rgnx-10q_20160331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-37553

 

REGENXBIO Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

47-1851754

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

9712 Medical Center Drive, Suite 100

Rockville, MD

 

20850

(Address of principal executive offices)

 

(Zip Code)

(240) 552-8181

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

o

  

Accelerated filer

 

o

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

As of May 4, 2016, there were 26,338,329 outstanding shares of the registrant’s common stock, $0.0001 par value per share.

 

 

 

 

 


REGENXBIO INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016

TABLE OF CONTENTS

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Balance Sheets as of March 31, 2016 and December 31, 2015

 

2

 

 

Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2016 and 2015

 

3

 

 

Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015

 

4

 

 

Notes to the Financial Statements

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4.

 

Controls and Procedures

 

24

 

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

25

Item 1A.

 

Risk Factors

 

25

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

65

Item 3.

 

Defaults Upon Senior Securities

 

65

Item 4.

 

Mine Safety Disclosures

 

65

Item 5.

 

Other Information

 

65

Item 6.

 

Exhibits

 

66

Signatures

 

67

 

 

 

 


INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other important factors, including those described in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 3, 2016. In light of these risks, uncertainties, assumptions and other factors, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Forward-looking statements include, but are not limited to, statements about:

 

the timing and success of preclinical studies and clinical trials conducted by us and our development partners;

 

the ability to obtain and maintain regulatory approval of our product candidates, and the labeling for any approved products;

 

the scope, progress, expansion and costs of developing and commercializing our product candidates;

 

our ability to obtain and maintain intellectual property protection for our product candidates;

 

our anticipated growth strategies;

 

our expectations regarding competition;

 

the anticipated trends and challenges in our business and the market in which we operate;

 

our ability to attract or retain key personnel;

 

the size and growth of the potential markets for our product candidates and the ability to serve those markets;

 

the rate and degree of market acceptance of any of our product candidates;

 

our ability to establish and maintain development partnerships;

 

our expectations regarding federal, state and foreign regulatory requirements;

 

regulatory developments in the United States and foreign countries; and

 

our plans for the use of our cash and cash equivalents.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date of this report. Except as required by law, we disclaim any duty to update any of these forward-looking statements after the date such statements are made, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

We encourage you to read the discussion and analysis of our financial condition and our financial statements contained in this Quarterly Report on Form 10-Q. We also encourage you to read Item 1A of Part II this Quarterly Report on Form 10-Q, entitled “Risk Factors,” which contains a more complete discussion of the risks and uncertainties associated with our business. In addition to the risks described above and in Item 1A of Part II of this Quarterly Report on Form 10-Q, other unknown or unpredictable factors also could affect our results. There can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Therefore no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

 

 

1


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

REGENXBIO INC.

BALANCE SHEETS

(unaudited)

(in thousands, except per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,511

 

 

$

54,116

 

Marketable securities

 

 

65,544

 

 

 

60,025

 

Accounts receivable

 

 

2,036

 

 

 

2,136

 

Prepaid expenses

 

 

1,189

 

 

 

1,020

 

Other current assets

 

 

1,300

 

 

 

851

 

Total current assets

 

 

105,580

 

 

 

118,148

 

Marketable securities

 

 

107,553

 

 

 

102,226

 

Property and equipment, net

 

 

1,328

 

 

 

538

 

Cost method investments

 

 

300

 

 

 

300

 

Other assets

 

 

223

 

 

 

168

 

Total assets

 

$

214,984

 

 

$

221,380

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,113

 

 

$

1,014

 

Accrued expenses and other current liabilities

 

 

4,633

 

 

 

3,198

 

Advance payments

 

 

35

 

 

 

127

 

Total current liabilities

 

 

5,781

 

 

 

4,339

 

Deferred rent, net of current portion

 

 

602

 

 

 

233

 

Total liabilities

 

 

6,383

 

 

 

4,572

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock; $0.0001 par value; 10,000 shares authorized, and no shares issued and

   outstanding at March 31, 2016; no shares authorized, issued and outstanding at

   December 31, 2015

 

 

 

 

 

 

Common stock; $0.0001 par value; 100,000 shares authorized at March 31, 2016

   and December 31, 2015; 26,338 and 26,313 shares issued and outstanding at

   March 31, 2016 and December 31, 2015, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

270,711

 

 

 

269,144

 

Accumulated other comprehensive income (loss)

 

 

275

 

 

 

(719

)

Accumulated deficit

 

 

(62,388

)

 

 

(51,620

)

Total stockholders’ equity

 

 

208,601

 

 

 

216,808

 

Total liabilities and stockholders’ equity

 

$

214,984

 

 

$

221,380

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

2


REGENXBIO INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

 

License revenue

 

$

328

 

 

$

100

 

Reagent sales

 

 

59

 

 

 

104

 

Grant revenue

 

 

6

 

 

 

440

 

Total revenues

 

 

393

 

 

 

644

 

Expenses

 

 

 

 

 

 

 

 

Costs of revenues

 

 

 

 

 

 

 

 

Licensing costs (including amounts to related parties)

 

 

66

 

 

 

20

 

Costs of reagent sales (including amounts to related parties)

 

 

30

 

 

 

33

 

Research and development (including amounts to related parties)

 

 

6,183

 

 

 

2,791

 

General and administrative (including amounts to related parties)

 

 

5,479

 

 

 

1,716

 

Other operating expenses (income)

 

 

(114

)

 

 

77

 

Total operating expenses

 

 

11,644

 

 

 

4,637

 

Loss from operations

 

 

(11,251

)

 

 

(3,993

)

Other Income (Expense)

 

 

 

 

 

 

 

 

Investment income

 

 

483

 

 

 

2

 

Interest expense

 

 

 

 

 

(20

)

Total other income (expense)

 

 

483

 

 

 

(18

)

Net loss

 

$

(10,768

)

 

$

(4,011

)

Other Comprehensive Income

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

994

 

 

 

 

Total other comprehensive income

 

 

994

 

 

 

 

Comprehensive loss

 

$

(9,774

)

 

$

(4,011

)

Reconciliation of net loss to net loss applicable to common stockholders

 

 

 

 

 

 

 

 

Net loss

 

$

(10,768

)

 

$

(4,011

)

Net decretion and dividends on convertible preferred stock

 

 

 

 

 

755

 

Net gain on extinguishment of convertible preferred stock

 

 

 

 

 

759

 

Net loss applicable to common stockholders

 

$

(10,768

)

 

$

(2,497

)

Basic and diluted net loss per common share

 

$

(0.41

)

 

$

(0.94

)

Weighted-average basic and diluted common shares

 

 

26,327

 

 

 

2,645

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

3


REGENXBIO INC.

STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(10,768

)

 

$

(4,011

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,546

 

 

 

76

 

Net amortization of premiums and accretion of discounts on marketable debt securities

 

 

471

 

 

 

 

Depreciation and amortization

 

 

48

 

 

 

 

Unrealized foreign currency transaction losses (gains)

 

 

(13

)

 

 

121

 

Imputed interest on related party promissory notes

 

 

 

 

 

13

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

113

 

 

 

331

 

Prepaid expenses

 

 

(169

)

 

 

(24

)

Other current assets

 

 

(449

)

 

 

 

Other assets

 

 

(55

)

 

 

(11

)

Accounts payable

 

 

(182

)

 

 

419

 

Accrued expenses and other current liabilities

 

 

1,210

 

 

 

616

 

Other related party payables

 

 

 

 

 

795

 

Advance payments

 

 

(92

)

 

 

 

Deferred rent

 

 

453

 

 

 

 

Net cash used in operating activities

 

 

(7,887

)

 

 

(1,675

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(20,429

)

 

 

 

Maturities of marketable securities

 

 

10,106

 

 

 

 

Purchases of property and equipment

 

 

(416

)

 

 

(106

)

Net cash used in investing activities

 

 

(10,739

)

 

 

(106

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

21

 

 

 

7

 

Proceeds from issuance of Series C convertible preferred stock, net of transaction costs

 

 

 

 

 

26,021

 

Net cash provided by financing activities

 

 

21

 

 

 

26,028

 

Net increase (decrease) in cash and cash equivalents

 

 

(18,605

)

 

 

24,247

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

Beginning of period

 

 

54,116

 

 

 

1,121

 

End of period

 

$

35,511

 

 

$

25,368

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

7

 

Supplemental disclosures of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Conversion of accrued service fees to related party into Series C convertible preferred stock

 

$

 

 

$

2,403

 

Conversion of related party promissory notes into Series C convertible preferred stock

 

$

 

 

$

1,389

 

Purchases of property and equipment in accounts payable and accrued expenses

 

$

422

 

 

$

65

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

4


REGENXBIO INC.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

(in thousands, except per share data)

 

 

1. Nature of Business

REGENXBIO Inc. (the Company) was formed on July 16, 2008 in the state of Delaware as ReGenX, LLC, and on December 22, 2009, changed its name to ReGenX Biosciences, LLC. On September 16, 2014, the Company converted from a limited liability company (LLC) to a C-corporation, and changed its name to REGENXBIO Inc. The Company is a leading biotechnology company focused on the development, commercialization and licensing of recombinant adeno-associated virus (AAV) gene therapy. The Company’s proprietary AAV gene delivery platform (NAV® Technology Platform) consists of exclusive rights to over 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10. The Company’s NAV® Technology Platform is being applied by the Company, as well as by third-party licensees, in the development of product candidates for a variety of diseases with unmet needs.

Initial Public Offering

On September 22, 2015, the Company completed its initial public offering (IPO) whereby the Company sold 7,245 shares of common stock (inclusive of 945 shares of common stock sold by the Company pursuant to the full exercise of an option to purchase additional shares granted to the underwriters in connection with the offering) at a price of $22.00 per share. The shares began trading on the Nasdaq Global Select Market on September 17, 2015. The aggregate net proceeds received by the Company from the offering were $145,184, net of underwriting discounts and commissions and offering expenses payable by the Company. Upon the closing of the IPO, all outstanding shares of convertible preferred stock converted into 16,298 shares of common stock.

Liquidity and Risks

As of March 31, 2016, the Company had generated an accumulated deficit of $62,388 since inception. As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval and commercialization of its product candidates and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. As of March 31, 2016, the Company had cash, cash equivalents and marketable securities of $208,608, which management believes is sufficient to fund operations for at least the next 12 months. 

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, development by the Company or its competitors of technological innovations, risks of failure of clinical trials, dependence on key personnel, protection of proprietary technology, compliance with government regulations and ability to transition from preclinical manufacturing to commercial production of products.

 

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Unaudited Interim Financial Information

The accompanying financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). The interim unaudited financial statements have been prepared on the same basis as the annual audited financial statements as of and for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (SEC) on March 3, 2016. Certain information and footnote disclosures required by GAAP which are normally included in the Company’s annual financial statements have been condensed or omitted pursuant to SEC rules and regulations for interim reporting. In the opinion of management, the accompanying financial statements reflect all adjustments, which include all normal and recurring adjustments necessary for the fair statement of the Company’s financial position as of March 31, 2016, and the results of its operations and its cash flows for the interim periods ended March 31, 2016 and 2015.

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 financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2015, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K.

5


Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements. Estimates are used in the following areas, among others: stock-based compensation expense, accrued research and development expenses and the fair value of financial instruments.

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. FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), 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

The Company computes net loss per share in conformity with the two-class method required for participating securities. The Company considers all series of convertible preferred stock outstanding prior to the IPO to be participating securities. The holders of convertible preferred stock outstanding prior to the IPO were entitled to receive preferential dividends in the event that a dividend was to be paid to the holders of common stock, and did not have a contractual obligation to share in the losses of the Company. As such, the Company’s net loss for the three months ended March 31, 2015 was not allocated to these participating securities. In connection with the IPO, all outstanding shares of convertible preferred stock were automatically converted into shares of common stock.

Basic net loss per share is calculated by dividing net loss applicable to holders of common stock by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting weighted-average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, convertible preferred stock and stock options are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive. 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. Accordingly, basic and diluted net loss per share and unit were the same for all periods presented.

6


Recently Announced Accounting Pronouncements

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies various aspects of Topic 606, including the identification of performance obligations and the implementation of licensing guidance. The standard is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted upon issuance. The Company is evaluating the application of this ASU, but has not yet determined the potential effects it may have on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share-based payment awards including income tax consequences, classification of awards as either equity or liabilities and classification within the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted upon issuance. The Company is evaluating the application of this ASU, but has not yet determined the potential effects it may have on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is evaluating the application of this ASU, but has not yet determined the potential effects it may have on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which supersedes the current guidance to classify equity securities with readily determinable fair values into different categories and requires equity securities to be measured at fair value with changes in the fair value recognized through net income (loss). This guidance is effective for annual and interim periods beginning after December 15, 2017. The Company is evaluating the application of this ASU, but has not yet determined the potential effects it may have on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, requiring management to evaluate whether events or conditions could impact an entity’s ability to continue as a going concern and to provide disclosures if necessary. Management will be required to perform the evaluation within one year after the date that the financial statements are issued. Disclosures will be required if conditions give rise to substantial doubt and the type of disclosure will be determined based on whether management’s plans will be able to alleviate the substantial doubt. The ASU will be effective for the first annual period ending after December 15, 2016, and for annual periods and interim periods thereafter with early application permitted. The Company is evaluating the application of this ASU, but has not yet determined the potential effects it may have on the Company’s financial statement disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which deferred the effective date of the guidance under ASU No. 2014-09 for entities by one year. The ASU is now effective for annual and interim reporting periods beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the application of this ASU, but has not yet determined the potential effects it may have on the Company’s financial statements.

 

 

7


3. Marketable Securities

The following table presents a summary of the Company’s marketable securities, which consist solely of available-for-sale securities:

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

162,821

 

 

$

393

 

 

$

(142

)

 

$

163,072

 

Commercial paper

 

 

9,998

 

 

 

 

 

 

 

 

 

9,998

 

Common equity securities

 

 

3

 

 

 

24

 

 

 

 

 

 

27

 

 

 

$

172,822

 

 

$

417

 

 

$

(142

)

 

$

173,097

 

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

157,977

 

 

$

4

 

 

$

(759

)

 

$

157,222

 

Commercial paper

 

 

4,990

 

 

 

 

 

 

 

 

 

4,990

 

Common equity securities

 

 

3

 

 

 

36

 

 

 

 

 

 

39

 

 

 

$

162,970

 

 

$

40

 

 

$

(759

)

 

$

162,251

 

 

The Company’s common equity securities consist of shares of common stock of Dimension Therapeutics, Inc. (Dimension), which became a publicly traded company in October 2015. The Company obtained these shares in connection with a license granted to Dimension in October 2013. The Company is restricted from trading these securities until April 2016 pursuant to a lock-up agreement entered into in connection with Dimension’s IPO. The Company has classified these shares as available-for-sale securities and recognized an unrealized gain of $24 which is included in accumulated other comprehensive income as of March 31, 2016. Prior to Dimension’s IPO, the shares were not marketable and were accounted for as a cost method investment on the Company’s balance sheets.

As of March 31, 2016 and December 31, 2015, no available-for-sale securities had remaining maturities greater than three years.

The amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. As of March 31, 2016 and December 31, 2015, the balance in the Company’s accumulated other comprehensive income (loss) consisted solely of net unrealized gains and losses on available-for-sale securities. For the three months ended March 31, 2016,  the Company recognized net unrealized gains on available-for-sale securities of $994, which is included in other comprehensive income. There were no realized gains or losses recognized on the sale or maturity of available-for-sale securities during the three months ended March 31, 2016, and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive income for the period. The Company did not hold any available-for-sale securities during the three months ended March 31, 2015.

As of March 31, 2016 and December 31, 2015, the Company did not hold any available-for-sale securities in an unrealized loss position for more than 12 months. The aggregate fair value of securities held by the Company in an unrealized loss position for less than 12 months as of March 31, 2016 and December 31, 2015 was $74,706 and $155,486, respectively. As of March 31, 2016, securities held by the Company which were in an unrealized loss position for less than 12 months consisted of 20 investment grade corporate bonds. The Company has the intent and ability to hold such securities until recovery and has determined that none of these investments were other-than-temporarily impaired as of March 31, 2016 or December 31, 2015.

 

 

8


4. Fair Value of Financial Instruments

Financial instruments reported at fair value on a recurring basis include cash equivalents and marketable securities. Cash equivalents consist solely of money market mutual funds. Marketable securities consist of corporate debt securities, including corporate bonds and commercial paper, as well as common equity securities as disclosed in Note 3. The following tables present the fair value of cash equivalents and marketable securities in accordance with the hierarchy discussed in Note 2: 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

prices

 

 

other

 

 

Significant

 

 

 

 

 

 

 

in active

 

 

observable

 

 

unobservable

 

 

 

 

 

 

 

markets

 

 

inputs

 

 

inputs

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market mutual funds (cash equivalents)

 

$

 

 

$

35,511

 

 

$

 

 

$

35,511

 

Corporate bonds (marketable securities)

 

 

 

 

 

163,072

 

 

 

 

 

 

163,072

 

Commercial paper (marketable securities)

 

 

 

 

 

9,998

 

 

 

 

 

 

9,998

 

Common equity securities (marketable securities)

 

 

27

 

 

 

 

 

 

 

 

 

27

 

 

 

$

27

 

 

$

208,581

 

 

$

 

 

$

208,608

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

prices

 

 

other

 

 

Significant

 

 

 

 

 

 

 

in active

 

 

observable

 

 

unobservable

 

 

 

 

 

 

 

markets

 

 

inputs

 

 

inputs

 

 

 

 

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Total

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market mutual funds (cash equivalents)

 

$

 

 

$

54,104

 

 

$

 

 

$

54,104

 

Corporate bonds (marketable securities)

 

 

 

 

 

157,222

 

 

 

 

 

 

157,222

 

Commercial paper (marketable securities)

 

 

 

 

 

4,990

 

 

 

 

 

 

4,990

 

Common equity securities (marketable securities)

 

 

39

 

 

 

 

 

 

 

 

 

39

 

 

 

$

39

 

 

$

216,316

 

 

$

 

 

$

216,355

 

 

Management estimates that the carrying amounts of its accounts receivable, accounts payable and accrued expenses and other current liabilities approximate fair value due to the short-term nature of those instruments.  

The Company has determined that it is not practicable to estimate the fair value of cost method investments. The Company has not identified any events or changes in circumstances that would have an adverse effect on the fair value of its cost method investments.

 

 

5. Property and Equipment, Net

Property and equipment, net consists of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Computer equipment and software

 

$

562

 

 

$

458

 

Furniture and fixtures

 

 

309

 

 

 

105

 

Leasehold improvements

 

 

585

 

 

 

55

 

Total property and equipment

 

 

1,456

 

 

 

618

 

Accumulated depreciation and amortization

 

 

(128

)

 

 

(80

)

Property and equipment, net

 

$

1,328

 

 

$

538

 

 

The Company recorded $48 of depreciation and amortization expense for the three months ended March 31, 2016. No depreciation or amortization expense was recorded for the three months ended March 31, 2015 because the Company’s resources used in operations were provided by a related party (Note 9).

 

 

9


6. Commitments and Contingencies

Lease Agreements

The Company recognizes rent expense on a straight-line basis over the term of its operating leases commencing on the date the Company takes possession of the leased property. Tenant improvement allowances which are considered to be lease incentives from the lessor are recorded as deferred rent and amortized as a reduction of rent expense over the term of the lease from the possession date.

In January 2015, the Company entered into an operating lease with FoxKiser LLP (FoxKiser) for office space in Washington, D.C. The lease agreement, which had a month-to-month term, required monthly payments of $20. The lease was terminated in April 2015.

In March 2015, the Company entered into a 5.5-year, non-cancelable operating lease for office space in Rockville, Maryland. The lease commenced in April 2015, and expires in September 2020. The Company has options to extend the lease for up to 6 years. Initial monthly payments required under the lease were $24 beginning in October 2015 and escalate annually in accordance with the lease.

In September 2015, and again in November 2015, the Company amended its operating lease in Rockville, Maryland to include additional office and laboratory space and extend the term of the lease for its existing space to October 2020. The lease for the additional space commenced in April 2016, and has a 5-year term expiring in March 2021. The Company has options to extend the lease for the additional space to be coterminous with the Company’s existing lease at that facility. Initial monthly payments required under the lease for the additional space are $41 and escalate annually in accordance with the lease. The Company received a $286 tenant improvement allowance from the landlord which will be deferred and amortized on a straight-line basis as a reduction of rent expense over the term of lease.

In January 2016, the Company entered into a 7.5-year, non-cancelable operating lease for additional office space in Rockville, Maryland. The lease commenced in February 2016, and expires in September 2023. Initial monthly payments required under the lease are $38 beginning seven months from the commencement date and escalate annually in accordance with the lease agreement. The Company received a $725 tenant improvement allowance from the landlord which, if used by the Company, will be deferred and amortized on a straight-line basis as a reduction of rent expense over the term of lease.

The Company has entered into various short-term operating leases for office and laboratory space in Gaithersburg, Maryland, Philadelphia, Pennsylvania and New York, New York, which expire at various dates through July 2016.

As of March 31, 2016, future minimum lease payments under non-cancelable operating leases are as follows:

 

 

 

Operating

 

 

 

Leases

 

2016 (remainder of year)

 

$

848

 

2017

 

 

1,286

 

2018

 

 

1,325

 

2019

 

 

1,365

 

2020

 

 

1,337

 

Thereafter

 

 

1,614

 

Total minimum lease payments

 

$

7,775

 

 

Licenses Granted to the Company

Licenses granted to the Company may require the Company to make future payments relating to sublicense fees, milestone fees for milestones not met as of March 31, 2016 and royalties on future sales of licensed products. Additionally, the Company may be responsible for the cost of the maintenance of the intellectual property as incurred by its licensors. Up-front fees to obtain licensed technology are included in research and development expenses and patent maintenance costs are included in general and administrative expenses in the statements of operations and comprehensive loss. Sublicense fees are based on a specified percentage of license fees earned by the Company and are included in licensing costs in the statements of operations and comprehensive loss. Royalties on sales of licensed reagents for use in research and development are included in costs of reagent sales in the statements of operations and comprehensive loss. The Company has not commercialized any product candidates or paid any royalties under these agreements other than for the sales of licensed reagents.

The Trustees of the University of Pennsylvania. On February 20, 2009, the Company entered into a license agreement, as amended, with The Trustees of the University of Pennsylvania (Penn) for exclusive, worldwide rights to certain patents owned by

10


Penn underlying the Company’s NAV® Technology Platform. Under the terms of the agreement, in consideration for the license, the Company issued to Penn 24.5 percent of the then outstanding membership interest in the LLC on a fully diluted basis after issuance. The Company is obligated to pay Penn royalties on net sales and sublicense fees, if any. Additionally, the Company is obligated to reimburse Penn for certain costs incurred related to the maintenance of the licensed patents.

Expenses incurred by the Company related to its license from Penn were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Sublicense fees

 

$

33

 

 

$

10

 

Royalties on sales of reagents

 

 

2

 

 

 

1

 

Maintenance of licensed patents

 

 

29

 

 

 

10

 

 

 

$

64

 

 

$

21

 

 

As of March 31, 2016 and December 31, 2015, the Company had accrued $170 and $440, respectively, in expenses payable to Penn under the license agreement, which are included in accounts payable and accrued expenses on the Company’s balance sheets. Until September 30, 2015, the Company considered Penn to be a related party. See Note 9 for further information on related party transactions with Penn.

GlaxoSmithKline LLC. On March 6, 2009, the Company entered into a license agreement, as amended, with GlaxoSmithKline LLC (GSK) for exclusive, worldwide rights to certain patents underlying the Company’s NAV® Technology Platform which are owned by Penn and exclusively licensed to GSK. Under the terms of the agreement, in consideration for the license, the Company issued to GSK 19.9 percent of the then outstanding membership interest in the LLC on a fully diluted basis after issuance. The Company is obligated to pay GSK royalties on net sales and sublicense fees, if any. Additionally, the Company is obligated to reimburse GSK for certain costs incurred and invoiced to the Company related to the maintenance of the licensed patents. The Company is obligated to pay GSK up to $1,500 upon the achievement of various milestones. As of March 31, 2016, no milestones have been achieved and accordingly no milestone payments were payable to GSK.

Expenses incurred by the Company related to its license from GSK were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Sublicense fees

 

$

33

 

 

$

10

 

Royalties on sales of reagents

 

 

1

 

 

 

1

 

Maintenance of licensed patents

 

 

92

 

 

 

114

 

 

 

$

126

 

 

$

125

 

 

As of March 31, 2016 and December 31, 2015, the Company had accrued $233 and $526, respectively, in expenses payable to GSK under the license agreement, which are included in accounts payable and accrued expenses on the Company’s balance sheets. Until September 30, 2015, the Company considered GSK to be a related party. See Note 9 for further information on related party transactions with GSK.

ARIAD Pharmaceuticals, Inc. On November 19, 2010, the Company entered into a license agreement with ARIAD Pharmaceuticals, Inc. (ARIAD), for exclusive, worldwide rights to certain patents owned and exclusively licensed by ARIAD. In consideration for the license, the Company issued Class A Units of the LLC to ARIAD with a fair value of $726. Under the terms of the agreement, the Company is obligated to pay ARIAD royalties on net sales, and sublicense fees, if any. Additionally, the Company is obligated to pay ARIAD up to $2,300 and annual maintenance fees of $50 upon the achievement of various milestones. As of March 31, 2016, no milestones have been achieved and accordingly no milestone payments or maintenance fees were payable to ARIAD. Additionally, the Company has not incurred any royalties or sublicense fees payable to ARIAD since the inception of the agreement. The Company had no amounts due to ARIAD under the agreement as of March 31, 2016 and December 31, 2015.

Regents of the University of Minnesota. On November 10, 2014, the Company entered into a license agreement with Regents of the University of Minnesota (Minnesota), for an exclusive license under certain patent rights to commercialize products covered by the licensed patent rights in any country or territory in which a licensed patent has been issued and is unexpired, or a licensed patent application is pending. In consideration for the license, the Company paid an up-front fee of $25 and reimbursed Minnesota for patent maintenance expenses of $9. Under the terms of the agreement, the Company is obligated to pay Minnesota annual maintenance fees between $5 and $15 per year on each anniversary date of the agreement. Additionally, the Company is obligated to pay royalties on net sales and sublicense fees, if any, and up to $125 per licensed product upon the achievement of various milestones. As of March 31, 2016, no milestones have been achieved and accordingly no milestone payments were payable to Minnesota. Additionally, the

11


Company has not incurred any royalties or sublicense fees payable to Minnesota since the inception of the agreement. The Company had no amounts due to Minnesota under the agreement as of March 31, 2016 and December 31, 2015.

Guarantees and Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of March 31, 2016 and December 31, 2015, the Company did not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded any related liabilities.

 

 

7. Significant Agreements

See Note 6 for license agreements granted to the Company.

Licenses Granted by the Company

The Company has granted a number of intellectual property licenses to other biotechnology and pharmaceutical companies. The terms of the licenses vary, however licenses may be exclusive or non-exclusive and may be sublicensable by the licensee. Licenses may grant intellectual property rights for purposes of internal and preclinical research and development only, or may include the rights, or options to obtain future rights, to commercialize drug therapies for specific diseases using the Company’s NAV® Technology. License agreements generally have a term equal to the life of the underlying patents and are terminable only at the option of the licensee. License agreements may require licensees to pay non-refundable up-front fees, option fees and annual maintenance fees. Additional contingent consideration under the licenses may include sublicense fees, milestone fees and royalties on net sales of commercialized 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-teen percentage of net sales by licensees.

Milestone fees are payable to the Company upon the achievement of specific clinical and regulatory developments by licensees. As of March 31, 2016, the Company’s license agreements, excluding additional licenses that could be granted upon the exercise of options by licensees, could result in aggregate milestone fees payable to the Company of up to $500 upon the submission of preclinical regulatory filings, $16,650 upon the commencement of various stages of clinical trials, $28,000 upon the submission of regulatory approval filings, $73,500 upon the approval of commercial products by regulatory agencies and $47,000 upon the achievement of specified sales targets for licensed products.

License revenue consists of the following:

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Maintenance fees for commercial licenses

 

$

250

 

 

$

100

 

Research and other license revenue

 

 

78

 

 

 

 

 

 

$

328

 

 

$

100

 

 

 

8. Stock-based Compensation

Equity Incentive Plans

In September 2014, the Board of Directors adopted the 2014 Stock Plan (2014 Plan). In June 2015, the Board of Directors adopted the 2015 Equity Incentive Plan (2015 Plan), which became effective on September 16, 2015, the date on which the registration statement for the IPO was declared effective. The 2015 Plan replaced the 2014 Plan, and as of the effective date of the 2015 Plan, no further awards may be issued under the 2014 Plan. Any options or awards outstanding under the 2014 Plan at the effective date of the 2015 Plan remained outstanding and effective. The initial amount of shares authorized for issuance under the 2015 Plan was 2,952. The number of authorized shares under the 2015 Plan automatically increases annually on January 1, beginning January 1, 2016, by the lesser of (i) 4% of the total number of shares of common stock outstanding on December 31 of the prior year, or (ii) a number of common shares determined by the Board of Directors. Effective January 1, 2016, the Board of Directors authorized an additional 1,053 shares to be issued under the 2015 Plan. As of March 31, 2016, the total number of shares of common stock authorized for issuance under the 2015 Plan and 2014 Plan is 7,178, of which 2,307 remain available for future grants under the 2015 Plan.

12


The 2014 Plan and 2015 Plan provide for the issuance of stock options, stock appreciation rights, restricted and unrestricted stock awards and performance cash awards to employees, members of the Board of Directors and consultants of the Company. No stock appreciation rights, restricted or unrestricted stock awards or performance cash awards have been granted under the 2014 Plan and 2015 Plan since the inception of the plans. Stock options under the 2014 Plan and 2015 Plan generally expire ten years following the date of grant. Options typically vest over a four year period, but vesting provisions can vary by award based on the discretion of the Board of Directors. Certain awards issued by the Company include performance conditions that must be achieved in order for vesting to occur. Stock options under the 2014 Plan and 2015 Plan carry an exercise price at least equal to the estimated fair value of the Company’s common stock on the date of grant.

Shares of common stock underlying awards previously issued under the 2014 Plan and 2015 Plan which are reacquired by the Company, withheld by the Company in payment of the purchase price, exercise price or withholding taxes, expired, cancelled due to forfeiture or otherwise terminated other than by exercise, are added to the number of shares of common stock available for issuance under the 2015 Plan. Shares available for issuance under the 2015 Plan may be either authorized but unissued shares of the Company’s common stock or common stock reacquired by the Company and held in treasury. The 2015 Plan expires in June 2025, ten years from the date it was adopted by the Board of Directors, unless earlier terminated.

The following table summarizes stock option activity under the Company’s equity incentive plans:

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

average

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

 

average

 

 

Contractual

 

 

Aggregate

 

 

 

 

 

 

 

Exercise

 

 

Life

 

 

Intrinsic

 

 

 

Shares

 

 

Price

 

 

(Years)

 

 

Value (a)

 

Outstanding at December 31, 2015

 

 

3,684

 

 

$

5.52

 

 

 

9.1

 

 

$

44,472

 

Granted

 

 

1,098

 

 

$

13.07

 

 

 

 

 

 

 

 

 

Exercised

 

 

(25

)

 

$

0.85

 

 

 

 

 

 

 

 

 

Cancelled or forfeited

 

 

(39

)

 

$

12.41

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

 

4,718

 

 

$

7.24

 

 

 

9.1

 

 

$

26,556

 

Exercisable at March 31, 2016

 

 

1,446

 

 

$

1.70

 

 

 

8.6

 

 

$

13,534

 

Vested and expected to vest at March 31, 2016

 

 

4,718

 

 

$

7.24

 

 

 

9.1

 

 

$

26,556

 

 

(a)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated 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 of options granted during the three months ended March 31, 2016 was $8.75. During the three months ended March 31, 2016, the total number of stock options exercised was 25, resulting in total proceeds of $21. The total intrinsic value of options exercised during the three months ended March 31, 2016 was $295.

