The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Business
REGENXBIO Inc. (the Company) is a leading clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. The Company’s proprietary adeno-associated virus (AAV) gene delivery platform (NAV Technology Platform) consists of exclusive rights to over 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10. The Company’s NAV® Technology Platform is being applied by the Company, as well as by third-party licensees (NAV Technology Licensees), in the development of product candidates for a variety of diseases with unmet needs. The Company was formed in 2008 in the State of Delaware and is headquartered in Rockville, Maryland.
Liquidity and Risks
As of March 31, 2019, the Company had generated an accumulated deficit of $115.3 million since inception. As the Company has incurred cumulative losses since inception, transition to recurring profitability is dependent upon the successful development, approval and commercialization of its product candidates and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve recurring profitability, and unless and until it does, the Company will continue to need to raise additional capital.
As of March 31, 2019, the Company had cash, cash equivalents and marketable securities of $444.3 million, which management believes is sufficient to fund operations for at least the next 12 months from the date these consolidated financial statements were issued.
The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, development by the Company or its competitors of technological innovations, risks of failure of clinical trials, dependence on key personnel, protection of proprietary technology, compliance with government regulations and ability to transition from clinical manufacturing to the commercial production of products.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The interim unaudited consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 27, 2019. Certain information and footnote disclosures required by GAAP which are normally included in the Company’s annual consolidated financial statements have been omitted pursuant to SEC rules and regulations for interim reporting. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which include all normal and recurring adjustments necessary for the fair statement of the Company’s financial position as of March 31, 2019, and the results of its operations and its cash flows for the interim periods ended March 31, 2019 and 2018.
The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year, any other interim periods, or any future year or period. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
7
Table of Contents
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the consolidated financial statements. Significant estimates are used in the following areas, among others: revenue, stock-based compensation expense, accrued research and development expenses and other accrued liabilities, income taxes and the fair value of financial instruments.
Restricted Cash
Restricted cash includes money market mutual funds used to collateralize irrevocable letters of credit as required by the Company’s lease agreements. The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported on the consolidated balance sheets to the total of these amounts as reported at the end of the period in the consolidated statements of cash flows (in thousands):
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
Cash and cash equivalents
|
|
$
|
55,852
|
|
|
$
|
71,870
|
|
Restricted cash
|
|
|
1,053
|
|
|
|
225
|
|
Total cash and cash equivalents and restricted cash
|
|
$
|
56,905
|
|
|
$
|
72,095
|
|
Marketable Securities
Marketable securities consist of debt securities and are classified as available-for-sale and carried at fair value. Marketable securities with remaining maturity dates exceeding 12 months which are not intended to be sold prior to maturity for use in current operations are classified as non-current. Unrealized gains and losses, net of any related tax effects, are excluded from results of operations and are included in other comprehensive income (loss) and reported as a separate component of stockholders’ equity until realized. The Company uses the aggregate portfolio approach to release the tax effects of unrealized gains and losses on available-for-sale debt securities in accumulated other comprehensive income (loss). Purchase premiums and discounts are amortized or accreted into the cost basis over the life of the related security as adjustments to the yield using the effective-interest method. Interest income is recognized when earned. Realized gains and losses from the sale or maturity of marketable securities are based on the specific identification method and are included in results of operations.
A decline in the fair value below cost of available-for-sale securities that is deemed other-than-temporary is charged to results of operations, resulting in the establishment of a new cost basis for the security. The Company regularly evaluates whether declines in the fair value of its investments below their cost are other-than-temporary. The evaluation includes consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. The Company has not recorded any impairment of available-for-sale securities which was deemed to be to be other-than-temporary.
Leases
Effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02,
Leases
(Topic 842) which supersedes the lease accounting requirements in Accounting Standards Codification (ASC) 840,
Leases
(Topic 840). Please refer to Recent Accounting Pronouncements below for additional information on the adoption of Topic 842 and the impact upon adoption to the Company’s consolidated financial statements.
8
Table of Contents
Under Topic 842, the Company applies a dual approach to all leases in which it is a lessee and classifies leases as either finance or operating
leases
based on the principle of whether or not the leas
e is effectively a financed purchase by the Company. Lease classification is evaluated at the inception of the lease agreement. Regardless of classification, the Company records a right-of-use asset and a lease liability for all leases with a term greater
than 12 months. All of the Company’s leases as of March 31, 2019 have been classified as operating leases. Operating lease expense is recognized on a straight-line basis over the term of the lease. Variable lease expense is recognized as incurred.
The Company identifies leases in its contracts if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company does not allocate lease consideration between lease and nonlease components and records a lease liability equal to the present value of the remaining fixed consideration under the lease. The interest rates implicit in the Company’s leases are generally not readily determinable. Accordingly, the Company uses its estimated incremental borrowing rate at the commencement date of the lease to determine the present value discount of the lease liability. The Company estimates its incremental borrowing rate for each lease based on an evaluation of its expected credit rating and the prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the term of the lease. The right-of-use asset for each lease is equal to the lease liability, adjusted for unamortized initial direct costs and lease incentives and prepaid or accrued rent. Initial direct costs of entering into a lease are included in the right-of-use asset and amortized as lease expense over the term of the lease. Lease incentives, such as tenant improvements allowances, are recorded as a reduction of the right-of-use asset and amortized as a reduction of lease expense over the term of the lease. The Company excludes options to extend or terminate leases from the calculation of the lease liability unless it is reasonably certain the option will be exercised.
Fair Value of Financial Instruments
The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC 820,
Fair Value Measurements and Disclosures
, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. 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. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:
|
•
|
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
•
|
Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
|
•
|
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.
|
To the extent that 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 fair values of the Company’s Level 2 instruments are based on quoted market prices or broker or dealer quotations for similar assets. These investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market observable data. Please refer to Note 4 for further information on the fair value measurement of the Company’s financial instruments.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (loss) per share is calculated by adjusting the weighted-average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Contingently convertible shares in which conversion is based on non-market-priced contingencies are excluded from the calculations of both basic and diluted net income (loss) per share until the contingency has be
en fully met. For purposes of the diluted net income (loss) per share calculation, common stock equivalents are excluded from the calculation of diluted net income (loss) per share if their effect would be anti-dilutive.
