REGENXBIO Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, which we filed with the SEC on February 26, 2020. In addition, you should read the “Risk Factors” and “Information Regarding Forward-Looking Statements” sections of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are a leading clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. Our gene therapy product candidates are designed to deliver genes to cells to address genetic defects or to enable cells in the body to produce therapeutic proteins that are intended to impact disease. Through a single administration, our gene therapy product candidates are designed to provide long-lasting effects, potentially significantly altering the course of disease and delivering improved patient outcomes. Overview of Product Candidates We have developed a broad pipeline of gene therapy programs using our proprietary adeno-associated virus (AAV) gene therapy delivery platform (NAV Technology Platform) to address genetic diseases through two modalities: AAV-mediated antibody delivery and monogenic gene replacement. The AAV-mediated antibody delivery modality is designed to treat serious and chronic diseases by delivering the genes necessary for the sustained production of therapeutic antibodies in vivo . Our monogenic gene replacement approach builds upon the well-understood mechanism of replacing a dysfunctional or missing gene with a functional copy of the gene in order to enable sustained production of necessary proteins. Gene therapy using NAV Vectors for AAV-mediated antibody delivery • RGX-314: We are developing RGX-314 as a novel, single-administration gene therapy for the treatment of wet age-related macular degeneration (wet AMD), diabetic retinopathy (DR), and other additional chronic retinal conditions which cause total or partial vision loss. We are advancing two separate routes of administration of RGX-314 to the eye, through a standardized subretinal delivery procedure as well as by delivery to the suprachoroidal space using the SCS Microinjector™ licensed from Clearside Biomedical, Inc. We have enrolled 42 patients in the Phase I/IIa clinical trial of RGX-314 for the treatment of wet AMD and have reported data for all five dose level cohorts. We expect to initiate a pivotal program for the subretinal delivery of RGX-314 for the treatment of wet AMD in the second half of 2020. We expect to dose the first patient in a Phase II trial for the suprachoroidal delivery of RGX-314 using the SCS Microinjector for the treatment of wet AMD (AAVIATE) in the third quarter of 2020 and plan to report interim data from the first cohort of the trial by the end of 2020. Additionally, we expect to initiate a Phase II trial of the suprachoroidal delivery of RGX-314 using the SCS Microinjector for the treatment of DR in the second half of 2020, and expect to report interim data in 2021. • AAV-Mediated Antibody Expression for the Treatment of Hereditary Angioedema (HAE): We are developing a novel, one-time treatment utilizing a NAV Vector to deliver a gene encoding for a therapeutic antibody that targets and binds to plasma kallikrein, a key protein left unregulated in patients with HAE. HAE is a chronic and severe disease characterized by recurring severe swelling (angioedema), most commonly in the face, airway, intestines and limbs. We expect to provide a program update in the second half of 2020. • AAV-Mediated Antibody Expression for the Treatment of Neurodegenerative Diseases: We continue to collaborate with Neurimmune AG (Neurimmune) to jointly develop novel gene therapies using NAV Vectors to deliver human antibodies for chronic neurodegenerative diseases, with an initial focus on diseases associated with the accumulation and deposition of the microtubule-associated protein tau (tauopathies) and alpha-synuclein (alpha-synucleinopathies). We expect to provide a program update in the second half of 2020. 19 Table of Contents Gene therapy programs for the potential treatment of rare monogenic diseases • RGX-121: We are developing RGX-121 for the treatment of the neurological symptoms of Mucopolysaccharidosis Type II (MPS II), a severe genetic lysosomal storage disease caused by deficiency of iduronate-2-sulfatase (IDS), an enzyme that is responsible for breakdown of cellular waste products. Initial data from the first cohort demonstrated consistent and sustained reduction in heparan sulfate (HS) in the cerebral spinal fluid (CSF) and available data support early signs of neurocognitive stability. We have completed enrollment in the second cohort and expect to report interim data from both cohorts and a program update in the second half of 2020. • RGX-111: We are developing RGX-111 for the treatment of the neurological symptoms of Mucopolysaccharidosis Type I (MPS I), a severe genetic lysosomal storage disease caused by deficiency of α-l-iduronidase (IDUA), an enzyme required for breakdown of cellular waste products. Recruitment and patient screening are ongoing in the Phase I/II clinical trial for RGX-111. We expect to provide a program update by the end of 2020. • RGX-181: We are developing RGX-181 for the treatment of late-infantile neuronal ceroid lipofuscinosis type 2 (CLN2) disease, one of the most common forms of Batten disease, caused by mutations in the tripeptidyl peptidase 1 (TPP1) gene. We expect to submit an Investigational New Drug (IND) application for the intracisternal delivery of RGX-181 by the end of 2020, and plan to initiate enrollment in a Phase I/II trial in the first half of 2021. • RGX-381: RGX-381 is a new program targeting the ocular manifestations of CLN2 disease in patients and is designed to use the AAV9 vector to deliver the TPP1 gene directly to the retina. We believe that one-time administration of RGX-381 could provide a durable source of TPP1 activity in the retina, thereby potentially preventing visual decline. There is currently no available treatment for ocular manifestations of CLN2 disease. We expect to submit an IND application for a Phase I/II study of RGX-381 in patients with CLN2 disease in the second half of 2020 and initiate enrollment in the first half of 2021. • RGX-501: We have discontinued internal clinical development of RGX-501 for the treatment of homozygous familial hypercholesterolemia (HoFH) and plan to evaluate strategic alternatives to support the continued advancement of this program. • Gene Therapy Research Program for the Treatment of Neuromuscular Disorders: We expect to announce plans for the clinical development of a potential treatment for a neuromuscular disorder in the second half of 2020. In addition to our lead product candidates described above, we have also funded, and plan to continue to fund, preclinical research on potential product candidate programs that may become part of our internal product development pipeline. We have partnered with a number of leading academic institutions and will continue to seek partnerships with innovative institutions to develop novel NAV gene therapy product candidates. RGX-314 Interim Update In our Phase I/IIa trial for RGX-314, all 42 patients with wet AMD had received a single administration of RGX-314 across five dose cohorts. To qualify for inclusion in the trial, participants were required to have a history of frequent anti-vascular endothelial growth factor (VEGF) treatments (including at least four anti-VEGF injections in the eight months preceding trial enrollment) and a documented history of response to anti-VEGF therapy. The trial design included doses of 3 x 10 9 (Cohort 1), 1 x 10 10 (Cohort 2), 6 x 10 10 (Cohort 3), 1.6 x 10 11 (Cohort 4) and 2.5 x 10 11 (Cohort 5) genome copies (GC)/eye. Patients will be assessed every four weeks to the six-month primary endpoint, with long-term follow-up continuing for two years. Below is a summary of the interim results of our Phase I/IIa trial as of July 13, 2020: • RGX-314 was generally well-tolerated at all dose levels, with one possibly drug-related serious adverse event (SAE) of significant decrease in vision reported in Cohort 5. • In Cohorts 4 and 5, durable treatment effect was observed, with stable to improved visual acuity and retinal thickness, and meaningful reductions in anti-VEGF treatment burden were demonstrated over one year. • Patients in Cohort 4 and Cohort 5 at one year after administration of RGX-314 demonstrated stable visual acuity with a mean BCVA change of +4 letters and -2 letters from baseline, respectively, as well as decreased retinal thickness, with a mean change in CRT of -61 µm and -79 µm, respectively. • Patients in Cohort 4 received a mean of 4.1 injections over one year following administration of RGX-314, a 61% reduction in treatment burden. Patients in Cohort 5 received a mean of 1.4 injections over one year following administration of RGX-314, a reduction in treatment burden of 85%. 20 Table of Contents • In Cohort 4, three out of twelve (25%) patients received no anti-VEGF injections over one year, and these patients demonstrated a mean BCVA improvement of +6 letters and a mean reduction in CRT of -62 µm at one year. In Cohort 5, eight out of the eleven (73%) patients observed through one year have received no anti-VEGF injections after administration of RGX-314 and these patients demonstrated a stable mean BCVA change of 0 letters and a mean reduction in CRT of -95 µm at one year. • Intraocular RGX-314 protein levels at one year demonstrated dose-dependent expression across cohorts. Overview of Our NAV Technology Platform In addition to our internal product development efforts, we also selectively license the NAV Technology Platform to other leading biotechnology and pharmaceutical companies, which we refer to as NAV Technology Licensees. As of June 30, 2020, our NAV Technology Platform was being applied in one commercially approved product (Zolgensma®), and many partnered product candidates are in development, several of which are in active clinical development. Licensing the NAV Technology Platform allows us to maintain our internal product development focus on our core disease indications and therapeutic areas while still expanding the NAV gene therapy pipeline, developing a greater breadth of treatments for patients, providing additional technological and potential clinical proof-of-concept for our NAV Technology Platform, and creating potential additional revenue. Impact of COVID-19 We are actively monitoring the impact of the COVID-19 pandemic on our business, results of operations and financial condition. Our offices, laboratories, clinical trial sites, prospective clinical trial sites, contract research organizations (CROs), contract manufacturing organizations (CMOs) and other collaborators and partners are located in jurisdictions where quarantines, executive orders, shelter-in-place orders, guidelines, and other similar orders and restrictions intended to control the spread of the disease have been put in place by governmental authorities. We have implemented a work-from-home policy for all employees who are not essential to be onsite, and we may take further actions that alter our operations, as may be required by federal, state or local authorities or which we determine are in the best interests of our employees. The COVID-19 pandemic could require us to delay or prevent us from proceeding with our clinical trials and other business initiatives, such as preclinical development and manufacturing operations. For example, the ongoing construction of our future corporate, manufacturing and research headquarters in Rockville, Maryland is expected to be delayed due to various government orders and restrictions relating to the COVID-19 pandemic . In addition, if the business and operations of our licensees are adversely affected by the COVID-19 pandemic, our revenues could in turn be adversely affected. We are proactively taking measures to mitigate or reduce any adverse impact of the COVID-19 pandemic on the progress of our clinical trials and other business initiatives. Our results of operations for the three and six months ended June 30, 2020 were not significantly impacted by the COVID-19 pandemic. However, the full extent to which the COVID-19 pandemic will directly or indirectly impact our 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 at this time. Please refer to the “Risk Factors” section of this Quarterly Report on Form 10-Q for further discussion of the risks we face as a result of the COVID-19 pandemic. Financial Overview Revenues Our revenues to date primarily consist of license and royalty revenue resulting from the licensing of our NAV Technology Platform. We have not generated any revenues from commercial sales of our own products. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval and adequate labeling, our ability to generate future revenues will be materially compromised. We license our NAV Technology Platform to other biotechnology and pharmaceutical companies. The terms of the licenses vary, and licenses may be exclusive or non-exclusive and may be sublicensable by the licensee. Licenses may grant intellectual property rights for purposes of internal and preclinical research and development only, or may include the rights, or options to obtain future rights, to commercialize drug therapies for specific diseases using the NAV Technology Platform. License agreements generally have a term at least equal to the life of the underlying patents, but are terminable at the option of the licensee. Consideration from licensees under our 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. 21 Table of Contents Royalty revenue to date consists of royalties on net sales of Zolgensma, which is marketed by AveXis, Inc. (AveXis), a wholly owned subsidiary of Novartis AG (Novartis) , for the treatment of spinal muscular atrophy (SMA) . Zolgensma is a licensed product under our March 2014 License with AveXis for the development and commercialization of treatments for SMA. Future license and royalty revenues are dependent on the successful development and commercialization of licensed products by our licensees, which is uncertain, and revenues may fluctuate significantly from period to period. Additionally, we may never receive consideration in our license agreements that is contemplated on option fees, development and sales-based milestone payments, royalties on sales of licensed products or sublicense fees, given the contingent nature of these payments. Our revenues are concentrated among a low number of licensees and licenses are terminable at the option of the licensee. The termination of our licenses by licensees may materially impact the amount of revenue we recognize in future periods. Operating Expenses Our operating expenses consist primarily of cost of revenues, research and development expenses and general and administrative expenses. Personnel costs including salaries, benefits, bonuses and stock-based compensation expense, comprise a significant component of research and development and general and administrative expenses. We allocate indirect expenses associated with our facilities, information technology costs, depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee. Cost of Revenues Our cost of revenues consists primarily of upstream fees due to our licensors as a result of revenue generated from the licensing of our NAV Technology Platform, including sublicense fees, milestone payments and royalties on net sales of licensed products. Sublicense fees are based on a percentage of license fees received by us from NAV Technology Licensees and are recognized in the period that the underlying license revenue is recognized. Milestone payments are payable to licensors upon the achievement of specified milestones by NAV Technology Licensees and are recognized in the period the milestone is achieved or deemed probable of achievement. Royalties are based