REGENXBIO Inc. 10-Q

Item 1. Financial Statements. REGENXBIO INC. CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except per share data) March 31, 2021 December 31, 2020 Assets Current assets Cash and cash equivalents $ 291,482 $ 338,426 Marketable securities 149,398 137,314 Accounts receivable, net 41,039 42,999 Prepaid expenses 13,839 10,505 Other current assets 2,880 1,953 Total current assets 498,638 531,197 Marketable securities 215,598 46,809 Accounts receivable, net 2,859 3,267 Property and equipment, net 89,342 56,467 Operating lease right-of-use assets 62,607 63,815 Restricted cash 1,330 1,330 Other assets 9,068 5,279 Total assets $ 879,442 $ 708,164 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 11,311 $ 10,622 Accrued expenses and other current liabilities 41,605 49,082 Deferred revenue 395 449 Operating lease liabilities 1,843 2,500 Liability related to sale of future royalties 28,807 18,794 Total current liabilities 83,961 81,447 Deferred revenue 3,729 3,783 Operating lease liabilities 75,078 70,153 Liability related to sale of future royalties 161,722 174,504 Other liabilities 448 524 Total liabilities 324,938 330,411 Stockholders’ equity Preferred stock; $ 0.0001 par value; 10,000 shares authorized, and no shares issued and outstanding at March 31, 2021 and December 31, 2020 — — Common stock; $ 0.0001 par value; 100,000 shares authorized at March 31, 2021 and December 31, 2020; 42,505 and 37,476 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 4 4 Additional paid-in capital 895,079 667,181 Accumulated other comprehensive loss ( 1,368 ) ( 360 ) Accumulated deficit ( 339,211 ) ( 289,072 ) Total stockholders’ equity 554,504 377,753 Total liabilities and stockholders’ equity $ 879,442 $ 708,164 The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 Table of Contents REGENXBIO INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (unaudited) (in thousands, except per share data) Three Months Ended March 31, 2021 2020 Revenues License and royalty revenue $ 18,884 $ 17,644 Total revenues 18,884 17,644 Operating Expenses Cost of revenues 4,851 3,409 Research and development 39,722 37,035 General and administrative 17,838 14,833 Provision for credit losses and other 515 67 Total operating expenses 62,926 55,344 Loss from operations ( 44,042 ) ( 37,700 ) Other Income (Expense) Interest income from licensing 29 848 Investment income (loss) 580 ( 3,186 ) Interest expense ( 6,702 ) — Total other income (expense) ( 6,093 ) ( 2,338 ) Loss before income taxes ( 50,135 ) ( 40,038 ) Income Tax Expense ( 4 ) — Net loss $ ( 50,139 ) $ ( 40,038 ) Other Comprehensive Loss Unrealized loss on available-for-sale securities, net ( 1,008 ) ( 785 ) Total other comprehensive loss ( 1,008 ) ( 785 ) Comprehensive loss $ ( 51,147 ) $ ( 40,823 ) Net loss per share, basic and diluted $ ( 1.20 ) $ ( 1.08 ) Weighted-average common shares outstanding, basic and diluted 41,819 37,104 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 March 31, 2021 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Loss Deficit Equity Balances at December 31, 2020 37,476 $ 4 $ 667,181 $ ( 360 ) $ ( 289,072 ) $ 377,753 Issuance of common stock upon public offering, net of transaction costs of $ 14,194 4,899 — 216,059 — — 216,059 Exercise of stock options 111 — 1,292 — — 1,292 Issuance of common stock under employee stock purchase plan 19 — 627 — — 627 Stock-based compensation expense — — 9,920 — — 9,920 Unrealized loss on available-for-sale securities, net — — — ( 1,008 ) — ( 1,008 ) Net loss — — — — ( 50,139 ) ( 50,139 ) Balances at March 31, 2021 42,505 $ 4 $ 895,079 $ ( 1,368 ) $ ( 339,211 ) $ 554,504 Three Months Ended March 31, 2020 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income (Loss) Deficit Equity Balances at December 31, 2019 36,992 $ 4 $ 627,810 $ 205 $ ( 177,822 ) $ 450,197 Exercise of stock options 181 — 2,154 — — 2,154 Issuance of common stock under employee stock purchase plan 17 — 607 — — 607 Stock-based compensation expense — — 8,017 — — 8,017 Unrealized loss on available-for-sale securities, net — — — ( 785 ) — ( 785 ) Net loss — — — — ( 40,038 ) ( 40,038 ) Balances at March 31, 2020 37,190 $ 4 $ 638,588 $ ( 580 ) $ ( 217,860 ) $ 420,152 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 Table of Contents REGENXBIO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three Months Ended March 31, 2021 2020 Cash flows from operating activities Net loss $ ( 50,139 ) $ ( 40,038 ) Adjustments to reconcile net loss to net cash used in operating activities Stock-based compensation expense 9,920 8,017 Depreciation and amortization 1,929 1,994 Provision for credit losses 565 — Net amortization of premiums on marketable securities 1,288 39 Net realized and unrealized losses (gains) on marketable securities ( 7 ) 5,111 Imputed interest income from licensing ( 29 ) ( 848 ) Non-cash interest expense 6,702 — Other non-cash adjustments ( 154 ) 25 Changes in operating assets and liabilities Accounts receivable 1,618 ( 5,744 ) Prepaid expenses ( 3,334 ) ( 947 ) Other current assets ( 873 ) ( 2,833 ) Operating lease right-of-use assets 1,232 703 Other assets ( 3,789 ) 1,705 Accounts payable 278 3,063 Accrued expenses and other current liabilities ( 10,544 ) ( 3,813 ) Operating lease liabilities 4,244 ( 851 ) Other liabilities ( 38 ) ( 1,156 ) Net cash used in operating activities ( 41,131 ) ( 35,573 ) Cash flows from investing activities Purchases of marketable debt securities ( 233,627 ) ( 30,692 ) Maturities of marketable debt securities 50,465 60,907 Sales of marketable equity securities — 7,124 Purchases of property and equipment ( 31,021 ) ( 4,630 ) Net cash provided by (used in) investing activities ( 214,183 ) 32,709 Cash flows from financing activities Proceeds from exercise of stock options 1,292 2,154 Proceeds from issuance of common stock under employee stock purchase plan 627 607 Proceeds from public offering of common stock, net of underwriting discounts and commissions 216,438 — Issuance costs for public offerings of common stock ( 251 ) — Repayments under liability related to sale of future royalties ( 9,471 ) — Transaction costs for sale of future royalties ( 265 ) — Net cash provided by financing activities 208,370 2,761 Net decrease in cash and cash equivalents and restricted cash ( 46,944 ) ( 103 ) Cash and cash equivalents and restricted cash Beginning of period 339,756 70,844 End of period $ 292,812 $ 70,741 Supplemental disclosures of non-cash investing and financing activities Additions to property and equipment through accounts payable and accrued expenses $ 3,783 $ — The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 Table of Contents REGENXBIO INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Nature of Business REGENXBIO Inc. (the Company) is a clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. The Company has developed a broad pipeline of gene therapy product candidates using its proprietary adeno-associated virus (AAV) gene delivery platform (NAV Technology Platform), which consists of exclusive rights to over 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10. In addition to its internal product development efforts, the Company also selectively licenses the NAV® Technology Platform to other leading biotechnology and pharmaceutical companies (NAV Technology Licensees). As of March 31, 2021, the NAV Technology Platform was being applied by NAV Technology Licensees in one commercially available product, Zolgensma®, and in the preclinical and clinical development of more than 20 licensed products. The Company was formed in 2008 in the State of Delaware and is headquartered in Rockville, Maryland. As of March 31, 2021, the Company had generated an accumulated deficit of $ 339.2 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 March 31, 2021, the Company had cash, cash equivalents and marketable securities of $ 656.5 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. 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, 2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 1, 2021. 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, 2020, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 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 the consolidated financial statements in conformity with GAAP requires management 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. Management bases its estimates on historical experience and on various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities, and other reported amounts, that are not readily apparent from other sources. Actual results may differ materially from these estimates. Significant estimates are used in the following areas, among others: license and royalty revenue, the allowance for credit losses, accrued research and development expenses and other accrued liabilities, stock-based compensation expense, non-cash interest expense, income taxes and the fair value of financial instruments. 7 Table of Contents 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): March 31, 2021 March 31, 2020 Cash and cash equivalents $ 291,482 $ 69,411 Restricted cash 1,330 1,330 Total cash and cash equivalents and restricted cash $ 292,812 $ 70,741 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 8 for further information regarding the allowance for credit losses related to accounts receivable. 8 Table of Contents Fair Value of Financial Instruments The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures , establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below: • Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. • Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly. • Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair values of the Company’s Level 2 instruments are based on quoted market prices or broker or dealer quotations for similar assets. These investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market observable data. Please refer to Note 4 for further information on the fair value measurement of the Company’s financial instruments. Net Loss Per Share Basic net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Contingently convertible shares in which conversion is based on non-market-priced contingencies are excluded from the calculations of both basic and diluted net loss per share until the contingency has been fully met. For purposes of the diluted net loss per share calculation, common stock equivalents are excluded from the calculation of diluted net loss per share if their effect would be anti-dilutive. 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 Unrealized Gains Unrealized Losses Fair Value March 31, 2021 U.S. government and federal agency securities $ 7,590 $ — $ ( 1 ) $ 7,589 Certificates of deposit 1,466 23 — 1,489 Corporate bonds 353,423 221 ( 754 ) 352,890 Municipal securities 3,025 3 — 3,028 $ 365,504 $ 247 $ ( 755 ) $ 364,996 9 Table of Contents Amortized Cost Unrealized Gains Unrealized Losses Fair Value December 31, 2020 U.S. government and federal agency securities $ 12,782 $ 22 $ — $ 12,804 Certificates of deposit 1,956 34 — 1,990 Corporate bonds 165,850 497 ( 55 ) 166,292 Municipal securities 3,035 2 — 3,037 $ 183,623 $ 555 $ ( 55 ) $ 184,123 As of March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, the balance in the Company’s accumulated other comprehensive loss consisted solely of unrealized gains and losses on available-for-sale debt securities, net of reclassification adjustments for realized gains and losses and income tax effects. 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 loss. 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 (loss) . Unrealized loss on available-for-sale securities, net, as presented in the statements of operations and comprehensive loss consisted of the following (in thousands): Three Months Ended March 31, 2021 2020 Unrealized loss before reclassifications $ ( 1,001 ) $ ( 755 ) Realized gains reclassified to investment income ( 7 ) ( 30 ) Income tax expense — — Unrealized loss on available-for-sale securities, net $ ( 1,008 ) $ ( 785 ) 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 March 31, 2021 U.S. government and federal agency securities $ 7,589 $ ( 1 ) $ — $ — $ 7,589 $ ( 1 ) Corporate bonds 275,305 ( 754 ) — — 275,305 ( 754 ) $ 282,894 $ ( 755 ) $ — $ — $ 282,894 $ ( 755 ) Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2020 Corporate bonds $ 55,507 $ ( 55 ) $ — $ — $ 55,507 $ ( 55 ) $ 55,507 $ ( 55 ) $ — $ — $ 55,507 $ ( 55 ) As of March 31, 2021, available-for-sale debt securities held by the Company which were in an unrealized loss position consisted of 49 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 record an allowance for credit losses on its available-for-sale debt securities as of March 31, 2021 or December 31, 2020. The Company did no t recognize any impairment or credit losses on available-for-sale debt securities during the three months ended March 31, 2021 and 2020. 10 Table of Contents During the three months ended March 31, 2020, the Company recognized total net realized and unrealized losses of $ 5.1 million related to its marketable equity securities of Prevail Therapeutics Inc. (Prevail), which were acquired as consideration for a license to the NAV Technology Platform granted to Prevail in August 2017. As of December 31, 2020, the Company had sold all of its Prevail equity securities. 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 March 31, 2021 Cash equivalents: Money market mutual funds $ — $ 240,240 $ — $ 240,240 Total cash equivalents — 240,240 — 240,240 Marketable securities: U.S. government and federal agency securities — 7,589 — 7,589 Certificates of deposit — 1,489 — 1,489 Corporate bonds — 352,890 — 352,890 Municipal securities — 3,028 — 3,028 Total marketable securities — 364,996 — 364,996 Total cash equivalents and marketable securities $ — $ 605,236 $ — $ 605,236 Quoted Significant prices other Significant in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total December 31, 2020 Cash equivalents: Money market mutual funds $ — $ 96,307 $ — $ 96,307 Total cash equivalents — 96,307 — 96,307 Marketable securities: U.S. government and federal agency securities — 12,804 — 12,804 Certificates of deposit — 1,990 — 1,990 Corporate bonds — 166,292 — 166,292 Municipal securities — 3,037 — 3,037 Total marketable securities — 184,123 — 184,123 Total cash equivalents and marketable securities $ — $ 280,430 $ — $ 280,430 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 materially different from those that would be used as of March 31, 2021 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. 11 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 March 31, 2021 and December 31, 2020, non-marketable equity securities had a carrying value of $ 1.1 million and were included in other assets on the consolidated balance sheets. The Company did not identify any observable price changes or changes in circumstances that would have had an adverse effect on the fair value of the securities as of March 31, 2021 or December 31, 2020. No remeasurements or impairment losses were recorded on non-marketable equity securities during the three months ended March 31, 2021 and 2020. 5. Property and Equipment, Net Property and equipment, net consists of the following (in thousands): March 31, 2021 December 31, 2020 Laboratory and manufacturing equipment $ 34,124 $ 26,306 Computer equipment and software 3,954 3,764 Furniture and fixtures 4,699 4,114 Leasehold improvements 71,167 44,957 Total property and equipment 113,944 79,141 Accumulated depreciation and amortization ( 24,602 ) ( 22,674 ) Property and equipment, net $ 89,342 $ 56,467 6. Liability Related to Sale of Future Royalties In December 2020, the Company entered into a royalty purchase agreement (the Royalty Purchase Agreement) with entities managed by Healthcare Royalty Management, LLC (collectively, HCR). Under the agreement, HCR purchased the Company’s rights to a capped amount of Zolgensma royalty payments under the Company’s license agreement with Novartis Gene Therapies, Inc. (formerly AveXis, Inc.) (Novartis Gene Therapies), including $ 4.0 million of royalty payments received by the Company in the fourth quarter of 2020 (the Pledged Royalties). In consideration for these rights, HCR paid the Company $ 200.0 million (the Purchase Price), less $4.0 million representing the payment of the Pledged Royalties to HCR. Beginning upon the effective date of the agreement, Zolgensma royalty payments, up to a specified threshold, will be paid to HCR, net of upstream royalties payable by the Company to certain licensors in accordance with existing license agreements. Pursuant to the Royalty Purchase Agreement, the total amount of royalty payments to be received by HCR under the agreement is subject to an increasing cap (the Cap Amount) equal to (i) $ 260.0 million applicable for the period from the effective date of the agreement through November 7, 2024, and (ii) $ 300.0 million applicable for the period from November 8, 2024 through the effective date of termination of the license agreement with Novartis Gene Therapies. If, on or prior to the defined dates for each Cap Amount, the total amount of royalty payments received by HCR equals or exceeds the Cap Amount applicable to such date, the Royalty Purchase Agreement will automatically terminate and all rights to the Zolgensma royalty payments will revert back to the Company. The Company has a call option to repurchase its rights to the purchased royalties from HCR for a repurchase price equal to, as of the option exercise date, $ 300.0 million minus the total amount of royalty payments received by HCR; provided, however, that with respect to a call option exercised on or before November 7, 2024, in the event that the then applicable Cap Amount minus the total amount of royalty payments received by HCR is less than $ 1.0 million, the repurchase price shall equal such difference. The proceeds received from HCR of $ 196.0 million were recorded as a liability, net of transaction costs of $ 3.5 million, which is amortized over the estimated life of the arrangement using the effective interest method. In order to determine the amortization of the liability, the Company is required to estimate the total amount of future royalty payments to be received by HCR, subject to the Cap Amount, over the life of the arrangement. The total amount of royalty payments received by HCR under the agreement, less the net proceeds received by the Company of $ 192.5 million, is recorded as non-cash interest expense over the life of the arrangement using the effective interest method. Due to its continuing involvement in the underlying license agreement with Novartis Gene Therapies, the Company continues to recognize royalty revenue on net sales of Zolgensma and records the royalty payments to HCR as a reduction of the liability when paid. As such payments are made to HCR, the balance of the liability will be effectively repaid over the life of the Royalty Purchase Agreement. The Company estimates the effective interest rate used to record non-cash interest expense under the Royalty Purchase Agreement based on its estimate of future royalty payments to be received by HCR. As of March 31, 2021, the estimated effective interest rate under the agreement was 13.9 %. Over the life of the arrangement, the actual effective interest rate will be affected by the amount and timing of the royalty payments received by HCR and changes in the Company’s forecasted royalties. At each reporting date, the Company reassesses its estimate of total future royalty payments to be received by HCR at the applicable Cap Amount, and prospectively adjusts the effective interest rate and amortization of the liability, as necessary. 12 Table of Contents The following table presents the changes in the liability related to the sale of future royalties under the Royalty Purchase Agreement with HCR (in thousands): Three Months Ended March 31, 2021 Liability related to sale of future royalties, beginning balance $ 193,298 Zolgensma royalties paid to HCR ( 9,471 ) Non-cash interest expense 6,702 Liability related to sale of future royalties, ending balance 190,529 Current portion of liability related to sale of future royalties ( 28,807 ) Liability related to sale of future royalties, non-current $ 161,722 7. Capitalization In January 2021, the Company completed a public offering of 4,899,000 shares of its 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 received by the Company from the offering, inclusive of the underwriters’ option exercise, were $ 216.1 million, net of underwriting discounts and commissions and offering expenses payable by the Company. 8. License and Royalty Revenue As of March 31, 2021, the Company’s NAV Technology Platform was being applied by NAV Technology Licensees in one commercially available product, Zolgensma, and in the development of more than 20 licensed products. Consideration to the Company under its license agreements may include: (i) up-front and annual fees, (ii) option fees to acquire additional licenses, (iii) milestone payments based on the achievement of certain development and sales-based milestones by licensees, (iv) sublicense fees and (v) royalties on sales of licensed products. Sublicense fees vary by license and range from a mid-single digit percentage to a low-double digit percentage of license fees received by licensees as a result of sublicenses. Royalties on net sales of commercialized products vary by license and range from a mid-single digit percentage to a low double-digit percentage of net sales by licensees. Development milestone payments are evaluated each reporting period and are only included in the transaction price of each license and recognized as license revenue to the extent the milestones are considered probable of achievement. Sales-based milestones are excluded from the transaction price of each license agreement and recognized as royalty revenue in the period of achievement. As of March 31, 2021, 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 $ 194.8 million, including (i) $ 23.3 million upon the commencement of various stages of clinical trials, (ii) $ 21.0 million upon the submission of regulatory approval filings, (iii) $ 93.5 million upon the approval of commercial products by regulatory agencies and (iv) $ 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. 13 Table of Contents Changes in Accounts Receivable, Contract Assets and Deferred Revenue The following table presents changes in the balances of the Company’s net accounts receivable, contract assets and deferred revenue, as well as other information regarding revenue recognized during the periods presented (in thousands): Three Months Ended March 31, 2021 2020 Accounts receivable, net, current and non-current: Balance, beginning of period $ 46,266 $ 42,303 Additions 18,718 18,142 Deductions ( 21,086 ) ( 11,550 ) Balance, end of period $ 43,898 $ 48,895 Contract assets: Balance, beginning of period $ 350 $ — Additions 649 350 Deductions ( 350 ) — Balance, end of period $ 649 $ 350 Deferred revenue, current and non-current: Balance, beginning of period $ 4,232 $ 3,333 Additions — — Deductions ( 108 ) — Balance, end of period $ 4,124 $ 3,333 Revenue recognized during the period from: Amounts included in deferred revenue at beginning of period $ 108 $ — Performance obligations satisfied in previous periods $ 18,651 $ 10,379 Additions to accounts receivable during the periods presented consisted primarily of receivables recorded related to royalties on net sales of Zolgensma, new licenses granted by the Company, the achievement of development milestones by licensees and interest income from licensing recognized during the period. Deductions to accounts receivable during the periods presented consisted primarily of amounts collected from licensees and increases in the allowance for credit losses, as discussed further below. Additions to contract assets during the periods presented consisted primarily of development milestones deemed probable of achievement by licensees during the period. 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. As of March 31, 2021, the Company had recorded deferred revenue of $ 4.1 million which represents consideration received from licensees for performance obligations that have not yet been satisfied by the Company. Unsatisfied performance obligations consisted 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 Zolgensma royalty revenues as well as changes in the transaction prices of the Company’s license agreements. 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. 14 Table of Contents Accounts Receivable, Contract Assets and the Allowance for Credit Losses Accounts receivable, net consisted of the following (in thousands): March 31, 2021 December 31, 2020 Current accounts receivable: Billed to customers $ 30,584 $ 30,573 Unbilled 18,698 20,104 Allowance for credit losses ( 8,243 ) ( 7,678 ) Current accounts receivable, net 41,039 42,999 Non-current accounts receivable: Unbilled 2,859 3,267 Allowance for credit losses — — Non-current accounts receivable, net 2,859 3,267 Total accounts receivable, net $ 43,898 $ 46,266 The following table presents the changes in the allowance for credit losses related to accounts receivable and contract assets for the three months ended March 31, 2021 (in thousands): Accounts Receivable Contract Assets Balance at December 31, 2020 $ 7,678 $ — Provision for credit losses 565 — Write-offs — — Balance at March 31, 2021 $ 8,243 $ — The Company’s allowance for credit losses as of March 31, 2021 and December 31, 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 months ended March 31, 2021 was $ 0.6 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 months ended March 31, 2020. Novartis Gene Therapies, Inc. In March 2014, the Company entered into an exclusive license agreement, as amended, (the March 2014 License) with Novartis Gene Therapies (formerly AveXis, Inc.). Under the March 2014 License, the Company granted Novartis Gene Therapies 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. Novartis Gene Therapies 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. The Company recognized the following amounts under the March 2014 License with Novartis Gene Therapies (in thousands): Three Months Ended March 31, 2021 2020 Royalties on net sales of Zolgensma $ 18,263 $ 9,978 Total license and royalty revenue $ 18,263 $ 9,978 Interest income from licensing $ 6 $ 7 As of March 31, 2021 and December 31, 2020, the Company had recorded total accounts receivable of $ 18.1 million and $ 19.6 million, respectively, from Novartis Gene Therapies under the March 2014 License, which consisted primarily of unbilled receivables for Zolgensma royalties. Zolgensma royalties receivable as of March 31, 2021 included $ 13.2 million which was expected to be paid to HCR in accordance with the Royalty Purchase Agreement discussed in Note 6. 15 Table of Contents Abeona Therapeutics Inc. In November 2018, the Company entered into a license agreement with Abeona, as amended, (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 April 30, 2021, 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. 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 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 did not record any liabilities related these claims as of March 31, 2021, and the Company currently expects that its demand for payment in full will be upheld in arbitration. A binding arbitration was held in March 2021 and the arbitrators’ decision is pending. The Company intends to enforce the full collection of all amounts due from Abeona; however, the outcome of the arbitration and timing of payment from Abeona remain uncertain. As of March 31, 2021 and December 31, 2020, the Company had recorded gross accounts receivable of $ 30.1 million from Abeona under the November 2018 License, which consisted of the $ 8.0 million fee due April 1, 2020, the $ 20.0 million fee due within 15 days of the termination of the license agreement in May 2020 and accrued interest on the outstanding balances. While the Company currently expects its demand for payment in full will be upheld in arbitration and intends to enforce the full collection of all amounts due, the Company assessed the collectability of the $ 30.1 million due from Abeona 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. As a result of its analyses, the Company recorded an allowance for credit losses of $ 8.2 million and $ 7.7 million as of March 31, 2021 and December 31, 2020, respectively, related to the accounts receivable due from Abeona. The Company recorded a provision for credit losses of $ 0.6 million for the three months ended March 31, 2021 as a result of changes in estimates regarding the allowance during the period. As of March 31, 2021 and December 31, 2020, the Company had recognized interest income from licensing of $ 2.1 million related to the unpaid license fees from Abeona under the November 2018 License, which is included in the gross accounts receivable balance of $ 30.1 million. In accordance with its interest accrual policy, the Company ceased the recognition of interest income accrued under the license agreement subsequent to the recognition of the allowance for credit losses in the third quarter of 2020, and will continue to maintain the accounts receivable from Abeona on non-accrual status unless and until such amounts are deemed to be collectable. However, the Company intends to enforce the full collection of all accrued interest contractually due from Abeona upon the completion of arbitration. 9. Stock-based Compensation In January 2021, the Board of Directors authorized an additional 1,499,037 shares to be issued under the 2015 Equity Incentive Plan (the 2015 Plan). As of March 31, 2021, the total number of shares of common stock authorized for issuance under the 2015 Plan and the 2014 Stock Plan (the 2014 Plan) was 13,911,954 , of which 2,447,174 remained available for future grants under the 2015 Plan. Stock-based Compensation Expense The Company’s stock-based compensation expense by award type was as follows (in thousands): Three Months Ended March 31, 2021 2020 Stock options $ 9,015 $ 7,779 Restricted stock units 679 — Employee stock purchase plan 226 238 $ 9,920 $ 8,017 16 Table of Contents As of March 31, 2021, the Company had $ 93.8 million of unrecognized stock-based compensation expense related to stock options, restricted stock units and the 2015 Employee Stock Purchase Plan (the 2015 ESPP), which is expected to be recognized over a weighted-average period of 2.8 years. The Company recorded aggregate stock-based compensation expense in the consolidated statements of operations and comprehensive loss as follows (in thousands): Three Months Ended March 31, 2021 2020 Research and development $ 5,031 $ 4,047 General and administrative 4,889 3,970 $ 9,920 $ 8,017 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, 2020 6,361 $ 31.21 7.2 $ 101,356 Granted 1,170 $ 44.92 Exercised ( 105 ) $ 12.30 Cancelled or forfeited ( 80 ) $ 45.48 Outstanding at March 31, 2021 7,346 $ 33.51 7.4 $ 51,356 Exercisable at March 31, 2021 4,126 $ 26.47 6.2 $ 50,065 Vested and expected to vest at March 31, 2021 7,346 $ 33.51 7.4 $ 51,356 (a) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that were in the money at the dates reported. The weighted-average grant date fair value per share of options granted during the three months ended March 31, 2021 was $ 27.28 . During the three months ended March 31, 2021, the total number of stock options exercised was 104,638 , resulting in total proceeds of $ 1.3 million. The total intrinsic value of options exercised during the three months ended March 31, 2021 was $ 3.6 million. Restricted Stock Units The following table summarizes restricted stock unit activity under the 2015 Plan (in thousands, except per share data): Weighted- average Grant Date Shares Fair Value Unvested balance at December 31, 2020 — $ — Granted 257 $ 44.92 Vested — $ — Forfeited ( 3 ) $ 44.97 Unvested balance at March 31, 2021 254 $ 44.92 No restricted stock units vested during the three months ended March 31, 2021 and 2020. 17 Table of Contents Employee Stock Purchase Plan In January 2021, the Board of Directors authorized an additional 374,759 shares to be issued under the 2015 ESPP. As of March 31, 2021, the total number of shares of common stock authorized for issuance under the 2015 ESPP was 998,683 , of which 803,728 remained available for future issuance. During the three months ended March 31, 2021, 19,042 shares of common stock were issued under the 2015 ESPP. 10. 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 March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020. 11. 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 the 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’ advanced written notice. Expenses incurred under the agreement with FOXKISER for the three months ended March 31, 2021 and 2020 were $ 1.2 million and $ 1.2 million, respectively, and were recorded as research and development expenses in the consolidated statements of operations and comprehensive loss. 12. Net Loss Per Share Since the Company incurred net losses for the three months ended March 31, 2021 and 2020, 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 March 31, 2021 2020 Stock options issued and outstanding 7,346 6,438 Unvested restricted stock units outstanding 254 — Employee stock purchase plan 30 32 7,630 6,470 13. Supplemental Disclosures Accrued expenses and other current liabilities consisted of the following (in thousands): March 31, 2021 December 31, 2020 Accrued purchases of property and equipment $ 11,231 $ 7,853 Accrued personnel costs 7,970 13,155 Accrued external research and development expenses 7,792 9,738 Accrued sublicense fees and royalties 6,828 12,160 Accrued income taxes payable 4,005 3,135 Accrued external general and administrative expenses 3,657 2,865 Other accrued expenses and current liabilities 122 176 $ 41,605 $ 49,082 18 Table of Contents