9
Table of Contents
Recent Accounting Pronouncements
Adoption of ASU 2016-02, Leases
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02,
Leases
(Topic 842) which supersedes the lease accounting requirements in ASC 840,
Leases
(Topic 840). Effective January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition method. Under this method, the Company applied Topic 842 to all leases in effect as of, or entered into after, January 1, 2019 and recorded the cumulative impact of the adoption as an adjustment to its accumulated deficit on January 1, 2019. The Company’s consolidated financial statements for periods ending after January 1, 2019 are presented in accordance with the requirements of Topic 842, while comparative prior period amounts have not been adjusted and continue to be reported in accordance with Topic 840. Please refer to Leases above for a description of the Company’s lease accounting policies upon the adoption on Topic 842.
The Company elected certain practical expedients allowed by Topic 842 for transition purposes, including the package of practical expedients which permitted the Company to not reassess lease identification, classification and initial direct costs under Topic 842 for leases that commenced prior to January 1, 2019. Additionally, the Company elected the practical expedient allowed for transition purposes to use hindsight in determining the terms of leases that commenced prior to January 1, 2019.
Upon the adoption of Topic 842, the Company recorded operating lease right-of-use assets of $7.4 million and operating lease liabilities of $8.4 million for its leases which were in effect and had commenced prior to January 1, 2019 and had original lease terms of more than 12 months. Additionally, upon the adoption of Topic 842, the Company derecognized $5.9 million of property and equipment and $5.9 million of financing lease obligations related to construction-in-progress at 9800 Medical Center Drive, as the Company does not control the building during the construction period under the requirements of Topic 842. The lease term for the facility at 9800 Medical Center Drive does not commence until certain construction is completed by the landlord and the building is delivered to the Company. The right-of-use assets and lease liabilities related to the facility at 9800 Medical Center Drive will not be recognized on the Company’s consolidated balance sheets until the commencement date of the lease, which is expected to occur in 2020.
The cumulative impact of the adoption of Topic 842 resulted in an increase in accumulated deficit of less than $0.1 million on January 1, 2019. The adoption of Topic 842 did not have a material impact on the Company’s results of operations for the three months ended March 31, 2019, nor does the Company believe it will have a material impact on future results of operations based on its current leasing arrangements.
Other recently adopted accounting pronouncements
In February 2018, the FASB issued ASU 2018-02,
Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, which amends the current guidance on comprehensive income to provide an option for an entity to reclassify the stranded tax effects of the
Tax Cuts and Jobs Act of 2017 (the TCJA)
that was signed into law in December 2017 from accumulated other comprehensive income directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement. The Company adopted this standard effective January 1, 2019, and upon adoption recorded a cumulative adjustment of less than $0.1 million to reclassify the stranded tax effects of unrealized gains and losses on available-for-sale securities from accumulated other comprehensive loss to accumulated deficit. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.
In April 2017, the FASB issued ASU 2017-08,
Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20)
, which amends the required amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. The Company adopted this standard effective January 1, 2019. The adoption of this standard required no cumulative-effect adjustments and did not have a material impact on the Company’s financial position or results of operations.
Recent accounting pronouncements not yet adopted
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
, which modifies certain disclosure requirements regarding fair value measurements. The standard is effective for the Company beginning January 1, 2020, with early adoption permitted upon issuance. The Company does not believe the application of this standard will have a material impact on the Company’s disclosures.
10
Table of Contents
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, which amends the accounting for credit losses for most financia
l assets and certain other instruments. The standard requires that entities holding financial assets that are not accounted for at fair value through net income be presented at the net amount expected to be collected. An allowance for credit losses will be
a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The standard is effective for the Company beginning January 1,
2020, with early adoption permitted for annual and interim periods beginning January 1, 2019. The Company does not believe the application of this standard will have a material impact on the Company’s financial position or results of operations.
3. Marketable Securities
The following tables present a summary of the Company’s marketable securities, which consist solely of available-for-sale debt securities (in thousands):
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency securities
|
|
$
|
105,533
|
|
|
$
|
202
|
|
|
$
|
(3
|
)
|
|
$
|
105,732
|
|
Certificates of deposit
|
|
|
9,237
|
|
|
|
42
|
|
|
|
—
|
|
|
|
9,279
|
|
Corporate bonds
|
|
|
272,988
|
|
|
|
502
|
|
|
|
(45
|
)
|
|
|
273,445
|
|
|
|
$
|
387,758
|
|
|
$
|
746
|
|
|
$
|
(48
|
)
|
|
$
|
388,456
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency securities
|
|
$
|
103,410
|
|
|
$
|
93
|
|
|
$
|
(37
|
)
|
|
$
|
103,466
|
|
Certificates of deposit
|
|
|
8,992
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,992
|
|
Corporate bonds
|
|
|
282,902
|
|
|
|
36
|
|
|
|
(377
|
)
|
|
|
282,561
|
|
|
|
$
|
395,304
|
|
|
$
|
129
|
|
|
$
|
(414
|
)
|
|
$
|
395,019
|
|
As of March 31, 2019 and December 31, 2018, no available-for-sale securities had remaining maturities greater than three years.
The amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity, or to the earliest call date for callable debt securities purchased at a premium. As of March 31, 2019 and December 31, 2018, the balance in the Company’s accumulated other comprehensive loss consisted solely of net unrealized gains and losses on available-for-sale securities, net of income tax effects and reclassification adjustments for realized gains and losses.
During the three months ended March 31, 2019, the Company recognized net unrealized gains on available-for-sale securities of $1.0 million and income tax expense of $0.4 million in other comprehensive income for the period. The Company recognized net realized gains of less than $0.1 million on the sale or maturity of available-for-sale securities during the three months ended March 31, 2019, which were reclassified out of accumulated other comprehensive loss during the period and are included in investment income in the consolidated statements of operations and comprehensive income (loss). During the three months ended March 31, 2018, the Company recognized net unrealized losses on available-for-sale securities of $0.2 million and income tax expense of zero in other comprehensive loss for the period. The Company did not recognize any realized gains or losses on the sale or maturity of available-for-sale securities during the three months ended March 31, 2018.
Realized gains and losses from the sale or maturity of marketable securities are determined based on the specific identification method.
11
Table of Contents
The following tables present the fair values and unrealized losses of marketable securities held by the Company in an unrealized loss position for less than 12 months and 12 mont
hs or greater (in thousands):
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal
agency securities
|
|
$
|
13,923
|
|
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,923
|
|
|
$
|
(3
|
)
|
Corporate bonds
|
|
|
110,103
|
|
|
|
(44
|
)
|
|
|
1,999
|
|
|
|
(1
|
)
|
|
|
112,102
|
|
|
|
(45
|
)
|
|
|
$
|
124,026
|
|
|
$
|
(47
|
)
|
|
$
|
1,999
|
|
|
$
|
(1
|
)
|
|
$
|
126,025
|
|
|
$
|
(48
|
)
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal
agency securities
|
|
$
|
53,124
|
|
|
$
|
(37
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
53,124
|
|
|
$
|
(37
|
)
|
Corporate bonds
|
|
|
245,283
|
|
|
|
(354
|
)
|
|
|
12,424
|
|
|
|
(23
|
)
|
|
|
257,707
|
|
|
|
(377
|
)
|
|
|
$
|
298,407
|
|
|
$
|
(391
|
)
|
|
$
|
12,424
|
|
|
$
|
(23
|
)
|
|
$
|
310,831
|
|
|
$
|
(414
|
)
|
As of March 31, 2019, marketable securities held by the Company which were in an unrealized loss position consisted of 40 investment grade security positions. The Company has the intent and ability to hold such securities until recovery and has determined that none of its investments were other-than-temporarily impaired as of March 31, 2019 or December 31, 2018.
4. Fair Value of Financial Instruments
Financial instruments reported at fair value on a recurring basis include cash equivalents and marketable securities. The following tables present the fair value of cash equivalents and marketable securities in accordance with the hierarchy discussed in Note 2 (in thousands):
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
prices
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
|
in active
|
|
|
observable
|
|
|
unobservable
|
|
|
|
|
|
|
|
markets
|
|
|
inputs
|
|
|
inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
$
|
—
|
|
|
$
|
55,834
|
|
|
$
|
—
|
|
|
$
|
55,834
|
|
Total cash equivalents
|
|
|
—
|
|
|
|
55,834
|
|
|
|
—
|
|
|
|
55,834
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency securities
|
|
|
—
|
|
|
|
105,732
|
|
|
|
—
|
|
|
|
105,732
|
|
Certificates of deposit
|
|
|
—
|
|
|
|
9,279
|
|
|
|
—
|
|
|
|
9,279
|
|
Corporate bonds
|
|
|
—
|
|
|
|
273,445
|
|
|
|
—
|
|
|
|
273,445
|
|
Total marketable securities
|
|
|
—
|
|
|
|
388,456
|
|
|
|
—
|
|
|
|
388,456
|
|
Total cash equivalents and marketable securities
|
|
$
|
—
|
|
|
$
|
444,290
|
|
|
$
|
—
|
|
|
$
|
444,290
|
|
12
Table of Contents
|
|
Quoted
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
prices
|
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
|
in active
|
|
|
observable
|
|
|
unobservable
|
|
|
|
|
|
|
|
markets
|
|
|
inputs
|
|
|
inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
$
|
—
|
|
|
$
|
75,542
|
|
|
$
|
—
|
|
|
$
|
75,542
|
|
Total cash equivalents
|
|
|
—
|
|
|
|
75,542
|
|
|
|
—
|
|
|
|
75,542
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency securities
|
|
|
—
|
|
|
|
103,466
|
|
|
|
—
|
|
|
|
103,466
|
|
Certificates of deposit
|
|
|
—
|
|
|
|
8,992
|
|
|
|
—
|
|
|
|
8,992
|
|
Corporate bonds
|
|
|
—
|
|
|
|
282,561
|
|
|
|
—
|
|
|
|
282,561
|
|
Total marketable securities
|
|
|
—
|
|
|
|
395,019
|
|
|
|
—
|
|
|
|
395,019
|
|
Total cash equivalents and marketable securities
|
|
$
|
—
|
|
|
$
|
470,561
|
|
|
$
|
—
|
|
|
$
|
470,561
|
|
There were no transfers of financial instruments between levels of the fair value hierarchy during the three months ended March 31, 2019.
Management estimates that the carrying amounts of its current accounts receivable, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short-term nature of those instruments. Accounts receivable which contain non-current portions are recorded at their present values using a discount rate that is based on prevailing market rates and the credit profile of the licensee on the date the amounts are initially recorded. Management does not believe there have been any significant changes in market conditions or credit quality that would cause the discount rates initially used to be significantly different from those that would be used as of March 31, 2019 to determine the present value of the receivables. Accordingly, management estimates that the carrying value of its non-current accounts receivable approximates the fair value of those instruments.
The Company’s non-marketable equity securities are measured at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer. As of March 31, 2019 and December 31, 2018, non-marketable equity securities had carrying values of $0.4 million and were included in other assets on the consolidated balance sheets. Since the acquisition of the securities, the Company has not identified any observable price changes or changes in circumstances that would have had an adverse effect on the fair value of the securities as of March 31, 2019 and December 31, 2018. No remeasurements or impairment losses were recorded on non-marketable equity securities during the three months ended March 31, 2019 and 2018.
5. Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Lab equipment
|
|
$
|
15,563
|
|
|
$
|
14,417
|
|
Computer equipment and software
|
|
|
2,104
|
|
|
|
2,002
|
|
Furniture and fixtures
|
|
|
1,935
|
|
|
|
1,915
|
|
Leasehold improvements
|
|
|
12,371
|
|
|
|
11,751
|
|
Construction-in-progress
|
|
|
—
|
|
|
|
5,854
|
|
Total property and equipment
|
|
|
31,973
|
|
|
|
35,939
|
|
Accumulated depreciation and amortization
|
|
|
(8,833
|
)
|
|
|
(7,237
|
)
|
Property and equipment, net
|
|
$
|
23,140
|
|
|
$
|
28,702
|
|
Construction-in-progress reported in the table above as of December 31, 2018 consisted of certain costs incurred and reported by the Company’s landlord at 9800 Medical Center Drive. Upon the adoption of Topic 842 on January 1, 2019, the Company derecognized the cumulative amount of construction costs incurred by the landlord of $5.9 million. Please refer to Note 2 for further information on the Company’s adoption of Topic 842 and Note 6 for further information on the Company’s lease agreement for the facility at 9800 Medical Center Drive.
13
Table of Contents
6. Commitments and Contingencies
Lease Commitments
9800 Medical Center Drive Lease
In November 2018, the Company entered into a lease for approximately 132,000 square feet of office and laboratory facilities in a new building to be constructed at 9800 Medical Center Drive in Rockville, Maryland (the 9800 Medical Center Drive Lease). Construction of the new building, which will be conducted by the landlord, is expected to be completed in 2020 and the lease will expire approximately 16 years from the delivery of the leased premises to the Company, subject to certain extension and termination options. Under the original terms of the 9800 Medical Center Drive Lease, which was amended in April 2019 as discussed further below, the Company was entitled to receive a $14.6 million tenant improvement allowance from the landlord to construct additional improvements to the leased premises. The Company has the option to extend the term of the lease for up to 10 additional years and the option to terminate the lease after 12 years from the delivery of the leased premises to the Company. If the Company elects to terminate the lease, it will be subject to a termination fee equal to the unamortized tenant improvement allowance, rent abatement and landlord commissions as of the termination date, bearing interest at 5% per annum, plus four months of base rent and operating expenses. Additionally, after delivery of the leased premises under the 9800 Medical Center Drive Lease, the Company will have the option to terminate its lease at 9712 Medical Center Drive with six months’ notice. Monthly payments under the 9800 Medical Center Drive Lease begin approximately 12 months from the delivery of the leased premises to the Company and escalate annually in accordance with the lease agreement. As required by the lease agreement, the Company has provided the landlord with an irrevocable letter of credit of $0.8 million which the landlord may draw upon in the event of any uncured default by the Company under the terms of the lease.
The Company is involved in the construction project for the leased premises at 9800 Medical Center Drive, including having the responsibility to pay for a portion of the costs of non-normal tenant improvements such as finish work, mechanical, electrical and plumbing elements of the building, among other items. As of December 31, 2018, under the requirements of Topic 840, the Company was deemed the owner of the leased premises during the construction period for accounting purposes and certain estimated construction costs incurred and reported by the landlord were recorded as property and equipment, with a corresponding financing lease obligation, on the consolidated balance sheet. The Company has determined that it does not control the building during the construction period under the requirements of Topic 842. Accordingly, upon the adoption of Topic 842 on January 1, 2019, the Company derecognized the property and equipment of $5.9 million for the cumulative costs of construction incurred by the landlord as well as the associated $5.9 million financing lease obligation. As of March 31, 2019, the Company had incurred $0.3 million of costs related to construction-in-progress at 9800 Medical Center Drive, which have been recorded as leasehold improvements within property and equipment on the consolidated balance sheets. In April 2019, the Company agreed to pay $4.0 million to the landlord to fund certain costs of construction related to material changes in the design and construction of the building requested by the Company.
The right-of-use assets and lease liabilities related to the 9800 Medical Center Drive Lease have not been recorded on the Company’s consolidated balance sheets as of March 31, 2019 and will be measured and recognized on the commencement date of the lease, which is expected to occur in 2020 when the landlord delivers the newly constructed facility to the Company.
In April 2019, the Company amended the 9800 Medical Center Drive Lease to expand the leased premises to include an additional 5,975 square feet of the building over the term of the lease. As a result of the amendment, the total amount of future rent under the 9800 Medical Center Drive Lease was increased by $4.0 million and the Company’s tenant improvement allowance under the lease was increased to $15.3 million.
Other Lease Commitments
In March 2015, the Company entered into a non-cancelable operating lease for office space at 9712 Medical Center Drive in Rockville, Maryland (the 9712 Medical Center Drive Lease). The lease term commenced in April 2015. Monthly payments under the lease began in October 2015 and escalate annually in accordance with the lease agreement.
In September 2015, November 2015, July 2017 and April 2018, the Company amended the 9712 Medical Center Drive Lease to include additional office and laboratory space at 9714 Medical Center Drive, and ultimately extend the term of the lease to September 2021. The Company has options to extend the term of the 9712 Medical Center Drive Lease for up to six additional years. Additionally, upon the commencement of the 9800 Medical Center Drive Lease, the Company will have the option to terminate the 9712 Medical Center Drive Lease with six months’ notice. The Company’s extension and termination options under the 9712 Medical Center Drive Lease have been excluded from the measurement of the right-of-use assets and lease liabilities for the lease as they are not reasonably certain of exercise. The Company received a $0.4 million tenant improvement allowance from the landlord which has been recorded as a reduction of the right-of-use assets for the lease and is amortized on a straight-line basis as a reduction of rent expense over the term of the lease.
14
Table of Contents
In January 2016, the Company entered into a 7.5-year, no
n-cancelable operating lease for its corporate headquarters at 9600 Blackwell Road in Rockville, Maryland (the Blackwell Road Lease). The lease commenced in February 2016 and expires in September 2023.
The Company has an option to extend the term of the Bl
ackwell Road Lease for up to five additional years and the option to terminate the lease after 67 months from the lease commencement date. If the Company elects to terminate the lease, it will be subject to a termination fee equal to the unamortized tenant
improvement allowance, rent abatement and landlord costs and commissions as of the termination date, bearing interest at 8% per annum. The Company’s extension and termination options under the Blackwell Road Lease have been
excluded from the measurement o
f the right-of-use assets and lease liabilities for the lease
as they are not reasonably certain of exercise
. In November 2017, the Blackwell Road Lease was amended to include additional office space for the remainder of the lease term. Monthly payments un
der the lease began in September 2016 and escalate annually in accordance with the lease agreement. The Company received a $0.8 million tenant improvement allowance from the landlord which has been recorded as a reduction of the right-of-use assets for the
lease and is amortized on a straight-line basis as a reduction of rent expense over the term of the lease.
The Company leases additional office and laboratory facilities in Rockville, Maryland and New York, New York, as well as laboratory and other equipment, under non-cancelable operating leases with various expiration dates through 2022 and which may contain annual escalations of rental payments.
As required by the Company’s lease agreement for its office space in New York, New York, the Company has provided the landlord with an irrevocable letter of credit of $0.2 million which the landlord may draw upon in the event of any uncured default by the Company under the terms of the lease.
All of the Company’s leases are classified as operating leases. The following table summarizes the Company’s lease costs and supplemental cash flow information related to operating leases (in thousands):
|
|
Three Months Ended
|
|
|
|
March 31, 2019
|
|
Operating lease cost
|
|
$
|
700
|
|
Variable lease cost
|
|
|
161
|
|
Total lease cost
|
|
$
|
861
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
711
|
|
Right-of-use assets acquired through operating lease liabilities
|
|
$
|
36
|
|
Variable lease cost under the Company’s operating leases includes items such as common area maintenance, utilities, taxes and other charges.
The weighted-average remaining lease term and weighted-average discount rate of the Company’s operating leases were as follows:
|
|
As of
|
|
|
|
March 31, 2019
|
|
Weighted-average remaining lease term (years)
|
|
|
3.1
|
|
Weighted-average discount rate
|
|
|
5.6
|
%
|
15
Table of Contents
The following table presents a reconciliation of the undiscounted future minimum lease payments remaining under the 9800 Medical Center Drive Lease and other operating leases to the amounts reported as operating lease liabilities on the consolidated balanc
e sheet as of March 31, 2019 (in thousands):
|
|
9800 Medical
|
|
|
Other
|
|
|
Total
|
|
|
|
Center Drive
|
|
|
Operating
|
|
|
Undiscounted
|
|
|
|
Lease (a)
|
|
|
Leases
|
|
|
Fixed Payments
|
|
Undiscounted future minimum lease payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 (remainder of year)
|
|
$
|
—
|
|
|
$
|
1,995
|
|
|
$
|
1,995
|
|
2020
|
|
|
—
|
|
|
|
3,088
|
|
|
|
3,088
|
|
2021
|
|
|
1,332
|
|
|
|
2,412
|
|
|
|
3,744
|
|
2022
|
|
|
4,308
|
|
|
|
623
|
|
|
|
4,931
|
|
2023
|
|
|
5,188
|
|
|
|
479
|
|
|
|
5,667
|
|
Thereafter
|
|
|
76,892
|
|
|
|
—
|
|
|
|
76,892
|
|
Total undiscounted future minimum lease payments
|
|
$
|
87,720
|
|
|
$
|
8,597
|
|
|
$
|
96,317
|
|
Amount representing imputed interest
|
|
|
|
|
|
|
(717
|
)
|
|
|
|
|
Total operating lease liabilities
|
|
|
|
|
|
|
7,880
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
|
|
|
|
|
(2,397
|
)
|
|
|
|
|
Operating lease liabilities, non-current
|
|
|
|
|
|
$
|
5,483
|
|
|
|
|
|
(a)
|
Undiscounted future minimum lease payments under the 9800 Medical Center Drive Lease are not included in the lease liabilities reported on the consolidated balance sheet as of March 31, 2019 as the lease has not yet commenced. The actual timing and amounts of payments under the 9800 Medical Center Drive Lease are subject to adjustment based on the completion date of construction and actual square footage of the facility constructed. Accordingly, these amounts were estimates as of March 31, 2019.
|
As of December 31, 2018, future minimum lease payments under Topic 840 for the 9800 Medical Center Drive Lease and other operating leases were as follows (in thousands):
|
|
9800 Medical
|
|
|
Other
|
|
|
Total
|
|
|
|
Center Drive
|
|
|
Operating
|
|
|
Minimum Lease
|
|
|
|
Lease (a)
|
|
|
Leases
|
|
|
Payments
|
|
2019
|
|
$
|
—
|
|
|
$
|
2,798
|
|
|
$
|
2,798
|
|
2020
|
|
|
—
|
|
|
|
3,054
|
|
|
|
3,054
|
|
2021
|
|
|
1,329
|
|
|
|
2,391
|
|
|
|
3,720
|
|
2022
|
|
|
4,289
|
|
|
|
621
|
|
|
|
4,910
|
|
2023
|
|
|
5,156
|
|
|
|
479
|
|
|
|
5,635
|
|
Thereafter
|
|
|
76,420
|
|
|
|
—
|
|
|
|
76,420
|
|
Total minimum lease payments
|
|
$
|
87,194
|
|
|
$
|
9,343
|
|
|
$
|
96,537
|
|
(a)
|
Includes all future minimum lease payments under the 9800 Medical Center Drive Lease, including amounts recorded as financing lease obligations on the consolidated balance sheet
. The actual timing and amounts of payments under the 9800 Medical Center Drive Lease are subject to adjustment based on the completion date of construction and actual square footage of the facility constructed. Accordingly, these amounts were estimates as of December 31, 2018.
|
License from The Trustees of the University of Pennsylvania
In February 2009, the Company entered into a license agreement, which has been amended from time to time, with The Trustees of the University of Pennsylvania (together with the University of Pennsylvania, Penn) for exclusive, worldwide rights to certain patents owned by Penn underlying the Company’s NAV Technology Platform, as well as exclusive rights to certain data, results and other information generated in connection with the clinical trial for RGX-501, the Company’s product candidate for the treatment of homozygous familial hypercholesterolemia (HoFH). In consideration for the license, the Company issued Penn an equity interest in the Company and is obligated to pay Penn royalties on net sales of licensed products and sublicense fees. Additionally, the Company is obligated to reimburse Penn for certain costs incurred related to the maintenance of the licensed patents.
16
Table of Contents
In April 2019, the Company amended its license from Penn to include exclusive license rights to certai
n know-how, including research data and other information, relating to the treatment of late-infantile neuronal ceroid lipofuscinosis type 2 (CLN2) disease. In consideration for the additional licensed rights, and in addition to any consideration owed unde
r the license prior to the amendment, the Company is obligated to pay Penn an upfront fee, milestone fees of up to $20.5 million upon the achievement of various development and sales-based milestones and additional royalties on net sales of licensed produc
ts for the treatment of CLN2 disease. Additionally, the amendment modifies the percentage of sublicense fees the Company is obligated to pay Penn on amounts the Company receives from third parties for the sublicensing of the licensed rights for the treatme
nt of CLN2 disease.
European Patent Office Proceeding
In June 2017, a third party filed an opposition with the European Patent Office (EPO) challenging the validity of a European patent owned by Penn for the AAV8 vector, which the Company has exclusively licensed (EU AAV8 Patent). The EPO conducted oral proceedings in October 2018 and upheld the validity of the EU AAV8 Patent subject to certain amendments made during the proceeding. Each party to the proceeding has appealed the EPO’s ruling. As of March 31, 2019 and December 31, 2018, the Company had not recorded any liabilities related to this matter nor does the Company believe this matter will have a material adverse impact on its business.
7. License Revenue
As of March 31, 2019, the Company’s NAV Technology Platform was being applied in the development of more than 20 partnered product candidates by 11 NAV Technology Licensees.
Consideration to the Company under its license agreements may include: (i) up-front and annual fees, (ii) option fees to acquire additional licenses, (iii) milestone payments based on the achievement of certain development and sales-based milestones by licensees, (iv) sublicense fees and (v) royalties on sales of licensed products. Sublicense fees vary by license and range from a mid-single digit percentage to a low-double digit percentage of license fees received by licensees as a result of sublicenses. Royalties on net sales of commercialized products vary by license and range from a mid-single digit percentage to a low double-digit percentage of net sales by licensees. To date the Company has not recognized any revenue from the achievement of sales-based milestones or royalties on sales of licensed products.
Development milestone payments are only included in the transaction price of each license and recognized as revenue to the extent they are considered probable of achievement. Sales-based milestones are excluded from the transaction price of each license agreement and recognized as revenue in the period of achievement. As of March 31, 2019, the Company’s license agreements, excluding additional licenses that could be granted upon the exercise of options by licensees, contained unachieved milestones which could result in aggregate milestone payments to the Company of up to $29.6 million upon the commencement of various stages of clinical trials, $47.5 million upon the submission of regulatory approval filings, $117.5 million upon the approval of commercial products by regulatory agencies and $232.0 million upon the achievement of specified sales targets for licensed products. To the extent the milestone payments are realized by the Company, the Company will be obligated to pay sublicense fees to licensors based on a specified percentage of the fees earned by the Company. The achievement of milestones by licensees is highly dependent on the successful development and commercialization of licensed products and it is at least reasonably possible that some or all of the milestone fees will not be realized by the Company.
The following tables present changes in the balances of the Company’s receivables, contract assets and contract liabilities during the periods presented (in thousands):
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Net Additions
|
|
|
Balance at
|
|
|
|
of Period
|
|
|
(Deductions)
|
|
|
End of Period
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and contract assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, current and non-current
|
|
$
|
31,599
|
|
|
$
|
(469
|
)
|
|
$
|
31,130
|
|
Contract assets
|
|
$
|
750
|
|
|
$
|
250
|
|
|
$
|
1,000
|
|
Contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue, current and non-current
|
|
$
|
3,933
|
|
|
$
|
—
|
|
|
$
|
3,933
|
|
17
Table of Contents
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Net Additions
|
|
|
Balance at
|
|
|
|
of Period
|
|
|
(Deductions)
|
|
|
End of Period
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and contract assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, current and non-current
|
|
$
|
5,850
|
|
|
$
|
52,762
|
|
|
$
|
58,612
|
|
Contract assets
|
|
$
|
350
|
|
|
$
|
(100
|
)
|
|
$
|
250
|
|
Contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue, current and non-current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The net increase in the balance of accounts receivable during the three months ended March 31, 2018 was primarily attributable to the January 2018 amendment to the license agreement with AveXis, Inc. (AveXis) for the development and commercialization of treatments for spinal muscular atrophy (SMA). As of March 31, 2018, the Company had recorded accounts receivable, current and non-current, of $53.5 million related to the amended license agreement with AveXis.
As of March 31, 2019, the Company had recorded deferred revenue, current and non-current, of $3.9 million which represents consideration received from licensees for performance obligations that have not yet been satisfied by the Company. Unsatisfied performance obligations consist of options granted to licensees that provide material rights to the licensee to acquire additional licenses from the Company. These performance obligations will be satisfied, and underlying revenue will be recognized, upon the exercise or expiration of the options.
During the three months ended March 31, 2019 and 2018, the Company recognized license revenue of $0.8 million and $0.3 million, respectively, from licenses delivered to licensees in prior periods as a result of changes in the transaction prices of its license agreements. Changes in the transaction price were primarily attributable to development milestones achieved or deemed probable of achievement during the period that were previously not considered probable of achievement.
As of March 31, 2019, the Company had recorded total current and non-current accounts receivable of $31.1 million, of which $0.1 million had been billed to customers and $31.0 million was billable to customers in future periods. As of December 31, 2018, the Company had recorded total current and non-current accounts receivable of $31.6 million, of which $0.4 million had been billed to customers and $31.2 million was billable to customers in future periods.
Accounts receivable, current and non-current, as of March 31, 2019 and December 2018 included $26.7 million and $26.0 million, respectively, related to the November 2018 license agreement with Abeona Therapeutics Inc. for the development and commercialization of treatments for various diseases. The Company believes that it is not exposed to significant credit risk related to accounts receivable due to the credit quality and history of collections from its significant customers. The Company is unaware of any concentrations of credit risk related to accounts receivable from significant customers with deteriorated credit quality. As of March 31, 2019 and December 31, 2018, the Company had not recognized any impairment losses on its receivables or contract assets from contracts with customers.
AveXis March 2014 License and January 2018 Amendment
In March 2014, the Company entered into an exclusive license agreement (the March 2014 License) with AveXis. Under the license,
the Company granted AveXis an exclusive, worldwide commercial license, with rights to sublicense, to the NAV AAV9 vector for the treatment of SMA in humans by
in vivo
gene therapy.
In consideration for the license, AveXis paid the Company an up-front fee of $2.0 million, and is required to pay annual fees, development milestone payments of up to $12.3 million,
mid-single to low double-digit royalties on net sales of licensed products,
subject to reduction in specified circumstances, and a lower mid-double digit percentage of any sublicense fees AveXis receives from sublicensees for the licensed intellectual property rights.
In January 2018, the Company and AveXis amended the March 2014 License (the January 2018 Amendment). Under the January 2018 Amendment, the licensed intellectual property was expanded to include, in addition to the NAV AAV9 vector previously licensed, sublicenses to other third-party patents exclusively licensed by the Company as well as any other recombinant AAV vector in the Company’s intellectual property portfolio during a period of 14 years from the effective date of the January 2018 Amendment, for the treatment of SMA in humans by
in vivo
gene therapy. The Company may also, in its sole discretion, provide specified collaborative services to AveXis as specified in the January 2018 Amendment.
18
Table of Contents
The January 20
18 Amendment also modified the assignment provision of the March 2014 License. Under the amended assignment provision, AveXis was permitted to transfer the March 2014 License, as amended, without the Company’s consent in connection with a change of control
of AveXis, subject to certain conditions. Under the original March 2014 License, any assignment by AveXis without the Company’s prior written consent had been prohibited.
In consideration for the additional rights granted under the January 2018 Amendment, and in addition to any consideration owed under the original March 2014 License, AveXis paid to the Company a fee of $80.0 million upon entry into the January 2018 Amendment. In addition, AveXis was obligated to pay the Company (i) $30.0 million on the first anniversary of the effective date of the January 2018 Amendment, (ii) $30.0 million on the second anniversary of the effective date of the January 2018 Amendment and (iii) potential sales-based milestone payments of up to $120.0 million. In the event of a change of control of AveXis, to the extent that any fee described in (i) or (ii) above, or the first $40.0 million of sales-based milestone payments described in (iii) above, had not yet been paid to the Company, AveXis was required to pay any such unpaid fee to the Company upon the change of control. For any product developed for the treatment of SMA using the NAV AAV9 vector, AveXis will continue to be obligated to pay to the Company mid-single to low double-digit royalties on net sales as required by the March 2014 License, and for any product developed for the treatment of SMA using a licensed vector other than NAV AAV9, the Company will receive a low double-digit royalty on net sales.
In May 2018, AveXis was acquired by Novartis AG (Novartis), which
qualified as a change of control of AveXis under the January 2018 Amendment. Pursuant to the January 2018 Amendment, AveXis paid the Company $100.0 million in accelerated license payments as a result of the change of control.
Accounting Analysis
The January 2018 Amendment was accounted for under Topic 606 as a modification of the license agreement resulting in a new and separate contract from the original March 2014 License for revenue recognition purposes. The Company determined that a substantive termination penalty is associated with AveXis’ termination rights under the amended license agreement, and therefore the contract term for revenue recognition purposes is equal to the stated term of the license. The only material performance obligation of the Company under the January 2018 Amendment is for the delivery of the modified license, which occurred upon the execution of the amendment in January 2018.
As of March 31, 2019, the transaction price of the original March 2014 License was $7.5 million. The transaction price includes (i) the up-front payment in March 2014 of $2.0 million, (ii) the present value of aggregate annual fees payable to the Company over the term of the license and (iii) payments for development milestones achieved to date or which are deemed probable of achievement. The discounted portion of the annual fees represents the financing benefit provided to AveXis and is recognized as interest income from licensing over the term of the license. Variable consideration under the original March 2014 License, which has been excluded from the transaction price, includes $7.0 million in payments for remaining development milestones that had not yet been achieved and were not considered probable of achievement, as well as any potential sublicense fees or royalties on sales of licensed products, which will be recognized in the period of the underlying sales or sublicenses, if any.
Upon its execution, the transaction price of the January 2018 Amendment was $132.1 million, which was fully recognized as license revenue upon the delivery of the modified license in January 2018. In May 2018, as a result of the acquisition of AveXis by Novartis, the transaction price was increased by $40.0 million to account for the acceleration of the sale-based milestone which was previously excluded from the transaction price. The $40.0 million increase in the transaction price was recognized as license revenue upon the completion of the change of control in May 2018 since the amended license had been fully delivered to AveXis. Additionally, due to the acceleration of the two $30.0 million payments originally due in January 2019 and January 2020, the Company recognized $6.1 million of interest income from licensing upon the completion of the change of control of AveXis, which represents the remaining present value discount on such payments as of the date of the change of control. As of March 31, 2019, the transaction price of the January 2018 Amendment was $172.1 million, which includes: (i) the $80.0 million payment in January 2018, (ii) the present value, as of the date of the January 2018 Amendment, of the two $30.0 million payments originally due in January 2019 and January 2020 and (iii) the $40.0 million sales-based milestone which was accelerated upon the change of control in May 2018. Variable consideration under the January 2018 Amendment, which has been excluded from the transaction price, includes the remaining sales-based milestone payment of $80.0 million, as well as any potential sublicense fees or royalties on sales of licensed products, which will be recognized in the period of the underlying sales or sublicenses, if any.
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During the three months ended March 31, 2019 and 2018, the Company recognized license revenue of zero and $132.1 million, respectively, and i
nterest income from licensing of less than $0.1 million and $1.2 million, respectively, from the March 2014 License, as amended, which includes amounts from both the original March 2014 License and the January 2018 Amendment. As of March 31, 2019 and Decem
ber 31, 2018, the Company had recorded $0.2 million of accounts receivable from AveXis under the March 2014 License, as amended, of which less than $0.1 million were included in current assets and $0.2 million were included in non-current assets on the con
solidated balance sheets
.
8. Stock-based Compensation
In January 2019, an additional 1,444,808 shares became available for issuance under the 2015 Equity Incentive Plan (the 2015 Plan). As of March 31, 2019, the total number of shares of common stock authorized for issuance under the 2015 Plan and the 2014 Stock Plan (the 2014 Plan) was 10,933,221, of which 2,583,144 remained available for future grants under the 2015 Plan.
Stock-based Compensation Expense
The Company’s stock-based compensation expense by award type was as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Stock options
|
|
$
|
5,452
|
|
|
$
|
3,122
|
|
Restricted stock units
|
|
|
68
|
|
|
|
68
|
|
Employee stock purchase plan
|
|
|
198
|
|
|
|
101
|
|
|
|
$
|
5,718
|
|
|
$
|
3,291
|
|
As of March 31, 2019, the Company had $68.9 million of unrecognized stock-based compensation expense related to stock options, restricted stock units and the 2015 Employee Stock Purchase Plan (the 2015 ESPP), which is expected to be recognized over a weighted-average period of 3.1 years.
The Company has recorded aggregate stock-based compensation expense in the consolidated statements of operations and comprehensive income (loss) as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
2,347
|
|
|
$
|
1,530
|
|
General and administrative
|
|
|
3,371
|
|
|
|
1,761
|
|
|
|
$
|
5,718
|
|
|
$
|
3,291
|
|
Stock Options
The following table summarizes stock option activity under the 2014 Plan and 2015 Plan (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
(Years)
|
|
|
Value (a)
|
|
Outstanding at December 31, 2018
|
|
|
4,855
|
|
|
$
|
19.31
|
|
|
|
7.6
|
|
|
$
|
118,185
|
|
Granted
|
|
|
1,102
|
|
|
$
|
48.22
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(480
|
)
|
|
$
|
7.81
|
|
|
|
|
|
|
|
|
|
Cancelled or forfeited
|
|
|
(137
|
)
|
|
$
|
30.72
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
|
5,340
|
|
|
$
|
26.02
|
|
|
|
7.9
|
|
|
$
|
170,518
|
|
Exercisable at March 31, 2019
|
|
|
2,491
|
|
|
$
|
12.22
|
|
|
|
6.8
|
|
|
$
|
112,324
|
|
Vested and expected to vest at March 31, 2019
|
|
|
5,340
|
|
|
$
|
26.02
|
|
|
|
7.9
|
|
|
$
|
170,518
|
|
(a)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that were in the money at the dates reported.
|
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The weighted-average grant date fair value per share of options granted during the
three months ended March 31, 2019 was $32.20. During the three months ended March 31, 2019, the total number of stock options exercised was 480,320, resulting in to
tal proceeds of $3.8 million. The total intrinsic value of options exercised during the three months ended March 31, 2019 was $20.0 million.
Restricted Stock Units
The following table summarizes restricted stock unit activity under the 2015 Plan (in thousands, except per share data):
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested balance at December 31, 2018
|
|
|
40
|
|
|
$
|
20.90
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
Vested
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
|
|
—
|
|
|
$
|
—
|
|
Unvested balance at March 31, 2019
|
|
|
40
|
|
|
$
|
20.90
|
|
Employee Stock Purchase Plan
As of March 31, 2019, the total number of shares of common stock authorized for issuance under the 2015 ESPP was 254,000, of which 159,339 remained available for future issuance. During the three months ended March 31, 2019, 10,241 shares of common stock were issued under the 2015 ESPP.
9. Income Taxes
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses, including a three-year cumulative loss position as of March 31, 2019 and December 31, 2018, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for its net deferred tax assets as of March 31, 2019 and December 31, 2018.
During the three months ended March 31, 2019, the Company recognized income tax benefit of $0.1 million and income tax expense in other comprehensive income of $0.4 million related to net unrealized gains on available-for-sale securities during the period. As of March 31, 2019, the Company had accrued $0.3 million related to this tax benefit, which is expected to be generated from losses in continuing operations in 2019 and is included in accrued expenses and other current liabilities on the consolidated balance sheets.
10. Related Party Transactions
FOXKISER LLP
Since 2016, the Company has been party to professional services agreements with FOXKISER LLP (FOXKISER), an affiliate of certain stockholders of the Company and an affiliate of a member of the Company’s Board of Directors, pursuant to which the Company pays a fixed monthly fee in consideration for certain strategic services provided by FOXKISER. Effective January 2019, the Company entered into a new professional services agreement with FOXKISER with similar terms and conditions as the previous agreements and which has a term of one year and is terminable by either party. Expenses incurred under the agreements with FOXKISER for the three months ended March 31, 2019 and 2018 were $0.8 million and $0.5 million, respectively, and were recorded as research and development expenses in the consolidated statements of operations and comprehensive income (loss).
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11. Net Income (Loss) Per Share
The computations of basic and diluted net income (loss) per share are as follows (in thousands, except per share data):
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
(32,228
|
)
|
|
$
|
104,239
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
36,366
|
|
|
|
31,632
|
|
Basic net income (loss) per share
|
|
$
|
(0.89
|
)
|
|
$
|
3.30
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
(32,228
|
)
|
|
$
|
104,239
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
36,366
|
|
|
|
31,632
|
|
Stock options
|
|
|
—
|
|
|
|
2,620
|
|
Restricted stock units
|
|
|
—
|
|
|
|
22
|
|
Employee stock purchase plan
|
|
|
—
|
|
|
|
1
|
|
Weighted-average diluted common shares
|
|
|
36,366
|
|
|
|
34,275
|
|
Diluted net income (loss) per share
|
|
$
|
(0.89
|
)
|
|
$
|
3.04
|
|
For periods in which the Company incurred net losses applicable to common stockholders, common stock equivalents are excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive, and accordingly, basic and diluted net loss per share are the same for such periods. Outstanding stock options with exercise prices greater than the average market price of common stock are excluded from the calculation of diluted net income (loss) per share as their effect would be anti-dilutive. The following potentially dilutive common stock equivalents outstanding at the end of the period were excluded from the computations of weighted-average diluted common shares for the periods indicated as their effects would be anti-dilutive (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Stock options issued and outstanding
|
|
|
5,340
|
|
|
|
1,582
|
|
Unvested restricted stock units outstanding
|
|
|
40
|
|
|
|
—
|
|
Employee stock purchase plan
|
|
|
20
|
|
|
|
—
|
|
|
|
|
5,400
|
|
|
|
1,582
|
|
12. Supplemental Disclosures
Accrued expenses and other current liabilities consists of the following (in thousands):
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Accrued external research and development expenses
|
|
$
|
5,474
|
|
|
$
|
4,274
|
|
Accrued personnel costs
|
|
|
5,357
|
|
|
|
9,484
|
|
Accrued income taxes payable
|
|
|
1,134
|
|
|
|
726
|
|
Accrued licensing costs
|
|
|
911
|
|
|
|
1,617
|
|
Accrued external general and administrative expenses
|
|
|
854
|
|
|
|
773
|
|
Accrued purchases of property and equipment
|
|
|
191
|
|
|
|
221
|
|
Other accrued expenses and current liabilities
|
|
|
268
|
|
|
|
69
|
|
|
|
$
|
14,189
|
|
|
$
|
17,164
|
|
Other liabilities of $1.8 million and $2.5 million reported as of March 31, 2019 and December 31, 2018, respectively, consist of accrued licensing costs payable in periods beyond 12 months from the reporting date.
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