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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021.

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

For the transition period from ______ to ______

Commission file number: 001-37625

Voyager Therapeutics, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

46-3003182

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

75 Sidney Street,
Cambridge, Massachusetts

02139

(Address of principal executive offices)

(Zip Code)

(857) 259-5340

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

VYGR

Nasdaq Global Select Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of May 5, 2021 was 37,728,183.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “contemplate,” “anticipate,” “goals,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

our plans to develop and commercialize our product candidates based on adeno-associated virus, or AAV, gene therapy;
our ability to identify and optimize product candidates and novel AAV gene therapy capsids;
our strategic collaboration with and funding from our collaboration partner Neurocrine Biosciences, Inc., or Neurocrine;
our ongoing and planned clinical trials and related timelines, and our preclinical development efforts and studies;
formulation changes to our product candidates that may require us to conduct additional clinical studies to bridge our modified product candidates to earlier versions;
the timing of initiation of our planned VYTAL Phase 1/2 clinical trial to evaluate VY-HTT01 for the treatment of Huntington’s disease;
our ability to resolve the clinical hold placed on the investigational new drug, or IND, application for the RESTORE-1 Phase 2 clinical trial for VY-AADC (NBIb-1817) as treatment for Parkinson’s disease and the requirements for and timing of any such resolution of the clinical hold;
the timing of and our ability to submit applications and obtain and maintain regulatory approvals for our product candidates, including the ability to file IND applications for our programs;
our estimates regarding expenses, future revenues, capital requirements, and needs for additional financing;
our ability to continue to develop our gene therapy platform;
our ability to develop a manufacturing capability compliant with current good manufacturing practices for our product candidates;
our ability to access, develop, and obtain regulatory clearance for devices to deliver our AAV gene therapies to critical targets of neurological disease;
our intellectual property position and our ability to obtain, maintain and enforce intellectual property protection for our proprietary assets;
our estimates regarding the size of the potential markets for our product candidates and our ability to serve those markets;
the rate and degree of market acceptance of our product candidates for any indication once approved;

2

our plans and ability to raise additional capital, including through equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements;
our competitive position and the success of competing products that are or become available for the indications that we are pursuing;
the impact of government laws and regulations including in the United States, the European Union, and other important geographies such as Japan;
our ability to enter into future collaborations, strategic alliances, or licensing arrangements; and
the potential impact of the COVID-19 pandemic on our clinical trials and other business operations.

These forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. You should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in “Part II, Item 1A — Risk Factors,” and in “Part I, Item 1A — Risk Factors” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2021 that could cause actual future results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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

RISK FACTOR SUMMARY

Investment in our securities involves risk and uncertainties that you should be aware of when evaluating our business. The following is a summary of what we believe to be the principal risks facing our business, as more fully described under “ Part II, Item 1A—Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.

We have a history of incurring significant losses and anticipate that we will incur losses for the foreseeable future and may never achieve or maintain consistent profitability. We may not be able to generate sufficient revenue from the commercialization of our product candidates and may never be consistently profitable.
We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our product development efforts or other operations.
To date, all of our revenue has been derived from our prior collaborations with Sanofi Genzyme Corporation, AbbVie Biotechnology Ltd., and AbbVie Ireland Unlimited Company and our ongoing collaboration with Neurocrine Biosciences, Inc. If any ongoing or future collaboration agreements were to be terminated, our business financial condition, results of operations and prospects could be harmed.
Our AAV gene therapy product candidates are based on a novel technology, which makes it difficult and potentially infeasible to predict the duration and cost of development of, and of subsequently obtaining regulatory approval for, our product candidates.

3

Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. Such requirements may lengthen the regulatory review process, require us to modify current studies or perform additional studies or increase our development costs, which in turn may force us to delay, limit, or terminate certain of our programs.
We may encounter substantial delays or difficulties in commencement, enrollment or completion of our preclinical studies or clinical trials, or may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities, which could prevent us from commercializing our current and future product candidates on a timely basis, if at all.
Our product candidates or the process for administering our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval.
We face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve regulatory approval before us or develop therapies that are more advanced or effective than ours, which may harm our business and financial condition, and our ability to successfully market or commercialize our product candidates.
Gene therapies and their companion diagnostics are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in delays in the development or commercialization of our product candidates or otherwise harm our business.
Our gene therapy approach utilizes vectors derived from viruses, which may be perceived as unsafe or may result in unforeseen adverse events. Negative public opinion and increased regulatory scrutiny of gene therapy may damage public perception of the safety of our product candidates and adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.
If we are unable to obtain and maintain patent protection for our products and technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our products and technology may be adversely affected.
A widespread outbreak of an illness or other health issue could significantly disrupt our operations. The current COVID-19 pandemic and the response to it have had, and we expect they will continue to have, an adverse effect on our business, operations, and future results.

4

VOYAGER THERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

ITEM 1.

    

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6

CONDENSED CONSOLIDATED BALANCE SHEETS

6

CONDENSED CONSOLIDATED Statements of Operations and Comprehensive Loss

7

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

8

CONDENSED CONSOLIDATED Statements of Cash Flows

9

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

24

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

39

ITEM 4.

CONTROLS AND PROCEDURES

40

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

40

ITEM 1A.

RISK FACTORS

41

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

106

ITEM 6.

EXHIBITS

107

SIGNATURES

109

5

PART I. FINANCIAL INFORMATION

Voyager Therapeutics, Inc.

Condensed Consolidated Balance Sheets

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

(unaudited)

March 31, 

December 31, 

 

    

2021

    

2020

 

Assets

    

    

Current assets:

Cash and cash equivalents

$

117,799

$

104,440

Marketable securities

 

43,707

 

76,698

Related party collaboration receivable

4,253

8,012

Prepaid expenses and other current assets

 

10,078

 

8,619

Total current assets

 

175,837

 

197,769

Property and equipment, net

 

24,520

 

25,435

Deposits and other non-current assets

 

2,247

 

2,316

Operating lease, right-of-use assets

35,113

36,064

Total assets

$

237,717

$

261,584

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

3,177

$

634

Accrued expenses

 

10,535

 

14,205

Other current liabilities

4,596

4,198

Deferred revenue, current

 

6,443

 

7,729

Total current liabilities

 

24,751

26,766

Deferred revenue, non-current

 

33,614

 

36,088

Other non-current liabilities

 

43,144

 

44,410

Total liabilities

 

101,509

107,264

Commitments and contingencies (see note 8)

Stockholders’ equity:

Preferred stock $0.001 par value: 5,000,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued and outstanding at March 31, 2021 and December 31, 2020

Common stock, $0.001 par value: 120,000,000 shares authorized at March 31, 2021 and December 31, 2020; 37,556,055 and 37,368,027 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

38

 

37

Additional paid-in capital

 

433,849

 

430,324

Accumulated other comprehensive loss

 

(123)

 

(134)

Accumulated deficit

 

(297,556)

 

(275,907)

Total stockholders’ equity

 

136,208

 

154,320

Total liabilities and stockholders’ equity

$

237,717

$

261,584

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

6

Voyager Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

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

(unaudited)

Three Months Ended

March 31, 

 

    

2021

    

2020

 

Collaboration revenue

$

6,501

    

$

18,067

Operating expenses:

Research and development

 

22,346

 

32,294

General and administrative

 

9,744

 

10,206

Total operating expenses

 

32,090

42,500

Operating loss

(25,589)

(24,433)

Other income:

Interest income

 

19

 

978

Other income (expense)

 

3,921

 

(808)

Total other income

 

3,940

 

170

Net loss

$

(21,649)

$

(24,263)

Other comprehensive income

Net unrealized gain on available-for-sale securities

 

11

 

525

Total other comprehensive income

 

11

 

525

Comprehensive loss

$

(21,638)

$

(23,738)

Net loss per share, basic and diluted

$

(0.58)

$

(0.66)

Weighted-average common shares outstanding, basic and diluted

 

37,501,065

 

36,963,255

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

7

Voyager Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(amounts in thousands, except share data)

(unaudited)

Accumulated

 

Additional

Other

 

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

(Loss) Income

    

Deficit

    

Equity

 

Balance at December 31, 2019

36,865,116

$

37

$

412,227

$

(104)

$

(312,648)

$

99,512

Exercises of vested stock options

3,035

34

34

Vesting of restricted stock units

108,600

Stock-based compensation expense

3,949

3,949

Unrealized gain on available-for-sale securities, net of tax

525

525

Net loss

(24,263)

(24,263)

Balance at March 31, 2020

36,976,751

$

37

$

416,210

$

421

$

(336,911)

$

79,757

Balance at December 31, 2020

37,368,027

$

37

$

430,324

$

(134)

$

(275,907)

$

154,320

Exercises of vested stock options

3,811

1

27

28

Vesting of restricted stock units

184,217

Stock-based compensation expense

3,498

3,498

Unrealized gain on available-for-sale securities, net of tax

11

11

Net loss

(21,649)

(21,649)

Balance at March 31, 2021

37,556,055

$

38

$

433,849

$

(123)

$

(297,556)

$

136,208

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

8

Voyager Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

Three Months Ended

March 31, 

 

    

2021

    

2020

 

Cash flow from operating activities

    

    

Net loss

$

(21,649)

$

(24,263)

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation expense

 

3,601

 

4,040

Depreciation

 

1,274

 

842

Amortization of premiums and discounts on marketable securities

102

(188)

Other non-cash items

 

(3,882)

 

808

Changes in operating assets and liabilities:

Related party collaboration receivable

3,759

2,213

Prepaid expenses and other current assets

 

323

 

(55)

Operating lease, right-of-use asset

951

734

Noncurrent assets

69

69

Accounts payable

 

2,543

 

745

Accrued expenses

 

(3,757)

 

(4,626)

Operating lease liabilities

(868)

(774)

Deferred revenue

 

(3,760)

 

(8,343)

Net cash used in operating activities

 

(21,294)

 

(28,798)

Cash flow from investing activities

Purchases of property and equipment

 

(375)

 

(1,507)

Proceeds from sale of equipment

Proceeds from maturities of marketable securities

 

35,000

 

110,500

Net cash provided by investing activities

 

34,625

 

108,993

Cash flow from financing activities

Proceeds from the exercise of stock options

28

34

Net cash provided by financing activities

 

28

 

34

Net increase in cash, cash equivalents, and restricted cash

 

13,359

 

80,229

Cash, cash equivalents, and restricted cash, beginning of period

 

106,219

 

86,777

Cash, cash equivalents, and restricted cash, end of period

$

119,578

$

167,006

Supplemental disclosure of cash and non-cash activities

Capital expenditures incurred but not yet paid

$

17

$

65

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

9

VOYAGER THERAPEUTICS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of business

Voyager Therapeutics, Inc. (the “Company”) is a clinical-stage gene therapy company focused on developing life-changing treatments for patients suffering from serious neurological diseases. The Company is focused on neurological diseases where it believes an adeno-associated virus (“AAV”) gene therapy approach that either increases or decreases the production of a specific protein can slow or reduce the symptoms experienced by patients, and therefore have a clinically meaningful impact. The Company has built a gene therapy platform that it believes positions itself to be a leading company at the intersection of AAV gene therapy and severe neurological disease. The Company’s gene therapy platform enables it to engineer, optimize, manufacture and deliver its AAV-based gene therapies that have the potential to provide durable efficacy following a single administration.

Additionally, the Company is working to identify novel AAV capsids, which are the outer viral protein shells that enclose the genetic material of the virus payload. The Company’s team of experts in the fields of AAV gene therapy and neuroscience first identifies and selects severe neurological diseases that are well-suited for treatment using AAV gene therapy. The Company then engineers and optimizes AAV vectors for delivery of the virus payload to the targeted tissue or cells. The Company’s manufacturing process employs an established system that it believes will enable production of high quality AAV vectors at commercial-scale. In addition to the Company’s capsid optimization efforts, it leverages novel delivery paradigms, established routes of administration, and advances in dosing techniques to optimize delivery of its AAV gene therapies to target tissues, regions and cell types that are critical to the disease of interest. The Company believes it can achieve this directly, with targeted infusions to discrete regions of the brain, the spinal cord, or systemically, in conjunction with its novel capsids.

The Company’s business strategy focuses on discovering, developing, manufacturing and commercializing its gene therapy programs. As part of this strategy, the Company has developed core competencies specific to AAV gene therapy development and manufacturing and is beginning to build its commercial infrastructure. This business strategy also includes business development activities that may include in-licensing activities or partnering certain programs in certain geographies with collaborators, as the Company has demonstrated through its ongoing collaboration with Neurocrine Biosciences, Inc. (the “Neurocrine Collaboration Agreement”). The Company is devoting substantially all of its efforts to product research and development, market development, and raising capital. The Company is subject to risks common to companies in the biotechnology and gene therapy industries, including but not limited to, the need to obtain sufficient capital to continue to fund its operations, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for its product candidates, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary information and technology, protection against data breaches and other cybersecurity threats, compliance with government regulations, development by competitors of technological innovations, and ability to transition from pilot-scale manufacturing to large-scale production of products.

The Company has a history of incurring annual net operating losses. As of March 31, 2021, the Company had an accumulated deficit of $297.6 million. The Company has not generated any product revenue and has financed its operations primarily through public offerings and private placements of its equity securities and funding from its prior collaborations with Sanofi Genzyme Corporation (“Sanofi Genzyme”), AbbVie Biotechnology Ltd and AbbVie Ireland Unlimited Company (collectively, “AbbVie”), and its ongoing collaboration with Neurocrine Biosciences, Inc. (“Neurocrine”).

Through March 31, 2021, the Company has raised approximately $640.0 million of proceeds from sales of convertible preferred stock and common stock, including its initial public offering and follow-on public offering, and from its collaboration agreements. As of March 31, 2021, the Company had cash, cash equivalents, and marketable debt securities of $153.1 million. Based upon its current operating plan, the Company expects that its existing cash, cash equivalents, and marketable debt securities, as well as ongoing reimbursement amounts expected from development

10

costs related to the Neurocrine Collaboration Agreement, will enable the Company to meet its planned operating expenses and capital expenditure requirements into mid-2022.

There can be no assurance that the Company will be able to obtain additional debt or equity financing or generate product revenue or revenue from collaboration partners on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial condition.

2. Summary of significant accounting policies and basis of presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021. These interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the periods presented. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). See “Recently Adopted Accounting Pronouncements” below for discussion of the Company’s adoption of new guidance effective January 1, 2021. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q reflect adoption of these changes.

Principles of Consolidation

The unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiary as disclosed in Note 2, Summary of Significant Accounting Policies and Basis of Presentation, within the “Notes to Consolidated Financial Statements” accompanying the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not limited to, estimates related to revenue recognition, accrued expenses, stock-based compensation expense, and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions. Certain reclassifications have been made to prior periods to conform to current period presentation.

Summary of Significant Accounting Policies

There have been no changes in the Company's significant accounting policies as described in Note 1, Summary of Significant Accounting Policies to the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2020.

11

3. Fair value measurements

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 are as follows:

Quoted Prices

Significant

 

in Active

Other

Significant

 

Markets for

Observable

Unobservable

 

Identical Assets

Inputs

Inputs

Assets

    

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

March 31, 2021

(in thousands)

 

Money market funds included in cash and cash equivalents

    

$

109,155

    

$

109,155

    

$

    

$

Marketable securities:

U.S. Treasury notes

 

35,251

 

35,251

 

 

Equity securities

8,456

8,456

Total marketable securities

$

43,707

$

43,707

$

$

Warrants to purchase equity securities

5,638

5,638

Total

$

158,500

$

152,862

$

5,638

$

December 31, 2020

Money market funds included in cash and cash equivalents

    

$

103,992

    

$

103,992

    

$

    

$

Marketable securities:

U.S. Treasury notes

 

70,342

 

70,342

 

 

Equity securities

6,356

6,356

Total marketable securities

$

76,698

$

76,698

$

$

Warrants to purchase equity securities

3,816

3,816

Total

$

184,506

$

180,690

$

3,816

$

The Company measures the fair value of money market funds, U.S. Treasury notes and equity securities based on quoted prices in active markets for identical securities. The Level 2 equity securities include warrants used to purchase equity securities that are valued using the Black-Scholes model. The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the awards, (c) the risk-free interest rate, and (d) expected dividends. The assumptions utilized to value the warrants to purchase equity securities as of March 31, 2021 and December 31, 2020 are as follows:

As of March 31, 

As of December 31, 

    

2021

    

2020

Risk-free interest rate

 

0.1

%  

 

0.1

%  

Expected dividend yield

 

%

 

%

Expected term (in years)

 

0.4

 

0.7

Expected volatility

 

87.0

%  

 

89.2

%  

The expected volatility is based on the historic volatility for the equity securities underlying the warrants and is calculated based on a period of time commensurate with the expected term assumption. The expected term is based on the remaining contractual life of the warrants on each measurement date. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the warrants. The expected dividend yield is assumed to be zero as the entity that issued the warrants has never paid and has not indicated any intention to pay dividends.

12

4. Cash, cash equivalents, restricted cash, and available-for-sale marketable securities

Cash, cash equivalents, and marketable securities included the following at March 31, 2021 and December 31, 2020:

Amortized

Unrealized

Unrealized

Fair

    

Cost

    

Gains

    

Losses

    

Value

(in thousands)

As of March 31, 2021

    

    

    

    

    

    

    

    

Money market funds included in cash and cash equivalents

$

109,155

$

$

$

109,155

Marketable securities:

U.S. Treasury notes

 

35,246

 

5

 

 

35,251

Equity securities

1,220

7,236

8,456

Total marketable securities

$

36,466

$

7,241

$

$

43,707

Total money market funds and marketable securities

$

145,621

$

7,241

$

$

152,862

As of December 31, 2020

    

    

    

    

    

    

    

    

Money market funds included in cash and cash equivalents

$

103,992

$

$

$

103,992

Marketable securities:

U.S. Treasury notes

 

70,348

6

 

70,342

Equity securities

1,220

5,136

6,356

Total marketable securities

$

71,568

$

5,136

$

6

$

76,698

Total money market funds and marketable securities

$

175,560

$

5,136

$

6

$

180,690

All of the Company’s marketable debt securities at March 31, 2021, have a contractual maturity of one year or less.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:

As of March 31, 

2021

    

2020

(in thousands)

Cash and cash equivalents

$

117,799

$

165,227

Restricted cash included in deposits and other non-current assets

1,779

1,779

Total cash, cash equivalents, and restricted cash

$

119,578

$

167,006

5. Accrued expenses

Accrued expenses as of March 31, 2021 and December 31, 2020 consist of the following:

As of March 31, 

As of December 31, 

    

2021

    

2020

(in thousands)

Research and development costs

$

6,134

$

6,624

Employee compensation costs

 

2,963

 

5,857

Professional services

 

1,279

 

1,228

Accrued goods and services

159

496

Total

$

10,535

$

14,205

13

6. Lease obligation

Operating Leases

As of March 31, 2021 the Company has leases for office and lab space at 75 and 64 Sidney Street in Cambridge, Massachusetts through November 30, 2026.

In March 2020, the Company entered into an agreement to lease additional laboratory and office space at 75 Hayden Avenue in Lexington, Massachusetts through January 31, 2031. The Company gained control of and occupied the space in November 2020.

The Company has received leasehold improvement incentives from the landlord totaling $5.3 million for the 75 Sidney Street and 64 Sidney Street leases. The Company also received $5.6 million of leasehold improvement incentives for the 75 Hayden Avenue lease. The leasehold improvements have been capitalized as fixed assets and the Company recorded the incentives as a component of its right-of-use assets and is amortizing them as a reduction of lease expense over the life of the lease.

