siox-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2021

☐ 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 001-37418

Sio Gene Therapies Inc.

(Exact name of registrant as specified in its charter)


Delaware						85-3863315
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

130 West 42nd St., 26th Floor, New York, NY						10036
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (877) 746-4891

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each Class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.00001 per share

SIOX

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

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 o

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 o

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. (Check one):


Large accelerated filer			☐			Accelerated filer			☐


Non-accelerated filer			☒			Smaller reporting company			☒


						Emerging growth company			☐

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

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

The number of shares outstanding of the Registrant’s common stock, $0.00001 par value per share, on August 10, 2021, was 72,941,507.

SIO GENE THERAPIES INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2021

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of Jun e 3 0 , 202 1 and March 31, 202 1			5
Condensed Consolidated Statements of Operations for the Thre e Months Ended June 3 0 , 202 1 and 20 20			6
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended Jun e 3 0 , 202 1 and 20 20			7
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended June 3 0 , 202 1 and 20 20			8
Condensed Consolidated Statements of Cash Flows for the Thre e Months Ended Jun e 3 0 , 202 1 and 20 20			9
Notes to Condensed Consolidated Financial Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			85
Item 3. Defaults Upon Senior Securities			85
Item 4. Mine Safety Disclosures			85
Item 5. Other Information			85
Item 6. Exhibits			86

SIGNATURES			87

Summary of the Material Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:

•Our business, operations and clinical development plans and timelines could continue to be adversely impacted by the effects of health epidemics, including the recent COVID-19 pandemic, on the manufacturing, clinical trial and other business activities performed by us or by third parties with whom we conduct business, including our contract manufacturers, contract research organizations, or CROs, shippers and others.

•We have a limited operating history and have never generated any product revenues.

•We are heavily dependent on the success of our gene therapy product candidates, which are still in early stages of clinical development. If we are unable to successfully develop and commercialize any of our product candidates, our business will be harmed.

•We may be required to continue to make significant payments to third parties under the agreements pursuant to which we acquired our gene therapy product candidates.

•Gene therapies are novel, complex, difficult and expensive to manufacture. We do not have our own manufacturing capabilities and will rely on third parties to produce clinical and commercial supplies of our product candidates. Delays in manufacturing processes, including recently at Oxford, may result in delays in our planned clinical trials that would otherwise harm our business and prospects.

•Our business plan may lead to the initiation of one or more gene therapy development programs, the discontinuation of one or more development programs, or the execution of one or more transactions that you do not agree with or that you do not perceive as favorable to your investment.

•Clinical trials are expensive, time-consuming, difficult to design and implement and involve an uncertain outcome.

•If we are not able to obtain required regulatory approvals, we will not be able to commercialize our gene therapy product candidates, and our ability to generate revenue will be materially impaired.

•The intended tax effects of our corporate structure prior to and following the Domestication (as defined below) and our corporate reorganization to align our corporate structure with current and future business activity (the "Reorganization"), and intercompany arrangements prior to the Domestication and Reorganization, depend on the application of the tax laws of various jurisdictions and on how we operate our business.

•We expect to incur significant losses for the foreseeable future and may never achieve or maintain profitability.

•We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of our product candidates.

•Interim "top-line" and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

•Our gene therapy product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

•Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control.

•If we are unable to establish sales, marketing and distribution capabilities either on our own or in collaboration with third parties, we may not be successful in commercializing our product candidates, even if approved.

•If the market opportunities for any product candidates we may develop are smaller than we believe they are, our revenues, if any, may be adversely affected, and our business may suffer. Because the target patient populations for many of the product candidates we may develop are small, we must be able to successfully identify patients and achieve a significant market share to achieve and maintain profitability and growth.

•We face significant competition from other biotechnology and pharmaceutical companies, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer or more advanced or effective than ours and our operating results will suffer if we fail to compete effectively.

•We may not be able to protect our intellectual property rights throughout the world, which could impair our business.

•Third-party claims or litigation alleging infringement of patents or other proprietary rights or seeking to invalidate patents or other proprietary rights may delay or prevent the development and commercialization of our product candidates.

•The market price of our common stock has been and is likely to continue to be highly volatile, and you may lose some or all of your investment.

