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pand-10q_20200630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2020

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

For the transition period from _________________ to _________________

Commission File Number: 001-39381

PANDION THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	83-3015614
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
134 Coolidge Avenue Watertown, Massachusetts	02472
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 393-5925

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

PAND

Nasdaq Global Select Market

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

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

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

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

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

As of August 31, 2020, the registrant had 29,519,902 shares of common stock, $0.001 par value per share, outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

•

our ongoing Phase 1a clinical trial of PT101;

•

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials, and our research and development programs;

•

our plans to develop our current and future product candidates;

•

the utility of our TALON platform in identifying and discovering product candidates;

•

the timing of and our ability to submit applications for and obtain and maintain regulatory approvals for our current and future product candidates;

•

our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash and cash equivalents;

•

the potential advantages of our current and future product candidates;

•

the rate and degree of market acceptance and clinical utility of our products, if approved;

•

our estimates regarding the potential market opportunity for our current and future product candidates;

•

our commercialization, marketing and manufacturing capabilities and strategy;

•

our intellectual property position;

•

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

•

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

•

the impact of government laws and regulations;

•

our competitive position;

•

developments relating to our competitors and our industry;

•

our ability to maintain and establish collaborations or obtain additional funding;

•

the potential direct or indirect impact of the COVID-19 pandemic on our business, operations, and the markets and communities in which we and our partners, collaborators, vendors and customers operate; and

•

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

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

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

BASIS OF PRESENTATION

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Pandion” and similar references refer: (1) following the consummation of our conversion to a Delaware corporation on July 16, 2020 in connection with our initial public offering, to Pandion Therapeutics, Inc., and (2) prior to the completion of such conversion, to Pandion Therapeutics Holdco LLC. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Corporate Conversion” in this Quarterly Report on Form 10-Q for further information.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Redeemable Convertible Preferred Shares and Members’ Deficit	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 6.	Exhibits	81
Signatures		82

iii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PANDION THERAPEUTICS HOLDCO LLC

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	June 30, 2020			December 31, 2019
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	105,725		$	15,970
Accounts receivable		1,318			1,035
Prepaid expenses and other current assets		3,377			2,960
Total current assets		110,420			19,965
Property and equipment, net		2,592			1,054
Restricted cash		502			—
Total assets	$	113,514		$	21,019
Liabilities and members’ deficit
Current liabilities:
Accounts payable	$	3,742		$	1,207
Accrued expenses and other current liabilities		2,260			1,455
SAFE agreement		6,000			—
Current portion of deferred revenue		4,748			4,365
Total current liabilities		16,750			7,027
Deferred revenue, net of current portion		4,582			6,053
Long-term debt, net of issuance costs		1,815			3,676
Other long-term liabilities		253			85
Total liabilities		23,400			16,841
Commitments and contingencies (Note 7)
Redeemable convertible preferred shares, no par value; 91,534,629 and 51,217,321 shares authorized at June 30, 2020 and December 31, 2019, respectively; 91,441,336 and 35,524,212 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively; liquidation value of $152,596 at June 30, 2020		152,596			46,967
Members’ deficit
Common shares, no par value; 100,000,000 and 62,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; 1,237,639 shares issued at June 30, 2020 and December 31, 2019; 1,195,794 and 1,110,767 shares outstanding at June 30, 2020 and December 31, 2019, respectively		—			—
Incentive shares, no par value; 13,182,678 and 7,717,678 shares authorized at June 30, 2020 and December 31, 2019, respectively; 2,364,595 and 946,751 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		382			172
Accumulated deficit		(62,864	)		(42,961	)
Total members’ deficit		(62,482	)		(42,789	)
Total liabilities, redeemable convertible preferred shares and members’ deficit	$	113,514		$	21,019

See accompanying notes to the condensed consolidated financial statements.

PANDION THERAPEUTICS HOLDCO LLC

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue	$	1,955		$	—		$	3,956		$	—
Operating expenses
Research and development		8,860			4,934			15,802			10,019
General and administrative		2,297			840			3,863			1,614
Total operating expenses		11,157			5,774			19,665			11,633
Loss from operations		(9,202	)		(5,774	)		(15,709	)		(11,633	)
Interest income		4			89			45			143
Interest expense		(39	)		—			(82	)		—
Fair value adjustments to convertible note		—			—			89			—
Net loss		(9,237	)		(5,685	)		(15,657	)		(11,490	)
Change in redemption value of redeemable convertible preferred shares		(2,712	)		(982	)		(4,245	)		(1,936	)
Net loss attributable to common shareholders		(11,949	)		(6,667	)		(19,902	)		(13,426	)
Net loss per common share, basic and diluted	$	(10.15	)	$	(6.30	)	$	(17.23	)	$	(13.19	)
Weighted-average number of shares outstanding used in computing net loss per common share, basic and diluted		1,177,479			1,057,617			1,154,856			1,018,254

See accompanying notes to the condensed consolidated financial statements.

PANDION THERAPEUTICS HOLDCO LLC

Condensed Consolidated Statements of Redeemable Convertible Preferred Shares and Members’ Deficit (Unaudited)

(in thousands, except share amounts)

	Redeemable Convertible						Redeemable Convertible																	Additional						Total
	Preferred Stock						Preferred Shares				Common Stock					Common Shares				Incentive Shares				Paid-In			Accumulated			Members’
	Shares			Amount			Shares		Amount		Shares			Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Deficit
Balance, January 1, 2019		19,831,103		$	24,977			—	$	—		940,713		$	—		—	$	—		—	$	—	$	52		$	(17,109	)	$	(17,057	)
Reorganization		(19,831,103	)		(24,977	)		19,831,103		24,977		(940,713	)		—		940,713		—		—		52		(52	)		—			—
Issuance of Series A redeemable convertible preferred shares, net of issuance costs of $34		—			—			15,693,109		17,966		—			—		—		—		—		—		—			—			—
Accretion of redeemable convertible preferred shares to redemption value		—			—			—		954		—			—		—		—		—		—		—			(954	)		(954	)
Issuance of incentive shares		—			—			—		—		—			—		—		—		230,968		9		—			—			9
Vesting of restricted common shares		—			—			—		—		—			—		79,283		—		—		—		—			—			—
Net loss		—			—			—		—		—			—		—		—		—		—		—			(5,805	)		(5,805	)
Balance, March 31, 2019		—		$	—			35,524,212	$	43,897		—		$	—		1,019,996	$	—		230,968	$	61	$	—		$	(23,868	)	$	(23,807	)
Accretion of redeemable convertible preferred shares to redemption value		—			—			—		982		—			—		—		—		—		—		—			(982	)		(982	)
Issuance of incentive shares		—			—			—		—		—			—		—		—		66,532		11		—			—			11
Vesting of restricted common shares		—			—			—		—		—			—		79,283		—		—		—		—			—			—
Net loss		—			—			—		—		—			—		—		—		—		—		—			(5,685	)		(5,685	)
Balance, June 30, 2019		—		$	—			35,524,212	$	44,879		—		$	—		1,099,279	$	—		297,500	$	72	$	—		$	(30,535	)	$	(30,463	)

PANDION THERAPEUTICS HOLDCO LLC

Condensed Consolidated Statements of Redeemable Convertible Preferred Shares and Members’ Deficit (Unaudited)

(in thousands, except share amounts)

	Redeemable Convertible															Total
	Preferred Shares				Common Shares				Incentive Shares				Accumulated			Members’
	Shares		Amount		Shares		Amount		Shares		Amount		Deficit			Deficit
Balance, January 1, 2020		35,524,212	$	46,967		1,110,767	$	—		946,751	$	172	$	(42,961	)	$	(42,789	)
Issuance of Series A redeemable convertible preferred shares, net of issuance costs of $20		15,693,109		17,980		—		—		—		—		—			—
Issuance of Series A Prime redeemable convertible preferred shares on conversion of JDRF note		948,225		1,811		—		—		—		—		—			—
Issuance of Series B redeemable convertible preferred shares, net of issuance costs of $271		19,158,922		39,728		—		—		—		—		—			—
Accretion of redeemable convertible preferred shares to redemption value		—		1,534		—		—		—		—		(1,534	)		(1,534	)
Issuance of incentive shares		—		—		—		—		—		60		—			60
Vesting of restricted common shares		—		—		54,770		—		—		—		—			—
Net loss		—		—		—		—		—		—		(6,420	)		(6,420	)
Balance, March 31, 2020		71,324,468	$	108,020		1,165,537	$	—		946,751	$	232	$	(50,915	)	$	(50,683	)
Issuance of Series B redeemable convertible preferred shares, net of issuance costs of $136		20,116,868		41,864		—		—		—		—		—			—
Accretion of redeemable convertible preferred shares to redemption value		—		2,712		—		—		—		—		(2,712	)		(2,712	)
Issuance of incentive shares		—		—		—		—		1,417,844		150		—			150
Vesting of restricted common shares		—		—		30,257		—		—		—		—			—
Net loss		—		—		—		—		—		—		(9,237	)		(9,237	)
Balance, June 30, 2020		91,441,336	$	152,596		1,195,794	$	—		2,364,595	$	382	$	(62,864	)	$	(62,482	)

