a material adverse effect on our business, financial condition, results ofoperations and prospects. Risks related to our reliance on third parties We will rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out theircontractual duties or meet expected deadlines or comply with regulatory requirements, we may not be able to obtainregulatory approval of or commercialize any potential product candidates. We will depend upon third parties, including independent investigators, to conduct our clinical trials under agreements withuniversities, medical institutions, CROs, strategic partners and others. We expect to have to negotiate budgets and contractswith CROs and trial sites, which may result in delays to our development timelines and increased costs. We will rely heavily on third parties over the course of our clinical trials, and, as a result, will have limited control over theclinical investigators and limited visibility into their day-to-day activities, including with respect to their compliance withthe approved clinical protocol. Nevertheless, we are responsible for ensuring that each of our trials is conducted inaccordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on thirdparties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with GCPrequirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities forproduct candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodicinspections of trial sponsors, clinical investigators and trial sites. If we or any of these third parties fail to comply withapplicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA orcomparable foreign regulatory authorities may require us to suspend or terminate these trials or perform additionalnonclinical studies or clinical trials before approving our marketing applications. We cannot be certain that, uponinspection, such regulatory authorities will determine that any of our clinical trials comply with the GCP requirements. Inaddition, our clinical trials must be conducted with biologic product produced under cGMP requirements and may require alarge number of patients. 113 Table of ContentsOur failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patientsmay require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may beimplicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations orhealthcare privacy and security laws. Any third parties conducting our future clinical trials will not be our employees and, except for remedies that may beavailable to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time andresources to our ongoing nonclinical and clinical programs. These third parties may also have relationships with othercommercial entities, including our competitors, for whom they may also be conducting clinical trials or other productdevelopment activities, which could affect their performance on our behalf. If these third parties do not successfully carry outtheir contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy ofthe clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirementsor for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to completedevelopment of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, ourfinancial results and the commercial prospects for our product candidates would be harmed, our costs could increase and ourability to generate revenue could be delayed. If any of our relationships with these third-party CROs or others terminate, we may not be able to enter into arrangementswith alternative CROs or other third parties or to do so on commercially reasonable terms. Switching or adding additionalCROs involves additional cost and requires management time and focus. In addition, there is a natural transition period whena new CRO begins work. As a result, delays may occur, which can materially impact our ability to meet our desired clinicaldevelopment timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we willnot encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverseimpact on our business, financial condition and prospects. We expect to rely on third parties to manufacture our clinical supply of product candidates, and we intend to rely on thirdparties to produce and process our products, if approved. We currently rely on outside vendors to supply raw materials and other important components, such as CD34+ precursor cellsand lentiviral vectors, that are used to manufacture our product candidates. We have not yet caused any product candidatesto be manufactured or processed on a commercial scale and may not be able to do so for any of our product candidates. Wewill make changes as we work to optimize the manufacturing process for our product candidates, and we cannot be sure thateven minor changes in the process will result in therapies that are safe and effective. The facilities used to manufacture our product candidates must be approved by the FDA or other foreign regulatory agenciespursuant to inspections that will be conducted after we submit an application to the FDA or other foreign regulatoryagencies. We do not currently control the manufacturing process of, and are currently completely dependent on, our contractmanufacturing partners for compliance with regulatory requirements, known as cGMP requirements, for manufacture of ourproduct candidates. If and when our recently purchased manufacturing facility becomes operational, we will be responsiblefor compliance with cGMP requirements. If we or our contract manufacturers cannot successfully manufacture inconformance with our specifications and the strict regulatory requirements of the FDA or other regulatory authorities, we andthey will not be able to secure and/or maintain regulatory approval for their manufacturing facilities with respect to themanufacture of our product candidates. In addition, we have no control over the ability of our contract manufacturers tomaintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatoryauthority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approvalin the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability todevelop, obtain regulatory approval for or market our product candidates, if approved. For more information, see “Risk factors—Risks related to manufacturing and supply” below. 114 Table of ContentsOur future collaborations may be important to our business. If we are unable to maintain any of these collaborations, or ifthese collaborations are not successful, our business could be adversely affected. We have limited capabilities for product development and do not yet have any capability for sales, marketing or distribution.Accordingly, we may enter into collaborations with other companies to provide us with important technologies and fundingfor our programs and technology, and we may receive additional technologies and funding under these and othercollaborations in the future. Any future collaborations we enter into, may pose a number of risks, including the following: ·collaborators have significant discretion in determining the efforts and resources that they will apply; ·collaborators may not perform their obligations as expected; ·collaborators may not pursue development and commercialization of any product candidates that achieve regulatoryapproval or may elect not to continue or renew development or commercialization programs or license arrangementsbased on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, suchas a strategic transaction that may divert resources or create competing priorities; ·collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial orabandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidatefor clinical testing; ·collaborators could independently develop, or develop with third parties, products that compete directly or indirectlywith our products and product candidates if the collaborators believe that the competitive products are more likely to besuccessfully developed or can be commercialized under terms that are more economically attractive than ours; ·product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with theirown product candidates or products, which may cause collaborators to cease to devote resources to thecommercialization of our product candidates; ·collaborators may fail to comply with applicable regulatory requirements regarding the development, manufacture,distribution or marketing of a product candidate or product; ·collaborators with marketing and distribution rights to one or more of our product candidates that achieve regulatoryapproval may not commit sufficient resources to the marketing and distribution of such product or products; ·disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferredcourse of development, might cause delays or terminations of the research, development or commercialization of productcandidates, might lead to additional responsibilities for us with respect to product candidates, or might result inlitigation or arbitration, any of which would be time-consuming and expensive; ·collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary informationin such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietaryinformation or expose us to potential litigation; ·collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation andpotential liability; ·if a collaborator of ours is involved in a business combination, the collaborator might deemphasize or terminate thedevelopment or commercialization of any product candidate licensed to it by us; and ·collaborations may be terminated by the collaborator, and, if terminated, we could be required to raise additional capitalto pursue further development or commercialization of the applicable product candidates.115 Table of Contents If our potential future collaborations do not result in the successful discovery, development and commercialization ofproducts or if one of our collaborators terminates its agreement with us, we may not receive any future research funding ormilestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements,our development of our technology and product candidates could be delayed and we may need additional resources todevelop product candidates and our technology. All of the risks relating to product development, regulatory approval andcommercialization described in this Annual Report on Form 10-K also apply to the activities of our therapeutic collaborators. Additionally, if one of our potential future collaborators terminates its agreement with us, we may find it more difficult toattract new collaborators and our perception in the business and financial communities could be adversely affected. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significantnumber of recent business combinations among large pharmaceutical companies that have resulted in a reduced number ofpotential future collaborators. We face significant competition in seeking appropriate collaborators. Our ability to reach adefinitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resourcesand expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a numberof factors. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, wemay have to curtail the development of a product candidate, reduce or delay its development program or one or more of ourother development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities,or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect toincrease our expenditures to fund development or commercialization activities on our own, we may need to obtain additionalexpertise and additional capital, which may not be available to us on acceptable terms, or at all. If we fail to enter intocollaborations or do not have sufficient funds or expertise to undertake the necessary development and commercializationactivities, we may not be able to further develop our product candidates, bring them to market and generate revenue fromsales of drugs or continue to develop our technology, and our business may be materially and adversely affected. Risks related to manufacturing and supply Cell therapies rely on the availability of specialty raw materials, which may not be available to us on acceptable terms orat all. Our product candidates require certain specialty raw materials, some of which we obtain from small companies with limitedresources and experience to support a commercial product. In addition, those suppliers normally support blood-basedhospital businesses and generally do not have the capacity to support commercial products manufactured under cGMP bybiopharmaceutical firms. The suppliers may be ill-equipped to support our needs, especially in non-routine circumstanceslike an FDA inspection or medical crisis, such as widespread contamination. We do not currently have contracts in place withall of the suppliers that we may need at any point in time, and if needed, may not be able to contract with them on acceptableterms or at all. Accordingly, we may experience delays in receiving key raw materials to support clinical or commercialmanufacturing. Our product candidates are uniquely manufactured. If we or any of our third-party manufacturers encounter difficulties inmanufacturing our product candidates, our ability to provide supply of our product candidates for clinical trials or ourproducts for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viablecost structure. The manufacturing process used to produce our product candidates is complex and novel and it has not yet been validatedfor clinical and commercial production. As a result of these complexities, the cost to manufacture our product candidates ishigher than traditional small molecule chemical compounds and monoclonal antibodies and the manufacturing process isless reliable and is more difficult to reproduce. Furthermore, our manufacturing process development and scale-up is at anearly stage. The actual cost to manufacture and process our product candidates could be greater than we expect and couldmaterially and adversely affect the commercial viability of our product candidates. 116 Table of ContentsOur manufacturing process may be susceptible to logistical issues associated with the collection of hematopoietic precursorcells from donors, procurement of plasmids and lentiviral vectors sourced from various suppliers and shipment to the RCTproduct candidate manufacturing site as well as shipment of the final product to clinical centers, manufacturing issuesassociated with interruptions in the manufacturing process, contamination, equipment or reagent failure, improperinstallation or operation of equipment, vendor or operator error, inconsistency in cell growth, and variability in productcharacteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, lotfailures, product defects, product recalls, product liability claims and other supply disruptions. If microbial, viral, or othercontaminations are discovered in our product candidates or in our manufacturing facilities in which our product candidatesare made, production at such manufacturing facilities may be interrupted for an extended period of time to investigate andremedy the contamination. Further, as product candidates are developed through preclinical to late-stage clinical trialstoward approval and commercialization, it is common that various aspects of the development program, such asmanufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the riskthat they will not achieve these intended objectives, and any of these changes could cause our product candidates to performdifferently and affect the results of planned clinical trials or other future clinical trials. Although we continue to optimize our manufacturing process for our RCT product candidates, doing so is a difficult anduncertain task, and there are risks associated with scaling to the level required for advanced clinical trials orcommercialization, including, among others, cost overruns, potential problems with process scale-up, processreproducibility, stability issues, lot consistency, and timely availability of reagents and/or raw materials. We ultimately maynot be successful in transferring our production system from our contract manufacturer to any manufacturing facilities weestablish ourselves, or our contract manufacturer may not have the necessary capabilities to complete the implementationand development process. If we are unable to adequately validate or scale-up the manufacturing process for our productcandidates with our current manufacturer, we will need to transfer to another manufacturer and complete the manufacturingvalidation process, which can be lengthy. If we are able to adequately validate and scale-up the manufacturing process forour product candidates with a contract manufacturer, we will still need to negotiate with such contract manufacturer anagreement for commercial supply and it is not certain we will be able to come to agreement on terms acceptable to us. As aresult, we may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for anattractive return on investment if and when those product candidates are commercialized. The manufacturing process for any products that we may develop is subject to the FDA and foreign regulatory authorityapproval process, and we will need to contract with manufacturers who can meet all applicable FDA and foreign regulatoryauthority requirements on an ongoing basis. If we or our CMOs are unable to reliably produce products to specificationsacceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercializesuch products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we orour CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatoryauthorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meetpotential future demand. Any of these challenges could delay completion of clinical trials, require bridging clinical trials orthe repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates, impaircommercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, resultsof operations and growth prospects. Our future success depends on our ability to manufacture our products on a timely basiswith acceptable manufacturing costs, while at the same time maintaining good quality control and complying withapplicable regulatory requirements, and an inability to do so could have a material adverse effect on our business, financialcondition, and results of operations. In addition, we could incur higher manufacturing costs if manufacturing processes orstandards change, and we could need to replace, modify, design, or build and install equipment, all of which would requireadditional capital expenditures. Specifically, because our product candidates may have a higher cost of goods thanconventional therapies, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability maybe greater. 117 Table of ContentsWe have acquired and are establishing our own manufacturing facility and infrastructure in addition to or in lieu ofrelying on CMOs for the manufacture of our product candidates, which will be costly, time-consuming, and which may notbe successful. In July 2018, we purchased a 135,000 square foot manufacturing facility located in Smithfield, Rhode Island as analternative or in addition to our reliance on CMOs for the manufacture of our product candidates. We are in the process ofrenovating and customizing our manufacturing facility for our use. We expect that development of our own manufacturingfacility will provide us with enhanced control of material supply for both clinical trials and commercialization, enable themore rapid implementation of process changes, and allow for better long-term margins. However, we have no experience as acompany in developing a manufacturing facility and may never be successful in developing our own manufacturing facilityor capability. As a result, we will also need to hire additional personnel to manage our operations and facilities and developthe necessary infrastructure to continue the research and development, and eventual commercialization, if approved, of ourproduct candidates. We, as a company, have no experience in setting up, building or eventually managing a manufacturingfacility. If we failed to select the correct location, or if we fail to complete the renovation and customization in an efficientmanner, or fail to recruit the required personnel and generally manage our growth effectively, the development andproduction of our product candidates could be curtailed or delayed. We may establish multiple manufacturing facilities as weexpand our commercial footprint to multiple geographies, which may lead to regulatory delays or prove costly. Even if weare successful, our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures,labor shortages, natural disasters, power failures and numerous other factors that could prevent us from realizing the intendedbenefits of our manufacturing strategy and have a material adverse effect on our business. In addition, the FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of anyapproved product together with the protocols showing the results of applicable tests at any time. Under some circumstances,the FDA, the EMA or other foreign regulatory authorities may require that we not distribute a lot until the relevant agencyauthorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes andstability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures orproduct recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm ourbusiness, financial condition, results of operations and prospects. Problems in our manufacturing process could restrict ourability to meet market demand for our products. We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturingpersonnel needed to operate our manufacturing processes, which could result in delays in production or difficulties inmaintaining compliance with applicable regulatory requirements. Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners,including larger pharmaceutical companies and academic research institutions, which could limit our access to additionalattractive development programs. We do not have experience as a company managing a manufacturing facility. Operating our own manufacturing facility will require significant resources, and we do not have experience as a company inmanaging a manufacturing facility. In part because of this lack of experience, we cannot be certain that our manufacturingplans will be completed on time, if at all, or if manufacturing of product candidates from our own manufacturing facility forour planned clinical trials will begin or be completed on time, if at all. In part because of our inexperience, we may haveunacceptable or inconsistent product quality success rates and yields, and we may be unable to maintain adequate qualitycontrol, quality assurance and qualified personnel. In addition, if we switch from our current CMOs to our ownmanufacturing facility for one or more of our product candidates in the future, we may need to conduct additional preclinicalstudies to bridge our modified product candidates to earlier versions. Failure to successfully operate our manufacturingfacility could adversely affect the commercial viability of our product candidates. 118 Table of ContentsWe are dependent on suppliers for some of our components, precursor cells and materials used to manufacture our productcandidates. We currently depend on suppliers for some of the components and precursor cells necessary for our product candidates andour suppliers of precursor cells depend on the availability of human donors. We cannot be sure that these suppliers willremain in business, that they will be able to identify and recruit adequate numbers of donors, that they will be able to meetour supply needs, or that they will not be purchased by one of our competitors or another company that is not interested incontinuing to produce these materials for our intended purpose. There are, in general, relatively few alternative sources ofsupply for these components and precursor cells. These suppliers may be unable or unwilling to meet our future demands forour clinical trials or commercial sale. Establishing additional or replacement suppliers for these components and precursorcells could take a substantial amount of time and it may be difficult to establish replacement suppliers who meet regulatoryrequirements. Any disruption in supply from a supplier or manufacturing location could lead to supply delays orinterruptions which would damage our business, financial condition, results of operations and prospects. If we are able to find a replacement supplier, the replacement supplier would need to be qualified and may require additionalregulatory authority approval, which could result in further delay. While we seek to maintain adequate inventory of thecomponents, precursor cells and other materials used to manufacture our products, any interruption or delay in the supply ofcomponents, precursor cells or other materials, or our inability to obtain components, precursor cells or materials fromalternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers andcause them to cancel orders. In addition, as part of the FDA’s approval of our product candidates, we will also require FDA approval of the individualcomponents of our process, which include the manufacturing processes and facilities of our suppliers. Our reliance on these suppliers subjects us to a number of risks that could harm our business, and financial condition,including, among other things: ·interruption of product candidate or commercial supply resulting from modifications to or discontinuation of a supplier’soperations; ·delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in acomponent; ·a lack of long-term supply arrangements for key components with our suppliers; ·inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms; ·difficulty and cost associated with locating and qualifying alternative suppliers for our components and precursor cellsin a timely manner; ·production delays related to the evaluation and testing of products from alternative suppliers, and correspondingregulatory qualifications; ·delay in delivery due to our suppliers prioritizing other customer orders over ours; and ·fluctuation in delivery by our suppliers due to changes in demand from us or their other customers. If any of these risks materialize, our manufacturing costs could significantly increase and our ability to meet clinical andcommercial demand for our products could be impacted. 119 Table of ContentsRisks related to our common stock An active trading market for our common stock may not be sustained Our shares of common stock began trading on The NASDAQ Global Select Market on July 18, 2018. Given the limitedtrading history of our common stock, there is a risk that an active trading market for our shares will not be sustained, whichcould put downward pressure on the market price of our common stock and thereby affect the ability of our stockholders tosell their shares. The price of our stock may be volatile, and our stockholders could lose all or part of their investment. The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response tovarious factors, some of which are beyond our control, including limited trading volume. Since our common stock begantrading on The Nasdaq Global Select Market on July 18, 2018, our stock price has traded at prices as low as $12.71 per shareand as high as $33.01 per share through February 28, 2019. In addition to the factors discussed in this “Risk factors” sectionand elsewhere in this Annual Report on Form 10-K, these factors include: ·the commencement, enrollment or results of our ongoing and planned clinical trials of our product candidates or anyfuture clinical trials we may conduct, or changes in the development status of our product candidates; ·any delay in our regulatory filings for our product candidates and any adverse development or perceived adversedevelopment with respect to the applicable regulatory authority’s review of such filings; ·adverse results from or delays in clinical trials of our product candidates; ·our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial; ·adverse regulatory decisions, including failure to receive regulatory approval of our product candidates; ·changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements forapprovals; ·adverse developments concerning our manufacturers; ·our inability to obtain adequate product supply for any approved product or inability to do so at acceptable prices; ·our inability to establish collaborations, if needed; ·our failure to commercialize our product candidates; ·additions or departures of key scientific or management personnel; ·unanticipated serious safety concerns related to the use of our product candidates; ·introduction of new products or services by our competitors; ·announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or ourcompetitors; ·our ability to effectively manage our growth; ·the size and growth of our initial target markets; 120 Table of Contents·actual or anticipated variations in quarterly operating results; ·our cash position; ·our failure to meet the estimates and projections of the investment community or that we may otherwise provide to thepublic; ·publication of research reports about us or our industry, or cellular therapies in particular, or positive or negativerecommendations or withdrawal of research coverage by securities analysts; ·changes in the market valuations of similar companies; ·overall performance of the equity markets; ·sales of our common stock by us or our stockholders in the future; ·trading volume of our common stock; ·adoption of new accounting standards; ·ineffectiveness of our internal controls; ·disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability toobtain patent protection for our technologies; ·significant lawsuits, including patent or stockholder litigation; ·general political and economic conditions; and ·other events or factors, many of which are beyond our control. In addition, the stock market in general, and the market for biopharmaceutical companies in particular, have experiencedextreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance ofthese companies. Broad market and industry factors may negatively affect the market price of our common stock, regardlessof our actual operating performance. If the market price of our common stock does not exceed their purchase price, ourstockholders may not realize any return on their investment in us and may lose some or all of their investment. In the past,securities class action litigation has often been instituted against companies following periods of volatility in the marketprice of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion ofmanagement’s attention and resources, which would harm our business, operating results or financial condition. We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business anddo not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will thereforebe limited in the foreseeable future to the appreciation of their stock. Our principal stockholders and management own a significant percentage of our stock and will be able to exert significantcontrol over matters subject to stockholder approval. Our executive officers, directors and their affiliates beneficially hold, in the aggregate, over 50% of our outstanding votingstock. These stockholders will have the ability to influence us through this ownership position. These stockholders may beable to determine all matters requiring stockholder approval. For example, these stockholders may121 Table of Contentsbe able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale ofassets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for ourcommon stock that our stockholders may feel are in their best interest as one of our stockholders. We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable toemerging growth companies will make our common stock less attractive to investors. We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted inApril 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions fromvarious reporting requirements that are applicable to other public companies that are not emerging growth companies,including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of2002, as amended, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in ourperiodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes onexecutive compensation and stockholder approval of any golden parachute payments not previously approved. We could bean emerging growth company for up to five years following the year in which we completed our IPO, although circumstancescould cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day ofthe fiscal year (a) following the fifth anniversary of the completion of our IPO; (b) in which we have total annual grossrevenue of at least $1.07 billion; or (c) in which we are deemed to be a large accelerated filer, which requires the market valueof our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th; and (2) the date on whichwe have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict ifinvestors will find our common stock less attractive because we may rely on these exemptions. If some investors find ourcommon stock less attractive as a result, there may be a less active trading market for our common stock and our stock pricemay be more volatile. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until suchtime as those standards apply to private companies. We have elected not to “opt out” of such extended transition period,which means that when a standard is issued or revised and it has different application dates for public or private companies,we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do sountil such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify asan emerging growth company. This may make comparison of our financial statements with the financial statements ofanother public company that is not an emerging growth company, or an emerging growth company that has opted out ofusing the extended transition period, difficult or impossible because of the potential differences in accounting standardsused. We will incur significant increased costs as a result of operating as a public company, and our management will berequired to devote substantial time to new compliance initiatives. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a privatecompany. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which willrequire, among other things, that we file with the Securities and Exchange Commission, or the SEC, annual, quarterly andcurrent reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well asrules subsequently adopted by the SEC and The Nasdaq Market to implement provisions of the Sarbanes-Oxley Act, imposesignificant requirements on public companies, including requiring establishment and maintenance of effective disclosureand financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall StreetReform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance andexecutive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules andregulations in these areas, such as “say on pay” and proxy access. Recent legislation permits emerging growth companies toimplement many of these requirements over a longer period and up to five years from the pricing of our IPO. We intend totake advantage of this new legislation but cannot guarantee that we will not be required to implement these requirementssooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current politicalenvironment and the current high level of government intervention and regulatory reform may lead to substantial newregulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which weoperate our business in ways we cannot currently anticipate. 122 Table of ContentsWe expect the rules and regulations applicable to public companies to substantially increase our legal and financialcompliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention ofour management and personnel from other business concerns, they could have a material adverse effect on our business,financial condition and results of operations. The increased costs will decrease our net income or increase our net loss, andmay require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, weexpect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liabilityinsurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict orestimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of theserequirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors,our board committees or as executive officers. Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could causeour stock price to fall. In the event a public market for our common stock is sustained in the future, sales of our common stock may be made byholders of our public float or by holders of restricted securities in compliance with the provisions of Rule 144of the Securities Act of 1933, or the Securities Act. In general, under Rule 144, a non-affiliated person who has satisfied a six-month holding period in a company registered under the Exchange Act, as amended, may, sell their restricted common stockwithout volume limitation, so long as the issuer is current with all reports under the Exchange Act in order for there to beadequate common public information. Affiliated persons may also sell their common shares held for at least six months, butaffiliated persons will be required to meet certain other requirements, including manner of sale, notice requirements andvolume limitations. Non-affiliated persons who hold their common shares for at least one year will be able to sell theircommon stock without the need for there to be current public information in the hands of the public. Future sales of shares ofour public float or by restricted common stock made in compliance with Rule 144 may have an adverse effect on the thenprevailing market price, if any, of our common stock. Shares of common stock that are either subject to outstanding options or reserved for future issuance under our existingequity compensation plans will become eligible for sale in the public market to the extent permitted by the provisions ofvarious vesting schedules and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stockare sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.Additionally, the number of shares of our common stock reserved for issuance under our 2018 Stock Option and IncentivePlan will automatically increase each January 1 by 4% of the number of shares of common stock outstanding on theimmediately preceding December 31 or such lesser number of shares determined by our compensation committee. Unless ourboard of directors elects not to increase the number of shares available for future grant each year, our stockholders mayexperience additional dilution. The holders of 56,845,438 shares of our common stock, on an as-converted basis, as of February 28, 2019 are entitled torights with respect to the registration of their shares under the Securities Act. Registration of these shares under the SecuritiesAct would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held byaffiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a materialadverse effect on the trading price of our common stock. We have broad discretion in the use of our existing cash, cash equivalents and investments and may not use themeffectively. Our management will have broad discretion in the application of our cash, cash equivalents and investments. Because of thenumber and variability of factors that will determine our use of our cash, cash equivalents and investments, their ultimate usemay vary substantially from their currently intended use. Our management might not apply our cash, cash equivalents andinvestments in ways that ultimately increase the value of our stockholders investment. The failure by our management toapply these funds effectively could harm our business. Pending their use, we may invest our cash in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not use ourresources in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause ourstock price to decline. 123 Table of ContentsOur operating results may fluctuate significantly, which makes our future operating results difficult to predict and couldcause our operating results to fall below expectations or our guidance. Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predictour future operating results. From time to time, we may enter into license or collaboration agreements with other companiesthat include development funding and significant upfront and milestone payments and/or royalties, which may become animportant source of our revenue. Accordingly, our revenue may depend on development funding and the achievement ofdevelopment and clinical milestones under current and any potential future license and collaboration agreements and salesof our products, if approved. These upfront and milestone payments may vary significantly from period to period and anysuch variance could cause a significant fluctuation in our operating results from one period to the next. In addition, we measure compensation cost for stock-based awards made to employees, directors and non-employeeconsultants based on the fair value of the award on either the grant date or service completion date, and we recognize the costas an expense over the recipient’s service period. Because the variables that we use as a basis for valuing stock-based awardschange over time, including our underlying stock price and stock price volatility, the magnitude of the expense that we mustrecognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our controland may be difficult to predict, including the following: ·the timing and cost of, and level of investment in, research and development activities relating to our current and anyfuture product candidates, which will change from time to time; ·our ability to enroll patients in clinical trials and the timing of enrollment; ·the cost of manufacturing our current and any future product candidates, which may vary depending on FDA guidelinesand requirements, the quantity of production and the terms of our agreements with manufacturers; ·the costs associated with our plans to renovate, customize and operate the manufacturing facility we purchased inJuly 2018 may be greater than we anticipate; ·expenditures that we may incur to acquire or develop additional product candidates and technologies; ·the timing and outcomes of clinical trials for our current product candidates and any other future product candidates orcompeting product candidates; ·competition from existing and potential future products that compete with our current product candidates and any otherfuture product candidates, and changes in the competitive landscape of our industry, including consolidation among ourcompetitors or partners; ·any delays in regulatory review or approval of our current product candidates or any other future product candidates; ·the level of demand for our current product candidates and any other future product candidates, if approved, which mayfluctuate significantly and be difficult to predict; ·the risk/benefit profile, cost and reimbursement policies with respect to our products candidates, if approved, andexisting and potential future products that compete with our current product candidates and any other future productcandidates; ·our ability to commercialize our current product candidates and any other future product candidates, if approved, insideand outside of the United States, either independently or working with third parties; 124 Table of Contents·our ability to adequately support future growth; ·potential unforeseen business disruptions that increase our costs or expenses; ·future accounting pronouncements or changes in our accounting policies; and ·the changing and volatile global economic environment. The cumulative effect of these factors could result in large fluctuations and unpredictability in our quarterly and annualoperating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investorsshould not rely on our past results as an indication of our future performance. This variability and unpredictability could alsoresult in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue oroperating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, orif the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stockcould decline substantially. Such a stock price decline could occur even when we have met any previously publicly statedrevenue and/or earnings guidance we may provide. Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control whichcould limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace orremove our current management. Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delayor prevent a change of control of our company or changes in our board of directors that our stockholders might considerfavorable. Some of these provisions include: ·a board of directors divided into three classes serving staggered three-year terms, such that not all members of the boardwill be elected at one time; ·a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at ameeting of our stockholders; ·a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chiefexecutive officer, or by a majority of the total number of authorized directors; ·advance notice requirements for stockholder proposals and nominations for election to our board of directors; ·a requirement that no member of our board of directors may be removed from office by our stockholders except for causeand, in addition to any other vote required by law, upon the approval of not less than two-thirds of all outstanding sharesof our voting stock then entitled to vote in the election of directors; ·a requirement of approval of not less than two-thirds of all outstanding shares of our voting stock to amend any bylawsby stockholder action or to amend specific provisions of our certificate of incorporation; and ·the authority of the board of directors to issue preferred stock on terms determined by the board of directors withoutstockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DelawareGeneral Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of ouroutstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate ofincorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtaincontrol of our board of directors or initiate actions that are opposed by the then-current board of directors and could alsodelay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourageproxy contests and make it more difficult for our stockholders and other stockholders to elect directors of125 Table of Contentstheir choosing or cause us to take other corporate actions they desire. Any delay or prevention of a change of controltransaction or changes in our board of directors could cause the market price of our common stock to decline. If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business,our stock price and trading volume could decline. The trading market for our common stock will depend in part on the research and reports that securities or industry analystspublish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes inaccurateor unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage ofour company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stockprice and trading volume to decline. Our amended and restated bylaws designate specific courts as the exclusive forum for certain litigation that may beinitiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputeswith us. Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the Courtof Chancery of the State of Delaware (or, if the Chancery Court does not have jurisdiction, the federal district court for theDistrict of Delaware or other state courts of the State of Delaware) is the sole and exclusive forum for (1) any derivative actionor proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing byany of our directors, officers, employees or agents to us or our stockholders; (3) any action asserting a claim against us arisingpursuant to any provision of the General Corporation Law of the State of Delaware or our certificate of incorporation orbylaws; (4) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; or(5) any action asserting a claim governed by the internal affairs doctrine. Our amended and restated bylaws further providethat, unless we consent in writing to the selection of an alternative forum, the United States District Court for the District ofMassachusetts is the exclusive forum for any private action asserting violations by us or any of our directors or officers of theSecurities Act (the “Federal Forum Provision”), or the rules and regulations promulgated thereunder, and of all suits in equityand actions at law brought to enforce any liability or duty created by those statutes or the rules and regulations under suchstatutes. The forum selection clauses in our amended and restated bylaws may limit our stockholders’ ability to obtain afavorable judicial forum for disputes with us. In Sciabacucchi v. Salzberg, C.A. No. 2017-0931-JTL (Del. Ch.), some companies that have adopted similar federal districtcourt forum selection provisions were sued in the Court of Chancery of the State of Delaware by stockholders who assert thatthose federal district court forum selection provisions are not enforceable. On December 19, 2018, Court of Chancery issued adecision in Sciabacucchi declaring that provisions in certificates of incorporation of Delaware companies that purport torequire claims under the Securities Act be brought in federal court are ineffective and invalid under Delaware law. On January17, 2019, the decision was appealed to the Delaware Supreme Court. While the Delaware Supreme Court recently dismissedthe appeal on jurisdictional grounds, we expect that the appeal will be re-filed after the Court of Chancery issues a finaljudgment. Unless and until the Court of Chancery’s decision in Sciabacucchi is reversed or otherwise abrogated, we do notintend to enforce its Federal Forum Provision designating the District of Massachusetts as the exclusive forum for SecuritiesAct claims. In the event that the Delaware Supreme Court affirms the Court of Chancery’s Sciabacucchi decision or otherwisemakes a determination that provisions such as the Federal Forum Provision are invalid, our Board of Directors intends toamend promptly the Company’s bylaws to remove the Federal Forum Provision. Such amendment could cause us to incuradditional costs, which could have an adverse effect on our business, financial condition or results of operations. Item 1B. Unresolved Staff CommentsNone. Item 2. PropertiesOur corporate headquarters is located in approximately 85,000 square feet of office and laboratory space at 399 BinneyStreet, Cambridge, Massachusetts. The lease term for approximately 48,000 square feet commenced on January 28, 2019126 Table of Contentsand the lease term for the remaining 37,000 square feet is expected to commence in August 2019, following the completionof construction. The lease terms will expire eight and nine years from the commencement date of the 48,000 square feet andthe remaining 37,000 square feet, respectively.In July 2018, we completed the purchase of a 135,000 square foot manufacturing facility located in Smithfield, Rhode Island. Item 3. Legal ProceedingsWe are not currently a party to any material legal proceedings. Item 4. Mine Safety DisclosuresNot applicable.127 Table of Contents PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Certain Information Regarding the Trading of Our Common Stock Our common stock trades under the symbol “RUBY” on the NASDAQ Global Select Market and has been publicly tradedsince July 18, 2018. Prior to this time, there was no public market for our common stock. Holders of Our Common Stock As of February 28, 2019, there were approximately 51 holders of record of shares of our common stock. This number does notinclude stockholders for whom shares are held in “nominee” or “street” name. Dividends We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds andany future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stockin the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board ofdirectors and will depend on our financial condition, operating results, capital requirements, general business conditions andother factors that our board of directors may deem relevant. Stock Performance Graph The following performance graph and related information shall not be deemed to be “soliciting material” or to be “filed”with the SEC, for purposes of Section 18 of the Exchange Act, nor shall such information be incorporated by reference intoany future filing under the Exchange Act or Securities Act, except to the extent that we specifically incorporate it byreference into such filing. The following graph compares the performance of our common stock to the NASDAQ Composite Index and to the NASDAQBiotechnology Index from July 18, 2018 (the first date that shares of our common stock were publicly traded) throughDecember 31, 2018. The comparison assumes $100 was invested in our common stock and in each of the foregoing indicesafter the market closed on July 18, 2018, and it assumes reinvestment of dividends, if any. The stock price performanceincluded in this graph is not necessarily indicative of future stock price performance. 128 Table of Contents Securities Authorized for Issuance Under Equity Compensation Plans Information about our equity compensation plans will be included in our definitive proxy statement to be filed with the SECwith respect to our 2019 Annual Meeting of Stockholders and is incorporated herein by reference. Unregistered Sales of Equity Securities and Use of Proceeds Recent Sales of Unregistered Equity Securities The information required by Item 701 of Regulation S-K was previously included in Quarterly Reports on Form 10-Q filed onAugust 31, 2018 and November 13, 2018. Use of Proceeds from Initial Public Offering On July 20, 2018, we completed the IPO of our common stock pursuant to which we issued and sold 12,055,450 shares of ourcommon stock at a price to the public of $23.00 per share. The offer and sale of all of the shares of our common stock in our IPO were registered under the Securities Act pursuant to aregistration statement on Form S-1, as amended (File No. 333-225840), which was declared effective by the SEC on July 17,2018 and a registration statement on Form S-1MEF (File No. 333-226214), which was automatically effective upon filingwith the SEC on July 17, 2018. Following the sale of all of the shares offered in connection with the closing of our IPO, theoffering terminated. J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Jefferies LLC and Leerink Partners LLC actedas joint book-running managers of our IPO. We received aggregate gross proceeds from our IPO of $277.3 million, or aggregate net proceeds of $254.3 million afterdeducting underwriting discounts and commissions and other offering costs. None of the underwriting discounts andcommissions or offering expenses were incurred or paid, directly or indirectly, to directors or officers of ours or theirassociates or to persons owning 10% or more of our common stock or to any of our affiliates. As of December 31, 2018, we have used $46.4 million of the net proceeds from the IPO, consisting of $33.5 million used inoperations, $8.0 million for the purchase of our manufacturing facility and $4.9 million for the purchase of other property,plant, and equipment. There has been no material change in our planned use of the net proceeds from the IPO as described inour final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on July 18, 2018. 129 Table of ContentsPurchases of Equity Securities by the Issuer and Affiliated Purchasers We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K. Item 6. Consolidated Selected Financial Data You should read the following selected consolidated financial data together with our consolidated financial statements andthe related notes appearing at the end of this prospectus and the “Management’s discussion and analysis of financialcondition and results of operations” section of this prospectus. We have derived the consolidated statements of operationsdata for the years ended December 31, 2018, 2017 and 2016 and consolidated balance sheet data as of December 31, 2018,2017 and 2016 from our audited consolidated financial statements appearing at the end of this Annual Report on Form 10-K. We have derived the consolidated balance sheet data as of December 31, 2016 from our audited consolidated financialstatements, which are not included in this Annual Report on Form 10-K.Our historical results are not necessarily indicativeof the results that may be expected in the future. Year Ended December 31, 2018 2017 2016 (in thousands, except share and per share data)Consolidated Statements of Operation Data: Revenue $ — $ — $ —Operating expenses: Research and development 51,769 21,226 8,403General and administrative 39,894 22,038 2,449Total operating expenses 91,663 43,264 10,852Loss from operations (91,663) (43,264) (10,852)Other income (expense): Change in fair value of preferred stock warrant liability (2,187) (785) 1Interest expense (464) (309) (149)Interest income and other income (expense), net 5,119 511 (16)Total other income (expense), net 2,468 (583) (164)Net loss (89,195) (43,847) (11,016)Accretion of Series A redeemable convertible preferred stock to redemption value — (656) (748)Net loss attributable to common stockholders $(89,195) $(44,503) $(11,764)Net loss per share attributable to common stockholders, basic and diluted $(2.27) $(5.55) $(1.63)Weighted average common shares outstanding, basic and diluted 39,285,468 8,023,785 7,200,581 December 31, 2018 2017 2016 (in thousands)Consolidated Balance Sheet Data: Cash, cash equivalents and investments $404,051 $104,288 $6,834Working capital 394,406 97,830 4,035Total assets 479,109 107,687 7,989Long-term debt, net of discount, including current portion 24,347 5,441 3,924Preferred stock warrant liability — 866 67Convertible preferred stock — 139,790 19,067Total stockholders' equity (deficit) 393,008 (43,687) (17,124) 130 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunctionwith our consolidated financial statements and related notes appearing at the end of this Annual Report on Form 10-K.Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements thatinvolve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section ofthis Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, theforward-looking statements contained in the following discussion and analysis. Overview We are developing a new class of cellular medicines, Red Cell Therapeutics, or RCTs. Based on our vision that human redblood cells are the foundation of the next significant innovation in medicine, we have designed a proprietary platform togenetically engineer and culture RCTs that are selective, potent and ready‑to‑use cellular therapies. We believe that ourRCTs will provide life‑changing or life‑saving benefits for patients with severe diseases across multiple therapeutic areas. We have generated hundreds of RCTs using our RED PLATFORM®, a highly versatile and proprietary cellular therapyplatform. We are utilizing our universal engineering and manufacturing processes to advance a broad pipeline of RCTproduct candidates into clinical trials in rare diseases, cancer and autoimmune diseases. Common design and manufacturingelements of our RCTs should enable us to achieve significant advantages in product development. We are establishing endto end manufacturing capabilities and plan to develop commercial infrastructure to further establish Rubius Therapeutics as aleading, fully integrated cellular therapy company. Since our inception, we have focused substantially all of our resources on building our proprietary RED PLATFORM,establishing and protecting our intellectual property portfolio, conducting research and development activities, developingour manufacturing process and manufacturing drug product material, organizing and staffing our company, businessplanning, raising capital and providing general and administrative support for these operations. We do not have any productsapproved for sale and have not generated any revenue from product sales. To date, we have funded our operations withproceeds from the sale of preferred stock and issuance of debt and, most recently, with proceeds from our initial publicoffering, or IPO. On July 20, 2018, we completed our IPO, pursuant to which we issued and sold 12,055,450 shares ofcommon stock, inclusive of 1,572,450 shares pursuant to the full exercise of the underwriters’ option to purchase additionalshares. We received proceeds of $254.3 million after deducting underwriting discounts and commissions and other offeringcosts. Since our inception, we have incurred significant operating losses. Our ability to generate any product revenue orproduct revenue sufficient to achieve profitability will depend on the successful development and eventualcommercialization of one or more of our product candidates. We reported net losses of $89.2 million for the year endedDecember 31, 2018, $43.8 million for the year ended December 31, 2017 and $11.0 million for the year ended December 31,2016. As of December 31, 2018, we had an accumulated deficit of $150.1 million. We expect to continue to incur significantexpenses and increasing operating losses for at least the next several years. We expect that our expenses and capitalrequirements will increase substantially in connection with our ongoing activities, particularly if and as we: ·conduct clinical trials for our product candidates; ·further develop our RED PLATFORM; ·continue to discover and develop additional product candidates; ·maintain, expand and protect our intellectual property portfolio; 131 Table of Contents·hire additional clinical, scientific manufacturing and commercial personnel; ·expand in-house manufacturing capabilities, including through the renovation, customization and operation of ourrecently purchased manufacturing facility; ·establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercialquantities of any product candidates for which we may obtain regulatory approval; ·acquire or in-license other product candidates and technologies; ·seek regulatory approvals for any product candidates that successfully complete clinical trials; ·establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtainregulatory approval; and ·add operational, financial and management information systems and personnel, including personnel to support ourproduct development and planned future commercialization efforts, as well as to support our transition to a publiccompany. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtainregulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates, we expectto incur significant expenses related to developing our commercialization capability to support product sales, marketing anddistribution. Further, we expect to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operationsthrough a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution orlicensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangementswhen needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, wemay have to significantly delay, scale back or discontinue the development and commercialization of one or more of ourproduct candidates.Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable toaccurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintainprofitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable orare unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levelsand be forced to reduce or terminate our operations.As of December 31, 2018, we had cash, cash equivalents and investments of $404.1 million. We believe that our existingcash, cash equivalents and investments will enable us to fund our operating expenses, capital expenditure requirements,including the renovation and customization of our recently purchased manufacturing facility, and debt service payments into2021. See “—Liquidity and Capital Resources.” Components of our Results of Operations Revenue To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale ofproducts in the near future. If our development efforts for our product candidates are successful and result in regulatoryapproval or license or collaboration agreements with third parties, we may generate revenue in the future from product sales,payments from collaboration or license agreements that we may enter into with third parties, or any combination thereof.132 Table of ContentsOperating ExpensesResearch and Development ExpensesResearch and development expenses consist primarily of costs incurred for our research activities, including our drugdiscovery efforts, and the development of our product candidates, which include:•employee‑related expenses, including salaries, related benefits and stock‑based compensation expense for employeesengaged in research and development functions;•expenses incurred in connection with the preclinical and clinical development of our product candidates and researchprograms, including under agreements with third parties, such as consultants, contractors and contract researchorganizations, or CROs;•the cost of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinicalstudies and clinical trials, including under agreements with third parties, such as consultants, contractors and contractmanufacturing organizations, or CMOs;•laboratory supplies and research materials;•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance offacilities and insurance; and•payments made under third‑party licensing agreements.We expense research and development costs as incurred. Advance payments that we make for goods or services to bereceived in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amountsare expensed as the related goods are delivered or the services are performed.Our direct external research and development expenses are tracked on a program‑by‑program basis for clinical candidates andconsist of costs that include fees, reimbursed materials and other costs paid to consultants, contractors, CMOs and CROs inconnection with our preclinical and clinical development and manufacturing activities. We do not allocate employee costs,costs associated with our discovery efforts, laboratory supplies and facilities expenses, including depreciation or otherindirect costs, to specific product development programs because these costs are deployed across multiple programs and ourplatform technology and, as such, are not separately classified.Product candidates in later stages of clinical development generally have higher development costs than those in earlierstages of clinical development, primarily due to the increased size and duration of later‑stage clinical trials. We expect thatour research and development expenses will increase substantially in connection with our planned preclinical and clinicaldevelopment activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature,timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of ourproduct candidates. The successful development and commercialization of our product candidates is highly uncertain. Thisis due to the numerous risks and uncertainties associated with product development and commercialization, including thefollowing:•the timing and progress of preclinical and clinical development activities;•the number and scope of preclinical and clinical programs we decide to pursue;•raising additional funds necessary to complete preclinical and clinical development of and commercialize our drugcandidates;•the progress of the development efforts of parties with whom we may enter into collaboration arrangements;133 Table of Contents•our ability to maintain our current research and development programs and to establish new ones;•our ability to establish new licensing or collaboration arrangements;•the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactoryto the U.S. Food and Drug Administration, or FDA, or any comparable foreign regulatory authority;•the receipt and related terms of regulatory approvals from applicable regulatory authorities;•the availability of specialty raw materials for use in production of our product candidates;•our ability to consistently manufacture our product candidates for use in clinical trials;•our ability to establish and operate a manufacturing facility, or secure manufacturing supply through relationships withthird parties;•our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the United Statesand internationally;•our ability to protect our rights in our intellectual property portfolio;•the commercialization of our product candidates, if and when approved;•obtaining and maintaining third‑party insurance coverage and adequate reimbursement;•the acceptance of our product candidates, if approved, by patients, the medical community and third‑party payors;•competition with other products; and•a continued acceptable safety profile of our therapies following approval.A change in the outcome of any of these variables with respect to the development of any of our product candidates couldsignificantly change the costs and timing associated with the development of that product candidate. We may never succeedin obtaining regulatory approval for any of our product candidates.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries and related costs, including stock‑based compensation, forpersonnel in executive, finance and administrative functions. General and administrative expenses also include direct andallocated facility‑related costs as well as professional fees for legal, patent, consulting, investor and public relations,accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as weincrease our headcount and infrastructure to support the expansion of our research activities and development of our productcandidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director andofficer insurance costs as well as investor and public relations expenses associated with operating as a public company.Other Income (Expense)Change in Fair Value of Preferred Stock Warrant LiabilityIn connection with our 2015 loan and security agreement with Pacific Western Bank, we issued warrants to purchase Series Aand Series B preferred stock. We classified these warrants as a liability on our consolidated balance sheet that we remeasuredto fair value at each reporting date, and we recognized changes in the fair value of the warrant liability as a component ofother income (expense) in our consolidated statements of operations and comprehensive loss. Upon the134 Table of Contentsclosing of our IPO in July 2018, the preferred stock warrants became exercisable for common stock instead of preferred stockand were concurrently exercised by the holders. As a result, the fair value of the warrants was reclassified to additional paid-in capital and we no longer have a warrant liability to remeasure. Interest ExpenseInterest expense consists of interest expense on outstanding borrowings under our loan and security agreements, as well asamortization of debt discount and debt issuance costs.Interest Income and Other Expense, NetInterest income consists of interest earned on our invested cash balances. We expect our interest income to increase as a resultof investing the cash received from the sale of Series C preferred stock in February 2018 and our IPO in July 2018. Other income (expense) consists of miscellaneous income and expense unrelated to our core operations. Income TaxesSince our inception, we have not recorded any income tax benefits for the net losses we have incurred in each year or for ourresearch and development tax credits generated, as we believe, based upon the weight of available evidence, that it is morelikely than not that all of our net operating loss, or NOL, carryforwards and tax credits will not be realized. As ofDecember 31, 2018, we had U.S. federal and state net operating loss carryforwards of $93.2 million and $93.9 million,respectively, which may be available to offset future taxable income. The federal NOLs include $37.2 million which expire atvarious dates through 2037 and $56.0 million which carryforward indefinitely. The state NOLs expire at various datesthrough 2038. As of December 31, 2018, we also had U.S. federal and state research and development tax credit carryforwardsof $3.0 million and $1.1 million, respectively, which may be available to offset future tax liabilities and begin to expire in2034 and 2031, respectively. We have recorded a full valuation allowance against our net deferred tax assets at each balancesheet date.On December 22, 2017, the Tax Cuts and Jobs Act, or the TCJA, was signed into United States law. The TCJA includes anumber of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate incometax rate from a top marginal tax rate of 35% to a flat rate of 21%, effective as of January 1, 2018, as well as limitation of thededuction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in eachcase, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may becarried forward indefinitely). The federal tax rate change resulted in a reduction in the gross amount of our deferred tax assetsand liabilities recorded as of December 31, 2017, and a corresponding reduction in our valuation allowance. As a result, noincome tax expense or benefit was recognized as of the enactment date of the TCJA.135 Table of ContentsResults of OperationsComparison of the Years Ended December 31, 2018 and 2017The following table summarizes our results of operations for the years ended December 31, 2018 and 2017: Year Ended December 31, 2018 2017 Change (in thousands)Revenue $ — $ — $ —Operating expenses: Research and development 51,769 21,226 30,543General and administrative 39,894 22,038 17,856Total operating expenses 91,663 43,264 48,399Loss from operations (91,663) (43,264) (48,399)Other income (expense): Change in fair value of preferred stock warrant liability (2,187) (785) (1,402)Interest expense (464) (309) (155)Interest income and other income (expense), net 5,119 511 4,608Total other income (expense), net 2,468 (583) 3,051Net loss $(89,195) $(43,847) $(45,348) Research and Development Expenses Year Ended December 31, 2018 2017 Change (in thousands)Direct research and development expenses by program: RTX-134 $9,061 $809 $8,252RTX-240 (formerly RTX-212) 345 — 345Platform development, early-stage research and unallocated expenses: Personnel related 13,955 5,278 8,677Stock-based compensation expense 3,787 1,756 2,031External manufacturing and research 9,462 6,594 2,868Laboratory supplies and research materials 8,338 4,123 4,215Facility related and other 6,821 2,666 4,155Total research and development expenses $51,769 $21,226 $30,543 Research and development expenses were $51.8 million for the year ended December 31, 2018, compared to $21.2 millionfor the year ended December 31, 2017. The increase in direct costs related to our RTX-134 program of $8.3 million wasprimarily due to contract manufacturing costs incurred and IND-enabling activities in preparation for our planned Phase 1bclinical trial of RTX-134 in patients with phenylketonuria. The increases in personnel-related costs and stock-basedcompensation expense of $8.7 million and $2.0 million, respectively, were due primarily to increased headcount in ourresearch and development function. The increase in laboratory supplies and research materials of $4.2 million was primarilydue to increases in platform development, manufacturing process and scale-up and drug discovery activities. The increase infacility-related and other expenses of $4.2 million was primarily due to an increase in facilities costs resulting from enteringinto two leases of office and laboratory space in July 2017 and May 2018, as well as additional laboratory services to supportincreased headcount. 136 Table of ContentsGeneral and Administrative Expenses Year Ended December 31, 2018 2017 Change (in thousands)Personnel related $6,772 $2,301 $4,471Stock-based compensation expense 23,741 16,147 7,594Professional and consultant fees 6,623 3,149 3,474Facility related and other 2,758 441 2,317Total general and administrative expenses $39,894 $22,038 $17,856 General and administrative expenses for the year ended December 31, 2018 were $39.9 million, compared to $22.0 millionfor the year ended December 31, 2017. The increase in general and administrative expenses of $17.9 million was primarilydue to an increase in stock-based compensation expense of $7.6 million. The increase in stock-based compensation expensewas primarily due to the recognition of compensation expense of $7.3 million for the year ended December 31, 2018 forstock-based awards granted to new employees during the years ended December 31, 2018 and 2017 as compared to $0.3million of compensation expense recognized in the same period in 2017, as well as the recognition of compensation expenseof $2.0 million for option awards with performance-based vesting conditions that were achieved during the year endedDecember 31, 2018, offset by a decrease of $2.0 million in compensation expense for stock-based awards granted to thechairman of our board of directors. Personnel-related costs increased by $4.5 million as a result of an increase in headcountin our general and administrative function as we prepared for our IPO and began to operate as a public company. Professionaland consultant fees increased by $3.5 million primarily due to increased patent costs as we expanded our patent portfolio,consulting fees paid to the chairman of our board of directors for his services as a consultant and increases in accounting,public relations, investor relations, audit, legal, board fees and other consulting fees incurred as we began to operate as apublic company. The increase in facility related and other expenses of $2.3 million was primarily due to an increase infacilities costs resulting from entering into two leases of office and laboratory space in July 2017 and May 2018, office coststo support increased headcount, as well as additional insurance costs resulting from operating as a public company. Change in Fair Value of Preferred Stock Warrant LiabilityThe change in the fair value of our preferred stock warrant liability was due to the increase in the value of our preferred stockprior to the warrant becoming a warrant for common stock upon the closing of our IPO. Interest Expense Interest expense was $0.5 million for the year ended December 31, 2018, compared to $0.3 million for the year endedDecember 31, 2017. The increase in interest expense was due to higher interest rates applicable to outstanding borrowingsduring the year ended December 31, 2018, as well as a loss of less than $0.1 million on the extinguishment of our 2015 loanand security agreement.Interest Income and Other Income (Expense), NetInterest income for the year ended December 31, 2018 was $5.1 million compared to $0.6 million in the year endedDecember 31, 2017. Interest income increased primarily as a result of higher invested balances due to cash proceeds receivedfrom our Series C preferred stock financing in February 2018 and our IPO in July 2018. Other income (expense), net was not significant during the year ended December 31, 2018 or 2017. 137 Table of ContentsComparison of the Years Ended December 31, 2017 and 2016The following table summarizes our results of operations for the years ended December 31, 2017 and 2016: Year Ended December 31, 2017 2016 Change (in thousands)Revenue $ — $ — $ —Operating expenses: Research and development 21,226 8,403 12,823General and administrative 22,038 2,449 19,589Total operating expenses 43,264 10,852 32,412Loss from operations (43,264) (10,852) (32,412)Other income (expense): Change in fair value of preferred stock warrant liability (785) 1 (786)Interest expense (309) (149) (160)Interest income and other income (expense), net 511 (16) 527Total other income (expense), net (583) (164) (419)Net loss $(43,847) $(11,016) $(32,831)Research and Development Expenses Year Ended December 31, 2017 2016 Change (in thousands)Direct research and development expenses by program: RTX-134 $809 $ — $809Platform development, early-stage research and unallocated expenses: Personnel related 5,278 2,828 2,450Stock-based compensation expense 1,756 107 1,649External manufacturing and research 6,594 3,450 3,144Laboratory supplies and research materials 4,123 1,160 2,963Facility related and other 2,666 858 1,808Total research and development expenses $21,226 $8,403 $12,823 Research and development expenses were $21.2 million for the year ended December 31, 2017, compared to $8.4 million forthe year ended December 31, 2016. The increase in direct costs related to our RTX-134 program of $0.8 million was primarilydue to contract manufacturing costs incurred with a supplier of lentiviral vectors. The increases in personnel-related costs andstock-based compensation expense of $2.5 million and $1.6 million, respectively, were primarily due to increased headcountin our research and development function, as well as an increase in the number of awards granted and the per share fair valueof such awards. The increase in external manufacturing and research costs of $3.1 million was primarily due to our efforts toimprove and scale our manufacturing capabilities, preparation for clinical-scale production and an expansion of our in vivotesting to support clinical candidate selection. The increase in laboratory supplies and research materials of $3.0 million wasprimarily due to increases in platform development, manufacturing process and drug discovery activities, as well as anincrease in the volume and cost of bioprocessing materials as we scale up our manufacturing process. The increase in facility-related and other expenses of $1.8 million was primarily due to an increase in facilities costs resulting from entering intoleases of office and laboratory space in September 2016 and July 2017. 138 Table of ContentsGeneral and Administrative Expense Year Ended December 31, 2017 2016 Change (in thousands)Personnel related $2,301 $560 $1,741Stock-based compensation expense 16,147 40 16,107Professional and consultant fees 3,149 1,465 1,684Facility related and other 441 384 57Total general and administrative expenses $22,038 $2,449 $19,589 General and administrative expenses for the year ended December 31, 2017 were $22.0 million, compared to $2.4 million forthe year ended December 31, 2016. The increase in general and administrative expenses of $19.6 million was primarily dueto an increase in stock-based compensation expense of $16.1 million. The increase in stock-based compensation expense wasprimarily due to the recognition of compensation expense of $15.7 million for stock-based awards granted to the chairman ofour board of directors during the year ended December 31, 2017. All of the stock-based awards issued to the chairman of ourboard of directors were for his services as a consultant and were being accounted for as non-employee stock-based awards. Atthe end of each reporting period prior to completion of the services, we remeasured the fair value of any unvested portion ofthe awards and adjusted the expense accordingly. As a result, changes in the fair value of our common stock impacted theamount of stock-based compensation expense that we recognized for these awards during the year ended December 31, 2017.The stock-based compensation expense recognized for these awards during 2017 reflects the vesting of approximately one-half of the awards. Stock-based compensation expense related to the unvested portion of the awards will be recognized overthe remaining two-year service period of the awards. The remaining increase in stock-based compensation expense in 2017was primarily due to increased headcount in our general and administrative function, as well as an increase in the number ofawards granted and the per share grant-date fair value of such awards. Personnel-related costs increased by $1.7 million as aresult of the increase in headcount in our general and administrative function. Professional and consultant fees increased by$1.7 million primarily due to consulting fees paid to the chairman of our board of directors for his services as a consultant, aswell as increased patent costs and professional fees relating to accounting, audit and legal fees and costs associated withongoing business activities and our preparations to operate as a public company. Change in Fair Value of Preferred Stock Warrant LiabilityThe change in the fair value of our preferred stock warrant liability was $0.8 million during the year ended December 31,2017 and was due primarily to the increase in the value of our preferred stock. Interest Expense Interest expense was $0.3 million for the year ended December 31, 2017, compared to $0.1 million for the year endedDecember 31, 2016. The increase in interest expense was due to an increase of $1.5 million in outstanding borrowings underour 2015 loan and security agreement during the year ended December 31, 2017 as well as higher interest rates applicable tooutstanding borrowings during the year ended December 31, 2017.Interest Income and Other Income (Expense), NetInterest income for the year ended December 31, 2017 was $0.6 million due to interest earned on invested cash balances. Wedid not invest our cash balances during the year ended December 31, 2016. Other expense was not significant for the years ended December 31, 2017 and 2016. Liquidity and Capital Resources Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our productcandidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. To date,we have funded our operations with proceeds from the sale of preferred stock and issuance of debt and, most139 Table of Contentsrecently, with proceeds from our initial public offering, or IPO. As of December 31, 2018, we had cash, cash equivalents andinvestments of $404.1 million. In July 2018, we completed our IPO, pursuant to which we issued and sold 12,055,450 sharesof common stock, inclusive of 1,572,450 shares pursuant to the full exercise of the underwriters’ option to purchaseadditional shares. We received proceeds of $254.3 million, after deducting underwriting discounts and commissions andother offering costs. In December 2018, the company repaid all borrowings under its 2015 loan and security agreement andentered into a new loan and security agreement for an aggregate principal amount of $75.0 million, of which $25.0 millionwas drawn as of December 31, 2018. Cash FlowsThe following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, 2018 2017 2016 (in thousands)Cash used in operating activities $(58,341) $(21,938) $(9,502)Cash used in investing activities (111,639) (2,251) (443)Cash provided by financing activities 374,829 121,693 15,418Net increase in cash, cash equivalents and restricted cash $204,849 $97,504 $5,473Operating ActivitiesDuring the year ended December 31, 2018, operating activities used $58.3 million of cash, primarily resulting from our netloss of $89.2 million, partially offset by net non‑cash charges of $30.7 million, primarily consisting of stock‑basedcompensation expense. Changes in our operating assets and liabilities for the year ended December 31, 2018 provided netcash of $0.1 million, which consisted primarily of a $9.2 million increase in accounts payable and accrued expenses andother current liabilities, offset by a $9.1 million increase in prepaid expenses and other current assets and others assets.During the year ended December 31, 2017, operating activities used $21.9 million of cash, primarily resulting from our netloss of $43.8 million, partially offset by net non‑cash charges of $19.2 million, primarily consisting of stock‑basedcompensation expense, and net cash provided by changes in our operating assets and liabilities of $2.7 million. Net cashprovided by changes in our operating assets and liabilities for the year ended December 31, 2017 consisted primarily of a$3.4 million increase in accounts payable and accrued expenses and other current liabilities, partially offset by a $0.6 millionincrease in prepaid expenses and other current assets.During the year ended December 31, 2016, operating activities used $9.5 million of cash, primarily resulting from our netloss of $11.0 million, partially offset by net non-cash charges of $0.4 million and net cash provided by changes in ouroperating assets and liabilities of $1.1 million. Net cash provided by changes in our operating assets and liabilities for theyear ended December 31, 2016 consisted primarily of a $1.2 million increase in accounts payable and accrued expenses andother current liabilities.Changes in accounts payable, accrued expenses and other current liabilities and prepaid expenses and other assets in bothperiods were generally due to growth in our business, the advancement of our research programs and the timing of vendorinvoicing and payments.Investing ActivitiesDuring the year ended December 31, 2018, net cash used in investing activities was $111.6 million, consisting of purchasesof investments of $161.0 million and purchases of property, plant and equipment of $15.0 million, offset by sales andmaturities of investments of $64.3 million. Our purchases of property, plant and equipment primarily consisted of $8.0million for the acquisition of and subsequent design and demolition activities associated with our recently purchasedmanufacturing facility in Smithfield, Rhode Island and $4.4 million for the purchase of laboratory equipment as weexpanded our discovery and manufacturing activities.140 Table of Contents During the years ended December 31, 2017 and 2016, net cash used in investing activities was $2.3 million and $0.4 million,respectively, due to purchases of property and equipment. The purchases of property and equipment during the year endedDecember 31, 2017 related to equipment purchases as we expanded our discovery and manufacturing activities. Financing Activities During the year ended December 31, 2018, net cash provided by financing activities of $374.8 million consisted primarily of$257.9 million of proceeds from our IPO in July 2018, $101.0 million of proceeds from the issuance of preferred stock inFebruary 2018, and $25.0 million of proceeds received from borrowings under a loan and security agreement entered inDecember 2018, net of financing costs paid in 2018. We used cash of $5.5 million to repay outstanding borrowings underour 2015 loan and security agreement. During the year ended December 31, 2017, net cash provided by financing activities was $121.7 million, consistingprimarily of proceeds from the issuance of preferred stock of $120.1 million and borrowings of $1.5 million under our 2015loan and security agreement.During the year ended December 31, 2016, net cash provided by financing activities was $15.4 million, consisting primarilyof proceeds from the issuance of preferred stock of $11.4 million and borrowings of $4.0 million under our 2015 loan andsecurity agreement.Loan and Security AgreementsIn November 2018, we entered into a loan and security agreement, as amended, or the 2015 Credit Facility, with PacificWestern Bank under which we borrowed an aggregate of $5.5 million. In December 2018, we repaid all borrowings under the2015 Credit Facility and terminated it. The aggregate principal amount of the loan outstanding at the time of repayment was$5.5 million and we did not incur any penalties as a result of the repayment. We recognized a loss on the extinguishment ofthe 2015 Credit Facility of less than $0.1 million related to the unamortized debt discount at the time of repayment. The losson extinguishment was recorded as additional interest expense. In December 2018, or the Closing Date, we entered into a loan and security agreement, or the Loan Agreement, with SolarCapital Ltd. as collateral agent for the lenders party thereto for an aggregate principal amount of $75.0 million, or the 2018Credit Facility. The aggregate principal amount will be funded in three tranches of term loans of $25.0 million each. On theClosing Date, we made an initial draw of $25.0 million. The second tranche will be available to us through June 30, 2019,subject to certain conditions including the satisfaction of certain financial covenants. The third tranche will be available tous through June 30, 2020, subject to certain conditions including the Food and Drug Administration’s acceptance of at leastone of our investigational new drug applications and the satisfaction of certain financial covenants. Interest on the outstanding loan balance will accrue at a rate of the one-month U.S. LIBOR rate plus 5.50%. Monthlyprincipal payments will commence 36 months after the Closing Date and will be amortized over the following 24 months.The term loans are subject to a prepayment fee of 1.00% in the first year, 0.50% in the second year and 0.25% in the thirdyear. In conjunction with 2018 Credit Facility, the company incurred issuance costs of $0.8 million. The Loan Agreement contains financial covenants that require us to maintain either a certain minimum cash balance or aminimum market capitalization threshold. We were in compliance with all such covenants as of December 31, 2018. TheLoan Agreement contains customary representations, warranties and covenants and also includes customary events ofdefault, including payment defaults, breaches of covenants, change of control and a material adverse change default. Uponthe occurrence of an event of default, a default interest rate of an additional 4.00% per annum may be applied to theoutstanding loan balances, and the lenders may declare all outstanding obligations immediately due and payable.Borrowings under the Loan Agreement are collateralized by substantially all of the company’s assets, other than itsintellectual property. 141 Table of ContentsFunding RequirementsWe expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance thepreclinical activities and clinical trials for our product candidates in development. In addition, upon the closing of thisoffering, we expect to incur additional costs associated with operating as a public company. The timing and amount of ouroperating and capital expenditures will depend largely on:•the timing and progress of preclinical and clinical development activities;•the commencement, enrollment or results of the planned clinical trials of our product candidates or any future clinicaltrials we may conduct, or changes in the development status of our product candidates;•the timing and outcome of regulatory review of our product candidates;•our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;•changes in laws or regulations applicable to our product candidates, including but not limited to clinical trialrequirements for approvals;•developments concerning our CMOs;•our ability to obtain materials to produce adequate product supply for any approved product or inability to do so atacceptable prices;•the costs and timing associated with the renovation, customization and operation of our planned multi‑suitemanufacturing facility that we purchased in July 2018;•our ability to establish collaborations if needed;•the costs and timing of future commercialization activities, including product manufacturing, marketing, sales anddistribution, for any of our product candidates for which we obtain marketing approval;•the legal patent costs involved in prosecuting patent applications and enforcing patent claims and other intellectualproperty claims;•additions or departures of key scientific or management personnel;•unanticipated serious safety concerns related to the use of our product candidates; and•the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestonepayments thereunder.We believe that our existing cash, cash equivalents and investments, will enable us to fund our operating expenses, capitalexpenditure requirements, including the renovation and customization of the manufacturing facility we purchased inJuly 2018, and debt service payments into 2021. We have based this estimate on assumptions that may prove to be wrong,and we could utilize our available capital resources sooner than we expect. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through acombination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities,investors’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferencesthat adversely affect investors’ rights as a common stockholder. Debt financing and preferred equity financing, if available,may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurringadditional debt, making acquisitions or capital expenditures or declaring dividends. If we raise142 Table of Contentsadditional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with thirdparties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drugcandidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds throughequity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate ourresearch, product development or future commercialization efforts, or grant rights to develop and market drug candidates thatwe would otherwise prefer to develop and market ourselves. Contractual Obligations and Commitments The following table summarizes our contractual obligations as of December 31, 2018 and the effects that such obligations areexpected to have on our liquidity and cash flows in future periods: Payments Due by Period Total LessThan 1Year 1 to 3Years 4 to 5Years MoreThan 5Years (in thousands)Operating lease commitments(1) $61,388 $5,458 $14,309 $13,844 $27,777Debt obligations(2) 34,092 2,005 4,010 27,089 988Total $95,480 $7,463 $18,319 $40,933 $28,765 (1)Amounts in table reflect payments due for our leases of office and laboratory space in Cambridge, Massachusetts under fouroperating lease agreements that expire in February 2019, February 2019, September 2021 and July 2028.(2)Amounts in table reflect the contractually required principal and interest payments payable under the 2018 Credit Facility. Forpurposes of this table, the interest due under the 2018 Credit Facility was calculated using an assumed interest rate of 8.02% per annum, whichwas the interest rate in effect as of December 31, 2018.We enter into contracts in the normal course of business with CROs, CMOs and other third parties for preclinical researchstudies, clinical trials and testing and manufacturing services. These contracts do not contain minimum purchasecommitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of paymentsfor services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date ofcancellation. These payments are not included in the table above as the amount and timing of such payments are not known.We have also entered into a license agreement with the Whitehead Institute for Biomedical Research (“WIBR”), as amended,under which the company has been granted an exclusive, sublicensable, nontransferable license under certain patent familiesrelated to the development of the company’s red cell therapeutics (the “WIBR License”). We are obligated to pay to WIBR low single‑digit royalties based on annual net sales by us, our affiliates and oursublicensees of licensed products and licensed services that are covered by a valid claim of the licensed patent rights at thetime and in the country of sale. Based on the progress the company makes in the advancement of products covered by thelicensed patent rights, the company is required to make aggregate milestone payments of up to $1.6 million upon theachievement of specified preclinical, clinical and regulatory milestones. In addition, the company is required to pay to WIBRa percentage of the non-royalty payments that it receives from sublicensees of the patent rights licensed by WIBR. Thispercentage varies from low single-digit to low double-digit percentages and will be based upon the clinical stage of theproduct that is the subject of the sublicense. Royalties shall be paid by the company on a licensed product-by-licensedproduct and country-by-country basis, beginning on the first commercial sale of such licensed product in such country untilexpiration of the last valid patent claim covering such licensed product in such country. The company has the right to terminate the WIBR License in its entirety, on a patent-by-patent or country-by-country basis,at will upon three months’ notice to WIBR. WIBR may terminate the agreement upon breach of contract or in the event of thecompany’s bankruptcy, liquidation, insolvency or cessation of business related to the license. For additional information, see“Business—Licenses.” 143 Table of ContentsCritical Accounting Policies and Significant Judgments and EstimatesOur consolidated financial statements are prepared in accordance with generally accepted accounting principles in theUnited States, or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to makeestimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, andrelated disclosures. We base our estimates on historical experience, known trends and events and various other factors that webelieve are reasonable under the circumstances, the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions onan ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, webelieve that the following accounting policies are those most critical to the judgments and estimates used in the preparationof our financial statements.Accrued Research and Development ExpensesAs part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research anddevelopment expenses. This process involves reviewing open contracts and purchase orders, communicating with ourapplicable personnel to identify services that have been performed on our behalf and estimating the level of serviceperformed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actualcosts. The majority of our service providers invoice us in arrears for services performed, on a pre‑determined schedule orwhen contractual milestones are met; however, some require advance payments. We make estimates of our accrued expensesas of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at thattime. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary.Examples of estimated accrued research and development expenses include fees paid to:•vendors in connection with preclinical development activities;•CMOs in connection with process development and scale‑up activities and the production of preclinical and clinical trialmaterials; and•CROs in connection with clinical trials.We base the expense recorded related to contract research and manufacturing on our estimates of the services received andefforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply materials and conduct services.The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in unevenpayment flows. There may be instances in which payments made to our vendors will exceed the level of services providedand result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will beperformed and the level of effort to be expended in each period. If the actual timing of the performance of services or thelevel of effort varies from the estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect ourestimates to be materially different from amounts actually incurred, our understanding of the status and timing of servicesperformed relative to the actual status and timing of services performed may vary and may result in reporting amounts thatare too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimatesof accrued research and development expenses.Stock‑based CompensationWe measure stock‑based awards with service-based and performance-based vesting conditions granted to employees anddirectors and, commencing January 1, 2018, to non-employees based on their fair value on the date of the grant using theBlack‑Scholes option‑pricing model for options or the difference between the purchase price per share of the award, if any,and the fair value of our common stock for restricted common stock awards. Compensation expense for those awards isrecognized over the requisite service period, which is generally the vesting period of the respective award. We use thestraight‑line method to record the expense of awards with service‑based vesting conditions. We use the144 Table of Contentsgraded‑vesting method to record the expense of awards with both service‑based and performance‑based vesting conditions,commencing when achievement of the performance condition becomes probable.Prior to the adoption of ASU 2018-07, which was effective January 1, 2018, we measured the fair value of stock‑based awardsgranted to non‑employees on the date that the related service is complete, which was generally the vesting date of the award.Prior to the service completion date, compensation expense was recognized over the period during which services wererendered by such non‑employees. At the end of each financial reporting period prior to the service completion date, the fairvalue of these awards was remeasured using the then‑current fair value of our common stock and updated assumption inputsin the Black‑Scholes option‑pricing model for options or the difference between the purchase price per share of the award, ifany, and the then‑current fair value of our common stock for restricted common stock awards.In addition, for restricted stock awards under which restricted common stock was purchased by the holder with a promissorynote treated as a nonrecourse note for accounting purposes, we measured the fair value of the award using the Black‑Scholesoption‑pricing model.The Black‑Scholes option‑pricing model uses as inputs the fair value of our common stock and assumptions we make for thevolatility of our common stock, the expected term of our common stock options, the risk‑free interest rate for a period thatapproximates the expected term of our common stock options, and our expected dividend yield.We measure the fair value of stock-based awards with market-based vesting conditions on the date of grant using a MonteCarlo simulation model. When service-based vesting conditions also exist, we recognize stock-based compensation expenseusing the graded-vesting method over the longer of the derived service period from the market condition or the requiredservice period. In accordance with accounting guidance for awards with market conditions, the stock-based compensationexpense will be recognized over the appropriate period regardless of whether the award achieves the market condition andwill only be adjusted to the extent the service condition is not met. When an award contains a market-based vestingcondition and a performance-based vesting condition where both must be achieved to earn the award, we recognize stock-based compensation expense over the longer of the derived service period from the market condition or the period estimatedfor the performance-based vesting condition to be achieved. We begin recording stock based compensation expense for thistype of award when the achievement of the performance-based vesting condition becomes probable regardless of whether themarket condition has been achieved.Off‑Balance Sheet ArrangementsWe did not have during the periods presented, and we do not currently have, any off‑balance sheet arrangements, as definedin the rules and regulations of the SEC.Recently Issued Accounting PronouncementsA description of recently issued accounting pronouncements that may potentially impact our financial position, results ofoperations or cash flows are disclosed in Note 2 to our consolidated financial statements.Emerging Growth Company StatusThe Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of anextended transition period to comply with new or revised accounting standards applicable to public companies until thosestandards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period,which means that when a standard is issued or revised and it has different application dates for public or private companies,we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do sountil such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify asan emerging growth company. While we have not made such an irrevocable election, we have not delayed the adoption ofany applicable accounting standards.145 Table of Contents Item 7A. Quantitative and Qualitative Disclosure about Market RiskAs of December 31, 2018, we had cash, cash equivalents and investment of $404.1 million, which consisted of cash, U.S.government money market funds, U.S government treasury bills, U.S. government agency bonds and U.S. governmenttreasury notes. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of theseinvestments, an immediate 10% change in interest rates would not have a material effect on the fair market value of ourinvestment portfolio.As of December 31, 2018 we had $25.0 million of borrowings outstanding under the 2018 Credit Facility. Outstandingborrowings under the 2018 Credit Facility accrue at a rate of the one-month U.S. LIBOR rate plus 5.50%. An immediate 10%change in the one-month U.S. LIBOR rate would not have a material impact on our debt‑related obligations, financialposition or results of operations.We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, wehave contracted with and may continue to contract with foreign vendors that are located in Europe and Australia. Ouroperations may be subject to fluctuations in foreign currency exchange rates in the future.Inflation generally affects us by increasing our cost of labor. We do not believe that inflation had a material effect on ourbusiness, financial condition or results of operations during the year ended December 31, 2018.146 Table of Contents Item 8. Consolidated Financial Statements and Supplementary DataRUBIUS THERAPEUTICS, INC. Index to Consolidated Financial Statements Page No.Report of Independent Registered Public Accounting Firm 148Consolidated Balance Sheets 149Consolidated Statements of Operations and Comprehensive Loss 150Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) 151Consolidated Statements of Cash Flows 152 147 Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of Rubius Therapeutics, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Rubius Therapeutics, Inc. and its subsidiaries (the“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensiveloss, of convertible preferred stock and stockholders' equity (deficit) and of cash flows for each of the three years in the periodended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). Inour opinion, the consolidated financial statements present fairly, in all material respects, the financial position of theCompany as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years inthe period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States ofAmerica. Change in Accounting PrincipleAs discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts forshare-based compensation issued to non-employees in 2018.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firmregistered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to beindependent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement, whether due to error or fraud.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Ouraudits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonablebasis for our opinion./s/ PricewaterhouseCoopers LLPBoston, MassachusettsMarch 28, 2019We have served as the Company's auditor since 2016.148 Table of ContentsRUBIUS THERAPEUTICS, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts) December 31, 2018 2017Assets Current assets: Cash and cash equivalents $307,064 $104,288Investments 96,987 —Prepaid expenses and other current assets 9,737 700Restricted cash 622 —Total current assets 414,410 104,988Property, plant and equipment, net 62,796 2,415Restricted cash 1,735 284Other assets 168 —Total assets $479,109 $107,687Liabilities, Convertible Preferred Stock and Stockholders' Equity (Deficit) Current liabilities: Accounts payable $7,886 $2,033Accrued expenses and other current liabilities 12,118 2,986Current portion of long-term debt — 2,139Total current liabilities 20,004 7,158Long-term debt, net of discount and current portion 24,347 3,302Deferred rent 143 158Preferred stock warrant liability — 866Liability for early exercise of stock options and restricted stock 166 100Lease liability, net of current portion 41,441 —Total liabilities 86,101 11,584Commitments and contingencies (Note 12) Convertible preferred stock (Series A, B and C), $0.001 par value; no shares and 44,070,808shares authorized at December 31, 2018 and 2017, respectively; no shares and 43,933,006shares issued and outstanding at December 31, 2018 and 2017, respectively — 139,790Stockholders' equity (deficit): Preferred stock, $0.001 par value; 10,000,000 shares and no shares authorized atDecember 31, 2018 and 2017, respectively; no shares issued or outstanding atDecember 31, 2018 and 2017 — —Common stock, $0.001 par value; 150,000,000 and 65,000,000 shares authorized atDecember 31, 2018 and 2017, respectively; 79,234,853 and 14,977,317 shares issuedand outstanding at December 31, 2018 and 2017, respectively 79 15Additional paid-in capital 543,040 17,277Accumulated other comprehensive loss (29) —Accumulated deficit (150,082) (60,979)Total stockholders' equity (deficit) 393,008 (43,687)Total liabilities, convertible preferred stock and stockholders' equity (deficit) $479,109 $107,687 The accompanying notes are an integral part of these consolidated financial statements.149 Table of ContentsRUBIUS THERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(In thousands, except share and per share amounts) Year Ended December 31, 2018 2017 2016Revenue $ — $ — $ —Operating expenses: Research and development 51,769 21,226 8,403General and administrative 39,894 22,038 2,449Total operating expenses 91,663 43,264 10,852Loss from operations (91,663) (43,264) (10,852)Other income (expense): Change in fair value of preferred stock warrant liability (2,187) (785) 1Interest expense (464) (309) (149)Interest income and other income (expense), net 5,119 511 (16)Total other income (expense), net 2,468 (583) (164)Net loss (89,195) (43,847) (11,016)Accretion of Series A redeemable convertible preferred stock to redemptionvalue — (656) (748)Net loss attributable to common stockholders $(89,195) $(44,503) $(11,764)Net loss per share attributable to common stockholders, basic and diluted $(2.27) $(5.55) $(1.63)Weighted average common shares outstanding, basic and diluted 39,285,468 8,023,785 7,200,581 Comprehensive loss: Net loss $(89,195) $(43,847) $(11,016)Other comprehensive loss: Unrealized losses on investments, net of tax of $0 (29) — —Comprehensive loss $(89,224) $(43,847) $(11,016) The accompanying notes are an integral part of these consolidated financial statements. 150 Table of ContentsRUBIUS THERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)(In thousands, except share amounts) Accumulated Convertible Additional other Total preferred stock Common stock paid-in comprehensive Accumulated stockholders’ Shares Amount Shares Amount capital loss deficit equity (deficit)Balances at December 31, 2015 10,487,329 $6,882 7,505,000 $ 8 $ — $ — $(5,570) $(5,562)Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $13 19,083,333 11,437 — — — — — —Issuance of common stock for technology license — — 366,667 — 55 — — 55Issuance of common stock upon exercise of stock options — — 14,625 — — — — —Stock‑based compensation expense — — — — 147 — — 147Accretion of Series A redeemable convertible preferred stock to redemption value — 748 — — (202) — (546) (748)Net loss — — — — — — (11,016) (11,016)Balances at December 31, 2016 29,570,662 19,067 7,886,292 8 — — (17,132) (17,124)Issuance of Series B convertible preferred stock, net of issuance costs of $433 14,362,344 120,067 — — — — — —Issuance of common stock upon exercise of stock options — — 250,572 — 37 — — 37Issuance of common stock for one‑time bonus payment — — 213,439 — — — — —Issuance of restricted common stock upon early exercise of stock options — — 1,400,000 1 (1) — — —Issuance of restricted common stock — — 5,227,014 6 (6) — — —Stock‑based compensation expense — — — — 17,903 — — 17,903Accretion of Series A redeemable convertible preferred stock to redemption value — 656 — — (656) — — (656)Net loss — — — — — — (43,847) (43,847)Balances at December 31, 2017 43,933,006 139,790 14,977,317 15 17,277 — (60,979) (43,687)Issuance of Series C convertible preferred stock, net of issuance costs of $214 7,912,432 100,986 — — — — — —Conversion of preferred stock warrant to common stock warrant upon closing of initial public offering — — — — 3,053 — — 3,053Conversion of redeemable convertible preferred stock to common stock (51,845,438) (240,776) 51,845,438 52 240,724 — — 240,776Issuance of common stock, initial public offering, net of issuance costs of $3,548 — — 12,055,450 12 254,306 — — 254,318Cashless exercise of warrants — — 131,273 — — — — —Vesting of restricted common stock — — — — 180 — — 180Issuance of common stock upon exercise of stock options — — 225,375 — 64 — — 64Stock-based compensation expense — — — — 27,528 — — 27,528Cumulative effect adjustment for adoption of ASU 2018-07 — — — — (92) — 92 —Unrealized losses on investments — — — — — (29) — (29)Net loss — — — — — — (89,195) (89,195)Balances at December 31, 2018 — $ — 79,234,853 $79 $543,040 $(29) $(150,082) $393,008 The accompanying notes are an integral part of these consolidated financial statements. 151 Table of ContentsRUBIUS THERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year ended December 31, 2018 2017 2016Cash flows from operating activities: Net loss $(89,195) $(43,847) $(11,016)Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 27,528 17,903 147Depreciation and amortization expense 1,263 447 118Issuance of common stock for technology license — — 55Change in fair value of preferred stock warrant liability 2,187 785 (1)Accretion of discount on investments (329) — —Loss on disposal of property and equipment — — 29Non-cash interest expense 86 42 27Changes in operating assets and liabilities: Prepaid expenses and other current assets (9,037) (647) (36)Other assets (74) — —Accounts payable 4,938 1,110 589Accrued expenses and other current liabilities 4,307 2,247 618Deferred rent (15) 22 (32)Net cash used in operating activities (58,341) (21,938) (9,502)Cash flows from investing activities: Purchases of property, plant and equipment (14,952) (2,251) (443)Purchases of investments (160,972) — —Sales and maturities of investments 64,285 — —Net cash used in investing activities (111,639) (2,251) (443)Cash flows from financing activities: Proceeds from issuance of convertible preferred stock, net of issuance costs 100,986 120,067 11,437Proceeds from initial public offering of common stock, net of commissions and underwritingdiscounts 257,866 — —Payments of initial public offering costs (3,548) — —Proceeds from issuance of common stock upon exercise of stock options 64 37 —Proceeds from the sale of restricted common stock — 100 —Proceeds from repayment of promissory note 246 — —Payments of debt issuance costs (285) (11) (19)Proceeds from borrowings under loan and security agreement 25,000 1,500 4,000Payment of long-term debt (5,500) — —Net cash provided by financing activities 374,829 121,693 15,418Net increase in cash, cash equivalents and restricted cash 204,849 97,504 5,473Cash, cash equivalents and restricted cash at beginning of period 104,572 7,068 1,595Cash, cash equivalents and restricted cash at end of period $309,421 $104,572 $7,068 Supplemental cash flow information: Cash paid for interest $385 $265 $115 Supplemental disclosure of non-cash investing and financing information: Purchases of property, plant and equipment included in accounts payable or accrued expenses $1,550 $ 9 $266Landlord incentives for leasehold improvements recorded as deferred rent $ — $ — $100Amounts capitalized under build-to-suit lease transaction $45,142 $ — $ —Debt issuance costs included in accounts payable and accrued expenses $489 $ — $ —Issuance of preferred stock warrant in connection with loan and security agreement $ — $14 $ —Reclassification of warrants to additional paid-in capital $3,053 $ — $ —Accretion of Series A redeemable convertible preferred stock to redemption value $ — $656 $748Conversion of preferred stock to common stock upon closing of the initial public offering $240,776 $ — $ —The accompanying notes are an integral part of these consolidated financial statements.152 Table of ContentsRUBIUS THERAPEUTICS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Nature of the Business and Basis of PresentationRubius Therapeutics, Inc. (“Rubius” or the “Company”) is a therapeutics company focused on using its platform to developred cell therapeutics for the treatment of patients with severe diseases. Rubius was incorporated in April 2013 as VL26, Inc.under the laws of the State of Delaware. In January 2015, the Company changed its name to Rubius Therapeutics, Inc.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 government regulations, the ability to establish clinical- andcommercial-scale manufacturing processes and the ability to secure additional capital to fund operations. In addition, theCompany is subject to uncertainty regarding the performance and safety of red cell therapeutics in humans. Productcandidates currently under development will require significant additional research and development efforts, includingextensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts requiresignificant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reportingcapabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company willrealize significant revenue from product sales.On July 20, 2018, the Company completed its initial public offering (“IPO”), pursuant to which it issued and sold 12,055,450shares of common stock, inclusive of 1,572,450 shares sold by the Company pursuant to the full exercise of the underwriters’option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $254.3million, after deducting underwriting discounts and commissions and other offering costs. Upon the closing of the IPO, all ofthe shares of the Company’s outstanding convertible preferred stock then outstanding automatically converted into51,845,438 shares of common stock (see Note 7).The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realizationof assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurredrecurring losses since inception, including net losses of $89.2 million, $43.8 million and $11.0 million for the years endedDecember 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, the Company had an accumulated deficit of$150.1 million. The Company expects to continue to generate operating losses in the foreseeable future. As of March 28,2019, the issuance date of the consolidated financial statements, the Company expects that its cash, cash equivalents andinvestments will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months fromthe issuance date of the consolidated financial statements. The Company may seek additional funding through private orpublic equity financings, debt financings, collaborations, strategic alliances and marketing, distribution or licensingarrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not beable to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or therights of the Company's stockholders. If the Company is unable to obtain funding, the Company could be forced to delay,reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercializationefforts, which could adversely affect its business prospects. Although management continues to pursue these plans, there isno assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company tofund continuing operations, if at all.The Company’s consolidated financial statements have been prepared in conformity with accounting principles generallyaccepted in the United States of America (“GAAP”).The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary.All intercompany accounts and transactions have been eliminated in consolidation.153 Table of Contents2. Summary of Significant Accounting PoliciesUse of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimatesand assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual of researchand development expenses, the valuation of common stock and the preferred stock warrant liability prior to the IPO and thevaluation of stock-based awards . 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, managementevaluates its estimates as there are changes in circumstances, facts and experience. Actual results may differ from thoseestimates or assumptions.Concentrations of Credit Risk and of Significant SuppliersFinancial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cashequivalents, and investments. The Company’s cash equivalents and investments as of December 31, 2018 consisted of U.S.government money market funds, U.S government treasury bills, U.S. government agency bonds and U.S. governmenttreasury notes. The Company does not believe that it is subject to unusual credit risk beyond the normal credit riskassociated with commercial banking relationships.The Company relies, and expects to continue to rely, on a small number of vendors to manufacture supplies and raw materialsfor its development programs. These programs could be adversely affected by a significant interruption in thesemanufacturing services or the availability of raw materials.Deferred Offering CostsThe Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equityfinancing, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as aresult of the offering. Should the in-process equity financing be abandoned, the deferred offering costs will be expensedimmediately as a charge to operating expenses in the statements of operations and comprehensive loss.Deferred Financing CostsThe Company capitalizes certain legal and other third‑party fees that are directly associated with obtaining access to capitalunder credit facilities. Deferred financing costs incurred in connection with obtaining access to capital are recorded in otherassets and are amortized over the term of the credit facility. Deferred financing costs related to a recognized debt liability arerecorded as a reduction of the carrying amount of the debt liability and amortized to interest expense using the effectiveinterest method over the repayment term.Cash EquivalentsThe Company considers all highly liquid investments with original maturities of three months or less at the date of purchaseto be cash equivalents.Restricted CashAs of December 31, 2018 and 2017, the Company maintained restricted cash totaling $1.8 million and $0.3 million,respectively, held in the form of cash-secured letters of credit for the benefit of the landlords of its leased properties. As ofDecember 31, 2018, the Company also maintained restricted cash of $0.5 million to collateralize its corporate credit card.The Company classified $1.7 million and $0.3 million of the restricted cash as a non-current asset in its154 Table of Contentsconsolidated balance sheet as of December 31, 2018 and 2017, respectively, and classified $0.6 million of the restricted cashas a current asset in its consolidated balance sheet as of December 31, 2018.Property, Plant and EquipmentProperty and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortizationexpense is recognized using the straight‑line method over the estimated useful life of each asset as follows: Estimated useful lifeLaboratory and office equipment 5 yearsComputers and software 3 yearsFurniture and fixtures 7 yearsBuilding 30 yearsLeasehold improvements Shorter of life of lease or 10 years Costs for capital assets not yet placed into service are capitalized as construction‑in‑progress and depreciated once placedinto service. Interest costs incurred during the construction of major capital projects are capitalized until the underlying assetis ready for its intended use, at which point the interest costs are amortized as depreciation expense over the life of theunderlying asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation andamortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expendituresfor repairs and maintenance are charged to expense as incurred.Impairment of Long‑Lived AssetsLong‑lived assets consist of property and equipment. Long‑lived assets to be held and used are tested for recoverabilitywhenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fullyrecoverable. Factors that the Company considers in deciding when to perform an impairment review include significantunderperformance of the business in relation to expectations, significant negative industry or economic trends andsignificant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long‑livedasset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the useand eventual disposition of the long‑lived asset group to its carrying value. An impairment loss would be recognized in lossfrom operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less thanits carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group overits fair value, determined based on discounted cash flows. The Company did not record any impairment losses on long‑livedassets during the periods presented.Fair Value MeasurementsCertain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would bereceived for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants on the measurement date. Valuation techniques used tomeasure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assetsand liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair valuehierarchy, 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 assetsor liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs thatare observable or can be corroborated by observable market data.·Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determiningthe fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similartechniques.155 Table of ContentsThe Company’s cash equivalents and investments determined according to the fair value hierarchy described above (seeNote 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due tothe short-term nature of these liabilities. The carrying value of the Company’s long‑term debt approximates its fair value dueto its variable interest rate, which approximates a market interest rate.InvestmentsThe Company’s investments are classified as available-for-sale and are carried at fair value, with the unrealized gains andlosses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit). Realizedgains and losses and declines in value determined to be other than temporary are based on the specific identification methodand are included as a component of other income (expense), net in the consolidated statements of operations andcomprehensive loss. The Company classifies its investments with maturities beyond one year as short-term, based on theirhighly liquid nature and because such investments are available for current operations.The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessinginvestments for other-than-temporary declines in value, the Company considers such factors as, among other things, howsignificant the decline in value is as a percentage of the original cost, how long the market value of the investment has beenless than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow forany anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline inthe value of the investment that the Company considers to be “other than temporary,” the Company reduces the investmentto fair value through a charge to the statement of operations and comprehensive loss. No such adjustments were necessaryduring the periods presented.Classification and Accretion of Convertible Preferred StockThe carrying value of the Company’s Series A redeemable convertible preferred stock was being accreted to its redemptionvalue from the date of issuance of such shares through the earliest date of redemption. During the year ended December 31,2017, the redemption rights were removed from the Series A redeemable convertible preferred stock (see Note 7), and as such,the Company no longer recorded adjustments to the carrying value of its outstanding convertible preferred stock foraccretion to redemption value. The Company’s Series A, Series B and Series C convertible preferred stock were classifiedoutside of stockholders’ equity (deficit) because the holders of such shares had liquidation rights in the event of a deemedliquidation that, in certain situations, were not solely within the control of the Company.Segment InformationThe Company manages its operations as a single segment for the purposes of assessing performance and making operatingdecisions. The Company is developing red cell therapeutics for the treatment of patients with severe diseases. All of theCompany’s tangible assets are held in the United States.Research and Development CostsResearch and development costs are expensed as incurred. Research and development expenses consist of costs incurred inperforming research and development activities, including salaries and bonuses, stock‑based compensation, employeebenefits, facilities costs, laboratory supplies, depreciation, manufacturing expenses and external costs of vendors engaged toconduct preclinical development activities and clinical trials, as well as the cost of licensing technology.Upfront payments and milestone payments made for the licensing of technology are expensed as research and developmentin the period in which they are incurred. Advance payments for goods or services to be received in the future for use inresearch and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goodsare delivered or the services are performed.156 Table of ContentsResearch and Manufacturing Contract Costs and AccrualsThe Company has entered into various research and development and manufacturing contracts. These agreements aregenerally cancelable, and related payments are recorded as the corresponding expenses are incurred. The Company recordsaccruals for estimated ongoing costs. When evaluating the adequacy of the accrued liabilities, the Company analyzesprogress of the research studies or clinical trials and manufacturing activities, including the phase or completion of events,invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances atthe end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrualestimates have not been materially different from the actual costs.Patent CostsAll patent‑related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred dueto the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrativeexpenses.Stock‑Based CompensationThe Company measures stock options with service-based vesting or performance-based vesting granted to employees, non-employees and directors based on the fair value on the date of grant using the Black‑Scholes option‑pricing model. TheCompany measures restricted common stock awards using the difference between the purchase price per share of the award, ifany, and the fair value of the Company’s common stock. Compensation expense for those awards is recognized over therequisite service period, which is generally the vesting period of the respective award. The Company uses the straight‑linemethod to record the expense of awards with only service‑based vesting conditions. The Company uses the graded‑vestingmethod to record the expense of awards with both service‑based and performance‑based vesting conditions, commencingonce achievement of the performance condition becomes probable.Prior to the adoption of ASU 2018-07 effective January 1, 2018 discussed below, the Company measured the fair value ofstock-based awards granted to non-employees on the date that the related service was complete, which was generally thevesting date of the award. Prior to the service completion date, compensation expense was recognized over the period duringwhich services were rendered by such non-employees. At the end of each financial reporting period prior to the servicecompletion date, the fair value of these awards was remeasured using the then-current fair value of the Company's commonstock and updated assumption inputs in the Black-Scholes option-pricing model for options or the difference between thepurchase price per share of the award, if any, and the then-current fair value of the Company's common stock for restrictedcommon stock awards.For stock-based awards with market-based vesting conditions, the Company measures the fair value on the date of grantusing a Monte Carlo simulation model. When service-based vesting conditions also exist, the Company recognizes stock-based compensation expense using the graded-vesting method over the longer of the derived service period from the marketcondition or the required service period. In accordance with accounting guidance for awards with market conditions, thestock-based compensation expense will be recognized over the appropriate period regardless of whether the award achievesthe market condition and will only be adjusted to the extent the service condition is not met. When an award contains amarket-based vesting condition and a performance-based vesting condition where both must be achieved to earn the award,the Company recognizes stock-based compensation expense over the longer of the derived service period from the marketcondition or the period estimated for the performance-based vesting condition to be achieved. The Company beginsrecording stock based compensation expense for this type of award once the achievement of the performance-based vestingcondition becomes probable regardless of whether the market condition has been achieved.For restricted stock awards under which restricted common stock is purchased by the holder with a promissory note treated asa nonrecourse note for accounting purposes, the Company measures the fair value of the award using the Black‑Scholesoption‑pricing model.157 Table of ContentsThe Company classifies stock‑based compensation expense in its consolidated statements of operations and comprehensiveloss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s servicepayments are classified.Comprehensive LossComprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactionsand economic events other than those with stockholders. For the year ended December 31, 2018, the Company’s onlyelement of other comprehensive loss was unrealized losses on marketable securities. For the years ended December 31, 2017and 2016, there was no difference between net loss and comprehensive loss in the accompanying consolidated financialstatements.Net Income (Loss) per SharePrior to the closing of its IPO, the Company followed the two-class method when computing net income (loss) per share, asthe Company had issued shares that met the definition of participating securities. The two-class method determines netincome (loss) per share for each class of common and participating securities according to dividends declared or accumulatedand participation rights in undistributed earnings. The two-class method requires income available to common stockholdersfor the period to be allocated between common and participating securities based upon their respective rights to receivedividends as if all income for the period had been distributed. The Company’s redeemable convertible preferred stockcontractually entitled the holders of such shares to participate in dividends but did not contractually require the holders ofsuch shares to participate in losses of the Company. Accordingly, in periods in which the Company reported a net loss, suchlosses were not allocated to such participating securities, and as a result, basic and diluted net loss per share were the same. Subsequent to the closing of its IPO, basic net income (loss) per common share is computed by dividing the net income (loss)by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) percommon share is computed by dividing net income (loss) by the weighted average number of common shares outstanding forthe period, including potential dilutive common shares assuming the dilutive effect of outstanding common stockequivalents. Accordingly, in periods in which the Company reported a net loss, dilutive common shares were not assumed tohave been issued as their effect was anti-dilutive, and as a result, diluted net loss per common share was the same as basic netloss per common share. Income TaxesThe Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred taxassets and liabilities for the expected future tax consequences of events that have been recognized in the consolidatedfinancial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of thedifferences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the yearin which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provisionfor income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxableincome and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or aportion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income taxexpense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected andconsidering prudent and feasible tax planning strategies.The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying atwo‑step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated todetermine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position isdeemed more‑likely‑than‑not to be sustained, the tax position is then assessed to determine the amount of benefit torecognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amountthat has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes158 Table of Contentsincludes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as therelated net interest and penalties.Recently Adopted Accounting PronouncementsIn June 2018, the Financial Accounting Standards Board, (the “FASB”) issued Accounting Standards Update(“ASU”) No. 2018-07, Compensation — Stock Compensation (Topic 718), Improvements to Non-Employee Share-BasedPayment Accounting (“ASU 2018-07”). This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. For publicentities, ASU 2018-07 is required to be adopted for annual periods beginning after December 15, 2018, including interimperiods within those fiscal years. For non-public entities, ASU 2018-07 is effective for annual periods beginning afterDecember 15, 2019. Early adoption was permitted for all entities but no earlier than the Company’s adoption of ASU 2014-09. The Company adopted ASU 2018-07 effective January 1, 2018 by remeasuring outstanding equity-classified awards issuedto non-employees for which a measurement date had not been established as of January 1, 2018 through a cumulative-effectadjustment to accumulated deficit as of January 1, 2018. The Company has elected to estimate the expected term of optionsutilizing the “simplified” method for both employee and non-employee options that qualify as “plain-vanilla” options. TheCompany has elected to account for forfeitures for non-employee options as they occur rather than apply an estimatedforfeiture rate to stock-based compensation expense. The following table summarizes the cumulative effect to the Company’s consolidated balance sheet upon the adoption ofASU 2018-07 on January 1, 2018 (in thousands): Balance at Balance at December 31, 2017 Adjustments January 1, 2018Additional paid-in capital $17,277 $(92) $17,185Accumulated deficit $(60,979) $92 $(60,887)The $0.1 million adjustment is the result of the change in fair value of the unvested awards, representing awards for which ameasurement date had not been established, using an expected term rather than the contractual term of the awards. As of the adoption date of January 1, 2018, the Company had 330,917 outstanding options to non-employees for which ameasurement date had not been established. As of the adoption date of January 1, 2018, the Company had 4,767,014 sharesof restricted common stock held by non-employees that were being accounted for as stock options for which a measurementdate had not been established (see Note 10). The weighted average fair value of these awards was $5.88 per share as ofJanuary 1, 2018. The following table presents, on a weighted average basis, the assumptions used in the Black-Scholesoption-pricing model to determine the fair value of outstanding awards granted to non-employees for which a measurementdate had not been established as of the adoption date of January 1, 2018: Risk-free interest rate 2.3%Expected volatility 74%Expected dividend yield — Expected term (in years) 6.1 Common stock value $6.28 Recently Issued Accounting PronouncementsIn February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles forthe recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors).The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based onthe principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determinewhether lease expense is recognized based on an effective interest method or on a159 Table of Contentsstraight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for allleases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may beaccounted for similar to existing guidance for operating leases today. For public entities, the guidance is effective for annualreporting periods beginning after December 15, 2018 and for interim periods within those fiscal years. Early adoption ispermitted. ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presentedin the financial statements would be prepared under the revised guidance. In July 2018, the FASB issued ASU No. 2018-11,Leases (Topic 842), which added an optional transition method under which financial statements may be prepared under therevised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize acumulative catch-up adjustment to the opening balance of retained earnings in the period of adoption.The Company has elected to adopt ASU 2016-02 effective January 1, 2019 through a cumulative-effect adjustment underASU 2018-11. This standard provides a number of optional practical expedients in transition. The Company plans to applythe package of practical expedients to leases that commenced prior to the effective date whereby it will elect to not reassessthe following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired orexisting leases; and (iii) initial direct costs for any existing leases. The Company expects to elect the short-term leaserecognition exemption for all leases that qualify, where a right-of-use asset or lease liability will not be recognized for shortterm leases. The Company expects that the most significant effects of adoption will be the recognition of material new right-of-use assets and corresponding liabilities on its consolidated balance sheet related to its existing facility operating leases(see Note 12). In addition, the Company has a material lease where the Company was deemed the owner during theconstruction period and for which the construction was not complete as of January 1, 2019. The Company took control of theleased space during the first quarter of 2019 at which time the lease commenced. Under ASU 2016-02, as the commencementdate of this material lease had not occurred, the new right-of-use assets and corresponding liabilities related to this leasewould not be recognized on the consolidated balance sheet as of date of adoption, January 1, 2019, however, will berecognized upon commencement date. The Company is currently evaluating the impact that the adoption of ASU 2016-02will have on its consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changesto the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirementsfor fair value measurements. For all entities, this guidance is required to be adopted for annual periods beginning afterDecember 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company currentlyis evaluating the impact the adoption of ASU 2018-13 may have on its disclosures.3. Investments and Fair Value of Financial Assets and LiabilitiesInvestments by security type consisted of the following (in thousands): December 31, 2018 Gross Gross Unrealized Unrealized Amortized Cost Gains Losses Fair ValueU.S. treasury notes (due within one year) $79,312 $ — $(26) $79,286U.S. government agency bonds (due within one year) 17,704 — (3) 17,701 $97,016 $ — $(29) $96,987 The Company did not have any investments as of December 31, 2017.160 Table of ContentsThe following tables present the Company’s fair value hierarchy for its assets and liabilities, which are measured at fair valueon a recurring basis (in thousands): Fair value measurements at December 31, 2018 using: Level 1 Level 2 Level 3 TotalAssets: Cash equivalents: Money market funds $282,160 $ — $ — $282,160U.S. treasury bills — 24,904 — 24,904Marketable securities: U.S. government agency bonds — 17,701 — 17,701U.S. treasury notes — 79,286 — 79,286 $282,160 $121,891 $ — $404,051 Fair value measurements at December 31, 2017 using: Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $104,288 $ — $ — $104,288Liabilities: Preferred stock warrant liability $ — $ — $866 $866 U.S. government money market funds were valued by the Company based on quoted market prices, which represent a Level 1measurement within the fair value hierarchy. U.S. treasury notes and U.S. government agency bonds were valued by theCompany using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fairvalue hierarchy. There have been no changes to the valuation methods during the year ended December 31, 2018. TheCompany evaluates transfers between levels at the end of each reporting period. There were no transfers between Level 1,Level 2 or Level 3 during the year ended December 31, 2018 and 2017, respectively.The preferred stock warrant liability in the table above consisted of the fair value of warrants to purchase Series A and SeriesB convertible preferred stock (see Note 8) and was based on significant inputs not observable in the market, whichrepresented a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the preferred stock warrantsutilized the Black-Scholes option-pricing model, which incorporated assumptions and estimates to value the preferred stockwarrants. The Company assessed these assumptions and estimates on a quarterly basis as additional information impactingthe assumptions was obtained. Changes in the fair value of the preferred stock warrants were recognized as other income(expense) in the consolidated statements of operations and comprehensive loss. Upon the closing of the IPO, the warrants forthe purchase of preferred stock automatically became warrants for the purchase of common stock and the Companyreclassified the carrying value of the warrants from a non-current liability to additional paid-in capital in its consolidatedbalance sheet.The following table provides a roll-forward of the aggregate fair values of the Company’s preferred stock warrants for whichfair value was determined by Level 3 inputs (in thousands): Preferred stock warrant liabilityFair value at December 31, 2016 $67Issuance of warrants to purchase shares of Series B convertible preferred stock 14Change in fair value 785Fair value at December 31, 2017 866Change in fair value through the exercise date 2,187Reclassification to additional paid-in capital in connection with IPO (3,053)Fair value at December 31, 2018 $ — 161 Table of Contents4. Property, Plant and Equipment, netProperty, plant and equipment, net consisted of the following (in thousands): December 31, 2018 2017Laboratory equipment $7,122 $2,751Land 1,300 —Leasehold improvements 117 117Computer equipment 276 57Construction-in-progress 55,828 74 64,643 2,999Less: Accumulated depreciation and amortization (1,847) (584) $62,796 $2,415 Manufacturing FacilityOn July 31, 2018, the Company completed its purchase of a 135,000 square foot manufacturing facility located inSmithfield, Rhode Island for a purchase price of $8.0 million. In August 2018, the Company began renovations to customizethis facility to manufacture clinical supply of its product candidates. Of the total purchase price, $1.3 million was allocatedto the value of land acquired based on the value of comparable assets, and $6.7 million was allocated to construction inprogress, as the building was not ready for its intended use. During the year ended December 31, 2018, the Companycapitalized approximately $2.1 million in construction-in-progress for design and demolition costs related to the renovationproject.Construction-in-progress, as of December 31, 2018, also included $45.1 million capitalized in connection with theCompany’s build-to-suit lease accounting (see Note 12), $1.0 million for the Company’s share of the costs of construction-in-progress for leasehold improvements related to the Company’s January 2018 lease for office and laboratory space inCambridge, Massachusetts and $0.9 million of lab equipment received but not yet placed into service.Depreciation and amortization expense was $1.3 million, $0.4 million and $0.1 million for the years ended December 31,2018, 2017 and 2016, respectively. 5. Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2018 2017Accrued employee compensation and benefits $3,377 $1,339Accrued external research and development expenses 2,252 1,230Accrued lease liability, current portion 4,502 —Other 1,987 417 $12,118 $2,986 162 Table of Contents6. DebtLong‑term debt consisted of the following (in thousands): December 31, 2018 2017Principal amount of long‑term debt $25,000 $5,500Less: Current portion of long‑term debt — (2,139)Long‑term debt, net of current portion 25,000 3,361Debt discount (653) (59)Long‑term debt, net of discount and current portion $24,347 $3,302 2015 Credit FacilityThe Company was party to a loan and security agreement, as amended (the “2015 Credit Facility”), under which theCompany had borrowed an aggregate of $5.5 million. Until May 2018, borrowings under the 2015 Credit Facility boreinterest at an annual rate equal to the bank’s prime rate plus 1.25%, subject to a floor of 4.5%, and were repayable in monthlyinterest-only payments through May 2018 and in equal monthly payments of principal plus accrued interest from June 2018until the maturity date in November 2019.In May 2018, the Company further amended the 2015 Credit Facility to modify the interest rate and extend the interest-onlypayment period and the maturity date. Subsequent to this amendment, outstanding borrowings under the 2015 CreditFacility bear interest at an annual rate equal to the bank’s prime rate plus 0.75%, subject to a floor of 5.5%, and wererepayable in monthly interest-only payments through May 2019 and in equal monthly payments of principal plus accruedinterest from June 2019 until the maturity date in November 2020.The May 2018 amendment to the 2015 Credit Facility was accounted for as a debt modification, rather than a debtextinguishment, based on a comparison of the present value of the cash flows under the terms of the debt immediately beforeand after the amendment, which resulted in a change of less than 10%. As a result, issuance costs paid to the lender inconnection with the amendment were recorded as a reduction of the carrying amount of the debt liability and were notsignificant. Unamortized issuance costs as of the date of the modification were amortized to interest expense using theeffective interest method over the revised repayment term. Issuance costs paid to third parties were recorded as expense andwere not significant.Borrowings under the 2015 Credit Facility were collateralized by substantially all of the Company’s personal property, otherthan its intellectual property. There were no financial covenants associated with the 2015 Credit Facility; however, theCompany was subject to certain affirmative and negative covenants restricting the Company’s activities, includinglimitations on dispositions, mergers or acquisitions; encumbering its intellectual property; incurring indebtedness or liens;paying dividends; making certain investments; and engaging in certain other business transactions. The obligations underthe 2015 Credit Facility were subject to acceleration upon the occurrence of specified events of default, including a materialadverse change in the Company’s business, operations or financial or other condition.In December 2018, the Company repaid all borrowings under the 2015 Credit Facility. The aggregate principal amount of theloan outstanding at the time of repayment was $5.5 million and the Company did not incur any penalties as a result of therepayment. The Company recognized a loss on the extinguishment of the 2015 Credit Facility of less than $0.1 millionrelated to the unamortized debt discount at the time of repayment. The loss on extinguishment was recorded as additionalinterest expense.2018 Credit FacilityOn December 21, 2018 (the “Closing Date”), the Company entered into a loan and security agreement (the “LoanAgreement”) with Solar Capital Ltd. as collateral agent for the lenders party thereto for an aggregate principal amount of$75.0 million. The aggregate principal amount will be funded in three tranches of term loans of $25.0 million each. On theClosing Date, the Company made an initial borrowing of $25.0 million. The second tranche will be available to the163 Table of ContentsCompany through June 30, 2019, subject to certain conditions including the satisfaction of certain financial covenants. Thethird tranche will be available to the Company through June 30, 2020, subject to certain conditions including the Food andDrug Administration’s acceptance of at least one of the Company’s investigational new drug applications and thesatisfaction of certain financial covenants.Interest on the outstanding loan balance will accrue at a rate of the one-month U.S. LIBOR rate plus 5.50%. Monthlyprincipal payments will commence 36 months after the Closing Date and will be amortized over the following 24 months.Certain backend fees are due to the lender at the time of final repayment based on the total funded term loans. The Companyaccrues the backend fees that will be due at final repayment to outstanding debt by charges to interest expense over the termof the loans using the effective-interest method. The term loans are subject to a prepayment fee of 1.00% in the first year,0.50% in the second year and 0.25% in the third year. In conjunction with 2018 Credit Facility, the Company incurredissuance costs of $0.8 million.The Loan Agreement contains financial covenants that require the Company to maintain either a certain minimum cashbalance or a minimum market capitalization threshold. The Company was in compliance with all such covenants as ofDecember 31, 2018. The Loan Agreement contains customary representations, warranties and covenants and also includescustomary events of default, including payment defaults, breaches of covenants, change of control and a material adversechange default. Upon the occurrence of an event of default, a default interest rate of an additional 4.00% per annum may beapplied to the outstanding loan balances, and the lenders may declare all outstanding obligations immediately due andpayable. Borrowings under the Loan Agreement are collateralized by substantially all of the Company’s assets, other than itsintellectual property.As of December 31, 2018, the estimated future principal payments due were as follows (in thousands):Year ending December 31, 2019 $ —2020 —2021 —2022 12,500Thereafter 12,500 $25,000 7. Convertible Preferred StockThe Company had issued Series A redeemable convertible preferred stock (the “Series A Preferred Stock”), Series Bconvertible preferred stock (the “Series B Preferred Stock”) and Series C convertible preferred stock (the “Series C PreferredStock”). The Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock are referred to collectivelyas the “Preferred Stock”. Upon issuance of the Series A Preferred Stock, the holders of such shares were entitled to receivecumulative dividends of 8.0% per year, compounding annually, and such shares were redeemable at the option of the holderafter five years from issuance date of the Series A Preferred Stock. In connection with the issuance and sale of Series BPreferred Stock in June 2017, the holders of Series A Preferred Stock agreed to remove the cumulative dividend rights andredemption features of the Series A Preferred Stock. The change to the terms of the Series A Preferred Stock was accounted foras a modification, rather than an extinguishment, of the Series A Preferred Stock based on a comparison of the fair value ofthe stock immediately before and after the change in terms, which resulted in a fair value change of less than 10%. Thismodification did not have any impact on the Company’s consolidated financial statements. For periods after the June 2017date of the modification of the Series A Preferred Stock, the Company no longer accreted the carrying value of the Series APreferred Stock to redemption value as such shares were no longer redeemable.In June 2017, the Company issued and sold 14,362,344 shares of Series B Preferred Stock at a price of $8.39 per share forgross proceeds of $120.5 million. The Company incurred issuance costs in connection with the Series B Preferred Stock of$0.4 million.164 Table of ContentsIn February 2018, the Company issued and sold 7,912,432 shares of Series C Preferred Stock at a price of $12.79 per share forgross proceeds of $101.2 million. The Company incurred issuance costs in connection with the Series C Preferred Stock of$0.2 million.Upon issuance of each class of Preferred Stock, the Company assessed the embedded conversion and liquidation features ofthe shares and determined that such features did not require the Company to separately account for these features. TheCompany also concluded that no beneficial conversion feature existed on the issuance date of each class of Preferred Stock.As of December 31, 2017, Preferred Stock consisted of the following (in thousands, except share amounts): December 31, 2017 Preferred stock Common stock Preferred stock issued and Carrying Liquidation issuable upon authorized outstanding value preference conversionSeries A Preferred Stock 29,703,995 29,570,662 $19,723 $17,742 29,570,662Series B Preferred Stock 14,366,813 14,362,344 120,067 120,500 14,362,344 44,070,808 43,933,006 $139,790 $138,242 43,933,006 Upon the closing of the IPO in July 2018, all 51,845,438 shares of the Company’s outstanding convertible preferred stockautomatically converted into shares of common stock and, therefore, there was no outstanding Preferred Stock at December31, 2018. 8. Warrants to Purchase Convertible Preferred StockDuring 2015, the Company issued warrants to purchase up to 133,333 shares of Series A Preferred Stock in connection withthe 2015 Credit Facility (see Note 6). The warrants were exercisable at a price of $0.60 per share and had a contractual term often years from issuance. The fair value of the warrants on the issuance date of $0.1 million was recorded as a deferredfinancing cost and as preferred stock warrant liability.In May 2017, the Company issued warrants to purchase up to 2,234 shares of Series B Preferred Stock in connection with anamendment to the 2015 Credit Facility (see Note 6). The warrants were exercisable at a price of $8.39 per share and had acontractual term of ten years from issuance. The fair value of the warrants on the issuance date of less than $0.1 million wasrecorded as a debt discount and as a preferred stock warrant liability.The Company remeasured the fair value of the liability for these preferred stock warrants at each reporting date and recordedany adjustments as other income (expense). The warrants outstanding at each reporting date were remeasured using theBlack-Scholes option-pricing model (see Note 3), and the resulting change in fair value was recorded in other income(expense) in the Company’s consolidated statements of operations and comprehensive loss. For the years ended December31, 2018, 2017 and 2016, the Company recorded other expense of $2.2 million, other expense of $0.8 million and otherincome of less than $0.1 million, respectively, to reflect the change in fair value of these preferred stock warrants.Upon the closing of the IPO in July 2018, the Company’s outstanding warrants to purchase Preferred Stock automaticallybecame warrants to purchase an aggregate of 135,567 shares of common stock. In July 2018, the holders of such warrantscompleted a cashless exercise of the warrants, resulting in the Company’s issuance of 131,273 shares of common stock,whereby 4,294 shares of common stock were withheld by the Company to pay for the exercise price of the warrants.9. EquityEach share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.Common stockholders are not entitled to receive dividends, unless declared by the board of directors.165 Table of ContentsIn February 2018, the Company increased the number of authorized shares of common stock from 65,000,000 shares to75,000,000 shares. In April 2018, the Company increased the number of authorized shares of common stock from75,000,000 shares to 78,800,000 shares. In June 2018, the Company increased the number of authorized shares of commonstock from 78,800,000 shares to 79,000,000 shares.On July 20 2018, the Company filed a restated certificate of incorporation in the State of Delaware, which, among otherthings, restated the number of shares of all classes of stock that the Company has authority to issue to 160,000,000 shares,consisting of (i) 150,000,000 shares of common stock, $0.001 par value per share, and (ii) 10,000,000 shares of preferredstock, $0.001 par value per share. The shares of preferred stock are undesignated.Also on July 20, 2018, the Company completed its initial public offering (“IPO”), pursuant to which it issued and sold12,055,450 shares of common stock, inclusive of 1,572,450 shares sold by the Company pursuant to the full exercise of theunderwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were$254.3 million, after deducting underwriting discounts and commissions and other offering costs. Upon the closing of theIPO, all of the shares of the Company’s outstanding convertible preferred stock then outstanding automatically convertedinto 51,845,438 shares of common stock (see Note 7).10. Stock-Based Compensation2014 Stock Incentive PlanThe Company’s 2014 Stock Incentive Plan (the “2014 Plan”) provided for the Company to sell or issue incentive stockoptions or nonqualified stock options, restricted stock, restricted stock units and other equity awards to employees, directorsand consultants of the Company. The 2014 Plan was administered by the board of directors or, at the discretion of the boardof directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined atthe discretion of the board of directors, or its committee if so delegated.Stock options granted under the 2014 Plan with service‑based vesting conditions generally vested over three or four yearsand expired after ten years. The 2014 Plan allowed for the early exercise of unvested stock options, subject to certainrestrictions, including the ability of the Company to repurchase such options upon an option holder’s termination ofemployment with the Company if such options had not yet vested. Restricted stock granted under the 2014 Plan withservice‑based vesting conditions generally vested over three or four years.The exercise price for stock options granted was not less than the fair value of common shares as determined by the board ofdirectors as of the date of grant. The Company’s board of directors valued the Company’s common stock, taking intoconsideration its most recently available valuation of common stock performed by third parties as well as additional factorswhich may have changed since the date of the most recent contemporaneous valuation through the date of grant. Stockoptions were only granted under the 2014 Plan during the period that the Company was privately held.The total number of shares of common stock that could have been issued under the 2014 Plan was 19,152,328 shares, ofwhich 47,447 shares remained available for future issuance prior to the effectiveness of the Company’s 2018 Stock Optionand Incentive Plan (the “2018 Plan”). Upon effectiveness of the 2018 Plan in July 2018, the remaining shares available underthe 2014 Plan ceased to be available for issuance and no future issuances will be made under the 2014 Plan. The shares ofcommon stock underlying outstanding awards under the 2014 Plan that are forfeited, cancelled, held back upon exercise orsettlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfiedwithout the issuance of stock, expire or are otherwise terminated (other than by exercise) will be added to the shares ofcommon stock available for issuance under the 2018 Plan.2018 Equity Incentive PlanOn July 6, 2018, the Company’s board of directors adopted, and its stockholders approved, the 2018 Plan, which becameeffective on July 16, 2018. The 2018 Plan provides for the grant of incentive stock options, non-qualified options, stockappreciation rights, restricted stock awards, restricted stock units and other stock-based awards. The number of sharesinitially reserved for issuance under the 2018 Plan is 5,708,931, which shall be cumulatively increased on January 1,166 Table of Contents2019 and each January 1 thereafter by 4% of the number of shares of the Company’s common stock outstanding on theimmediately preceding December 31 or such lesser number of shares determined by the Company’s board of directors orcompensation committee of the board of directors. The shares of common stock underlying any awards that are forfeited,cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired bythe Company prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than byexercise) under the 2018 Plan and the 2014 Plan will be added back to the shares of common stock available for issuanceunder the 2018 Plan. As of December 31, 2018, 2,335,217 shares remained available for issuance under the 2018 Plan. Thenumber of authorized shares reserved for issuance under the 2018 Plan was increased by 2,377,045 shares effective as ofJanuary 1, 2019.2018 Employee Stock Purchase PlanOn July 6, 2018, the Company’s board of directors adopted and its stockholders approved the 2018 Employee StockPurchase Plan (the “ESPP”), which became effective on July 16, 2018. A total of 951,488 shares of common stock werereserved for issuance under this plan. In addition, the number of shares of common stock that may be issued under the ESPPwill automatically increase on January 1, 2019, and each January 1 thereafter through January 1, 2028, by the least of(i) 951,488 shares of common stock, (ii) 1% of the number of shares of the Company’s common stock outstanding on theimmediately preceding December 31 or (iii) such lesser number of shares as determined by the administrator of theCompany’s ESPP. As of December 31, 2018, all 951,488 shares remained available for issuance under the 2018 ESPP. Thenumber of authorized shares reserved for issuance under the ESPP was increased by 792,348 shares effective as of January 1,2019.Stock Option ValuationService-Based and Performance-Based Stock OptionsThe fair value of stock option grants with service-based and performance-based vesting conditions is estimated using theBlack-Scholes option-pricing model. The Company estimates expected volatility based on the historical volatility ofpublicly traded peer companies. The Company expects to continue to do so until such time as it has adequate historical dataregarding the volatility of its traded stock price following our July 2018 IPO. For options with service-based vestingconditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method forawards that qualify as “plain-vanilla” options. For periods prior to the adoption of ASU 2018-07 on January 1, 2018, theexpected term of stock options granted to non-employees was equal to the contractual term of the option award. Upon theadoption of ASU 2018-07 on January 1, 2018, the expected term of stock options granted to non-employees has beendetermined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk‑free interest rate isdetermined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periodsapproximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company hasnever paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing modelto determine the fair value of stock-based awards granted to employees, directors, and, in 2018, non-employees: Year ended December 31, 2018 2017 2016 Risk-free interest rate 2.71%2.05%1.81%Expected volatility 74.0%75.6%77.2%Expected dividend yield — — — Expected term (in years) 6.21 6.39 6.25 167 Table of ContentsThe following table presents the assumptions used in the Black-Scholes option-pricing model to determine the fair value ofstock awards granted to non-employees, prior to the adoption of ASU 2018-07: Year ended December 31, 2017 2016Risk-free interest rate 2.02% -2.31% 2.35% -2.45%Expected volatility 74% - 85% 81% - 85%Expected dividend yield — —Expected term (in years) 6 - 10 8 - 10Fair value of common stock $0.19 -$6.28 $0.18 -$0.19 The following table summarizes the Company’s service-based and performance-based option activity since December 31,2017: Weighted Weighted average average Aggregate Number of exercise contractual intrinsic shares price term value (in years) (in thousands)Outstanding as of December 31, 2017 4,661,635 $1.29 8.64 $23,264Granted 10,405,323 12.12 Exercised (225,375) 0.29 Forfeited (56,813) 1.44 Outstanding as of December 31, 2018 14,784,770 $8.93 8.89 $126,367Vested and expected to vest as of December 31, 2018 14,784,770 $8.93 8.89 $126,367Options exercisable as of December 31, 2018 2,622,981 $1.74 7.59 $37,726 The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock optionsand the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair valueof the Company’s common stock. The aggregate intrinsic value of stock options exercised during the years endedDecember 31, 2018, 2017 and 2016 was $3.7 million, $3.7 million and less than $0.1 million, respectively.The weighted average grant-date fair value of stock options granted during the years ended December 31, 2018, 2017 and2016 was $8.71 per share, $2.74 per share and $0.12 per share, respectively.In April 2017, an executive officer early exercised an option to purchase 1,400,000 shares of common stock, at an exerciseprice of $0.18 per share, for cash proceeds of $0.1 million and a promissory note for $0.2 million (see Note 14). The employeereceived shares of restricted common stock upon such exercise. The unvested shares of restricted common stock issued uponexercise are subject to the Company’s repurchase right at the lesser of the original exercise price per share or the fair value ofsuch shares on the repurchase date. The $0.1 million of cash proceeds from the early exercise of this stock option wasrecorded as a liability in the Company’s consolidated balance sheet and will be reclassified to stockholders’ equity (deficit)as the shares vest and the Company’s repurchase rights related to such shares lapse. The promissory note was partial-recourse,but was treated as nonrecourse for accounting purposes. As a result, (i) this early exercise of common stock with a promissorynote continued to be accounted for as an outstanding stock option and (ii) no receivable for amounts due under thepromissory note was recorded on the Company’s consolidated balance sheet. Stock-based compensation expense related tothis award is being recognized over the requisite service period of the award based on the grant-date fair value of the award,which was determined using the Black-Scholes option-pricing model. On June 21, 2018, the principal balance of $0.2million and all interest that had accrued thereon, totaling less than $0.1 million, was repaid in full by the executive officerand the promissory note was terminated (see Note 14). The portion of the repayment that was associated with vested sharesfor which the Company’s repurchase obligations had lapsed was recorded to stockholders’ equity (deficit) and the remainingamount was recorded as a liability in the consolidated balance sheet and will be recorded to stockholders’ equity (deficit) asthe shares vest and the Company’s repurchase rights related to such shares lapse.168 Table of ContentsMarket-Based Stock OptionsThe fair value of stock option grants with market-based vesting conditions is estimated using a Monte Carlo simulationmodel. In October 2018, the Company granted to an executive officer an option to purchase 164,400 shares of common stock(“Option A”) at an exercise price of $16.43 per share, vesting upon the achievement of a specified thirty-day average closingprice of its common stock and the satisfaction of service-based vesting conditions, and an option to purchase 193,400 sharesof common stock (“Option B”) at an exercise price of $16.43 per share, vesting upon the achievement of a specified thirty-day average closing price of its common stock and the achievement of certain other performance-based vesting conditions.The Company used a Monte Carlo simulation model to estimate the grant-date fair value of the awards. Assumptions andestimates utilized in the model include the risk-free interest rate, dividend yield, expected stock volatility based on acombination of the Company’s historical stock volatility since its July 2018 IPO and the historical volatility of a publiclytraded set of peer companies and the estimated period to achievement of the market condition. Stock-based compensationexpense for Option A is being recognized using the graded-vesting method over the longer of the derived service period fromthe market condition or the explicit service period required to be completed for each vesting trenche. Stock-basedcompensation expense for Option B will be recognized when the achievement of the performance-based vesting conditionsbecome probable regardless of whether the market condition has been achieved. The aggregate grant date fair value of theseoptions was $4.3 million. During the year ended December 31, 2018, the Company recorded stock-based compensationexpense on Option A of $0.2 million and no stock-based compensation expense on Option B, as the performance-basedvesting conditions have not yet been determined to be probable. The following table presents, on a weighted average basis, the assumptions used in the Monte Carlo simulation model todetermine the fair value of stock-based awards granted to employees: Year ended December 31, 2018 2017 2016 Risk-free interest rate 3.15% —% —%Expected volatility 69.0% —% —%Expected dividend yield — — — Derived service period (in years) 2.30 — — The weighted average grant-date fair value of stock options with market-based vesting conditions granted during the yearended December 31, 2018 was $11.88 per share. During the year ended December 31, 2018, none of the outstanding stockawards with market-based vesting conditions were exercised, forfeited or vested and they had no intrinsic value at December31, 2018.Restricted Common StockThe Company has granted restricted common stock with service-based vesting conditions. Shares of unvested restrictedcommon stock may not be sold or transferred by the holder. These restrictions lapse according to the time-based vestingconditions of each award. The following table summarizes the Company’s restricted common stock award activity sinceDecember 31, 2017: Weighted average grant‑date Shares fair valueUnvested restricted common stock as of December 31, 2017 5,227,014 $0.514Issued — —Vested (3,667,613) 0.519Forfeited — —Unvested restricted common stock as of December 31, 2018 1,559,401 $0.502 169 Table of ContentsIn the table above, the number of shares of unvested restricted common stock outstanding as of December 31, 2018 andDecember 31, 2017 excludes 670,834 shares and 1,050,000 shares, respectively, of restricted common stock that remainedunvested as of those dates related to the early exercise of a stock option during the year ended December 31, 2017 inexchange for 1,400,000 shares of restricted common stock. As of December 31, 2018, shares of unvested restricted commonstock totaled 2,230,235 shares, consisting of 1,559,401 shares from unvested restricted common stock awards and 670,834shares from the early exercise of a stock option.The aggregate intrinsic value of restricted stock awards is calculated as the positive difference between the prices paid, if any,of the restricted stock awards and the fair value of the Company’s common stock. The aggregate intrinsic value of restrictedstock awards that vested during the years ended December 31 2018, 2017 and 2016 was $34.0 million, $0.9 million and $0.1million, respectively.In April 2017, the Company issued 460,000 shares of restricted common stock, at a price of $0.19 per share, to an executiveofficer in exchange for a promissory note in the principal amount of $0.1 million. The promissory note was partial-recourse,but was treated as nonrecourse for accounting purposes and, as such, (i) this purchase of common stock with a promissorynote was accounted for as if it were a stock option grant and (ii) no receivable for amounts due under the promissory note wasrecorded on the Company’s consolidated balance sheet. Stock-based compensation expense related to this award is beingrecognized over the requisite service period of the award based on the grant-date fair value of the award, which wasdetermined using the Black-Scholes option-pricing model. On June 21, 2018, the principal balance of $0.1 million and allinterest that had accrued thereon, totaling less than $0.1 million, was repaid in full by the executive officer and thepromissory note was terminated (see Note 14).In January 2017 and May 2017, the Company issued 3,667,014 shares and 1,100,000 shares, respectively, of restrictedcommon stock at prices of $0.19 per share and $1.65 per share, respectively, to the chairman of the Company’s board ofdirectors in exchange for two promissory notes totaling $2.5 million. The promissory notes are partial-recourse, but weretreated as nonrecourse for accounting purposes and, as such, (i) each of these purchases of common stock with a promissorynote was accounted for as if it were a stock option grant and (ii) no receivable for amounts due under the promissory note wasrecorded on the Company’s consolidated balance sheet. All of the stock-based awards issued to the chairman of theCompany’s board of directors were issued for his services as a consultant and prior to the adoption of ASU 2018-07, whichwas effective January 1, 2018, were being accounted for as non-employee stock-based awards. As a result, stock-basedcompensation expense related to the awards was being recognized over the requisite service period of the award based on theremeasured fair value of the award at each reporting period until the award vested, which was determined using the Black-Scholes option-pricing model. Upon the adoption of ASU 2018-07, the Company valued the remaining unvested optionsissued to non-employees as of January 1, 2018 and is recognizing stock-based compensation over the remaining vestingperiod. Effective January 1, 2018, the Company no longer remeasures the fair value of options granted to non-employees ateach reporting period end (see Note 2). On June 21, 2018, the aggregate principal balance of both promissory notes of $2.5million and all interest that had accrued thereon, totaling $0.1 million, was forgiven by the Company and the promissorynotes were terminated (see Note 14). The forgiveness of these promissory notes by the Company was treated as an optionmodification and resulted in the recognition of incremental stock-based compensation expense of $1.5 million during theyear ended December 31, 2018, which represents the change in the fair value of the award on the modification date. Theaggregate amount of stock-based compensation expense related to these restricted stock awards recognized during the yearended December 31, 2018 was $7.3 million. Stock-based compensation expense related to these awards will continue to berecognized over the requisite service period of the awards.170 Table of ContentsStock-Based CompensationThe Company recorded stock-based compensation expense in the following expense categories of its consolidatedstatements of operations and comprehensive loss (in thousands): Year ended December 31, 2018 2017 2016Research and development expenses $3,787 $1,756 $107General and administrative expenses 23,741 16,147 40 $27,528 $17,903 $147 In October 2017, the Company issued 213,439 shares of common stock to the Company’s chairman of its board of directorsas payment of a one‑time bonus that was payable, at his election, in cash or shares of common stock. The shares were issuedout of the 2014 Plan. In connection with this issuance, the Company recorded $1.0 million of stock‑based compensationexpense, equal to the aggregate fair value of this common stock on the date of issuance.Stock-based compensation expense for the year ended December 31, 2018 includes $2.2 million of stock-basedcompensation expense related to options for the purchase of an aggregate of 447,000 shares of common stock that have non-market, performance-based vesting conditions for which the performance condition was achieved during the year endedDecember 31, 2018. As of December 31, 2018, the Company has outstanding options for the purchase of an aggregate of232,500 shares of common stock with non-market, performance-based vesting conditions whereby the achievement of theconditions has not yet been determined to be probable and, therefore, the Company has not recorded any compensationexpense related to these stock options.As of December 31, 2018, total unrecognized compensation cost related to unvested stock‑based awards was $89.6 million,which is expected to be recognized over a weighted average period of 2.7 years.11. Income Taxes2017 U.S. Tax ReformOn December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “TCJA Act”) was signed into United States law, makingsignificant changes to the Internal Revenue Code. Changes included, but were not limited to, a corporate tax rate decreasefrom 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation froma worldwide tax system to a territorial system, and a one‑time transition tax on the mandatory deemed repatriation ofcumulative deferred foreign earnings as of December 31, 2017. On December 22, 2017, the Securities and ExchangeCommission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which directed taxpayers to consider the impact of theTCJA as “provisional” when a registrant did not have the necessary information available, prepared or analyzed (includingcomputations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. During the fourthquarter of 2018 the Company completed its accounting for the tax effects of the TCJA with no material changes.During the years ended December 31, 2018 and 2017, the Company recorded no income tax benefits for the net operatinglosses incurred or for the research and development tax credits generated in each year, due to its uncertainty of realizing abenefit from those items.All of the Company’s operating losses since inception have been generated in the United States.171 Table of ContentsA reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year ended December 31, 2018 2017 Federal statutory income tax rate (21.0)% (34.0)%State taxes, net of federal benefit (4.8) (3.2) Federal and state research and development tax credits (2.9) (1.4) Stock‑based compensation expense 4.5 12.8 Other 0.5 0.7 Remeasurement of deferred taxes due to the Tax Cuts and Jobs Act — 11.1 Increase in deferred tax asset valuation allowance 23.7 14.0 Effective income tax rate —% —% Net deferred tax assets consisted of the following (in thousands): December 31, 2018 2017Deferred tax assets: Net operating loss carryforwards $25,508 $10,422Research and development tax credit carryforwards 3,824 1,241Accrued expenses 1,139 413Capitalized intellectual property costs 764 367Capitalized research and development expense 120 131Stock‑based compensation expense 2,652 375Total deferred tax assets 34,007 12,949Deferred tax liabilities: Depreciation and other (341) (374)Total deferred tax liabilities (341) (374)Valuation allowance (33,666) (12,575)Net deferred tax assets $ — $ — As of December 31, 2018, the Company had U.S. federal and state net operating loss (“NOL”) carryforwards of $93.2 millionand $93.9 million, respectively, which may be available to offset future taxable income. The federal NOLs include $37.2million which expire at various dates through 2037 and $56.0 million which carryforward indefinitely. The state NOLsexpire at various dates through 2038. As of December 31, 2018, the Company also had U.S. federal and state research anddevelopment tax credit carryforwards of $3.0 million and $1.1 million, respectively, which may be available to offset futuretax liabilities and begin to expire in 2034 and 2031, respectively. During the year ended December 31, 2018, deferred taxassets, before valuation allowance, increased by approximately $21.1 million mainly due to the operating loss incurred bythe Company during that period.Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax creditcarryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occurin the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset futuretaxable income or tax liabilities. In general, an ownership change, as defined by Section 382, results from transactionsincreasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over athree‑year period. The Company has not conducted a study to assess whether a change of control has occurred or whetherthere have been multiple changes of control since inception due to the significant complexity and cost associated with sucha study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception,utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject toan annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at thetime of the ownership change by the applicable long‑term tax‑exempt rate, and then could be subject to additionaladjustments, as required. Any limitation may result in expiration of a portion of the net172 Table of Contentsoperating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study iscompleted by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets.Management has considered the Company’s history of cumulative net losses incurred since inception and its lack ofcommercialization of any products or generation of any revenue from product sales since inception and has concluded that itis more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuationallowance has been established against the net deferred tax assets as of December 31, 2018 and 2017. Managementreevaluates the positive and negative evidence at each reporting period.Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2018 and 2017 relatedprimarily to the increase in net operating loss carryforwards and research and development tax credit carryforwards in 2018and 2017, and the impact of the TCJA in 2017, and were as follows (in thousands): Year ended December 31, 2018 2017Valuation allowance as of beginning of year $12,575 $6,454Decreases recorded as benefit to income tax provision — (4,887)Increases recorded to income tax provision 21,091 11,008Valuation allowance as of end of year $33,666 $12,575 As of December 31, 2018 and 2017, the Company had not recorded any amounts for unrecognized tax benefits. TheCompany’s policy is to record interest and penalties related to income taxes as part of its income tax provision. As ofDecember 31, 2018 and 2017, the Company had no accrued interest or penalties related to uncertain tax positions and noamounts had been recognized in the Company’s consolidated statements of operations and comprehensive loss. TheCompany files income tax returns in the U.S. and Massachusetts, as prescribed by the tax laws of the jurisdictions in which itoperates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, whereapplicable. There are currently no pending tax examinations. The Company is open to future tax examination under statutefrom 2015 to the present; however, carryforward attributes that were generated prior to January 1, 2015 may still be adjustedupon examination by federal, state or local tax authorities if they either have been or will be used in a future period.12. Commitments and ContingenciesOperating LeasesThe Company leases its office and laboratory facilities in Cambridge, Massachusetts under three noncancelable operatingleases that expire in December 2018, February 2019 and September 2021. The Company continued to occupy the facilitycovered by the lease expiring in December 2018 until February 2019 in accordance with the holdover provisions in the lease.The lease agreements include lease incentives, payment escalations and rent holidays, which are accrued or deferred asappropriate such that rent expense for each lease is recognized on a straight-line basis over the terms of occupancy. Rentexpense for the years ended December 31, 2018, 2017 and 2016 was $2.4 million, $1.0 million and $0.4 million,respectively. Future minimum lease payments under operating leases as of December 31, 2018 are as follows (in thousands):Year ended December 31, 2019 $9562020 7132021 547 $2,216 173 Table of ContentsBuild-To-Suit LeaseIn January 2018, the Company entered into a lease for office and laboratory space in Cambridge, Massachusetts (the “InitialSpace”). The lease term commenced on January 28, 2019 and expires eight years from the commencement date. TheCompany is entitled to one five-year option to extend. The initial annual base rent is approximately $3.8 million, and suchamount will increase during the initial term by 3% annually on the anniversary of the commencement date. The Company isobligated to pay its portion of real estate taxes and costs related to the premises, including costs of operations, maintenance,repair, replacement and management of the new leased premises. In connection with the lease, the Company maintains aletter of credit for the benefit of the landlord in the amount of $0.9 million, which is secured by a cash deposit of the sameamount. The lease agreement allows for a landlord-provided tenant improvement allowance of $9.9 million to be applied tothe costs of the construction of the leasehold improvements, of which $0.5 million is repayable to the landlord over the termof the lease.In November 2018, the Company amended its January 2018 lease to lease additional office and laboratory space in the samebuilding (the “Expansion Space”). The term for the Expansion Space is expected to commence in August 2019 and expiresnine years from the commencement date. The initial annual base rent for the Expansion Space is approximately $2.5 millionand such amount will increase by 3% annually on the anniversary of the commencement date. The Company is obligated topay its portion of real estate taxes and costs related to the Expansion Space, including costs of operations, maintenance,repair, replacement and property management. In connection with the lease amendment, the Company increased the letter ofcredit held for the benefit of the landlord by $0.6 million, which is secured by a cash deposit of the same amount. The leaseamendment increased the landlord-provided tenant improvement allowance by $7.2 million.The Company is not the legal owner of the leased space. However, in accordance with ASC 840, Leases, the Company isdeemed to be the owner of the leased space during the construction period because of certain indemnification provisionswithin the lease agreement. As a result, as of December 31, 2018, the Company capitalized approximately $45.1 million(equal to the estimated fair value of its leased portion of the premises) as construction-in-progress within property, plant andequipment and recorded a corresponding build-to-suit facility lease financing obligation. As of December 31, 2018, thecurrent portion of the lease financing obligation of $4.5 million was classified within accrued expenses and other currentliabilities and the remaining $41.4 million was classified as a lease liability, net of current portion, on its consolidatedbalance sheet. The Company took control of the Initial Space during the first quarter of 2019 at which time the leasecommenced. Upon the commencement date of the Initial Space, in the first quarter of 2019, the Company assessed anddetermined the accounting treatment for the asset and corresponding liability under ASC 842, Leases, which was adopted asof January 1, 2019 according to ASU No. 2016-02 (see Note 2).As of December 31, 2018, minimum commitments under this lease are as follows (in thousands):Year ending December 31, 2019 $4,5022020 6,4282021 6,6212022 6,8202023 7,024Thereafter 27,777 $59,172 License Agreement with the Whitehead Institute for Biomedical ResearchThe Company has a license agreement with the Whitehead Institute for Biomedical Research (“WIBR”), as amended, underwhich the Company has been granted an exclusive, sublicensable, nontransferable license under certain patent familiesrelated to the development of the Company’s red cell therapies (the “WIBR License”). The Company is obligated to payWIBR annual license maintenance fees of less than $0.1 million, as well as patent-related costs, including legal fees and lowsingle-digit royalties based on annual net sales of licensed products and licensed services by the Company and itssublicensees. Based on the progress the Company makes in the advancement of products covered174 Table of Contentsby the licensed patent rights, the Company is required to make aggregate milestone payments of up to $1.6 million upon theachievement of specified preclinical, clinical and regulatory milestones. In addition, the Company is required to pay toWIBR a percentage of the non-royalty payments that it receives from sublicensees of the patent rights licensed by WIBR.This percentage varies from low single-digit to low double-digit percentages and will be based upon the clinical stage of theproduct that is the subject of the sublicense. Royalties shall be paid by the Company on a licensed product-by-licensedproduct and country-by-country basis, beginning on the first commercial sale of such licensed product in such country untilexpiration of the last valid patent claim covering such licensed product in such country.The Company has the right to terminate the WIBR License in its entirety, on a patent-by-patent or country-by-country basis,at will upon three months’ notice to WIBR. WIBR may terminate the agreement upon breach of contract or in the event of theCompany’s bankruptcy, liquidation, insolvency or cessation of business related to the license.401(k) PlanIn January 2018, the Company established a defined-contribution plan under Section 401(k) of the Internal Revenue Code(the “401(k) Plan”). The 401(k) Plan covers all employees who meet defined minimum age and service requirements andallows participants to defer a portion of their annual compensation on a pre-tax basis. The Company will make matchingcontributions at a rate of 50% of each employee’s contribution up to a maximum employee contribution of 6% of eligibleplan compensation. For the year ended December 31, 2018, the Company made matching contributions of $0.2 million.Indemnification AgreementsIn the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors,contract research organizations, business partners and other parties with respect to certain matters including, but not limitedto, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. Inaddition, the Company has entered into indemnification agreements with members of its board of directors and certain of itsexecutive officers that will require the Company, among other things, to indemnify them against certain liabilities that mayarise by reason of their status or service as directors or officers. The maximum potential amount of future payments theCompany could be required to make under these indemnification agreements is, in many cases, unlimited. The Company hasnot incurred any material costs as a result of such indemnifications and is not currently aware of any indemnification claims.Legal ProceedingsThe Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluateswhether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisionsof the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costsrelated to such legal proceedings.175 Table of Contents13. Net Loss per ShareBasic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, exceptshare and per share amounts): Year ended December 31, 2018 2017 2016Numerator: Net loss $(89,195) $(43,847) $(11,016)Accretion of Series A redeemable convertible preferred stock to redemptionvalue — (656) (748)Net loss attributable to common stockholders $(89,195) $(44,503) $(11,764) Denominator: Weighted average common shares outstanding, basic and diluted 39,285,468 8,023,785 7,200,581Net loss per share attributable to common stockholders, basic and diluted $(2.27) $(5.55) $(1.63) Upon the issuance of Series A Preferred Stock, the holders of such shares were entitled to cumulative dividends of 8.0% peryear, compounding annually. In connection with the issuance and sale of Series B Preferred Stock in June 2017, the holdersof Series A Preferred Stock agreed to remove the cumulative dividend and redemption rights associated with the Series APreferred Stock. Accordingly, during the year ended December 31, 2017, the calculation of net loss attributable to commonstockholders included the accretion of Series A redeemable convertible preferred stock to redemption value.The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as theeffect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding usedto calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Companyexcluded the following potential common shares from the periods in the table above, presented based on amountsoutstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders forthe periods indicated because including them would have had an anti-dilutive effect: Year ended December 31, 2018 2017 2016Convertible preferred stock (as converted to common stock) — 43,933,006 29,570,662Warrants to purchase convertible preferred stock (as converted to commonstock) — 135,567 133,333Restricted common stock(1) 2,230,235 6,277,014 348,120Stock options to purchase common stock 14,784,770 4,661,635 4,159,165 17,015,005 55,007,222 34,211,280 (1)Includes unvested restricted stock and vested restricted stock issued for promissory notes. 14. Related PartiesIn April 2013, the Company entered into a services agreement with Flagship Ventures Management, Inc. (“Flagship”), anaffiliate of one of its principal stockholders, to provide general and administrative services to the Company, includingcertain consulting services and the provision of employee health and dental benefit plans for the Company’s employees. TheCompany recorded general and administrative expense and made cash payments for services received under this agreementof $1.3 million, $0.9 million and $0.8 million during the years ended December 31, 2018, 2017 and 2016, respectively. As ofDecember 31, 2018, 2017 and 2016, the Company had no amounts payable to Flagship for costs related to the servicesagreement.176 Table of ContentsIn January 2017, the Company loaned $0.7 million to the chairman of its board of directors to purchase shares of commonstock pursuant to a promissory note and a restricted stock agreement (see Note 10). In May 2017, the Company loaned$1.8 million to the chairman of its board of directors to purchase shares of common stock pursuant to a promissory note and arestricted stock agreement (see Note 10). The January 2017 promissory note provided that the unpaid principal amount of theloan bore interest at 1.97% annually, and the May 2017 promissory note provided that the unpaid principal amount of theloan bore interest at 2.04% annually. Interest was payable annually or was converted to principal and payable at the maturitydate. The maturity date of the promissory notes occurred on the earliest of (i) seven years from the issuance date of the notes,(ii) 60 days following the date of termination of services of the borrower, and (iii) immediately prior to an initial filing of aregistration statement by the Company. The promissory notes were partial‑recourse and secured by a pledge of the shares ofcommon stock purchased with the promissory notes. As of December 31, 2017, no amounts were due to the Company and noamounts had been received by the Company as repayment of these promissory notes. On June 21, 2018, the aggregateprincipal balance of both promissory notes of $2.5 million and all interest that had accrued thereon, totaling $0.1 million,was forgiven by the Company and the promissory notes were terminated.In April 2017, the Company loaned $0.2 million to an executive officer of the Company to purchase shares of common stockpursuant to two promissory notes and two restricted stock agreements (see Note 10). The promissory notes provided that theunpaid principal amount of the loans bore interest at 2.05% annually, and interest was payable annually or was converted toprincipal and payable at the maturity date. The maturity date of the promissory notes occurred on the earliest of (i) sevenyears from the issuance date of the notes, (ii) 60 days following the date of termination of employment of the borrower, and(iii) immediately prior to an initial filing of a registration statement by the Company. The promissory notes werepartial‑recourse and secured by a pledge of the shares of common stock purchased with the promissory notes. As ofDecember 31, 2017, no amounts were due to the Company and no amounts had been received by the Company as repaymentof these promissory notes. On June 21, 2018, the aggregate principal balance of both promissory notes of $0.2 million and allinterest that had accrued thereon, totaling less than $0.1 million, was repaid in full by the executive officer and thepromissory notes were terminated.15. Selected Quarterly Financial Data (Unaudited)The following table contains quarterly financial information for 2018 and 2017. The information has been derived fromunaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments necessaryfor a fair statement of such information (in thousands, except per share data): Three Months Ended March 31, June 30, September30, December31, 2018(1) 2018(1) 2018 2018Consolidated Statements of Operations Data: Revenue $ — $ — $ — $ —Total operating expenses 14,603 20,384 27,554 29,122Loss from operations (14,603) (20,384) (27,554) (29,122)Net loss attributable to common stockholders (14,411) (21,239) (26,362) (27,183)Net loss per share attributable to common stockholders, basic anddiluted $(1.72) $(2.43) $(0.42) $(0.35) Three Months Ended March 31, June 30, September30, December31, 2017 2017 2017 2017Consolidated Statements of Operations Data: Revenue $ — $ — $ — $ —Total operating expenses 4,783 9,033 11,975 17,473Loss from operations (4,783) (9,033) (11,975) (17,473)Net loss attributable to common stockholders (5,233) (9,834) (11,919) (17,517)Net loss per share attributable to common stockholders, basic anddiluted $(0.68) $(1.25) $(1.48) $(2.07) 177 Table of ContentsDuring the three months ended September 30, 2018, the Company adopted ASU 2018-07 (see Note 2) effective January 1,2018. The Company has revised the results for the three months ended March 31, 2018 and the three months ended June 30,2018 to reflect the adoption of ASU 2018-07.The following tables summarize the impact of adoption to the Company’s previously issued consolidated statements ofoperations and comprehensive loss (in thousands): Three Months Ended Three Months Ended March 31, 2018 June 30, 2018 As previously As previously reported As revised reported As revised Operating expenses: Research and development $9,650 $9,506 $11,965 $11,361General and administrative 5,797 5,097 16,279 9,023Total operating expenses 15,447 14,603 28,244 20,384Loss from operations (15,447) (14,603) (28,244) (20,384)Net loss attributable to common stockholders $(15,255) $(14,411) $(29,099) $(21,239)Net loss per share attributable to common stockholders, basicand diluted $(1.83) $(1.72) $(3.33) $(2.43) 178 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executiveofficer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures asof December 31, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act means controls and other procedures of an issuer that are designed to ensure that information required to bedisclosed by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reportsthat it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including itsprincipal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timelydecisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures asof December 31, 2018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosurecontrols and procedures were effective at the reasonable assurance level. Internal Control Over Financial Reporting Management’s Report on Internal Control Over Financial Reporting This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control overfinancial reporting or an attestation report of our independent registered public accounting firm due to a transition periodestablished by rules of the SEC for newly public companies. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d‑15(f) under theExchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting. Item 9b. Other InformationNone.179 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance Incorporated by reference from the information in our Proxy Statement for our 2019 Annual Meeting of Stockholders, whichwe expect to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-Krelates. Item 11. Executive Compensation Incorporated by reference from the information in our Proxy Statement for our 2019 Annual Meeting of Stockholders, whichwe expect to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-Krelates. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Incorporated by reference from the information in our Proxy Statement for our 2019 Annual Meeting of Stockholders, whichwe expect to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-Krelates. Item 13. Certain Relationships and Related Transactions, and Director Independence Incorporated by reference from the information in our Proxy Statement for our 2019 Annual Meeting of Stockholders, whichwe expect to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-Krelates. Item 14. Principal Accounting Fees and Services Incorporated by reference from the information in our Proxy Statement for our 2019 Annual Meeting of Stockholders, whichwe expect to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-Krelates. 180 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements For a list of the financial statements included herein, see Index to the Consolidated Financial Statements on page 147 of thisAnnual Report on Form 10-K, incorporated into this Item by reference. 2. Financial Statement Schedules Financial statement schedules have been omitted because they are either not required or not applicable or the information isincluded in the consolidated financial statements or the notes thereto. 3. Exhibits The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in theExhibit Index below. The exhibits listed in the Exhibit Index are incorporated by reference herein. (b) Exhibit Index ]3.1 Amended and Restated Certificate of Incorporation of Rubius Therapeutics, Inc. (Incorporated by referenceto Exhibit 3.1 to the Registrant’s Form 8‑K (File No. 001‑38586) filed on July 23, 2018) 3.2 Amended and Restated Bylaws of Rubius Therapeutics, Inc. (Incorporated by reference to Exhibit 3.2 to theRegistrant’s Form 8‑K (File No. 001‑38586) filed on July 23, 2018) 4.1 Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registrant’sRegistration Statement on Form S‑1, as amended (File No. 333‑225840) filed on July 2, 2018) 4.2 Second Amended and Restated Investors' Rights Agreement among the Registrant and certain of itsstockholders, dated February 23, 2018 (Incorporated by reference to Exhibit 4.2 to the Registrant’sRegistration Statement on Form S‑1 (File No. 333‑225840) filed on June 22, 2018) 10.1# Amended and Restated 2014 Stock Incentive Plan, and form of award agreements thereunder ((Incorporatedby reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S‑1 (File No. 333‑225840)filed on June 22, 2018) 10.2# 2018 Stock Option and Incentive Plan, and form of award agreements thereunder (Incorporated by referenceto Exhibit 10.2 to the Registrant’s Registration Statement on Form S‑1, as amended (File No. 333‑225840)filed on July 9, 2018) 10.2#2018 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.3 to the Registrant’sRegistration Statement on Form S‑1, as amended (File No. 333‑225840) filed on July 9, 2018) 10.3# Senior Executive Cash Incentive Bonus Plan (Incorporated by reference to Exhibit 10.4 to the Registrant’sRegistration Statement on Form S‑1 (File No. 333‑225840) filed on June 22, 2018) 10.3# Non-Employee Director Compensation Policy (Incorporated by reference to Exhibit 10.5 to the Registrant’sRegistration Statement on Form S‑1, as amended (File No. 333‑225840) filed on July 2, 2018) 181 Table of Contents10.4# Employment Agreement between Rubius Therapeutics, Inc. and Pablo J. Cagnoni, M.D., dated July 2, 2018(Incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S‑1, asamended (File No. 333‑225840) filed on July 9, 2018) 10.5# Employment Agreement between Rubius Therapeutics, Inc. and Torben Straight Nissen, Ph.D., dated July 2,2018 (Incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S‑1, asamended (File No. 333‑225840) filed on July 9, 2018) 10.6# Employment Agreement between Rubius Therapeutics, Inc. and Andrew M. Oh, dated June 29, 2018(Incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S‑1, asamended (File No. 333‑225840) filed on July 9, 2018) 10.7# Employment Agreement between Rubius Therapeutics, Inc. and Christopher L. Carpenter, M.D., Ph.D., datedJune 29, 2018 (Incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement onForm S‑1, as amended (File No. 333‑225840) filed on July 9, 2018) 10.8# Second Amended and Restated Chairman Agreement between Rubius Therapeutics, Inc. and David R.Epstein, dated June 21, 2018 (Incorporated by reference to Exhibit 10.10 to the Registrant’s RegistrationStatement on Form S‑1 (File No. 333‑225840) filed on June 22, 2018) 10.9# Form of Indemnification Agreement between Rubius Therapeutics, Inc. and each of its directors(Incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S‑1 (FileNo. 333‑225840) filed on June 22, 2018) 10.10# Form of Indemnification Agreement between Rubius Therapeutics, Inc. and each of its executive officers(Incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S‑1 (FileNo. 333‑225840) filed on June 22, 2018) 10.11^ Lease Agreement between Rubius Therapeutics, Inc. and ARE-MA Region No. 58 LLC, dated January 18,2018 (Incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S‑1(File No. 333‑225840) filed on June 22, 2018) 10.11.1*^^ First Amendment to Lease Agreement between Rubius Therapeutics, Inc. and ARE-MA Region No. 58 LLC,dated November 8, 2018 10.12^ Exclusive Patent License Agreement between the Registrant and the Whitehead Institute for BiomedicalResearch, dated January 28, 2016 and First Amendment to the Exclusive Patent License Agreement betweenthe Registrant and the Whitehead Institute for Biomedical Research, dated December 12, 2017 (Incorporatedby reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S‑1 (File No. 333‑225840)filed on June 22, 2018) 10.12.1*^^ Second Amendment to the Exclusive Patent License Agreement between the Registrant and the WhiteheadInstitute for Biomedical Research, dated July 25, 2018 10.13 Purchase and Sale Agreement between Rubius Therapeutics, Inc. and Alexion Pharmaceuticals, Inc., datedJuly 23, 2018 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8‑K (File No. 001‑38586)filed on July 25, 2018) 10.14 Loan and Security Agreement between Rubius Therapeutics, Inc. and Solar Capital Ltd. dated December 21,2018 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8‑K (File No. 001-38586) filed onDecember 21, 2018) 21.1* List of Subsidiaries of Rubius Therapeutics, Inc. 182 Table of Contents23.1* Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm 24.1* Power of Attorney (included on signature page to this Annual Report on Form 10-K) 31.1* Certification of Principal Executive Officer pursuant to Rule 13a‑14(a) or Rule 15d‑14(a) of the SecuritiesExchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer pursuant to Rule 13a‑14(a) or Rule 15d‑14(a) of the SecuritiesExchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1*† Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002. 32.2*† Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Extension Schema Document. 101.CAL XBRL Taxonomy Calculation Linkbase Document. 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB XBRL Taxonomy Extension Label Linkbase Document. 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. *Filed herewith.#Indicates a management contract or any compensatory plan, contract or arrangement.^Confidential treatment has been granted with respect to redacted portions of this exhibit. Redacted portions of thisexhibit have been filed separately with the Securities and Exchange Commission. ^^Application has been made to the Securities and Exchange Commission for confidential treatment of certain provisions.Omitted material for which confidential treatment has been requested has been filed separately with the Securities andExchange Commission.†This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, asamended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemedto be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act,except to the extent specifically incorporated by reference into such filing.Item 16. Form 10-K SummaryThe company has elected not to include summary information.183 Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto duly authorized. RUBIUS THERAPEUTICS, INC. By:/s/ Pablo J. Cagnoni Pablo J. Cagnoni Chief Executive OfficerPOWER OF ATTORNEYEach person whose individual signature appears below hereby authorizes and appoints Pablo Cagnoni and Andrew Oh,and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her trueand lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf ofeach person, individually and in each capacity stated below, and to file any and all amendments to this annual report onForm 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securitiesand Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to doand perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them ortheir or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on the dates indicated. SignatureTitleDate /s/ Pablo J. CagnoniChief Executive Officer, DirectorMarch 28, 2019Pablo J. Cagnoni(Principal Executive Officer) /s/ David R. EpsteinChairman, DirectorMarch 28, 2019David R. Epstein /s/ Andrew M. OhChief Financial OfficerMarch 28, 2019Andrew M. Oh(Principal Financial Officer and Principal Accounting Officer) DirectorMarch 28, 2019Noubar B. Afeyan, Ph.D. /s/ Francis CussDirectorMarch 28, 2019Francis Cuss, M.B., B.Chir., FRCP /s/ Robert S. LangerDirectorMarch 28, 2019Robert S. Langer, Sc.D. DirectorMarch 28, 2019Natalie Holles /s/ Roger PomerantzDirectorMarch 28, 2019Roger Pomerantz, M.D. 184 Table of ContentsSignatureTitleDate /s/ Michael RosenblattDirectorMarch 28, 2019Michael Rosenblatt, M.D. /s/ Catherine A. SohnDirectorMarch 28, 2019Catherine A. Sohn, Pharm.D. /s/ Jonathan R. SymondsDirectorMarch 28, 2019Jonathan R. Symonds, CBE 185Exhibit 10.11.1 ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) FIRST AMENDMENT TO LEASETHIS FIRST AMENDMENT TO LEASE (this “First Amendment”) is made as of November 8, 2018, by and betweenARE-MA REGION NO. 58, LLC, a Delaware limited liability company (“Landlord”), and RUBIUS THERAPEUTICS, INC., aDelaware corporation (“Tenant”).RECITALSA. Landlord and Tenant are now parties to that certain Lease Agreement dated as January 18, 2018 (the“Lease”). Pursuant to the Lease, Tenant leases certain premises consisting of approximately 48,192 rentable square feet(“Original Premises”) in that certain to-be-constructed building to be known as 399 Binney Street, Cambridge, Massachusetts(the “Building”). The Original Premises are more particularly described in the Lease. Capitalized terms used herein withoutdefinition shall have the meanings defined for such terms in the Lease.B. Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the Lease to, amongother things, expand the size of the Original Premises by adding approximately 37,742 rentable square feet of space, consistingof (i) that portion of the first floor of the Building containing approximately 7,423 rentable square feet (the “First Floor Space”),and (ii) that portion of lower level of the Building containing approximately 30,319 rentable square feet, all as shown on Exhibit Aattached to this First Amendment (collectively, the “Expansion Premises”).NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, themutual promises and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency ofwhich are hereby acknowledged, Landlord and Tenant hereby agree as follows:1. Expansion Premises. In addition to the Original Premises, commencing on the Expansion Premises CommencementDate (as defined below), Landlord leases to Tenant, and Tenant leases from Landlord, the Expansion Premises, subjectto all of the same terms and conditions of the Lease as are applicable to the Original Premises (except as otherwiseprovided in this First Amendment).2. Delivery of Expansion Premises. Landlord shall use reasonable efforts to deliver the Expansion Premises to Tenantso that Tenant can occupy the Expansion Premises for the Permitted Use (“Delivery” or “Deliver”) with (x) all baseBuilding mechanical, electrical and plumbing systems serving the Expansion Premises in good operating condition andrepair, and (y) free and clear of all tenants and occupants, on or before the Target Expansion Premises CommencementDate with Landlord’s Work in the Expansion Premises Substantially Completed, subject to Tenant Delays and ForceMajeure delays. If Landlord fails to timely Deliver the Expansion Premises, Landlord shall not be liable to Tenant for anyloss or damage resulting therefrom, and the Lease and this First Amendment shall not be void orvoidable. Notwithstanding anything to the contrary contained herein, if Landlord fails to Deliver the Expansion Premisesto Tenant (i) on or before September 1, 2019 (as such date may be extended for Tenant Delays and Force Majeuredelays) (“Initial Expansion Abatement Date”), Base Rent payable with respect to the Expansion Premises shall beabated 1 day for each day after the Initial Expansion Abatement Date (as such date may be extended for Tenant Delaysand Force Majeure delays) that Landlord fails to Deliver the Expansion Premises to Tenant, and (ii) on or before October1, 2019 (as such date may be extended for Tenant Delays and Force Majeure delays) (“Second Expansion AbatementDate”), Base Rent payable with respect to the Expansion Premises shall be abated 2 days for each day after the SecondExpansion Abatement Date (as such date may be extended for Tenant Delays and Force 1***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) Majeure delays) that Landlord fails to Deliver the Expansion Premises to Tenant. If Landlord does not Deliver theExpansion Premises on or before December 1, 2019, for any reason other than Force Majeure delays and Tenant Delays,the Lease with respect to the Expansion Premises only may be terminated by Tenant by written notice to Landlord, and ifso terminated by Tenant: (a) all of the provisions of this First Amendment shall terminate and be of no further force oreffect, and (b) neither Landlord nor Tenant shall have any further rights, duties or obligations under the Lease withrespect to the Expansion Premises, except with respect to provisions which expressly survive termination of theLease. If Tenant does not elect to terminate the Lease with respect to the Expansion Premises on or before December6, 2019, such right to terminate the Lease with respect to the Expansion Premises shall be waived and the Lease withrespect to the Expansion Premises shall remain in full force and effect. As used herein, the terms “Landlord’s Work,”“Tenant Delays” and “Substantially Completed” shall have the meanings set forth for such terms in the work letterattached to this First Amendment as Exhibit B (“Expansion Premises Work Letter”). The Work Letter attached to theLease as Exhibit C does not apply with respect to the Expansion Premises.The “Expansion Premises Commencement Date” shall be the earlier to occur of: (i) the date that Landlord Delivers theExpansion Premises to Tenant, or (ii) the date that Landlord could have Delivered the Expansion Premises to Tenant butfor Tenant Delays. The “Target Expansion Premises Commencement Date” shall be August 1, 2019.Except as set forth in the Expansion Premises Work Letter: (i) Tenant shall accept the Expansion Premises in theircondition as of the Expansion Premises Commencement Date, subject to all applicable Legal Requirements; (ii) Landlordshall have no obligation for any defects in the Expansion Premises; and (iii) Tenant’s taking possession of the ExpansionPremises shall be conclusive evidence that Tenant accepts the Expansion Premises and that the Expansion Premiseswere in good condition at the time possession was taken. Any occupancy of the Expansion Premises by Tenant beforethe Expansion Premises Commencement Date shall be subject to all of the terms and conditions of the Lease, includingthe obligation to pay Base Rent and Operating Expenses. Notwithstanding the foregoing, Base Rent and OperatingExpenses shall not be payable during the period that Tenant is accessing the Expansion Premises to perform Tenant’sWork (as defined in the Expansion Premises Work Letter) pursuant to Section 6 of the Expansion Premises Work Letterand not for the conduct of Tenant’s business in the Expansion Premises.Tenant agrees and acknowledges that, except as otherwise expressly set forth in this First Amendment, neither Landlordnor any agent of Landlord has made any representation or warranty with respect to the condition of all or any portion ofthe Expansion Premises, and/or the suitability of the Expansion Premises for the conduct of Tenant’s business, andTenant waives any implied warranty that the Expansion Premises are suitable for the Permitted Use.3. Premises; Rentable Area of Premises. Commencing on the Expansion Premises Commencement Date, the definedterms “Premises” and “Rentable Area of Premises” on page 1 of the Lease shall be deleted in their entirety andreplaced with the following:“Premises: That portion of the Building containing approximately 85,934 rentable square feet, consisting of (i)the entire 3 floor, containing approximately 47,136 rentable square feet (the “Third Floor Space”), (ii) a portionof the 4 floor, containing approximately 1,056 rentable square feet (the “Fourth Floor Space”), (iii) a portion ofthe first floor, containing approximately 7,423 rentable square feet (the “First Floor Space”), and (iv) a portion ofthe lower level, containing approximately 30,319 rentable square feet (the “Lower Level Space”), all as shownon Exhibit A.” 1***Confidential Treatment Requested*** rdth***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) “Rentable Area of Premises: 85,934 sq. ft.”As of the Expansion Premises Commencement Date, Exhibit A to the Lease shall be amended to include theExpansion Premises as shown on Exhibit A attached to this First Amendment.4. Base Rent.a. Original Premises. Tenant shall continue to pay Base Rent with respect to the Original Premises asprovided for under the Lease through the Original Premises Expiration Date (as defined below).b. First Floor Space. Commencing on the Expansion Premises Commencement Date, Tenant shall pay BaseRent with respect to the First Floor Space in the amount of $[***] per rentable square foot of the First Floor Space peryear. On each anniversary of the Expansion Premises Commencement Date, (each, an “Expansion PremisesAdjustment Date”), Base Rent payable with respect to the First Floor Space shall be increased by multiplying the BaseRent payable with respect to the First Floor Space immediately before such Expansion Premises Adjustment Date by[***]% and adding the resulting amount to the Base Rent payable with respect to the First Floor Space immediately priorto such Expansion Premises Adjustment Date. Base Rent adjustments for the First Floor Space for any fractionalcalendar month shall be prorated.c. Lower Level Space. Commencing on the Expansion Premises Commencement Date, Tenant shall payBase Rent with respect to the Lower Level Space in the amount of $[***] per rentable square foot of the Lower LevelSpace per year. On each Expansion Premises Adjustment Date, Base Rent payable with respect to the Lower LevelSpace shall be increased by multiplying the Base Rent payable with respect to the Lower Level Space immediatelybefore such Expansion Premises Adjustment Date by [***]% and adding the resulting amount to the Base Rent payablewith respect to the Lower Level Premises immediately prior to such Expansion Premises Adjustment Date. Base Rentadjustments for the Lower Level Space for any fractional calendar month shall be prorated.d. Additional TI Allowance. In addition to the Tenant Improvement Allowance (as defined in the ExpansionPremises Work Letter), Landlord shall, subject to the terms of the Expansion Premises Work Letter, make available toTenant the Additional TI Allowance (as defined in the Expansion Premises Work Letter). Commencing on the ExpansionPremises Commencement Date and continuing thereafter on the first day of each month through the ExpansionPremises Expiration Date, Tenant shall pay the amount necessary to fully amortize the portion of the Additional TIAllowance (as defined in the Expansion Premises Work Letter) actually funded by Landlord, if any, in equal monthlypayments with annual interest at a rate of 8% per annum over the Base Term, which interest shall begin to accrue on thedate that Landlord first disburses such Additional TI Allowance (as defined in the Expansion Premises Work Letter) orany portion(s) thereof (“Expansion Premises TI Rent”). Any of the Additional TI Allowance (as defined in the ExpansionPremises Work Letter) and applicable interest remaining unpaid as of the Expansion Premises Expiration Date or earliertermination of the Lease shall be paid to Landlord in a lump sum on the Expansion Premises Expiration Date or earliertermination of this Lease. Tenant, at Tenant’s option, may prepay the Expansion Premises TI Rent in full at any timewithout penalty.5. Tenant’s Share. Commencing on the Expansion Premises Commencement Date, the defined term “Tenant’s Share”on page 1 of the Lease shall be deleted in its entirety and replaced with the following: 2***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) “Tenant’s Share: 52.02%”6. Base Term. Commencing on the date of this First Amendment, the defined term “Base Term” on page 1 of the Leaseshall be deleted in its entirety and replaced with the following:“Base Term. Beginning on (i) the Commencement Date with respect to the Original Premises, and ending withrespect to the Original Premises on the date that is 96 months from the first day of the first full month followingthe Commencement Date (the “Original Premises Expiration Date”), and (ii) the Expansion PremisesCommencement Date with respect to the Expansion Premises, and ending with respect to the ExpansionPremises on the date that is 108 months after the first day of the first month following the Expansion PremisesCommencement Date (the “Expansion Premises Expiration Date”).If Tenant does not extend the Term of the Lease pursuant to Section 40 of the Lease (as amended by Section 9of this First Amendment), then on the day immediately following the Expansion Premises Expiration Date, the definitionsof “Premises,” “Rentable Area of Premises” and “Tenant’s Share” shall be adjusted to account for the expiration of theLease with respect to the Original Premises. Otherwise, on the day immediately following the Expansion PremisesExpiration Date, the definitions of “Premises,” “Rentable Area of Premises” and “Tenant’s Share” shall be adjusted toaccount for the expiration of the Lease with respect to the Expansion Premises.7. Security Deposit. Commencing on the date of this First Amendment, the defined term “Security Deposit” on Page 1 ofthe Lease is deleted in its entirely and replaced with the following:“Security Deposit: $[***]”Landlord currently holds a Security Deposit of $[***] under the Lease. Concurrently with Tenant’s delivery of a signedoriginal of this First Amendment to Landlord, Tenant shall deliver to Landlord an amended Letter of Credit whichincreases the amount of the existing Letter of Credit being held by Landlord to $[***] or an additional Letter of Credit in theamount of $[***].8. Parking. Commencing on the Expansion Premises Commencement Date, subject to the terms of Section 10 of theLease, in addition to Tenant’s Parking Allocation, Tenant shall have the right, in common with other tenants of theProject to use 0.9 parking spaces per 1,000 rentable square feet of the Expansion Premises (“Tenant’s ExpansionPremises Parking Allocation”) in the OKS Garage to park in those areas designated for non-reserved parking, subjectin each case to Landlord’s rules and regulations and Tenant’s payment of the Monthly Parking Changes with respect toeach parking space. Tenant has elected to use all of Tenant’s Expansion Premises Parking Allocation commencing onthe Expansion Premises Commencement Date. As of the date of this First Amendment, the Monthly Parking Charge is$[***] per parking space per month, plus applicable taxes.9. Right to Extend Term. Notwithstanding anything to the contrary contained in the Lease, (a) Tenant shall only have theright to exercise its Extension Right under Section 40 of the Lease with respect to the entire Premises (i.e., the OriginalPremises and the Expansion Premises), (b) if Tenant exercises its Extension Right pursuant to Section 40, then, (i) theTerm of the Lease with respect to the Original Premises will be extended for an additional 60 months following theOriginal Premises Expiration Date (“Extended Original Premises Expiration Date”), and (ii) the Term of the Lease withrespect to the Expansion Premises will be extended from the Expansion Premises Expiration Date through the ExtendedOriginal Premises Expiration Date, such that the Term of the 3***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) Lease with respect to the Original Premises and the Expansion Premises will expire concurrently. Commencing on theday immediately following the Expansion Premises Expiration Date, Tenant shall commence paying Base Rent on a perrentable square foot basis with respect to the Expansion Premises at the same Base Rent per rentable square foot thatTenant is then paying with respect to the Original Premises (as determined and as adjusted pursuant to Section 40 of theLease). For the avoidance of doubt, Tenant shall continue to pay Base Rent as required under this First Amendmentwith respect to the Expansion Premises through the Expansion Premises Expiration Date.10. Brokers. Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person(collectively, “Broker”) in connection with the transaction reflected in this First Amendment and that no Broker broughtabout this transaction, other than Newmark Knight Frank. Landlord and Tenant each hereby agrees to indemnify andhold the other harmless from and against any claims by any Broker, other than Newmark Knight Frank, claiming acommission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard tothis First Amendment.11. OFAC. Tenant and, to Tenant’s knowledge, all beneficial owners of Tenant are currently (a) in compliance with and shallat all times during the Term of the Lease remain in compliance with the regulations of the Office of Foreign AssetsControl (“OFAC”) of the U.S. Department of Treasury and any statute, executive order, or regulation relating thereto(collectively, the “OFAC Rules”), (b) not listed on, and shall not during the Term of the Lease be listed on, the SpeciallyDesignated Nationals and Blocked Persons List, Foreign Sanctions Evaders List, or the Sectoral Sanctions IdentificationList, which are all maintained by OFAC and/or on any other similar list maintained by OFAC or other governmentalauthority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with whom aU.S. person is prohibited from conducting business under the OFAC Rules.12. Miscellaneous.a. This First Amendment is the entire agreement between the parties with respect to the subject matter hereofand supersedes all prior and contemporaneous oral and written agreements and discussions. This First Amendment maybe amended only by an agreement in writing, signed by the parties hereto.b. This First Amendment is binding upon and shall inure to the benefit of the parties hereto, and their respectivesuccessors and assigns.c. This First Amendment may be executed in 2 or more counterparts, each of which shall be deemed anoriginal, but all of which together shall constitute one and the same instrument. Counterparts may be delivered viafacsimile, electronic mail (including pdf or any electronic signature process complying with the U.S. federal ESIGN Act of2000) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validlydelivered and be valid and effective for all purposes. Electronic signatures shall be deemed original signatures forpurposes of this First Amendment and all matters related thereto, with such electronic signatures having the same legaleffect as original signatures.d. Except as amended and/or modified by this First Amendment, the Lease is hereby ratified and confirmed andall other terms of the Lease shall remain in full force and effect, unaltered and unchanged by this First Amendment. Inthe event of any conflict between the provisions of this First Amendment and the provisions of the Lease, the provisionsof this First Amendment shall 4***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) prevail. Whether or not specifically amended by this First Amendment, all of the terms and provisions of the Lease arehereby amended to the extent necessary to give effect to the purpose and intent of this First Amendment.[Signatures are on next page] 5***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the day and year first abovewritten. TENANT: RUBIUS THERAPEUTICS, INC., a Delaware corporation By:/s/ Joanne M. Protano Print Name:Joanne M. Protano Title:SVP Finance and Secretary LANDLORD: ARE-MA REGION NO. 58, LLC, a Delaware limited liability company BY:ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership, managing member By:ARE-QRS CORP., a Maryland corporation, general partner By:/s/ Jackie Clem Print Name:Senior Vice President Title:RE Legal Affairs 6***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) EXHIBIT AExpansion Premises [***]. A-1***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) EXHIBIT BExpansion Premises Work LetterTHIS EXPANSION PREMISES WORK LETTER (this “Expansion Premises Work Letter”) is made by and betweenARE-MA REGION NO. 59, LLC, a Delaware limited liability company (“Landlord”), and RUBIUS THERAPEUTICS, INC., aDelaware corporation (“Tenant”), and is attached to and made a part of that certain Lease Agreement dated as of January 18,2018, as amended by that certain First Amendment to Lease Agreement dated of even date herewith (the “First Amendment”)(as amended, the “Lease”), by and between Landlord and Tenant. Any initially capitalized terms used but not defined herein shallhave the meanings given them in the Lease.1. General Requirements.(a) Tenant’s Authorized Representative. Tenant designates Joanne Protano and Torben Straight Nissen (eithersuch individual acting alone, “Tenant’s Representative”) as the only persons authorized to act for Tenant pursuant to thisExpansion Premises Work Letter. Landlord shall not be obligated to respond to or act upon any request, approval, inquiry orother communication (“Communication”) from or on behalf of Tenant in connection with this Expansion Premises Work Letterunless such Communication is in writing from Tenant’s Representative. Tenant may change either Tenant’s Representative atany time upon not less than 5 business days advance written notice to Landlord. Neither Tenant nor Tenant’s Representativeshall be authorized to direct Landlord’s contractors in the performance of Landlord’s Work (as hereinafter defined).(b) Landlord’s Authorized Representative. Landlord designates William DePippo and Tim White (either suchindividual acting alone, “Landlord’s Representative”) as the only persons authorized to act for Landlord pursuant to thisExpansion Premises Work Letter. Tenant shall not be obligated to respond to or act upon any request, approval, inquiry or otherCommunication from or on behalf of Landlord in connection with this Expansion Premises Work Letter unless suchCommunication is in writing from Landlord’s Representative. Landlord may change either Landlord’s Representative at any timeupon not less than 5 business days advance written notice to Tenant. Landlord’s Representative shall be the sole personsauthorized to direct Landlord’s contractors in the performance of Landlord’s Work.(c) Architects, Consultants and Contractors. Landlord and Tenant hereby acknowledge and agree that: (i) TheRichmond Group shall be the general contractor (the “General Contractor”) for the Tenant Improvements, (ii) Perkins & Will shallbe the architect (the “TI Architect”) for the Tenant Improvements, and (iii) any subcontractors for the Tenant Improvements shallbe selected by Landlord, subject to Tenant’s approval, which approval shall not be unreasonably withheld, conditioned ordelayed. Landlord shall contract with the TI Architect and the General Contractor for the design and construction of Landlord’sWork.2. Tenant Improvements.(a) Tenant Improvements Defined. As used herein, “Tenant Improvements” shall mean all improvements to theExpansion Premises of a fixed and permanent nature as shown on the TI Construction Drawings, as defined in Section 2(c)below. Other than Landlord’s Work (as defined in Section 3(a)) below, Landlord shall not have any obligation whatsoever withrespect to the finishing of the Expansion Premises for Tenant’s use and occupancy.(b) Tenant’s Space Plans. Tenant shall deliver to Landlord and the TI Architect schematic drawings and outlinespecifications (the “TI Design Drawings”) detailing Tenant’s requirements for the Tenant Improvements within 5 business daysof the date hereof. Not more than 5 business days thereafter, B-1***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) Landlord shall deliver to Tenant the written objections, questions or comments of Landlord and the TI Architect with regard to theTI Design Drawings. Tenant shall cause the TI Design Drawings to be revised to address such written comments and shallresubmit said drawings to Landlord for approval within 5 business days thereafter. Such process shall continue until Landlord hasapproved the TI Design Drawings. It is hereby acknowledged by Landlord and Tenant that the TI Design Drawings must becompleted and approved not later than January 15, 2019, in order for the Landlord’s Work to be Substantially Complete by theTarget Expansion Premises Commencement Date (as defined in the First Amendment).(c) Working Drawings. Landlord shall cause the TI Architect to prepare and deliver to Tenant for review andcomment construction plans, specifications and drawings for the Tenant Improvements (“TI Construction Drawings”), which TIConstruction Drawings shall be prepared substantially in accordance with the TI Design Drawings. Tenant shall be solelyresponsible for ensuring that the TI Construction Drawings reflect Tenant’s requirements for the Tenant Improvements. Tenantshall deliver its written comments on the TI Construction Drawings to Landlord not later than 10 business days after Tenant’sreceipt of the same; provided, however, that Tenant may not disapprove any matter that is consistent with the TI DesignDrawings without submitting a Change Request. Landlord and the TI Architect shall consider all such comments in good faithand shall, within 10 business days after receipt, notify Tenant how Landlord proposes to respond to such comments, but Tenant’sreview rights pursuant to the foregoing sentence shall not delay the design or construction schedule for the TenantImprovements. Any disputes in connection with such comments shall be resolved in accordance with Section 2(d)hereof. Provided that the design reflected in the TI Construction Drawings is consistent with the TI Design Drawings, Tenantshall approve in writing the TI Construction Drawings submitted by Landlord, unless Tenant submits a Change Request. Onceapproved by Tenant, subject to the provisions of Section 4 below, Landlord shall not materially modify the TI ConstructionDrawings except as may be reasonably required in connection with the issuance of the TI Permit (as defined in Section 3(b)below).(d) Approval and Completion. It is hereby acknowledged by Landlord and Tenant that the TI ConstructionDrawings must be completed and approved not later than February 22, 2019, in order for the Landlord’s Work to be SubstantiallyComplete by the Target Expansion Premises Commencement Date. Upon any dispute regarding the design of the TenantImprovements, which is not settled within 10 business days after notice of such dispute is delivered by one party to the other,Tenant may make the final decision regarding the design of the Tenant Improvements, provided (i) Tenant acts reasonably andsuch final decision is either consistent with or a compromise between Landlord’s and Tenant’s positions with respect to suchdispute, (ii) that all costs and expenses resulting from any such decision by Tenant shall be payable out of the TI Fund (asdefined in Section 5(e) below), and (iii) Tenant’s decision will not affect the base Building, structural components of the Buildingor any Building systems. Any changes to the TI Construction Drawings following Landlord’s and Tenant’s approval of samerequested by Tenant shall be processed as provided in Section 4 hereof.3. Performance of Landlord’s Work.(a) Definition of Landlord’s Work. As used herein, “Landlord’s Work” shall mean the work of constructing theTenant Improvements.(b) Commencement and Permitting. Landlord shall commence construction of the Tenant Improvements uponLandlord’s obtaining a building permit (the “TI Permit”) authorizing the construction of the Tenant Improvements consistent withthe TI Construction Drawings approved by Tenant as provided herein. The cost of obtaining the TI Permit shall be payable fromthe TI Fund. Tenant shall assist Landlord in obtaining the TI Permit. If any Governmental Authority having jurisdiction over theconstruction of Landlord’s Work or any portion thereof shall impose terms or conditions upon the construction thereof that: (i) areinconsistent with Landlord’s obligations hereunder, (ii) increase the cost of constructing Landlord’s B-2***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) Work, or (iii) will materially delay the construction of Landlord’s Work, Landlord and Tenant shall reasonably and in good faithseek means by which to mitigate or eliminate any such adverse terms and conditions.(c) Completion of Landlord’s Work. Landlord shall use commercially reasonable efforts to SubstantiallyComplete Landlord’s Work by the Target Expansion Premises Commencement Date. It is hereby acknowledged by Landlord andTenant that the permit set based on the TI Construction Drawings must be completed on or before February 22, 2019, in order forLandlord’s Work to be Substantially Completed by the Target Expansion Premises Commencement Date. Landlord shallsubstantially complete or cause to be substantially completed Landlord’s Work in a good and workmanlike manner, in accordancewith the TI Permit subject, in each case, to Minor Variations and normal “punch list” items of a non-material nature that do notinterfere with Tenant’s use of the Expansion Premises (“Substantial Completion” or “Substantially Complete”), which punchlist items shall be completed by Landlord within sixty (60) days after the date of Substantial Completion. Upon SubstantialCompletion of Landlord’s Work, Landlord shall require the TI Architect and the General Contractor to execute and deliver, for thebenefit of Tenant and Landlord, a Certificate of Substantial Completion in the form of the American Institute of Architects (“AIA”)document G704. For purposes of this Expansion Premises Work Letter, “Minor Variations” shall mean any modificationsreasonably required: (i) to comply with all applicable Legal Requirements and/or to obtain or to comply with any required permit(including the TI Permit); (ii) to comply with any request by Tenant for modifications to Landlord’s Work; (iii) to comport with gooddesign, engineering, and construction practices that are not material; or (iv) to make reasonable adjustments for field deviationsor conditions encountered during the construction of Landlord’s Work.(d) Selection of Materials. Where more than one type of material or structure is indicated on the TI ConstructionDrawings approved by Landlord and Tenant, the option will be selected at Landlord’s sole and absolute subjective discretion. Asto all building materials and equipment that Landlord is obligated to supply under this Expansion Premises Work Letter, Landlordshall select the manufacturer thereof in its sole and absolute subjective discretion.(e) Delivery of the Expansion Premises. When Landlord’s Work is Substantially Complete, subject to theremaining terms and provisions of this Section 3(e), Tenant shall accept the Expansion Premises. Tenant’s taking possessionand acceptance of the Expansion Premises shall not constitute a waiver of: (i) any warranty with respect to workmanship(including installation of equipment) or material (exclusive of equipment provided directly by manufacturers), (ii) any non-compliance of Landlord’s Work with applicable Legal Requirements, or (iii) any claim that Landlord’s Work was not completedsubstantially in accordance with the TI Construction Drawings (subject to Minor Variations and such other changes as arepermitted hereunder) (collectively, a “Construction Defect”). Tenant shall have one year after Substantial Completion withinwhich to notify Landlord of any such Construction Defect discovered by Tenant, and Landlord shall use reasonable efforts toremedy or cause the responsible contractor to remedy any such Construction Defect within 30 days thereafter. Notwithstandingthe foregoing, Landlord shall not be in default under the Lease if the applicable contractor, despite Landlord's reasonable efforts,fails to remedy such Construction Defect within such 30-day period, in which case Landlord shall continue to use reasonableefforts to cause such Construction Defect to be remedied.Tenant shall be entitled to receive the benefit of all construction warranties and manufacturer’s equipment warranties relating toequipment installed in the Expansion Premises. If requested by Tenant, Landlord shall attempt to obtain extended warrantiesfrom manufacturers and suppliers of such equipment, but the cost of any such extended warranties shall be borne solely out ofthe TI Fund. Landlord shall promptly undertake and complete, or cause to be completed, all punch list items.(f) Expansion Premises Commencement Date Delay. Except as otherwise provided in the Lease, Delivery ofthe Expansion Premises shall occur when Landlord’s Work has been Substantially B-3***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) Completed, except to the extent that completion of Landlord’s Work shall have been actually delayed by any one or more of thefollowing causes (“Tenant Delay”):(i) Tenant’s Representative was not available within 3 business days to give or receive anyCommunication or to take any other action required to be taken by Tenant within the time period required hereunder;(ii) Tenant’s request for Change Requests (as defined in Section 4(a) below) whether or not any suchChange Requests are actually performed;(iii) Construction of any Change Requests;(iv) Tenant’s request for materials, finishes or installations requiring unusually long lead times;(v) Tenant’s delay in reviewing, revising or approving plans and specifications beyond the periods set forthherein;(vi) Tenant’s delay in providing information critical to the normal progression of Landlord’s Work within thetime period required hereunder (or, if no time period is provided for hereunder, 2 business days). Tenant shall providesuch information as soon as reasonably possible, but in no event longer than one week after receipt of any request forsuch information from Landlord;(vii) Tenant’s delay in making payments to Landlord for Excess TI Costs (as defined in Section 5(e) below);(viii) Labor disharmony as a result of non-union labor employed by any contractor or subcontractor engagedby Tenant or any Tenant Party; or(ix) Any other act or omission by Tenant or any Tenant Party (as defined in the Lease), or personsemployed by any of such persons that continues for more than 2 business days after Landlord’s written notice thereof toTenant.If Delivery is delayed for any of the foregoing reasons, then Landlord shall cause the TI Architect to certify the date on which theTenant Improvements would have been completed but for such Tenant Delay and such certified date shall be the date ofDelivery.4. Changes. Any changes requested by Tenant to the Tenant Improvements after the delivery and approval byLandlord of the TI Design Drawings shall be requested and instituted in accordance with the provisions of this Section 4 and shallbe subject to the written approval of Landlord and the TI Architect, such approval not to be unreasonably withheld, conditioned ordelayed.(a) Tenant’s Request for Changes. If Tenant shall request changes to the Tenant Improvements (“Changes”),Tenant shall request such Changes by notifying Landlord in writing in substantially the same form as the AIA standard changeorder form (a “Change Request”), which Change Request shall detail the nature and extent of any such Change. Such ChangeRequest must be signed by Tenant’s Representative. Landlord shall, before proceeding with any Change, use commerciallyreasonable efforts to respond to Tenant as soon as is reasonably possible with an estimate of: (i) the time it will take, and (ii) thearchitectural and engineering fees and costs that will be incurred, to analyze such Change Request (which costs shall be paidfrom the TI Fund to the extent actually incurred, whether or not B-4***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) such change is implemented). Landlord shall thereafter submit to Tenant in writing, within 5 business days of receipt of theChange Request (or such longer period of time as is reasonably required depending on the extent of the Change Request), ananalysis of the additional cost or savings involved, including, without limitation, architectural and engineering costs and the periodof time, if any, that the Change will extend the date on which Landlord’s Work will be Substantially Complete. Any such delay inthe completion of Landlord’s Work caused by a Change, including any suspension of Landlord’s Work while any such Change isbeing evaluated and/or designed, shall be Tenant Delay.(b) Implementation of Changes. If Tenant: (i) approves in writing the cost or savings and the estimatedextension in the time for completion of Landlord’s Work, if any, and (ii) deposits with Landlord any Excess TI Costs required inconnection with such Change, Landlord shall cause the approved Change to be instituted. Notwithstanding any approval ordisapproval by Tenant of any estimate of the delay caused by such proposed Change, the TI Architect’s good faith determinationof the amount of Tenant Delay in connection with such Change shall be final and binding on Landlord and Tenant.5. Costs.(a) Budget For Tenant Improvements. Before the commencement of construction of the Tenant Improvements,Landlord shall obtain a detailed breakdown by trade of the costs incurred or that will be incurred in connection with the design andconstruction of the Tenant Improvements (the “Budget”). The Budget shall be based upon the TI Construction Drawingsapproved by Tenant. If the Budget is greater than the TI Allowance, the TI Costs shall be funded on a pari passu basis as costsare incurred in accordance with Sections 5(e) and 5(f) below.(b) TI Allowance. Landlord shall make available for the payment of the TI Costs a tenant improvement allowanceTenant a “TI Allowance” in the maximum amount of $[***] per rentable square foot of the Expansion Premises.The TI Allowance shall be disbursed in accordance with this Expansion Premises Work Letter. Tenant shall have noright to the use or benefit (including any reduction to or payment of Base Rent) of any portion of the TI Allowance not required forthe construction of (i) the Tenant Improvements described in the TI Construction Drawings approved pursuant to Section 2(d) or(ii) any Changes pursuant to Section 4.(c) Additional TI Allowance. Landlord shall make available for the payment of Excess TI Costs an additionaltenant improvement allowance (the “Additional TI Allowance”) of $[***], which shall, to the extent used, result in TI Rentpursuant to Section 4(d) of the First Amendment. Within 5 business days of receipt of the Budget from Landlord, Tenant shallnotify Landlord in writing how much of the Additional TI Allowance Tenant has elected to receive from Landlord (the “AdditionalTI Allowance Election”); provided, however that if Tenant does not elect the full amount of the Additional TI Allowance in theAdditional TI Allowance Election, Tenant may elect to have additional funds, not to exceed any positive amount remaining aftersubtraction of the amount elected in the Additional TI Allowance Election from the Additional TI Allowance, to be made availableto pay for Excess TI Costs (if any, the “Subsequent Additional TI Allowance Election”), upon 10 business days’ prior writtennotice to Landlord, which prior written notice of any Subsequent Additional TI Allowance Election shall be given, if at all, within 45days of the date of Tenant’s initial Additional TI Allowance Election. The Subsequent Additional TI Allowance Election andAdditional TI Allowance Election (or if no Subsequent Additional TI Allowance Election is made within the time period required,the Additional TI Allowance Election itself) shall be final and binding on Tenant, and may not thereafter be modified withoutLandlord’s consent, which may be granted or withheld in Landlord’s sole and absolute subjective discretion.(d) Costs Includable in TI Fund. The TI Fund (as defined in Section 5(e) below) shall be used solely for thepayment of design, permits and construction costs in connection with the construction B-5***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) of the Tenant Improvements, including, without limitation, the cost of electrical power and other utilities used in connection withthe construction of the Tenant Improvements, the cost of preparing the TI Design Drawings and the TI Construction Drawings, allcosts set forth in the Budget, including Landlord’s out-of-pocket expenses, costs resulting from Tenant Delays and the cost ofChanges (collectively, “TI Costs”). Notwithstanding anything to the contrary contained herein, the TI Fund shall not be used topurchase any furniture, personal property or other non-building system materials or equipment, including, but not limited to,Tenant’s voice or data cabling, non-ducted biological safety cabinets and other scientific equipment not incorporated into theTenant Improvements.(e) Excess TI Costs. Landlord shall have no obligation to bear any portion of the cost of any of the TenantImprovements except to the extent of the TI Allowance and the Additional TI Allowance that Tenant has elected to receive. If atany time the remaining TI Costs under the then-current Budget exceed the remaining unexpended TI Allowance and Additional TIAllowance that Tenant has elected to receive (such excess sometimes referred to herein as “Excess TI Costs”), each party’sobligations for payment shall be as set forth in this Section 5(e) and in Section 5(f). The TI Allowance, the Additional TIAllowance and Excess TI Costs are herein referred to as the “TI Fund.” As used in this Work Letter, “Landlord’s Portion” shallequal the TI Allowance and the Additional TI Allowance that Tenant has elected to receive. For purposes of this Work Letter,“Landlord’s Proportionate Share” shall mean a fraction, the numerator of which shall be the Landlord’s Portion and thedenominator of which shall be the then-current Budget. If at any time TI Costs under the then-current Budget exceed the TIAllowance and the Additional TI Allowance that Tenant has elected to receive, the difference shall be referred to herein as“Tenant’s Portion.” For purposes of this Work Letter, “Tenant’s Proportionate Share” shall mean a fraction, the numerator ofwhich is Tenant’s Portion and the denominator of which is the then-current Budget. Upon notice to Tenant, Landlord mayequitably adjust Landlord’s Proportionate Share and Tenant’s Proportionate Share from time to time based on changes in theanticipated TI Costs. After the end of each calendar month, beginning with the month in which Landlord obtains the Budget: (i)Landlord shall determine the TI Costs incurred for the prior calendar month (and if applicable, for the period prior to Leaseexecution) (collectively, the “Total Monthly Costs”), (ii) Tenant shall reimburse Landlord within the time period set forth inSection 5(f) below for Tenant’s Proportionate Share of Total Monthly Costs, and (iii) Landlord shall pay Landlord’s ProportionateShare of Total Monthly Costs from the remaining amount of the TI Allowance and Additional TI Allowance that Tenant haselected to receive.(f) Funding Requisition; Reconciliation; Timely Payment. Landlord shall submit to Tenant monthly during theperformance of the Tenant Improvements a report (each, a “Reimbursement Notice”) setting forth in reasonable detail: (i) acomputation of the TI Costs incurred during the prior calendar month, including without limitation costs relating to all requestedChanges; (ii) the then-current cumulative TI Costs; and (iii) Landlord’s calculation of the parties’ respective responsibilities forpayment of such costs for such month (i.e., the estimated amounts of Tenant’s Portion and/or Landlord’s Portion due for suchmonth). Each month, Landlord shall prepare a reconciliation of actual TI Costs with TI Costs in accordance with the Budget forwhich Tenant has advanced Tenant’s Proportionate Share, and: (x) in the event of any overpayment by Tenant, then, solely tothe extent of any Tenant’s Proportionate Share that Tenant has actually deposited with Landlord, such overpayment shall becredited against the amounts next due hereunder unless construction of the Tenant Improvements is completed, in which casesuch overpayment shall be promptly refunded to Tenant; and (y) in the event of an underpayment by Tenant, Tenant shall, as acondition precedent to Landlord’s obligation to complete the Tenant Improvements, reimburse Landlord therefor within thirty (30)days of receipt of a Reimbursement Notice. Notwithstanding anything to the contrary set forth in this Section, Tenant shall befully and solely liable for TI Costs and the costs of Changes and Minor Variations in excess of the TI Allowance and Additional TIAllowance that Tenant has elected to receive. Reimbursement Notices may be sent during a calendar month for the priorcalendar month and shall be submitted no later than the end of each calendar month for the prior calendar month. Upon finalcompletion of the Tenant Improvements (including all Punch List Items), Landlord shall prepare a final reconciliation consisting ofa reconciliation of the total costs of the Tenant Improvements. Tenant shall pay B-6***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) to Landlord the amount of Tenant’s Proportionate Share of Total Monthly Costs as set forth in each Reimbursement Notice withinthirty (30) days of receipt of each Reimbursement Notice (or such lesser period as may be required to enable Landlord to complywith the Massachusetts “Prompt Pay” legislation). Such payment by Tenant shall be a condition precedent to Landlord’sobligation to complete the Tenant Improvements. If Tenant fails to pay Tenant’s Proportionate Share of Total Monthly Costs asset forth in any Reimbursement Notice within such period, Landlord shall have all of the rights and remedies set forth in the Leasefor nonpayment of Rent (including, but not limited to, the right to interest at the Default Rate and the right to assess a late charge,each in accordance with the terms of the Lease). For purposes of any claims made or litigation instituted with regard to Tenant’sPortion or Tenant’s Proportionate Share of Total Monthly Costs, such amounts shall constitute Rent under the Lease.6. Tenant Access.(a) Tenant’s Access Rights. Landlord hereby agrees to permit Tenant access, at Tenant’s sole risk and expense,to the Expansion Premises (i) 60 days prior to the Expansion Premises Commencement Date to perform any work (“Tenant’sWork”) required by Tenant (including, without limitation, installing furniture, fixtures, equipment and cabling in the Premises) otherthan Landlord’s Work, provided that such Tenant’s Work is coordinated with the TI Architect and the General Contractor, andcomplies with the Lease and all other reasonable restrictions and conditions Landlord may impose, and (ii) prior to the completionof Landlord’s Work, to inspect and observe work in process; all such access shall be during normal business hours or at suchother times as are reasonably designated by Landlord. Any entry and access by Tenant shall comply with all established safetypractices of the General Contractor and Landlord until completion of Landlord’s Work and acceptance thereof by Tenant.(b) No Interference. Neither Tenant nor any Tenant Party (as defined in the Lease) shall interfere with theperformance of Landlord’s Work, nor with any inspections or issuance of final approvals by applicable Governmental Authorities,and upon any such interference, Landlord shall have the right, in addition to other rights and remedies under the ExpansionPremises Work Letter or the Lease, to exclude Tenant and/or any Tenant Party from the Expansion Premises until SubstantialCompletion of Landlord’s Work.(c) Labor Harmony. Tenant agrees that any work performed by or on behalf of Tenant or any Tenant Party shallbe performed in such manner and by such persons as shall maintain harmonious labor relations at the Project. If labordisharmony arises as a result of non-union labor employed by a subcontractor or other contractor engaged by Tenant or anyTenant Party, and such labor disharmony causes a delay in the construction of the Non-TI Project Improvements or Landlord’sWork, such delay shall be a Tenant Delay under this Work Letter. If labor disharmony arises as a result of a contractor orsubcontractor engaged by Tenant or any Tenant Party, or if Landlord reasonably believes that a contractor or subcontractoremployed by Tenant or any Tenant Party will cause labor disharmony in the Project, Landlord shall have the right, in addition toother rights and remedies under the Work Letter or Lease, to exclude from the Premises and Project such contractor orsubcontractor employed by Tenant or any Tenant Party.(d) No Acceptance of Expansion Premises. The fact that Tenant may, with Landlord’s consent, enter into theExpansion Premises prior to the date Landlord’s Work is Substantially Complete for the purpose of performing Tenant’s Workshall not be deemed an acceptance by Tenant of possession of the Expansion Premises, but in such event Tenant shall defendwith counsel reasonably acceptable by Landlord, indemnify and hold Landlord harmless from and against any loss of or damageto Tenant’s property, completed work, fixtures, equipment, materials or merchandise, and from liability for death of, or injury to,any person, caused by the act or omission of Tenant or any Tenant Party. B-7***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) 7. Miscellaneous.(a) Consents. Whenever consent or approval of either party is required under this Expansion Premises WorkLetter, that party shall not unreasonably withhold, condition or delay such consent or approval, unless expressly set forth hereinto the contrary.(b) Modification. No modification, waiver or amendment of this Expansion Premises Work Letter or of any of itsconditions or provisions shall be binding upon Landlord or Tenant unless in writing signed by Landlord and Tenant.(c) No Default Funding. In no event shall Landlord have any obligation to fund any portion of the TI Allowance orto perform any Landlord’s Work during any period that Tenant is in Default under the Lease. B-8***Confidential Treatment Requested***Exhibit 10.12.1***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) This SECOND AMENDMENT, effective as of July 25, 2018 (the “SECOND AMENDMENT EFFECTIVE DATE”), amendsthe Exclusive Patent License Agreement dated January 28, 2016, and First Amendment dated December 12, 2017 (the“LICENSE”), between the Whitehead Institute for Biomedical Research (“WHITEHEAD”) and Rubius Therapeutics, Inc.(“COMPANY”).WHEREAS, WHITEHEAD and COMPANY wish to modify Appendix A of the LICENSE;WHEREAS, WHITEHEAD is owner of certain SECOND AMENDMENT PATENT RIGHTS, as later defined herein,relating to [***], “[***]”, by [***];WHEREAS, WHITEHEAD desires to have the PATENT RIGHTS developed and commercialized to benefit the public,and WHITEHEAD is willing to grant a license thereunder;WHEREAS, COMPANY desires to add such SECOND AMENDMENT PATENT RIGHTS to the LICENSE.NOW, THEREFORE, WHITEHEAD and COMPANY hereby agree as follows:Capitalized terms used herein and not defined herein shall have the respective meanings ascribed to such terms in theLICENSE.1. The following (hereinafter the “SECOND AMENDMENT PATENT RIGHTS”) is included under the definition ofPATENT RIGHTS and is added to Appendix A of the LICENSE:[***].Appendix A of the LICENSE is deleted in its entirety and replaced with the Appendix A of this SECOND AMENDMENT,attached hereto.2. For the avoidance of doubt, per Section 6.3 of the LICENSE, payment of all fees and costs, including attorneys’fees relating to the filing, prosecution, and maintenance of the SECOND AMENDMENT PATENT RIGHTS shall be theresponsibility of COMPANY, whether such amounts were incurred before or after the SECOND AMENDMENT EFFECTIVEDATE. WHITEHEAD has incurred $[***] for such patent-related fees and costs as of [***].3. The following is added to Section 10.1 of the LICENSE:10.1 WHITEHEAD represents that as of the SECOND AMENDMENT EFFECTIVE DATE, it is the owner ofall right, title, and interest in and to [***] of the PATENT RIGHTS, and it has the lawful right to grant the rights as setforth in this Agreement. ***Confidential Treatment Requested***ACTIVE/99026277.1 ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) 4. As consideration for this SECOND AMENDMENT, COMPANY shall pay WHITEHEAD a case addition fee of[***] Dollars ($[***]) within [***] of the SECOND AMENDMENT EFFECTIVE DATE. This payment is nonrefundable.5. The LICENSE, as amended hereby, is hereby ratified and confirmed in all respects and shall continue in fullforce and effect. The LICENSE will, together with this SECOND AMENDMENT, be read and construed as a single instrument. Allother terms and conditions of the LICENSE are confirmed and remain in full force and effect. This SECOND AMENDMENT shallbe binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns.Signatures follow on the next page. 2***Confidential Treatment Requested*** ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives.For WHITEHEAD For COMPANY: By:/s/ Carla DeMaria By:/s/ Torben Straight Nissen Name:Carla DeMaria Name:Torben Straight Nissen Title:Director of Intellectual Property & Sponsored Programs Title:President Date:July 31, 2018 Date:July 25, 2018 ***Confidential Treatment Requested***ACTIVE/99026277.1 ***Text Omitted and Filed Separately with the Securities and ExchangeCommission. Confidential Treatment Requested Under17 C.F.R. §200.80(b)(4) APPENDIX AList of Patent Applications and Patents[***]. ***Confidential Treatment Requested***ACTIVE/99026277.1Exhibit 21.1 SUBSIDIARIES Subsidiary Jurisdiction of IncorporationRubius Therapeutics Securities Corporation Massachusetts Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-226226) of Rubius Therapeutics,Inc. of our report dated March 28, 2019 relating to the financial statements, which appears in this Form 10-K./s/ PricewaterhouseCoopers LLP Boston, MassachusettsMarch 28, 2019 Exhibit 31.1 CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACTOF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATIONS I, Pablo J. Cagnoni, M.D., certify that: 1. I have reviewed this Annual Report on Form 10-K of Rubius Therapeutics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)): (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared; (b) (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting. Date: March 28, 2019 By:/s/ Pablo J. Cagnoni Pablo J. Cagnoni, M.D. Chief Executive Officer (Principal Executive Officer) Exhibit 31.2 CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACTOF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATIONS I, Andrew M. Oh, certify that: 1. I have reviewed this Annual Report on Form 10-K of Rubius Therapeutics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)): (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared; (b) (Paragraph omitted pursuant to SEC Release Nos. 33-8238/34-47986 and 33-8392/34-49313); (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this reportour conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant rolein the registrant’s internal control over financial reporting. Date: March 28, 2019 By:/s/ Andrew M. Oh Andrew M. Oh Chief Financial Officer (Principal Financial Officer) Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Rubius Therapeutics, Inc. (the “Company”) for the fiscal year endedDecember 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), theundersigned, Pablo J. Cagnoni, M.D., Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 28, 2019 By:/s/ Pablo J. Cagnoni Pablo J. Cagnoni, M.D. Chief Executive Officer (Principal Executive Officer) Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Rubius Therapeutics, Inc. (the “Company”) for the fiscal yearended December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), theundersigned, Andrew M. Oh, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 28, 2019 By:/s/ Andrew M. Oh Andrew M. Oh Chief Financial Officer (Principal Financial Officer) 

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