The Company’s lease agreements require the Company to maintain a cash deposit or irrevocable letter of credit in the aggregate amount of $1.8 million payable to the landlords as security for the performance of its obligations under the leases. These amounts are recorded as restricted cash and included in deposits and other non-current assets in the accompanying condensed consolidated balance sheets.

The following table summarizes the Company’s significant contractual obligations under operating leases as of payment due date by period at March 31, 2021:

    

Total Minimum

 

    

Lease Payments

 

(in thousands)

2021 (remainder of year)

 

6,016

2022

 

8,469

2023

 

8,723

2024

8,985

2025

9,644

Thereafter

19,945

Total future minimum lease payments

$

61,783

Less: imputed interest

(15,044)

Total lease liability

$

46,739

Reported as:

Other current liabilities

$

4,596

Other non-current liabilities

42,143

Total lease liability

$

46,739

During each of the three months ended March 31, 2021 and 2020, the Company incurred lease expense of $1.8 million for operating leases. As of March 31, 2021, the weighted average remaining lease term was 6.6 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 8.0%.

14

7. Other liabilities

As of March 31, 2021 and December 31, 2020, other current and non-current liabilities consisted of the following:

As of March 31, 

As of December 31, 

2021

    

2020

(in thousands)

Other current liabilities

Lease liability

4,596

4,198

Total other current liabilities

$

4,596

$

4,198

Other non-current liabilities

Lease liability

$

42,143

$

43,409

Other

1,001

1,001

Total other non-current liabilities

$

43,144

$

44,410

8. Commitments and contingencies

Significant Agreements

Neurocrine Collaboration Agreement

Summary of Agreement

In March 2019, the Company entered into the Neurocrine Collaboration Agreement for the research, development and commercialization of certain of its AAV gene therapy products. Under the Neurocrine Collaboration Agreement, the Company agreed to collaborate on the conduct of four collaboration programs (the “Neurocrine Programs”) which include: (i) VY-AADC (NBIb-1817) for Parkinson’s disease (the “VY-AADC Program”), (ii) the VY-FXN01 for Friedreich’s ataxia (the “FA Program”) (collectively, the “Legacy Programs”); and (iii) two programs to be determined by the Company and Neurocrine at a later date (the “Discovery Programs”).

In June 2019, in conjunction with the termination of the collaboration agreement with Sanofi Genzyme (the “Sanofi Genzyme Collaboration Agreement”), the Company gained ex-U.S. rights to the FA Program. The Company’s ex-U.S. rights to the FA Program were subsequently transferred to Neurocrine under the terms of the Neurocrine Collaboration Agreement. To facilitate the transfer of the ex-U.S. rights to the FA Program to Neurocrine, the Company and Neurocrine executed an amendment to the Neurocrine Collaboration Agreement (the “June 2019 Modification”), and Neurocrine paid $5.0 million to the Company. There were no other changes in pricing or scope of the obligations required to be performed under the Neurocrine Collaboration Agreement.

In February 2021, Neurocrine notified the Company that it had elected to terminate the Neurocrine Collaboration Agreement solely with regards to the VY-AADC Program, effective August 2, 2021 (the “Neurocrine VY-AADC Program Termination Effective Date”). The Neurocrine Collaboration Agreement remains in full force and effect for each other program thereunder. As a result of the termination, subsequent to the Neurocrine VY-AADC Program Termination Effective Date, Neurocrine will no longer reimburse the Company for research and development activities related to the VY-AADC Program.

Under the terms of the Neurocrine Collaboration Agreement, the Company originally agreed to collaborate with Neurocrine on, and to grant, exclusive, royalty-bearing, non-transferable, sublicensable licenses to certain of its intellectual property rights, for all human and veterinary diagnostic, prophylactic, and therapeutic uses, for the research, development, and commercialization of gene therapy products (the “Collaboration Products”) on a worldwide basis under (i) the VY-AADC Program; (ii) the FA Program; and (iii) each Discovery Program. As a result of the termination of the Neurocrine Collaboration Agreement with regards to the VY-AADC Program, in accordance with the terms of the Neurocrine Collaboration Agreement, the licenses granted by the Company to Neurocrine regarding the VY-AADC

15

Program will expire and the Company will regain worldwide intellectual property rights regarding the VY-AADC Program, effective upon the VY-AADC Termination Effective Date.

Pursuant to development plans agreed by the parties, which are overseen by a joint steering committee (“JSC”), the Company has operational responsibility, subject to certain exceptions, for the conduct of each Neurocrine Program prior to the occurrence of a specified event for such Neurocrine Program (a “Transition Event”), as described below, and is required to use commercially reasonable efforts to develop the corresponding Collaboration Products. Neurocrine has agreed to be responsible for all costs incurred by the Company in conducting these activities for each Neurocrine Program, in accordance with an agreed budget for each Neurocrine Program. If the Company breaches its development responsibilities or in certain circumstances upon a change in control, Neurocrine has the right but not the obligation to assume the activities under such Neurocrine Program.

Upon the occurrence of a Transition Event for each Neurocrine Program, Neurocrine has agreed to assume responsibility for development, manufacturing and commercialization activities for such Neurocrine Program from the Company and to pay milestones and royalties on future net sales as described further below. The Transition Events are (i) with respect to the VY-AADC Program, the Company’s receipt of topline data for the RESTORE-1 Phase 2 clinical trial for VY-AADC (NBIb-1817); (ii) with respect to the FA Program, the Company’s receipt of topline data for the initial Phase 1 clinical trial for an FA Program product candidate; and (iii) with respect to each Discovery Program, the preparation by the Company and the approval by Neurocrine of an investigational new drug (“IND”) application to be filed with the U.S. Food and Drug Administration (the “FDA”) by Neurocrine for the first development candidate in such Discovery Program. For each Legacy Program, the Company was granted the option (the “Co-Co Option”) to co-develop and co-commercialize such Neurocrine Program upon the occurrence of a specified event (a “Co-Co Trigger Event”). The Company agreed, upon its exercise of a Co-Co Option, to enter into a cost- and profit-sharing arrangement with Neurocrine (a “Co-Co Agreement”), and (i) jointly develop and commercialize Collaboration Products for such Legacy Program (“Co-Co Products”), (ii) share in its costs, profits and losses, and (iii) forfeit certain milestones and royalties on net sales in the United States during the effective period of the applicable Co-Co Agreement. The Co-Co Trigger Events are (i) with respect to the VY-AADC Program, the Company’s receipt of topline data for the ongoing RESTORE-1 Phase 2 clinical trial for VY-AADC (NBIb-1817) and (ii) with respect to the FA Program, the receipt of topline data for the initial Phase 1 clinical trial for an FA Program product candidate. As a result of the termination of the Neurocrine Collaboration Agreement with respect to the VY-AADC Program, the Transition Event and the Co-Co Trigger Event with respect to the VY-AADC Program will no longer apply upon the Neurocrine VY-AADC Program Termination Effective Date.

Under the Neurocrine Collaboration Agreement, subject to exceptions specified therein, the Company and Neurocrine agreed that profits and losses under the Company’s Co-Co Option would be allocated (i) 50% to Neurocrine and 50% to the Company for a Collaboration Product from the VY-AADC Program and (ii) 60% to Neurocrine and 40% to the Company for a Collaboration Product from the FA Program; provided, however, that Neurocrine would have the right to elect, within a specified period following the acceptance for filing of a biologics license application from the FDA, to pay a $35.0 million rate-shifting fee to the Company to change the allocation for the VY-AADC Program to 55% to Neurocrine and 45% to the Company. The parties agreed that each Co-Co Agreement would provide the Company the right to terminate for any reason upon prior written notice to Neurocrine and Neurocrine the right to terminate in certain circumstances upon change of control. As a result of the termination of the Neurocrine Collaboration Agreement with respect to the VY-AADC Program, the Co-Co Option with respect to the VY-AADC Program will terminate upon the Neurocrine VY-AADC Program Termination Effective Date.

The Company’s research and development activities under the Neurocrine Collaboration Agreement are conducted pursuant to plans agreed to by the parties, on a program-by-program basis, and overseen by the JSC, as detailed in the Neurocrine Collaboration Agreement.

The parties have committed to agree on a list of up to eight target genes (the “Targets”) from which Neurocrine has the right to nominate Targets for the two Discovery Programs. The Targets nominated for the Discovery Programs were approved by a consensus of the JSC or the executive officers.

16

The Neurocrine Collaboration Agreement provides for an upfront non-refundable payment of $115.0 million, as well as for aggregate development and regulatory milestone payments from Neurocrine to the Company for Collaboration Products under (i) the VY-AADC Program of up to $170.0 million; (ii) the FA Program of up to $195.0 million, and (iii) each of the two Discovery Programs of up to $130.0 million per Discovery Program. The Company may be entitled to receive aggregate commercial milestone payments for each Collaboration Product of up to $275.0 million, subject to an aggregate cap on commercial milestone payments across all Neurocrine Programs of $1.1 billion. As a result of the termination of the Neurocrine Collaboration Agreement with respect to the VY-AADC Program, the Company is no longer entitled to receive the development, regulatory and commercial milestone payments related to the VY-AADC Program upon the achievement of specified milestones. Furthermore, in connection with the Neurocrine Collaboration Agreement, Neurocrine purchased 4,179,728 shares of the Company’s common stock at a price of $11.9625 per share, for an aggregate purchase price of $50.0 million.