on a percentage of net sales of licensed products by NAV Technology Licensees and are recognized in the period that the underlying sales occur. Future costs of revenues are uncertain due to the nature of our license agreements and significant fluctuations in cost of revenues may occur from period to period. Research and Development Expense Our research and development expense primarily consists of: • salaries and personnel-related costs, including benefits, stock-based compensation and travel, for our scientific personnel performing research and development activities; • costs related to executing preclinical studies and clinical trials; • costs related to acquiring, developing and manufacturing materials for preclinical studies and clinical trials; • fees paid to consultants and other third-parties who support our product candidate development; • other costs in seeking regulatory approval of our product candidates; and • allocated facility-related costs, depreciation expense and other overhead. Up-front fees incurred in obtaining technology licenses for research and development activities, as well as associated milestone payments, are expensed as incurred if the technology licensed has no alternative future use. We plan to increase our research and development expenses for the foreseeable future as we continue development of our product candidates. Our current and planned research and development activities include the following: • a Phase I/IIa clinical trial and a planned pivotal program to evaluate the safety and efficacy of the subretinal delivery of RGX-314 for the treatment of wet AMD; • planned Phase II clinical trials to evaluate the safety and efficacy of the suprachoroidal delivery of RGX-314 using the SCS Microinjector for the treatment of wet AMD (AAVIATE) and DR; • a Phase I/II clinical trial to evaluate the safety and efficacy of RGX-121 for the treatment of MPS II; • a Phase I/II clinical trial to evaluate the safety and efficacy of RGX-111 for the treatment of MPS I; • preclinical research and development and a planned clinical trial for RGX-181 for the treatment of CLN2 disease; 22 Table of Contents • preclinical research and development and a planned clinical trial for RGX-381 for the treatment of ocular manifestations of CLN2 disease; • preclinical research and development for potential product candidates to treat HAE; • preclinical research and development for potential product candidates to treat neurodegenerative diseases, including tauopathies and alpha-synucleinopathies , under our collaboration with Neurimmune; • preclinical research and development for potential product candidates to treat neuromuscular disorders; • completion of a long-term follow-up study for patients dosed in the Phase I/II clinical trial for RGX-501 as we evaluate strategic alternatives to support the continued advancement of this program; • preclinical research and development for potential product candidates addressing other diseases across a range of therapeutics areas; • continued investment in advanced manufacturing analytics and process development activities; and • continued acquisition and manufacture of clinical trial materials in support of our anticipated clinical trials. The following table summarizes our research and development expenses incurred during the three and six months ended June 30, 2020 and 2019 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Direct Expenses RGX-314 $ 3,584 $ 3,582 $ 9,717 $ 5,986 RGX-121 2,340 299 4,680 2,073 RGX-181 440 3,007 1,158 5,303 RGX-501 1,628 1,066 2,364 2,065 Other product candidates 4,821 767 6,900 1,608 Total direct expenses 12,813 8,721 24,819 17,035 Unallocated Expenses Platform and new technologies 6,246 5,459 12,178 8,855 Personnel-related 16,162 12,241 32,021 22,815 Facilities and depreciation expense 2,670 2,290 5,322 4,496 Other unallocated 220 772 806 1,485 Total unallocated expenses 25,298 20,762 50,327 37,651 Total research and development $ 38,111 $ 29,483 $ 75,146 $ 54,686 Platform and new technologies include direct costs not identifiable with a specific lead product candidate, including costs associated with our research and development platform, process development, manufacturing analytics and early research and development for prospective product candidates and new technologies. We typically utilize our employee and infrastructure resources across our development programs. We do not allocate personnel and other internal costs, such as facilities and other overhead costs, to specific product candidates or development programs. General and Administrative Expense Our general and administrative expense consists primarily of salaries and personnel-related costs, including employee travel, benefits and stock-based compensation, for employees performing functions other than research and development. This includes certain personnel in executive, commercial, corporate development, finance, legal, human resources, information technology and administrative support functions. Other general and administrative expenses include facility-related and overhead costs not otherwise allocated to research and development expense, professional fees for accounting, legal and advisory services, expenses associated with obtaining and maintaining patents, insurance costs, costs of our information systems and other commercial and general corporate activities. We expect that our general and administrative expense will continue to increase as we continue to develop, and potentially commercialize, our product candidates. 23 Table of Contents Other Income Interest Income from Licensing In accordance with our revenue recognition policy, interest income from licensing consists of imputed interest recognized from significant financing components identified in our license agreements with NAV Technology Licensees as well as interest income accrued on unpaid balances due from licensees. Investment Income Investment income consists of interest income earned and gains and losses realized from our cash equivalents and marketable securities, as well as unrealized gains and losses on marketable equity securities. Cash equivalents are comprised of money market mutual funds and highly liquid debt securities with original maturities of 90 days or less at acquisition. Marketable securities are comprised of available-for-sale debt securities and equity securities. Critical Accounting Policies and Significant Judgments and Estimates This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are fully described in Note 2 to the accompanying unaudited consolidated financial statements and in Note 2 to our audited consolidated financial statements which are included in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no significant changes in our critical accounting policies since December 31, 2019. Recent Accounting Pronouncements See Note 2 “Recent Accounting Pronouncements” in the notes to the accompanying unaudited consolidated financial statements for a full description of accounting pronouncements which we have recently adopted and the impact to our financial statements upon adoption. 24 Table of Contents Results of Operations Three Months Ended June 30, Six Months Ended June 30, 2020 2019 Change 2020 2019 Change (in thousands) Revenues License and royalty revenue $ 16,566 $ 7,881 $ 8,685 $ 34,210 $ 8,765 $ 25,445 Total revenues 16,566 7,881 8,685 34,210 8,765 25,445 Operating Expenses Cost of revenues 4,684 1,927 2,757 8,093 1,956 6,137 Research and development 38,111 29,483 8,628 75,146 54,686 20,460 General and administrative 15,554 13,405 2,149 30,387 24,963 5,424 Other operating expenses (income) 50 (62 ) 112 117 (62 ) 179 Total operating expenses 58,399 44,753 13,646 113,743 81,543 32,200 Loss from operations (41,833 ) (36,872 ) (4,961 ) (79,533 ) (72,778 ) (6,755 ) Other Income Interest income from licensing 1,849 762 1,087 2,697 1,375 1,322 Investment income 5,722 34,524 (28,802 ) 2,536 37,519 (34,983 ) Total other income 7,571 35,286 (27,715 ) 5,233 38,894 (33,661 ) Loss before income taxes (34,262 ) (1,586 ) (32,676 ) (74,300 ) (33,884 ) (40,416 ) Income Tax Benefit 500 129 371 500 199 301 Net loss $ (33,762 ) $ (1,457 ) $ (32,305 ) $ (73,800 ) $ (33,685 ) $ (40,115 ) Comparison of the Three Months Ended June 30, 2020 and 2019 License and Royalty Revenue. License and royalty revenue increased by $8.7 million, from $7.9 million for the three months ended June 30, 2019 to $16.6 million for the three months ended June 30, 2020. The increase was primarily attributable to an $11.0 million increase in Zolgensma royalty revenue. Commercial sales of Zolgensma commenced in the second quarter of 2019, and we are eligible to receive a milestone payment of $80.0 million from AveXis upon the achievement of $1.0 billion in cumulative net sales of Zolgensma. Cumulative net sales of Zolgensma through June 30, 2020 were more than $735.0 million. The increase in license and royalty revenue for the three months ended June 30, 2020 was partially offset by non-recurring revenue recognized during the three months ended June 30, 2019 resulting from license options exercised by licensees during the period. Research and Development Expense. Research and development expenses increased by $8.6 million, from $29.5 million for the three months ended June 30, 2019 to $38.1 million for the three months ended June 30, 2020. The increase was primarily attributable to the following: • an increase of $3.9 million for personnel-related costs as a result of increased headcount of research and development personnel, including a $0.8 million increase in stock-based compensation expense; • an increase of $2.2 million for external costs associated with clinical trial and regulatory activities; • an increase of $1.5 million for laboratory costs and facilities used by research and development personnel, including a $0.3 million increase in depreciation expense allocated to research and development functions; • an increase of $1.1 million for external costs associated with manufacturing-related services to support the ongoing development of our product candidates and process development activities; and • an increase of $0.6 million for external costs associated with preclinical studies and other early-stage research and development. General and Administrative Expense. General and administrative expenses increased by $2.1 million, from $13.4 million for the three months ended June 30, 2019 to $15.6 million for the three months ended June 30, 2020. The increase was primarily attributable to the following: • an increase of $1.4 million for professional services, primarily related to commercial consulting and legal services; and 25 Table of Contents • an increase of $ 0.7 million for personnel -related costs as a result of increased headcount of general and administrative personnel, including a $ 0.5 million increase in stock-based compensation expense . Investment Income . Investment income decreased by $28.8 million, from $34.5 million for the three months ended June 30, 2019 to $5.7 million for the three months ended June 30, 2020. The decrease was primarily attributable to an unrealized gain of $31.7 million recognized during the three months ended June 30, 2019 related to our marketable equity securities of Prevail Therapeutics Inc. (Prevail). We 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. The decrease in investment income was partially offset by net realized and unrealized gains of $4.4 million recognized during the three months ended June 30, 2020 related to our marketable equity securities of Prevail. As of June 30, 2020, our marketable equity securities of Prevail had a fair value of $24.3 million. Significant fluctuations in the fair value of the securities may continue to occur from period to period. Comparison of the Six Months Ended June 30, 2020 and 2019 License and Royalty Revenue. License and royalty revenue increased by $25.4 million, from $8.8 million for the six months ended June 30, 2019 to $34.2 million for the six months ended June 30, 2020. The increase was primarily attributable to a $21.0 million increase in Zolgensma royalty revenue. Commercial sales of Zolgensma commenced in the second quarter of 2019, and we are eligible to receive a milestone payment of $80.0 million from AveXis upon the achievement of $1.0 billion in cumulative net sales of Zolgensma. Cumulative net sales of Zolgensma through June 30, 2020 were more than $735.0 million. Research and Development Expense. Research and development expenses increased by $20.5 million, from $54.7 million for the six months ended June 30, 2019 to $75.1 million for the six months ended June 30, 2020. The increase was primarily attributable to the following: • an increase of $9.1 million for personnel-related costs as a result of increased headcount of research and development personnel, including a $2.5 million increase in stock-based compensation expense; • an increase of $3.6 million for external costs associated with manufacturing-related services to support the ongoing development of our product candidates and process development activities; • an increase of $3.6 million for external costs associated with clinical trial and regulatory activities; • an increase of $3.2 million for laboratory costs and facilities used by research and development personnel, including a $0.5 million increase in depreciation expense allocated to research and development functions; and • an increase of $1.4 million for external costs associated with preclinical studies and other early-stage research and development. General and Administrative Expense. General and administrative expenses increased by $5.4 million, from $25.0 million for the six months ended June 30, 2019 to $30.4 million for the six months ended June 30, 2020. The increase was primarily attributable to the following: • an increase of $2.9 million for professional services, primarily related to commercial consulting and legal services; and • an increase of $1.9 million for personnel-related costs as a result of increased headcount of general and administrative personnel, including a $1.1 million increase in stock-based compensation expense. Investment Income . Investment income decreased by $35.0 million, from $37.5 million for the six months ended June 30, 2019 to $2.5 million for the six months ended June 30, 2020. The decrease was primarily attributable to an unrealized gain of $31.7 million recognized during the six months ended June 30, 2019 related to our marketable equity securities of Prevail. We acquired the securities as consideration for a commercial license to the NAV Technology Platform granted to Prevail in August 2017. Prevail completed its 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. As of June 30, 2020, our marketable equity securities of Prevail had a fair value of $24.3 million. Significant fluctuations in the fair value of the securities may continue to occur from period to period. 26 Table of Contents Liquidity and Capital Resources As of June 30, 2020, we had cash, cash equivalents and marketable securities of $339.2 million, which were primarily derived from the sale of our common stock as well as revenues generated from the licensing of our NAV Technology Platform. We expect that our cash, cash equivalents and marketable securities as of June 30, 2020 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the date of this report, based on our current business plan. Commercial sales of Zolgensma commenced in the second quarter of 2019, upon which we began recognizing royalty revenue on net sales of the licensed product. We are eligible to receive a milestone payment of $80.0 million from AveXis upon the achievement of $1.0 billion in cumulative net sales of Zolgensma. Cumulative net sales of Zolgensma through June 30, 2020 were more than $735.0 million. However, there is no guarantee that the net sales milestone will be achieved. We intend to devote the majority of our current capital to clinical development, seeking regulatory approval of our product candidates and capital expenditures to build out additional office, laboratory and manufacturing capacity, including the buildout of our future corporate, manufacturing and research headquarters at 9804 Medical Center Drive. Because of the numerous risks and uncertainties associated with the development and commercialization of gene therapy product candidates, we are unable to estimate the total amount of operating expenditures and capital outlays necessary to complete the development of our product candidates. Additionally, our estimates are based on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Furthermore, given the uncertainty and rapidly changing market and economic conditions caused by the COVID-19 pandemic, as well as potential for further effects due to a resurgence in COVID-19 infections, we will continue to monitor the nature and extent of the impact of the COVID-19 pandemic on our liquidity and capital resources. Cash Flows Six Months Ended June 30, 2020 2019 (in thousands) Net cash used in operating activities $ (57,069 ) $ (53,046 ) Net cash provided by investing activities 77,191 27,133 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 Flows from Operating Activities Our net cash used in operating activities for the six months ended June 30, 2020 increased by $4.0 million from the six months ended June 30, 2019. The increase was primarily attributable to an increase in operating expenses of $32.2 million during the six months ended June 30, 2020, offset primarily by an increase in license and royalty payments received during this period. The increase in operating expenses during the period was primarily attributable to increased employee headcount and external research and development expenses as we continue the development and advancement of our lead product candidates and other research programs. For the six months ended June 30, 2020, our net cash used in operating activities of $57.1 million consisted of a net loss of $73.8 million and changes in working capital of $3.1 million, offset by $19.8 million in adjustments for non-cash items. The changes in working capital include an increase in accounts receivable of $2.7 million which was largely driven by an increase in unbilled Zolgensma royalties during the period. Other changes in working capital were incurred in the normal course of business, primarily as a result of the timing of invoices from and payments to suppliers, prepayments to suppliers, and accrued liabilities for unbilled goods and services from suppliers and personnel-related costs. Adjustments for non-cash items primarily consisted of stock-based compensation expenses of $16.3 million, depreciation and amortization expense of $4.1 million, and an unrealized loss on our marketable equity securities of Prevail, net of realized gains, of $0.7 million, and were partially offset by imputed interest earned from our license agreements of $1.9 million. For the six months ended June 30, 2019, our net cash used in operating activities of $53.0 million consisted of a net loss of $33.7 million, $17.2 million in adjustments for non-cash items and changes in working capital of $2.2 million. Adjustments for non-cash items primarily consisted of an unrealized gain on our marketable equity securities of Prevail of $31.7 million, imputed interest earned from our license agreements of $1.4 million and net accretion of discounts on marketable debt securities of $0.8 million, and were partially offset by stock-based compensation expenses of $12.8 million and depreciation and amortization expense of $3.4 million. The changes in working capital include an increase in accounts receivable of $1.4 million and a decrease in deferred revenue of $0.6 million, which were largely driven by new licenses we granted as a result of license options exercised by licensees during the period. Other changes in working capital were incurred in the normal course of business, primarily as a result of the timing of invoices 27 Table of Contents from and payments to suppliers, prepayments to suppliers, and accrued liabilities for unbilled goods and services from suppliers and personnel -related costs. Cash Flows from Investing Activities For the six months ended June 30, 2020, net cash provided by investing activities consisted of $155.8 million in sales and maturities of marketable securities, offset by $70.7 million to purchase marketable securities and $7.9 million to purchase property and equipment. We expect capital expenditures to increase in the second half of 2020 and in 2021 as a result of the buildout of our future corporate, manufacturing and research headquarters at 9804 Medical Center Drive in Rockville, Maryland. Total remaining capital expenditures related to the build out of the facility at 9804 Medical Center Drive, net of amounts to be reimbursed by the landlord under our tenant improvement allowance, are expected to be in the upper double-digit millions (USD) and are expected to be incurred through 2022. However, the actual amount and timing of these capital expenditures are uncertain and may differ materially from our current estimates. For the six months ended June 30, 2019, net cash provided by investing activities consisted of $141.3 million in sales and maturities of marketable securities, offset by $106.1 million to purchase marketable securities and $8.0 million to purchase property and equipment. Cash Flows from Financing Activities For the six months ended June 30, 2020, net cash provided by financing activities consisted of $4.6 million in proceeds received from the exercise of stock options and issuance of common stock under our employee stock purchase plan. For the six months ended June 30, 2019, net cash provided by financing activities consisted of $5.5 million in proceeds received from the exercise of stock options and issuance of common stock under our employee stock purchase plan.. Future Funding Requirements We have incurred cumulative losses since our inception and had an accumulated deficit of $251.6 million as of June 30, 2020. Our transition to recurring profitability is dependent upon achieving a level of revenues adequate to support our cost structure, which depends heavily on the successful development, approval and commercialization of our product candidates. We do not expect to achieve such revenues, and expect to continue to incur losses, for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase for the foreseeable future as we continue the development of, and seek regulatory approval for, our product candidates. S ubject to obtaining regulatory approval for our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. Additionally, we expect our capital expenditures will increase significantly in the future for costs associated with building out additional office, laboratory and manufacturing capacity to further support the development of our product candidates and potential commercialization efforts. As a result, we will need significant additional capital to fund our operations, which we may obtain through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements. Our future capital requirements will depend on many factors, including: • the timing of enrollment, commencement and completion of our clinical trials; • the results of our clinical trials; • the results of our preclinical studies for our product candidates and any subsequent clinical trials; • our planned expansion of the licensing of our NAV Technology Platform; 28 Table of Contents • the scope, progress, results and costs of drug discovery, laboratory testing, preclinical development and clinical trials for our product candidates; • the costs associated with building out additional laboratory and manufacturing capacity; • the impact of the COVID-19 pandemic on our business, operations and preclinical and clinical development timelines and plans; • the costs, timing and outcome of regulatory review of our product candidates; • the costs of future product sales, medical affairs, marketing, manufacturing and distribution activities for any of our product candidates for which we receive marketing approval; • revenue, if any, received from commercial sales of our products, should any of our product candidates receive marketing approval; • revenue received from commercial sales of Zolgensma and other revenue, if any, received in connection with commercial sales of our NAV Technology Licensees’ products, should any of their product candidates receive marketing approval; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; • our current licensing agreements or collaborations remaining in effect; • our ability to establish and maintain additional licensing agreements or collaborations on favorable terms, if at all; and • the extent to which we acquire or in-license other product candidates and technologies. Many of these factors are outside of our control. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory and marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our product revenues, if any, and any commercial milestones or royalty payments under our licensing agreements, will be derived from or based on sales of products, the majority of which may not be commercially available for many years, if at all. In addition, revenue from our NAV Technology Platform sublicensing is dependent in part on the clinical and commercial success of our licensing partners. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline. Adequate additional financing may not be available to us on acceptable terms, or at all. We also could be required to seek funds through arrangements with partners or otherwise that may require us to relinquish rights to our intellectual property, our product candidates or otherwise agree to terms unfavorable to us. Contractual Obligations, Commitments and Contingencies There have been no material changes to our contractual obligations, commitments and contingencies as of June 30, 2020 from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2019. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. 29 Table of Contents Item 3. Quantitative and Qualitative Disclosures about Market Risk. For information regarding market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in our most recent Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes to our exposure to market risk during the six months ended June 30, 2020.