The summary risk factors described above should be read together with the text of the full risk factors below, in the section titled “Risk Factors” in Part II, Item 1A. and the other information set forth in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial, may also harm our business, financial condition, results of operations and future growth prospects.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SIO GENE THERAPIES INC.

Condensed Consolidated Balance Sheets

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


	June 30, 2021		March 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	110,976	$	118,986
Receivable from sale of long-term investment	—		4,343
Prepaid expenses and other current assets	6,276		7,348
Income tax receivable	1,681		1,656
Total current assets	118,933		132,333
Long-term restricted cash	1,184		1,184
Operating lease right-of-use assets	1,103		1,152
Property and equipment, net	595		478
Total assets	$	121,815	$	135,147
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	937	$	1,341
Accrued expenses	6,389		9,196
Current portion of operating lease liabilities	269		311
Total current liabilities	7,595		10,848
Operating lease liabilities, net of current portion	921		932
Total liabilities	8,516		11,780
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, par value $0.00001 per share, 1,000,000,000 shares authorized, 69,639,509 and 69,377,567 issued and outstanding at June 30, 2021 and March 31, 2021, respectively	1		1
Additional paid-in capital	915,900		914,100
Accumulated deficit	(802,939)		(791,069)
Accumulated other comprehensive income	337		335
Total stockholders’ equity	113,299		123,367
Total liabilities and stockholders’ equity	$	121,815	$	135,147

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

SIO GENE THERAPIES INC.

Condensed Consolidated Statements of Operations

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


	Three Months Ended June 30,
	2021		2020
Operating expenses:
Research and development expenses
(includes stock-based compensation expense of $432 and $563 for the three months ended June 30, 2021 and 2020, respectively)	$	8,058	$	5,194
General and administrative expenses
(includes stock-based compensation expense of $889 and $1,027 for the three months ended June 30, 2021 and 2020, respectively)	3,859		4,640
Total operating expenses	11,917		9,834
Other (income) expenses:
Interest expense	1		796
Other income	(20)		(2,066)
Loss before income tax (benefit) expense	(11,898)		(8,564)
Income tax (benefit) expense	(28)		30
Net loss	$	(11,870)	$	(8,594)
Net loss per share of common stock — basic and diluted	$	(0.16)	$	(0.20)
Weighted-average shares of common stock outstanding — basic and diluted	72,861,870		43,287,222

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

SIO GENE THERAPIES INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited, in thousands)


	Three Months Ended June 30,
	2021		2020
Net loss	$	(11,870)	$	(8,594)
Other comprehensive income:
Foreign currency translation adjustment	2		44
Total other comprehensive income	2		44
Comprehensive loss	$	(11,868)	$	(8,550)

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

SIO GENE THERAPIES INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands, except share amounts)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity

	Shares	Amount
Balance at March 31, 2020	39,526,299	$	—	$	820,257	$	(758,644)	$	(55)	$	61,558
Shares issued upon settlement of restricted stock units	53,653	—		—		—		—		—
Shares sold in connection with at-the-market offering, net of brokerage fees and offering expenses of $0.5 million	1,393,428	—		3,930		—		—		3,930
Stock-based compensation expense	—	—		1,590		—		—		1,590
Capital contribution received from affiliate	—	—		53		—		—		53
Foreign currency translation adjustment	—	—		—		—		44		44
Net loss	—	—		—		(8,594)		—		(8,594)
Balance at June 30, 2020	40,973,380	$	—	$	825,830	$	(767,238)	$	(11)	$	58,581


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity

	Shares	Amount
Balance at March 31, 2021	69,377,567	$	1	$	914,100	$	(791,069)	$	335	$	123,367
Shares issued upon settlement of restricted stock units	82,542	—		—		—		—		—
Shares sold in connection with at-the-market offering, net of brokerage fees and offering expenses of $0.0 million	179,400	—		479		—		—		479
Stock-based compensation expense	—	—		1,321		—		—		1,321
Foreign currency translation adjustment	—	—		—		—		2		2
Net loss	—	—		—		(11,870)		—		(11,870)
Balance at June 30, 2021	69,639,509	$	1	$	915,900	$	(802,939)	$	337	$	113,299

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

SIO GENE THERAPIES INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	Three Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(11,870)	$	(8,594)
Adjustments to reconcile net loss to net cash used in operating activities:
Unrealized foreign currency translation adjustment	2		44
Amortization of operating lease right-of-use assets	49		427
Stock-based compensation expense	1,321		1,590
Depreciation and non-cash amortization	61		492
Gain on long-term investment	—		(2,184)
Change in operating lease liabilities	(53)		(432)
Other	2		3
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	1,072		(1,027)
Income tax receivable	(25)		(10)
Accounts payable	(404)		(1,442)
Accrued expenses	(2,807)		(2,370)
Net cash used in operating activities	(12,652)		(13,503)
Cash flows from investing activities:
Cash proceeds from sale of long-term investment	4,343		—
Purchases of property and equipment	(180)		(19)
Net cash provided by (used in) investing activities	4,163		(19)
Cash flows from financing activities:
Payments on long-term debt	—		(15,731)
Capital contributions received from affiliate	—		53
Cash proceeds from issuance of shares of common stock, net of issuance costs	479		3,930
Net cash provided by (used in) financing activities	479		(11,748)
Net change in cash and cash equivalents and long-term restricted cash	(8,010)		(25,270)
Total cash and cash equivalents and long-term restricted cash—beginning of period	120,170		80,752
Total cash and cash equivalents and long-term restricted cash—end of period	$	112,160	$	55,482
Cash and cash equivalents —beginning of period	118,986		80,752
Restricted cash included in long-term assets—beginning of period	1,184		—
Total cash and cash equivalents and long-term restricted cash—beginning of period	$	120,170	$	80,752
Cash and cash equivalents—end of period	110,976		55,482
Restricted cash included in long-term assets—end of period	1,184		—
Total cash and cash equivalents and long-term restricted cash—end of period	$	112,160	$	55,482

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

SIO GENE THERAPIES INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1—Description of Business

Sio Gene Therapies Inc. ("Sio"), together with its wholly owned subsidiaries (the "Company"), is a clinical-stage company focused on developing gene therapies for neurodegenerative diseases. The Company is developing a pipeline of innovative product candidates for the treatment of these debilitating diseases, including GM1 gangliosidosis, GM2 gangliosidosis (including Tay-Sachs and Sandhoff diseases) and Parkinson's disease. The Company is dedicated to realizing the potential of gene therapies to offer transformative patient outcomes in areas of high unmet medical need.

Sio is a Delaware corporation, which was originally an exempted limited company incorporated under the laws of Bermuda in October 2014 and was named Axovant Gene Therapies Ltd. ("AGT") from March 2019 until November 2020. During November 2020, the Company completed a corporate transformation, changing its jurisdiction of incorporation from Bermuda to the State of Delaware, changing its name to Sio Gene Therapies Inc., and changing its ticker symbol on The Nasdaq Global Select Market (“Nasdaq”) to “SIOX” (collectively, these events comprise the “Domestication”). The Company continues to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and applicable rules of Nasdaq.

Since its initial public offering in 2015, the Company has devoted substantially all of its efforts to raising capital, acquiring product candidates and advancing its product candidates into clinical development. The Company has determined that it has one operating and reporting segment as it allocates resources and assesses financial performance on a consolidated basis. The Company does not expect to generate revenue unless and until it successfully completes development and obtains regulatory approval for one of its product candidates.

Note 2—Summary of Significant Accounting Policies

(A) Basis of Presentation:

The Company’s fiscal year ends on March 31, and its fiscal quarters end on June 30, September 30 and December 31.

These unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (the "Annual Report"), filed with the SEC on June 9, 2021. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the financial position of the Company and its results of operations and cash flows for the periods presented have been included. Operating results for the three months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending March 31, 2022, for any other interim period, or for any other future year.

Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification ("ASC"), and as amended by Accounting Standards Updates ("ASU"), issued by the Financial Accounting Standards Board ("FASB"). These unaudited condensed consolidated financial statements and accompanying notes include the accounts of the Company and its wholly owned subsidiaries. The Company has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period balances have been reclassified to conform to the current period presentation.

During November 2020, the historical financial statements and subsidiaries of AGT became the historical financial statements and subsidiaries of Sio upon consummation of the Domestication. As a result, these unaudited condensed consolidated financial statements and accompanying notes reflect (i) the historical operating results of AGT and its subsidiaries prior to the Domestication; (ii) the operating results of the Company following the Domestication; and (iii) the Company’s equity structure for all periods presented.

There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report.

(B) Going Concern and Management's Plans:

The Company assesses and determines its ability to continue as a going concern in accordance with the provisions of ASC Subtopic 205-40, "Presentation of Financial Statements—Going Concern" ("ASC Subtopic 205-40"), which requires the Company to evaluate whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date that its annual and interim consolidated financial statements are issued. Certain additional financial statement disclosures are required if such conditions or events are identified. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting. Determining the extent, if any, to which conditions or events raise substantial doubt about the Company’s ability to continue as a going concern, or the extent to which mitigating plans sufficiently alleviate any such substantial doubt, as well as whether or not liquidation is imminent, requires judgment by management. The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued.

The Company is currently a development stage company, and thus, has not yet achieved profitability. The Company expects to continue to incur significant operating and net losses, as well as negative cash flows from operations, for the foreseeable future as it continues to develop its gene therapy product candidates and prepares for potential future regulatory approvals and commercialization of its products. The Company has not generated any revenue to date and does not expect to generate product revenue unless and until it successfully completes development and obtains regulatory approval for at least one of its gene therapy product candidates. The Company's current cash and cash equivalents balance will also not be sufficient to complete all necessary development activities and commercially launch its products.

For the three months ended June 30, 2021 and the fiscal year ended March 31, 2021, the Company incurred net losses of $11.9 million and $32.4 million, respectively. As of June 30, 2021, the Company’s cash and cash equivalents totaled $111.0 million and its accumulated deficit was $802.9 million. The Company estimates that its current cash and cash equivalents balance is sufficient to support operations beyond the twelve month period following the date that these unaudited condensed consolidated financial statements were issued, including beyond the expected dates of major upcoming milestones for the Company's AXO-AAV-GM1 gene therapy program for the treatment of GM1 gangliosidosis. As such, the Company does not have substantial doubt about its ability to continue as a going concern for the one-year period following the date that these unaudited condensed consolidated financial statements and footnotes were issued. These estimates are based on assumptions that may prove to be wrong, and the Company could use its available capital resources sooner than it currently expects.

In order to meet the Company's long-term operating requirements, the Company will need, among other things, additional capital resources. The Company continually assesses multiple options to obtain additional funding to support its operations, including proceeds from offerings of its equity securities or debt, or transactions involving product development, technology licensing or collaboration arrangements, or other sources of capital to complete its currently planned development programs. Management can provide no assurances that it can raise a sufficient amount of financing for the Company on favorable terms, if at all.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to certain assets and liabilities, including its research and development accruals, as well as assumptions used to estimate the fair value of its stock option awards, estimate its income tax expense and estimate its ability to continue as a going concern. Specifically, the Company’s assessment of the completeness of the information for research and development accruals is subject to variability and uncertainty. In addition, in certain circumstances, the determination of the nature and amount of research and development services that have been received during the reporting period requires judgment as the timing and pattern of vendor invoicing does not correspond to the level of services provided. The Company estimates the grant date fair value of stock option awards with only time-based vesting requirements using a Black-Scholes valuation model and uses a Monte Carlo Simulation method under the income approach to estimate the grant date fair value of stock option awards with market-based performance conditions. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Additionally, the Company assessed the impact that the COVID-19 pandemic has had on its operations and financial results as of June 30, 2021 and through the date of issuance of these unaudited condensed consolidated financial statements. The Company’s analysis was informed by the facts and circumstances as they were known to the Company. This assessment considered the impact COVID-19 may have on financial estimates and assumptions that affect the reported amounts of assets and liabilities and expenses.

(D) Net Loss per Share of Common Stock:

Basic net loss per share of common stock is computed by dividing the net loss applicable to shareholders of common stock by the weighted-average number of shares of common stock and 3,301,998 pre-funded warrants (see Note 7(B) and Note 10) outstanding during the period, without further consideration for potentially dilutive securities. In accordance with ASC Topic 260, Earnings Per Share, the pre-funded warrants are included in the computation of basic net loss per share because the exercise price is negligible and they are fully vested and exercisable at any time after the original issuance date. Diluted net loss per share of common stock is computed by dividing the net loss applicable to shareholders of common stock by the diluted weighted-average number of shares of common stock outstanding during the period calculated in accordance with the treasury stock method. In periods in which the Company reports a net loss, all common stock equivalents are deemed anti-dilutive such that basic net loss per share of common stock and diluted net loss per share of common stock are equivalent. Potentially dilutive shares of common stock have been excluded from the diluted net loss per share of common stock computations in all periods presented because such securities have an anti-dilutive effect on net loss per share of common stock due to the Company’s net loss. Restricted Stock Units ("RSUs") and stock options outstanding for a total of 5.6 million and 3.2 million shares of common stock were not included in the calculation of diluted weighted-average shares of common stock outstanding for the three months ended June 30, 2021 and June 30, 2020, respectively, because they were anti-dilutive given the net loss of the Company.

(E) Financial Instruments and Fair Value Measurement:

The Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments.

The guidance establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

Fair value is defined as the exchange price, or exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a three-tier fair value hierarchy that distinguishes among the following:

•Level 1-Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

•Level 2-Valuations are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

•Level 3-Valuations are based on inputs that are unobservable (supported by little or no market activity) and significant to the overall fair value measurement.

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s financial instruments include cash and cash equivalents and long-term restricted cash. Cash consists of non-interest-bearing deposits denominated in the U.S. dollar, Swiss franc and Euro, while cash equivalents consists of interest-bearing money market fund deposits denominated in the U.S. dollar, which are invested in debt securities issued or guaranteed by the U.S. government and repurchase agreements fully collateralized by U.S. Treasury and U.S. government securities. Cash is stated at its historical carrying amount, which approximates fair value due to its short-term nature. Long-term restricted cash is stated at its historical carrying amount, which approximates fair value. The carrying values of the Company's money market fund included in cash and cash equivalents of $107.0 million and $114.0 million at June 30, 2021 and March 31, 2021, respectively, approximated their fair values, which are based on quoted prices in active markets for identical securities.

The following table summarizes the fair value of the Company's money market fund included in cash equivalents based on the inputs used at June 30, 2021 and March 31, 2021 in determining such values (in thousands):


	As of June 30, 2021								As of March 31, 2021
	Fair Value		Price Quotations (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Price Quotations (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market fund	$	107,000	$	107,000	$	—	$	—	$	114,000	$	114,000	$	—	$	—

(F) Recent Accounting Pronouncements:

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU No. 2016-13"). ASU 2016-13 requires that financial assets measured at amortized cost, such as loans, accounts and trade receivables and investments, be represented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial asset. ASU No. 2016-13 requires enhanced disclosures related to trade receivables and associated credit losses. In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief", which allows for a transition election on certain instruments and is effective for Small Reporting Companies for fiscal years beginning after December 15, 2022 and interim periods in those fiscal years. In November 2019, the FASB issued ASU No. 2019-11, "Codification Improvements to Topic 326, Financial Instruments — Credit Losses", which amends certain aspects of ASU NO. 2016-13, including transition relief for trouble debt restructuring, among other topics. While the Company does not expect the adoption of this guidance to materially impact the Company's consolidated financial statements and related disclosures because it does not currently have any investments or trade receivables outstanding, the impact on the Company's consolidated financial statements and disclosures will depend on the facts and circumstances of any specific future transactions.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial position, results of operations or cash flows.

Note 3—License and Collaboration Agreements

(A) The University of Massachusetts Medical School Exclusive License Agreement:

In December 2018, the Company entered into an exclusive license agreement (the "UMMS Agreement") with the University of Massachusetts Medical School ("UMMS"), pursuant to which the Company received a worldwide, royalty-bearing, sub-licensable license under certain patent applications and any patents issuing therefrom, biological materials and know-how controlled by UMMS to develop and commercialize gene therapy product candidates, including AXO-AAV-GM1 and AXO-AAV-GM2, for the treatment of GM1 gangliosidosis and GM2 gangliosidosis (including Tay-Sachs disease and Sandhoff disease), respectively. The Company incurred a total of $3.4 million and $0.4 million of program-specific costs related to its AXO-AAV-GM1 and AXO-AAV-GM2 programs within research and development expenses in its unaudited condensed consolidated statements of operations during the three months ended June 30, 2021 and June 30, 2020, respectively. The Company paid a total of $1.6 million and zero to UMMS during the three months ended June 30, 2021 and June 30, 2020, respectively.

(B) Oxford Biomedica License Agreement:

In June 2018, the Company entered into an exclusive license agreement ("the Oxford Agreement") with Oxford Biomedica (UK) Ltd. ("Oxford"), pursuant to which the Company received a worldwide, exclusive, royalty-bearing, sub-licensable license under certain patents and other intellectual property controlled by Oxford to develop and commercialize AXO-Lenti-PD and related gene therapy products for all diseases and conditions. The Company incurred $0.6 million and $1.7 million of AXO-Lenti-PD program-specific costs within research and development expenses in its unaudited condensed consolidated statement of operations during the three months ended June 30, 2021 and June 30, 2020, respectively. The Company paid Oxford a total of $22 thousand and $0.5 million during the three months ended June 30, 2021 and June 30, 2020, respectively.

Note 4—Investment in Arvelle Therapeutics B.V.

In February 2021, the Company sold its investment of 8.1 million shares of nonredeemable preferred stock (the "Arvelle Shares") of Arvelle Therapeutics B.V. ("Arvelle") to a third party as part of that third party's cash acquisition of all of the outstanding equity of Arvelle. In exchange, the Company received an upfront payment of approximately $11.6 million, in addition to a future payment to be received of approximately $1.2 million that is being held in escrow until August 2022 and that was recorded to long-term restricted cash in the Company's unaudited condensed consolidated balance sheet at June 30, 2021, as well as the right to receive up to an additional total of $7.0 million in potential future regulatory and sales milestone payments (collectively, the "Arvelle Sale"). The Company originally purchased its Arvelle Shares in February 2019 and May 2020 in exchange for €0.00001 per share paid in cash, as well as certain goods and services provided by the Company to Arvelle. The Company recorded a net gain of approximately $4.7 million to other non-operating income in the Company's consolidated statement of operations upon the closing of the Arvelle Sale in February 2021, as well as a gain of approximately $4.3 million recorded to other non-operating income in the Company's consolidated statement of operations and to receivable from sale of long-term investment in its consolidated balance sheet upon the achievement of a regulatory milestone in March 2021 that was collected during the three months ended June 30, 2021.

Note 5—Accrued Expenses

As of June 30, 2021, and March 31, 2021, accrued expenses consisted of the following (in thousands):


	June 30, 2021		March 31, 2021
Research and development expenses	$	4,336	$	6,091
Bonuses and other compensation expenses	1,253		2,331
Other expenses	800		774
Total accrued expenses	$	6,389	$	9,196

Note 6—Long-term Debt

In April 2020, the Company fully prepaid $15.7 million of outstanding principal, together with $0.3 million of accrued interest, fees and other amounts, due under its loan and security agreement (the "Loan Agreement") with Hercules Capital, Inc. ("Hercules"), which was accounted for as an extinguishment of debt with a corresponding loss of approximately $0.5 million recorded to interest expense during the three months ended June 30, 2020. In connection with the prepayment, the credit facility and the Loan Agreement with Hercules were terminated, and all obligations, liens and security interests under the Loan Agreement were released, discharged and satisfied.

Note 7—Stockholders' Equity

(A) Overview:

Sio's Certificate of Incorporation filed with the State of Delaware on November 12, 2020 authorizes the issuance of up to a total of 1,010,000,000 shares, of which 1,000,000,000 shares are common stock with a par value of $0.00001 per share and 10,000,000 shares are preferred stock with a par value of $0.00001 per share (see Note 1).

(B) Transactions:

In February 2020, as part of a follow-on public offering, the Company issued and sold pre-funded warrants to purchase up to 3,301,998 shares of common stock at an offering price of $3.74999 and an exercise price of $0.00001 per pre-funded warrant, which were fully exercised in July 2021 (see Note 10). The pre-funded warrants did not expire and were immediately exercisable except that the pre-funded warrants could not be exercised by the holder if, after giving effect thereto, the holder would have beneficially owned more than 9.99% of the Company’s common stock, subject to certain exceptions. The pre-funded warrants were classified as equity in accordance with ASC 480, "Distinguishing Liabilities from Equity", and the fair value of the pre-funded warrants was recorded as a credit to additional paid-in capital and was not subject to remeasurement.

The Company has engaged SVB Leerink LLC as its agent to sell shares of the Company's common stock from time to time through an at-the-market equity offering program. SVB Leerink LLC receives compensation for its services in an amount equal to

SEC Form 10-Q filed by Sio Gene Therapies Inc.