Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements and the accompanying notes thereto and other disclosures included in this Annual Report on Form 10-K, including the disclosures under “Risk Factors”. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and unless otherwise indicated are presented in U.S. dollars.
Except for the historical information contained herein, the matters discussed in this MD&A may be deemed to be forward-looking statements. Forward-looking statement are only predictions based on management’s current views and assumptions and involve risks and uncertainties, and actual results could differ materially from those projected or implied. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Words such as “may,” “expect,” “anticipate,” “estimate,” “intend,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.
Our actual results and the 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 MD&A. 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 MD&A, they may not be predictive of results or developments in future periods.
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 leader in the field of gene therapy and seek to deliver to patients suffering from rare and other devastating diseases single treatments with potentially curative results. We are advancing a focused pipeline of innovative gene therapies, including product candidates for the treatment of hemophilia B, which effective May 6, 2021, we licensed to CSL Behring pursuant to the CSL Behring Agreement (as defined below), and Huntington’s disease. We believe our technology platform and manufacturing capabilities provide us distinct competitive advantages, including the potential to reduce development risk, cost, and time to market. We produce our AAV-based gene therapies in our own facilities with a proprietary, commercial-scale, cGMP-compliant, manufacturing process. We believe our Lexington, Massachusetts-based facility is one of the world’s most versatile gene therapy manufacturing facilities.
Business developments
Below is a summary of our recent significant business developments:
Acquisition of Corlieve Therapeutics
On June 21, 2021, we entered into a SPA to acquire all of outstanding ordinary shares of Corlieve. The transaction closed on July 30, 2021. On the Acquisition Date, we acquired 97.7% of the outstanding ordinary shares of Corlieve in return for EUR 44.9 million ($53.3 million as of the Acquisition Date). As contractually required in the SPA, we acquired the remaining outstanding ordinary shares on February 9 2022. We recorded a liability related to these Mandatorily Redeemable Shares for an amount of EUR 0.7 million ($0.9 million) as of the Acquisition Date. We financed the Corlieve Transaction from cash on hand.
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In addition to the payments to acquire 100% of the outstanding ordinary shares Corlieve’s former and remaining shareholders are eligible to receive up to EUR 35.8 million (or $40.6 million as of December 31, 2021) upon the achievement of development milestones through Phase I/II and EUR 143.1 million (or $162.3 million as of December 31, 2021) upon the achievement of milestones associated with Phase III development and obtaining approval to commercialize AMT-260 in the United States of America and the European Union. We may elect to pay up to 25% of such milestone payments through the issuance of our ordinary shares. We recorded a EUR 20.2 million ($24.0 million) liability related to these contingent consideration payments as of the Acquisition Date.
Total consideration of EUR 65.8 million ($78.1 million), which consisted of the cash paid upon the Acquisition Date, the payment for the Mandatorily Redeemable Shares and the contingent consideration payments, was allocated to identifiable intangible assets related to the IPR&D Intangible Asset. The IPR&D Intangible Asset’s fair value has been determined at EUR 53.6 million ($63.6 million) as of the Acquisition Date. We also recognized a EUR 13.4 million ($15.9 million as of the Acquisition Date) deferred tax liability in relation to this IPR&D Intangible Asset. The total consideration in excess of the net assets acquired was EUR 23.9 million ($28.4 million as of the Acquisition Date) and was allocated to goodwill.
CSL Behring commercialization and license agreement
On June 24, 2020, uniQure biopharma B.V., a wholly owned subsidiary of uniQure N.V., entered into the CSL Behring Agreement with CSL Behring pursuant to which CSL Behring will receive exclusive global rights to etranacogene dezaparvovec, the Product.
The transaction became fully effective on May 6, 2021, one day after the waiting period under the HSR Act expired on May 5, 2021.
CSL Behring is responsible for the development and commercialization of the Product. We agreed to complete the validation of the current manufacturing process as well as to the development and validation of a next generation manufacturing process. We will be entitled to receive a development milestone payment if we complete these activities in accordance with an agreed development plan and timeline. CSL Behring is responsible for global regulatory submissions and commercialization requirements for the Product. Certain clinical development and regulatory activities performed by us are reimbursed by CSL Behring.
On the Signing Date, we and CSL Behring also entered into a development and commercial supply agreement, pursuant to which, among other things, we will supply the Product to CSL Behring at an agreed-upon price commensurate with the SSP. We will be responsible to supply the Product until such time that these capabilities may be transferred to CSL Behring or its designated contract manufacturing organization.
Following the closing of the CSL Behring Agreement, we recorded $462.4 million, including a $450.0 million upfront cash payment, as license revenue. Upon closing, we contractually owed to our licensors $15.5 million of the upfront payment received from CSL Behring.
We are eligible to receive more than $0.3 billion in regulatory, development, and first commercial sale milestones, $1.3 billion in additional commercial milestones, and tiered double-digit royalties of up to a low-twenties percentage of net product sales arising from the collaboration. As of December 31, 2021, we accrued revenue of $55.0 million related to milestone payments we expect to receive under the CSL Behring Agreement following the submissions of a BLA to the FDA and a MAA to the EMA, which are expected to be submitted during the first half of 2022.
Hemophilia B program – Etranacogene dezaparvovec (AMT-061)
In June 2018, we initiated our Phase III HOPE-B pivotal trial of etranacogene dezaparvovec. The trial is a multinational, multi-center, open-label, single-arm study to evaluate the safety and efficacy of etranacogene dezaparvovec.
In March 2020, we completed dosing of the 54 patients in the HOPE-B trial. Following a pre-BLA submission meeting with the FDA on June 4, 2021, the primary endpoint has been determined as a non-inferiority analysis of ABR at 18-months after the administration (approximately 52 weeks after steady-state is achieved).
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On December 9, 2021, we announced the achievement of the pre-specified primary endpoint of non-inferiority in annualized bleeding rate (“ABR”) 18-months following administration compared to baseline Factor IX (“FIX”) prophylactic therapy in the HOPE-B Study. The study also successfully achieved a secondary endpoint demonstrating statistical superiority in reduction of ABR compared to baseline FIX prophylactic therapy. ABR for all bleeds after stable FIX expression, assessed at 18 months, was 1.51 compared with the ABR of 4.19 for the lead-in period of at least six months, achieving the primary non-inferiority endpoint and a secondary superiority endpoint (p=0.0002) in the HOPE-B Study. ABR for investigator-adjudicated FIX-treated bleeds was 0.83 compared with lead-in ABR of 3.65 (p<0.0001). All participants continued to demonstrate durable, sustained increases in FIX activity at 18-months post-infusion with a mean FIX activity of 36.9 percent of normal, as measured by a one-stage activated partial thromboplastin time-based (“aPTT-based”) clotting assay, compared to a mean FIX activity of 39.0 percent of normal at 26-weeks of follow-up. Etranacogene dezaparvovec was generally well-tolerated with over 80% of adverse events considered mild.
Huntington’s disease program (AMT-130)
AMT-130 is our novel gene therapy candidate for the treatment of Huntington’s disease. AMT-130 utilizes our proprietary, gene-silencing miQURE platform and incorporates an AAV vector carrying a miRNA specifically designed to silence the huntingtin gene and the potentially highly toxic exon 1 protein fragment. We are currently conducting a Phase I/II clinical trial for AMT-130 in the U.S. and a Phase Ib/II study in the EU. Together, these studies are intended to establish safety, proof of concept, and the optimal dose of AMT-130 to take forward into Phase III development or into a confirmatory study should an accelerated registration pathway be feasible. AMT-130 has received Orphan Drug and Fast Track designations from the FDA and Orphan Medicinal Product Designation from the EMA.
On April 5, 2021, we announced the completion of enrollment of the low-dose cohort of the U.S. Phase I/II study of AMT-130. The low-dose cohort includes 10 patients, of which six patients received treatment with AMT-130 and four patients received Sham surgery. The U.S. Phase I/II clinical trial is a randomized, controlled, double-blinded, dose-escalation study of AMT-130.
On June 13, 2021, we announced the enrollment of the first two patients in the high-dose cohort of a U.S. Phase I/II study. The high- dose cohort is planned to include 16 patients, of which 10 patients will receive treatment with AMT-130 and six patients will receive Sham surgery. The initiation of patient enrollment in the high-dose cohort followed a meeting of the trial’s independent DSMB that reviewed safety data for the fully enrolled first cohort of 10 patients.
On December 16, 2021, we announced initial 12-month observations on the first four patients enrolled in the low-dose cohort of the U.S. Phase I/II study. Two of the four enrolled patients received AMT-130, and two patients received Sham surgery as a control. AMT-130 was generally well tolerated in the treated patients, with no serious adverse events related to AMT-130. NfL, a biomarker of injury in the brain, increased as expected immediately following the surgical procedure and returned to baseline in the treated patients. NfL remained relatively constant in the two untreated control patients. Structural magnetic resonance imaging did not reveal any clinically meaningful safety findings in either treated or control patients at one year of follow-up. Measurements of total and mutant HTT protein in the cerebral spinal fluid of the four patients were highly variable and inconclusive. As of December 31, 2021, 19 patients have been enrolled in the clinical trial to date, including nine of 16 in the high-dose cohort.
Also on December 16, 2021, we announced the initiation of patient screening in our 15 patient, open-label, Phase Ib/II study of AMT-130 in the EU, as well our plans to initiate a third cohort in the ongoing U.S. Phase I/II clinical trial. The third cohort, which will include up to 18 additional randomized patients receiving the higher dose, will explore the use of alternative stereotactic navigation systems to simplify placement of catheters for infusions of AMT-130.
BMS collaboration
We and Bristol-Myers Squibb (“BMS”) entered into a collaboration and license agreement in May 2015 (“BMS CLA”). BMS had initially designated four Collaboration Targets in 2015 and in accordance with the terms of the BMS CLA could have designated a fifth to tenth Collaboration Target.
In February 2019, BMS requested a one-year extension of the initial research term. In April 2019, following an assessment of the progress of this collaboration and our expanding proprietary programs, we notified BMS that we did not intend to agree to an extension of the initial research term. Accordingly, the initial four-year research term under the collaboration terminated on May 21, 2019.
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On December 1, 2020, we and BMS amended the BMS CLA (“amended BMS CLA”). For a period of one-year from the effective date of the amended BMS CLA, BMS was able to replace up to two of the four active Collaboration Targets with two new targets in the field of cardiovascular disease. We are entitled to receive up to $217.0 million for each of the four Collaboration Targets if defined milestones are achieved, as well as royalties on net sales associated with any Collaboration Target. On December 17, 2020, BMS designated one of the four Collaboration Targets as a candidate to advance into IND-enabling studies entitling us to receive a $4.4 million research milestone payment. We recorded the $4.4 million as License Revenue in the twelve-month period ended December 31, 2020.
The amended BMS CLA did not extend the initial research term. BMS may place purchase orders to provide limited services primarily related to analytical and development efforts in respect of the four Collaboration Targets. BMS may request such services for a period not to exceed the earlier of (i) the completion of all activities under a Research Plan and (ii) either (A) three years after the last replacement target has been designated by BMS during the one-year replacement period following the amended BMS CLA effective date or (B) three years if no replacement targets are designated during this one-year period and BMS continues to reimburse us for these services.
For as long as any of the four Collaboration Targets are being advanced, BMS may place a purchase order to be supplied with research, clinical and commercial supplies. Subject to the terms of the amended BMS CLA, BMS has the right to terminate the research, clinical and commercial supply relationships, and has certain remedies for failures of supply, up to and including technology transfer for any such failure that otherwise cannot be reasonably resolved. Both we and BMS may agree to a technology transfer of manufacturing capabilities pursuant to the terms of the amended BMS CLA.
We have agreed to certain restrictions on our ability to work independently of the collaboration, either directly or indirectly through any affiliate or third party, on certain programs that would be competitive with a Collaboration Target. We have agreed to indication exclusivity for the current four Collaboration Targets. BMS may add or change the exclusive indications in the process of replacing Collaboration Targets as described above. We can opt out of the indication exclusivity by giving up certain economic rights under the amended BMS CLA for each such indication that is affected by us opting out. If we opt out of an exclusive indication, we could pursue other targets for such indication other than a Collaboration Target.
The amended BMS CLA also terminated two warrants to increase BMS ownership in the Company up to 19.9% through purchasing a specific number of our ordinary shares following the designation of a seventh, and a tenth Collaboration Target, respectively. We and BMS agreed that upon the consummation of a change of control transaction of uniQure that occurs prior to the earlier of (i) December 1, 2026 and (ii) BMS’ delivery of a target cessation notice for all four Collaboration Targets, uniQure (or its third party acquirer) shall pay to BMS a one-time, non-refundable, non-creditable cash payment of $70.0 million, provided that (x) if $70.0 million is greater than five percent of the net proceeds (as contractually defined) from such change of control transaction, the payment shall be an amount equal to five percent of such net proceeds, and (y) if $70.0 million is less than one percent of such net proceeds, the change of control payment shall be an amount equal to one percent of such net proceeds. We have not consummated any change of control transaction as of December 31, 2021 that would obligate us to make a payment to BMS.
The amended BMS CLA did not change any of the provisions of the Investor Agreement with BMS that we entered into in 2015. We have granted BMS certain registration rights that allow BMS to require us to register our securities beneficially held by BMS under the U.S. Securities Exchange Act of 1934, as amended (“Exchange Act”). BMS may make up to two such demands for us to register the shares, provided that we may deny such demand if (i) the market value of the shares to be registered is less than $10.0 million (provided however, if BMS holds less than $10.0 million worth of our shares, we must comply with their demand for registration), (ii) we certify to BMS that we plan to effect a registration within 120 days of their demand or we are engaged in a transaction that would be required to be disclosed in a registration statement and that is not reasonably practicable to be disclosed at that time, or (iii) we have already effected one registration statement within the twelve months preceding BMS’s demand for registration. In addition, independent of their demand registration rights, upon the occurrence of certain events, we must also provide BMS the opportunity to include their ordinary shares in any registration statement that we effect.
We also continue to grant BMS certain information rights under the Investor Agreement, although these requirements may be satisfied by our public filings required by U.S. securities laws.
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BMS also continues to be subject to a lock up pursuant to the Investor Agreement for as long as BMS holds more than 4.9% of our ordinary shares (as of December 31, 2021 BMS holds 5.2%). Without our prior consent, BMS may not sell or dispose any of its current ordinary shares.
The Investor Agreement also continues to require BMS to vote all of our ordinary shares it beneficially holds in favor of all items on the agenda for the relevant general meeting of shareholders of our company as proposed on behalf of our company, unless, in the context of a change of control or similar transaction, BMS has itself made an offer to our company or our board in connection with the transaction that is the subject of the vote, in which case it is free to vote its shares at its discretion. This voting provision will terminate upon the later of the date on which BMS no longer beneficially owns at least 4.9% of our outstanding ordinary shares, the closing of a transaction that provides BMS exclusive and absolute discretion to vote our shares it beneficially holds, or the termination of the amended BMS CLA for breach by us.
We have recognized license revenues associated with the amortization of the non-refundable upfront payment and target designation fees we received from BMS in accordance with the BMS CLA. We evaluated our outstanding performance obligation following the amendment of the BMS CLA on December 1, 2020 and determined that our remaining performance obligation related to license revenues is immaterial. We updated our measure of progress accordingly and amortized the remaining balance of unrecognized revenue as of November 30, 2020. We recorded no such license revenue for the year ended December 31, 2021. In accordance with the amended BMS CLA, we continue to be eligible to receive research, development, and regulatory milestone payments as well as sales milestone payments and royalties for each of the four active Collaboration Targets if defined milestones are achieved in relation to the license to our technology and know-how. We will recognize revenue from these payments when earned or as sales occur.
We recognize collaboration revenues associated with Collaboration Target-specific pre-clinical analytical development and process development activities that are reimbursable by BMS under the BMS CLA and the amended BMS CLA as well as other related agreements. Collaboration revenue related to these contracted services is recognized when performance obligations are satisfied.
Financing
As of December 31, 2020, a $35.0 million term loan was outstanding in accordance with the Second Amended and Restated Loan and Security Agreement (the “2018 Amended Facility”) between us and Hercules.
On January 29, 2021, we and Hercules entered into the 2021 Amended Facility. Pursuant to the 2021 Amended Facility, Hercules agreed to an additional Facility of $100.0 million (“Tranche B”) increasing the aggregate principal amount of the term loan facilities from $35.0 million to up to $135.0 million. On January 29, 2021, we drew down $35.0 million of the Tranche B. Advances under Tranche B bore interest at a rate equal to the greater of (i) 8.25% or (ii) 8.25% plus the prime rate, less 3.25% per annum. The principal balance of $70.0 million and all accrued but unpaid interest on advances under Tranche B was due on June 1, 2023. The back-end fee in respect of advances under the 2021 Amended Facility ranged from 1.65% to 6.85%, depending on the repayment date. In addition to Tranche B, the 2021 Amended Facility also extended the interest only payment period of the previously funded $35.0 million term loan (“Tranche A”) from January 1, 2022 to June l, 2023.
On December 15, 2021, we and Hercules amended and restated the 2021 Amended Facility (“2021 Restated Facility”). Pursuant to the 2021 Restated Facility, Tranche A and Tranche B of the 2021 Amended Facility with a total outstanding balance of $70.0 million were consolidated into one tranche with a total commitment of $100.0 million. We drew down an additional $30.0 million, resulting in total principal outstanding as of December 31, 2021 of $100.0 million. The 2021 Restated Facility extended the loan’s maturity date from June 1, 2023 until December 1, 2025. The interest-only period is extended from January 1, 2023 to December 1, 2024, or December 1, 2025 if, prior to June 30, 2024, either (a) the BLA for AMT-061 is approved by the FDA or (b) AMT-130 is advanced into a pivotal trial. The interest rate is adjustable and is the greater of (i) 7.95% and (ii) 7.95% plus the prime rate less 3.25% per annum. Under the 2021 Restated Facility, we owe a back-end fee of 4.85% of the outstanding debt. We are required to repay the facility in equal monthly installments of principal and interest between the end of the interest-only period and the maturity date. We continue to owe a $2.5 million back-end fee related to the 2021 Amended Facility which is due on June 1, 2023.
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On March 1, 2021, we entered into a Sales Agreement with SVB Leerink LLC (“SVB Leerink”) with respect to an at-the-market (“ATM”) offering program, under which we may, from time to time in our sole discretion, offer and sell through SVB Leerink, acting as agent, our ordinary shares, up to an aggregate offering price of $200.0 million. We pay SVB Leerink a commission equal to 3% of the gross proceeds of the sales price of all ordinary shares sold through it as a sales agent under the Sales Agreement.
In March and April of 2021, we issued 921,730 ordinary shares at a weighted average price of $33.52 per ordinary share, with net proceeds of $29.6 million, after deducting underwriting discounts and net of offering expenses.
Covid pandemic
The coronavirus disease (“Covid”) caused by the severe acute respiratory syndrome coronavirus 2 (“Sars-CoV 2 virus”) was characterized as a pandemic by the World Health Organization (“WHO”) on March 11, 2020. Since then, various, potentially more infectious, variants of the Sars-CoV 2 virus causing Covid have been identified.
Throughout the pandemic, we have been implementing measures to address the impact of Covid on our business. We have implemented a series of protocols governing the operations of our Lexington facility to comply with the requirements of the various orders and guidance from the Commonwealth of Massachusetts and other related orders, guidance, laws, and regulations. We continue to monitor local government rules and recommendations and office protocols will be aligned with these rules and recommendations. Accordingly, we had mandated a work-from-home policy since March 2020 for all non-essential employees at our Amsterdam and Lexington facilities and had implemented additional protocols for our essential employees.
Effective May 29, 2021, Massachusetts lifted all industry restrictions, with the exceptions of remaining face-covering requirements for all public and private transportation systems and facilities housing vulnerable populations, and capacity has been increased to 100% for all industries. Furthermore, the state of emergency was lifted on June 15, 2021. Implementation of adequate cleaning and hygiene protocols are still encouraged. We have implemented a mandatory Covid PCR testing protocol in our Lexington facility effective February 2021 that requires employees to have tested negative for Covid prior to entering the facility. Effective April 2021, we implemented a policy whereby no employee or contractor may enter the Lexington facility unless they are either: (i) fully vaccinated; or (ii) have taken an approved test for Covid and obtained a negative result. All employees that are not essential employees, however, will continue to work remotely until at least June 30, 2022 to reduce the spread of Covid within the facility. As a result, we have been operating our Lexington facility with attendance significantly below 100% capacity.
From November 1, 2021, employees were expected to be required to work on-site at our Amsterdam office at least one day a week under our new remote working policy. However, the Company adjusted the policy for Dutch government updates. Between November 12, 2021 and the filing date of this Form 10-K the Dutch government continuously updated the Covid-related measures to mitigate the impact of the latest Covid variant. We continue to comply with these measures, which amongst others is recommended to work from the office no more than half the time for nonessential employees.
The broader implications of Covid, including the implications from the various variants, on our results of operations and overall financial performance remain uncertain. We have experienced increased lead times in the delivery of equipment and disposables that we use to manufacture materials for our various programs. Currently, these have not materially impacted our development timelines and we continue to adapt to the current environment to minimize the effect to our business. However, we may experience more pronounced disruptions in our operations in the future.
Related party transaction
On December 1, 2020, we and BMS entered into the amended BMS CLA. All transactions subsequent to the effective date of the amended BMS CLA are considered to no longer be with a related party.
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2021 Financial Highlights
Key components of our results of operations include the following:
Year ended December 31,
2021
2020
2019
(in thousands)
Total revenues
$
524,002
$
37,514
$
7,281
Cost of contract revenue
(24,976)
—
—
Research and development expenses
(143,548)
(122,400)
(94,737)
Selling, general and administrative expenses
(56,290)
(42,580)
(33,544)
Net income / (loss)
329,589
(125,024)
(124,201)
As of December 31, 2021, we had cash and cash equivalents of $556.3 million (December 31, 2020: $244.9 million). We had a net income of $329.6 million in 2021, and a net loss of $125.0 million in 2020 and a net loss of $124.2 million in 2019. As of December 31, 2021, we had an accumulated deficit of $455.1 million (December 31, 2020: $784.7 million). We recorded net income in the year ended December 31, 2021 as a result of closing the CSL Behring transaction on May 6, 2021.
We anticipate that our expenses will increase substantially as we:
● advance the clinical development of AMT-130 for our Huntington’s disease gene therapy program;
● advance multiple research programs related to gene therapy candidates targeting liver-directed and CNS diseases;
● continue to expand our employee base to support research and development, as well as general and administrative functions;
● acquire or in-license rights to new therapeutic targets or product candidates;
● continue to expand, enhance and optimize our technology platform, including our manufacturing capabilities, next-generation viral vectors and promoters, and other enabling technologies;
● maintain, expand, and protect our intellectual property portfolio, including in-licensing additional intellectual property rights from third parties; and
● make potential future milestone payments related to the acquisition of Corlieve, if any.
See “Results of Operations” below for a discussion of the detailed components and analysis of the amounts above.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in accordance with U.S. GAAP and pursuant to the rules and regulations promulgated by the SEC we make assumptions, judgments and estimates that can have a significant impact on our net income/loss and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, we evaluate our assumptions, estimates and judgments, including those related to what we believe to be our critical accounting policies.
We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not clear from other sources. Actual results may differ from these estimates under different assumptions, judgments or estimates. We also discuss our critical accounting estimates with the Audit Committee of our Board of Directors.
We consider the following to be our critical accounting policies and estimates:
● ASC 805 Business Combinations in relation to the IPR&D Intangible Asset and Contingent Consideration recorded in relation to the Corlieve business combination;
● ASC 606 R evenue from Contracts with Customers as it relates to the recognition of revenue including the CSL Behring milestones in relation to the CSL Behring Agreements;
● ASC 740 Income Taxes as it relates to the Dutch valuation allowance and the U.S. valuation allowance; and
● ASC 606 Revenue from Contracts with Customers as it relates to recognition of License Revenue in relation to amended BMS CLA.
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Business combination
The preparation of our consolidated financial statements for the year ended December 31, 2021, required us to analyze the accounting treatment for the Corlieve Transaction.
In connection with this analysis, we first applied a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. We analyzed whether the acquired inputs and processes that have the ability to create outputs would meet the definition of a business and determined that the screen test was not met. In the event the screen test had been met, we would have been required to account for the Corlieve Transaction as an asset acquisition. In this case, among others, we would not have recorded any goodwill and expensed all identifiable intangible assets without alternative future use in accordance with ASC 805, Business Combinations .
We identified various licenses that combined with the results of the research and development activities conducted in relation to AMT-260 since formation of Corlieve in 2019 constitute an IPR&D Intangible Asset. The IPR&D Intangible Asset was measured at its fair value as of the Acquisition Date. The fair value of EUR 53.6 million ($63.6 million) of the IPR&D Intangible Asset accounted for 83.4% of the identifiable assets included within the screen test as of the Acquisition Date.
We calculated the fair value of the IPR&D Intangible Asset using a present value model based on expected cash flows. Estimating the amounts and timing of cash flows required to complete the development of AMT-260 as well as net sales, cost of goods sold, and sales and marketing costs involved considerable judgment and uncertainty. The expected cash flows are materially impacted by the probability of successfully completing the various stages of development (i.e., dosing of first patient in clinical trial, advancing into late-stage clinical development and obtaining approval to commercialize the product candidate) as well as the weighted average cost of capital of 10.4% used to discount the expected cash flows.
We developed the estimated probabilities of successfully completing the various stages of development using data from external studies regarding average likelihoods of completing these stages of development. We increased the probability for the TLE-program to advance into clinical development derived from such external studies from 33% to 40%. Following the completion of certain studies management in late October 2021 designated a lead candidate for the program and based on data from external studies subsequently increased the likelihood to advance into clinical development to 55%. Application of this probability as of the Acquisition Date would have changed the outcome of the screen test and we would have been required to treat the Corlieve Transaction as an asset acquisition. If all other assumptions and estimates remained unchanged this would have required us to expense any identifiable intangible assets without alternative future use. However, the outcome of the screen test would not have been altered for as long as the probability of advancing into clinical development remained below 43%.
We derived the weighted average cost of capital of 10.4% from external market data for a selected peer group of companies. We included a 0.2% country risk premium related to the European markets in our weighted average cost of capital. Not including this risk premium would not have changed the outcome of the screen test. Changing the outcome of the screen test would have required a reduction of the weighted average cost of capital by 0.5%. This would have required us to expense all identifiable intangible assets without an alternative future use.
