What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-04 · 128 added, 157 removed, 160 unchanged (64% of the section changed)

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, 2020 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.

10 unchanged sentences

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 for the subretinal delivery 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 first quarter of 2021.

We have begun dosing patients in a Phase II trial for the suprachoroidal delivery of RGX-314 using the SCS Microinjector for the treatment of wet AMD (AAVIATE).

We expect to complete enrollment of the first cohort by the end of 2020, and report initial safety data in early 2021.

Additionally, the Phase II trial of the suprachoroidal delivery of RGX-314 using the SCS Microinjector for the treatment of DR (ALTITUDE) is active and we expect to begin enrolling patients by the end of 2020.

We expect to report interim data from this trial in 2021.

In January 2021, we announced that we completed an End of Phase 2 meeting with the U.S.

Food and Drug Administration (FDA) to discuss the details of a pivotal program to evaluate the efficacy and safety of RGX-314 in patients with wet AMD using the subretinal delivery approach.

We plan to conduct two randomized, well-controlled clinical trials to evaluate the efficacy and safety of RGX-314 in patients with wet AMD, enrolling approximately 700 patients total.

The first pivotal trial (ATMOSPHERE TM ) is active and enrolling patients.

Based on the outcome of these trials, the pivotal program is expected to support a Biologics License Application (BLA) filing in 2024.

In February 2021, we announced additional positive data from the patients enrolled in the ongoing Phase I/II trial of RGX-314 for the treatment of wet AMD and its Long-Term Follow-Up study.

As of January 22, 2021, RGX-314 continued to be generally well-tolerated across all dose cohorts.

Durable treatment effect was observed in patients in Cohorts 4 and 5 at 1.5 years after administration of RGX-314, including stable visual acuity, decreased retinal thickness, and reductions in anti-VEGF injection burden.

Long-term, durable treatment effect was demonstrated in Cohort 3 over three years, including mean improvement in vision and stable retinal thickness, and reductions in anti-VEGF treatment burden.

We are also conducting a Phase II trial of the suprachoroidal delivery of RGX-314 using the SCS Microinjector for the treatment of wet AMD known as AAVIATE ® .

We have completed enrollment in Cohort 1 of this trial, and we plan to report interim data from Cohort 1 in the third quarter of 2021.

We have also completed enrollment in Cohort 2 and expect to report interim data from Cohort 2 in the second half of 2021.

In addition, we have expanded AAVIATE and began dosing in a third cohort of patients.

Cohort 3 will evaluate the efficacy, safety and tolerability of RGX-314 in up to 20 patients who are neutralizing antibody (NAb) positive.

The same dose evaluated in Cohort 2, 5.0x10 11 genomic copies per eye (GC/eye) of RGX-314, will be delivered to patients in Cohort 3 via a single injection.

As with Cohorts 1 and 2, patients in Cohort 3 will not receive prophylactic immune suppressive corticosteroid therapy before or after administration of RGX-314.

In addition, we announced in December 2020 that the first patient had been dosed in ALTITUDE TM , a Phase II trial of the suprachoroidal delivery of RGX-314 for the treatment of DR.

Patient enrollment continues and we expect to report initial data from this trial in 2021.

AAV-Mediated Antibody Expression for the Treatment of Hereditary Angioedema (HAE):

3 unchanged sentences

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 have established a research program in partnership with Neurimmune AG (Neurimmune) to jointly develop and commercialize 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 2021.

Gene therapy programs for the potential treatment of rare monogenic diseases

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.

On September 30, 2020, we announced the expansion of the RGX-121 program for MPS II.

Eight patients have now been dosed across two dose cohorts in the ongoing Phase I/II trial of RGX-121 in severe MPS II patients under the age of 5 years old.

The first two patients in the expanded Cohort 2 were dosed in October 2020 via intracisternal delivery of RGX-121 at a dose of 6.5x10 10 genome copies per gram (GC/g) of brain mass.

We anticipate further updates from this trial by the end of 2020.

In addition, we plan to begin a second Phase I/II multicenter, open-label trial of RGX-121 for the treatment of pediatric patients with severe MPS II over the age of 5 years old.

Up to six patients may be enrolled, and RGX-121 will be administered at a dose level of 6.5x1010 GC/g of brain mass.

We also announced a new prospective observational study designed to provide detailed characterization of neurocognitive development and key biomarkers in patients with severe MPS II.

We are developing RGX-202 for the treatment of Duchenne Muscular Dystrophy (DMD), a severe, progressive, degenerative muscle disease caused by mutations in the gene which encodes dystrophin, a protein involved in muscle cell structure and function.

Without functional dystrophin protein, muscles throughout the body degenerate and become weak.

We expect to submit an Investigational New Drug (IND) application for this program in mid-2021.

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 (I2S), an enzyme that is responsible for breakdown of cellular waste products.

We are conducting a Phase I/II trial of RGX-121 in patients with MPS II up to the age of 5 years old.

As reported in February 2021, RGX-121 was well-tolerated in Cohorts 1 and 2 of the Phase I/II trial, and no drug-related SAEs were reported.

Biomarker data from patients in both cohorts indicated encouraging signals of I2S enzyme activity in the central nervous system following one-time administration of RGX-121, with consistent reductions of heparan sulfate (HS) and D2S6, a component of HS.

Patients in Cohorts 1 and 2 also demonstrated continued neurocognitive development and evidence of I2S enzyme activity in plasma and urine following administration of RGX-121.

In April 2021, we announced that the first patient has been dosed in Cohort 3 of the ongoing Phase I/II trial.

In addition, the first patient has been dosed in a second Phase I/II trial of RGX-121 for the treatment of pediatric patients with MPS II over the age of 5 years old.

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.

We have completed dosing of patients in the first cohort of a Phase I/II clinical trial for RGX-111.

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 in the first quarter of 2021, and we plan to initiate enrollment in a Phase I/II trial in the first half of 2021.

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 by the end of 2020 and initiate enrollment in the first half of 2021.

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 2021.

An IND was submitted to the FDA, after which the FDA notified REGENXBIO that its proposed trial had been placed on clinical hold and the agency requested more information to support the initial dose selection and certain study drug administration procedures.

REGENXBIO is evaluating the FDA’s requests and plans to provide an update on the program in the second half of 2021.

We are developing RGX-381 for the treatment of ocular manifestations of CLN2 disease.

Based on communication with the FDA and the update from the RGX-181 program, we now expect to provide a program update in the second half of 2021.

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.

2 unchanged sentences

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 September 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.

As of March 31, 2021, our NAV Technology Platform was being applied in one FDA approved product (Zolgensma®), and the preclinical and clinical development of more than 20 partnered programs.

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.

2 unchanged sentences

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 from our original estimates due to various government orders and restrictions relating to the COVID-19 pandemic .

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 has caused delays to our clinical trials and may further delay or prevent us from proceeding with our clinical trials.

Our other business initiatives, such as preclinical development and manufacturing operations, may also be affected by the COVID-19 pandemic.

For example, the construction of our new headquarters, including our current good manufacturing practice production facility, has been delayed from our original estimates, and may be delayed further, 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 nine months ended September 30, 2020 were not significantly impacted by the COVID-19 pandemic.

Our results of operations for the three months ended March 31, 2021 and 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.

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.

Please refer to the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion of the risks we face as a result of the COVID-19 pandemic.

Financial Overview

8 unchanged sentences

(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.

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 agreement with AveXis for the development and commercialization of treatments for SMA.

Royalty revenue to date consists primarily of royalties on net sales of Zolgensma, which is marketed by Novartis Gene Therapies, Inc.

(formerly AveXis, Inc.) (Novartis Gene Therapies), a wholly owned subsidiary of Novartis AG (Novartis), for the treatment of spinal muscular atrophy (SMA).

Zolgensma is a licensed product under our license agreement with Novartis Gene Therapies 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.

9 unchanged sentences

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

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 cost s of revenue s are uncertain due to the nature of our license agreements and significant fluctuations in cost of revenue s may occur from period to period.

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;

salaries and personnel-related costs, including benefits and stock-based compensation, for our scientific personnel performing research and development activities;

costs related to executing preclinical studies and clinical trials;

6 unchanged sentences

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;

a Phase I/II clinical trial and associated long-term follow-up study to evaluate the safety and efficacy of the subretinal delivery of RGX-314 for the treatment of wet AMD;

pivotal trials (ATMOSPHERE and one additional pivotal trial) to evaluate the safety and efficacy of the subretinal delivery of RGX-314 for the treatment of wet AMD;

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 (ALTITUDE);

a Phase I/II clinical trial to evaluate the safety and efficacy of RGX-121 for the treatment of MPS II;

preclinical research and development and a planned clinical trial for RGX-202 for the treatment of DMD;

Phase I/II clinical trials 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 Phase I/II clinical trial for RGX-181 for the treatment of CLN2 disease;

preclinical research and development and a planned Phase I/II clinical trial for RGX-381 for the treatment of ocular manifestations of CLN2 disease;

preclinical research and development and a planned clinical trial for RGX-181 for the treatment of CLN2 disease;

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 for the treatment of homozygous familial hypercholesterolemia (HoFH) 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;

1 unchanged sentence

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 nine months ended September 30 , 2020 and 2019 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

The following table summarizes our research and development expenses incurred during the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended March 31,

Direct Expenses

RGX-181 and RGX-381

Other product candidates

10 unchanged sentences

We do not allocate personnel and other internal costs, such as facilities and other overhead costs, to specific product candidates or development programs.

We have discontinued internal clinical development of RGX-501 for the treatment of HoFH and plan to evaluate strategic alternatives to support the continued advancement of this program.

Planned future research and development costs related to RGX-501 primarily relate to the completion of a long-term follow-up study for patients dosed to date.

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.

Our general and administrative expense consists primarily of salaries and personnel-related costs, including 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.

1 unchanged sentence

We expect that our general and administrative expense will continue to increase as we continue to develop, and potentially commercialize, our product candidates.

Other Income (Loss)

Other Income (Expense)

Interest Income from Licensing

1 unchanged sentence

Investment Income (Loss)

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.

Investment income (loss) 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.

Interest Expense

Interest expense consists of non-cash interest imputed on the liability related to the sale of future Zolgensma royalties to entities managed by Healthcare Royalty Management, LLC (collectively, HCR).

Non-cash interest expense is recognized using the effective interest method, based on our estimate of total royalty payments expected to be received by HCR under the royalty purchase agreement.

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.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities for the periods presented.

Actual results may differ materially 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 included in our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no significant changes in our critical accounting policies since December 31, 2020.

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.

Results of Operations

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Our consolidated results of operations were as follows (in thousands):

Three Months Ended March 31,

License and royalty revenue

6 unchanged sentences

Total operating expenses

Income (loss) from operations

Other Income (Loss)

Loss from operations

Other Income (Expense)

Interest income from licensing

Investment income (loss)

Total other income (loss)

Income (loss) before income taxes

Income Tax Benefit

Net income (loss)

Comparison of the Three Months Ended September 30 , 2020 and 2019

License and Royalty Revenue.

License and royalty revenue increased by $84.2 million, from $14.7 million for the three months ended September 30, 2019 to $98.9 million for the three months ended September 30, 2020.

The increase was primarily attributable to the following:

an increase of $9.6 million in Zolgensma royalty revenue, from $9.2 million for the third quarter of 2019 to $18.8 million for the third quarter of 2020, as sales of Zolgensma for the third quarter of 2020 increased by 82% as compared to the third quarter of 2019;

an $80.0 million milestone fee recognized as revenue during the three months ended September 30, 2020 as a result of the achievement of $1.0 billion in cumulative net sales of Zolgensma in the third quarter of 2020.

Upon the achievement of this milestone, there are no further development or sales-based milestones remaining under the March 2014 license agreement with AveXis.

The increase in license and royalty revenue for the three months ended September 30, 2020 was partially offset by non-recurring revenue recognized during the three months ended September 30, 2019 resulting from new licenses we granted to licensees during the period.

Research and Development Expense.

Research and development expenses increased by $8.3 million, from $35.7 million for the three months ended September 30, 2019 to $44.0 million for the three months ended September 30, 2020.

The increase was primarily attributable to the following:

an increase of $3.8 million for external costs associated with preclinical studies and other early-stage research and development;

an increase of $2.3 million for personnel-related costs as a result of increased headcount of research and development personnel, including a $0.5 million increase in stock-based compensation expense;

an increase of $1.7 million for external costs associated with clinical trial and regulatory activities;

an increase of $0.9 million for external costs associated with manufacturing-related services to support the ongoing development of our product candidates and process development activities.

General and Administrative Expense.

General and administrative expenses increased by $3.5 million, from $12.4 million for the three months ended September 30, 2019 to $15.9 million for the three months ended September 30, 2020.

The increase was primarily attributable to the following:

an increase of $3.0 million for professional services, primarily related to commercial consulting and legal services;

an increase of $0.5 million for personnel-related costs as a result of increased headcount of general and administrative personnel, including a $0.4 million increase in stock-based compensation expense.

Provision for Credit Losses and Other .

Provision for credit losses and other increased by $7.8 million during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

The increase was primarily attributable to a provision for credit losses of $7.7 million recognized during the three months ended September 30, 2020 related to our accounts receivable from Abeona Therapeutics Inc.

As of September 30, 2020, we had recorded total accounts receivable from Abeona of $30.1 million and a related allowance for credit losses of $7.7 million.

For further information regarding the provision for credit losses recognized during the three months ended September 30, 2020, refer to Note 7, “License and Royalty Revenue—Abeona Therapeutics Inc.” to the accompanying unaudited consolidated financial statements.

Investment Income (Loss) .

Investment loss was $6.6 million for the three months ended September 30, 2020 as compared to investment income of $0.4 million for the three months ended September 30, 2019, a change of $7.0 million.

The change was primarily attributable to an increase in net realized and unrealized losses of $5.3 million related to our marketable equity securities of Prevail Therapeutics Inc.

(Prevail), as well as a decrease of $1.8 million in investment income on marketable debt securities.

As of September 30, 2020, our marketable equity securities of Prevail had a fair value of $11.5 million, and significant fluctuations in the fair value of the securities may continue to occur from period to period.

Comparison of the Nine Months Ended September 30, 20 20 and 201 9

Interest expense

Total other income (expense)

Loss before income taxes

Income Tax Expense

Comparison of the Three Months Ended March 31, 2021 and 2020

License and Royalty Revenue.

License and royalty revenue increased by $109.7 million, from $23.5 million for the nine months ended September 30, 2019 to $133.1 million for the nine months ended September 30, 2020.

The increase was primarily attributable to the following:

an increase of $30.6 million in Zolgensma royalty revenue, from $10.1 million for the nine months ended September 30, 2019 to $40.7 million for the nine months ended September 30, 2020, as commercial sales of Zolgensma did not commence until the second quarter of 2019;

an $80.0 million milestone fee recognized as revenue during the nine months ended September 30, 2020 as a result of the achievement of $1.0 billion in cumulative net sales of Zolgensma in the third quarter of 2020.

Upon the achievement of this milestone, there are no further development or sales-based milestones remaining under the March 2014 license agreement with AveXis.

License and royalty revenue increased by $1.2 million, from $17.6 million for the three months ended March 31, 2020 to $18.9 million for the three months ended March 31, 2021.

The increase was primarily attributable to Zolgensma royalty revenues, which increased by $8.3 million, from $10.0 million for the first quarter of 2020 to $18.3 million for the first quarter of 2021.

As reported by Novartis, sales of Zolgensma for the first quarter of 2021 increased by 88% as compared to the first quarter of 2020.

The increase in revenues was partially offset by $7.2 million of non-recurring revenue recognized during the three months ended March 31, 2020 related to a license granted to Ultragenyx Pharmaceutical Inc.

during the period.

Research and Development Expense.

Research and development expenses increased by $28.7 million, from $90.4 million for the nine months ended September 30, 2019 to $119.1 million for the nine months ended September 30, 2020.

Research and development expenses increased by $2.7 million, from $37.0 million for the three months ended March 31, 2020 to $39.7 million for the three months ended March 31, 2021.

The increase was primarily attributable to the following:

an increase of $3.8 million for personnel-related costs as a result of increased headcount of research and development personnel, including a $1.0 million increase in stock-based compensation expense;

an increase of $5.4 million for external costs associated with clinical trial and regulatory activities;

an increase of $5.3 million for external costs associated with preclinical studies and other early-stage research and development;

an increase of $4.5 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 $3.4 million for laboratory costs and facilities used by research and development personnel, including a $0.7 million increase in depreciation expense allocated to research and development functions.

an increase of $1.7 million for external costs associated with clinical trial and regulatory activities for our lead product candidates;

an increase of $1.2 million for laboratory costs and facilities used by research and development personnel, including depreciation expense allocated to research and development functions.

The increase in research and development expenses was partially offset by a $3.9 million decrease in external costs associated with manufacturing-related services, primarily related to RGX-314.

General and Administrative Expense.

General and administrative expenses increased by $8.9 million, from $37.4 million for the nine months ended September 30, 2019 to $46.2 million for the nine months ended September 30, 2020.

General and administrative expenses increased by $3.0 million, from $14.8 million for the three months ended March 31, 2020 to $17.8 million for the three months ended March 31, 2021.

The increase was primarily attributable to the following:

1 unchanged sentence

an increase of $1.2 million for personnel-related costs as a result of increased headcount of general and administrative personnel, including a $0.9 million increase in stock-based compensation expense.

Provision for Credit Losses and Other .

Provision for credit losses and other increased by $7.9 million during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

The increase was primarily attributable to a provision for credit losses of $7.7 million recognized during the nine months ended September 30, 2020 related to our accounts receivable from Abeona.

As of September 30, 2020, we had recorded total accounts receivable from Abeona of $30.1 million and a related allowance for credit losses of $7.7 million.

For further information regarding the provision for credit losses recognized during the nine months ended September 30, 2020, refer to Note 7, “License and Royalty Revenue—Abeona Therapeutics Inc.” to the accompanying unaudited consolidated financial statements.

Investment Income (Loss) .

Investment loss was $4.1 million for the nine months ended September 30, 2020 as compared to investment income of $38.0 million for the nine months ended September 30, 2019, a change of $42.0 million.

The change was primarily attributable to an unrealized gain of $29.4 million recognized during the nine months ended September 30, 2019 related to our marketable equity securities of Prevail, as well as net realized and unrealized losses of $8.3 million recognized during the nine months ended September 30, 2020 related to these securities.

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 change in investment income (loss) also includes a decrease of $4.4 million in investment income on marketable debt securities.

Investment income was $0.6 million for the three months ended March 31, 2021, as compared to investment loss of $3.2 million for the three months ended March 31, 2020, a change of $3.8 million.

The change was primarily attributable to net realized and unrealized losses of $5.1 million recognized in the first quarter of 2020 related to our marketable equity securities of Prevail Therapeutics Inc.

We sold all of our Prevail equity securities prior to the first quarter of 2021.

The change in investment income was partially offset by a decrease of $1.3 million in interest income in the first quarter of 2021, primarily attributable to lower yields on investments in cash equivalents and marketable debt securities.

Interest Expense .

Interest expense increased by $6.7 million for the three months ended March 31, 2021, from zero for the three months ended March 31, 2020.

Interest expense consists solely of non-cash interest recognized under our royalty purchase agreement with HCR for the sale of future Zolgensma royalties which occurred in December 2020.

Liquidity and Capital Resources

As of September 30, 2020, we had cash, cash equivalents and marketable securities of $289.8 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 September 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.

AveXis achieved cumulative net sales of Zolgensma of $1.0 billion in the third quarter of 2020, which triggered the payment of an $80.0 million milestone fee in accordance with our license agreement.

We recorded the $80.0 million milestone fee as accounts receivable as of September 30, 2020, and received the payment in full from AveXis in October 2020.

Upon the payment of this milestone fee, there are no further development or sales-based milestone payments remaining under the March 2014 license agreement with AveXis.

Sources of Liquidity

As of March 31, 2021, we had cash, cash equivalents and marketable securities of $656.5 million, which were primarily derived from the sale of our common stock, license and royalty revenue and the monetization of our Zolgensma royalty stream.

We expect that our cash, cash equivalents and marketable securities as of March 31, 2021, 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.

In January 2021, we completed a public offering of 4,899,000 shares of our common stock (inclusive of 639,000 shares pursuant to the full exercise by the underwriters of their option to purchase additional shares) at a price of $47.00 per share.

The aggregate net proceeds from the offering, inclusive of the underwriters’ option exercise, were $216.1 million, net of underwriting discounts and commissions and offering expenses payable by us.

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 in Rockville, Maryland.

2 unchanged sentences

Furthermore, given the continuing uncertainty and volatile 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.

Nine Months Ended September 30,

(in thousands)

Our consolidated cash flows were as follows (in thousands):

Three Months Ended March 31,

Net cash used in operating activities

Net cash provided by investing activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Net increase in cash and cash equivalents and restricted cash

Net decrease in cash and cash equivalents and restricted cash

Cash Flows from Operating Activities

Our net cash used in operating activities for the nine months ended September 30, 2020 increased by $11.3 million from the nine months ended September 30, 2019.

The increase was primarily attributable to an increase in operating expenses of $66.6 million during the nine months ended September 30, 2020, offset primarily by an increase in Zolgensma 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 nine months ended September 30, 2020, our net cash used in operating activities of $93.5 million consisted of a net loss of $65.0 million and changes in working capital of $73.9 million, offset by $45.4 million in adjustments for non-cash items.

The changes in working capital include an increase in accounts receivable of $89.4 million which was largely driven by an increase in unbilled receivables for Zolgensma royalties and an $80.0 million sales-based milestone fee earned during the third quarter which was recorded in accounts receivable at the end of 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 $24.4 million, depreciation and amortization expense of $6.3 million, an unrealized loss on our marketable equity securities of Prevail, net of realized gains, of $8.3 million, and a provision for credit losses on accounts receivable of $7.7 million.

For the nine months ended September 30, 2019, our net cash used in operating activities of $ 82.2 million consisted of a net loss of $ 68.3 million, $ 7.1 million in adjustments for non-cash items and changes in working capital of $ 6.9 million.

Adjustments for non-cash items primarily consisted of an unrealized gain on our marketable equity securities of Prevail of $ 29.4 million, imputed interest earned from our license agreements of $ 2.1 million and net accretion of discounts on marketable debt securities of $ 1.1 million, and were partially offset by stock-based compensation expenses of $ 20.0 million and depreciation and amortization expense of $ 5.2 million.

The change s in working capital include an increase in accounts receivable of $ 10.7 million which was largely driven by an increase in unbilled receivables for Zolgensma royalties .

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.

Our net cash used in operating activities for the three months ended March 31, 2021 increased by $5.6 million from the three months ended March 31, 2020.

The increase was largely driven by an increase in operating expenses of $7.6 million in the first quarter of 2021.

We expect to continue to incur net cash out outflows from operations for the foreseeable future as we continue the development and advancement of our lead product candidates and other research programs.

For the three months ended March 31, 2021, our net cash used in operating activities of $41.1 million consisted of a net loss of $50.1 million and changes in working capital of $11.2 million, offset by $20.2 million in adjustments for non-cash items.

The changes in working capital include a $10.5 million decrease in accrued expenses and other current liabilities which was largely driven by decreases in accrued personnel costs, accrued royalties payable to licensors and accrued external research and development expenses as of March 31, 2021.

The changes in working capital were partially offset by an increase in operating lease liabilities of $4.2 million which was largely driven by funds received under our tenant improvement allowance related to the ongoing buildout of our new headquarters facility in Rockville, Maryland.

Other changes in working capital were incurred in the normal course of business, primarily as a result of differences in the timing of payments to service providers and the period in which such costs are incurred.

Adjustments for non-cash items primarily consisted of stock-based compensation expenses of $9.9 million, non-cash interest expense recognized under our royalty purchase agreement with HCR of $6.7 million and depreciation and amortization expense of $1.9 million.

For the three months ended March 31, 2020, our net cash used in operating activities of $35.6 million consisted of a net loss of $40.0 million and changes in working capital of $9.9 million, offset by $14.3 million in adjustments for non-cash items.

The changes in working capital include an increase in accounts receivable of $5.7 million which was largely driven by new licenses granted by us during the first quarter of 2020, and a decrease in accrued expenses and other current liabilities of $3.8 million which was largely driven by a decrease in accrued personnel costs as of March 31, 2020.

Adjustments for non-cash items primarily consisted of stock-based compensation expenses of $8.0 million, net losses on our Prevail equity securities of $5.1 million and depreciation and amortization expense of $2.0 million.

Cash Flows from Investing Activities

For the nine months ended September 30, 2020, net cash provided by investing activities consisted of $204.5 million in sales and maturities of marketable securities, offset by $79.4 million to purchase marketable securities and $14.0 million to purchase property and equipment.

We expect capital expenditures to increase for the remainder 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.

For the three months ended March 31, 2021, our net cash used in investing activities consisted of $233.6 million to purchase marketable debt securities and $31.0 million to purchase property and equipment, offset by $50.5 million in maturities of marketable debt securities.

The substantial majority of our capital expenditures in first quarter of 2021 were related to the build out of our future corporate, manufacturing and research headquarters at 9804 Medical Center Drive in Rockville, Maryland.

We expect capital expenditures to continue to increase in 2021 as a result of the ongoing build out of this facility.

Total remaining capital expenditures related to the build out of the facility at 9804 Medical Center Drive, net of remaining amounts to be reimbursed by the landlord under our tenant improvement allowance, are expected to be in the mid-double-digit millions (USD) and are expected to be incurred into 2022.

However, the actual amount and timing of these capital expenditures are uncertain and may differ materially from our current estimates.

For the nine months ended September 30, 2019, net cash provided by investing activities consisted of $218.0 million in sales and maturities of marketable securities, offset by $127.9 million to purchase marketable securities and $10.7 million to purchase property and equipment.

For the three months ended March 31, 2020 , our net cash provided by investing activities consisted of $ 68.0 million in sales and maturities of marketable securities, offset by $ 30.7 million to purchase marketable debt securities and $ 4.6 million to purchase property and equipment.

Cash Flows from Financing Activities

For the nine months ended September 30, 2020, net cash provided by financing activities consisted of $6.0 million in proceeds received from the exercise of stock options and issuance of common stock under our employee stock purchase plan.

For the nine months ended September 30, 2019, net cash provided by financing activities consisted of $6.8 million in proceeds received from the exercise of stock options and issuance of common stock under our employee stock purchase plan.

For the three months ended March 31, 2021, our net cash provided by financing activities primarily consisted of $216.2 million in net proceeds received from a public offering of our common stock completed in January 2021, net of underwriting discounts and commissions and other offering expenses paid during the period, and was partially offset by $9.5 million of Zolgensma royalties paid to HCR during the period under the Zolgensma royalty purchase agreement.

For the three months ended March 31, 2020, our net cash provided by financing activities consisted of $2.8 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 $242.8 million as of September 30, 2020.

We have incurred cumulative losses since our inception and had an accumulated deficit of $339.2 million as of March 31, 2021.

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.

2 unchanged sentences

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, including the build out of our facility at 9804 Medical Center Drive as discussed above.

Additionally, we expect our capital expenditures will continue to increase due to costs associated with building out additional office, laboratory and manufacturing capacity to further support the development of our product candidates and potential commercialization efforts, particularly with respect to the build out of our facility at 9804 Medical Center Drive as discussed above.

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.

3 unchanged sentences

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;

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;

7 unchanged sentences

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.

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.

6 unchanged sentences

Contractual Obligations, Commitments and Contingencies

There have been no material changes to our contractual obligations, commitments and contingencies as of September 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.

There have been no material changes to our contractual obligations, commitments and contingencies as of March 31, 2021 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, 2020.

Off-Balance Sheet Arrangements

2 unchanged sentences

For information regarding market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no material changes to our exposure to market risk during the nine months ended September 30, 2020.

There have been no material changes to our exposure to market risk during the three months ended March 31, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis