REGENXBIO Inc. 10-Q

Item 1. Financial Statements. REGENXBIO INC. CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except per share data) June 30, 2020 December 31, 2019 Assets Current assets Cash and cash equivalents $ 94,222 $ 69,514 Marketable securities 174,964 226,696 Accounts receivable 42,876 38,148 Prepaid expenses 9,749 6,475 Other current assets 7,271 4,199 Total current assets 329,082 345,032 Marketable securities 70,054 103,785 Accounts receivable 3,618 4,155 Property and equipment, net 32,696 28,973 Operating lease right-of-use assets 8,635 10,078 Restricted cash 1,330 1,330 Other assets 4,323 4,555 Total assets $ 449,738 $ 497,908 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 10,901 $ 6,409 Accrued expenses and other current liabilities 25,839 24,846 Deferred revenue 450 — Operating lease liabilities 3,013 2,421 Total current liabilities 40,203 33,676 Deferred revenue 4,007 3,333 Operating lease liabilities 7,085 8,874 Other liabilities 582 1,828 Total liabilities 51,877 47,711 Stockholders’ equity Preferred stock; $ 0.0001 par value; 10,000 shares authorized, and no shares issued and outstanding at June 30, 2020 and December 31, 2019 — — Common stock; $ 0.0001 par value; 100,000 shares authorized at June 30, 2020 and December 31, 2019; 37,291 and 36,992 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 4 4 Additional paid-in capital 648,729 627,810 Accumulated other comprehensive income 750 205 Accumulated deficit ( 251,622 ) ( 177,822 ) Total stockholders’ equity 397,861 450,197 Total liabilities and stockholders’ equity $ 449,738 $ 497,908 The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 Table of Contents REGENXBIO INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited) (in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues License and royalty revenue $ 16,566 $ 7,881 $ 34,210 $ 8,765 Total revenues 16,566 7,881 34,210 8,765 Operating Expenses Cost of revenues 4,684 1,927 8,093 1,956 Research and development 38,111 29,483 75,146 54,686 General and administrative 15,554 13,405 30,387 24,963 Other operating expenses (income) 50 ( 62 ) 117 ( 62 ) Total operating expenses 58,399 44,753 113,743 81,543 Loss from operations ( 41,833 ) ( 36,872 ) ( 79,533 ) ( 72,778 ) Other Income Interest income from licensing 1,849 762 2,697 1,375 Investment income 5,722 34,524 2,536 37,519 Total other income 7,571 35,286 5,233 38,894 Loss before income taxes ( 34,262 ) ( 1,586 ) ( 74,300 ) ( 33,884 ) Income Tax Benefit 500 129 500 199 Net loss $ ( 33,762 ) $ ( 1,457 ) $ ( 73,800 ) $ ( 33,685 ) Other Comprehensive Income Unrealized gain on available-for-sale securities, net 1,330 530 545 1,151 Total other comprehensive income 1,330 530 545 1,151 Comprehensive loss $ ( 32,432 ) $ ( 927 ) $ ( 73,255 ) $ ( 32,534 ) Basic and diluted net loss per share $ ( 0.91 ) $ ( 0.04 ) $ ( 1.98 ) $ ( 0.92 ) Weighted-average basic and diluted common shares outstanding 37,257 36,669 37,180 36,518 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Table of Contents REGENXBIO INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) (in thousands) Three Months Ended June 30, 2020 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income (Loss) Deficit Equity Balances at March 31, 2020 37,190 $ 4 $ 638,588 $ ( 580 ) $ ( 217,860 ) $ 420,152 Exercise of stock options 101 — 1,825 — — 1,825 Stock-based compensation expense — — 8,316 — — 8,316 Unrealized gain on available-for-sale securities, net — — — 1,330 — 1,330 Net loss — — — — ( 33,762 ) ( 33,762 ) Balances at June 30, 2020 37,291 $ 4 $ 648,729 $ 750 $ ( 251,622 ) $ 397,861 Three Months Ended June 30, 2019 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income (Loss) Deficit Equity Balances at March 31, 2019 36,611 $ 4 $ 602,425 $ ( 59 ) $ ( 115,317 ) $ 487,053 Exercise of stock options 141 — 1,367 — — 1,367 Stock-based compensation expense — — 7,099 — — 7,099 Unrealized gain on available-for-sale securities, net — — — 530 — 530 Net loss — — — — ( 1,457 ) ( 1,457 ) Balances at June 30, 2019 36,752 $ 4 $ 610,891 $ 471 $ ( 116,774 ) $ 494,592 Six Months Ended June 30, 2020 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income Deficit Equity Balances at December 31, 2019 36,992 $ 4 $ 627,810 $ 205 $ ( 177,822 ) $ 450,197 Exercise of stock options 282 — 3,979 — — 3,979 Issuance of common stock under employee stock purchase plan 17 — 607 — — 607 Stock-based compensation expense — — 16,333 — — 16,333 Unrealized gain on available-for-sale securities, net — — — 545 — 545 Net loss — — — — ( 73,800 ) ( 73,800 ) Balances at June 30, 2020 37,291 $ 4 $ 648,729 $ 750 $ ( 251,622 ) $ 397,861 Six Months Ended June 30, 2019 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income (Loss) Deficit Equity Balances at December 31, 2018 36,120 $ 4 $ 592,580 $ ( 720 ) $ ( 83,016 ) $ 508,848 Adoption of ASU 2016-02 (Topic 842) — — — — ( 33 ) ( 33 ) Adoption of ASU 2018-02 — — — 40 ( 40 ) — Exercise of stock options 622 — 5,129 — — 5,129 Issuance of common stock under employee stock purchase plan 10 — 365 — — 365 Stock-based compensation expense — — 12,817 — — 12,817 Unrealized gain on available-for-sale securities, net — — — 1,151 — 1,151 Net loss — — — — ( 33,685 ) ( 33,685 ) Balances at June 30, 2019 36,752 $ 4 $ 610,891 $ 471 $ ( 116,774 ) $ 494,592 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 Table of Contents REGENXBIO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Six Months Ended June 30, 2020 2019 Cash flows from operating activities Net loss $ ( 73,800 ) $ ( 33,685 ) Adjustments to reconcile net loss to net cash used in operating activities Stock-based compensation expense 16,333 12,817 Net amortization of premiums and accretion of discounts on marketable debt securities 205 ( 788 ) Depreciation and amortization 4,126 3,363 Net realized gains on sales and maturities of marketable securities ( 7,075 ) — Unrealized losses (gains) on marketable equity securities 7,779 ( 31,656 ) Imputed interest income from licensing ( 1,900 ) ( 1,375 ) Other non-cash adjustments 373 442 Changes in operating assets and liabilities Accounts receivable ( 2,711 ) ( 1,419 ) Prepaid expenses ( 3,274 ) ( 534 ) Other current assets ( 3,072 ) 1,419 Operating lease right-of-use assets 1,443 1,156 Other assets 1,355 ( 1,350 ) Accounts payable 4,078 1,774 Accrued expenses and other current liabilities 1,434 ( 957 ) Deferred revenue — ( 600 ) Operating lease liabilities ( 1,197 ) ( 1,171 ) Other liabilities ( 1,166 ) ( 482 ) Net cash used in operating activities ( 57,069 ) ( 53,046 ) Cash flows from investing activities Purchases of marketable debt securities ( 70,665 ) ( 106,119 ) Maturities of marketable debt securities 146,353 141,262 Sales of marketable debt securities 2,287 — Sales of marketable equity securities 7,124 — Purchases of property and equipment ( 7,908 ) ( 8,010 ) Net cash provided by investing activities 77,191 27,133 Cash flows from financing activities Proceeds from exercise of stock options 3,979 5,129 Proceeds from issuance of common stock under employee stock purchase plan 607 365 Net cash provided by financing activities 4,586 5,494 Net increase (decrease) in cash and cash equivalents and restricted cash 24,708 ( 20,419 ) Cash and cash equivalents and restricted cash Beginning of period 70,844 76,614 End of period $ 95,552 $ 56,195 Supplemental disclosures of non-cash investing and financing activities Non-cash consideration received for licenses granted $ 1,123 $ — The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 Table of Contents REGENXBIO INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Nature of Business REGENXBIO Inc. (the Company) is a clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. The Company’s proprietary adeno-associated virus (AAV) gene delivery platform (NAV Technology Platform) consists of exclusive rights to over 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10. The NAV® Technology Platform is being applied by the Company, as well as by third-party licensees (NAV Technology Licensees), in the development of a broad pipeline of product candidates in multiple therapeutic areas and in one commercially available product, Zolgensma®, which is marketed by a NAV Technology Licensee. The Company was formed in 2008 in the State of Delaware and is headquartered in Rockville, Maryland. Liquidity and Risks As of June 30, 2020, the Company had generated an accumulated deficit of $ 251.6 million since inception. As the Company has incurred cumulative losses since inception, transition to recurring profitability is dependent upon achieving a level of revenues adequate to support the Company’s cost structure, which depends heavily on the successful development, approval and commercialization of its product candidates. The Company may never achieve recurring profitability, and unless and until it does, the Company will continue to need to raise additional capital, to the extent possible. As of June 30, 2020, the Company had cash, cash equivalents and marketable securities of $ 339.2 million, which management believes is sufficient to fund operations for at least the next 12 months from the date these consolidated financial statements were issued. The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, development by the Company or its competitors of technological innovations, risks of failure of clinical trials, dependence on key personnel, protection of proprietary technology, compliance with government regulations and ability to transition from clinical manufacturing to the commercial production of products. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The interim unaudited consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 26, 2020. Certain information and footnote disclosures required by GAAP which are normally included in the Company’s annual consolidated financial statements have been omitted pursuant to SEC rules and regulations for interim reporting. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year, any other interim periods, or any future year or period. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ materially from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process 7 Table of Contents may result in actual results differing materially from those estimated amounts used in the preparation of the consolidated financial statements. Significant estimates are used in the following areas, among others: license and royalty revenue, stock-based compensation expense, accrued research and development expenses and other accrued liabilities, income taxes and the fair value of financial instruments. The Company is actively monitoring the impact of the COVID-19 pandemic on its business, results of operations and financial condition. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition in the future is unknown at this time and will depend on future developments that are highly unpredictable. The most significant estimates affecting the Company’s consolidated financial statements that may be impacted by the COVID-19 pandemic are related to the Company’s assessment of credit losses on accounts receivable, contract assets and available-for-sale debt securities. Reclassifications Certain amounts reported in prior periods have been reclassified to conform to current period financial statement presentation. These reclassifications are not material and have no effect on previously reported financial position, results of operations and cash flows. Restricted Cash Restricted cash includes money market mutual funds used to collateralize irrevocable letters of credit as required by the Company’s lease agreements. The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported on the consolidated balance sheets to the total of these amounts as reported at the end of the period in the consolidated statements of cash flows (in thousands): June 30, 2020 June 30, 2019 Cash and cash equivalents $ 94,222 $ 55,142 Restricted cash 1,330 1,053 Total cash and cash equivalents and restricted cash $ 95,552 $ 56,195 Accounts Receivable Accounts receivable primarily consist of consideration due to the Company resulting from its license agreements with NAV Technology Licensees. Accounts receivable include amounts invoiced to licensees as well as rights to consideration which have not yet been invoiced, including unbilled royalties, and for which payment is conditional solely upon the passage of time. If a licensee elects to terminate a license prior to the end of the license term, the licensed intellectual property is returned to the Company and any accounts receivable from the licensee which are not contractually payable to the Company are charged off as a reduction of license revenue in the period of the termination. Accounts receivable which are not expected to be received by the Company within 12 months from the reporting date are stated net of a discount to present value and recorded as non-current assets on the consolidated balance sheets. The present value discount is recognized as a reduction of revenue in the period in which the accounts receivable are initially recorded and is accreted as interest income from licensing over the term of the receivables. Accounts receivable are stated net of an allowance for doubtful accounts, if deemed necessary based on the Company’s evaluation of collectability and potential credit losses. Management assesses the collectability of its accounts receivable using the specific identification of account balances, and considers the credit quality and financial condition of its significant customers, historical information regarding credit losses and the Company’s evaluation of current and expected future economic conditions. If necessary, an allowance for doubtful accounts is recorded against accounts receivable such that the carrying value of accounts receivable reflects the net amount expected to be collected. The Company did no t record an allowance for doubtful accounts as of June 30, 2020 and December 31, 2019. Marketable Securities Marketable securities consist of available-for-sale debt securities and equity securities and are carried at fair value. Marketable debt securities with remaining maturity dates exceeding 12 months which are not intended to be sold prior to maturity for use in current operations are classified as non-current assets. Marketable equity securities are classified as current assets. 8 Table of Contents Unrealized gains and losses on available-for-sale debt securities, net of any related tax effects, are excluded from results of operations and are included in other comprehensive income and reported as a separate component of stockholders’ equity until realized. The Company uses the aggregate portfolio approach to release the tax effects of unrealized gains and losses on available-for-sale debt securities in accumulated other comprehensive income . Purchase premiums and discounts on marketable debt securities are amortized or accreted into the cost basis over the life of the related security as adjustments to the yield using the effective-interest method. Interest income is recognized when earned. Unrealized gains and losses on marketable equity securities are included in results of operations as investment income . Realized gains and losses from the sale or maturity of marketable securities are based on the specific identification method and are included in results of operations as investment income . At each reporting date, the Company evaluates available-for-sale debt securities which have an amortized cost basis in excess of the fair value of the security to determine if the unrealized loss or any potential credit losses should be recognized in results of operations . If the Company does not have the intent and ability to hold the security until recovery of the unrealized loss, the difference between the fair value and amortized cost basis of the security is charged to results of operations resulting in a new amortized cost basis of the security. If the Company has the intent and ability to hold the security until recovery of the unrealized loss, the security is evaluated for potential credit losses. If a credit loss is deemed to exist, the credit loss is recognized in results of operations and an allowance for credit losses is recorded against the amortized cost basis of the security. In determining whether a credit loss exists related to impaired available-for-sale debt securities, the Company considers, among other factors, the extent of the unrealized loss relative to the amortized cost basis, the credit rating of the issuer and any recent changes thereto, current and expected future economic conditions, and any adverse events or other changes in circumstances that have occurred which may indicate a potential credit loss. The Company did no t record an allowance for credit losses on its available-for-sale debt securities as of June 30, 2020. Fair Value of Financial Instruments The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures , establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below: • Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. • Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly. • Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair values of the Company’s Level 2 instruments are based on quoted market prices or broker or dealer quotations for similar assets. These investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market observable data. Please refer to Note 4 for further information on the fair value measurement of the Company’s financial instruments. Net Loss Per Share Basic net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Contingently convertible shares in which conversion is based on non-market-priced contingencies are excluded from the calculations of both basic and diluted net income loss per share until the contingency has been fully met. For purposes of the diluted net loss per share calculation, common stock equivalents are excluded from the calculation of diluted net loss per share if their effect would be anti-dilutive. 9 Table of Contents Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which amends the accounting for credit losses for most financial assets and certain other instruments. The standard requires that entities holding financial assets that are not accounted for at fair value through net income be presented at the net amount expected to be collected by recording an allowance for credit losses. The allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The standard also amends the impairment model for available-for-sale debt securities, requiring credit losses on impaired debt securities to be included in results of operations. The Company adopted this standard effective January 1, 2020 using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to opening accumulated deficit on the adoption date. The adoption of this standard primarily impacts the Company’s methodology used to assess credit losses on its accounts receivable, contract assets and available-for-sale debt securities. Based on the composition of the Company’s accounts receivable, contract assets and available-for-sale debt securities, the adoption of this standard required no cumulative-effect adjustments and did not have a material impact on the Company’s financial position or results of operations. Please refer to the significant accounting policies above for a description of the Company’s accounting policies for accounts receivable and marketable securities upon the adoption of this standard. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , which modifies certain disclosure requirements regarding fair value measurements. The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on the Company’s financial statement disclosures. In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract . The standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this standard effective January 1, 2020 on a prospective basis. The Company has various cloud-based software applications accounted for as service contracts, the most significant of which is the Company’s enterprise resource planning (ERP) system for which implementation was in progress on the adoption date of this standard. The adoption of this standard resulted in the capitalization of certain costs during the six months ended June 30, 2020 related to the implementation of the ERP system and other cloud-based software applications which would have been expensed as incurred prior to the adoption of this standard. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes , which simplifies the current accounting for income taxes. Among other changes, the standard removes the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items such as other comprehensive income. The Company early adopted this standard effective January 1, 2020, with certain aspects of the standard applied using the modified retrospective transition method and other aspects of the standard applied on a prospective basis. The adoption of this standard required no cumulative-effect adjustments and did not have a material impact on the Company’s financial position or results of operations. 3. Marketable Securities The following tables present a summary of the Company’s marketable securities, which consist of available-for-sale debt securities and equity securities (in thousands): Amortized Cost / Cost Unrealized Gains Unrealized Losses Fair Value June 30, 2020 U.S. government and federal agency securities $ 34,315 $ 173 $ — $ 34,488 Certificates of deposit 6,311 82 — 6,393 Corporate bonds 178,494 1,399 ( 43 ) 179,850 Equity securities 282 24,005 — 24,287 $ 219,402 $ 25,659 $ ( 43 ) $ 245,018 10 Table of Contents Amortized Cost / Cost Unrealized Gains Unrealized Losses Fair Value December 31, 2019 U.S. government and federal agency securities $ 62,637 $ 215 $ ( 5 ) $ 62,847 Certificates of deposit 8,506 77 — 8,583 Corporate bonds 226,137 808 ( 29 ) 226,916 Equity securities 351 31,784 — 32,135 $ 297,631 $ 32,884 $ ( 34 ) $ 330,481 As of June 30, 2020 and December 31, 2019, no available-for-sale debt securities had remaining maturities greater than three years. The amortized cost of marketable debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, or to the earliest call date for callable debt securities purchased at a premium. As of June 30, 2020 and December 31, 2019, the balance in the Company’s accumulated other comprehensive income consisted solely of net unrealized gains and losses on available-for-sale debt securities, net of income tax effects and reclassification adjustments for realized gains and losses. During the three and six months ended June 30, 2020, the Company recognized net unrealized gains on available-for-sale debt securities of $ 1.3 million and $ 0.6 million, respectively, and income tax expense of zero in other comprehensive income for the period. The Company recognized net realized gains (losses) of less than $( 0.1 ) million and less than $ 0.1 million on the sale or maturity of available-for-sale debt securities during the three and six months ended June 30, 2020, which were reclassified out of accumulated other comprehensive income during the period and were included in investment income in the consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2019, the Company recognized net unrealized gains on available-for-sale debt securities of $ 0.8 million and $ 1.8 million, respectively, and income tax expense of $ 0.3 million and $ 0.7 million, respectively, in other comprehensive income for the period. The Company recognized net realized gains of zero and less than $ 0.1 million on the sale or maturity of available-for-sale debt securities during the three and six months ended June 30, 2019, which were reclassified out of accumulated other comprehensive income during the period and were included in investment income in the consolidated statements of operations and comprehensive loss. The following tables present the fair values and unrealized losses of available-for-sale debt securities held by the Company in an unrealized loss position for less than 12 months and 12 months or greater (in thousands): Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses June 30, 2020 Corporate bonds $ 42,913 $ ( 43 ) $ — $ — $ 42,913 $ ( 43 ) $ 42,913 $ ( 43 ) $ — $ — $ 42,913 $ ( 43 ) Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2019 U.S. government and federal agency securities $ 12,562 $ ( 5 ) $ — $ — $ 12,562 $ ( 5 ) Corporate bonds 48,556 ( 29 ) — — 48,556 ( 29 ) $ 61,118 $ ( 34 ) $ — $ — $ 61,118 $ ( 34 ) As of June 30, 2020, available-for-sale debt securities held by the Company which were in an unrealized loss position consisted of 11 investment grade security positions. The Company has the intent and ability to hold such securities until recovery, and due to the credit quality of the issuers and low severity of each unrealized loss position relative to its amortized cost basis, the Company has not identified any credit losses associated with its available-for-sale debt securities. The Company did no t recognize any impairment or credit losses on available-for-sale debt securities during the three and six months ended June 30, 2020. 11 Table of Contents Marketable equity securities held by the Company as of June 30 , 2020 and December 31, 2019 consist ed solely of common stock of Prevail Therapeutics Inc. (Prevail). The Company acquired the securities as consideration for a commercial license to the NAV Technology Platform granted to Prevail in August 2017. Prevail completed its initial public offering (IPO) in June 2019. Prior to Prevail’s IPO, the securities were accounted for as non-marketable equity securities without a readily determinable fair value and had a carrying value of $ 0.4 million. Upon Prevail’s IPO in June 2019, the securities were reclassified to marketable securities and are measured at fair value. During the three and six months ended June 30 , 2020, the Company recognized net realized and unrealized gains (losses) of $ 4.4 million and $ ( 0.7 ) million, respectively, related to its marketable equity securities of Prevail . During the three and six months ended June 30, 2019, the Company recognized unrealized gains of $ 31.7 million and did no t recognize any realized gains or losses related to its marketable equity securities of Prevail. 4. Fair Value of Financial Instruments Financial instruments reported at fair value on a recurring basis include cash equivalents and marketable securities. The following tables present the fair value of cash equivalents and marketable securities in accordance with the hierarchy discussed in Note 2 (in thousands): Quoted Significant prices other Significant in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total June 30, 2020 Cash equivalents: Money market mutual funds $ — $ 84,473 $ — $ 84,473 Total cash equivalents — 84,473 — 84,473 Marketable securities: U.S. government and federal agency securities — 34,488 — 34,488 Certificates of deposit — 6,393 — 6,393 Corporate bonds — 179,850 — 179,850 Equity securities 24,287 — — 24,287 Total marketable securities 24,287 220,731 — 245,018 Total cash equivalents and marketable securities $ 24,287 $ 305,204 $ — $ 329,491 Quoted Significant prices other Significant in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total December 31, 2019 Cash equivalents: Money market mutual funds $ — $ 56,058 $ — $ 56,058 Total cash equivalents — 56,058 — 56,058 Marketable securities: U.S. government and federal agency securities — 62,847 — 62,847 Certificates of deposit — 8,583 — 8,583 Corporate bonds — 226,916 — 226,916 Equity securities 32,135 — — 32,135 Total marketable securities 32,135 298,346 — 330,481 Total cash equivalents and marketable securities $ 32,135 $ 354,404 $ — $ 386,539 Management estimates that the carrying amounts of its current accounts receivable, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short-term nature of those instruments. Accounts receivable which contain non-current portions are recorded at their present values using a discount rate that is based on prevailing market rates and the credit profile of the licensee on the date the amounts are initially recorded. Management does not believe there have been any significant changes in market conditions or credit quality that would cause the discount rates initially used to be significantly different from those that would be used as of June 30, 2020 to determine the present value of the receivables. Accordingly, management estimates that the carrying value of its non-current accounts receivable approximates the fair value of those instruments. 12 Table of Contents Non-marketable equity securities are measured at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer. As of June 30, 2020, non-marketable equity securities had a carrying value of $ 1.1 million and were included in other assets on the consolidated balance sheet. As of December 31, 2019, the Company did no t hold any non-marketable equity securities. No remeasurements or impairment losses were recorded on non-marketable equity securities during the three and six months ended June 30, 2020 and 2019. 5. Property and Equipment, Net Property and equipment, net consists of the following (in thousands): June 30, 2020 December 31, 2019 Lab equipment $ 21,315 $ 19,663 Computer equipment and software 3,028 2,545 Furniture and fixtures 2,897 2,188 Leasehold improvements 23,884 18,915 Total property and equipment 51,124 43,311 Accumulated depreciation and amortization ( 18,428 ) ( 14,338 ) Property and equipment, net $ 32,696 $ 28,973 6. License and Royalty Revenue As of June 30, 2020, the Company’s NAV Technology Platform was being applied by NAV Technology Licensees in one commercial product, Zolgensma, and in the development of more than 20 product candidates. Consideration to the Company under its license agreements may include: (i) up-front and annual fees, (ii) option fees to acquire additional licenses, (iii) milestone payments based on the achievement of certain development and sales-based milestones by licensees, (iv) sublicense fees and (v) royalties on sales of licensed products. Sublicense fees vary by license and range from a mid-single digit percentage to a low-double digit percentage of license fees received by licensees as a result of sublicenses. Royalties on net sales of commercialized products vary by license and range from a mid-single digit percentage to a low double-digit percentage of net sales by licensees. Development milestone payments are evaluated each reporting period and are only included in the transaction price of each license and recognized as license revenue to the extent the milestones are considered probable of achievement. Sales-based milestones are excluded from the transaction price of each license agreement and recognized as royalty revenue in the period of achievement. As of June 30, 2020, the Company’s license agreements, excluding additional licenses that could be granted upon the exercise of options by licensees, contained unachieved milestones which could result in aggregate milestone payments to the Company of up to $ 293.4 million, including (i) $ 0.3 million upon the submission of preclinical regulatory filings, (ii) $ 26.6 million upon the commencement of various stages of clinical trials, (iii) $ 26.0 million upon the submission of regulatory approval filings, (iv) $ 103.5 million upon the approval of commercial products by regulatory agencies and (v) $ 137.0 million upon the achievement of specified sales targets for licensed products. To the extent the milestone payments are realized by the Company, the Company will be obligated to pay sublicense fees to licensors based on a specified percentage of the fees earned by the Company. The achievement of milestones by licensees is highly dependent on the successful development and commercialization of licensed products and it is at least reasonably possible that some or all of the milestone fees will not be realized by the Company. The following tables present changes in the balances of the Company’s receivables, contract assets and contract liabilities during the periods presented (in thousands): Balance at Beginning Balance at of Period Additions Deductions End of Period Three Months Ended June 30, 2020 Receivables and contract assets: Accounts receivable, current and non-current $ 48,895 $ 18,834 $ ( 21,235 ) $ 46,494 Contract assets $ 350 $ — $ — $ 350 Contract liabilities: Deferred revenue, current and non-current $ 3,333 $ 1,124 $ — $ 4,457 13 Table of Contents Balance at Beginning Balance at of Period Additions Deductions End of Period Six Months Ended June 30, 2020 Receivables and contract assets: Accounts receivable, current and non-current $ 42,303 $ 36,976 $ ( 32,785 ) $ 46,494 Contract assets $ — $ 350 $ — $ 350 Contract liabilities: Deferred revenue, current and non-current $ 3,333 $ 1,124 $ — $ 4,457 Balance at Beginning Balance at of Period Additions Deductions End of Period Three Months Ended June 30, 2019 Receivables and contract assets: Accounts receivable, current and non-current $ 31,130 $ 9,312 $ ( 6,808 ) $ 33,634 Contract assets $ 1,000 $ — $ ( 1,000 ) $ — Contract liabilities: Deferred revenue, current and non-current $ 3,933 $ — $ ( 600 ) $ 3,333 Balance at Beginning Balance at of Period Additions Deductions End of Period Six Months Ended June 30, 2019 Receivables and contract assets: Accounts receivable, current and non-current $ 31,599 $ 11,049 $ ( 9,014 ) $ 33,634 Contract assets $ 750 $ 1,000 $ ( 1,750 ) $ — Contract liabilities: Deferred revenue, current and non-current $ 3,933 $ — $ ( 600 ) $ 3,333 Additions to accounts receivable during the three and six months ended June 30, 2020 primarily consisted of royalties on net sales of Zolgensma of $ 11.9 million and $ 21.9 million, respectively, receivables recorded related to new licenses granted by the Company, amounts billed upon the achievement of development milestones by licensees during the periods, and interest income recognized during the periods related to significant financing components. Additions to accounts receivable during the three and six months ended June 30, 2019 primarily consisted of receivables recorded related to new licenses granted by the Company, amounts billed upon the achievement of development milestones by licensees during the periods, and interest income recognized during the periods related to significant financing components. Deductions to accounts receivable during the three and six months ended June 30, 2020 and 2019 primarily consisted of amounts collected from licensees during the periods. The changes in the balances of contract assets during the three and six months ended June 30, 2020 and 2019 consist of development milestones deemed probable of achievement by licensees during the period, offset by the subsequent achievement of such milestones and billing of the associated milestone payments by the Company. As of June 30, 2020, the Company had recorded deferred revenue of $ 4.5 million which represents consideration received from licensees for performance obligations that have not yet been satisfied by the Company. Unsatisfied performance obligations consist of (i) options granted to licensees that provide material rights to the licensee to acquire additional licenses from the Company, and (ii) research and development services to be performed by the Company related to licensed products. These performance obligations will be satisfied, and underlying revenue will be recognized, upon the exercise or expiration of the options or performance of the research and development services. The Company did no t recognize any revenue during the three and six months ended June 30, 2020 that was included in deferred revenue at the beginning of the period. During the three and six months ended June 30, 2019, the Company recognized $ 0.6 million of revenue that was included in deferred revenue at the beginning of the period as a result of options exercised by licensees during the period. 14 Table of Contents During the three and six months ended June 30, 2020, the Company recognized revenue of $ 16.4 million and $ 26.8 million, respectively, from performance obligations satisfied in prior periods as a result of changes in the transaction prices of its license agreements as well as royalties on sales of licensed products and sublicense fees. During the three and six months ended June 30, 2019, the Company recognized revenue of $ 4.2 million and $ 5.0 million, respectively, from performance obligations satisfied in prior periods as a result of changes in the transaction prices of its licenses agreements as well as royalties on sales of licensed products and sublicense fees. Changes in transaction prices during the periods were primarily attributable to development milestones achieved or deemed probable of achievement during the period that were previously not considered probable of achievement. As of June 30, 2020, the Company had recorded total current and non-current accounts receivable of $ 46.5 million, of which $ 30.0 million had been billed to customers and $ 16.5 million was billable to customers in future periods. As of December 31, 2019, the Company had recorded total current and non-current accounts receivable of $ 42.3 million, of which $ 0.4 million had been billed to customers and $ 41.9 million was billable to customers in future periods. Based on the Company’s evaluation of the credit quality and financial condition of its significant customers, history of collections and evaluation of current and future expected economic conditions, no credit losses were recognized on accounts receivable or contract assets during the three and six months ended June 30, 2020. AveXis March 2014 License In March 2014, the Company entered into an exclusive license agreement, as amended in January 2018 (the March 2014 License) with AveXis, Inc. (AveXis). Under the March 2014 License, the Company granted AveXis an exclusive, worldwide commercial license, with rights to sublicense, to the NAV Technology Platform, as well as other certain rights, for the treatment of spinal muscular atrophy (SMA) in humans by in vivo gene therapy. AveXis launched commercial sales of Zolgensma in the second quarter of 2019, which is a licensed product under the March 2014 License. Upon the commencement of commercial sales in the second quarter of 2019, the Company began recognizing royalty revenue on net sales of Zolgensma. The Company recognized the following amounts under the March 2014 License with AveXis (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 License revenue $ 3,500 $ 3,500 $ 3,500 $ 3,500 Zolgensma royalty revenue 11,945 924 21,924 924 Total license and royalty revenue $ 15,445 $ 4,424 $ 25,424 $ 4,424 Interest income from licensing $ 6 $ 7 $ 13 $ 15 As of June 30, 2020, the Company had recorded $ 12.1 million of accounts receivable from AveXis under the March 2014 License, of which $ 11.9 million were included in current assets and $ 0.2 million were included in non-current assets. As of December 31, 2019, the Company had recorded $ 11.0 million of accounts receivable from AveXis under the March 2014 License, of which $ 10.8 million were included in current assets and $ 0.2 million were included in non-current assets. Abeona Therapeutics Inc. Accounts receivable as of June 30, 2020 and December 31, 2019 included $ 28.8 million and $ 26.3 million, respectively, related to the license agreement entered into in November 2018 between the Company and Abeona Therapeutics Inc. (Abeona), as amended in November 2019 (the November 2018 License) for the development and commercialization of treatments for various diseases, all of which were included in current assets. Pursuant to the November 2018 License, Abeona was required to pay a license fee of $ 8.0 million to the Company no later than April 1, 2020. Abeona failed to make this payment, and in April 2020, the Company delivered to Abeona a written demand for payment and breach notice. Upon expiration of the applicable cure period in May 2020, the license agreement was terminated. As a result of the termination, Abeona was required to pay a $ 20.0 million license fee to the Company within 15 days of the termination date, which otherwise would have been due to the Company in November 2020. As of July 31, 2020, the Company had not received any portion of the $ 28.0 million in license fees due from Abeona under the license agreement. Unpaid balances due under the November 2018 License accrue interest at 1.5 % per month. The Company recognized interest income from licensing of $ 0.8 million during the three and six months ended June 30, 2020 related to the unpaid license fees from Abeona under the November 2018 License, which is included in the $ 28.8 million of accounts receivable due from Abeona recorded as of June 30, 2020. 15 Table of Contents Subsequent to the termination of the November 2018 License, Abeona filed a claim in arbitration alleging that the Company had breached certain responsibilities to communicate with Abeona regarding the Company’s prosecution of licensed patents under the November 2018 License. The Company disputes Abeona’s claim and has filed a counterclaim in arbitration demanding payment of the $28.0 million of unpaid fees from Abeona, plus accrued interest. As of June 30, 2020, the Company had not recorded any liabilities related to this matter as, based on its evaluation of the merits of Abeona’s claims, the Company believes its risk of loss is remote. Additionally, the Company evaluated the collectability of the $ 28.8 million due from Abeona and determined that no allowance for doubtful accounts should be recorded as of June 30, 2020, as the Company intends to enforce the collection of all amounts due from Abeona and, based on its evaluation of the merits of Abeona’s claims, the Company expects to receive payment in full upon the completion of arbitration. However, the duration of the arbitration and timing of payment from Abeona are unpredictable. In accordance with its interest accrual policy, the Company will continue to accrue interest income on the unpaid balance due from Abeona under the November 2018 License until payment has been received or is otherwise no longer expected to be collected. 7. Stock-based Compensation In January 2020, the Board of Directors authorized an additional 1,479,696 shares to be issued under the 2015 Equity Incentive Plan (the 2015 Plan). As of June 30, 2020, the total number of shares of common stock authorized for issuance under the 2015 Plan and the 2014 Stock Plan (the 2014 Plan) was 12,412,917 , of which 2,309,229 remained available for future grants under the 2015 Plan. Stock-based Compensation Expense The Company’s stock-based compensation expense by award type was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Stock options $ 8,086 $ 6,844 $ 15,865 $ 12,296 Restricted stock units — 69 — 136 Employee stock purchase plan 230 186 468 385 $ 8,316 $ 7,099 $ 16,333 $ 12,817 As of June 30, 2020, the Company had $ 77.3 million of unrecognized stock-based compensation expense related to stock options and the 2015 Employee Stock Purchase Plan (the 2015 ESPP), which is expected to be recognized over a weighted-average period of 2.7 years. The Company has recorded aggregate stock-based compensation expense in the consolidated statements of operations and comprehensive loss as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Research and development $ 4,284 $ 3,526 $ 8,331 $ 5,873 General and administrative 4,032 3,573 8,002 6,944 $ 8,316 $ 7,099 $ 16,333 $ 12,817 16 Table of Contents Stock Options The following table summarizes stock option activity under the 2014 Plan and 2015 Plan (in thousands, except per share data): Weighted- average Weighted- Remaining average Contractual Aggregate Exercise Life Intrinsic Shares Price (Years) Value (a) Outstanding at December 31, 2019 5,544 $ 28.79 7.5 $ 86,509 Granted 1,448 $ 38.68 Exercised ( 281 ) $ 14.14 Cancelled or forfeited ( 215 ) $ 45.93 Outstanding at June 30, 2020 6,496 $ 31.06 7.6 $ 64,890 Exercisable at June 30, 2020 3,387 $ 21.79 6.4 $ 60,687 Vested and expected to vest at June 30, 2020 6,496 $ 31.06 7.6 $ 64,890 (a) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that were in the money at the dates reported. The weighted-average grant date fair value per share of options granted during the six months ended June 30, 2020 was $ 24.35 . During the six months ended June 30, 2020, the total number of stock options exercised was 281,468 , resulting in total proceeds of $ 4.0 million. The total intrinsic value of options exercised during the six months ended June 30, 2020 was $ 7.5 million. Employee Stock Purchase Plan In January 2020, the Board of Directors authorized an additional 369,924 shares to be issued under the 2015 ESPP. As of June 30, 2020, the total number of shares of common stock authorized for issuance under the 2015 ESPP was 623,924 , of which 486,068 remained available for future issuance. During the six months ended June 30, 2020, 17,442 shares of common stock were issued under the 2015 ESPP. 8. Income Taxes The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses, including a three-year cumulative loss position as of June 30, 2020 and December 31, 2019, the Company concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company provided a full valuation allowance for its net deferred tax assets as of June 30, 2020 and December 31, 2019. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) was signed into law in March 2020. The CARES Act (i) lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the TCJA), (ii) allows corporate taxpayers to carryback net operating losses (NOLs) originating during 2018 through 2020 for up to five years, which was not previously allowed under the TCJA, (iii) eliminates the 80 % of taxable income limitations on NOL utilization imposed by the TCJA, allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020, and (iv) enacts various other changes to corporate taxation. Also included in the CARES Act was a change to the TCJA related to qualified improvement property, retroactively allowing for a 15 -year recovery period and bonus depreciation. As a result of this change, the Company recorded current income tax benefit of $ 0.5 million during the three and six months ended June 30, 2020 related to a reduction of state taxes associated with additional depreciation deductions allowed for the 2018 tax year. Overall, the enactment of the CARES Act, including the change for qualified improvement property, did not result in any material adjustments to the Company’s income tax provision for the three and six months ended June 30, 2020, or to the Company’s net deferred tax assets as of June 30, 2020. 17 Table of Contents 9. Related Party Transactions FOXKISER LLP Since 2016, the Company has been party to professional services agreements with FOXKISER LLP (FOXKISER), an affiliate of certain stockholders of the Company and an affiliate of a member of the Company’s Board of Directors, pursuant to which the Company pays a fixed monthly fee in consideration for certain strategic services provided by FOXKISER. Effective January 2019, the Company entered into a new professional services agreement with FOXKISER with similar terms and conditions as the previous agreements. The agreement was amended effective June 2019 to expand the scope of services provided and increase the monthly fee, and the amended agreement expires in December 2020. Expenses incurred under the agreements with FOXKISER for the three and six months ended June 30, 2020 were $ 1.2 million and $ 2.4 million, respectively. Expenses incurred under the agreements with FOXKISER for the three and six months ended June 30, 2019 were $ 0.9 million and $ 1.7 million, respectively. Expenses incurred under the agreements with FOXKISER were recorded as research and development expenses in the consolidated statements of operations and comprehensive loss. 10. Net Loss Per Share Since the Company incurred net losses for the three and six months ended June 30, 2020 and 2019, common stock equivalents were excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive. Accordingly, basic and diluted net loss per share were the same for such periods. The following potentially dilutive common stock equivalents outstanding at the end of the period were excluded from the computations of weighted-average diluted common shares for the periods indicated as their effects would be anti-dilutive (in thousands): Three and Six Months Ended June 30, 2020 2019 Stock options issued and outstanding 6,496 5,454 Unvested restricted stock units outstanding — 40 Employee stock purchase plan 38 26 6,534 5,520 11. Supplemental Disclosures Accrued expenses and other current liabilities consist of the following (in thousands): June 30, 2020 December 31, 2019 Accrued personnel costs $ 9,356 $ 10,903 Accrued external research and development expenses 6,832 5,791 Accrued sublicense fees and royalties 6,602 4,542 Accrued external general and administrative expenses 2,069 2,053 Accrued purchases of property and equipment 887 1,328 Other accrued expenses and current liabilities 93 229 $ 25,839 $ 24,846 18 Table of Contents