What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-12 compared with 2020-02-14 · 135 added, 176 removed, 192 unchanged (62% of the section changed)

9 unchanged sentences

Our strategy, which is predicated upon time- and cost-efficient drug development, allows us to pursue multiple programs in parallel with the goal of delivering safe and effective therapies to patients with the utmost urgency.

Impact of COVID-19 Pandemic

Our business operations have been and continue to be affected by the COVID-19 pandemic.

In addition to some impact on our preclinical manufacturing activities and certain regulatory interactions, we have experienced interruptions to our clinical trial activities, primarily due to delays or disruptions to patient enrollment and dosing as a result of shelter-in-place orders or quarantines, and certain data from our gene therapy product candidates was delayed as a result of the COVID-19 pandemic.

The FDA has also delayed certain key meetings or discussions with us related to one of our product candidates, which may adversely impact the progression of our clinical study for such product candidate.

The continuing outbreak has caused delays in delivery of ancillary clinical trial materials as certain of our third-party manufacturers or suppliers have prioritized and allocated more resources and capacity to supply drug product or raw materials to other companies engaged in the study of potential treatments or vaccinations for COVID-19.

Social distancing measures and travel limitations in response to the pandemic have also made it difficult for us to identify new patients for our commercialized products, which may result in loss of revenue.

We have also restricted access to our facilities to personnel and third parties who perform critical activities that must be performed on-site and as a result, most of our personnel currently work remotely.

Such remote working policies may negatively impact productivity and disrupt our business operations.

As the COVID-19 global pandemic continues, we may experience lower revenue and increased expenses as a result of disruptions to our clinical trial, commercialization and regulatory activities, in addition to delays or shortages of drug product and raw materials.

The magnitude and extent to which the pandemic may impact our business operations and operating results will continue to remain highly dependent on future developments, which are very uncertain and cannot be predicted with confidence.

As a result, we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our financial statements in 2021 and beyond .

"Risk Factors" for additional details.

Approved Therapies and Clinical Product Candidates

Our current approved therapies and clinical-stage pipeline consist of three product categories:

biologics, small molecules, and gene therapy product candidates.

Our biologic products include approved therapies Crysvita® (burosumab) and Mepsevii® (vestronidase alfa):

Crysvita is an antibody targeting fibroblast growth factor 23, or FGF23, developed for the treatment of X-linked hypophosphatemia, or XLH, a rare, hereditary, progressive and lifelong musculoskeletal disorder characterized by renal phosphate wasting caused by excess FGF23 production.

Crysvita is approved in the United States for the treatment of XLH in adult and pediatric patients six months of age and older, and in Canada for the treatment of XLH in adult and pediatric patients one year of age and older.

In the European Union, or the EU, and the United Kingdom, Crysvita is conditionally approved for the treatment of XLH with radiographic evidence of bone disease in children one year of age and older and adolescents with growing skeletons.

The European Medicine Agency, or EMA, has accepted the application submitted by our partner, Kyowa Kirin International, or Kyowa Kirin, to expand the label to include adults with XLH in the EU and the United Kingdom.

In Brazil, Crysvita is approved for treatment of XLH in adult and pediatric patients one year of age and older.

We have submitted regulatory filings in various other Latin American countries.

We are collaborating with Kyowa Kirin Co., Ltd., or KKC (formerly Kyowa Hakko Kirin Co., Ltd., or KHK), and Kyowa Kirin, a wholly owned subsidiary of KKC, on the development and commercialization of Crysvita globally.

Crysvita is also being developed for the treatment of tumor-induced osteomalacia, or TIO.

TIO results from typically benign tumors that produce excess levels of FGF23, which can lead to severe hypophosphatemia, osteomalacia, fractures, fatigue, bone and muscle pain, and muscle weakness.

We submitted a supplemental Biologics License Application to the U.S.

Food and Drug Administration, or FDA, for Crysvita in TIO in December 2019.

Mepsevii is an intravenous, or IV, enzyme replacement therapy, developed for the treatment of Mucopolysaccharidosis VII, also known as MPS VII or Sly syndrome, a rare lysosomal storage disease that often leads to multi-organ dysfunction, pervasive skeletal disease, and death.

Mepsevii is approved in the United States for the treatment of children and adults with MPS VII.

In the EU and the United Kingdom, Mepsevii is approved under exceptional circumstances for the treatment of non-neurological manifestations of MPS VII for patients of all ages.

In Brazil, Mepsevii is approved for the treatment of MPS VII for patients of all ages.

Our small molecule pipeline includes UX007, which is in clinical development for the treatment of long-chain fatty acid oxidation disorders, or LC-FAOD:

UX007 is a synthetic triglyceride with a specifically designed chemical composition being studied for the treatment of LC-FAOD, which is a set of rare metabolic diseases that prevents the conversion of fat into energy and can cause low blood sugar, muscle rupture, and heart and liver disease.

The FDA has accepted our New Drug Application, or NDA for the treatment of LC-FAOD, and has assigned a Prescription Drug User Fee Act, or PDUFA, date of July 31, 2020.

We are also continuing discussions with EU regulatory authorities.

Our gene therapy pipeline includes DTX301 and DTX401 in clinical development for the treatment of two diseases:

DTX301 is an adeno-associated virus 8, or AAV8 gene therapy product candidate designed for the treatment of patients with ornithine transcarbamylase, or OTC, deficiency.

OTC is part of the urea cycle, an enzymatic pathway in the liver that converts excess nitrogen, in the form of ammonia, to urea for excretion.

OTC deficiency is the most common urea cycle disorder and leads to increased levels of ammonia.

Patients with OTC deficiency suffer from acute hyperammonemic episodes that can lead to hospitalization, adverse cognitive and neurological effects, and death.

We have reported positive data from the three dose cohorts of the Phase 1/2 study, with up to six responders of the nine patients dosed in the study.

A fourth cohort is enrolling three patients at the 1.0 × 10^13 GC/kg dose, using prophylactic steroids, and data from this cohort are expected in the second half of 2020.

DTX401 is an AAV8 gene therapy clinical candidate for the treatment of patients with glycogen storage disease type Ia, or GSDIa, a disease that arises from a defect in G6Pase, an essential enzyme in glycogen and glucose metabolism.

GSDIa is the most common glycogen storage disease.

We have reported positive data from the first and second dose cohorts of the Phase 1/2 study, with all patients showing a clinical response with improvements in glucose control and other metabolic parameters compared to baseline.

The confirmatory expansion cohort of three patients at the second cohort dose of 6.0 × 10^12 GC/kg dose is ongoing, and we expect data from this cohort in the first half of 2020.

Our current approved therapies and clinical-stage pipeline consist of four product categories:

biologics, small molecules, gene therapy, and nucleic acid product candidates.

We have three commercially approved products, Crysvita® (burosumab) for the treatment of XLH and TIO, Mepsevii® (vestronidase alfa) for the treatment of MPSVII or Sly Syndrome, and Dojolvi® (triheptanoin) for the treatment of LC-FAOD, and we anticipate having six product candidates in the clinical pipeline in 2021.

Please see “Part I.

Business” above for a description of our approved products and our clinical stage pipeline products.

Financial Operations Overview

1 unchanged sentence

To date, we have invested substantially all of our efforts and financial resources in identifying, acquiring, and developing our products and product candidates, including conducting clinical studies and providing selling, general and administrative support for these operations.

To date, we have funded our operations primarily from the sale of equity securities and the sale of certain future royalties.

To date, we have funded our operations primarily from the sale of our equity securities, the sale of certain future royalties, and strategic collaboration arrangements.

We have incurred net losses in each year since inception.

Our net losses were $186.6 million and $402.7 million for the years ended December 31, 2020 and 2019.

Our net loss for the year ended December 31, 2018 includes the gains from the sale of priority review vouchers of $170.3 million, which we received from the FDA in connection with the approval of Crysvita and Mepsevii.

Net loss for the years ended December 31, 2020 and 2019 included a $170.4 million and $13.4 million gain, respectively, resulting from changes in fair value of our investments in Arcturus Therapeutics Holdings Inc.

and Solid Biosciences Inc.

(Solid) equity securities.

Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations.

We record revenue from our collaboration and license agreements and from the sale of our two approved products – Crysvita and Mepsevii.

In addition, we also record sales of certain products on a “named patient” basis, which are allowed in certain countries prior to regulatory approval.

For the years ended December 31, 2019 and 2018, we recorded $83.0 million and $18.2 million, respectively, in collaboration and license revenue for Crysvita sales and $0.5 million and $23.5 million, respectively, for providing certain research and development services under our collaboration and license arrangement with Bayer Healthcare LLC, or Bayer.

For the years ended December 31, 2019 and 2018, we recorded $20.2 million and $9.8 million, respectively, in product sales from our approved products and named patient sales in certain countries.

For the year ended December 31, 2020, our total revenues increased to $271.0 million, compared to $103.7 million for the same period in 2019.

Revenue for the year ended December 31, 2020 included $89.2 million in revenue from our collaboration and license agreement with Daiichi Sankyo Co., Ltd.

(Daiichi Sankyo) which we executed in March 2020.

The remainder of the increase was driven by higher revenue from Crysvita collaboration revenue in the profit-share territory, increase in revenue for our approved products and an increase in collaboration royalty revenue.

As of December 31, 2020, we had $1,212.0 million in available cash, cash equivalents and marketable debt securities.

Critical Accounting Policies and Significant Judgments and Estimates

7 unchanged sentences

Our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report.

We define our critical accounting policies as those accounting principles generally accepted in the United States of America that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles.

We define our critical accounting policies as those GAAP accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles.

We believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows:

31 unchanged sentences

We have certain license and collaboration agreements that are within the scope of Accounting Standards Codification (ASC) 808, Collaborative Agreements , which provides guidance on the presentation and disclosure of collaborative arrangements.

Generally, the classification of transactions under collaborative arrangements is determined based on the nature of contractual terms of the arrangement, along with the nature of the operations of the participants.

When our collaborative partner is the principal in the sale transaction with the customer, we record our share of the collaboration profit as collaboration revenue.

Funding received related to research and development services and commercialization costs are generally classified as a reduction of research and development expenses and selling, general and administrative expenses, respectively, in the consolidated statement of operations, because the provision of such services for collaborative partners is not considered to be part of our ongoing major or central operations.

We also receive royalty revenues under certain of our license or collaboration agreements in exchange for license of intellectual property.

Generally, the classification of the transactions under the collaborative arrangements is determined based on the nature of contractual terms of the arrangement, along with the nature of the operations of the participants.

We record our share of collaboration revenue, net of transfer pricing related to net sales in the period in which such sales occur, if we are considered as an agent in the arrangement.

We are considered an agent when the collaboration partner controls the product before transfer to the customers and has the ability to direct the use of and obtain substantially all of the remaining benefits from the product.

Funding received related to research and development services and commercialization costs is generally classified as a reduction of research and development expenses and selling, general and administrative expenses, respectively, in the consolidated statement of operations, because the provision of such services for collaborative partners are not considered to be part of our ongoing major or central operations.

We also record royalty revenues under certain of our license or collaboration agreements in exchange for license of intellectual property.

If we do not have any future performance obligations for these license or collaboration agreements, royalty revenue is recorded as the underlying sales occur.

In order to record collaboration revenue, we utilize certain information from our collaboration partners , including revenue from the sale of the product, associated reserves on revenue, and costs incurred for development and sales activities.

For the periods covered in the financial statements presented, there have been no significant or material changes to prior period estimates of revenues and expenses.

The terms of our collaboration agreements may contain multiple performance obligations, which may include licenses and research and development activities.

We evaluate these agreements under ASC 606, Revenue from Contract s with Customers, to determine the distinct performance obligations.

For the periods covered in the financial statements presented, there have been no material changes to prior period estimates of revenues and expenses.

The terms of our collaboration and license agreements may contain multiple performance obligations, which may include licenses and research and development activities.

We evaluate these agreements under ASC 606, Revenue from Contracts with Customers (ASC 606), to determine the distinct performance obligations.

We analogize to ASC 606 for the accounting for distinct performance obligations for which there is a customer relationship.

2 unchanged sentences

Total consideration may include nonrefundable upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from the collaboration.

If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on its relative standalone selling price.

The standalone selling price is generally determined based on the prices charged to customers or measuring the cost, plus an estimated margin.

We estimate the effort to complete the performance obligation and recognize revenue by measuring the progress towards complete satisfaction of the performance obligation using an input measure.

If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on our relative standalone selling price.

The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin.

We estimate the efforts needed to complete the performance obligations and recognizes revenue by measuring the progress towards complete satisfaction of the performance obligations using input measures.

Product sales

1 unchanged sentence

Under ASC 606, revenue from product sales is recognized at the point in time when the delivery is made and when title and risk of loss transfers to these distributors.

We also recognize revenue from sales of certain products on a “named patient” basis, which are allowed in certain countries prior to the commercial approval of the product.

recognize revenue from sales of certain products on a “named patient” basis, which are allowed in certain countries prior to the commercial approval of the product.

Prior to recognizing revenue, we make estimates of the transaction price, including any variable consideration that is subject to a constraint.

3 unchanged sentences

These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are reviewed periodically and adjusted as necessary.

Our estimates of government mandated rebates, chargebacks, estimated product returns, and other deductions depends on the identification of key customer contract terms and conditions, as well as estimates of sales volumes to different classes of payors.

If actual results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment.

Non-cash collaboration royalty revenue

Effective January 1, 2020, we sold the right to receive certain royalty payments from net sales of Crysvita in the European territories to RPI Finance Trust (RPI), an affiliate of Royalty Pharma.

We record the royalty revenue from the net sales of Crysvita in the applicable European territories on a prospective basis as non-cash royalty revenue in the Consolidated Statements of Operations over the term of the arrangement.

We expense costs associated with the manufacture of our products prior to regulatory approval.

Typically, capitalization of such inventory begins when we have received the regulatory approval of the product.

Prior to the FDA approval of Mepsevii in November 2017 and Crysvita in April 2018, manufacturing and related costs were expensed;

accordingly, these costs were not capitalized and as a result are not reflected in the costs of sales during the current period.

We expect inventory to increase as we produce Mepsevii at costs that reflect the full costs of manufacturing similar biologic products.

Typically, capitalization of such costs begin when we have received the regulatory approval of the product.

Prior to the FDA approval of Mepsevii in November 2017, Crysvita in April 2018, and Dojolvi in June 2020, manufacturing and related costs were expensed;

accordingly, these costs were not capitalized and as a result are not reflected in the costs of sales after the regulatory approval date.

We expect inventory to increase as we produce products and capitalize the full costs of manufacturing the products.

Similarly, we expect cost of sales to increase in relation to product revenues as we deplete the previously expensed inventories prior to receiving FDA approval.

For the inventory that is being manufactured after regulatory approval, we value inventory at the lower of cost and net realizable value and determine the cost of inventory using the average-cost method.

Inventories consist of currently approved products.

Inventory that is manufactured after regulatory approval is valued at the lower of cost and net realizable value and cost is determined using the average-cost method.

We periodically review our inventories for excess amounts or obsolescence and write down obsolete or otherwise unmarketable inventory to the estimated net realizable value.

Investment in Equity Securities

Our investment in equity securities in Arcturus is subject to the equity method of accounting as we have determined that we have significant influence over, but do not control the significant activities of Arcturus.

We have elected to apply the fair value option to account for the equity investments in Arcturus at the time the securities were purchased and such securities will continue to be adjusted to fair value at each reporting period.

The decision to elect the fair value option is irrevocable and is determined on an instrument by instrument basis.

The investment in common stock is accounted for at fair value based upon the current then current stock price.

The option to purchase additional stock is accounted for at fair value using the Black-Scholes option pricing method and utilizes the following inputs:

stock price, strike price, volatility, risk free interest rate, and expected term.

The expected term is the Company’s estimated period to purchase additional stock.

The sensitivity of these inputs to the fair value of the equity security is assessed on a periodic basis.

The changes in fair value of the equity investment and option to purchase additional stock is included in the Consolidated Statements of Operations.

Liability Related to the Sale of Future Royalties

In December 2019, we entered into a Royalty Purchase Agreement with RPI Finance Trust (RPI), an affiliate of Royalty Pharma.

Pursuant to the agreement, RPI paid us $320.0 million in consideration for the Company’s right to receive royalty payments on the net sales of Crysvita in the European Union, the United Kingdom, and Switzerland effective January 1, 2020 under the terms of

our Collaboration and License Agreement with KKC.

The agreement with RPI will automatically terminate, and the payment of royalties to RPI will cease, in the event aggregate royalty payments received by RPI are equal to or greater than the capped amount of $608.0 million prior to December 31, 2030, or in the event aggregate royalty payments received by RPI are less than $608.0 million prior to December 31, 2030, when aggregate royalty payments received by RPI are equal to $800.0 million.

As RPI’s rate of return is explicitly limited due to the cap on royalties they may receive, proceeds from the transaction was recorded as a liability related to sale of future royalties on the balance sheet.

Proceeds from the transaction was recorded as a liability related to sale of future royalties on the balance sheet.

We will amortize $320.0 million, net of transaction costs of $5.8 million using the effective interest method over the estimated life of the arrangement.

In order to determine the amortization of the liability, we are required to estimate the total amount of future royalty payments to be received by us and paid to RPI, subject to the capped amount, over the life of the arrangement.

In order to determine the amortization of the liability, we estimate the total amount of future royalty payments to be received by us and paid to RPI, subject to the capped amount, over the life of the arrangement.

The aggregate future estimated royalty payments, less the $314.2 million of net proceeds, will be recorded as non-cash interest expense over the life of the arrangement.

Consequently, we estimate an imputed interest on the unamortized portion of the liability and record interest expense relating to the transaction.

We will continue to record the royalty revenue rising from the net sales of Crysvita in the applicable European territories as non-cash royalty revenue in our Consolidated Statements of Operations over the term of the arrangement.

We will periodically assess the expected royalty payments using a combination of historical results, internal projections and forecasts from external sources.

We will continue to record the royalty revenue arising from the net sales of Crysvita in the applicable European territories as non-cash royalty revenue in our Consolidated Statements of Operations over the term of the arrangement.

We periodically assess the expected royalty payments using a combination of historical results, internal projections and forecasts from external sources.

To the extent future expected royalty payments are greater or less than our initial estimates or the timing of such payments is materially different than its original estimates, we will prospectively adjust the amortization of the liability and the effective interest rate.

Through December 31, 2019, our effective annual interest rate was approximately 10.1%.

For the three months ended December 31, 2020, our effective annual interest rate was approximately 9.8%.

There are a number of factors that could materially affect the amount and timing of royalty payments from KKC in the applicable European territories, most of which are not within our control.

Such factors include, but are not limited to, the success of KKC’s sales and promotion of Crysvita, changing standards of care, the introduction of competing products, approval of label expansion for adults, pricing for reimbursement in various European territories, manufacturing or other delays, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of Crysvita, significant changes in foreign exchange rates as the royalty payments are made in U.S.

dollars (USD) while significant portions of the underlying European sales of Crysvita are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from European sales of Crysvita, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the arrangement.

Such factors include, but are not limited to, the success of KKC’s sales and promotion of Crysvita, changing standards of care, the introduction of competing products, pricing for reimbursement in various European territories, manufacturing or other delays, intellectual property matters, adverse events that result

in governmental health authority imposed restrictions on the use of Crysvita, significant changes in foreign exchange rates as the royalty payments are made in U.S.

dollars (USD) while significant portions of the underly ing European sales of Crysvita are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from European sales of Crysvita, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the arrangement.

Conversely, if sales of Crysvita in Europe are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by us would be greater over the term of the arrangement.

20 unchanged sentences

A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

In conjunction with the Dimension acquisition, we recorded a deferred tax liability reflecting the tax impact of the difference between the book basis and tax basis of acquired IPR&D.

In conjunction with the Dimension acquisition in 2017, we recorded a deferred tax liability reflecting the tax impact of the difference between the book basis and tax basis of acquired IPR&D.

Such deferred income tax liability was not used to offset deferred tax assets when analyzing our valuation allowance as the acquired IPR&D is considered to have an indefinite life until we complete or abandon development of the acquired IPR&D.

7 unchanged sentences

The annual limitation may result in the expiration of certain net operating loss and tax credit carryforwards before their utilization.

We adopted Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842) as of January 1, 2019 using the modified retrospective method.

The results for the year ended December 31, 2019 are presented under ASC 842.

The results for the year ended December 31, 2018 and other prior period amounts were not adjusted and continue to be reported in accordance with historical accounting under prior lease guidance, ASC 840, Leases (Topic 840) .

We also elected the package of practical expedients under the transition guidance that will retain the historical lease classification and initial direct costs for any leases that existed prior to adoption of the new guidance and the practical expedient to not separate lease and non-lease components.

We determine if an arrangement includes a lease at inception.

Right-of-use lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

The right-of-use lease asset includes any lease payments made and excluded lease incentives.

Incremental borrowing rate is used in determining the present value of future payments.

We apply a portfolio approach to the property leases to apply an incremental borrowing rate to leases with similar lease terms.

The lease terms may include options to extend or terminate the lease.

We recognize the options to extend the lease as part of the right-of-use lease assets and lease liabilities only if it is reasonably certain that the option would be exercised.

Lease expense for minimum lease payments is recognized on a straight-line basis over the non-cancelable lease term.

Prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under previous lease guidance, Topic 840.

As a result of the adoption of the new guidance, as of January 1, 2019, we recorded a right-of-use lease asset of $16.2 million, a short-term lease liability of $4.5 million, and a long-term lease liability of $17.0 million and no cumulative effect adjustment was made to the retained earnings as of the adoption date.

In addition, as of the adoption date, we derecognized a net deferred rent obligation of $5.2 million.

See Note 9 of our audited consolidated financial statements of this Annual Report for additional information.

Results of Operations

5 unchanged sentences

Crysvita royalty revenue in European territory

Daiichi Sankyo

Total collaboration and license revenue

1 unchanged sentence

Total product sales

Crysvita non-cash collaboration royalty revenue

Total revenues

Crysvita was approved in the EU and the United Kingdom in November 2017 and in the U.S.

in April 2018.

For the year ended December 31, 2019, the Company’s share of Crysvita collaboration revenue in the profit-share territory increased by $59.5 million, as compared to the prior year.

For the year ended December 31, 2019, the Crysvita royalty revenue in the European territory increased by $5.2 million, as compared to the prior year.

The increases primarily reflect the continuing increase in demand for Crysvita in the U.S.

and Europe and having a full year of revenue in the U.S.

in 2019 as compared to a partial year in 2018.

In December 2019, we sold the rights to the royalty payments in the European territory, including the United Kingdom and Switzerland, to Royalty Pharma.

Going forward, we will continue to record the royalty revenue in the European territory as non-cash royalties.

Collaboration and license revenue from our research arrangement with Bayer for the year ended December 31, 2019 decreased by $23.0 million compared to the same period in 2018.

The decrease was primarily due to the completion of clinical manufacturing and regulatory support activities and transition of the clinical development to Bayer as part of the research arrangement.

Product sales for the year ended December 31, 2019 increased by $10.4 million compared to the same period in 2018.

The increase was primarily due to an increase in volume as a result of continued increase in demand for our approved products and certain products under our named patient program in certain countries.

* not meaningful

For the year ended December 31 , 2020, the Company’s share of Crysvita collaboration revenue in the profit-share territory increased by $53.7 million, as compared to the same period in 2019.

The increase primarily reflects the continuing increase in demand for Crysvita due to an increase in the number of patients on therapy.

In December 2019, we sold the rights to the Crysvita royalty payments in the European territory, including the United Kingdom and Switzerland, to Royalty Pharma.

Beginning in 2020, we recorded the royalty revenue as non-cash royalty revenues.

During the year ended December 31, 2020, there was a change in estimate of the revenue reserves related to sales made prior to January 1, 2020.

As a result, we recorded an additional $1.5 million as royalty revenue in the European territory .

In March 2020, we executed a license agreement with Daiichi Sankyo, pursuant to which we granted Daiichi Sankyo a non-exclusive license to intellectual property, including know-how and patent applications, with respect to our HeLa PCL and HEK293 transient transfection manufacturing technology platforms for AAV-based gene therapy products.

We will also provide certain technical assistance and technology transfer services during the technology transfer period of three years to enable Daiichi Sankyo to use the technologies for its internal gene therapy programs.

For the year ended December 31 , 2020, we recognized $89.2 million as collaboration and license revenue from this arrangement.

As of December 31, 2020, we expect to recognize a substantial majority of the remaining contract liabilities balance of $66.6 million as revenue over the technology transfer service period, which is currently estimated to be complete by the end of 2021.

The decrease in collaboration and license revenue from our research arrangement with Bayer was due to the transition of the clinical development to Bayer as part of the research arrangement.

The increase in product sales of $18.5 million for the year ended December 31, 2020 compared to the same period in 2019 was primarily due to the launch of Dojolvi in the United States in the third quarter of 2020, continuing increase in demand for Crysvita and Mepsevii, and an increase in sales of Dojolvi under our named patient program in certain countries.

Cost of Sales (dollars in thousands)

1 unchanged sentence

Cost of sales

Cost of sales related to our approved products increased by $7.9 million for the year ended December 31, 2019, compared to the same period in 2018.

The increase was due to the commercialization of our approved product Mepsevii, capitalization of manufacturing and related costs which were previously expensed prior to approval, and a reserve on inventory of $5.7 million for the year ended December 31, 2019 for inventory batches that did not meet our quality standards.

The cost of sales for the year ended December 31, 2018 included a reserve for excess inventory of $0.4 million.

Prior to the approval of our approved products, manufacturing and related costs were expensed;

accordingly, these costs were not capitalized and as a result are not fully reflected in the costs of sales during the current period.

If manufacturing and related costs were capitalized prior to the approval period, we estimate that cost of sales for the year ended December 31, 2019 and 2018 would have been approximately $9.7 million and $2.1 million, respectively, for our commercial product sales.

Cost of sales related to our approved products decreased by $2.9 million for the year ended December 31, 2020, compared to the same period in 2019.

The cost of sales for the year ended December 31, 2020 included a credit for the manufacturing of future inventory batches with an estimated value of $4.6 million and was agreed to during the period with one of our manufacturers due to certain inventory batches that did not meet specified quality standards.

The Company previously recorded reserves of $5.7 million on these inventory batches during the year ended December 31, 2019.

For the year ended December 31, 2020, we recorded an additional $3.0 million in reserves related to inventory in excess of our forecasted demand.

The decrease in cost of sales for the year ended December 31, 2020 compared to the same period in 2019 was due to the reserve on inventory batches recorded in 2019 and related manufacturing credit recorded in 2020, partially offset by an increase in demand for our approved products, the launch of Dojolvi in the third quarter of 2020, and the increase in reserve for excess inventory.

Prior to the approval of our products, manufacturing and related costs were expensed;

accordingly, these costs were not capitalized and as a result are not fully reflected in the costs of sales during the year ended December 31, 2020 .

If manufacturing and related costs were capitalized prior to the approval period and the credit of $4.6 million as noted above were excluded , we estimate that cost of sales for the years ended December 31, 2020 and 2019 would have been approximately $ 11.4 million and $ 9.7 million, respectively, for our commercial product sales.

These estimates include the additional $ 3.0 million and $ 5.7 million of reserves on inventory for the year ended December 31, 20 20 and 201 9 , respectively .

We expect our gross margin percentage to decrease as we produce Mepsevii at costs that reflect the full costs of manufacturing similar to other biologic products and as we deplete inventories that we had expensed prior to receiving FDA approval.

We expect our gross margin percentage to decrease as we produce approved products that reflect the full costs of manufacturing and as we deplete inventories that we had expensed prior to receiving approval.

Research and Development Expenses (dollars in thousands)

1 unchanged sentence

Translational research

Other research costs and preclinical costs

Other research costs

Total research and development expenses

Research and development expenses increased $54.7 million for the year ended December 31, 2020 compared to the same period in 2019.

The increase in research and development expenses is primarily due to:

The increase in research and development expenses was primarily due to:

for Crysvita, a decrease of $8.6 million primarily related to reduced clinical trial activity with the progressive completion of our extension studies and reduced allocation of employees and contractors to R&D support activities, net of KKC reimbursement;

for Mepsevii, a decrease of $3.6 million primarily related to reduced clinical trial activity with the progressive completion of our extension studies and reduced allocation of employees and contractors to R&D support activities;

for UX007, a decrease of $2.2 million primarily related to reduced clinical trial expense for the wind-down of the Glut 1 program and reduced manufacturing expense due to the timing of drug substance campaigns, net of increased filing preparation and filing milestone expense for the LC-FAOD program;

for DTX301, an increase of $21.5 million, primarily related to increases in manufacturing, quality, and clinical activities in support of our Phase 1/2 clinical study ;

for DTX401, an increase of $13.9 million, related to clinical manufacturing, process development expense, and the progressive enrollment of our Phase 1/2 clinical study;

for DTX201, a decrease of $24.3 million, primarily related to the completion of clinical manufacturing and regulatory support activities for our Bayer collaboration agreement and the corresponding period decrease in intangible asset amortization;

for GTX102, an increase of $20.2 million, primarily related to the $20.0 million payment in August 2019 for the exclusive option to acquire GeneTx Biotherapeutics LLC;

for Dojolvi, a decrease of $2.0 million primarily related to the impact of inventory capitalization of commercial manufacturing costs post-approval by the FDA in June 2020 and NDA filing costs incurred in 2019;

for DTX401, a net increase of $6.0 million, primarily related to close out costs for one of our manufacturing sites, as well as the timing of clinical drug substance manufacturing activities and drug product batch releases, including a credit for the manufacturing of future batches with an estimated value of $2.9 million that was agreed to in 2020 with one of our manufacturers due to certain batches that did not meet specified quality standards, in addition to increased internal and clinical vendor expenses in preparation for our Phase 3 trial;

for DTX301, a nominal increase, primarily related to the timing of clinical drug substance manufacturing activities and drug product batch releases;

for GTX102, an increase of $7.9 million, primarily due to the $25.0 million option extension payment to GeneTx that occurred in 2020, compared to the $20.0 million upfront payment to GeneTx that occurred in 2019;

for translational research, an increase of $45.8 million primarily related to research, process development, and manufacturing activities, including the progression of our UX701, UX053, and UX068 programs toward IND filings;

an increase of $21.7 million in other research and development costs primarily related to the $15.6 million recorded for the consideration attributable to the additional license rights obtained as part of amended Research Collaboration and License Agreement with Arcturus in June 2019 and was recorded as in-process research and development expense, as well as increases in general operating and overhead expenses in support of our clinical and research program pipeline, net of reduced operating expense for terminated programs.

We expect our research and development expenses to continue to increase in the future as we advance our product candidates through clinical development.

and in 2020, the $7.0 million payment to REGNEXBIO for exclusive, worldwide rights to NAV AAV8 and AAV9 vectors for the development and commercialization of gene therapy treatments for a rare metabolic disorder;

an increase of $9.2 million in other research and development costs primarily related to the one-time in-process R&D expense of $13.2 million related to the Solid Collaboration and License Agreement incurred in October 2020 and increases in general operating, facilities, IT, and other overhead expenses in support of our clinical and research program pipeline, partially offset by reduced clinical trial expense for the wind-down of the UX007 Glut 1 program.

We expect our annual research and development expenses to continue to increase in the future as we advance our product candidate s such as UX143 through clinical development.

The timing and amount of expenses incurred will depend largely upon the outcomes of current or future clinical studies for our product candidates as well as the related regulatory requirements, manufacturing costs, and any costs associated with the advancement of our preclinical programs.

3 unchanged sentences

Selling, general and administrative expenses increased $21.4 million for the year ended December 31, 2020 compared to the same period in 2019.

The increase in selling, general and administrative expenses was primarily due to increases in personnel costs resulting from an increase in the number of employees in support of our commercial activities, commercialization costs, and professional services costs.

The increases in selling, general and administrative expenses were primarily due to increases in personnel costs resulting from an increase in the number of employees in support of our commercial activities, commercialization costs, and professional services costs, partially offset by lower travel and related expenses due to travel restrictions in connection with the COVID-19 pandemic.

We expect selling, general and administrative expenses to continue to increase in the future to support our organizational growth and for our expected staged build out of our commercial organization over the next several years related to our approved products and multiple clinical-stage product candidates.

2 unchanged sentences

Interest income

Interest income increased $3.7 million for the year ended December 31, 2019 compared to the same period in 2018, primarily due to an increase in yield of our invested funds during 2019.

Gain from Sale of Priority Review Vouchers (dollars in thousands)

Year Ended December 31,

Gain from sale of priority review vouchers

The gain from the sale of the Priority Review Vouchers, or PRVs, of $170.3 million for the year ended December 31, 2018 was due to the completion of the sales of the PRVs we received from the FDA in connection with the approval of Crysvita and Mepsevii.

The Mepsevii PRV was sold in January 2018 for net proceeds of $130.0 million, and the Crysvita PRV was sold in April 2018 for net proceeds of $80.6 million, which was shared equally with KKC.

Change in Fair Value of Investment in Arcturus Equity Securities (dollars in thousands)

Interest income decreased $6.2 million for the year ended December 31, 2020 compared to the same period in 2019, primarily due to lower portfolio yields as a result of lower interest rates during the year ended December 31, 2020.

Change in Fair Value of Equity Investments (dollars in thousands)

Year Ended December 31,

Change in fair value of investment in Arcturus equity

The increase in the fair value of our investment in Arcturus equity securities of $13.4 million for the year ended December 31, 2019 was due to the remeasurement to fair value of the Arcturus common stock and option to purchase additional Arcturus stock.

Given the historic volatility of the publicly traded stock price of Arcturus, the fair value adjustments of our investments in Arcturus may be subject to wide fluctuations which may have a significant impact on our earnings in future periods.

Change in fair value of equity investments

The increase in the fair value of our equity investments of $157.0 million for the year ended December 31, 2020 was due to the increase in our unrealized gains from the remeasurement of the Arcturus common stock, and the realized gains from the sale of a portion of the Company’s Arcturus common stock holdings, resulting in an increase in net change of $124.5 million, and the unrealized gains on our investment in Solid common stock of $32.5 million.

Given the historic volatility of the publicly traded stock price of Arcturus and Solid, the fair value adjustments of our equity investments may be subject to wide fluctuations which may have a significant impact on our earnings in future periods.

Non-cash Interest Expense on Liability Related to the Sale of Future Royalties (dollars in thousands)

2 unchanged sentences

sale of future royalties

The non-cash interest expense on liability related to the sale of future royalties of $1.1 million for the year ended December 31, 2019 was due to the interest incurred on the liability related to the sale of future royalties for net sales of Crysvita in the European territory pursuant to the Royalty Purchase agreement entered with RPI in December 2019.

To the extent the royalty payments are greater or less than our initial estimates or the timing of such payments is materially different than its original estimates, we will prospectively adjust the effective interest rate.

The increase in the non-cash interest expense on liability related to the sale of future royalties of $32.2 million for the year ended December 31, 2020 was due to the interest accreted on the liability related to the sale of future royalties for net sales of Crysvita in the European territory pursuant to the Royalty Purchase Agreement entered into with RPI in December 2019.

To the extent the royalty payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, we will prospectively adjust the effective interest rate.

Other Income (Expense) (dollars in thousands)

1 unchanged sentence

Other income (expense)

Other income (expense) decreased $4.8 million for the year ended December 31, 2019 compared to the same period in 2018.

The expense recognized during the year ended December 31, 2018 was primarily due to the recognition of cumulative foreign currency translation losses related to the substantial liquidation of subsidiaries with a functional currency other than the U.S.

Dollar, which did not recur in 2019.

Benefit from (provision for) income taxes

Other income (expense) increased $1.4 million for the year ended December 31, 2020 compared to the same period in 2019.

The fluctuations were primarily due to fluctuations in foreign exchange rates.

Provision for income taxes

Year Ended December 31,

Benefit from (provision for) income taxes

The provision for incomes taxes increased by $2.8 million for the year ended December 31, 2019 compared to the same period in 2018.

The increase was primarily due to changes in state tax apportionment which resulted in an increase in the deferred tax liability from the acquisition of Dimension and due to increase in certain foreign taxes as we commercialize our products in foreign territories .

Provision for income taxes

The provision for incomes taxes decreased by $2.1 million for the year ended December 31, 2020 compared to the same period in 2019.

The decrease was primarily due to changes in state tax apportionment which resulted in an increase in the deferred tax liability from the acquisition of Dimension that was recorded in 2019.

Liquidity and Capital Resources

We have funded our operations primarily from the sale of equity securities and the sale of future royalties.

As of December 31, 2019, we had $760.4 million in available cash, cash equivalents, and investments.

To date, we have funded our operations primarily from the sale of our equity securities, the sale of certain future royalties, and strategic collaboration arrangements.

As of December 31, 2020, we had $1,212.0 million in available cash, cash equivalents, and marketable debt securities.

We believe that our existing capital resources will be sufficient to fund our projected operating requirements for at least the next twelve months.

Our cash, cash equivalents and investments are held in a variety of deposit accounts, interest-bearing accounts, corporate bond securities, U.S government securities and money market funds.

Our cash, cash equivalents, and marketable debt securities are held in a variety of deposit accounts, interest-bearing accounts, corporate bond securities, U.S government securities, asset-backed securities, and money market funds.

Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and credit risk.

During the year ended December 31, 2019, the proceeds from our at-the-market, or ATM, offering were approximately $24.8 million after commissions and other offering costs.

As of December 31 , 2019, $20.7 million remained available under our ATM facility .

In February 2019, we completed an underwritten public offering in which we sold 5,833,333 shares of common stock and received net proceeds of approximately $330.4 million.

In December 2019, we received net proceeds of $314.2 million from the sale of future royalties to RPI.

In March 2020, we received $75.0 million in cash from the sale of 1,243,913 shares of our common stock to Daiichi Sankyo and in April 2020, we received $125.0 million in an upfront payment related to the Daiichi Sankyo License Agreement.

In November 2020, we completed an underwritten public offering in which we sold 5,111,110 shares of common stock and received net proceeds of $435.6 million.

In December 2020, we sold 800,000 shares of Arcturus common stock and received net proceeds of $79.8 million.

During the year ended December 31 , 2020, the proceeds from our at-the-market, or ATM, offering was $20.4 million, after commissions and other offering costs.

As of December 31 , 2020 , we had completed the sale of all available amounts under our ATM facility.

The following table summarizes our cash flows for the periods indicated (in thousands):

1 unchanged sentence

Cash used in operating activities

Cash provided by (used in) investing activities

Cash used in investing activities

Cash provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash, cash equivalents, and

restricted cash

Net increase in cash, cash equivalents, and restricted

Cash Used in Operating Activities

2 unchanged sentences

Cash used to fund operating expenses is affected by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Cash used in operating activities for the year ended December 31, 2019 was $345.4 million and reflected a net loss of $402.7 million, $6.2 million for the amortization of the discount paid on purchased investments, and $13.4 million for a non-cash unrealized gain in the Arcturus equity securities, offset by non-cash charges of $82.0 million for stock-based compensation, $8.5 million for depreciation and amortization, $0.7 million non-cash foreign currency remeasurement losses in connection with fluctuations of exchange rates related to intercompany transactions with foreign subsidiaries that are denominated in our reporting currency, and $1.1 million for non-cash interest incurred on the liability related to the sale of future royalties to Royalty Pharma .

Cash used in operating activities also reflected a $20.1 million decrease due to an increase in accounts receivable from the commercialization of Mepsevii and Crysvita, a $4.5 million decrease due to an increase in inventory as we build out our commercial inventory supplies as we commercialize Mepsevii, a $8.2 million decrease due to an increase in prepaid expenses and other assets primarily due to an increase in general receivables, amounts due from a collaboration partner, and amounts owed for a tenant improvement allowance, and a $14.2 million decrease due to the addition of the right-of-use lease assets net of amortization during the period.

These decreases were offset by a $13.3 million increase in accounts payable, accrued, and other liabilities primarily due to increased commercial and research activities and the timing of payments and receipt of invoices offset by the derecognition of deferred rent obligations for the new lease accounting guidance , a $15.6 million increase due to the addition of lease liabilities net of amortization during the period, and a $2.1 million increase in deferred tax liabilities due to adjustments made related to the Dimension acquisition.

Cash used in operating activities for the year ended December 31, 2018 was $290.6 million and reflected a net loss of $197.6 million, $170.3 million for the gain from sale of the PRVs, and $2.6 million for the amortization of the discount paid on purchased investments, offset by non-cash charges of $80.1 million for stock-based compensation, $19.5 million for depreciation and amortization, and $5.3 million non-cash foreign currency remeasurement losses in connection with the substantial liquidation of subsidiaries due to a change in the Company’s tax structure and fluctuations of exchange rates related to intercompany transactions with foreign subsidiaries that are denominated in our reporting currency .

Cash used in operating activities also reflected a $7.6 million decrease due to an increase in accounts receivable from the commercialization of Mepsevii and Crysvita, a $5.3 million decrease due to an increase in inventory as we build out our commercial inventory supplies as we commercialize Mepsevii, and a $1 4.3 million decrease due to an increase in prepaid expenses and other assets primarily from an increase in prepaid m anufacturing costs .

These decreases were offset by a $ 2.4 million increase in accounts payable , accrued, and other liabilities primarily due to increased spend and the timing of payments.

Cash Provided by (Used in) Investing Activities

Cash used in investing activities for the year ended December 31, 2019 was $13.0 million and related to purchases of property and equipment of $24.8 million, purchases of investments of $692.8 million, and purchases of Arcturus equity securities of $14.3 million, offset by proceeds from maturities of investments of $676.2 million and the sale of investments of $42.7 million.

Cash used in investing activities for the year ended December 31, 2018 was $33.3 million and related to purchases of property and equipment of $4.1 million, and purchases of investments of $509.8 million, offset by proceeds from the sale of PRVs of $170.3 million, proceeds from maturities of investments of $302.6 million, and the sale of investments of $7.7 million.

Cash used in operating activities for the year ended December 31, 2020 was $132.2 million and reflected a net loss of $186.6 million, $170.4 million for a change in fair value of equity investments from Arcturus and Solid and $13.0 million for non-cash collaboration royalty revenues related to the sale of future royalties to RPI, offset by non-cash charges of $85.7 million for stock-based compensation, $12.3 million for depreciation, $0.8 million for the amortization of the premium paid on purchased investments, and $33.3 million for non-cash interest incurred on the liability related to the sale of future royalties to RPI .

Cash used in operating activities also reflected a $1.3 million decrease due to an increase in inventory for Mepsevii and Dojolvi.

These decreases were offset by a $9.8 million increase due to a decrease in accounts receivable primarily related to change in the timing of billing to a collaboration partner , a $2.7 million increase due to decrease in prepaid expenses and other assets primarily related to a change in the timing of billing to a collaboration partner, a $26.9 million increase in accounts payable, accrued, and other liabilities primarily due to an increase in annual accrued bonus due to higher employee headcount and attainment of company goals , and an increase of $66.6 million in contract liabilities, net, related to the license agreements with Daiichi Sankyo .

Cash used in operating activities for the year ended December 31, 2019 was $345.4 million and reflected a net loss of $402.7 million, $6.2 million for the amortization of the discount paid on purchased investments, and $13.4 million for an unrealized gain in the Arcturus equity investment , offset by non-cash charges of $82.0 million for stock-based compensation, $8.5 million for depreciation and amortization, $0.7 million non-cash foreign currency remeasurement losses in connection with fluctuations of exchange rates related to intercompany transactions with foreign subsidiaries that are denominated in our reporting currency, and $1.1 million for non-cash interest incurred on the liability related to the sale of future royalties to RPI .

Cash used in operating activities also reflected a $20.1 million decrease due to an increase in accounts receivable from the commercialization of Mepsevii and Crysvita, a $4.5 million decrease due to an increase in inventory as we build out our commercial inventory supplies as we commercialize Mepsevii, and a $ 8.2 million decrease due to an increase in prepaid expenses and other assets primarily due to an increase in general receivables, amounts due from a collaboration partner, and amounts owed for a tenant improvement allowance .

These decreases were offset by a $ 13.3 million increase in accounts payable , accrued, and other liabilities primarily due to increased commercial and research activities and the timing of payments and receipt of invoices offset by the derecognition of deferred rent obligations for the new lease accounting guidance and a $2.1 million increase in deferred tax liabilities due to adjustments made related to the Dimension acquisition.

Cash Used in Investing Activities

Cash used in investing activities for the year ended December 31, 2020 was $179.1 million and related to purchases of property, plant, and equipment of $43.9 million, which includes $21.1 million paid for the acquisition of the land and ongoing construction costs for the gene therapy manufacturing plant in Bedford, Massachusetts, purchases of marketable debt securities of $813.2 million, purchases of equity investments of $37.1 million primarily related to $26.8 million for the purchase of Solid shares and $9.6 million for the exercise of the option to purchase additional Arcturus shares, and other activities of $5.6 million that included $3.3 million for the purchase of a convertible notes receivable and the milestone payments of $2.3 million recorded as an intangible asset resulting from the FDA approval of Dojolvi , offset by proceeds from maturities of marketable debt securities of $589.8 million, the sale of Arcturus common stock of $79.8 million, and the sale of marketable debt securities of $51.0 million.

Cash used in investing activities for the year ended December 31, 2019 was $13.0 million and related to purchases of property, plant, and equipment of $24.8 million, purchases of marketable debt securities of $692.8 million, and the purchase of the Arcturus equity investment of $14.3 million, offset by proceeds from maturities of marketable debt securities of $676.2 million and the sale of marketable debt securities of $42.7 million.

Cash Flows Provided by Financing Activities

Cash provided by financing activities for the year ended December 31, 2019 was $679.3 million and was comprised of $314.2 million related to the sale of future royalties to Royalty Pharma, $330.4 million from the sale of common stock in our underwritten public offering, $24.8 million from the sale of common stock from our ATM offering, and $9.8 million in net proceeds from the issuance of common stock upon the exercise of stock options, offset by taxes withheld from the vesting of restricted stock units.

Cash provided by financing activities for the year ended December 31, 2018 was $336.9 million and was comprised of $271.0 million from the sale of common stock in our underwritten public offering, $38.1 million from the sale of common stock from our ATM offering and $27.8 million in net proceeds from the issuance of common stock upon the exercise of stock options, offset by taxes withheld from the vesting of restricted stock units.

Cash provided by financing activities for the year ended December 31, 2020 was $600.3 million and was comprised of $435.6 million in net proceeds from the issuance of sale of common stock in our underwritten public offering, $55.3 million in net proceeds from the issuance of common stock in connection with the license agreement with Daiichi Sankyo in March 2020, $20.4 million in net proceeds from the issuance of common stock from our ATM offering, and $89.3 million in net proceeds from the issuance of common stock upon the exercise of warrants and stock options, net of taxes withheld from the vesting of restricted stock units, offset by other activities of $0.2 million in principal repayments of finance leases.

Cash provided by financing activities for the year ended December 31, 2019 was $679.3 million and was comprised of $314.2 million related to net proceeds from the sale of future royalties to Royalty Pharma, $330.4 million in net proceeds from the issuance of common stock in our underwritten public offering, $24.8 million in net proceeds from the issuance of common stock from our ATM offering, and $9.8 million in net proceeds from the issuance of common stock upon the exercise of stock options, offset by taxes withheld from the vesting of restricted stock units.

Funding Requirements

We anticipate, excluding non-recurring items, that we will continue to generate annual losses for the foreseeable future as we continue the development of, and seek regulatory approvals for, our product candidates, and continue with commercialization of approved products.

We will likely require additional capital to fund our operations, to complete our ongoing and planned clinical studies, to commercialize our products, and to continue investing in early-stage research capabilities to promote our pipeline growth and to further develop our general infrastructure, including building our own Good Manufacturing Practices, or GMP gene therapy manufacturing facility, and such funding may not be available to us on acceptable terms or at all.

We anticipate that, excluding non-recurring items, we will continue to generate annual losses for the foreseeable future as we continue the development of, and seek regulatory approvals for, our product candidates, and continue with commercialization of approved products.

We will likely require additional capital to fund our operations, to complete our ongoing and planned clinical studies, to commercialize our products, to continue investing in early-stage research capabilities to promote our pipeline growth, to continue to acquire or invest in businesses or products that complement or expand our business, and to further develop our general infrastructure, including construction of our GMP gene therapy manufacturing facility, and such funding may not be available to us on acceptable terms or at all.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay, limit, reduce the scope of, or terminate one or more of our clinical studies, research and development programs, future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

1 unchanged sentence

the scope, rate of progress, results and cost of our clinical studies, nonclinical testing, and other related activities;

the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop, including the potential development of our own GMP gene therapy manufacturing plant;

the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates, products that we have begun to commercialize, and any products that we may develop in the future, including the potential development of our own GMP gene therapy manufacturing plant;

the number and characteristics of product candidates that we pursue;

1 unchanged sentence

the cost and timing of establishing our commercial infrastructure, and distribution capabilities;

the magnitude and extent to which the COVID-19 pandemic impacts our business operations and operating results, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors – Risks Related to Our Business Operations”;

the terms and timing of any collaborative, licensing, marketing, distribution, acquisition (including whether we exercise our option to acquire GeneTx pursuant to the terms of our Unitholder Option Agreement with them) and other arrangements that we may establish, including any required upfront milestone, royalty, reimbursements or other payments thereunder.

2 unchanged sentences

Contractual Obligations

We have contractual obligations from our operating leases, manufacturing and service contracts, licenses, royalties, development and collaboration arrangements, and other research and development activities.

We have contractual obligations from our operating and finance leases, manufacturing and service contracts, licenses, royalties, development and collaboration arrangements, and other research and development activities.

The following table summarizes our significant binding contractual obligations at December 31, 2020 (in thousands):

2 unchanged sentences

More than 5 years

Operating leases

Operating and finance leases

Manufacturing and service contracts

* Includes additional lease payments under an amended lease entered into in January 2020

Land and building construction agreement

License and collaboration agreement*

* Includes a $50.0 million purchase commitment with Mereo BioPharma Group plc under the license and collaboration agreement which was subsequently paid in January 2021 upon the closing of the transaction

The terms of certain of our licenses, royalties, development and collaboration agreements, as well as other research and development activities, require us to pay potential future milestone payments based on product development success.

1 unchanged sentence

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments — Credit Losses, (Topic 326):

Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments.

For trade receivables and other instruments, the Company will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses.

For available-for-sale debt securities with unrealized losses that are attributable to credit, the losses will be recognized in earnings as allowances.

This guidance is effective for the Company on January 1, 2020.

We do not expect for this guidance to have a material impact on our Consolidated Financial Statements and related disclosures.

Off-Balance Sheet Arrangements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis