REGENXBIO Inc. 10-Q

Item 1. Financial Statements. REGENXBIO INC. CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except per share data) September 30, 2020 December 31, 2019 Assets Current assets Cash and cash equivalents $ 93,220 $ 69,514 Marketable securities 148,305 226,696 Accounts receivable, net 122,116 38,148 Prepaid expenses 16,112 6,475 Other current assets 7,197 4,199 Total current assets 386,950 345,032 Marketable securities 48,272 103,785 Accounts receivable, net 3,564 4,155 Property and equipment, net 38,871 28,973 Operating lease right-of-use assets 57,827 10,078 Restricted cash 1,330 1,330 Other assets 4,360 4,555 Total assets $ 541,174 $ 497,908 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 15,244 $ 6,409 Accrued expenses and other current liabilities 44,356 24,846 Deferred revenue 449 — Operating lease liabilities 3,564 2,421 Total current liabilities 63,613 33,676 Deferred revenue 3,895 3,333 Operating lease liabilities 57,461 8,874 Other liabilities 545 1,828 Total liabilities 125,514 47,711 Stockholders’ equity Preferred stock; $ 0.0001 par value; 10,000 shares authorized, and no shares issued and outstanding at September 30, 2020 and December 31, 2019 — — Common stock; $ 0.0001 par value; 100,000 shares authorized at September 30, 2020 and December 31, 2019; 37,404 and 36,992 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 4 4 Additional paid-in capital 658,224 627,810 Accumulated other comprehensive income 263 205 Accumulated deficit ( 242,831 ) ( 177,822 ) Total stockholders’ equity 415,660 450,197 Total liabilities and stockholders’ equity $ 541,174 $ 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 INCOME (LOSS) (unaudited) (in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues License and royalty revenue $ 98,912 $ 14,700 $ 133,122 $ 23,465 Total revenues 98,912 14,700 133,122 23,465 Operating Expenses Cost of revenues 17,364 2,494 25,457 4,450 Research and development 43,968 35,692 119,114 90,378 General and administrative 15,859 12,402 46,246 37,365 Provision for credit losses and other 7,770 8 7,887 ( 54 ) Total operating expenses 84,961 50,596 198,704 132,139 Income (loss) from operations 13,951 ( 35,896 ) ( 65,582 ) ( 108,674 ) Other Income (Loss) Interest income from licensing 1,444 716 4,141 2,091 Investment income (loss) ( 6,607 ) 431 ( 4,071 ) 37,950 Total other income (loss) ( 5,163 ) 1,147 70 40,041 Income (loss) before income taxes 8,788 ( 34,749 ) ( 65,512 ) ( 68,633 ) Income Tax Benefit 3 165 503 364 Net income (loss) $ 8,791 $ ( 34,584 ) $ ( 65,009 ) $ ( 68,269 ) Other Comprehensive Income (Loss) Unrealized gain (loss) on available-for-sale securities, net ( 487 ) ( 108 ) 58 1,043 Total other comprehensive income (loss) ( 487 ) ( 108 ) 58 1,043 Comprehensive income (loss) $ 8,304 $ ( 34,692 ) $ ( 64,951 ) $ ( 67,226 ) Net income (loss) per share: Basic $ 0.24 $ ( 0.94 ) $ ( 1.75 ) $ ( 1.86 ) Diluted $ 0.23 $ ( 0.94 ) $ ( 1.75 ) $ ( 1.86 ) Weighted-average common shares outstanding: Basic 37,342 36,813 37,234 36,618 Diluted 38,877 36,813 37,234 36,618 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 September 30, 2020 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income Deficit Equity Balances at June 30, 2020 37,291 $ 4 $ 648,729 $ 750 $ ( 251,622 ) $ 397,861 Exercise of stock options 74 — 268 — — 268 Issuance of common stock under employee stock purchase plan 38 — 1,192 — — 1,192 Stock-based compensation expense — — 8,035 — — 8,035 Unrealized loss on available-for-sale securities, net — — — ( 487 ) — ( 487 ) Net income — — — — 8,791 8,791 Balances at September 30, 2020 37,404 $ 4 $ 658,224 $ 263 $ ( 242,831 ) $ 415,660 Three Months Ended September 30, 2019 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income Deficit Equity Balances at June 30, 2019 36,752 $ 4 $ 610,891 $ 471 $ ( 116,774 ) $ 494,592 Exercise of stock options 62 — 384 — — 384 Issuance of common stock under employee stock purchase plan 26 — 949 — — 949 Stock-based compensation expense — — 7,162 — — 7,162 Unrealized loss on available-for-sale securities, net — — — ( 108 ) — ( 108 ) Net loss — — — — ( 34,584 ) ( 34,584 ) Balances at September 30, 2019 36,840 $ 4 $ 619,386 $ 363 $ ( 151,358 ) $ 468,395 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 Table of Contents REGENXBIO INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) (in thousands) Nine Months Ended September 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 356 — 4,247 — — 4,247 Issuance of common stock under employee stock purchase plan 55 — 1,799 — — 1,799 Stock-based compensation expense — — 24,368 — — 24,368 Unrealized gain on available-for-sale securities, net — — — 58 — 58 Net loss — — — — ( 65,009 ) ( 65,009 ) Balances at September 30, 2020 37,404 $ 4 $ 658,224 $ 263 $ ( 242,831 ) $ 415,660 Nine Months Ended September 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 684 — 5,513 — — 5,513 Issuance of common stock under employee stock purchase plan 36 — 1,314 — — 1,314 Stock-based compensation expense — — 19,979 — — 19,979 Unrealized gain on available-for-sale securities, net — — — 1,043 — 1,043 Net loss — — — — ( 68,269 ) ( 68,269 ) Balances at September 30, 2019 36,840 $ 4 $ 619,386 $ 363 $ ( 151,358 ) $ 468,395 The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 Table of Contents REGENXBIO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities Net loss $ ( 65,009 ) $ ( 68,269 ) Adjustments to reconcile net loss to net cash used in operating activities Stock-based compensation expense 24,368 19,979 Depreciation and amortization 6,302 5,229 Provision for credit losses 7,678 — Net amortization of premiums (accretion of discounts) on marketable debt securities 586 ( 1,085 ) Net realized and unrealized losses (gains) on marketable securities 8,207 ( 29,440 ) Imputed interest income from licensing ( 2,033 ) ( 2,091 ) Other non-cash adjustments 263 357 Changes in operating assets and liabilities Accounts receivable ( 89,442 ) ( 10,699 ) Prepaid expenses ( 9,637 ) ( 1,418 ) Other current assets ( 2,998 ) 1,286 Operating lease right-of-use assets 1,986 1,712 Other assets 1,318 ( 2,150 ) Accounts payable 9,907 5,339 Accrued expenses and other current liabilities 18,400 1,990 Deferred revenue — ( 600 ) Operating lease liabilities ( 2,222 ) ( 1,832 ) Other liabilities ( 1,203 ) ( 507 ) Net cash used in operating activities ( 93,529 ) ( 82,199 ) Cash flows from investing activities Purchases of marketable debt securities ( 79,374 ) ( 127,925 ) Maturities of marketable debt securities 189,882 218,019 Sales of marketable debt securities 2,287 — Sales of marketable equity securities 12,374 — Purchases of property and equipment ( 13,980 ) ( 10,689 ) Net cash provided by investing activities 111,189 79,405 Cash flows from financing activities Proceeds from exercise of stock options 4,247 5,513 Proceeds from issuance of common stock under employee stock purchase plan 1,799 1,314 Net cash provided by financing activities 6,046 6,827 Net increase in cash and cash equivalents and restricted cash 23,706 4,033 Cash and cash equivalents and restricted cash Beginning of period 70,844 76,614 End of period $ 94,550 $ 80,647 Supplemental disclosures of non-cash investing and financing activities Additions to property and equipment through accounts payable and accrued expenses $ 46 $ — Non-cash additions to property and equipment through tenant improvement allowance $ 2,217 $ — Non-cash consideration received for licenses granted $ 1,123 $ — The accompanying notes are an integral part of these unaudited consolidated financial statements. 7 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 September 30, 2020, the Company had generated an accumulated deficit of $ 242.8 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 September 30, 2020, the Company had cash, cash equivalents and marketable securities of $ 289.8 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 8 Table of Contents the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process 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, the allowance for credit losses, 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): September 30, 2020 September 30, 2019 Cash and cash equivalents $ 93,220 $ 79,594 Restricted cash 1,330 1,053 Total cash and cash equivalents and restricted cash $ 94,550 $ 80,647 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 credit losses, 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 credit losses is recorded against accounts receivable such that the carrying value of accounts receivable reflects the net amount expected to be collected. Accounts receivable balances are written off against the allowance for credit losses when the potential for collectability is considered remote. Please refer to Note 7 for further information regarding the allowance for credit losses related to accounts receivable. 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. 9 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 September 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 Income (Loss) Per Share Basic net income (loss) per share is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (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 income (loss) per share calculation, common stock equivalents are excluded from the calculation of diluted net income (loss) per share if their effect would be anti-dilutive. 10 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 three and nine months ended September 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 September 30, 2020 U.S. government and federal agency securities $ 20,802 $ 77 $ — $ 20,879 Certificates of deposit 3,416 51 — 3,467 Corporate bonds 159,732 1,007 ( 11 ) 160,728 Equity securities 195 11,308 — 11,503 $ 184,145 $ 12,443 $ ( 11 ) $ 196,577 11 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 September 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 September 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 nine months ended September 30, 2020, the Company recognized net unrealized gains (losses) on available-for-sale debt securities of $( 0.5 ) million and $ 0.1 million, respectively, and income tax expense of zero in other comprehensive income (loss) for the period. The Company recognized net realized gains of less than $ 0.1 million and $ 0.1 million on the sale or maturity of available-for-sale debt securities during the three and nine months ended September 30, 2020, respectively, which were reclassified out of accumulated other comprehensive income during the period and were included in investment income (loss) in the consolidated statements of operations and comprehensive income (loss). During the three and nine months ended September 30, 2019, the Company recognized net unrealized gains (losses) on available-for-sale debt securities of $( 0.1 ) million and $ 1.7 million, respectively, and income tax benefit (expense) of less than $ 0.1 million and $( 0.6 ) million, respectively, in other comprehensive income (loss) for the period. The Company recognized net realized gains of less than $ 0.1 million on the sale or maturity of available-for-sale debt securities during the three and nine months ended September 30, 2019, which were reclassified out of accumulated other comprehensive income during the period and were included in investment income (loss) in the consolidated statements of operations and comprehensive income (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 September 30, 2020 Corporate bonds $ 13,728 $ ( 11 ) $ — $ — $ 13,728 $ ( 11 ) $ 13,728 $ ( 11 ) $ — $ — $ 13,728 $ ( 11 ) 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 September 30, 2020, available-for-sale debt securities held by the Company which were in an unrealized loss position consisted of five 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 did not identify 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 nine months ended September 30, 2020. 12 Table of Contents Marketable equity securities held by the Company as of September 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 nine months ended September 30 , 2020, the Company recognized net realized and unrealized losses of $ 7.5 million and $ 8.3 million, respectively, related to its marketable equity securities of Prevail . During the three and nine months ended September 30, 2019, the Company recognized unrealized gains (losses) of $ ( 2.2 ) million and $ 29.4 million , respectively, 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 September 30, 2020 Cash equivalents: Money market mutual funds $ — $ 70,805 $ — $ 70,805 Total cash equivalents — 70,805 — 70,805 Marketable securities: U.S. government and federal agency securities — 20,879 — 20,879 Certificates of deposit — 3,467 — 3,467 Corporate bonds — 160,728 — 160,728 Equity securities 11,503 — — 11,503 Total marketable securities 11,503 185,074 — 196,577 Total cash equivalents and marketable securities $ 11,503 $ 255,879 $ — $ 267,382 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 September 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. 13 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 September 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 nine months ended September 30, 2020 and 2019. 5. Property and Equipment, Net Property and equipment, net consists of the following (in thousands): September 30, 2020 December 31, 2019 Laboratory and manufacturing equipment $ 23,162 $ 19,663 Computer equipment and software 3,272 2,545 Furniture and fixtures 2,898 2,188 Leasehold improvements 30,109 18,915 Total property and equipment 59,441 43,311 Accumulated depreciation and amortization ( 20,570 ) ( 14,338 ) Property and equipment, net $ 38,871 $ 28,973 6. Leases 9804 Medical Center Drive In November 2018, the Company entered into an operating lease, as amended in April 2019 and November 2019, for approximately 177,000 square feet of office, laboratory and manufacturing facilities in a new building to be constructed at 9804 Medical Center Drive in Rockville, Maryland (the 9804 Medical Center Drive Lease). The new facility will serve as the Company’s future corporate, research and manufacturing headquarters. The initial construction of the building was performed by the landlord, and the lease commenced in September 2020 upon the delivery of leased premises to the Company to make additional improvements to the building. Monthly payments under the lease begin in September 2021 and escalate annually in accordance with the lease agreement. The lease expires in September 2036 , subject to extension and termination options held by the Company. The Company has the option to extend the term of the lease for up to 10 additional years and the option to terminate the lease, with payment of an early termination fee, after 12 years from the delivery of the leased premises to the Company. The Company’s extension and termination options under the 9804 Medical Center Drive Lease have been excluded from the measurement of the right-of-use assets and lease liabilities for the lease as they were not reasonably certain of exercise. As required by the lease agreement, the Company has provided the landlord with an irrevocable letter of credit of $ 1.1 million which the landlord may draw upon in the event of any uncured default by the Company under the terms of the lease. Pursuant to the 9804 Medical Center Drive Lease, the Company received a $ 19.5 million tenant improvement allowance from the landlord to perform improvements to the leased premises. The tenant improvement allowance has been recorded as a reduction of the right-of-use assets for the lease and is amortized on a straight-line basis as a reduction of lease expense over the term of the lease. As of September 30, 2020, the Company had unreimbursed amounts remaining under the tenant improvement allowance of $ 17.2 million, which were deemed in-substance lease payments and recorded as a reduction of the lease liability. As of September 30, 2020, the Company had recorded property and equipment of $ 17.3 million related to the buildout of the facility at 9804 Medical Center Drive, which have not yet been placed in service. The Company recorded the right-of-use assets and lease liabilities related to the 9804 Medical Center Drive Lease upon its commencement in September 2020. As of September 30, 2020, the Company had recorded right-of-use assets of $ 50.6 million and lease liabilities of $ 52.5 million related to the 9804 Medical Center Drive Lease. 9712 Medical Center Drive In March 2015, the Company entered into an operating lease for office space at 9712 Medical Center Drive in Rockville, Maryland (the 9712 Medical Center Drive Lease). The lease term commenced in April 2015. Monthly payments under the lease began in October 2015 and escalate annually in accordance with the lease agreement. 14 Table of Contents In September 2015, November 2015, July 2017 and April 2018, the Company amended the 9712 Medical Center Drive Lease to include additional office and laboratory space at 9714 Medical Center Drive, and ultimately extend the term of the lease to September 2021. The Company had options to extend the term of the 9712 Medical Center Drive Lease for up to six additional years. Additionally, upon the commencement of the 9804 Medical Center Drive Lease in September 2020, the Company had the option to terminate the 9712 Medical Center Drive Lease with six months’ notice. The Company’s extension and termination options under the 9712 Medical Center Drive Lease were excluded from the measurement of the right-of-use assets and lease liabilities for the lease as they were not reasonably certain of exercise. The Company received a $ 0.4 million tenant improvement allowance from the landlord which has been recorded as a reduction of the right-of-use assets for the lease and is amortized on a straight-line basis as a reduction of lease expense over the term of the lease. In October 2020, the Company amended the 9712 Medical Center Drive Lease to extend the term of the lease to February 2027. Pursuant to the amendment, the Company has an option to extend the term of the lease for three additional years, as well as an option to extend the lease term to be coterminous with the 9804 Medical Center Drive Lease, which expires in September 2036. Total additional lease payments under the 9712 Medical Center Drive Lease as a result of the October 2020 amendment were $ 8.8 million, excluding any lease payments contingent upon the Company’s option to extend the term of the lease. 9600 Blackwell Road In January 2016, the Company entered into an operating lease for its corporate headquarters at 9600 Blackwell Road in Rockville, Maryland (the Blackwell Road Lease). The lease commenced in February 2016 and expires in September 2023 . In November 2017, the Blackwell Road Lease was amended to include additional office space for the remainder of the lease term. Monthly payments under the lease began in September 2016 and escalate annually in accordance with the lease agreement. The Company received a $ 0.8 million tenant improvement allowance from the landlord which has been recorded as a reduction of the right-of-use assets for the lease and is amortized on a straight-line basis as a reduction of lease expense over the term of the lease. The Company had an option to extend the term of the Blackwell Road Lease for up to five additional years and the option to terminate the lease, with payment of an early termination fee, after 67 months from the lease commencement date. During the three months ended September 30, 2020, the Company reassessed the term of the Blackwell Road Lease and determined that as of September 30, 2020, it was reasonably certain that the Company will exercise its termination option under the lease. Accordingly, the measurement of the right-of-use assets and lease liabilities for the Blackwell Road Lease were reduced by $ 0.7 million during the three months ended September 30, 2020, to reflect the payment of the early termination fee and the revised lease term through September 2021. In November 2020, the Company exercised its termination option under the Blackwell Road Lease. As a result of the termination, the lease will expire in September 2021 and the Company is obligated to pay an early termination fee of $ 0.4 million. 400 Madison Avenue In May 2016, the Company entered into an operating lease for office space at 400 Madison Avenue in New York, New York (the 400 Madison Lease). The lease commenced in July 2016 and monthly payments under the lease began in October 2016 and escalate annually in accordance with the lease agreement. In May 2019, the 400 Madison Lease was amended to include additional office space and extend the term of the lease from October 2020 to April 2027. The Company received a $ 0.7 million tenant improvement allowance from the landlord which has been recorded as a reduction of the right-of-use assets for the lease and is amortized on a straight-line basis as a reduction of lease expense over the term of the lease. As required by the lease agreement, the Company has provided the landlord with an irrevocable letter of credit of $ 0.2 million which the landlord may draw upon in the event of any uncured default by the Company under the terms of the lease. Other Leases The Company leases additional office and laboratory facilities, laboratory equipment and other equipment under operating leases with various expiration dates through 2028 , including leases which have been executed but have not yet commenced. Operating Lease Information All of the Company’s leases are classified as operating leases. The following table summarizes the Company’s lease costs and supplemental cash flow information related to its operating leases (in thousands): 15 Table of Contents Three Months Ended Nine Months Ended September 30, 2020 September 30, 2020 Operating lease cost $ 997 $ 2,793 Variable lease cost 174 575 Total lease cost $ 1,171 $ 3,368 Cash paid for amounts included in operating lease liabilities $ 988 $ 2,482 Right-of-use assets acquired through operating lease liabilities $ 49,734 $ 49,734 Right-of-use assets acquired through operating lease liabilities for the three and nine months ended September 30, 2020 include a reduction of $ 0.7 million related to the Company’s change in estimate regarding the exercise of its termination rights under the Blackwell Road Lease. Short-term lease expense for the three and nine months ended September 30, 2020 was not material and is included in operating lease cost in the table above. Variable lease cost under the Company’s operating leases includes items such as common area maintenance, utilities, taxes and other charges. The weighted-average remaining lease term and weighted-average discount rate of the Company’s operating leases were as follows: As of September 30, 2020 Weighted-average remaining lease term (years) 13.8 Weighted-average discount rate 5.4 % The following table presents a reconciliation of the undiscounted future minimum lease payments remaining the Company’s operating leases to the amounts reported as operating lease liabilities on the consolidated balance sheet as of September 30, 2020 (in thousands): As of September 30, 2020 Undiscounted future minimum lease payments: 2020 (remainder of year) $ 1,117 2021 3,964 2022 5,055 2023 6,980 2024 8,000 Thereafter 99,184 Total undiscounted future minimum lease payments $ 124,300 Amount representing imputed interest ( 45,843 ) Tenant improvement allowance not yet received ( 17,432 ) Total operating lease liabilities 61,025 Current portion of operating lease liabilities ( 3,564 ) Operating lease liabilities, non-current $ 57,461 The table above excludes future minimum lease payments for leases which were executed but had not yet commenced as of September 30, 2020, the total of which were not material. 7. License and Royalty Revenue As of September 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. 16 Table of Contents 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 September 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 $ 213.4 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) $ 57.0 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. Accounts Receivable, Contract Assets and Deferred Revenue The following table presents changes in the balances of the Company’s receivables, contract assets and deferred revenue, as well as other information regarding revenue recognized during the periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Accounts receivable, current and non-current: Balance, beginning of period $ 46,494 $ 33,634 $ 42,303 $ 31,599 Additions 100,243 15,526 137,220 26,575 Deductions ( 21,057 ) ( 5,640 ) ( 53,843 ) ( 14,654 ) Balance, end of period $ 125,680 $ 43,520 $ 125,680 $ 43,520 Contract assets: Balance, beginning of period $ 350 $ — $ — $ 750 Additions — — 350 1,000 Deductions — — — ( 1,750 ) Balance, end of period $ 350 $ — $ 350 $ — Deferred revenue, current and non-current: Balance, beginning of period $ 4,457 $ 3,333 $ 3,333 $ 3,933 Additions — — 1,124 — Deductions ( 113 ) — ( 113 ) ( 600 ) Balance, end of period $ 4,344 $ 3,333 $ 4,344 $ 3,333 Revenue recognized during the period from: Amounts included in deferred revenue at beginning of period $ 113 $ — $ — $ 600 Performance obligations satisfied in previous periods $ 98,799 $ 10,072 $ 125,555 $ 15,037 Additions to accounts receivable during the periods presented consisted primarily of royalties on net sales of Zolgenmsa, billed and unbilled receivables recorded for the achievement of milestones by licensees during the period, receivables recorded related to new licenses granted by the Company, and interest income recognized related to significant financing components. Deductions to accounts receivable during the periods presented primarily consisted of amounts collected from licensees and increases in the allowance for credit losses. Additions to contract assets during the periods presented consisted of development milestones deemed probable of achievement by licensees during the periods. Deductions to contract assets during the periods presented consisted of the achievement of such milestones and billing of the associated milestone payments by the Company. 17 Table of Contents Accounts receivable, net consisted of the following (in thousands): September 30, 2020 December 31, 2019 Current accounts receivable: Billed to customers $ 30,086 $ 376 Unbilled 99,708 37,772 Allowance for credit losses ( 7,678 ) — Current accounts receivable, net 122,116 38,148 Non-current accounts receivable: Unbilled 3,564 4,155 Allowance for credit losses — — Non-current accounts receivable, net 3,564 4,155 Total accounts receivable, net $ 125,680 $ 42,303 The following table presents the changes in the allowance for credit losses related to accounts receivable and contract assets for the nine months ended September 30, 2020 (in thousands): Accounts Receivable Contract Assets Balance at December 31, 2019 $ — $ — Provision for credit losses 7,678 — Write-offs — — Balance at September 30, 2020 $ 7,678 $ — The Company’s allowance for credit losses as of September 30, 2020 was related solely to accounts receivable from Abeona Therapeutics Inc. (Abeona). Please refer to the section below, Abeona Therapeutics Inc., for further information regarding amounts due from Abeona and the associated allowance for credit losses. The Company’s provision for credit losses for the three and nine months ended September 30, 2020 was $ 7.7 million and was related solely to changes in estimates regarding the allowance for credit losses associated with the accounts receivable from Abeona. No provision for credit losses was recorded for the three or nine months ended September 30, 2019. As of September 30, 2020, the Company had recorded deferred revenue of $ 4.3 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, which will be satisfied upon the exercise or expiration of the options and (ii) research and development services to be performed by the Company related to licensed products, which will be satisfied as the research and development services are performed. Revenue recognized from performance obligations satisfied in previous periods was primarily attributable to royalty and sublicense revenues as well as changes in transaction prices of the Company’s license agreements during the periods. Changes in transaction prices were primarily attributable to development milestones achieved or deemed probable of achievement during the periods, which were previously not considered probable of achievement. 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, a licensed product under the March 2014 License, in the second quarter of 2019, upon which the Company began recognizing royalty revenue on net sales of the licensed product. Pursuant to the March 2014 License, AveXis was obligated to pay a sales-based milestone fee of $ 80.0 million to the Company upon the achievement of $ 1.0 billion in cumulative net sales of licensed products. AveXis achieved cumulative net sales of Zolgensma of $ 1.0 billion in third quarter of 2020, upon which the Company recognized revenue of $80.0 million related to the sales-based milestone fee. The $ 80.0 milestone fee was recorded as accounts receivable as of September 30, 2020, and the Company received payment of the $ 80.0 million milestone fee from AveXis in October 2020. 18 Table of Contents The Company recognized the following amounts under the March 2014 License with AveXis (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 License revenue $ — $ — $ 3,500 $ 3,500 Royalties on net sales of Zolgensma 18,799 9,182 40,723 10,106 Achievement of sales-based milestone for Zolgensma 80,000 — 80,000 — Total license and royalty revenue $ 98,799 $ 9,182 $ 124,223 $ 13,606 Interest income from licensing $ 6 $ 7 $ 20 $ 22 As of September 30, 2020, the Company had recorded total accounts receivable of $ 98.9 million from AveXis under the March 2014 License, of which $ 98.8 million were included in current assets and $ 0.1 million were included in non-current assets. As of December 31, 2019, the Company had recorded total accounts receivable of $ 11.0 million 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. In November 2018, the Company entered into a license agreement with Abeona, as amended in November 2019 (the November 2018 License), for the development and commercialization of various diseases using the NAV Technology Platform. 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 notice of its breach of the license agreement and written demand for payment. 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 October 30, 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. During the three and nine months ended September 30, 2020, the Company recognized interest income from licensing of $ 1.3 million and $ 2.1 million, respectively, related to the unpaid license fees from Abeona under the November 2018 License. Total accounts receivable from Abeona recorded as of September 30, 2020 was $ 30.1 million, consisting of the unpaid license fees and associated accrued interest. In May 2020, 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. Based on its evaluation of the merits of Abeona’s claims, the Company had not recorded any liabilities related these claims as of September 30, 2020, and the Company currently expects that its demand for payment in full will be upheld in arbitration. The Company intends to enforce the full collection of all amounts due from Abeona upon completion of arbitration, which is currently scheduled to occur in March 2021. However, the duration and outcome of arbitration and timing of payment from Abeona are unpredictable and uncertain at this time. While the Company currently expects its demand for payment in full will be upheld in arbitration, the Company assessed the collectability of the $ 30.1 million due from Abeona as of September 30, 2020 as it relates to credit risk. In performing this assessment, the Company evaluated Abeona’s credit profile and financial condition, as well its expectations regarding Abeona’s future cash flows and ability to satisfy this obligation upon the completion of arbitration in 2021. Additionally, the Company considered Abeona’s continued failure to remit payment to the Company, as well as events which occurred during the three months ended September 30, 2020 impacting Abeona’s business and credit profile, specifically the departure of key members of Abeona’s management and board of directors and subsequent decline in market capitalization. As a result of this analysis, the Company recorded an allowance for credit losses of $ 7.7 million as of September 30, 2020 related to the accounts receivable due from Abeona. However, management intends to enforce the full collection of all amounts due from Abeona upon the completion of arbitration. In accordance with the Company’s interest accrual policy, the Company will cease the recognition of interest income accrued under the license agreement subsequent to the recognition of the allowance for credit losses unless and until such amounts are deemed to be collectable. 8. 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 September 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 2,321,306 remained available for future grants under the 2015 Plan. 19 Table of Contents Stock-based Compensation Expense The Company’s stock-based compensation expense by award type was as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Stock options $ 7,880 $ 6,965 $ 23,745 $ 19,261 Restricted stock units — 69 — 206 Employee stock purchase plan 155 128 623 512 $ 8,035 $ 7,162 $ 24,368 $ 19,979 As of September 30, 2020, the Company had $ 68.6 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 2.5 years. The Company has recorded aggregate stock-based compensation expense in the consolidated statements of operations and comprehensive income (loss) as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Research and development $ 4,110 $ 3,657 $ 12,442 $ 9,530 General and administrative 3,925 3,505 11,926 10,449 $ 8,035 $ 7,162 $ 24,368 $ 19,979 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 1,542 $ 38.25 Exercised ( 356 ) $ 11.92 Cancelled or forfeited ( 321 ) $ 45.11 Outstanding at September 30, 2020 6,409 $ 31.18 7.4 $ 37,396 Exercisable at September 30, 2020 3,581 $ 23.34 6.3 $ 36,885 Vested and expected to vest at September 30, 2020 6,409 $ 31.18 7.4 $ 37,396 (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. 20 Table of Contents The weighted-average grant date fair value per share of options granted during the nine months ended September 30, 2020 was $ 24.08 . During the nine months ended September 30, 2020, the total number of stock options exercised was 356,302 , resulting in total proceeds of $ 4.2 million. The total intrinsic value of options exercised during the nine months ended September 30, 2020 was $ 9.4 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 September 30, 2020, the total number of shares of common stock authorized for issuance under the 2015 ESPP was 623,924 , of which 448,011 remained available for future issuance. During the nine months ended September 30, 2020, 55,499 shares of common stock were issued under the 2015 ESPP. 9. 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 three-year cumulative loss positions as of September 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 September 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 nine months ended September 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 nine months ended September 30, 2020, or to the Company’s net deferred tax assets as of September 30, 2020. 10. 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. Effective August 2020, the agreement was further amended to extend the term of the agreement by two years through December 2022. The agreement may be terminated by either party with six months’ advance written notice. Expenses incurred under the agreements with FOXKISER for the three and nine months ended September 30, 2020 were $ 1.2 million and $ 3.6 million, respectively. Expenses incurred under the agreements with FOXKISER for the three and nine months ended September 30, 2019 were $ 1.2 million and $ 2.9 million, respectively. Expenses incurred under the agreements with FOXKISER were recorded as research and development expenses in the consolidated statements of operations and comprehensive income (loss). 21 Table of Contents 11. Net Income (Loss) Per Share The computations of basic and diluted net income (loss) per share were as follows (in thousands, except per share data): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Basic net income (loss) per share: Net income (loss) $ 8,791 $ ( 34,584 ) $ ( 65,009 ) $ ( 68,269 ) Shares used in computation: Weighted-average common shares outstanding 37,342 36,813 37,234 36,618 Basic net income (loss) per share $ 0.24 $ ( 0.94 ) $ ( 1.75 ) $ ( 1.86 ) Diluted net income (loss) per share: Net income (loss) $ 8,791 $ ( 34,584 ) $ ( 65,009 ) $ ( 68,269 ) Shares used in computation: Weighted-average common shares outstanding 37,342 36,813 37,234 36,618 Stock options 1,529 — — — Employee stock purchase plan 6 — — — Weighted-average diluted common shares 38,877 36,813 37,234 36,618 Diluted net income (loss) per share $ 0.23 $ ( 0.94 ) $ ( 1.75 ) $ ( 1.86 ) For periods in which the Company incurred net losses, 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 Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Stock options issued and outstanding 4,072 5,530 6,409 5,530 Unvested restricted stock units outstanding — 40 — 40 Employee stock purchase plan — 16 21 16 4,072 5,586 6,430 5,586 12. Supplemental Disclosures Accrued expenses and other current liabilities consisted of the following (in thousands): September 30, 2020 December 31, 2019 Accrued sublicense fees and royalties $ 19,285 $ 4,542 Accrued personnel costs 10,380 10,903 Accrued external research and development expenses 9,163 5,791 Accrued external general and administrative expenses 2,873 2,053 Accrued purchases of property and equipment 2,438 1,328 Other accrued expenses and current liabilities 217 229 $ 44,356 $ 24,846 22 Table of Contents