What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-10-27 · 175 added, 222 removed, 350 unchanged (53% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

September 30,

Current assets:

Cash and cash equivalents

Short-term investments

Marketable debt securities

Accounts receivable, net

2 unchanged sentences

Property and equipment, net

Investments in equity securities

Long-term investments

Equity investments

Marketable debt securities

Right-of-use assets

4 unchanged sentences

Accrued liabilities

Contract liabilities, net

Short-term lease liabilities

Contract liabilities

Lease liabilities

Total current liabilities

Long-term lease liabilities

Contract liabilities

Lease liabilities

Deferred tax liabilities

3 unchanged sentences

Preferred stock — 25,000,000 shares authorized;

nil outstanding as of September 30, 2020 and

nil outstanding as of March 31, 2021 and

December 31, 2020

1 unchanged sentence

67,439,477 and 66,818,520 shares issued

and outstanding as of September 30, 2020 and December 31, 2019, respectively

and outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Accumulated deficit

5 unchanged sentences

(In thousands, except share and per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Collaboration and license

9 unchanged sentences

Interest income

Change in fair value of investments in equity securities

Non-cash interest expense on liability related to the sale of future

Other income (expense)

Change in fair value of equity investments

Non-cash interest expense on liability related to the sale of future royalties

Other expense

Loss before income taxes

1 unchanged sentence

Net loss per share, basic and diluted

Weighted-average shares used in computing net loss per share,

basic and diluted

Weighted-average shares used in computing net loss per share, basic and diluted

See accompanying notes.

2 unchanged sentences

(In thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive income:

Three Months Ended March 31,

Other comprehensive loss:

Foreign currency translation adjustments

Unrealized gain (loss) on available-for-sale securities

Other comprehensive income (loss)

Unrealized loss on available-for-sale securities

Other comprehensive loss

Total comprehensive loss

6 unchanged sentences

Income (Loss)

Balance as of June 30, 2020

Employee stock-based compensation

Issuance of common stock under equity

plan awards, net of tax

Other comprehensive loss

Balance as of September 30, 2020

Comprehensive

Stockholders'

Income (Loss)

Balance as of December 31, 2020

Issuance of common stock in connection

with license agreement, net of issuance

Issuance of common stock in connection with

at-the-market offering, net of issuance costs

Employee stock-based compensation

Issuance of common stock upon exercise of

warrants and under equity plan awards, net

Other comprehensive income

Balance as of September 30, 2020

Comprehensive

Stockholders'

Income (Loss)

Balance as of June 30, 2019

Employee stock-based compensation

Stock-based compensation expense

Issuance of common stock under equity plan

1 unchanged sentence

Other comprehensive loss

Balance as of September 30, 2019

ULTRAGENYX PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

Balance as of March 31, 2021

Comprehensive

3 unchanged sentences

Issuance of common stock in connection with

underwritten public offering, net of

issuance costs

Issuance of common stock in connection with

at-the-market offering, net of issuance costs

Employee stock-based compensation

Issuance of common stock under equity plan

awards, net of tax

Other comprehensive income

Balance as of September 30, 2019

license agreement, net of issuance costs

Stock-based compensation expense

Issuance of common stock upon exercise of

warrants and under equity plan awards,

Other comprehensive loss

Balance as of March 31, 2020

See accompanying notes.

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities:

1 unchanged sentence

Stock-based compensation

Amortization of premium (discount) on investment securities, net

Amortization of premium (discount) on marketable debt securities, net

Depreciation and amortization

Foreign currency remeasurement loss

Change in fair value of investments in equity securities

Change in fair value of equity investments

Non-cash collaboration royalty revenue

3 unchanged sentences

Prepaid expenses and other assets

Right-of-use assets

Receivable related to the Daiichi Sankyo license agreement

Accounts payable, accrued, and other liabilities

Contract liabilities, net

Lease liabilities

Contract liabilities

Net cash used in operating activities

1 unchanged sentence

Purchase of property and equipment

Purchase of investments

Purchase of investments in equity securities

Purchase of convertible notes receivable

Proceeds from the sale of investments

Proceeds from maturities of investments

Payment for intangible assets

Purchase of marketable debt securities

Proceeds from sale of marketable debt securities

Proceeds from maturities of marketable debt securities

Net cash used in investing activities

1 unchanged sentence

Proceeds from the issuance of common stock in connection with the license agreement, net

Proceeds from the issuance of common stock in connection with underwritten public

offerings, net

Proceeds from the issuance of common stock in connection with at-the-market offering, net

Proceeds from the issuance of common stock from exercise of warrants and equity plan

Principal repayments of financing leases

Net cash provided by financing activities

Effect of exchange rate changes on cash

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

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

9 unchanged sentences

The Company is focused on the identification, acquisition, development, and commercialization of novel products for the treatment of serious rare and ultra-rare genetic diseases.

The Company has four approved therapies.

The Company operates as one reportable segment.

The Company has three commercially approved products.

Crysvita® (burosumab) is approved in the United States by the U.S.

Food and Drug Administration (FDA) and in Canada for the treatment of X-linked hypophosphatemia (XLH) in adult and pediatric patients one year of age and older, and has received European conditional marketing authorization for the treatment of XLH with radiographic evidence of bone disease in children one year of age and older and adolescents with growing skeletons.

In October 2020, this authorization was expanded to include older adolescents and adults.

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

Crysvita was approved by the FDA on June 18, 2020 for the treatment of FGF23-related hypophosphatemia in tumor-induced osteomalacia (TIO), associated with phosphaturic mesenchymal tumors that cannot be curatively resected or localized in adults and pediatric patients 2 years of age and older.

Food and Drug Administration (FDA) and in Canada for the treatment of X-linked hypophosphatemia (XLH) in adult and pediatric patients one year of age and older, and is approved in the European Union (EU) and the United Kingdom, for the treatment of XLH with radiographic evidence of bone disease in children one year of age and older, adolescents, and adults.

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

Crysvita is also approved in the United States by the FDA for the treatment of fibroblast growth factor 23 (FGF23)-related hypophosphatemia in tumor-induced osteomalacia (TIO), associated with phosphaturic mesenchymal tumors that cannot be curatively resected or localized in adults and pediatric patients 2 years of age and older.

The Company has also received FDA approval for Mepsevii ® (vestronidase alfa), the first medicine approved for the treatment of children and adults with mucopolysaccharidosis VII (MPS VII), also known as Sly syndrome.

1 unchanged sentence

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

Dojolvi, formerly known as UX007, was approved by FDA on June 30, 2020 for the treatment of pediatric and adult patients severely affected by long-chain fatty acid oxidation disorders (LC-FAOD).

In addition to the approved treatments, the Company has two ongoing clinical development programs.

DTX301 is an adeno-associated virus 8 (AAV8) gene therapy product candidate in development for the treatment of patients with ornithine transcarbamylase (OTC) deficiency, the most common urea cycle disorder;

and DTX401 is an AAV8 gene therapy product candidate for the treatment of patients with glycogen storage disease type Ia (GSDIa).

The Company operates as one reportable segment.

Dojolvi ® , formerly known as UX007, is approved in the United States and Canada for the treatment of pediatric and adult patients severely affected by long-chain fatty acid oxidation disorders (LC-FAOD).

In addition to the approved products, the Company has the following ongoing clinical development programs:

DTX401 is an adeno-associated virus 8 (AAV8) gene therapy product candidate for the treatment of patients with glycogen storage disease type Ia (GSDIa);

DTX301 is an AAV8 gene therapy product candidate in development for the treatment of patients with ornithine transcarbamylase (OTC) deficiency, the most common urea cycle disorder;

UX143 (setrusumab) is a fully human monoclonal antibody that inhibits sclerostin, a protein that acts on a key bone-signaling pathway and inhibits the activity of bone-forming cells for the treatment of patients with osteogenesis imperfect (OI);

GTX-102 is an antisense oligonucleotide (ASO), which the Company is collaborating on the development with GeneTx Biotherapeutics LLC (GeneTx) for the treatment of Angelman syndrome, a debilitating and rare neurogenetic disorder caused by loss-of-function of the maternally inherited allele of the UBE3A gene;

UX701 is an AAV type 9 gene therapy designed to deliver stable expression of a truncated version of the ATP7B copper transporter following a single intravenous infusion to improve copper distribution and excretion from the body and reverse pathological findings of Wilson liver disease;

UX053 is a messenger RNA (mRNA) product candidate designed for the treatment of patients with Glycogen Storage Disease Type III (GSDIII), a disease caused by a glycogen debranching enzyme (AGL) deficiency that results in glycogen accumulation in the liver and muscle.

The Company has sustained operating losses and expects such annual losses to continue over the next several years.

The Company’s ultimate success depends on the outcome of its research and development and commercialization activities, for which it expects to incur additional losses in the future.

Management recognizes that the Company will likely need to raise additional capital to fully implement its business plans.

Through September 30, 2020, the Company has relied primarily on the proceeds from equity offerings and its sale of future royalties to finance its operations.

Management recognizes that the Company will need to raise additional capital to fully implement its business plans.

Through March 31, 2021, the Company has relied primarily on its sale of equity securities, its sale of future royalties, and strategic collaboration arrangements, to finance its operations.

The Company will likely raise additional capital through the issuance of equity, borrowings, or strategic alliances with partner companies.

8 unchanged sentences

These financial statements should be read in conjunction with the audited financial statements and notes thereto for the preceding fiscal year contained in the Company’s Annual Report on Form 10-K filed on February 12, 2021 with the United States Securities and Exchange Commission (SEC).

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021.

The Condensed Consolidated Balance Sheet as of December 31, 2020 has been derived from audited financial statements at that date, but does not include all of the information required by GAAP for complete financial statements.

6 unchanged sentences

Cash, Cash Equivalents and Restricted Cash

Restricted cash primarily consists of money market accounts as collateral for the Company’s obligations under its facility leases.

Restricted cash primarily consists of money market accounts used as collateral for the Company’s obligations under its facility leases and the gene therapy building construction project.

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

September 30,

Cash and cash equivalents

5 unchanged sentences

Credit Losses

Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments — Credit Losses, (Topic 326):

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

For trade receivables and other instruments, the Company uses a new forward-looking expected loss model that generally results in the earlier recognition of allowances for losses.

6 unchanged sentences

The Company considered the current and expected future economic and market conditions surrounding the novel coronavirus (COVID-19) pandemic and determined that the estimate of credit losses was not significantly impacted.

The adoption of ASU 2016-13 did not have a material impact on the Condensed Consolidated Financial Statements and related disclosures and there was no allowance for losses on available-for-sale debt securities which were attributable to credit risk for the three and nine months ended September 30, 2020.