Neurocrine also agreed to pay the Company royalties, based on future net sales of the Collaboration Products. Such royalty percentages, for net sales in and outside the United States, as applicable, range (i) for the VY-AADC Program, from the mid-teens to low thirties and the low-teens to low twenties, respectively; (ii) for the FA Program, from the low-teens to high-teens and high-single digits to mid-teens, respectively; and (iii) for each Discovery Program, from the high-single digits to mid-teens and mid-single digits to low-teens, respectively. On a country-by-country and program-by-program basis, royalty payments would commence on the first commercial sale of a Collaboration Product and terminate on the later of (a) the expiration of the last patent covering the Collaboration Product or its method of use in such country, (b) ten years from the first commercial sale of the Collaboration Product in such country and (c) the expiration of regulatory exclusivity in such country, or the Royalty Term. Royalty payments may be reduced by up to 50% in specified circumstances, including expiration of patents rights related to a Collaboration Product, approval of biosimilar products in a given country or required payment of licensing fees to third parties related to the development and commercialization of any Collaboration Product. As a result of the termination of the Neurocrine Collaboration Agreement with respect to the VY-AADC Program, the Company is no longer entitled to receive royalties related to the VY-AADC Program. Additionally, the licenses granted to Neurocrine shall automatically convert to fully paid-up, non-royalty bearing, perpetual, irrevocable, exclusive licenses on a country-by-country and product-by-product basis upon the expiration of the Royalty Term applicable to such Collaboration Product in such country.

Under the terms of the Neurocrine Collaboration Agreement and subject to specified exceptions therein, each party owns the entire right, title and interest in and to all intellectual property rights made solely by its employees or agents in the course of the collaboration. The parties jointly own all rights, title and interest in and to all intellectual property rights made or invented jointly by employees or agents of both parties.

During the term of the Neurocrine Collaboration Agreement, neither party nor any of its respective affiliates is permitted to directly or indirectly exploit any AAV-based gene therapy products directed to a Target to which a Collaboration Product is directed, subject to specified exceptions, including the parties’ conduct of basic research activities.

Unless earlier terminated, the Neurocrine Collaboration Agreement expires on the later of (i) the expiration of the last to expire royalty term with respect to a Collaboration Product in all countries in the relevant territory or (ii) the expiration or termination of all Co-Co Agreements. Neurocrine may terminate the Neurocrine Collaboration Agreement in its entirety or on a program-by-program or country-by-country basis by providing at least (x) 180-day advance notice if such notice is provided prior to the first commercial sale of the Collaboration Product to which the termination applies or (y) one-year advance notice if such notice is provided after the first commercial sale of the Collaboration Product to which the termination applies. The Company may terminate the Neurocrine Collaboration Agreement, subject to specified conditions, if Neurocrine challenges the validity or enforceability of certain of the Company’s intellectual property rights. Subject to a cure period, either party may terminate the Neurocrine Collaboration Agreement in the event of a material breach by the other party in whole or in part, subject to specified conditions.

Upon termination in certain cases, Neurocrine has agreed to grant to the Company licenses to certain Neurocrine intellectual property, subject to a negotiation between the parties to establish royalty rates for use of such intellectual property. In the event of a breach by the Company with respect to a Neurocrine Program, if such termination were to occur after a Transition Event, then (i) if a Co-Co Agreement is in effect with respect to such program,

17

Neurocrine can terminate the Co-Co Agreement for such program and the Company would no longer have co-development and co-commercialization rights with respect to the Collaboration Product and (ii) subject to any license agreements, Neurocrine would no longer have any obligations with respect to any Collaboration Products resulting from such program.

Termination of VY-AADC Program

As described above, as of the Neurocrine VY-AADC Program Termination Effective Date, the license granted by the Company to Neurocrine thereunder regarding the VY-AADC Program shall expire and the Company shall regain worldwide intellectual property rights regarding the VY-AADC Program, in each case in accordance with the terms of the Neurocrine Collaboration Agreement. As of the Neurocrine VY-AADC Program Termination Effective Date, Neurocrine will no longer reimburse the Company for research and development activities related to the VY-AADC Program, and the Company is no longer entitled to receive future milestone or royalty payments related to the VY-AADC Program. The Company intends to support Neurocrine, the study sponsor and IND holder, on ongoing matters related to the completion of imaging and clinical assessments requested by the DSMB and the provision of other information requested by the FDA for the RESTORE-1 Phase 2 clinical trial.

The Company continues to believe that the VY-AADC program holds significant promise for Parkinson’s disease patients as evidenced by the positive multi-year safety and efficacy data from the two Phase 1b clinical trials presented in September 2020 at the MDS Virtual Congress. As a result of the prioritization of new programs enabled by novel capsids in the Company’s preclinical portfolio and its focus on the clinical efforts for the VY-HTT01 program to treat Huntington’s disease, the Company has determined that it will not advance the VY-AADC program on its own following the termination of that portion of the Neurocrine Collaboration Agreement. Instead, the Company expects to turn the future development and commercialization of VY-AADC over to a partner once the potential path forward for the program is determined.

Accounting Analysis

At inception, the Neurocrine Collaboration Agreement included the following performance obligations: (i) research and development services for each Legacy Program combined with a development and commercialization license for each such program and (ii) research and development services for each Discovery Program combined with a development and commercialization license for each program. The research services and license on a program by program basis are not distinct as Neurocrine cannot benefit from such license on its own or from other resources commonly available in the industry, without the corresponding research services due to the unique and specialized expertise of the Company that is not readily available in the marketplace.

The Company identified $92.4 million of fixed transaction price consisting of the $115.0 million upfront fee and $5.0 million payment from the June 2019 Modification, offset by a discount of $27.6 million related to the $50.0 million equity investment of 4,179,728 shares when measured at fair value on the date of issuance. The Company is also entitled to reimbursement of costs incurred by the Company prior to the Transition Events associated with each Neurocrine Program. These amounts are determinable based on program plans and budgets, and the Company has a contractual right to the payment of cost incurred under the agreed upon program plans. The Company utilized the most likely amount approach and estimated the expected cost reimbursement to be $431.1 million at inception. The Company concluded that these amounts do not require a constraint and are included in the transaction price at inception. The Company considers this estimate at each reporting date and updates the estimate based on information available. During the three months ended March 31, 2021, the Company changed the estimate of the expected reimbursement to $270.2 million, based upon expectations as of March 31, 2021. Additional consideration to be paid to the Company upon reaching certain milestones are excluded from the transaction price at inception due to the uncertainty of achieving the development and regulatory milestones.

The Company allocated the fixed transaction price to the separate performance obligations based on the relative standalone selling price of each performance obligation or in the case of certain variable consideration to one or more performance obligations. The estimated standalone selling prices for performance obligations, that include a license and

18

research services, were developed using the estimated selling price of the license, using comparable and market data, and an estimate of the overall effort to perform the research services along with a reasonable profit for research services.

The Company concluded that the variable consideration related to the cost reimbursement of each program will be allocated to each respective program as the cost reimbursement relates specifically to the respective program services being performed under the Neurocrine Collaboration Agreement. The reimbursement of research services is considered to be at a market rate and the allocation of the fixed consideration to all of the performance obligations depicts the estimated amounts in which it would expect to receive for these obligations, absent the variable consideration related to the research reimbursement. The total variable consideration allocated to each program related to the expected cost reimbursement was as follows at March 31, 2021:

Performance Obligation

Amount

(in thousands)

Variable Consideration

VY-AADC Program

$

53,397

FA Program

80,408

Discovery Program 1

69,572

Discovery Program 2

66,831

Total

$

270,208

Based on the relative standalone selling price allocation, the allocation of the transaction price, exclusive of the variable consideration allocated to the individual performance obligations, to the separate performance obligations was as follows:

Performance Obligation

Amount

(in thousands)

Fixed Consideration

VY-AADC Program

$

49,045

FA Program

20,647

Discovery Program 1

14,443

Discovery Program 2

8,247

Total

$

92,382

The Company recognizes the transaction price associated with each performance obligation on a proportional performance basis over the period of service using input-based measurements such as costs incurred to date, to estimate proportion performed, and remeasures its progress towards completion at the end of each reporting period.

The Company determined the partial termination of the Neurocrine Collaboration Agreement with respect to the VY-AADC Program represented a modification of the arrangement under ASC 606 and that the remaining fixed transaction price at the Neurocrine VY-AADC Program Termination Effective Date of $42.2 million should be re-allocated to the FA Program and Discovery Program 1 and 2 based on their standalone selling prices. Accordingly, the Company recorded a cumulative adjustment to revenue of approximately $0.9 million on the partially satisfied remaining performance obligations, as the remaining services to be performed under each of the performance obligations are not distinct from the services prior to the modification. The Company determined that reasonable changes to the Company’s estimates of standalone selling prices for the FA Program, Discovery Program 1 and Discovery Program 2 performance obligations did not have a material impact on the re-allocation or the amount of revenue recorded pursuant to the cumulative catch-up adjustment.

During the three months ended March 31, 2021 and 2020, the Company recognized $6.5 million and $14.5 million, respectively, of revenue associated with its collaboration with Neurocrine related to research and development services performed during the period and the corresponding cost reimbursement receivable. As of March 31, 2021, there was $40.1 million of deferred revenue related to the Neurocrine Collaboration Agreement, which is classified as either current or non-current in the accompanying condensed consolidated balance sheet based on the period the services are

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expected to be delivered. Additionally, as of March 31, 2021, there was $4.3 million of collaboration receivables related to reimbursable costs expected to be received from Neurocrine for research and development services performed.

The following table presents changes in the balances of the Company’s related party collaboration receivables and contract liabilities during the three months ended March 31, 2021.

Balance at

    

Balance at

December 31, 2020

Additions

Deductions

March 31, 2021

(in thousands)

Related party collaboration receivables

$

8,012

$

3,363

$

(7,122)

$

4,253

Contract liabilities:

Deferred revenue

$

43,689

$

$

(3,632)

$

40,057

The change in the receivables balance for the three months ended March 31, 2021 is primarily driven by amounts owed to the Company for research and development services provided, offset by amounts collected from Neurocrine during the period.

Costs incurred relating to the Company’s collaboration programs under the Neurocrine Collaboration Agreement consist of internal and external research and development costs, which primarily include: salaries and benefits, lab supplies, preclinical research studies, clinical studies, consulting services, and commercial development. These costs are included in research and development expenses in the Company’s condensed consolidated statements of operations during the three months ended March 31, 2021 and 2020.

The Company incurred approximately $0.8 million of costs to obtain the Neurocrine Collaboration Agreement which were payable only upon the close of the deal and therefore considered incremental costs of obtaining a contract with a customer and capitalized. The costs are recorded in prepaid expenses and other non-current assets and are being amortized over the period in which the research services will be provided.

Other Agreements

The Company has entered into various agreements with contract research organizations and institutions to license intellectual property. In consideration for the rights licensed under such agreements, the Company generally made upfront payments, which were recorded as research and development expense as the acquired technologies were considered in-process research and development. The license agreements obligate the Company to make additional payments that are contingent upon specific clinical trial and regulatory approval milestones being achieved as well as royalties on future product sales. The agreements to license intellectual property include potential milestone payments that are dependent upon the development of products licensed under the agreements and contingent upon the achievement of clinical trial or regulatory approval milestones. The Company reached a milestone related to first patient dosing on the RESTORE-1 Phase 2 clinical trial which resulted in a $0.1 million milestone payment to one of its licensors in 2019. The Company can generally terminate the license agreements upon 30 to 90 days prior written notice.

Additionally, certain license agreements require the Company to reimburse the licensor for certain past and ongoing patent related expenses.

During the year ended December 31, 2016, the Company entered into a research and development funding arrangement with a non-profit organization that provides up to $4.0 million in funding to the Company upon the achievement of clinical and development milestones. The agreement provides that the Company repay amounts received under certain circumstances including termination of the agreement, and to pay an amount up to 2.6 times the funding received upon successful development and commercialization of any products developed. During the year ended December 31, 2017, the Company earned a milestone payment of $1.0 million. The Company has evaluated the arrangement and has concluded that it represents a research and development financing arrangement as it is probable that the Company will repay amounts received under the arrangement. As a result, the $1.0 million earned to date is recorded as a non-current liability in the condensed consolidated balance sheet.

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Litigation

The Company was not a party to any material legal matters or claims and did not have contingency reserves established for any litigation liabilities as of December 31, 2020.

On January 22, 2021, a putative class action lawsuit was filed in the U.S. District Court for the Eastern District of New York against the Company and certain of its current and former officers and directors, captioned Karp v. Voyager Therapeutics, Inc. et al., No. 1:21-cv-00381. The complaint purports to be brought on behalf of stockholders who purchased its common stock between June 1, 2017 and November 9, 2020. The complaint generally alleges that the defendants violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making material misstatements or omissions concerning the Huntington’s Program and the Company’s investigational new drug application for VY-HTT01. The complaint seeks, among other things, unspecified compensatory damages, interest, attorneys’ and expert fees and costs. On April 19, 2021, the court appointed the lead plaintiff for the action, and on April 30, 2021, the action was transferred to the U.S. District Court for the District of Massachusetts (where it has been assigned case number 1:21-cv-10727). The Company denies any allegations of wrongdoing and believes it has a valid defense against these claims and, therefore, intends to vigorously defend itself against this lawsuit.

9. Stock-based compensation

Stock-Based Compensation Expense

Total compensation cost recognized for all stock-based compensation awards in the condensed consolidated statements of operations and comprehensive loss is as follows:

Three Months Ended

March 31, 

 

    

2021

    

2020

 

(in thousands)

Research and development

$

1,371

$

1,685

General and administrative

 

2,230

 

2,355

Total stock-based compensation expense

$

3,601

$

4,040

Stock-based compensation expense by type of award included within the condensed consolidated statements of operations and comprehensive loss was as follows:

Three Months Ended

March 31, 

    

2021

    

2020

(in thousands)

Stock options

$

2,523

$

3,208

Restricted stock awards and units

975

741

Employee stock purchase plan awards

 

103

 

91

Total stock-based compensation expense

$

3,601

$

4,040

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Restricted Stock Units

A summary of the status of and changes in unvested restricted stock unit activity under the Company’s equity award plans for the three months ended March 31, 2021 was as follows:

    

Weighted

Average

Grant Date

Fair Value

    

Units

    

Per Unit

Unvested restricted stock units as of December 31, 2020

 

638,471

$

12.74

Granted

 

1,203,684

$

6.28

Vested

 

(184,217)

$

11.55

Forfeited

 

(50,607)

$

9.40

Unvested restricted stock units as of March 31, 2021

 

1,607,331

$

8.15

Stock-based compensation of restricted stock units is based on the fair value of the Company’s common stock on the date of grant and recognized over the vesting period. Restricted stock units granted by the Company typically vest in equal amounts, annually over three years. In the three months ended March 31, 2021, the Company granted 503,684 restricted stock units vesting in equal amounts, annually over three years, and 700,000 restricted stock units vesting in equal amounts, annually over two years. All of the restricted stock units granted in the three months ended March 31, 2020 vest in equal amounts, annually over three years. The stock-based compensation expense related to restricted stock units and awards was $0.9 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the Company had unrecognized stock-based compensation expense related to its unvested restricted stock units of $11.8 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.2 years.

Stock Options

The following is a summary of stock option activity for the three months ended March 31, 2021:

    

Weighted

    

Remaining

    

Aggregate

Average

Contractual

Intrinsic

Exercise

Life

Value

    

Shares

    

Price

    

(in years)

    

(in thousands)

Outstanding at December 31, 2020

 

5,485,078

$

14.77

Granted

 

1,031,704

$

7.42

Exercised

 

(3,811)

$

7.27

Cancelled or forfeited

 

(261,109)

$

14.01

Outstanding at March 31, 2021

 

6,251,862

$

13.59

7.7

$

Exercisable at March 31, 2021

 

3,165,450

$

15.18

6.5

$

Using the BlackScholes option pricing model, the weighted-average fair value of options granted to employees during the three months ended March 31, 2021 was $4.81 per share. The expense related to stock options granted to employees and directors was $2.5 million for the three months ended March 31, 2021. The expense related to stock options granted to employees and directors was $3.2 million for the three months ended March 31, 2020.

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The fair value of each option issued to employees and directors was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Three Months Ended

March 31, 

2021

    

2020

Risk-free interest rate

 

0.7

%  

 

1.4

%  

 

Expected dividend yield

 

%

 

%

 

Expected term (in years)

 

6.0

 

6.0

 

Expected volatility

 

74.8

%  

 

72.3

%  

 

There were no new stock options granted to nonemployees during the three months ended March 31, 2021 and 2020. The expense related to stock options previously granted to nonemployees was de minimis for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the Company had unrecognized stock-based compensation expense related to its unvested stock options of $22.0 million which is expected to be recognized over the remaining weighted-average vesting period of 2.8 years.

10. Net loss per share

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to so include them would be anti-dilutive:

As of March 31, 

    

2021

    

2020

Unvested restricted common stock awards

 

156,863

 

176,471

Unvested restricted common stock units

1,607,331

747,427

Outstanding stock options

 

6,251,862

 

6,065,155

Total

 

8,016,056

 

6,989,053

Basic net loss per share for the three months ended March 31, 2021 and 2020, is the same as diluted net loss per share as shown on the Company’s condensed consolidated statement of operations and comprehensive loss.

11. Related-party transactions

During the three months ended March 31, 2021 and 2020, the Company received board and scientific advisory services from one of its former executives, Dinah Sah, Ph.D., the Company’s former Chief Scientific Officer. The total amount of fees paid to Dr. Sah for services provided was $0.1 million for both the three months ended March 31, 2021 and 2020.

Under the collaboration agreement, the Company and Neurocrine have agreed to conduct research, development and commercialization of certain of the Company’s AAV gene therapy products (Note 8). Amounts due from Neurocrine are reflected as related party collaboration receivables. As of March 31, 2021, the Company had approximately $4.3 million in related party collaboration receivable associated with Neurocrine.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission, or the SEC, on February 25, 2021.

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under “Part II, Item 1A—Risk Factors.”

These forward-looking statements are made under the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are neither promises nor guarantees. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We are a clinical-stage gene therapy company focused on developing life-changing treatments for patients suffering from serious neurological diseases. We focus on neurological diseases where we believe an adeno-associated virus, or AAV, gene therapy approach that either increases or decreases the production of a specific protein can slow or reduce the symptoms experienced by patients, and therefore have a clinically meaningful impact. We have built a gene therapy platform that we believe positions us to be a leading company at the intersection of AAV gene therapy and severe neurological disease. Our gene therapy platform enables us to engineer, optimize, manufacture and deliver our AAV-based gene therapies that have the potential to provide durable efficacy following a single administration.

Additionally, we are working to identify novel AAV capsids, which are the outer viral protein shells that enclose the genetic material of the virus payload. Our team of experts in the fields of AAV gene therapy and neuroscience first identifies and selects severe neurological diseases that are well-suited for treatment using AAV gene therapy. We then engineer and optimize AAV vectors for delivery of the virus payload to the targeted tissue or cells. Our manufacturing process employs an established system that we believe will enable production of high quality AAV vectors at commercial-scale. In addition to our capsid optimization efforts, we leverage novel delivery paradigms, established routes of administration, and advances in dosing techniques to optimize delivery of our AAV gene therapies to target tissues, regions and cell types that are critical to the disease of interest. We believe we can achieve this directly, with targeted infusions to discrete regions of the brain or spinal cord, or systemically, in conjunction with our novel capsids.

Our business strategy focuses on discovering, developing, manufacturing and commercializing our gene therapy programs. As part of this strategy, we have developed core competencies specific to AAV gene therapy development and manufacturing and are beginning to build our commercial infrastructure. This business strategy also includes business

24

development activities that may include in-licensing activities or partnering certain programs in specific geographies with collaborators, as we have demonstrated through our ongoing collaboration with Neurocrine Biosciences, Inc., which we refer to as Neurocrine. Since our inception, our operations have focused on organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio, determining which neurological diseases to pursue, advancing our product candidates including delivery and manufacturing, and conducting preclinical studies and clinical trials. We do not have any product candidates approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through private placements of redeemable convertible preferred stock, public offerings of our common stock, and our strategic collaborations, including our prior collaboration with Sanofi Genzyme Corporation, or the Sanofi Genzyme Collaboration, which commenced in February 2015 and was terminated in June 2019, our prior collaboration with AbbVie Biotechnology Ltd. focusing on tau-related disease, or the AbbVie Tau Collaboration, which commenced in February 2018 and was terminated in August 2020, our prior collaboration with AbbVie Ireland Unlimited Company focusing on pathological species of alpha-synuclein, or the AbbVie Alpha-Synuclein Collaboration, which commenced in February 2019 and was terminated in August 2020, and our ongoing collaboration with Neurocrine, which commenced in March 2019. We refer to our collaboration agreement with Neurocrine as the Neurocrine Collaboration Agreement and the collaboration with Neurocrine as the Neurocrine Collaboration.

Our pipeline of gene therapy programs is summarized in the table below:

GRAPHIC

Our pipeline consists of wholly-owned programs for severe neurological indications, including Huntington’s disease; a monogenic form of amyotrophic lateral sclerosis, or ALS; and tau-related diseases including Alzheimer’s disease, frontotemporal dementia, or FTD, and progressive supranuclear palsy, or PSP. We may seek orphan drug designation, breakthrough therapy designation, or other expedited review processes for certain of our product candidates in the United States, Europe, and Japan. Additionally, we continue to partner with Neurocrine on programs for severe neurological diseases including Friedreich’s ataxia.

As part of the Neurocrine Collaboration, we and Neurocrine have been developing VY-AADC (NBIb-1817) for the treatment of Parkinson’s disease, or the VY-AADC Program. VY-AADC (NBIb-1817) is currently being evaluated in the RESTORE-1 Phase 2 clinical trial. The FDA has granted VY-AADC (NBIb-1817) its regenerative medicine advanced therapy, known as RMAT, designation, which provides for an enhanced level of interactions between the company sponsor and the FDA throughout a development program, and has granted VY-AADC (NBIb-1817) fast-track designation.

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In December 2020, the FDA notified Neurocrine that the FDA had placed a clinical hold on the RESTORE-1 Phase 2 trial, and has subsequently informed Neurocrine of the information required to provide a complete response to the FDA. In February 2021, Neurocrine notified us of its termination of the Neurocrine Collaboration with regards to the VY-AADC Program, effective August 2, 2021, or the Neurocrine VY-AADC Program Termination Effective Date. Upon the Neurocrine VY-AADC Program Termination Effective Date, the license granted by us to Neurocrine will expire and we will regain worldwide intellectual property rights to the VY-AADC Program in accordance with the collaboration agreement. We intend to support Neurocrine, the study sponsor and investigational new drug application, or IND, holder, on ongoing matters related to the completion of imaging and clinical assessments requested by the Data Safety and Monitoring Board, or DSMB, and the provision of other information requested by the U.S. Food and Drug Administration, or FDA, for the RESTORE-1 Phase 2 clinical trial. The imaging requests include additional magnetic resonance imaging, or MRI, scans from the participants in the Phase 1b trials and positron emission tomography, or PET, scans from the RESTORE-1 Phase 2 clinical trial participants. Although Neurocrine remains the study sponsor of the RESTORE-1 clinical study, the underlying technology licenses for the VY-AADC program will revert to the Company on August 2, 2021.

We continue to believe that the VY-AADC program holds significant promise for Parkinson’s disease patients as evidenced by the positive multi-year safety and efficacy data from the two Phase 1b clinical trials presented in September 2020 at the MDS Virtual Congress. As a result of the prioritization of new programs enabled by novel capsids in our preclinical portfolio and our focus on the clinical efforts for the VY-HTT01 program to treat Huntington’s disease, we have determined that we will not advance the VY-AADC program on our own following the termination of that portion of the collaboration agreement. Instead, we expect to turn the future development and commercialization of VY-AADC over to a partner once the potential path forward for the program is determined.

VY-AADC (NBIb-1817) Phase 1 Clinical Development

We evaluated the delivery of VY-AADC (NBIb-1817) in a transfrontal (i.e., top of the head) surgical delivery route in a Phase 1b clinical trial, which we refer to as PD-1101, and we are exploring the delivery of VY-AADC (NBIb-1817) using a posterior trajectory (i.e., back of the head) surgical delivery route in a Phase 1 clinical trial, which we refer to as PD-1102. PD-1101 was an open-label, dose-ranging, Phase 1b clinical trial for VY-AADC (NBIb-1817) to evaluate safety and efficacy. We enrolled 15 patients with advanced Parkinson’s disease and assessed increased volume or concentration of VY-AADC (NBIb-1817) in three separate cohorts consisting of five patients in each cohort. PD-1102 is a separate, open-label Phase 1 clinical trial for VY-AADC (NBIb-1817) to evaluate the posterior trajectory that enrolled eight patients with advanced Parkinson’s disease. We have completed enrollment in both PD-1101 and PD-1102, have completed three-year follow-up for PD-1101, and continue to follow patients in PD-1102. Data to date from both trials demonstrate that VY-AADC (NBIb-1817) has been generally well-tolerated and that administration with VY-AADC (NBIb-1817) improved patients’ motor function and quality of life as measured by standard scores and measures used in Parkinson’s disease trials.

At the Movement Disorder Society (MDS) Virtual Congress 2020 held in September 2020, we and Neurocrine presented the final three-year data on all three cohorts of the PD-1101 Phase 1b clinical trial, as well as two-year data from the PD-1102 Phase 1 clinical trial. The results demonstrated that a one-time treatment with VY-AADC (NBIb-1817), showed sustained improvement in motor function including greater “ON” time without troublesome dyskinesia, improvement in the Unified Parkinson’s Disease Rating Scale, or UPDRS, Part III scores, and reduction in the amount of Parkinson’s disease medications required.

In the three-year data from the PD-1101 trial, the one-time treatment with VY-AADC (NBIb-1817) showed sustained reduction in diary “OFF” time by an average of -0.15 to -1.91 hours (from an applicable baseline ranging from 4.28 to 4.93 hours) and improved “ON” time without troublesome dyskinesia by an average of 0.26 to 2.23 hours (from an applicable baseline ranging from 10.32 to 10.46 hours) across the cohorts, in each case, as reported in validated self-reported patient diaries by 15 patients with advanced Parkinson’s disease. VY-AADC (NBIb-1817) also showed sustained improvement in motor function after three years, as measured by UPDRS Part III off medication scores, by -10.2 to -19.0 points (from an applicable baseline ranging from 35.8 to 38.2 points) across the cohorts, per clinician

26

assessment. Requirements for Parkinson’s disease medications were also reduced in cohorts 2 and 3, in levodopa-equivalent daily doses, by an average of 322.0 and 441.2 mg/day, respectively, from applicable baselines of 1507.0 and 1477.0 mg/day.

Two-year data from 7 patients in the PD-1102 trial showed that VY-AADC (NBIb-1817) reduced diary-reported “OFF” time by an average of 3.2 hours and increased diary-reported good “ON” time by 2.1 hours (from applicable baselines of 9.3 hours and 6.6 hours, respectively). In this study, patients treated with VY-AADC (NBIb-1817) showed sustained improvement in motor function after two years, with improved UPDRS Part III off medication scores of -12.0 points (from an applicable baseline of 34.4). Requirements for Parkinson’s disease medications were also reduced, in levodopa-equivalent daily doses, by an average of 439.5 mg/day from a baseline 1500.9 mg/day.

Preliminary safety data from both trials suggest that VY-AADC (NBIb-1817) was generally well-tolerated, with no study drug-related serious adverse events reported. The most common adverse events reported were headache, hypoesthesia, and musculoskeletal pain for patients enrolled in PD-1101, and upper respiratory tract infection, headache, nausea, and depression for patients enrolled in PD-1102.

VY-AADC (NBIb-1817) RESTORE-1 Program

In connection with our continued clinical development of VY-AADC (NBIb-1817), we sought to shift from production using a mammalian cell system consisting of triple-transfection of HEK293 cells, which was used in our two Phase 1 clinical trials, to production using insect-derived cells and our baculovirus/Sf9 manufacturing process. We designed our baculovirus/Sf9 manufacturing process to produce AAV vectors at clinical and commercial scale, with the potential for increased yields and more efficient scalability compared with mammalian-based systems.

In December 2017, we submitted an IND to the FDA to evaluate VY-AADC (NBIb-1817) in the RESTORE-1 Phase 2 clinical trial, a randomized, double-blind, sham-surgery controlled trial evaluating the safety and efficacy of VY-AADC (NBIb-1817) for the treatment of moderate to advanced Parkinson’s disease in patients with motor fluctuations. As part of the IND application for VY-AADC (NBIb-1817), the chemistry, manufacturing, and controls section included data demonstrating comparability between VY-AADC (NBIb-1817) produced using our baculovirus/Sf9 manufacturing process and VY-AADC (NBIb-1817) produced using the mammalian cell system. In each case, the VY-AADC was produced under cGMP. The data demonstrated that this production platform change resulted in comparable vector quality and activity. As a result, we decided to use VY-AADC (NBIb-1817) manufactured in our baculovirus/Sf9 system in the RESTORE-1 Phase 2 clinical trial.

In December 2018, we announced randomization of the first patient in the RESTORE-1 Phase 2 clinical trial. We received written feedback from the FDA, including FDA guidance received during the Type B meeting, that in a disease such as Parkinson’s, two adequate and well-controlled clinical trials are suggested. Based upon feedback received from the FDA, we and Neurocrine amended the RESTORE-1 clinical trial protocol to support a potential future registration filing for VY-AADC (NBIb-1817) for the treatment of Parkinson’s disease in the United States. The protocol amendments included increasing the planned enrollment to approximately 85 patients from the previously planned 42 patients, and adjusting future enrollment in the trial to randomize patients 2:1 to VY-AADC (NBIb-1817) or sham-surgery, respectively, as compared to the previous 1:1 randomization. The eligibility criteria remained substantially the same: the trial is potentially available to patients who have been diagnosed with Parkinson’s disease for at least four years, are not responding adequately to oral medications, and have at least three or more hours of OFF time during the day as measured by a validated self-reported patient diary. The protocol amendments were anticipated to facilitate enrollment and patient convenience.

A dose of up to 3.6 x 1012 vector genomes, which we refer to as the maximum total bilateral dose, was selected for the RESTORE-1 Phase 2 clinical trial. This dose is between the maximum total vector genome doses administered in Cohorts 2 and 3 from PD-1101 when considering the higher volume administered with the posterior trajectory and vector produced using the baculovirus system.

The primary efficacy endpoint of the RESTORE-1 Phase 2 clinical trial is the mean improvement from baseline to 12 months in good ON time as measured by a validated self-reported patient diary at 12 months compared to sham

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surgery. Secondary endpoints include mean improvement in diary OFF time, other motor function and quality of life measures from the UPDRS (UPDRS-II and -III scores), assessments from the Parkinson’s Disease Questionnaire, or PDQ-39, and patient’s global function as measured by the proportion of participants with improvement on the Clinical Global Impression, or CGI, score. The trial will also measure non-motor symptoms from the Non-Motor Symptom Scale, or NMSS, as well as safety.

Changes in patients’ daily doses of oral levodopa and related medications will also be recorded. Biomarker data collected during the RESTORE-1 Phase 2 clinical trial includes measurements of the coverage of the putamen, the specific region of the brain targeted with VY-AADC (NBIb-1817), and measurements of AADC enzyme expression and activity in the putamen measured by positron emission tomography using 18-F-fluorodopa.

In November 2020, the sponsor medical monitor and surgical core requested that the DSMB for the RESTORE-1 Phase 2 clinical trial, review certain patient MRI abnormalities observed in some clinical trial participants in the ongoing clinical trial. Following this review, the DSMB requested additional information about magnetic resonance imaging abnormalities observed in trial participants and recommended a pause in the dosing of patients in the RESTORE-1 Phase 2 clinical trial pending review by the DSMB of these additional data. The DSMB informed Neurocrine that patient screening could continue for the trial and that the trial should remain blinded. Trial sites participating in the RESTORE-1 clinical trial were not screening, enrolling, or dosing patients at the time of this DSMB request as a result of the COVID-19 pandemic. In response to the DSMB’s recommendation to pause the dosing of patients, we and Neurocrine decided to delay the planned resumption of patient screening in the RESTORE-1 Phase 2 clinical trial until Neurocrine had submitted the required expedited IND safety report related to these matters and the DSMB was able to complete its evaluation.

In December 2020, the FDA notified Neurocrine that it had placed a clinical hold on the RESTORE-1 clinical trial. In January 2021, the FDA informed Neurocrine of the information required to provide a complete response to the FDA in connection with the clinical hold. Information required by the FDA includes an assessment of how the investigational product may have given rise to the adverse findings, a mitigation plan to manage the adverse findings, and supportive data to justify that a favorable benefit/risk profile remains for the product.

The DSMB met to review additional patient data in January 2021 and has characterized the MRI abnormalities observed in the RESTORE-1 Phase 2 clinical trial as having uncertain clinical significance. The DSMB requested that Neurocrine obtain and provide additional information on past and current patients in the VY-AADC (NBIb-1817) clinical program. The clinical implications of this observation are currently unknown and are being evaluated.

In February 2021, Neurocrine notified us of its decision to terminate the Neurocrine Collaboration with respect to the VY-AADC Program, effective August 2, 2021. The Collaboration Agreement remains in full force and effect for each other program thereunder. Upon the termination of the VY-AADC Program, the license granted by us to Neurocrine will expire, and we will regain worldwide intellectual property rights to the VY-AADC Program in accordance with the collaboration agreement. We intend to support Neurocrine, the study sponsor and IND holder, on ongoing matters related to the completion of imaging and clinical assessments requested by the DSMB and the provision of other information requested by the FDA for the RESTORE-1 Phase 2 clinical trial. Although we believe that the VY-AADC Program may have value, as a result of the reprioritization of our product candidate portfolio, we have determined not to advance the VY-AADC Program without a collaboration partner once we have regained the underlying worldwide intellectual property rights. Although Neurocrine remains the study sponsor of the RESTORE-1 clinical study, the underlying technology licenses for the VY-AADC program will revert to us on August 2, 2021.

We continue to believe that the VY-AADC program holds significant promise for Parkinson’s disease patients as evidenced by the positive multi-year safety and efficacy data from the two Phase 1b clinical trials presented in September 2020 at the MDS Virtual Congress. As a result of the prioritization of new programs enabled by novel capsids in our preclinical portfolio and our focus on the clinical efforts for the VY-HTT01 program to treat Huntington’s disease, we have determined that we will not advance the VY-AADC program on our own following the termination of that portion of the collaboration agreement. Instead, we expect to turn the future development and commercialization of VY-AADC over to a partner once the potential path forward for the program is determined.

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VY-HTT01 and the Planned Phase 1/2 VYTAL Clinical Program

VY-HTT01 is our clinical gene therapy candidate for the treatment of Huntington’s disease. VY-HTT01 is composed of an AAV capsid (AAV1) and a proprietary transgene that harnesses the RNA interference pathway to selectively knock down, or reduce, levels of huntingtin, or HTT, mRNA.

In non-human primate studies, one-time administration of VY-HTT01 resulted in robust and durable reduction of HTT mRNA and protein with knock-down stabilization between six and twelve months, and widespread distribution of VY-HTT01 vector genome across the striatum and cortex, which are core areas of disease pathology. VY-HTT01 treatment demonstrated robust reduction of HTT mRNA and protein in the YAC128 and BACHD transgenic mouse models of Huntington’s disease, with significant improvements in motor function. We plan to present preclinical data from the IND-enabling studies at a medical conference in 2021.

In September 2020, we submitted an IND application to evaluate VY-HTT01 in a planned Phase 1/2 clinical trial in patients with Huntington’s disease. In October 2020, the FDA placed a clinical hold on our IND application pending the resolution of certain chemistry, manufacturing and controls, or CMC, information requests, and we subsequently received written feedback from the FDA requesting additional information on specific CMC topics, including drug device compatibility and drug substance and product characterization. We provided our complete response to the additional requests from the FDA regarding the IND application for VY-HTT01 and, in April 2021, were notified that the FDA removed the clinical hold on VY-HTT01.

We plan to initiate VYTAL, a Phase 1/2 clinical trial of VY-HTT01 at multiple U.S. sites, in the fourth quarter of this year. The planned VYTAL Phase 1/2 clinical trial is designed as a randomized, open-label study with a concurrent delayed-start control. The trial will evaluate the safety and tolerability of VY-HTT01 in patients with early manifest Huntington’s disease. Secondary endpoints include disease biomarkers and clinical outcome measures. We expect to initiate the planned VYTAL Phase 1/2 clinical trial by the end of 2021 and anticipate providing initial topline safety, tolerability and biomarker data in 2022.

Preclinical Pipeline Programs

We are pursuing additional product candidates in the preclinical stages of development, including treatment programs for Friedreich’s ataxia, ALS, tau-related neurodegenerative diseases, and other severe neurological diseases. We continue to evaluate additional severe neurological diseases that could be treated using AAV gene therapy through application of either a gene replacement or a gene knockdown approach and are also actively exploring additional potential treatment methods that can utilize an AAV vector.

As part of the Neurocrine Collaboration, we are developing VY-FXN01 for the treatment of Friedreich’s ataxia, a debilitating neurodegenerative disease resulting in poor coordination of legs and arms, progressive loss of the ability to walk, generalized weakness, loss of sensation, scoliosis, diabetes and cardiomyopathy as well as impaired vision, hearing, and speech. VY-FXN01 is currently in preclinical development. We and Neurocrine are in the process of identifying a lead candidate that will comprise a capsid, promoter, and FXN transgene. We are completing AAV capsid biodistribution experiments to confirm capsid serotypes that effectively transduce disease target tissues in non-human primates following intravenous injection. Criteria for evaluating these capsids include safety, the overall level of transgene expression achieved, and the anatomic and cellular distribution of the transgene expression. Also, we have optimized the promoter for VY-FXN01 to achieve an acceptable therapeutic index for frataxin replacement. To evaluate the therapeutic potential of our vectors, we have conducted testing in a new genetic mouse model of Friedreich’s ataxia. In this preclinical model of Friedreich’s ataxia, our gene therapy candidates durably improved sensory function and rescued the disease phenotype based on multiple functional tests. In physiological and behavioral assays, our gene therapy candidates demonstrated dose-dependent and durable responses for more than 10 months after a single administration, preventing central and peripheral disease progression. We also have a significant effort focused on better understanding the clinical course of Friedreich’s ataxia, identifying potential fluid biomarkers and selecting clinical endpoints for future clinical trials. If we and Neurocrine successfully identify a lead candidate for this program, we plan to complete IND enabling studies to evaluate its safety and efficacy.

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In 2018, we began collaborating with AbbVie on the research and development of specified vectorized antibody compounds comprised of an AAV or other viral capsid and a virus vector genome that encodes one or more antibodies that target and bind to a tau protein, which we refer to as the AbbVie Tau Collaboration. In early 2019, we presented on the use of therapeutic antibodies targeting various forms of tau to prevent, reduce, or slow the development of tau pathology as an important potential therapeutic strategy for Alzheimer’s disease and other tauopathies. Because of the blood-brain barrier, or BBB, only very low levels of antibody distribute to the brain from the systemic circulation after passive immunization, resulting in modestly reduced tau pathology in animal models. Separately, in 2019, we began collaborating with AbbVie on the research and development of specified vectorized antibody compounds comprised of an AAV or other viral capsid and a virus vector genome that encodes one or more antibodies and development against pathological species of alpha-synuclein for the potential treatment of Parkinson’s disease and other synucleinopathies which we refer to as the AbbVie Alpha-Synuclein Collaboration. Our vectorized antibody approach aims to circumvent this limitation by delivering, with a potential one-time intravenous, or IV, administration, the genes that encode for the production of therapeutic antibodies utilizing our novel BBB-penetrant AAV capsids. This approach could potentially result in higher levels of therapeutic antibodies in the brain compared with current systemic administration of antibodies.

Both of our collaborations with AbbVie were terminated by AbbVie, effective as of August 3, 2020, or the AbbVie Collaboration Termination Date. As a result of such terminations, we were relieved of future research and development obligations under each collaboration. Exclusivity provisions restricting either party or any of its respective affiliates from directly or indirectly exploiting any vectorized antibody compound targeting a tau protein or an alpha-synuclein protein and restricting us, alone or jointly with any third party, from directly or indirectly exploiting specified antibodies targeting a tau protein or contributed by AbbVie to the AbbVie Alpha-Synuclein Collaboration have also terminated. Each party retains a royalty-free, exclusive license to the other’s interest in certain intellectual property rights developed by either party under the collaborations, or Joint IP, to exploit antibodies it contributed to each collaboration as well as royalty-free, non-exclusive licenses to Joint IP for any other purpose. Further, AbbVie has granted us, effective as of the AbbVie Collaboration Termination Date, in the case of the AbbVie Tau Collaboration, a worldwide, royalty-free, transferable, sublicensable (though multiple tiers), exclusive license to AbbVie’s interest in Joint IP to exploit research compounds or product candidates that were investigated under the collaborations and do not encode antibodies contributed by AbbVie or include active pharmaceutical ingredients owned by AbbVie or its affiliates and, in the case of the AbbVie Alpha-Synuclein Collaboration, a worldwide, royalty-free, transferable, sublicensable (though multiple tiers), non-exclusive license to AbbVie’s interest in Joint IP for any purpose, in each case for all human diagnostic, prophylactic and therapeutic uses. We are not obligated to repay the upfront payment we received from AbbVie in connection with entering into either collaboration agreement, but we are no longer eligible to receive option payments, milestone payments or royalties thereunder. We expect to continue to advance our research and development efforts related to vectorized antibodies, including vectorized antibody compounds comprised of an AAV or other viral capsid and a virus vector genome that encodes one or more antibodies that target and bind to a tau protein, and we are currently evaluating our options for advancing these efforts individually or with other potential collaborators. We are evaluating our options for potentially advancing our alpha-synuclein program in the future.

In addition to the programs described above, we continue to evaluate additional severe neurological diseases that could be treated using AAV gene therapy through application of either a gene replacement or a gene knockdown approach and are also actively exploring additional potential treatment methods that can utilize an AAV vector. In early 2019, we presented on our discovery and development of novel AAV capsids that cross the BBB after IV administration with improved transduction of the brain and spinal cord and enhanced cellular specificity using libraries under the control of either the neuron-specific synapsin, or SYN, promoter or the astrocyte-specific glial fibrillary acidic protein, or GFAP, promoter to apply selective pressure for capsid variants that transduce the cell type of interest. As part of that effort, our scientists have developed a proprietary system called TRACERTM (Tropism Redirection of AAV by Cell Type-Specific Expression of RNA) to facilitate the selection of AAV capsids with BBB crossing and cell-specific transduction properties for particular therapeutic applications. The TRACER system is a broadly-applicable, functional RNA-based AAV capsid screening platform that allows for rapid in vivo evolution of AAV capsids with cell-specific transduction properties in wild-type animals. We have developed a series of novel adeno-associated virus (AAV) capsids which, following intravenous administration, achieve up to 1000-fold higher RNA expression in the brain and 100-fold higher expression in the spinal cord of non-human primates than AAV9, the current natural AAV serotype with the best ability to ability to cross the BBB. We believe these capsids may allow for significantly enhanced gene delivery to specific types of cells in the brain at lower doses. These capsids are now in advanced stages of characterization for

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deployment in our gene therapy development programs. We are also applying the TRACER system towards further capsid variant libraries and selection for tropism and transduction in additional cell and tissue types. We plan to present new data on these novel blood brain barrier penetrant capsids in non-human primates at a scientific conference and other presentations in the first half of 2021.

Finally, we have developed our own real-time, intra-operative, MRI compatible device, the variable trajectory array guide, or V-TAG™, that can be used with other neuro-navigational systems for the administration of drugs and other surgical procedures, to avoid blood vessels and reduce the risk of potential hemorrhage during surgery, and to maximize drug coverage of the targeted structures. In July 2018, the Center for Devices and Radiological Health, or the CDRH, of the FDA provided 510(k) clearance for V-TAG. We are currently working with ClearPoint Neuro, Inc. (formerly known as MRI Interventions, Inc.), or CLPT, on process development and manufacturing of the device, and in March 2019, we transferred our premarket notification (510(k)) clearance for V-TAG to CLPT. Investigators have used an alternative MRI-compatible device called the ClearPoint® System in our Phase 1 and Phase 1b clinical trials and in the RESTORE-1 Phase 2 clinical trial of VY-AADC (NBIb-1817). We currently plan to use either the V-TAG or the ClearPoint System in our planned VYTAL Phase 1/2 clinical trial of VY-HTT01 for Huntington’s disease.

We have incurred significant operating losses in every year prior to 2020. Our net losses were $21.6 million for the three months ended March 31, 2021. As of March 31, 2021, we had an accumulated deficit of $297.6 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

continue investing in our gene therapy platform to optimize capsid engineering and payload development, manufacturing, dosing, and delivery techniques;
work with Neurocrine, the IND holder and RESTORE-1 clinical trial sponsor, to determine the potential path forward for VY-AADC (NBIb-1817) as a treatment for Parkinson’s disease based on, among other things, the additional information being collected by Neurocrine in response to requests of the DSMB;
initiate additional preclinical studies and clinical trials for, and continue research and development of, our other programs, including the initiation of our planned VYTAL Phase 1/2 clinical trial to evaluate VY-HTT01 for the treatment of Huntington’s disease;
conduct joint research and development under our strategic collaborations for the research, development, and commercialization of certain of our pipeline programs;
continue our process research and development activities, as well as establish our research-grade and commercial manufacturing capabilities;
identify additional neurological diseases for treatment with our AAV gene therapies and develop additional programs or product candidates;
work to identify and optimize novel AAV capsids;
expand our manufacturing capabilities;
develop, obtain and maintain regulatory clearances for devices to deliver our AAV gene therapies, and to provide financial and operating support to partners manufacturing and supplying these devices for use in our clinical development program;
seek marketing and regulatory approvals for any of our product candidates or devices that arise from our programs that successfully complete clinical development;

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maintain, expand, protect and enforce our intellectual property portfolio;
identify, acquire or in-license other product candidates and technologies;
develop a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval;
expand our operational, financial and management systems and personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;
increase our product liability and clinical trial insurance coverage as we expand our clinical trials and commercialization efforts; and
continue to operate as a public company.

Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future. For the three months ended March 31, 2021, we recognized $6.5 million of collaboration revenue from the Neurocrine Collaboration.

For additional information about our revenue recognition policy related to collaborations and a description of the key terms of our collaboration arrangement with Neurocrine, refer to Note 8, Commitments and Contingencies, of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

For the foreseeable future, we expect substantially all of our revenue will be generated from our existing collaboration agreement with Neurocrine and from any other strategic relationships we may enter into. If our development efforts are successful, we may also generate revenue from product sales in the future.

Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our program discovery efforts, and the development of our programs and gene therapy platform, which include:

employee-related expenses including salaries, benefits, and stock-based compensation expense;
costs of funding research performed by third parties that conduct research and development, clinical and preclinical activities, manufacturing and production design on our behalf;
the cost of purchasing lab supplies and non-capital equipment used in designing, developing and manufacturing preclinical study materials;
consultant fees;
facility costs including rent, depreciation and maintenance expenses; and
fees for maintaining licenses under our third-party licensing agreements.

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Research and development costs are expensed as incurred. Costs for certain activities, such as manufacturing, preclinical studies, and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates. This is due to the numerous risks and uncertainties associated with developing such product candidates, including the uncertainty of:

successful enrollment in and completion of clinical trials;
establishing an appropriate safety profile;
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
receipt of marketing approvals from applicable regulatory authorities;
commercializing the product candidates, if and when approved, whether alone or in collaboration with others;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
continued acceptable safety profiles of the products following approval; and
retention of key research and development personnel.

A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate.

Research and development activities are central to our business model. We expect research and development costs to increase for the foreseeable future as our development programs progress and as we seek to move our product candidates into clinical trials, including initiation of our planned VYTAL Phase 1/2 clinical trial to evaluate VY-HTT01 as a treatment for Huntington’s disease. We expect that Neurocrine’s partial termination of the Neurocrine Collaboration Agreement will decrease research and development costs related to the VY-AADC Program.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, business development, legal and human resource functions. Other significant costs include corporate facility costs not otherwise included in research and development expenses, legal fees related to patent and corporate matters and fees for accounting and consulting services.

We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities, including the ongoing research and development activities and initiation of clinical trials for our product candidates, inititation of our planned VYTAL Phase 1/2 clinical trial to evaluate VY-HTT01 as a treatment for Huntinton’s disease. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory, and tax-related services, director and officer insurance premiums, business development activities, and investor relations costs.

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Other Income (Expense)

Interest and other income (expense) consists primarily of interest income on our marketable debt securities and the gain or loss on the equity securities investment in CLPT.

Critical Accounting Policies and Estimates

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate. There were no changes to our critical accounting policies during the three months ended March 31, 2021, as compared to those identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. It is important that the discussion of our operating results that follow be read in conjunction with the critical accounting policies disclosed in our Annual Report on Form 10-K, as filed with the SEC on February 25, 2021.

Results of Operations

Comparison of the three months ended March 31, 2021 and 2020

The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020, together with the changes in those items in dollars:

Three Months Ended

March 31, 

2021

    

2020

    

Change

(in thousands)

Collaboration revenue

$

6,501

    

$

18,067

    

$

(11,566)

Operating expenses: