# Dianthus Therapeutics, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Dianthus Therapeutics, Inc.](/companies/dnth.md) (CIK 1690585)
- Form: 10-Q
- Filed: 2023-05-15
- Accepted by EDGAR: May 15, 2023, 16:06 ET
- Period: 2023-03-31
- Accession: 0000950170-23-022192
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1690585/000095017023022192/mgta-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1690585/000095017023022192/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2023-01-01 to 2023-03-31 | $8.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$32.1m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$29.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 60,645,652 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$35.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $245.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $48.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $83.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $83.4m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $6.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $6.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-03-31 | $77.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,222 characters.

### Overview

Magenta Therapeutics, Inc. is a biotechnology company previously focused on improving stem cell transplantation. Our drug development pipeline included multiple clinical and preclinical product candidates that were designed to improve stem cell transplant. Our MGTA-117 product candidate was designed as an antibody drug conjugate, or ADC, to deplete CD117-expressing stem cells in the bone marrow in order to make room for subsequently transplanted stem cells or ex vivo gene therapy products. Our second targeted conditioning product candidate, MGTA-45 (formally known as CD45-ADC), was an ADC designed to selectively target and deplete both stem cells and immune cells and was intended to replace the use of chemotherapy-based conditioning prior to stem cell transplant in patients with blood cancers and autoimmune diseases. Lastly, our MGTA-145 product candidate, in combination with plerixafor, was designed to improve the stem cell mobilization process by which stem cells are mobilized out of the bone marrow and into the bloodstream to facilitate their collection for subsequent transplant back into the body.

In January 2023, we voluntarily paused dosing in our MGTA-117 Phase 1/2 clinical trial for MGTA-117 in patients with relapsed/refractory acute myeloid leukemia, or AML, and myelodysplastic syndromes, or MDS, after the last participant dosed in Cohort 3 in the clinical trial experienced a Grade 5 serious adverse event, or SAE, (respiratory failure and cardiac arrest resulting in death) deemed to be possibly related to MGTA-117. This safety event was reported to the FDA as the study’s third safety event which is of a type referred to as a “Suspected, Unexpected, Serious Adverse Reaction,” or SUSAR. The FDA subsequently placed the study on partial clinical hold in February 2023.

In February 2023, after a review of Magenta’s programs, resources and capabilities, including anticipated costs and timelines, we announced the decision to halt further development of our programs. Specifically, we discontinued the MGTA-117 Phase 1/2 clinical trial in patients with AML and MDS. We discontinued the MGTA-145 Phase 2 stem cell mobilization clinical trial in patients with sickle cell disease, or SCD. Lastly, we stopped incurring certain costs relating to MGTA-45, including manufacturing and costs relating to certain other activities that were intended to support an investigative new drug application, or IND, for MGTA-45 (previously named CD45-ADC). As a result of these decisions, we conducted a corporate restructuring that resulted in a reduction in our workforce by 84%.

Coinciding with the decisions related to our programs and across the portfolio, we announced that we intended to conduct a comprehensive review of strategic alternatives for us and our assets. As part of our strategic review process, we focused on potential strategic alternatives that include, without limitation, an acquisition, merger, business combination or other transaction, as well as strategic transactions regarding our product candidates and related assets, including, without limitation, licensing transactions and asset sales. In April 2023, we sold certain assets, including intellectual property, related to our product candidates MGTA-45, MGTA-145 and the CD117 antibodies including the clinical antibody that was used with MGTA-117, and we are continuing to explore strategic alternatives related to our other assets.

After a comprehensive review of strategic alternatives, including identifying and reviewing potential candidates for a strategic transaction, on May 2, 2023, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Dianthus Therapeutics, Inc., or Dianthus, pursuant to which our wholly-owned will merge with and into Dianthus, with Dianthus surviving as our wholly-owned subsidiary, referred to hereinafter as the Merger. The Merger was unanimously approved by our board of directors, and the board resolved to recommend approval of the Merger Agreement to our stockholders. The closing of the Merger is subject to approval by our and Dianthus’ stockholders, as well as other customary closing conditions, including the effectiveness of a registration statement filed with the SEC in connection with the transaction and Nasdaq’s approval of the listing of the shares of our common stock to be issued in connection with the transaction. If the Merger is completed, the business of Dianthus will continue as the business of the combined company.