There was no material allowance recorded for losses on receivables and available-for-sale debt securities which were attributable to credit risk for the three months ended March 31, 2021 and 2020.

Revenue Recognition

5 unchanged sentences

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 the Company’s ongoing major or central operations.

The Company also re cords royalty revenues under certain of the Company’s license or collaboration agreements in exchange for license of intellectual property.

If the Company does 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, the Company utilizes certain information from its 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 material changes to prior period estimates of revenues and expenses.

The Company sold the right to receive certain royalty payments from net sales of Crysvita to RPI Finance Trust (RPI), an affiliate of Royalty Pharma, as further described in Note 7.

The Company records 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.

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

16 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.

The Company’s 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, the Company 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, the Company sold the right to receive certain royalty payments from net sales of Crysvita to RPI Finance Trust (RPI), an affiliate of Royalty Pharma, as further described in Note 7.

Financial Instruments

7 unchanged sentences

Level 3 —Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company determines the fair value of its equity investments in Arcturus Therapeutics Holdings Inc.

(Arcturus) and Solid Biosciences Inc.

(Solid) by using the quoted market prices, which are Level 1 fair value measurements.

The following tables set forth the fair value of the Company’s financial assets remeasured on a recurring basis based on the three-tier fair value hierarchy (in thousands):

September 30, 2020

March 31, 2021

Money market funds

Repurchase agreements

Time deposits

Certificate of deposits and time deposits

Corporate bonds

2 unchanged sentences

Government Treasury and agency securities

Investment in Arcturus common stock

Debt securities in government-sponsored entities

Investments in Arcturus and Solid common stock

December 31, 2020

Money market funds

Repurchase agreements

Time deposits

3 unchanged sentences

Government Treasury and agency securities

Investment in Arcturus equity securities

The Company determined the fair value of the Arcturus Therapeutics Holdings Inc.

(Arcturus) common stock by using the quoted market price on September 30, 2020, which is a Level 1 fair value measurement.

See Note 6 for additional details on the Arcturus transaction.

In July 2020, the Company invested $ 2.5 million in DiaCarta Ltd.

(DiaCarta), a private diagnostic company, in the form of a convertible promissory note that matures in two years , if not converted earlier.

The Company was also issued a warrant to purchase up to $ 1.0 million of DiaCarta preferred stock.

The fair value of the warrant to purchase shares of DiaCarta was based on unobservable inputs that are significant to the measurement of the fair value of the asset and is supported by little or no market data;

Investments in Arcturus and Solid common stock

In July 2020, the Company invested $ 2.5 million in a private diagnostic company, in the form of a convertible promissory note that matures in two years , if not converted earlier.

The Company was also issued a warrant to purchase up to $ 1.0 million of the entity’s preferred stock.

The fair value of the warrant to purchase shares of the entity was based on unobservable inputs that are significant to the measurement of the fair value of the asset and is supported by little or no market data;

accordingly, the warrant is considered a Level 3 financial asset and is remeasured on a nonrecurring basis.

1 unchanged sentence

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

The Company will recognize interest income on the convertible promissory note based on the effective interest rate method over the life of the note.

As of September 30, 2020, the balance of the convertible promissory note was $ 2.0 million, including $ 0.1 million in interest receivable, and was recorded in other assets, and the allocated fair value of the warrant was $ 0.6 million and was recorded in investments in equity securities.

The Company recognizes the interest income on the convertible promissory note based on the effective interest rate method over the life of the note.

As of March 31, 2021, the balance of the convertible promissory note was $ 2.1 million, including $ 0.3 million in interest receivable, and was recorded in other assets, and the allocated fair value of the warrant was $ 0.6 million and was recorded in investments in equity securities.

In December 2020, the Company invested $ 1.4 million in Mazi Therapeutics, Inc.

(Mazi), a private pharmaceutical company founded by a current employee of the Company, in the form of a convertible promissory note that matures in two years , if not converted earlier.

As of March 31, 2021, the balance of the convertible promissory note was $ 1.4 million.

Balance Sheet Components

1 unchanged sentence

The fair values of cash equivalents and investments classified as available-for-sale securities consisted of the following (in thousands):

September 30, 2020

March 31, 2021

Gross Unrealized

Money market funds

Repurchase agreements

Time deposits

Certificate of deposits and time deposits

Corporate bonds

2 unchanged sentences

Government Treasury and agency securities

Debt securities in government-sponsored entities

December 31, 2020

1 unchanged sentence

Money market funds

Repurchase agreements

Time deposits

3 unchanged sentences

Government Treasury and agency securities

At September 30, 2020, the remaining contractual maturities of available-for-sale securities were less than one year .

There have been no realized gains or losses on available-for-sale securities for the three and nine months ended September 30, 2020 and 2019.

All marketable securities with unrealized losses at September 30, 2020 have been in a loss position for less than twelve months.

Based on the Company’s application of its expected loss allowance methodology, it is probable that the principal and interest will be collected in accordance with the contractual terms, and that the unrealized loss on these securities were not attributable to credit risk.

At March 31, 2021, the remaining contractual maturities of available-for-sale securities were less than three years .

There have been no significant realized gains or losses on available-for-sale securities for the three months ended March 31, 2021 and 2020.

All marketable securities with unrealized losses at March 31, 2021 have been in a loss position for less than twelve months and were temporary in nature.

We do not intend to sell the investments that are in an unrealized loss position before recovery of their amortized cost basis.

Inventory consists of the following (in thousands):

September 30,

Work-in-process

3 unchanged sentences

Accrued liabilities consist of the following (in thousands):

September 30,

Research, clinical study, and manufacturing expenses

2 unchanged sentences

The following table disaggregates total revenues from customers (in thousands):

Three Months Ended

September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Collaboration and license revenue:

Crysvita collaboration revenue in profit-

share territory

Crysvita royalty revenue in European

Crysvita collaboration revenue in profit-share territory

Daiichi Sankyo

2 unchanged sentences

Total product sales

Crysvita non-cash collaboration royalty

Crysvita non-cash collaboration royalty revenue

Total revenues

The following table disaggregates total revenues based on geographic location (in thousands):

Three Months Ended

September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

North America

Total revenues

The following table presents changes in the contract assets (liabilities) (in thousands):

Nine Months Ended September 30,

Balance of contract assets at beginning of period

Balance of contract liabilities at end of period, net

See Note 6 for additional details on contract assets (liabilities) activities.

The Company’s largest accounts receivable balance accounted for 83 % and 87 % of the total accounts receivable balance as of September 30, 2020 and December 31, 2019, respectively, and was due from a collaboration partner.

The following table presents changes in the contract liabilities (in thousands):

Three Months Ended March 31,

Balance of contract liabilities at beginning of period

Balance of contract liabilities at end of period

See Note 6 for additional details on contract liabilities activities.

The Company’s largest accounts receivable balance accounted for 54 % and 71 % of the total accounts receivable balance as of March 31, 2021 and December 31, 2020, respectively, and was due from a collaboration partner.

License and Research Agreements

1 unchanged sentence

In August 2013, the Company entered into a collaboration and license agreement with Kyowa Kirin Co., Ltd.

(KKC or formerly Kyowa Hakko Kirin Co., Ltd.

(KKC, formerly Kyowa Hakko Kirin Co., Ltd.

Under the terms of this collaboration and license agreement, as amended, the Company and KKC collaborate on the development and commercialization of Crysvita in the field of orphan diseases in the United States and Canada, or the profit-share territory, and in the European Union, United Kingdom, and Switzerland, or the European territory, and the Company has the right to develop and commercialize such products in the field of orphan diseases in Mexico and Central and South America, or Latin America.

1 unchanged sentence

In the field of orphan diseases, and except for ongoing studies being conducted by KKC, the Company is the lead party for development activities in the profit-share territory and in the European territory until the applicable transition date.

the Company is

also the lead party for core development activities conducted in Japan and Korea, for which the core development plan is limited to clinical trials mutually agreed to by the Company and KKC.

The Company shares the costs for development activities in the profit-share territory and the European territory conducted pursuant to the development plan before the applicable transition date equally with KKC.

KKC is responsible for 100 % of the costs for development activities in Japan and Korea.

In April 2023, which is the transition date for the profit-share territory, and on the applicable transition date for the European territory, KKC will become the lead party and be responsible for the costs of the development activities.

In April 2023, which is the transition date for the profit-share territory, KKC will become the lead party and be responsible for the costs of the development activities.

However, the Company will continue to share the costs of the studies commenced prior to the applicable transition date equally with KKC.

12 unchanged sentences

Prior to the Company’s sale of the royalty, the Company received a royalty of up to 10 % on net sales in the European territory, which was recognized as the underlying sales occur.

Beginning in 2020, the Company records the royalty revenue as non-cash royalty revenues.

During the nine months ended September 30, 2020, there was a change in estimate of the revenue reserves related to sales made prior to January 1, 2020, as a result of which, the Company recorded $ 1.5 million as royalty revenue in European territory.

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

The Company’s share of collaboration and royalty revenue related to Crysvita was as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Company's share of revenue in profit-

share territory

Royalty revenue in European territory

Non-cash royalty revenue in European

Three Months Ended March 31,

Company's share of revenue in profit-share territory

Non-cash royalty revenue in European territory

Product revenue related to sales in other territories

2 unchanged sentences

Accordingly, the Company records revenue on a gross basis related to the sale of Crysvita once the product is delivered and the risk and title of the product is transferred to the distributor.

The Company recorded product sales of $ 3.3 million and $ 7.4 million for the three and nine months ended September 30, 2020, respectively, and $ 1.1 million and $ 2.7 million for the three and nine months ended September 30, 2019, respectively, net of estimated product returns and other deductions.

The Company recorded product sales of $ 5.9 million and $ 1.6 million for the three months ended March 31, 2021 and 2020 , respectively, net of estimated product returns and other deductions.

KKC has the option to assume responsibility for commercialization efforts in Turkey from the Company, after a certain minimum period.

4 unchanged sentences

As a result, the Company was reimbursed for these costs and operating expenses were reduced as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Research and development

Selling, general and administrative

Collaboration receivable

The Company had accounts receivable from KKC in the amount of $ 23.2 million and $ 28.5 million from profit-share revenue and royalties and other receivables recorded in prepaid and other current assets of $ 12.9 million and $ 17.8 million and accrued liabilities of $ 1.6 million and $ 0.9 million from commercial and development activity reimbursements, as of September 30, 2020 and December 31, 2019, respectively.

Collaboration receivable and payable

The Company had accounts receivable from KKC in the amount of $ 14.1 million and $ 16.4 million from profit-share revenue and royalties and other receivables recorded in prepaid and other current assets of $ 5.1 million and $ 9.6 million and accrued liabilities of $ 3.8 million and $ 2.4 million from commercial and development activity reimbursements, as of March 31, 2021 and December 31, 2020, respectively.

Bayer HealthCare LLC

1 unchanged sentence

Under this agreement, Bayer has been granted an exclusive license to develop and commercialize one or more novel gene therapies for hemophilia A.

The agreement requires that Bayer use commercially reasonable efforts to conduct and fund a proof-of-concept (POC) clinical trial and any subsequent clinical trials and commercialization of gene therapy products for treatment of hemophilia A.

Bayer will have worldwide rights to commercialize the potential future product.

Bayer is responsible for funding certain research and development services performed by the Company in the performance of its obligations under the annual research plan and budget.

Under the terms of the agreement with Bayer, the Company is eligible to receive development and commercialization milestone payments of up to $ 232.0 million, as well as, royalty payments ranging in the high single-digit to low double-digit percentages, not exceeding the mid-teens, of net sales of licensed products.

The agreement requires that Bayer use commercially

reasonable efforts to conduct and fund a proof-of-concept (POC) clinical trial and any subsequent clinical trials and commercialization of gene therapy products for treatment of hemophilia A.

Bayer has worldwide rights to commercialize the potential future product.

Bayer was responsible for funding certain research and development services performed by the Company in the performance of its obligations under the annual research plan and budget.

Under the terms of the agreement, the Company is eligible to receive development and commercialization milestone payments of up to $ 232.0 million, as well as, royalty payments ranging in the high single-digit to low double-digit percentages, not exceeding the mid-teens, of net sales of licensed products.

The Company achieved the first milestone in December 2017, the second milestone in April 2018, and has received $ 15.0 million for such milestones to date.

The Company’s obligations under the contract were completed by end of December 31, 2019 and no revenue was recorded for the three and nine months ended September 30, 2020.

The Company recorded revenue of $ 0.1 million and $ 0.5 million for the three and nine months ended September 30, 2019, respectively.

The Company has no further obligations under the contract.

The Company may record future milestone payments as revenue, if it becomes probable that a significant reversal in the amount of revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved.

The Company has a Research Collaboration and License Agreement with Arcturus to research and develop therapies for select rare diseases.

Pursuant to the agreement, the Company incurred none and $ 0.7 million for the three and nine months ended September 30, 2019, respectively, in research and development expense for the funding of certain research services received from Arcturus.

No research and development expenses were recognized in 2020 related to the Arcturus agreement.

For the three months ended March 31, 2021 and 2020 , there were no research and development expenses incurred for the funding of certain research services received from Arcturus.

In May 2020, the Company exercised an option to purchase 600,000 shares of Arcturus’ common stock at $ 16.00 per share, or a total purchase price of $ 9.6 million.

Accordingly, after the exercise of the option, the Company owned 3,000,000 shares, or 14.6 %, of Arcturus’ then outstanding common stock.

The purchase was made pursuant to the equity purchase agreement between the parties entered into in June 2019 in connection with the amendment to the research collaboration and license agreement.

The Arcturus common stock is restricted from sale or transfer by the Company for six months from the exercise date, subject to certain conditions.

In December 2020, the Company sold 800,000 shares of Arcturus’ common stock at a weighted-average price of $ 100.81 per share and received net proceeds of $ 79.8 million.

The Company has elected to apply the fair value option to account for the equity investment in Arcturus.

The Company had accounted for the option to purchase additional shares of Arcturus common stock at fair value based on the Black-Scholes option pricing method.

The changes in the fair value of the Company’s investment in Arcturus securities were as follows (in thousands):

As of March 31, 2021, the Company held 2,200,000 shares of Arcturus’ common stock.

The changes in the fair value of the Company’s equity investment in Arcturus securities were as follows (in thousands):

Arcturus common stock

Fair value of option to purchase additional shares of Arcturus common stock

Acquisition of investment in Arcturus securities

Change in fair value

Option to purchase additional shares of Arcturus common stock

December 31, 2019

1 unchanged sentence

Transfer of value upon option exercise

September 30, 2020

The Company recorded $ 11.5 million in unrealized loss for the three months ended September 2020 from the fair value adjustment on the investment in Arcturus common stock.

In August 2019, the Company entered into a Program Agreement and a Unitholder Option Agreement with GeneTx Biotherapeutics, LLC (GeneTx) to collaborate on the development of GeneTx’s GTX-102, an antisense oligonucleotide (ASO) for the treatment of Angelman syndrome.

Sale of shares

December 31, 2020

Change in fair value

March 31, 2021

The Company recorded $ 4.6 million in unrealized loss and $ 7.7 million in unrealized gain for the three months ended March 31, 2021 and 2020, respectively, from the fair value adjustments on the equity investment in Arcturus securities.

In August 2019, the Company entered into a Program Agreement and a Unitholder Option Agreement with GeneTx to collaborate on the development of GeneTx’s GTX-102, an ASO for the treatment of Angelman syndrome.

Pursuant to the terms of the Unitholder Option Agreement, the Company made an upfront payment of $ 20.0 million for an exclusive option to acquire GeneTx, which was exercisable any time prior to 30 days following FDA acceptance of the IND for GTX-102.

Pursuant to the agreement, upon acceptance of the IND, which occurred in January 2020, the Company elected to extend the option period by paying an option extension payment of $ 25.0 million (option extension premium) during the prior quarter ended March 31, 2020.

The Company has a right to acquire GeneTx for a payment of $ 125.0 million, at any time, until the earlier of 30 months from the first dosing of a patient in a planned Phase 1/2 study (subject to extensions) or 90 days after results are available from that study.

The Company has the right to acquire GeneTx for a payment of $ 125.0 million, at any time, until the earlier of 30 months from the first dosing of a patient in a planned Phase 1/2 study (subject to extensions) or 90 days after results are available from that study.

This exclusive option to acquire GeneTx can be extended under certain circumstances, by up to four additional three-month periods, by paying an additional extension fee for each three-month period.

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Although GeneTx is a variable interest entity, the Company is not the primary beneficiary as it currently does not have the power to direct the activities that would most significantly impact the economic performance of GeneTx.

Prior to product regulatory approval, all consideration paid to GeneTx represents rights to potential future benefits associated with GeneTx’s in-process research and development activities, which have not reached technological feasibility and have no alternative future use.

Accordingly, for the nine months ended September 30, 2020, the Company recorded the option extension payment of $ 25.0 million as an in-process research and development expense.

Prior to product regulatory approval, all consideration paid to GeneTx represents rights to potential future benefits associated with GeneTx’s in-process research

and development activities, which have not reached technological feasibility and have no alternative future use.

Accordingly, for the three months ended March 31 , 2020, the Company recorded the option extension payment of $ 25.0 million as an in-process research and development expense.

REGENXBIO, Inc.

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(REGENEX), for an exclusive, sublicensable, worldwide license to REGENX’s NAV AAV8 and AAV9 Vectors for the development and commercialization of gene therapy treatments for a rare metabolic disorder.

In return for these rights, the Company made an upfront payment of $ 7.0 million, which was recorded as an in-process research and development expense during the prior quarter ended March 31, 2020.

In return for these rights, the Company made an upfront payment of $ 7.0 million, which was recorded as an in-process research and development expense during the three months ended March 31, 2020.

The Company will pay certain annual fees of $ 0.1 million, milestone payments of up to $ 14.0 million, and royalties on any net sales of products incorporating the licensed intellectual property that range from a high single-digit to low double-digit royalty .

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Daiichi Sankyo will reimburse the Company for all costs associated with the transfer of the manufacturing technology.

The Company also entered into a Stock Purchase Agreement (SPA) with Daiichi Sankyo, pursuant to which Daiichi Sankyo purchased 1,243,913 shares in exchange for $ 75.0 million in cash during the first quarter of 2020.

The Company also entered into a Stock Purchase Agreement (SPA) with Daiichi Sankyo, pursuant to which Daiichi Sankyo purchased 1,243,913 shares of the Company’s common stock in exchange for $ 75.0 million in cash during the first quarter of 2020.

The fair market value of the common stock issued to Daiichi Sankyo was $ 55.3 million based on the stock price of $ 44.43 per share on the date of issuance, resulting in a $ 19.7 million premium on the SPA.

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The License Agreement, the Sublicense Agreement, and the SPA are being accounted for as one arrangement because they were entered into at or near the same time and negotiated in contemplation of one another.

The Company evaluated the License Agreement and the Sublicense Agreement under ASC 606 and determined that the performance obligations under the agreements are (i) intellectual property with respect to its HeLa PCL and HEK293 transient transfection manufacturing technology platforms together with the initial technical assistance and technology transfer services, which are expected to be completed over a period of 18 to 21 months, and (ii) the transfer of any know-how and improvements after the completion of the initial technology transfer through the end of the three year technology transfer period.

The Company evaluated the License Agreement and the Sublicense Agreement under ASC 606 and determined that the performance obligations under the agreements are (i) intellectual property with respect to its HeLa PCL and HEK293 transient transfection manufacturing technology platforms together with the initial technical assistance and technology transfer services, which are expected to be completed in the fourth quarter of 2021, and (ii) the transfer of any know-how and improvements after the completion of the initial technology transfer through the end of the three year technology transfer period ending March 2023.

The Company determined that the total transaction price of the License Agreement was $ 183.4 million which was comprised of the $ 19.7 million premium from the SPA, the $ 125.0 million upfront payment, the $ 25.0 million in unconstrained milestone payments, $ 8.0 million from the Sublicense Agreement, and the $ 5.7 million estimated reimbursement amount for delivering the license and technology services.

Total revenue recognized under the license agreement through March 31, 2021 is $ 132.0 million.

The Company allocated the total transaction price to the two performance obligations on a relative stand-alone selling price basis.

Revenue allocated to the intellectual property and the technology transfer services will be recognized over an initial estimated period of 18 to 21 months, measuring the progress toward complete satisfaction of the individual performance obligation using an input measure.

Revenue for know-how and improvements after the completion of technology transfer will be recognized over the remaining technology transfer period (i.e., months 19-36) on a straight-line basis, as it is expected that Daiichi Sankyo will receive and consume the benefits consistently throughout the period.

The performance obligations are estimated to be substantially complete by March 2023.

Revenue allocated to the intellectual property and the technology transfer services will be recognized over an initial period which is estimated to end in the fourth quarter of 2021, measuring the progress toward complete satisfaction of the individual performance obligation using an input measure.

Revenue for know-how and improvements after the completion of technology transfer will be recognized on a straight-line basis over the remaining technology transfer period , which ends in March 2023 , as it is expected that Daiichi Sankyo will receive and consume the benefits consistently throughout the period.

The estimated period to complete the technology transfer services and the related milestones payments, if any, are subject to revised estimates which could be impacted by limitations or delays from the COVID-19 pandemic, successful scale-up of the manufacturing, and other changes that may impact timing.

Royalties from commercial sales will be accounted for as revenue upon achievement of such sales, assuming all other revenue recognition criteria are met.

For the three and nine months ended September 30, 2020, the Company recognized $ 32.9 million and $ 51.7 million, respectively, in revenue related to this arrangement.

Accordingly, the Company had recorded $ 102.9 million as contract liabilities, net, as of September 30, 2020.

The Company recorded a receivable related to the above agreements of $ 0.9 million as of September 30, 2020 in prepaid expenses and other current assets.

For the three months ended March 31, 2021 and 2020, the Company recognized $ 42.8 million and none , respectively, in revenue related to this arrangement.

Accordingly, the Company had recorded $ 25.1 million as contract liabilities, net, as of March 31, 2021 .

The Company recorded an accounts receivable related to the above agreements of $ 1.3 million as of March 31, 2021.

Solid Biosciences, Inc.

In October 2020, the Company entered into a strategic Collaboration and License Agreement with Solid Biosciences Inc., or Solid, and received an exclusive license for any pharmaceutical product that expresses Solid’s proprietary microdystrophin construct from AAV8 and variants thereof in clade E for use in the treatment of Duchenne muscular dystrophy and other diseases resulting from lack of functional dystrophin, including Becker muscular dystrophy.

The Company will collaborate to develop products that combine Solid’s differentiated microdystrophin construct, the Company’s HeLa PCL manufacturing platform, and the Company’s AAV8 variants.

Solid will also provide development support and was granted an exclusive option to co-invest in products the Company develops for profit share participation in certain territories.

On a product-by-product basis, the Company may be obligated to make development milestone payments of up to $ 25.0 million, regulatory milestone payments of up to $ 65.0 million, and commercial milestone payments of up to $ 165.0 million, if such milestones are achieved, as well as royalties on any net sales of products incorporating the licensed intellectual property that range from a low to mid-double-digit percentage.

The royalty rate changes to mid to high double-digit percentage if Solid decides to co-invest in the product.

The Company also entered into a Stock Purchase Agreement and the Investor Agreement with Solid, pursuant to which, the Company purchased 7,825,797 shares of Solid’s common stock for an aggregate purchase price of $ 40.0 million.

Subject to the terms of the Investor Agreement, the Company is restricted from selling, transferring or otherwise disposing of the shares without the prior approval of Solid until the earlier of (i) 18 months following the closing of the transaction, (ii) the termination of the Collaboration and License Agreement and (iii) certain other specified events.

The Company also agreed to customary standstill restrictions in accordance with the terms of the Investor Agreement until the earlier of (a) 24 months after the closing of the transaction and (b) certain specified events.

The Company’s investment in Solid is being accounted at fair value, as the fair value is readily determinable.

The Company recorded the common stock investment at $ 26.8 million on the transaction date, which was based on the quoted market price on the closing date.

Although Solid is a variable interest entity, the Company is not the primary beneficiary as it does not have the power to direct the activities that would most significantly impact the economic performance of Solid.

Prior to the achievement of certain development milestones, all consideration paid to Solid represents rights to potential future benefits associated with Solid’s in-process research and development activities, which have not reached technological feasibility and have no alternative future use.

Accordingly, the remaining $ 13.2 million of the total $ 40.0 million paid as consideration was attributed to the license rights obtained and was recorded as in-process research and development expense during the year ended December 31, 2020.

The changes in the fair value of the Company’s investment in Solid’s common stock were as follows (in thousands):

Solid common stock

Acquisition of investment in Solid common

stock in October 2020

Change in fair value

December 31, 2020

Change in fair value

March 31, 2021

Mereo BioPharma 3 Limited

In December 2020, the Company entered into a License and Collaboration Agreement with Mereo BioPharma 3 Limited, or Mereo, to collaborate on the development of setrusumab.

Under the terms of the agreement, the Company will lead future global development of setrusumab in both pediatric and adult patients with Osteogenesis Imperfecta, or OI.

The Company was granted an exclusive license to develop and commercialize setrusumab in the U.S., Turkey, and the rest of the world, excluding the European Economic Area, United Kingdom, and Switzerland, or the Mereo territory, where Mereo retains commercial rights.

Each party will be responsible for post-marketing commitments and commercial supply in their respective territories.

Upon the closing of the transaction in January 2021, the Company made a payment of $ 50.0 million to Mereo and will be required to make payments of up to $ 254.0 million upon the achievement of certain clinical, regulatory, and commercial milestones.

The Company will pay for all global development costs as well as tiered double-digit percentage royalties to Mereo on net sales in the U.S., Turkey, and the rest of the world (excluding the Mereo Territory), and Mereo will pay the Company a fixed double-digit percentage royalty on net sales in the Mereo Territory.

Although Mereo is a variable interest entity, the Company is not the primary beneficiary as it does not have the power to direct the activities that would most significantly impact the economic performance of Mereo.

Prior to the achievement of certain development milestones, all consideration paid to Mereo represents rights to potential future benefits associated with Mereo’s in-process research and development activities, which have not reached technological feasibility and have no alternative future use.

Accordingly, for the three months ended March 31, 2021, the Company recorded the upfront payment of $ 50.0 million as in-process research and development expense.

Liability Related to the Sale of Future Royalties

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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 $ 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 were recorded as a liability (liability related to sale of future royalties on the Consolidated Balance Sheets).

Proceeds from the transaction were recorded as a liability (liability related to sale of future royalties on the Consolidated Balance Sheets).

The Company amortizes $ 320.0 million, net of transaction cost of $ 5.8 million using the effective interest method over the estimated life of the arrangement.

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Consequently, the Company estimates an imputed interest on the unamortized portion of the liability and records interest expense relating to the transaction.

The Company records the royalty revenue from the net sales of Crysvita in the applicable European territories as non-cash royalty revenue in the Consolidated Statements of Operations.

The Company records the royalty revenue arising from the net sales of Crysvita in the applicable European territories as non-cash royalty revenue in the Consolidated Statements of Operations over the term of the arrangement.

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

To the extent such payments are greater or less than the Company’s initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the liability and the effective interest rate.

The Company’s effective annual interest rate was approximately 10.3 % and 10.1 % as of September 30, 2020 and December 31, 2019, respectively.

The Company’s effective annual interest rate was approximately 9.8 % for the three months ended March 31, 2021.

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 the Company’s control.

Such factors include, but are not limited to, the

success of KKC’s sales and promotion of Crysvita, changing standards of care, delays or disruptions related to the COVID-19 pandemic, 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.

Such factors include, but are not limited to, the success of KKC’s sales and promotion of Crysvita, changing standards of care, delays or disruptions related to the COVID-19 pandemic, 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 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 revenue and the non-cash interest expense over the life of the arrangement.

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Liability related to the sale of future royalties

Proceeds from sale of future royalties in

December 31, 2019

Non-cash collaboration royalty revenue

Non-cash interest expense

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Non-cash interest expense

September 30, 2020

March 31, 2021

Stock-Based Awards

The 2014 Incentive Plan (the 2014 Plan) provides for automatic annual increases in shares available for grant, beginning on January 1, 2015 through January 1, 2024 .

As of September 30, 2020 , there were 3,186,920 shares reserved under the 2014 Plan for the future issuance of equity awards and 3,287,825 shares reserved for the 2014 Employee Stock Purchase Plan.

As of March 31, 2021, there were 4,192,549 shares reserved under the 2014 Plan for the future issuance of equity awards, 3,995,536 shares reserved for the 2014 Employee Stock Purchase Plan, and 500,000 shares reserved for the Employment Inducement Plan.

The table below sets forth the stock-based compensation expense for the periods presented (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of sales

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Options to purchase common stock and

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Equity Transactions

In July 2017, the Company entered into an At-The-Market, or ATM, sales agreement with Cowen and Company, LLC (Cowen), whereby the Company could sell up to $ 150.0 million in aggregate proceeds of common stock from time to time, with Cowen as its sales agent.

During the three months ended June 30, 2020, the Company sold 283,333 shares of common stock, resulting in net proceeds of $ 20.4 million, after commissions and other offering costs.

As of June 30, 2020, the Company had completed the sale of all

available amounts under the ATM facility.

During the three and nine months ended September 30, 2019, the Company sold none and 468,685 shares of common stock, respectively, resulting in net proceeds of approximately none and $ 24.8 million, respectively, after commissions and other offering costs.

In February 2019, the Company completed an underwritten public offering in which 5,833,333 shares of common stock were sold, which included 760,869 shares purchased by the underwriters pursuant to an option granted to them in connection with the offering, at a public offering price of $ 60.00 per share.

The total proceeds that the Company received from the offering were approximately $ 330.4 million, net of underwriting discounts and commissions.

Accumulated Other Comprehensive Income (Loss)

Total accumulated other comprehensive income (loss) consisted of the following (in thousands):

September 30,

In October 2020, the Company completed an underwritten public offering in which 5,111,110 shares of common stock were sold, which included 666,666 shares purchased by the underwriters pursuant to an option granted to them in connection with the offering, at a public offering price of $ 90.00 per share.

For the year ended December 31, 2020, the total proceeds that the Company received from the offering were approximately $ 435.6 million, net of underwriting discounts and commissions.

Accumulated Other Comprehensive Income

Total accumulated other comprehensive income consisted of the following (in thousands):

Foreign currency translation adjustments

Unrealized gain on available-for-sale securities

Unrealized gain (loss) on available-for-sale securities

Total accumulated other comprehensive income

Subsequent Event

On October 23, 2020, the Company announced that it had entered into a strategic collaboration and license agreement (the collaboration agreement) with Solid Biosciences, Inc.

(Solid) to focus on the development and commercialization of new gene therapies for Duchenne muscular dystrophy (Duchenne) using its HeLa producer cell line (PCL) manufacturing platform.

Under the terms of the collaboration agreement, Solid granted the Company an exclusive license for any pharmaceutical product that expresses Solid’s proprietary microdystrophin construct from AAV8 and variants thereof in clade E for use in the treatment of Duchenne and other diseases resulting from lack of functional dystrophin.

The Company also entered into a stock purchase agreement and investor agreement with Solid in connection with the collaboration agreement, and purchased 7,825,797 shares of Solid’s common stock for an aggregate purchase price of $ 40.0 million.

The Company will pay Solid up to $ 255.0 million in cumulative milestone payments per product upon achievement of specified milestone events, and tiered royalties on worldwide net sales at low double-digit to mid-teens percentages.

Upon achievement of proof-of-concept, Solid has the right to opt-in to co-fund collaboration programs in return for participation in a profit share or increased royalty payments.

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-Q

Item 1. Financial Statements