The determination of the fair values of assets acquired and liabilities assumed has been completed as of December 31, 2021. The IPR&D Intangible Asset is accounted for as indefinite-lived intangible asset and is measured at the fair value of the incomplete research project acquired as of the Acquisition Date. The IPR&D Intangible Asset is considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts and is not amortized. If and when development is complete, which generally occurs when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on an estimate of its remaining useful life. In case of abandonment, the IPR&D Intangible Asset would be written-off.
As of the Acquisition Date we recorded contingent consideration related to amounts potentially payable to Corlieve’s former shareholders. The amounts payable in accordance with the SPA are contingent upon realization of certain milestones associated with the TLE research program. Contingent consideration was measured at fair value at the Acquisition Date with changes in fair value recognized in the consolidated statements of operations in research and development expenses.
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Changes in contingent consideration can result from changes in the assumed achievement and timing of estimated milestones and the discount rate used to estimate the fair value of the liability:
● We believe that as of December 31, 2021 it is not reasonably possible that changes in market interest rate or our credit profile would change the discount rate in a manner that would result in a material change of the fair value of the contingent liability. Any increase in the discount rate would reduce the fair value of the contingent consideration liability whereas any decrease in the discount rate would increase the fair market value of the contingent consideration liability.
● Similarly, we do not believe that as of December 31, 2021 it is reasonably possible that a change in development timelines and accordingly the timing of milestone payments would result in a material change of the fair value of the contingent liability. An achievement of a milestone at a later than currently expected date would reduce the fair value of the contingent consideration liability whereas an achievement at an earlier than currently expected date would increase the fair value of the contingent consideration liability.
● We initially recorded the contingent consideration liability on the Acquisition Date assuming a 40% probability of advancing the TLE research program into clinical development. We developed this estimate using data from an external study regarding the average likelihood of advancing into clinical development at a certain stage or preclinical development. Following the designation of a lead candidate by us in late October 2021 we subsequently increased the probability to 55% and consequently recorded a $5.8 million loss within research and development expenses in the year ended December 31, 2021, to increase the fair value of the contingent consideration liability accordingly. The fair value of the contingent consideration liability as of December 31, 2021 amounts to $29.5 million. If as of December 31, 2021 we had assumed TLE was certain (i.e. 100% probability) to advance into clinical development, then the fair value of the contingent consideration liability would have increased to $47.0 million. If as of December 31, 2021 we had assumed that we would discontinue development of the TLE program, then we could have released the contingent consideration liability to income.
Revenue recognition related to CSL Behring milestones
On June 24, 2020 (the “Signing Date”) we entered into the CSL Behring Agreement. The transaction became effective on May 6, 2021 (“Closing”).
As of Closing, we identified two material performance obligations related to the CSL Behring Agreement:
(i) Sale of the exclusive global rights to the Product (“License Sale”); and
(ii) Generate information to support the regulatory approval of the current and next generation manufacturing process of Product and to provide any such information generated to CSL Behring (“Manufacturing Development”).
We determined that the fixed upfront payment of $450.0 million and the $12.4 million that we received in relation to the Additional Covenants should be allocated to the License Sale. In addition, we concluded that variable milestone payments, sales milestone payments and royalties should be allocated to the License Sale performance obligation as well. We determined that the License Sale was completed on May 6, 2021, when we transferred the license and CSL Behring assumed full responsibility for the development and commercialization of the Product. Upon the Closing, we evaluated the amounts of potential payments and the likelihood that the payments will be received. We utilized the most likely amount method to estimate the variable consideration to be included in the transaction price. Since we cannot control the achievement of regulatory and first commercial sales milestones, we concluded that all potential payments were constrained as of Closing. We determined that we would recognize revenue related to these payments, only to the extent that it becomes probable that no significant reversal of recognized cumulative revenue will occur thereafter. We will include payments related to sales milestones in the transaction price when their achievement becomes probable, and we will include royalties on the sale of Product once these have been earned.
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We determined that achievement of a total of $55.0 million of milestone payments related to the submissions of a BLA and MAA is probable as of the time of filing this Annual Report on Form 10-K and hence recorded these as license revenue in the year ended December 31, 2021. In making this determination we considered that after Closing we believe to successfully have completed the validation of our manufacturing process for the Product in December 2021 and that CLS Behring announced the accomplishment of the primary clinical endpoint for the Product in December 2021.
We continue to believe that the achievement of first-sales milestones of $175.0 million are not probable as of the date of the filing of this Annual Report on Form 10-K as these milestones require regulatory approvals, as well as a sale of Product by CSL Behring. Additionally, the first sale milestone in a major European country needs to be achieved prior to a contractually agreed date.
Valuation allowance related to Dutch and U.S. deferred tax assets
We are subject to corporate taxes in the Netherlands. We have been incurring net operating losses in accordance with the corporate tax laws in almost all years since we founded our business. As of December 31, 2020, the total amount of net operating losses carried forward under the Dutch tax regime was $588.2 million.
As of December 31, 2020 we reassessed the need for a full valuation allowance in conjunction with entering into the CSL Behring Agreement. The effectiveness of the transactions contemplated by the CSL Behring Agreement was contingent on completion of review under antitrust laws in the United States, Australia, and the United Kingdom. Regulatory approval in the United States had not occurred at the time of filing our Annual Report on Form 10-K for the year ended December 31, 2020. At that time we weighed all available positive and negative evidence, including future income projections from the CSL Behring Agreement, and concluded that it was not more likely than not that the deferred tax assets will not be realized. Accordingly, we continued to record a full valuation allowance as of December 31, 2020 in the Netherlands. As of December 31, 2020, our valuation allowance amounted to $150.1 million (2019: $109.9 million). If we had determined that it had been more likely than not that the deferred tax asset would be realized, then we could have recorded up to $61.9 million of deferred tax income in the year ended December 31, 2020 from releasing our valuation allowance and would have recorded deferred tax income for the same amount in the year ended December 31, 2021 from utilizing the deferred tax asset on closing of the CSL Behring transaction in May 2021.
We are also subject to corporate taxes in the United States. While our operations in the United States had initially been incurring net operating tax losses, our subsidiary in the United States generated taxable income in the fiscal years 2018, 2019 and 2020. Based on the design of our worldwide operations, we determined as of December 31, 2020 that we expect to continue to generate taxable income in the United States. during the foreseeable future and therefore determined that it had become more likely than not that our United States deferred tax assets will be realized. Accordingly, we recorded $16.4 million of deferred tax income in the year ended December 31, 2020 from releasing the full valuation allowance against our net deferred tax assets in the United States. We generated taxable income in the United States during the year ended December 31, 2021 and therefore continue to expect that it is more likely than not that our United States deferred tax assets will be realized. We would be required to record deferred tax expense to recognize a valuation allowance on a portion of or possibly even our full U.S. deferred tax asset of $19.9 million as of December 31, 2021 if we would expect not to meet the above threshold.
Revenue recognition in accordance with the amended BMS CLA
In May 2015, we entered into a collaboration and license agreement and various related agreements with BMS, which we collectively refer to as the BMS CLA, which provided BMS with exclusive access to our gene therapy technology platform for the research, development and commercialization of therapeutics aimed at up to ten targets in cardiovascular and other diseases.
On December 1, 2020, we and BMS amended the BMS CLA. For a period of one-year from the effective date of the amended BMS CLA, BMS was able to replace up to two of the four then active Collaboration Targets with two new targets in the field of cardiovascular disease. However, BMS was no longer entitled to add up to six additional Collaboration Targets.
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During the year ended December 31, 2020 we evaluated the impact the amendment of the BMS CLA had in relation to our performance obligation related to:
- providing access to our technology and know-how in the field of gene therapy as well as actively contributing to the target selection, the collaboration as a whole, the development during the target selection, the pre-clinical and clinical phase through participating in joint steering committee and other governing bodies (“License Revenue”)
We did not identify any new distinct performance obligations and determined the amended BMS CLA did not represent a separate contract in accordance with ASC 606. We evaluated the effect the modification had on our measure of progress towards the completion of our performance obligation in relation to License Revenue and recognized the remaining unrecognized License Revenue as of November 30, 2020.
The amount of services we expected to provide was significantly impacted by the number of Collaboration Targets that we estimated BMS would pursue. Based on this we concluded that our remaining performance obligation was immaterial as of December 1, 2020 and adjusted our measure of progress accordingly. As such we recognized the remaining balance of unrecognized License Revenue as of November 30, 2020 of $27.8 million in profit and loss during the year ended December 31, 2020 as License Revenue from a related party.
Recent Accounting Pronouncement Not Yet Effective
ASU 2021-10: Government Assistance
In November 2018, the FASB issued ASU 2021-10, Government Assistance (Topic 832) which discusses the requirements for disclosures related to transactions with a government. ASU 2021-10 is effective for fiscal years beginning after December 15, 2021. The new disclosure requirements will require disclosures around 1) information about the nature of the transactions and the related accounting policy used to account for the transactions, 2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, and 3) significant terms and conditions of the transactions, including commitments and contingencies. An entity should apply the updates prospectively or retrospectively. We currently include information on government grants and do not expect this amendment to have a material impact on our consolidated financial statements.
Results of Operations
The following table presents a comparison of the twelve months ended December 31, 2021, 2020 and 2019.
Year ended December 31,
2021
2020
2019
2021 vs 2020
2020 vs 2019
(in thousands)
Total revenues
$
524,002
$
37,514
$
7,281
$
486,488
$
30,233
Operating expenses:
Cost of contract revenues
(24,976)
—
—
(24,976)
—
Research and development expenses
(143,548)
(122,400)
(94,737)
(21,148)
(27,663)
Selling, general and administrative expenses
(56,290)
(42,580)
(33,544)
(13,710)
(9,036)
Total operating expenses
(224,814)
(164,980)
(128,281)
(59,834)
(36,699)
Other income
12,306
3,342
1,888
8,964
1,454
Other expense
(876)
(1,302)
(2,028)
426
726
Income / (loss) from operations
310,618
(125,426)
(121,140)
436,044
(4,286)
Non-operating items, net
22,188
(16,017)
(3,061)
38,205
(12,956)
Income / (loss) before income tax expense
$
332,806
$
(141,443)
$
(124,201)
474,249
(17,242)
Income tax expense
(3,217)
16,419
—
(19,636)
16,419
Net income / (loss)
$
329,589
$
(125,024)
$
(124,201)
$
454,613
$
(823)
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Revenue
BMS
We recognize collaboration revenues associated with Collaboration Target-specific pre-clinical analytical development and process development activities that are reimbursable by BMS under the BMS CLA and the amended BMS CLA as well as other related agreements. Collaboration Revenue related to these contracted services is recognized when performance obligations are satisfied.
We recognized license revenues associated with the amortization of the non-refundable upfront payment and target designation fees we received from BMS in 2015 until December 1, 2020. We evaluated our outstanding performance obligation following the amendment of the BMS CLA on December 1, 2020 and determined that our remaining performance obligation is immaterial. We updated our measure of progress accordingly and amortized the remaining balance of unrecognized revenue as of December 1, 2020. In accordance with the amended BMS CLA, we continue to be eligible to receive research, development, and regulatory milestone payments as well as sales milestone payments and royalties for each of the four active Collaboration Targets if defined milestones are achieved in relation to the license to our technology and know-how. We will recognize revenue from these payments when earned or as sales occur.
CSL Behring
Following the Closing of the CSL Behring agreement, we recognize license revenue related to the License Sale of the global rights to the Product. We determined that our performance obligation related to the License Sale was satisfied on Closing and recognized $462.4 million license revenue. We will recognize additional license revenue in relation to the License Sale when it becomes probable that regulatory and sales milestone events will be achieved as well as when royalties on sales of Product have been earned. We determined that as of the filing date of this Form 10-K, achievement of a total of $55.0 million of payments related to the submission of a BLA and MAA for the Product was probable and accordingly recorded license revenue in relation to these milestone payments.
We recognize collaboration revenues associated with Manufacturing Development. We will recognize collaboration revenue related to a contractual development milestone when it becomes probable the milestone will be achieved.
We recognize collaboration revenues associated with development services that will be reimbursed by CSL Behring relating to clinical development activities. These services are provided by our employees. Collaboration revenue related to these contracted services is recognized when the performance obligations are satisfied.
Our revenue for the years ended December 31, 2021, 2020 and 2019 was as follows:
Year ended December 31,
2021
2020
2019
2021 vs 2020
2020 vs 2019
(in thousands)
License revenue
$
517,400
$
37,319
$
4,988
$
480,081
$
32,331
Collaboration revenue
6,602
195
2,293
6,407
(2,098)
Total revenues
$
524,002
$
37,514
$
7,281
$
486,488
$
30,233
We recognized $517.4 million, $37.3 million, and $5.0 million of license revenue for the years ended December 31, 2021, 2020 and 2019, respectively. The license revenue recognized in 2021 of $517.4 million resulted from the fixed upfront payment of $450.0 million, the $12.4 million we received in relation to the Additional Covenants allocated to License sale that we recognized after the Closing of the CSL Behring Agreement on May 6, 2021 as well as a total of $55.0 million of payments related to the CSL Behring Agreement BLA and MAA submission milestones that we consider probable as of the filing of these financial statements. We did not recognize any license revenue related to the CSL Behring Agreement during the years ended December 31, 2020 and 2019.
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The increase in license revenue in 2020 of $32.2 million compared to 2019 primarily resulted from $27.8 million of license revenue that we recognized as of December 1, 2020 from the amended BMS CLA as well as $4.4 million research milestone payment that we recorded in December 2020 following the designation by BMS of one of the four Collaboration Targets as a candidate to advance into IND-enabling studies.
We recognized $6.6 million, $0.2 million, and $2.3 million of collaboration revenue for the years ended December 31, 2021, 2020 and 2019, respectively. The increase in collaboration revenue in 2021 of $6.4 million compared to 2020 was primarily related to the revenues related to FTE recharges of $2.4 million recognized from the CSL Behring Agreement and $4.2 million recognized from the amended BMS CLA. The decrease in collaboration revenue in 2020 of $2.1 million compared to 2019 was primarily related to the reduction of activities between the termination of the initial research term under the BMS CLA in May 2019 and the amendment in December 2020.
Cost of Contract revenues
We expense contract fulfillment costs associated with license revenue recognized under the CSL Behring Agreement as costs of contract revenues. These expenses primarily consist of payments we owe to our licensors in relation to license payments we received from CSL Behring. We incurred $25.0 million of such cost in the year ended December 31, 2021. We did not incur such costs in the years ended December 31, 2020 and 2019.
Research and development expenses
We expense R&D as incurred. Our R&D expenses generally consist of costs incurred for the development of our target candidates, which include:
● employee-related expenses, including salaries, benefits, travel, and share-based compensation expense;
● costs incurred for laboratory research, preclinical and nonclinical studies, clinical trials, statistical analysis and report writing, and regulatory compliance costs incurred with clinical research organizations and other third-party vendors;
● costs incurred to conduct consistency and comparability studies;
● costs incurred for the development and improvement of our manufacturing processes and methods;
● costs associated with research activities for enabling technology platforms, such as next-generation vectors, promoters and re-administration of gene therapies;
● costs associated with the rendering of collaboration services as well as the continued development of Product between the Signing Date and Closing;
● payments related to identifiable intangible assets without an alternative future use;
● facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies; and
● changes in the fair value of liabilities recorded in relation to our acquisition of Corlieve.
Our research and development expenses primarily consist of costs incurred for the research and development of our product candidates, which include:
● Etranacogene dezaparvovec (hemophilia B) . We have incurred costs related to the research, development, and production of etranacogene dezaparvovec for the treatment of hemophilia B. In June 2018, we initiated a pivotal study. We completed enrollment of the lead-in phase of the pivotal study in September 2019 and dosed a total of 54 patients between January 2019 and March 2020. Following the completion of dosing we initiated activities related to the preparation of marketing authorization applications in the U.S. and EU, as well as other related undertakings. During 2020 and up to the Closing of the CSL Behring Agreement we also incurred costs related to the preparation of a BLA and MAA and for commercialization of the Product. We also incurred costs for manufacturing development. After the Closing, CSL Behring is responsible for the clinical and regulatory development and commercialization of the Product;
● AMT-130 (Huntington’s disease). We have incurred costs related to preclinical and nonclinical studies of AMT-130 and have been incurring costs related to our Phase I/II trial since February 2019. Since 2021, we have also incurred costs related to our Phase Ib/II clinical trial in Europe;
● Preclinical research programs . We incurred costs related to the research of multiple preclinical gene therapy product candidates with the potential to treat certain rare and other serious medical conditions; and
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● Technology platform development and other related research . We incurred significant research and development costs related to manufacturing and other enabling technologies that are applicable across all our programs.
Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, including manufacturing campaigns, regulatory submissions, and enrollment of patients in clinical trials. The successful development of our product candidates is highly uncertain. Estimating the nature, timing, or cost of the development of any of our product candidates involves considerable judgment due to numerous risks and uncertainties associated with developing gene therapies, including the uncertainty of:
● the scope, rate of progress and expense of our research and development activities;
● our ability to successfully manufacture and scale-up production;
● clinical trial protocols, speed of enrollment and resulting data;
● the effectiveness and safety of our product candidates;
● the timing of regulatory approvals; and
● our ability to agree to ongoing development budgets with collaborators who share the costs of our development programs.
A change in the outcome of any of these variables with respect to our product candidates that we may develop, including as a result of the COVID-19 pandemic, could mean a significant change in the expenses and timing associated with the development of such product candidate.
Research and development expenses for the year ended December 31, 2021 were $143.5 million, compared to $122.4 million and $94.7 million for the years ended December 31, 2020 and 2019, respectively. Other research and development expenses are separately classified in the table below. These are not allocated as they are deployed across multiple projects under development.
Year ended December 31,
2021
2020
2019
2021 vs 2020
2020 vs 2019
(in thousands)
Etranacogene dezaparvovec (AMT-060/061)
$
8,738
$
21,458
$
16,853
$
(12,720)
$
4,605
Huntington's disease (AMT-130)
10,529
6,905
4,126
3,624
2,779
Programs in preclinical development and platform related expenses
9,758
6,518
5,710
3,240
808
Total direct research and development expenses
$
29,025
$
34,881
$
26,689
$
(5,856)
$
8,192
Employee and contractor-related expenses
55,725
41,694
34,030
14,031
7,664
Facility expenses
18,796
17,390
15,181
1,406
2,209
Disposables
14,679
10,203
8,765
4,476
1,438
Share-based compensation expense
12,822
11,995
8,094
827
3,901
Fair value changes related to contingent consideration
6,683
—
—
6,683
—
Other expenses
5,818
6,237
1,978
(419)
4,259
Total other research and development expenses
$
114,523
$
87,519
$
68,048
$
27,004
$
19,471
Total research and development expenses
$
143,548
$
122,400
$
94,737
$
21,148
$
27,663
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Direct research and development expenses
Hemophilia B (AMT-060/061)
In the years ended December 31, 2021, 2020 and 2019, the external costs for our hemophilia B program were primarily related to the execution of our Phase III clinical trial. During 2020 and up to the Closing of the CSL Behring Agreement we also incurred costs related to the preparation of a BLA and MAA and for commercialization of the Product. We also incurred costs for Manufacturing Development. After the Closing, CSL Behring is responsible for the clinical and regulatory development and commercialization of the Product. Direct research and development expenses related to clinical development incurred in the year ended December 31, 2021 are presented net of reimbursements due from CSL Behring.
I n the same period, we also incurred costs related to the long-term follow-up of patients in our Phase I/II clinical trial of AMT-060 and our Phase IIb clinical trial of etranacogene dezaparvovec. Our Phase IIb dose-confirmation study was initiated in January 2018 and dosing occurred in July and August 2018. Patients were dosed as part of our Phase I/II clinical trial of AMT-060 in 2015 and 2016.
Huntington disease (AMT-130)
In the years ended December 31, 2021 and 2020, our external costs for the development of Huntington’s disease were primarily related to the execution of our Phase I/II clinical trial in the United States as well as the preparation of a Phase I/IIb clinical trial in Europe . In the year ended December 31, 2019, our external costs for the development of Huntington’s disease were primarily related to the preparation of our Phase I/II clinical trial in the United States.
Preclinical programs & platform development
In the year ended December 31, 2021, we incurred $9.8 million of costs primarily related to our preclinical activities associated with product candidates for the treatment of SCA3 (AMT-150), Fabry disease (AMT-191) and temporal lobe epilepsy (AMT-260), as well as various other research programs and technology innovation projects.
In the year ended December 31, 2020, we incurred $6.5 million of costs related to related to our preclinical activities for product candidates including Hemophilia A (AMT-180), SCA3 (AMT-150) and Fabry disease (AMT-190), as well as various other research programs and technology innovation projects compared to $5.7 million in 2019. These expenses for the year ended December 31, 2020 and 2019 include costs related to our product candidate for Hemophilia A (AMT-180), which was deprioritized in June 2020.
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Other research & development expenses
● We incurred $55.7 million in employee and contractor expenses in the year ended December 31, 2021 compared to $41.7 million in 2020 and $34.0 million in 2019. Our cost increased in 2021 by $14.0 million compared to 2020 as a result of the recruitment of personnel to support the preclinical and clinical development of our product candidates. For the same reason our costs increased by $7.7 million in 2020 compared to 2019;
● We incurred $18.8 million in operating expenses and depreciation expenses related to our rented facilities in the year ended December 31, 2021 compared to $17.4 million in 2020 and $15.2 million in 2019. The increase in 2021 compared to 2020 of $1.4 million primarily related to the expansion of Amsterdam facility. The increase in 2020 compared to 2019 of $2.2 million primarily relates to extending and expanding (as of June 2019) the lease of our Lexington facility;
● We incurred $14.7 million in disposables costs in the year ended December 31, 2021 compared to $10.2 million in the year ended December 31, 2020 and $8.8 million in the year ended December 31, 2019 related to miscellaneous other costs we incurred as a result of expanding our organization;
● We incurred $12.8 million in share-based compensation expenses in the year ended December 31, 2021 compared to $12.0 million in 2020 and $8.1 million in 2019. The increase in 2021 compared to 2020 of $0.8 million was primarily driven by grants to newly recruited personnel offset by share-based compensation expenses recorded in relation to the termination of one of our executives in 2020. The increase in 2020 compared to 2019 of $3.9 million was driven primarily by grants to newly recruited personnel as well as share-based compensation expenses recorded in relation to the termination of one of our executives;
● We incurred $6.7 million of expenses for the year ended December 31, 2021 related to an increase in the fair value of contingent consideration associated with the Corlieve Transaction, compared to nil for the same periods in 2020 and 2019; and
● We incurred $5.8 million in other expenses in the year ended December 31, 2021 compared to $6.2 million in 2020 and $2.0 million in 2019. The decrease in 2021 compared to 2020 of $0.4 million is a combination of not incurring any expenses related to license payments without an alternative future use like in 2020 ($3.4 million) offset by various increases, including increases in professional fees as a result of expanding the organization and to support the cGMP validation of our Lexington facility. The increase in 2020 compared to 2019 of $4.2 million primarily relates to a $3.4 million expense recorded in 2020 related to license payments that have no alternative future use.
Selling, general and administrative expenses
Our general and administrative expenses consist principally of employee, office, consulting, legal and other professional and administrative expenses. We incurred expenses associated with operating as a public company, including expenses for personnel, legal, accounting and audit fees, board of directors’ costs, directors' and officers' liability insurance premiums, Nasdaq listing fees, expenses related to investor relations and fees related to business development and maintaining our patent and license portfolio. Our selling costs include employee expenses as well as professional fees related to the preparation of a commercial launch of etranacogene dezaparvovec and advisory fees related to obtaining the CSL Behring Agreement.
Selling, general and administrative expenses for the year ended December 31, 2021 were $56.3 million, compared to $42.6 million and $33.5 million for the years ended December 31, 2020 and 2019, respectively.
● We incurred $16.0 million in personnel and contractor expenses in 2021 compared to $13.6 million in 2020 and $10.5 million in 2019. The increase of $2.4 million in 2021 compared to 2020 was primarily related to the recruitment of personnel; and the increase of $3.1 million in 2020 compared to 2019 was primarily driven by an increase in personnel and contractor related expenses to support our growth;
● We incurred $12.8 million of share-based compensation expenses in 2021 compared to $9.8 million in 2020 and $9.4 million in 2019. The increase in 2021 compared to 2020 of $3.0 million was primarily related to the increase in awards granted, including those to newly recruited personnel and the increase in 2020 compared to 2019 of $0.4 million was also primarily driven by the increase in awards granted including those to newly recruited personnel;
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● We incurred $9.4 million in professional fees in 2021 compared to $8.0 million in 2020 and $6.0 million in 2019. We regularly incur accounting, audit and legal fees associated with operating as a public company. Additionally, in the years ended December 31, 2021 and December 31, 2020, we incurred professional fees in relation to our licensing transaction with CSL Behring and our acquisition of Corlieve; and
● We incurred $5.1 million in financial advisory fees in relation to our licensing transaction with CSL Behring in the year ended December 31, 2021, compared to nil in the same period in 2020 and 2019.
Other items, net
We recognized $3.0 million in other income in relation to the equity stake received in VectorY B.V. in conjunction with a settlement agreement that the Company and VectorY B.V. entered into in April 2021 in the year ended December 31, 2021, compared to no such income for the same periods in 2020 and 2019.
We recognized $2.6 million in other income of employee retention credit under the U.S. CARES Act in the year ended December 31, 2021, compared to no such income for the same periods in 2020 and 2019.
In 2021, we recognized $5.3 million in income related to payments received from European authorities to subsidize our research and development efforts in the Netherlands compared to $1.9 million in 2020 and $0.7 million in 2019.
Other income for the years ended December 31, 2021, 2020 and 2019 also includes income from the subleasing of a portion of our Amsterdam facility. We present expenses related to such income as other expense.
Other non-operating items, net
We recognize interest income associated with our cash and cash equivalents.
We hold monetary items and enter into transactions in foreign currencies, predominantly in euros and U.S. dollars. We recognize foreign exchange results related to changes in these foreign currencies.
We issued warrants to Hercules in 2013 and to BMS in 2015. We recognize changes in the fair value of these warrants within other non-operating (losses) / gains. Following the termination of the BMS warrants on December 1, 2020, we no longer recognize changes in the fair value of these warrants within other non-operating (losses) / gains. As of the same date, we recognized a derivative financial liability related to the CoC-payment. Following the exercise of the warrants by Hercules in February 2019 we no longer recognize changes in the fair value of these warrants within other non-operating (losses) / gains.
Our non-operating items, net, for the years ended December 31, 2020, 2019 and 2018 were as follows:
Year ended December 31,
2021
2020
2019
2021 vs 2020
2020 vs 2019
(in thousands)
Interest income
$
162
$
938
$
3,547
$
(776)
$
(2,609)
Interest expense
(7,474)
(3,825)
(3,810)
(3,649)
(15)
Foreign currency gains / (losses), net
29,660
(13,613)
(268)
43,273
(13,345)
Other non-operating (losses) / gains, net
(160)
483
(2,530)
(643)
3,013
Total non-operating income / (loss), net
$
22,188
$
(16,017)
$
(3,061)
$
38,205
$
(12,956)
We recognized $0.2 million interest income in 2021, $0.9 million in 2020 and $3.5 million in 2019. Our interest income decreased in 2021 by $0.7 million compared to 2020 and in 2020 decreased by $2.6 million compared to 2019 due to a reduction in market interest rates during 2020.
We recognized $7.5 million interest expense in 2021, $3.8 million in 2020 and $3.8 million in 2019. Our interest expense in 2021 primarily increased by $3.6 million compared to 2020 due to the additional $35.0 million we drew down on our loan facility from Hercules in January of 2021. Our interest expense in 2020 was unchanged compared to 2019 as our outstanding debt remained unchanged.
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In 2021, we recognized a net foreign currency gain of $29.7 million related to our borrowings from Hercules and our cash and cash equivalents as well as loans between entities within the uniQure group, compared to a net loss of $13.6 million in 2020 and a net loss of $0.3 million in 2019.
In 2021, we recognized a $0.2 million net loss within Other non-operating (losses) / gains related to an increase in the fair value market value of derivative financial liability related to the CoC-payment, compared to a net gain of $0.5 million in 2020 and a net loss of $2.5 million in 2019. The increase in the fair market value of the derivative financial liability in 2021 primarily related to unwinding the discounting of the potential CoC-payment. The changes in 2020 compared to 2019 result from a $3.1 million gain that we recognized related to fair value changes of the BMS warrants (compared to $2.5 million loss in 2019), which includes an $0.8 million gain that we recognized related to the termination of the BMS warrants in December 2020, and a loss of $2.6 million to recognize the derivative financial liability for the CoC-payment on December 1, 2020.
Income tax
We recognized $3.2 million of deferred tax expenses in 2021, compared to $16.4 million of deferred tax income in 2020 and $0.0 million in 2019. Deferred tax expense recorded in 2021 results from the consumption of net operating tax losses by our U.S. entity as well as deferred tax expense resulting from the release of valuation allowance for the tax benefit of share issuance costs within the Netherlands. Deferred tax income recorded in 2020 results from the release of the valuation allowance recorded for our net deferred tax assets by our U.S. entity. We did not record changes in valuation allowances in 2019.
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Financial Position, Liquidity and Capital Resources
As of December 31, 2021, we had cash, cash equivalents and restricted cash of $559.4 million, which include payments received from CSL Behring following the Closing. Until such time, if ever, as we can generate substantial cash flows from successfully commercializing our proprietary product candida tes, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution, and licensing arrangements. We believe that our cash and cash equivalents will fund our operations into the first half of 2025 assuming achievement of $230.0 million related to BLA and MAA submissions as well as first commercial sales milestones under the CSL Behring Agreement. Our material cash requirements include the following contractual and other obligations:
Debt
As of December 31, 2021, we had an outstanding loan amount owed to Hercules for an aggregate principal amount of $100.0 million, with $8.0 million payable within 12 months. Future interest payments and financing fees associated with the loan total $35.6 million, with $8.0 million payable within 12 months. We are contractually required to repay the $100.0 million in equal installments between December 2024 and December 2025 or in full in December 2025 if, prior to June 30, 2024, either (a) the BLA for AMT-061 is approved by the FDA or (b) AMT-130 is advanced into a pivotal trial.
Leases
We entered into lease arrangements for facilities, including corporate, manufacturing and office space. As of December 31, 2021, we had fixed lease payment obligations of $65.2 million, with $6.7 million payable within 12 months. The fixed lease payment obligations include payments owed under signed lease arrangements that are expected to commence in 2022.
Commitments related to Corlieve acquisition (nominal amounts)
In relation to the Corlieve Transaction, we entered into commitments to make payments to the former shareholders upon the achievement of certain contractual milestones. The commitments include payments related to post-acquisition services that we agreed to as part of the SPA. As of December 31, 2021, our commitment amount is $229.1 million. The timing of achieving these milestones and consequently the timing of payments, as well as whether the milestone will be achieved at all, is generally uncertain with the exception of a payment we made in February 2022 to acquire the remaining outstanding shares as well as certain payments for post-acquisition services in 2022. These payments are owed in Euro and have been translated at the foreign exchange rate as of December 31, 2021, of $1.13/€1.00. As of December 31, 2021, we expect these obligations will become payable between 2022 and 2031. If and when due, up to 25% of the milestone payments can be settled with our ordinary shares.
Commitments related to licensors and financial advisors
We have obligations to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones (such as the start of a clinical trial, filing of a BLA, approval by the FDA or product launch) or as a result of collecting payments related to our License Sale to CSL Behring. We also owe payments to a financial advisor related to any payments we will collect under the CSL Behring Agreement.
The table below summarizes our consolidated cash flow data for the years ended December 31:
Year ended December 31,
2021
2020
2019
(in thousands)
Cash, cash equivalents and restricted cash at the beginning of the period
$
247,680
$
380,726
$
237,342
Net cash generated from / (used in) operating activities
287,959
(134,828)
(98,684)
Net cash used in investing activities
(67,387)
(9,484)
(6,647)
Net cash generated from financing activities
94,858
7,444
248,821
Foreign exchange impact
(3,757)
3,822
(106)
Cash, cash equivalents and restricted cash at the end of period
$
559,353
$
247,680
$
380,726
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We had previously incurred losses and cumulative negative cash flows from operations since our business was founded by our predecessor entity AMT Holding N.V. in 1998. As a result of receiving the upfront payment upon Closing of the CSL Behring Agreement, we generated $288.0 million cash flows from operating activities during the year ended December 31, 2021. We recorded net income of $329.6 for the year ended December 31, 2021, and a net loss of $125.0 million in 2020, and a net loss of $124.2 million in 2019. As of December 31, 2021, we had an accumulated deficit of $455.1 million.
Sources of liquidity
From our first institutional venture capital financing in 2006 through May 2021, we funded our operations primarily through private and public placements of equity securities and convertible and other debt securities as well as payments from our collaboration partners. In May 2021, we received a $462.4 million cash payment due from CSL Behring upon Closing. We expect to collect $55.0 million from CSL Behring following the submissions of a BLA and MAA for AMT-061. In addition, we could potentially receive regulatory, first commercial sales and development milestone payments as well as royalties and sales milestone payments from CSL Behring.
On March 1, 2021, we entered into a Sales Agreement with SVB Leerink with respect to an ATM offering program, under which we may, from time to time in our sole discretion, offer and sell through SVB Leerink, acting as agent, our ordinary shares, up to an aggregate offering price of $200.0 million. We will pay SVB Leerink a commission equal to 3% of the gross proceeds of the sales price of all ordinary shares sold through it as a sales agent under the Sales Agreement. In the year ended December 30, 2021, we received net proceeds of $29.6 million from the issuance of 921,730 ordinary shares that took place during March and April of this year.
On September 10, 2019, we completed a follow-on public offering of 4,891,305 ordinary shares at a public offering price of $46.00 per ordinary share, and on September 13, 2019, we completed the sale of an additional 733,695 ordinary shares at a public offering price of $46.00 per ordinary share pursuant to the exercise by the underwriters of the option to purchase additional ordinary shares, resulting in total gross proceeds to us of $258.8 million. The net proceeds from this offering were $242.7 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. We deducted $0.6 million of expenses incurred related to this offering from additional paid-in capital in the accompanying consolidated balance sheets and reflected this within the proceeds from public offering of shares, net of issuance costs within the cash flows from financing activities.
On January 29, 2021, we drew down $35 million under our 2021 Amended Facility with Hercules. We drew down a further $30 million under our 2021 Restated Facility with Hercules.
We are subject to certain covenants under our 2021 Restated Facility and may become subject to covenants under any future indebtedness that could limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends, which could adversely impact our ability to conduct our business. In addition, our pledge of assets as collateral to secure our obligations under the 2021 Restated Facility may limit our ability to obtain debt financing. The 2021 Restated Facility permits us to issue up to $500.0 million of convertible debt as well as to enter into a transaction to sell the royalties under the CSL Behring agreement subject to certain conditions .
To the extent we need to finance our cash needs through equity offerings or debt financings, such financing may be subject to unfavorable terms including without limitation, the negotiation and execution of definitive documentation, as well as credit and debt market conditions, and we may not be able to obtain such financing on terms acceptable to us or at all. If financing is not available when needed, including through debt or equity financings, or is available only on unfavorable terms, we may be unable to meet our cash needs. If we raise additional funds through collaborations, strategic alliances or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves, which could have a material adverse effect on our business, financial conditions, results of operations and cash flows.
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Net Cash generated from / used in operating activities
Year ended December 31,
2021
2020
2019
(in thousands)
Cash flows from operating activities
Net income / (loss)
$
329,589
$
(125,024)
$
(124,201)
Adjustments to reconcile net income, (net loss) to net cash generated from / (used in) operating activities:
Depreciation, amortization, and impairment losses
7,299
10,648
6,669
Share-based compensation expense
25,635
21,831
17,533
Change in fair value of derivative financial instruments and contingent consideration
6,843
(483)
2,530
Unrealized foreign exchange (gains) / losses
(31,335)
14,730
891
Deferred tax expense / (income)
3,210
(16,419)
-
Change in deferred revenue
-
(33,642)
(4,999)
Change in non-cash items, net
(2,800)
-
-
Changes in operating assets and liabilities:
Uncollected revenue related to CSL Behring milestone payments
(55,000)
-
-
Accounts receivable and accrued income, prepaid expenses, and other current assets and receivables
(3,959)
(6,967)
(4,769)
Accounts payable
(727)
(2,701)
1,652
Accrued expenses, other liabilities, and operating leases
9,204
3,199
6,010
Net cash generated from / (used in) operating activities
$
287,959
$
(134,828)
$
(98,684)
Net cash generated from operating activities was $288.0 million for the year ended December 31, 2021, and consisted of net income of $329.6 million adjusted for non-cash items, including depreciation and amortization expense of $7.3 million, share-based compensation expense of $25.6 million, a change in fair value of contingent consideration of $6.8 million, unrealized foreign exchange gains of $31.3 million, a change in deferred taxes of $3.2 million and other non-cash items, net, of $2.8 million. Net cash generated from operating activities also included unfavorable changes in operating assets and liabilities of $50.3 million, which includes $55.0 million recognized as a contract asset related to probable CSL Behring milestone payments. Additionally, these changes also related to a net increase in accounts receivable, prepaid expenses, and other current assets and receivables of $4.0 million primarily related to an increase in various prepaids, including those related to clinical trials, partially offset by decrease in receivables as a result of collection of the BMS milestone that was recorded as of December 31, 2020 and collection of the CSL Behring receivables recorded as of December 31, 2020 for expenses for which we had a right of reimbursement and a net increase in accounts payable, accrued expenses, other liabilities, and operating leases of $8.5 million primarily related to an increase in various accruals for goods received from and services provided by vendors and an increase in personnel accrual s. Net income primarily consisted of $462.4 million license revenue recognized on Closing and $55.0 million license revenue related to the submissions of a BLA and MAA that is considered probable as of the time of filing these financial statements.
Net cash used in operating activities was $134.8 million for the annual period ended December 31, 2020, and consisted of a net loss of $125.0 million adjusted for non-cash items, including depreciation and amortization expense of $10.6 million, share-based compensation expense of $21.8 million, fair value gain of derivative financial instruments of $0.5 million, unrealized foreign exchange loss of $14.7 million, a change in deferred tax income of $16.4 million and a decrease in unamortized deferred revenue of $33.6 million. Net cash used in operating activities also included unfavorable changes in operating assets and liabilities of $6.5 million. These changes primarily related to a net increase in accounts receivable and accrued income, prepaid expenses, and other current assets of $7.0 million and a net increase in accounts payable, accrued expenses, other liabilities, and operating leases of $0.5 million.
Net cash used in operating activities was $98.7 million for the annual period ended December 31, 2019, and consisted of a net loss of $124.2 million adjusted for non-cash items, including depreciation and amortization expense of $6.7 million, share-based compensation expense of $17.5 million, fair value loss of derivative financial instruments of $2.5 million, unrealized foreign exchange loss of $0.9 million, and a decrease in unamortized deferred revenue of $5.0 million. Net cash used in operating activities also included changes in operating assets and liabilities of $2.9 million. These changes primarily related to a net increase in accounts receivable and accrued income, prepaid expenses, and other current assets of $4.8 million and a net increase in accounts payable, accrued expenses, other liabilities, and operating leases of $7.7 million primarily related to our clinical trials and facilities.
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Net cash used in investing activities
In 2021, we used $67.4 million in our investing activities compared to $9.5 million in 2020 and $6.6 million in 2019.
Year ended December 31,
2021
2020
2019
(in thousands)
Acquisition of Corlieve, net of cash acquired
$
(49,949)
$
—
$
-
Build out of Amsterdam site
(12,412)
(4,534)
(1,487)
Build out of Lexington site
(5,026)
(2,737)
(4,164)
Acquisition of licenses, patents, and other rights
—
(2,213)
(996)
Total investments
$
(67,387)
$
(9,484)
$
(6,647)
We paid EUR 42.1 million ($49.9 million), net of EUR 2.8 million ($3.3 million) of cash acquired, during the year ended December 31, 2021 to acquire 97.7% of the outstanding ordinary shares of Corlieve on July 30, 2021.
In 2021, we invested $12.4 million in the build out of our Amsterdam site compared to $4.5 million in 2020 and $1.5 million in 2019. Our investments in 2021 primarily relate to the construction of additional laboratories to support the expansion of our research and development activities as well as the construction of a cleanroom designed to be capable of manufacturing cGMP materials at a 500-liter scale.
In 2021, we invested $5.0 million in our facility in Lexington compared to $2.7 million in 2020 and $4.2 million in 2019. Our investments in 2019 primarily relate to improvements we made to the additional space rented from June 1, 2019.
Net cash generated from financing activities
Year ended December 31,
2021
2020
2019
(in thousands)
Cash flows from financing activities
Proceeds from loan increment, net of debt issuance costs
$
64,067
$
-
$
-
Proceeds from issuance of ordinary shares, net of issuance costs
29,565
-
242,718
Proceeds from issuance of shares related to employee stock option and purchase plans
2,798
7,444
5,603
Repayment of debt assumed through Corlieve Transaction
(1,572)
-
-
Proceeds from exercise of warrants
-
-
500
Net cash generated from financing activities
$
94,858
$
7,444
$
248,821
In January 2021, we received $34.6 million net proceeds from the 2021 Amended Facility and in December 2021 we received $29.5 million net proceeds from the 2021 Restated Facility for combined net proceeds of $64.1 million.
We received net proceeds of $29.6 million associated with our ATM offering in March and April 2021 and $242.7 million associated with our public follow-on offering in September 2019.
In 2021, we received $2.8 million from the exercise of options to purchase ordinary shares issued in accordance with our share incentive plans, compared to $7.4 million in 2020 and $5.6 million in 2019.
Upon the acquisition of Corlieve, Corlieve held loans with an outstanding amount equal to EUR 1.4 million ($1.6 million). During the year ended December 31, 2021, the loans were repaid in their entirety.
We received net proceeds of $0.5 million associated with the exercise of the Hercules warrants by Hercules in February 2019.
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Funding requirements
We believe our cash and cash equivalents as of December 31, 2021 will fund our operations into the first half of 2025 assuming achievement of $230.0 million related to BLA and MAA submissions as well as first commercial sales milestones under the CSL Behring Agreement. Our future capital requirements will depend on many factors, including but not limited to:
● achieving the milestones and royalties as defined within the CSL Behring Agreement;
● the payment of milestone payments that we might owe to former shareholders of Corlieve;
● the scope, timing, results, and costs of our current and planned clinical trials, including those for AMT-130 in Huntington’s disease;
● the extent to which we acquire or in-license other businesses, products, product candidates or technologies;
● the amount and timing of revenue, if any, we receive from commercial sales of any product candidates for which we, or our collaboration partner, receives marketing approval in the future;
● the amount and timing of revenue, if any, we receive from manufacturing products for CSL Behring;
● the scope, timing, results and costs of preclinical development and laboratory testing of our additional product candidates;
● the need for additional resources and related recruitment costs to support the preclinical and clinical development of our product candidates;
● the need for any additional tests, studies, or trials beyond those originally anticipated to confirm the safety or efficacy of our product candidates and technologies;
● the cost, timing and outcome of regulatory reviews associated with our product candidates;
● our ability to enter into collaboration arrangements in the future;
● the costs and timing of preparing, filing, expanding, acquiring, licensing, maintaining, enforcing, and prosecuting patents and patent applications, as well as defending any intellectual property-related claims;
● the repayments of the principal amount of our venture debt loan with Hercules, which following the December 15, 2021 amendment will be due in equal installments between December 2024 and December 2025 or in full in December 2025 if, prior to June 30, 2024, either (a) the BLA for AMT-061 is approved by the FDA or (b) AMT-130 is advanced into a pivotal trial;
● the costs associated with maintaining quality compliance and optimizing our manufacturing processes, including the operating costs associated with our Lexington, Massachusetts manufacturing facility; and
● the costs associated with increasing the scale and capacity of our manufacturing capabilities.