Concurrently with the execution of the Merger Agreement, certain parties have entered into subscription agreements with Dianthus, pursuant to which they have agreed to purchase, immediately prior to the consummation of the Merger, shares of Dianthus common stock and pre-funded warrants for an aggregate purchase price of approximately $70.0 million. The consummation of the transactions contemplated by such agreements is conditioned on the satisfaction or waiver of the conditions set forth in the Merger Agreement and in the subscription agreement. The Merger and related financing are expected to close in the third quarter of 2023.

At or prior to the effective time of the Merger, we will enter into a Contingent Value Rights Agreement, or CVR Agreement, with a rights agent, or the Rights Agent, pursuant to which our pre-Merger common stockholders will receive one contingent value right, or CVR, for each outstanding share of our common stock held by such stockholder on such date. Each CVR will represent the contractual right to receive certain net proceeds, if any, derived from any consideration that is paid to us as a result of the disposition of our pre-Merger legacy assets by December 31, 2023, net of any indemnity obligations, transaction costs and certain other expenses, during the period that is three years after the closing of the Merger. The contingent payments under the CVR Agreement, if they become payable, will become payable to the Rights Agent for subsequent distribution to the holders of the CVRs subject to certain withholdings for expenses and potential indemnity claims. In the event that no such proceeds are received, holders of the CVRs will not receive any payment pursuant to the CVR Agreement. There can be no assurance that any holders of CVRs will receive any payments with respect thereto.

Our future operations are highly dependent on the success of the Merger and there can be no assurances that the Merger will be successfully consummated. There can be no assurance that the strategic review process or any transaction relating to a specific asset, including the Merger or any asset sale, will result in us pursuing such a transaction(s), or that any transaction(s), if pursued, will be completed on terms favorable to us and our stockholders in the existing entity or any possible entity that results from a combination of entities. If the strategic review process is unsuccessful, our board of directors may decide to pursue a dissolution and liquidation.

Since our inception in 2015 and until recently, we had focused substantially all of our efforts and financial resources on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying potential product candidates and undertaking preclinical studies and clinical trials, including MGTA-117, MGTA-45 and MGTA-145. We do not have any products approved for sale and have not generated any revenue from product sales.

Since our inception, we have incurred significant operating losses. Net losses were $29.2 million for the three months ended March 31, 2023 and $76.5 million for the year ended December 31, 2022. As of March 31, 2023, we had an accumulated deficit of $431.2 million.

We expect to continue to incur costs and expenditures in connection with the process of evaluating our strategic alternatives and the Merger. There can be no assurance, however, that we will be able to successfully consummate any particular strategic transaction, including the Merger. The process of continuing to evaluate strategic transactions and pursuing the Merger may be very costly, time-consuming and complex, and we have incurred, and may in the future incur, significant costs related to these processes, such as legal, accounting and advisory fees and expenses and other related charges. A considerable portion of these costs will be incurred regardless of whether any particular course of action is implemented or transaction is completed, including the Merger. Any such expenses will decrease the remaining cash available for use in our business. In addition, any strategic business combination or other transactions that we may consummate in the future, including the Merger, could have a variety of negative consequences and we may implement a course of action or consummate a transaction that yields unexpected results that adversely affects our business and decreases the remaining cash available for use in our business or the execution of our strategic plan. There can be no assurances that any particular course of action, business arrangement, transaction, including the Merger, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value or achieve the anticipated results. Any failure of such potential transaction to achieve the anticipated results could significantly impair our ability to enter into any future strategic transactions and may significantly diminish or delay any future distributions to our stockholders.

Should we resume development of product candidates, our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more product candidates. In addition, we will incur substantial research and developments costs and other expenditures to develop such product candidates, particularly as we:

- initiate and conduct preclinical studies and clinical trials of product candidates;
- develop any other future product candidates we may choose to pursue;
- seek marketing approval for product candidates that successfully complete clinical development, if any;
- maintain compliance with applicable regulatory requirements;
- develop and scale up our capabilities to support preclinical activities and clinical trials for product candidates and commercialization of product candidates for which we obtain marketing approval, if any;
- maintain, expand, protect and enforce our intellectual property portfolio;
- develop and expand our sales, marketing and distribution capabilities for product candidates for which we obtain marketing approval, if any; and
- expand our operational, financial and management systems and increase personnel, including to support our clinical development and commercialization efforts and our operations as a public company.

If we resume development of product candidates, we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for such product candidates. If we obtain regulatory approval for product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution. Further, we expect to incur additional costs associated with operating as a public company.

Should we resume development of product candidates, we will need substantial additional funding to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing and distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. Additionally, because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. Accordingly, if we fail to raise capital or enter into necessary strategic agreements, or fail to ever become profitable, we may have to significantly delay, scale back or discontinue the development and commercialization of product candidates, and we may also be forced to reduce or terminate our operations.

As of March 31, 2023, we had cash, cash equivalents and marketable securities of $78.2 million. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for the next 12 months from the issuance date of this Quarterly Report on Form 10-Q. See “– Liquidity and Capital Resources.”

### Impact of the COVID-19 Pandemic

The COVID-19 pandemic, including the emergence of various variants, has caused and could continue to cause significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets.

The future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations and financial condition will depend on future developments, which are uncertain and cannot be predicted with confidence. These developments may include, without limitation, changes in the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, including the adoption, administration and effectiveness of available vaccines, the effect of any restrictions within the Cambridge community or regions in which our partners are located and the direct and indirect economic effects of the pandemic and containment measures. See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.

### Components of Our Results of Operations

### Operating Expenses

#### Research and Development Expenses

Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts, and the development of our product candidates, which include:

- employee-related expenses, including salaries and related costs, and stock-based compensation expense, for employees engaged in research and development functions;
- expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with contract research organizations, or CROs;
- the cost of consultants and third-party contract development and manufacturing organizations, or CDMOs, that manufacture drug products for use in our preclinical studies and clinical trials;
- facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and supplies; and
- payments made under third-party licensing agreements.

We expense research and development costs to operations as incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to consultants, central laboratories, contractors, CDMOs and CROs in connection with our preclinical and clinical development activities. We do not allocate employee costs, costs associated with our platform technology or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.

Should we resume development of product candidates, the successful development and commercialization is highly uncertain. This is due to the numerous risks and uncertainties, including the following:

- successful completion of preclinical studies and clinical trials;
- receipt and related terms of marketing approvals from applicable regulatory authorities;
- raising additional funds necessary to complete clinical development of and commercialize product candidates;
- obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for product candidates;
- making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of product candidates;
- developing and implementing marketing and reimbursement strategies;
- establishing sales, marketing and distribution capabilities and launching commercial sales of products, if and when approved, whether alone or in collaboration with others;
- acceptance of products, if and when approved, by patients, the medical community and third-party payors;
- effectively competing with other therapies;
- obtaining and maintaining third-party coverage and adequate reimbursement;
- protecting and enforcing our rights in our intellectual property portfolio;
- maintaining a continued acceptable safety profile of the products following approval; and
- the impact of the COVID-19 pandemic on our industry, the healthcare system, and our current and future operations.

Should we resume development of product candidates, a change in the outcome of any of these variables with respect to the development of such product candidates would significantly change the costs and timing associated with their development. We may never succeed in obtaining regulatory approval for any product candidates.

Research and development activities have historically been central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to decrease in the near future as we halted the development of our product candidates while we explore strategic alternatives. Should we resume development of product candidates, we expect research and development costs to increase significantly for the foreseeable future as the product candidate development programs progress.

Inflation generally affected us by increasing our cost of labor and clinical trial costs. While we do not believe that inflation had a material effect on our financial condition and results of operations during the periods presented, it may result in increased costs in the foreseeable future.

#### General and Administrative Expenses

General and administrative expenses primarily consist of salaries and related costs, and stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs and insurance costs, as well as professional fees for legal, patent, consulting, pre-commercialization, accounting and audit services. We expect our general and administrative expenses to decrease in the near future due to our recent workforce reductions. We do expect to incur significant costs, however, related to our exploration of strategic alternatives and the Merger, including legal, accounting and advisory expenses and other related charges.

#### Restructuring and Other Charges

Restructuring and other charges consist primarily of costs incurred related to the corporate restructuring announced in February 2023, including severance and retention as well as lease termination, loss on disposal of property and equipment and impairment of assets held for sale.

### Interest and Other Income, Net

Interest and other income, net, consists of interest income and miscellaneous income and expense unrelated to our core operations.

### Results of Operations

### Comparison of the Three Months Ended March 31, 2023 and 2022

The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022:

*(in thousands)*

| Operating expenses: | Three Months Ended March 31, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Research and development | $7,995 | $16,547 | $(8,552) |
| General and administrative | 6,132 | 7,287 | (1,155) |
| Restructuring and other charges | 18,003 | — | 18,003 |
| Total operating expenses | 32,130 | 23,834 | 8,296 |
| Loss from operations | (32,130) | (23,834) | (8,296) |
| Interest and other income, net | 2,960 | 884 | 2,076 |
| Net loss | $(29,170) | $(22,950) | $(6,220) |

### Research and Development Expenses

*(in thousands)*

| Direct research and development expenses by program: | Three Months Ended March 31, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Conditioning | $3,378 | $6,436 | $(3,058) |
| Mobilization | 217 | 1,132 | (915) |
| Unallocated expenses: |  |  |  |
| Personnel-related (including stock-based compensation) | 2,004 | 5,888 | (3,884) |
| Consultant (including stock-based compensation) | 119 | 277 | (158) |
| Facility related and other | 2,277 | 2,814 | (537) |
| Total research and development expenses | $7,995 | $16,547 | $(8,552) |

Expenses related to our conditioning program decreased primarily due to a decrease of $1.8 million in costs related to MGTA-117 and a decrease of $1.5 million in costs related to MGTA-45. The decrease in costs related to MGTA-117 was primarily due to the discontinuance of the Phase 1/2 clinical trial in patients with R/R AML and MDS. The decrease in costs related to MGTA-45 was due to the decision to halt certain activities intended to support an IND, including manufacturing. The decrease in expenses in our mobilization program was primarily due to the discontinuance of the MGTA-145 Phase 2 clinical trial in patients with SCD.

The decrease in personnel-related costs was primarily due to a decrease in headcount in our research and development function as a result of the corporate restructuring that occurred in the three months ended March 31, 2023 and a decrease in stock-based compensation. Personnel-related costs for the three months ended March 31, 2023 and 2022 included stock-based compensation expense of less than $0.1 million and $0.5 million, respectively. The decrease in facility related and other costs was primarily due to lower research and lab supplies resulting from the halting of all research activities during the first quarter of 2023.

### General and Administrative Expenses

*(in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Personnel-related (including stock-based compensation) | $1,808 | $3,452 | $(1,644) |
| Professional and consultant | 2,445 | 1,612 | 833 |
| Facility related and other | 1,879 | 2,223 | (344) |
| Total general and administrative expenses | $6,132 | $7,287 | $(1,155) |

The decrease in personnel-related costs was due primarily to a decrease in stock-based compensation and a decrease in headcount in our general and administrative function as a result of the corporate restructuring announced in February 2023. Personnel-related costs for the three months ended March 31, 2023 and 2022 included stock-based compensation expense of $0.5 million and $1.4 million, respectively. The increase in professional and consultant costs was primarily due to higher legal and consultant costs in connection with our review of strategic alternatives and the licensing and sale of assets. The decrease in facility related and other costs was primarily due to lower recruitment fees.

### Restructuring and Other Charges

Restructuring and other charges for the three months ended March 31, 2023 consisted primarily of costs incurred related to the corporate restructuring announced in February 2023, including severance and retention of $6.3 million, lease termination of $8.1 million related to the termination of our Cambridge, Massachusetts lease, loss on disposal of property and equipment of $3.4 million, primarily related to leasehold improvements, and impairment of assets held for sale of $0.3 million related to the planned disposition of certain lab equipment.

### Interest and Other Income, Net

Interest income and other income, net for the three months ended March 31, 2023 consisted primarily of reimbursement of $1.1 million of expenses incurred under current vendor agreements during the exclusivity period prior to the sale of certain conditioning assets, interest income of $0.9 million and sublease income of $0.8 million. Interest income and other income, net for the three months ended March 31, 2022, consisted primarily of sublease income of $0.8 million and interest income of $0.1 million. The increase in interest income was due to higher interest rates.

### Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have not yet commercialized any product candidates, and, should we resume development of product candidates, we do not expect to generate revenue from sales of such product candidates for several years, if at all. Since our initial public offering in June 2018, we have funded our operations primarily with proceeds from the sale of our common stock in both private and public offerings.

We have a shelf registration statement on Form S-3, or the Shelf, on file with the SEC, which covers the offering, issuance and sale of up to an aggregate of $250.0 million of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We also entered into a sales agreement, as amended, with Cowen and Company, LLC, as sales agent to provide for the issuance and sale by us of up to $50.0 million of common stock from time to time in “at-the-market” offerings under the Shelf, or the ATM Program. The Shelf was declared effective by the SEC on August 12, 2022. To date, we have sold 1,644,200 shares of our common stock under the ATM Program at a weighted average price per share of $1.82 resulting in net proceeds of $2.8 million after commissions and offering costs. As of March 31, 2023, $247.0 million remained available under the Shelf, including up to $47.0 million available for sale under the ATM Program.

### Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

*(in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(35,599) | $(19,741) |
| Net cash provided by (used in) investing activities | 26,496 | (40,144) |
| Net cash provided by financing activities | — | — |
| Net decrease in cash, cash equivalents and restricted cash | $(9,103) | $(59,885) |

#### Operating Activities

During the three months ended March 31, 2023, operating activities used $35.6 million of cash, primarily resulting from our net loss of $29.2 million and net cash used by changes in our operating assets and liabilities of $19.5 million, partially offset by non-cash activities of $13.1 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2023 consisted primarily of a decrease of $15.6 million in operating lease liabilities and a decrease of $4.5 million in accounts payable and accrued expenses and other current liabilities, partially offset by a decrease of $0.6 million in prepaid expenses and other current assets. The decrease in operating lease liabilities was primarily due to a payment of $14.8 million in connection with the termination of our Cambridge, Massachusetts sublease in March 2023.

During the three months ended March 31, 2022, operating activities used $19.7 million of cash, primarily resulting from our net loss of $23.0 million, partially offset by non-cash charges of $3.2 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2022 was less than $0.1 million and consisted of a decrease of $0.7 million in operating lease liabilities partially offset by an increase of $0.5 million in accounts payable and accrued expenses and other current liabilities and a decrease of $0.1 million in prepaid expenses and other current assets.

Changes in accounts payable, accrued expenses and other current liabilities and prepaid expenses and other current assets in both periods were generally due to the timing of vendor invoicing and payments.

#### Investing Activities

During the three months ended March 31, 2023, net cash provided by investing activities was primarily attributable to net maturities of marketable securities of $25.2 million and proceeds from the sale of property and equipment of $1.5 million.

During the three months ended March 31, 2022, net cash used by investing activities was primarily attributable to purchases of marketable securities of $40.1 million.

#### Financing Activities

During the three months ended March 31, 2023 and 2022, there were no financing activities.

### Funding Requirements

We currently expect our expenses to decrease in 2023 compared to 2022 due to our decision to halt further development of product candidates and conduct workforce reductions while we explore strategic alternatives, including the Merger. If we decide to resume the development of product candidates, however, we expect our expenses to increase in order to advance preclinical activities and clinical trials for product candidates in development. As of March 31, 2023, we had cash, cash equivalents and marketable securities of $78.2 million. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for the next 12 months from the issuance date of this Quarterly Report on Form 10-Q. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. In addition, our resource requirements could materially change depending on the outcome of our ongoing strategic alternative review process and the Merger. Because our resource requirements could materially change depending on the outcome of our ongoing strategic alternative review process, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including those listed above.

Until such time, if ever, as we can generate substantial product revenue, and subject to our pursuit of a potential strategic transaction and the consummation of such potential transaction, we expect to finance our future operations through a combination of equity offerings, including sales under our ATM Program, debt financings, collaborations, strategic alliances, marketing and distribution arrangements, or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ 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 incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances, marketing and distribution arrangements, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we resume the development of product candidates and are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

### Nasdaq Delisting Notice

As previously disclosed, on January 31, 2023, we received a written notice from the staff of Nasdaq’s Listing Qualifications Department, notifying us that, for the 30 consecutive business day period between December 15, 2022 through January 30, 2023, the bid price for our common stock had closed below the $1.00 per share minimum bid price requirement for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5450(a)(1), or the Minimum Bid Price Requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days, or until July 31, 2023 to regain compliance with the Minimum Bid Price Requirement. If we fail to satisfy the continued listing requirements of Nasdaq, such as the Minimum Bid Price Requirement, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and may, among other things, adversely impact our ability to raise additional capital or enter into strategic transactions. See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.

### Contractual Obligations and Commitments

During the three months ended March 31, 2023, there were no material changes to our contractual obligations and commitments described in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC, except as described below.

#### Lease Obligations

In March 2023, we terminated our sublease for up to approximately 69,000 square feet of office and laboratory space in Cambridge, Massachusetts, resulting in a payment of $14.8 million and the assignment of our sub-sublease to our sublandlord.

#### License and Collaboration Agreements

In March 2018, we entered into a collaboration agreement with Heidelberg Pharma Research GmbH, or HDPR, whereby the parties agreed to combine our stem cell platform with proprietary antibodies across up to four exclusive targets with HDPR’s proprietary Antibody Targeted Amanitin Conjugates platform. Upon the exercise of certain license rights, we may have been obligated to pay HDPR development, regulatory and commercial milestone payments of up to $83.5 million per target as well as royalties on net sales of products licensed under the agreement. In April 2023, this collaboration agreement was terminated.

We had a license agreement with the President and Fellows of Harvard College, entered into in November 2016, for an exclusive, worldwide, royalty-bearing license for certain technologies related to conditioning and mobilization. We were obligated to pay milestone payments of up to $7.4 million for the first two licensed products upon the achievement of certain development and regulatory milestones and to pay royalties on a product-by-product and country-by-country basis on net sales of products licensed under the agreement. In April 2023, this agreement was amended and restated and a portion of the license agreement related to certain conditioning technology was assigned to a third party in connection with the sale of certain of our conditioning assets.

In November 2022, we entered into a license agreement with ImmunoGen, Inc. for an exclusive, worldwide, royalty-bearing license for certain technology related to one of our conditioning programs. Upon execution of the agreement, we made a nonrefundable payment of $4.4 million in partial consideration for the license. We were also obligated to pay milestone payments of up to $125 million in the aggregate upon the achievement of certain development, regulatory and sales-based milestones and to pay single-digit royalties on a product-by-product and country-by-country basis on net sales of products licensed under the agreement. In April 2023, this license agreement was assigned to a third party in connection with the sale of certain of our conditioning assets.

### Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

### Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that of our critical accounting policies described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2022, on file with the SEC, the following involve the most judgment and complexity:

- accrued research and development expenses; and
- stock-based compensation.

Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected.

## Market risk

As filed, 236 characters.

We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, for this reporting period and are not required to provide the information required under this item.

## Controls and procedures

As filed, 2,148 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Principal Executive Officer and Principal Financial and Accounting Officer (our President, Chief Financial and Operating Officer), has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable 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 as of March 31, 2023, our Principal Executive Officer and Principal Financial and Accounting Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 16,738 characters.

*In addition to risks and uncertainties in the ordinary course of business that are common to all businesses, important factors that are specific to our industry and company could have a material and adverse impact on our business, financial condition, results of operations and cash flows. You should carefully consider the risk factors set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and in our subsequent periodic filings with the Securities and Exchange Commission. Other than as reflected in the following updated risk factors, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.*

### Risks Related to the Merger

***The exchange ratio will not change or otherwise be adjusted based on the market price of our common stock as the exchange ratio depends on our net cash at the closing and not the market price of our common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.***

On May 2, 2023, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Dianthus Therapeutics, Inc., or Dianthus, pursuant to which a wholly-owned subsidiary of ours will merge with and into Dianthus, with Dianthus surviving as our wholly-owned subsidiary, referred to hereinafter as the “merger.” At the effective time described in the Merger Agreement, outstanding shares of Dianthus capital stock will be converted into shares of our common stock. Applying the exchange ratio, the former Dianthus securityholders immediately before the merger, including shares purchased in the Dianthus pre-closing financing, are expected to own approximately 78.7% of the aggregate number of shares of our common stock and our securityholders immediately before the merger are expected to own approximately 21.3% of the aggregate number of shares of our common stock, subject to certain assumptions, including, but not limited to, our net cash as of closing being between $59.5 million and $60.5 million. In the event our net cash is below $59.5 million, the exchange ratio will be adjusted such that the number of shares issued to Dianthus’ pre-closing securityholders will be increased, and our stockholders will own a smaller percentage of the combined company following the merger.

Any changes in the market price of our stock before the completion of the merger will not affect the number of shares Dianthus stockholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the merger, the market price of our common stock increases from the market price on the date of the Merger Agreement, then Dianthus stockholders could receive merger consideration with substantially more value for their shares of Dianthus capital stock than the parties had negotiated when they established the exchange ratio. Similarly, if before the completion of the merger the market price of our common stock declines from the market price on the date of the Merger Agreement, then Dianthus stockholders could receive merger consideration with substantially lower value. The Merger Agreement does not include a price-based termination right.

***Failure to complete the merger may result in paying a termination fee to Dianthus and could harm our common stock price and future business and operations.***

If the merger is not completed, we are subject to the following risks:

- if the Merger Agreement is terminated under specified circumstances, we could be required to pay Dianthus a termination fee of $13.3 million and/or up to $1.5 million in expense reimbursements;
- the price of our common stock may decline and could fluctuate significantly; and
- costs related to the merger, such as financial advisor, legal and accounting fees, a majority of which must be paid even if the merger is not completed.

If the Merger Agreement is terminated and the board of directors of Dianthus determines to seek another business combination, there can be no assurance that we will be able to find another third party to transact a business combination with, yielding comparable or greater benefits.

***If the conditions to the merger are not satisfied or waived, the merger may not occur.***

Even if the merger is approved by the stockholders of Dianthus, specified conditions must be satisfied or, to the extent permitted by applicable law, waived to complete the merger. These conditions are set forth in the Merger Agreement. We cannot assure you that all of the conditions to the consummation of the merger will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or the closing may be delayed.

***The merger may be completed even though a material adverse effect may result from the announcement of the merger, industry-wide changes or other causes.***

In general, neither we nor Dianthus is obligated to complete the merger if there is a material adverse effect affecting the other party between May 2, 2023, the date of the Merger Agreement, and the closing of the merger. However, certain types of causes are excluded from the concept of a “material adverse effect.” Such exclusions include but are not limited to changes in general economic or political conditions, industry wide changes, changes resulting from the announcement of the merger, natural disasters, pandemics (including the COVID-19 pandemic), other public health events and changes in U.S. generally accepted accounting principles. Therefore, if any of these events were to occur and adversely affect us or Dianthus, the other party would still be obliged to consummate the closing of the merger notwithstanding such material adverse effect. If any such adverse effects occur and we consummate the closing of the merger, the stock price of the combined company may suffer. This in turn may reduce the value of the merger to the stockholders of Magenta, Dianthus or both.

***If we complete the merger, the combined company will need to raise additional capital by issuing equity securities or additional debt or through licensing arrangements, which may cause significant dilution to the combined company’s stockholders or restrict the combined company’s operations.***

On May 2, 2023, Dianthus entered into subscription agreements with certain investors, including existing investors of Dianthus, pursuant to which the investors agreed to purchase, in the aggregate, $70.0 million in shares of common stock and pre-funded warrants of Dianthus immediately prior to the closing of the merger, referred to as the Dianthus pre-closing financing. The closing of the Dianthus pre-closing financing is conditioned upon the satisfaction or waiver of the conditions to the closing of the merger as well as certain other conditions. The shares of Dianthus common stock and pre-funded warrants issued in the Dianthus pre-closing financing will result in dilution to all securityholders of the combined company (i.e., both our pre-merger securityholders and former Dianthus securityholders).

Additional financing may not be available to the combined company when it is needed or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such financing will cause additional dilution to all securityholders of the combined company, including our pre-merger securityholders and Dianthus’ former securityholders. It is also possible that the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing arrangements, it may be necessary to grant licenses on terms that are not favorable to the combined company.

***Some of our directors and executive officers have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests.***

Our directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of other of our stockholders generally. These interests with respect to our directors and executive officers may include, among others, acceleration of stock option or restricted stock unit vesting, retention bonus payments, extension of exercisability periods of previously issued stock option grants, severance payments if employment is terminated in a qualifying termination in connection with the merger and rights to continued indemnification, expense advancement and insurance coverage. two members of the Company’s board of directors will continue as directors of the combined company after the effective time, and, following the closing of the merger, will be eligible to be compensated as non-employee directors of the combined company.

In addition, certain of our directors are affiliated with investment funds which hold an interest in the other party and are participating in the Dianthus pre-closing financing. Further, certain current members of Dianthus’ board of directors will continue as directors of the combined company after the effective time, and, following the closing of the merger, will be eligible to be compensated as non-employee directors of the combined company pursuant to our non-employee director compensation policy that is expected to remain in place following the effective time.

Our board of directors was aware of and considered those interests, among other matters, in reaching their decisions to approve and adopt the Merger Agreement, approve the merger, and recommend the approval of the Merger Agreement to our and Dianthus stockholders. These interests, among other factors, may have influenced the directors and executive officers of each company to support or approve the merger.

***Our stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger, including the conversion of Dianthus common stock issued in the Dianthus pre-closing financing.***

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the merger, our stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the merger.

### If the merger is not completed, our stock price may decline significantly.

The market price of our common stock is subject to significant fluctuations. Market prices for securities of pharmaceutical, biotechnology and other life science companies have historically been particularly volatile. In addition, the market price of our common stock will likely be volatile based on whether stockholders and other investors believe that we can complete the merger or otherwise raise additional capital to support our operations if the merger is not consummated and another strategic transaction cannot be identified, negotiated and consummated in a timely manner, if at all. The volatility of the market price of our common stock has been and may be exacerbated by low trading volume. Additional factors that may cause the market price of our common stock to fluctuate include:

- the entry into, or termination of, key agreements, including commercial partner agreements;
- announcements by commercial partners or competitors of new commercial products, clinical progress or lack thereof, significant contracts, commercial relationships or capital commitments;
- the loss of key employees;
- future sales of its common stock;
- general and industry-specific economic conditions that may affect its research and development expenditures;
- the failure to meet industry analyst expectations; and
- period-to-period fluctuations in financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against such companies.

***Our securityholders will generally have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the completion of the merger as compared to their current ownership and voting interests in the respective companies.***

After the completion of the merger, our current stockholders will generally own a smaller percentage of the combined company than their ownership of our company prior to the merger. Immediately after the merger, our stockholders as of immediately prior to the merger are expected to own approximately 21.3% of the outstanding shares of the combined company, former Dianthus securityholders, including shares purchased in the Dianthus pre-closing financing, are expected to own approximately 78.7% of the outstanding shares of the combined company, subject to certain assumptions, including, but not limited to, Magenta’s net cash as of closing being between $59.5 million and $60.5 million. The Chief Executive Officer of Dianthus will serve as the Chief Executive Officer of the combined company following the completion of the merger.

***During the pendency of the merger, we may not be able to enter into a business combination with another party on more favorable terms because of restrictions in the Merger Agreement, which could adversely affect their respective business prospects.***

Covenants in the Merger Agreement impede our ability to make acquisitions during the pendency of the merger, subject to specified exceptions. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, seeking, initiating or knowingly encouraging, inducing or facilitating the communication, making, submission or announcement of any acquisition proposal or acquisition inquiry or taking any action that could reasonably be expected to lead to certain transactions involving a third party, including a merger, sale of assets or other business combination, subject to specified exceptions. Any such transactions could be favorable to such party’s stockholders, but the parties may be unable to pursue them.

***Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the transactions contemplated by the Merger Agreement.***

The terms of the Merger Agreement prohibit us from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances. In addition, if we terminate the Merger Agreement under specified circumstances, we could be required to pay Dianthus a termination fee of $13.3 million, plus up to $1.5 million in expense reimbursements. This termination fee may discourage third parties from submitting competing proposals to us or our respective stockholders, and may cause our board of directors to be less inclined to recommend a competing proposal.

### The tax treatment of the CVRs is uncertain.

We intend to treat the issuance of contingent value rights, or the CVRs, to the persons who prior to completion of the merger were our stockholders as a distribution of property with respect to our common stock. However, the U.S. federal income tax treatment of the CVRs is uncertain. There is no legal authority directly addressing the U.S. federal income tax treatment of contingent value rights with characteristics similar to the CVRs. Therefore, it is possible that the issuance of the CVRs may be treated as a distribution of equity with respect to our stock, as an “open transaction,” or as a “debt instrument” for U.S. federal income tax purposes, and such questions are inherently factual in nature.

Filed May 15, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-022192. Last ingested by Listed: Nov 4, 2026, 16:45 ET. No prices; not investment advice.