See accompanying notes to the condensed consolidated financial statements.

PANDION THERAPEUTICS HOLDCO LLC

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities
Net loss	$	(15,657	)	$	(11,490	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation expense		171			112
Equity-based compensation expense		210			20
Fair value adjustments on convertible notes		(89	)		—
Noncash interest expense		39			—
Changes in operating assets and liabilities:
Accounts receivable		(283	)		—
Prepaid expenses and other current assets		132			518
Accounts payable		1,630			103
Accrued expenses and other current liabilities		847			(886	)
Deferred revenue		(1,088	)		—
Net cash used in operating activities		(14,088	)		(11,623	)
Cash flows from investing activities
Purchases of property and equipment		(1,228	)		(437	)
Net cash used in investing activities		(1,228	)		(437	)
Cash flows from financing activities
Proceeds from simple agreement for future equity		6,000			—
Proceeds from issuance of Series A redeemable convertible preferred shares		18,000			18,000
Series A redeemable convertible preferred share issuance costs		(20	)		(33	)
Proceeds from issuance of Series B redeemable convertible preferred shares		82,000			—
Series B redeemable convertible preferred share issuance costs		(407	)		—
Net cash provided by financing activities		105,573			17,967
Net increase in cash and cash equivalents		90,257			5,907
Cash, cash equivalents and restricted cash, beginning of period		15,970			10,172
Cash, cash equivalents and restricted cash, end of period	$	106,227		$	16,079
Components of cash, cash equivalents, and restricted cash
Cash and cash equivalents		105,725			16,079
Restricted cash		502			—
Total cash, cash equivalents, and restricted cash	$	106,227		$	16,079
Supplemental cash flow disclosures:
Cash paid for interest	$	43		$	—
Supplemental disclosures of noncash activities:
Exchange of JDRF note and accrued interest for Series A redeemable convertible preferred shares	$	1,811		$	—
Deferred offering costs not yet paid	$	549		$	—
Purchase of property and equipment included in accounts payable	$	481		$	—

See accompanying notes to the condensed consolidated financial statements.

PANDION THERAPEUTICS HOLDCO LLC

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1.	description of business, organization and liquidity

Business

Pandion Therapeutics Holdco LLC is a clinical stage biopharmaceutical company developing novel therapeutics designed to address the unmet needs of patients suffering from autoimmune diseases. We have combined a network-based conceptualization of the immune system with expertise in advanced protein engineering to develop our TALON (Therapeutic Autoimmune reguLatOry proteiN) drug design and discovery platform.

As used in these financial statements, unless the context otherwise requires, references to the “company”, “we,” “us,” and “our” refer to Pandion Therapeutics Holdco LLC, its wholly owned subsidiaries Pandion Therapeutics, Inc. and Pandion Program Co 1, Inc., and Pandion Securities Corp., a subsidiary of Pandion Therapeutics, Inc.

Pandion Therapeutics, Inc. was incorporated on September 19, 2016 as a Delaware corporation. We began operations in January 2017. Our principal offices are located in Watertown, Massachusetts. On December 31, 2018, Pandion Therapeutics Holdco LLC was formed in the state of Delaware. On January 1, 2019, we completed a series of transactions in which Pandion Therapeutics, Inc. became a direct wholly owned subsidiary of Pandion Therapeutics Holdco LLC and all outstanding equity securities of Pandion Therapeutics, Inc. were canceled and converted on a one-for-one basis into equity securities of Pandion Therapeutics Holdco LLC, which we refer to as the Restructuring. In accordance with the terms of the LLC Operating Agreement, and on the effective date of the Restructuring;

•

each share of Pandion Therapeutics, Inc. common stock issued and outstanding immediately prior to the effective date of the Restructuring was converted into one common share of Pandion Therapeutics Holdco LLC;

•

each share of Pandion Therapeutics, Inc. Series A redeemable convertible preferred stock issued and outstanding immediately prior to the effective date of the Restructuring was converted into one Series A redeemable convertible preferred share of Pandion Therapeutics Holdco LLC;

•

all outstanding stock options to purchase shares of Pandion Therapeutics, Inc. common stock were cancelled and replaced with the same number of incentive shares in Pandion Therapeutics Holdco LLC;

•

each warrant issued by Pandion Therapeutics, Inc. that was outstanding immediately prior to the effective date of the Restructuring was cancelled and an equivalent number of incentive shares of Pandion Therapeutics Holdco LLC were issued; and

•

Pandion Therapeutics, Inc. became a wholly owned subsidiary of Pandion Therapeutics Holdco LLC.

We determined that the Restructuring lacked economic substance and was therefore accounted for in a manner consistent with a common control transaction. Similarly, as there was no change in fair value between shareholders, individually or as a class, we determined that the exchange of shares occurring in the Restructuring should be accounted for as a modification of the equity securities and presented as a reclassification of the components of equity.

Initial Public Offering and Corporate Conversion

As described in Note 14, in July 2020 we completed our initial public offering. In contemplation of the initial public offering, on July 10, 2020, our wholly owned subsidiary Pandion Therapeutics, Inc. changed its name to Pandion Operations, Inc. and we subsequently engaged in the following transactions, which we refer to collectively as the Conversion:

•

we converted from a Delaware limited liability company to a Delaware corporation by filing a certificate of conversion with the Secretary of State of the State of Delaware; and

•

we changed our name from Pandion Therapeutics Holdco LLC to Pandion Therapeutics, Inc.

As part of the Conversion:

•

holders of Series A preferred shares of Pandion Therapeutics Holdco LLC received one share of Series A preferred stock of Pandion Therapeutics, Inc. for each Series A preferred share held immediately prior to the Conversion;

•

holders of Series A prime preferred shares of Pandion Therapeutics Holdco LLC received one share of Series A prime preferred stock of Pandion Therapeutics, Inc. for each Series A prime preferred share held immediately prior to the Conversion;

PANDION THERAPEUTICS HOLDCO LLC

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

•

holders of Series B preferred shares of Pandion Therapeutics Holdco LLC received one share of Series B preferred stock of Pandion Therapeutics, Inc. for each Series B preferred share held immediately prior to the Conversion;

•

holders of common shares of Pandion Therapeutics Holdco LLC received one share of common stock of Pandion Therapeutics, Inc. for each common share held immediately prior to the Conversion;

•

holders of outstanding incentive shares in Pandion Therapeutics Holdco LLC, all of which were intended to constitute profits interests for U.S. federal income tax purposes, received a number of shares of common stock of Pandion Therapeutics, Inc. based upon a conversion price determined by our board of directors immediately prior to the Conversion. Of the shares of common stock issued in respect of incentive shares, 1,368,515 continue to be subject to vesting in accordance with the vesting schedule applicable to such incentive shares. Based on the determined fair value of $18.00 per common share, the incentive shares converted into an aggregate of 1,504,586 shares of our common stock, and we granted options to purchase an aggregate of 859,147 shares of our common stock.

Following the Conversion, Pandion Therapeutics, Inc. held all property and assets of Pandion Therapeutics Holdco LLC and assumed all of the debts and obligations of Pandion Therapeutics Holdco LLC. On the effective date of the Conversion, the members of the board of directors of Pandion Therapeutics Holdco LLC became the members of the board of directors of Pandion Therapeutics, Inc. and the officers of Pandion Therapeutics Holdco LLC became the officers of Pandion Therapeutics, Inc.

Liquidity

Since inception, we have devoted substantially all our efforts to business planning, research and development, recruiting management and technical staff, and raising capital and have financed our operations primarily through the issuance of redeemable convertible preferred shares, debt financings, a simple agreement for future equity, or SAFE, and a collaboration.

We are 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 and ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if our product development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales.

We have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the