Stock-based compensation expense for the three months ended March 31, 2016 and December 31, 2015, relates solely to stock options granted under the 2014 Plan and the 2015 Plan. The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards to employees and non-employees in the statement of operations and comprehensive loss as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Research and development

 

$

392

 

 

$

24

 

General and administrative

 

 

1,154

 

 

 

52

 

 

 

$

1,546

 

 

$

76

 

 

13


Stock Options Granted to Employees. The fair value of options granted to employees was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31, 2016

 

Expected volatility

 

 

 

 

75

%

Expected term (in years)

 

 

 

 

6.3

 

Risk-free interest rate

 

 

 

 

1.6

%

Expected dividend yield

 

 

 

 

0.0

%

 

The Company did not grant any stock options to employees during the three months ended March 31, 2015. As of March 31, 2016, there was $19,171 of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 3.54 years.

Stock Options Granted to Non-employees. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock options are earned. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered. The Company used the following weighted-average assumptions in estimating non-employees’ stock-based compensation expense:

 

 

 

Three Months Ended

 

 

 

March 31, 2016

 

 

March 31, 2015

 

Expected volatility

 

 

84

%

 

 

66

%

Expected term (in years)

 

 

8.8

 

 

 

9.5

 

Risk-free interest rate

 

 

1.7

%

 

 

1.9

%

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

 

Employee Stock Purchase Plan

In June 2015, the Company’s Board of Directors adopted the 2015 Employee Stock Purchase Plan (2015 ESPP), which became effective on September 16, 2015, the date on which the registration statement for the IPO was declared effective. The 2015 ESPP authorizes the initial issuance of up to a total of 254 shares of the Company’s common stock to participating employees. The number of shares reserved for issuance under the 2015 ESPP automatically increases on the first business day of each fiscal year, commencing in 2016, by a number equal to the lesser of (i) 1% of the shares of common stock outstanding on the last business day of the prior fiscal year; or (ii) the number of shares determined by the Company’s Board of Directors. Unless otherwise determined by the administrator of the 2015 ESPP, two offering periods of six months’ duration will begin each year on January 1 and July 1. As of March 31, 2016, there was no activity under the 2015 ESPP. The Board of Directors did not authorize any further shares to be reserved for issuance under the 2015 ESPP in January 2016.

 

 

9. Related Party Transactions

The Trustees of the University of Pennsylvania

Penn is a stockholder of the Company as a result of the intellectual property license granted to the Company in February 2009, and prior to September 30, 2015, the Company considered Penn to be a related party. See Note 6 for further information, including costs incurred by the Company, regarding its license from Penn.

In addition to the license agreement, Penn also provides manufacturing and research and development services to the Company. Penn was considered a related party of the Company for the three months ended March 31, 2015. During the three months ended March 31, 2015, the Company incurred $32 in services from Penn for the manufacturing of reagents for sale by the Company as well as $1,127 in research and development services provided by Penn.

As a result of various factors, including the dilution to the Company’s stockholders resulting from the sale and issuance of Series C convertible preferred stock (Series C Preferred Stock) and Series D convertible preferred stock (Series D Preferred Stock), and the closing of the Company’s IPO on September 22, 2015, the Company no longer considers Penn to be a related party subsequent to the period ended September 30, 2015.

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GlaxoSmithKline LLC

GSK is a stockholder of the Company as a result of the intellectual property license granted to the Company in March 2009, and prior to September 30, 2015, the Company considered GSK to be a related party. See Note 6 for further information, including costs incurred by the Company, regarding its license from GSK.

As a result of various factors, including the dilution to the Company’s stockholders resulting from the sale and issuance of Series C Preferred Stock and Series D Preferred Stock, and the closing of the Company’s IPO on September 22, 2015, the Company no longer considers GSK to be a related party subsequent to the period ended September 30, 2015.

Dimension Therapeutics, Inc.

The Company and a number of its members, directors and management received common stock of Dimension as consideration for a license granted to Dimension in October 2013. Additionally, at the date of the license, three of the Company’s board members also served on the board of directors of Dimension. As a result, prior to September 30, 2015, the Company considered Dimension to be a related party.

As of September 30, 2015, the Company no longer had any overlapping board members with Dimension. Additionally, the Company’s directors and management do not have significant influence over Dimension. Accordingly, the Company no longer considers Dimension to be a related party subsequent to the period ended September 30, 2015.

In 2014, the Company received $200 from Dimension for the purchase of materials owned by the Company and used in the Company’s manufacturing process for research and development and clinical trials. The $200 is recognized as a gain on disposal of the material as the material is delivered to Dimension. As of March 31, 2015, the Company had recognized $47 of the total gain on disposal and had recorded a liability of $153 related to undelivered material. No gain was recognized during the three months ended March 31, 2015.  

FoxKiser

The Company was party to a services agreement, as amended from time to time, with FoxKiser, an affiliate of certain stockholders of the Company and affiliate of one current and one former member of the Board of Directors, which was terminated in January 2015. Under the agreement, the Company paid a fixed monthly fee plus an additional support fee, as determined by FoxKiser on a monthly basis, as consideration for office facilities, equipment, supplies, general management, accounting, financial management, human resources, legal, secretarial, regulatory compliance and other services provided to the Company. The amounts outstanding to FoxKiser under the services agreement in excess of 30 days from their due date accrued interest at 1.5 percent per month, compounding monthly. The Company allocated the service fees from FoxKiser between research and development and general and administrative expense. For the three months ended March 31, 2015, costs incurred under the services agreement with FoxKiser included $197 of research and development expenses and $148 of general and administrative expenses.

The Company entered into a Professional Services Agreement with FoxKiser effective as of January 1, 2016, pursuant to which the Company incurs a fixed monthly fee of $80 in consideration for certain strategic planning, development and regulatory services to be provided by FoxKiser.  The Professional Services Agreement has an initial term of one year and is terminable by either party, at any time, upon sixty days’ prior written notice to the other party. Costs incurred under the Professional Services Agreement with FoxKiser for the three months ended March 31, 2016 were $240, which have been recorded as research and development expenses in the statements of operations and comprehensive loss.

Chief Scientific Advisor

In September 2014, the Company entered into an advisory agreement with its Chief Scientific Advisor, who is also the Chairman of the Company’s Scientific Advisory Board. The agreement was amended in May 2015 and expires in March 2017. During the three months ended March 31, 2016 and 2015, the Company incurred advisory fees of $62 and $45, respectively, to the Chief Scientific Advisor under the agreement. Additionally, since the inception of the agreement, the Company has granted options to purchase 212 shares of common stock to the Chief Scientific Advisor as compensation for services to be provided to the Company, which vest partially upon the completion of future service conditions and partially upon the achievement of specified performance conditions as set forth in the award agreements.

 

 

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10. Net Loss Per Share

The following potentially dilutive securities outstanding at the end of the period were excluded from the computations of diluted weighted-average shares outstanding for the periods indicated as they would be anti-dilutive:

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Series A convertible preferred stock and preferred units

 

 

 

 

 

2,393

 

Series B convertible preferred stock and preferred units

 

 

 

 

 

1,906

 

Series C convertible preferred stock and preferred units

 

 

 

 

 

4,632

 

Stock options issued and outstanding

 

 

4,718

 

 

 

2,099

 

 

 

 

4,718

 

 

 

11,030

 

 

Amounts in the table above reflect the common stock equivalents of the noted instruments.

 

 

11. Supplemental Disclosures

Accrued expenses and other current liabilities consists of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accrued personnel costs

 

$

1,380

 

 

$

1,371

 

Accrued external research and development

 

 

2,062

 

 

 

791

 

Accrued sublicense fees and royalties on reagent sales

 

 

260

 

 

 

260

 

Other accrued expenses and current liabilities

 

 

931

 

 

 

776

 

 

 

$

4,633

 

 

$

3,198

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of REGENXBIO Inc.’s 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 included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 3, 2016. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Risk Factors” and “Information Regarding Forward-Looking Statements” sections of this Quarterly Report on Form 10-Q 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. All amounts are expressed in thousands other than per share amounts.

Overview

REGENXBIO Inc. (we, our, the Company or REGENXBIO) is a leading biotechnology company focused on the development, commercialization and licensing of recombinant adeno-associated virus (AAV) gene therapy. Our proprietary AAV gene delivery platform (our NAV Technology Platform) consists of exclusive rights to over 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10 (NAV Vectors). As of March 31, 2016, our NAV Technology Platform was being applied in the development of 28 product candidates for a variety of diseases, including five internally developed product candidates and 23 partnered product candidates developed by our third-party licensees (NAV Technology Licensees).

We currently plan to build internal gene therapy franchises in the metabolic, neurodegenerative and retinal therapeutic areas, and develop multiple product candidates in each area. Our most advanced programs are for the treatment of two severe genetic diseases: homozygous familial hypercholesterolemia (HoFH) and Mucopolysaccharidosis Type I (MPS I). An investigational new drug application (IND) to support a Phase I/II clinical trial to evaluate the effect of RGX-501 for the treatment of HoFH is active. We expect a Phase I/II clinical trial for RGX-501 to be initiated in the first half of 2016. We expect to file an IND with the U.S. Food and Drug Administration (the FDA) for RGX-111, our program for MPS I, in the first half of 2016 to support a Phase I/II clinical trial, which we expect to initiate in the third quarter of 2016. We also have a preclinical program for wet age-related macular degeneration (wet AMD) for which we expect to file an IND with the FDA in the second half of 2016 and a preclinical program for Mucopolysaccharidosis Type II (MPS II) for which we expect to file an IND with the FDA in the first half of 2017.

Our partnered development pipeline benefits from the disease-specific expertise of our NAV Technology Licensees. Our partnering strategy provides us the flexibility to sublicense development of treatments designed to address significant unmet medical needs, while remaining focused on our core programs and therapeutic areas internally, which we believe enables us to achieve maximum value. We believe that the broad applicability of our NAV Technology Platform and any clinical successes of the treatments utilizing NAV Vectors will create new internal and partnered pipeline opportunities.

On September 22, 2015, we closed our initial public offering (IPO) whereby we sold 7,245 shares of common stock (inclusive of 945 shares of common stock sold pursuant to the full exercise of an option to purchase additional shares granted to the underwriters in connection with the offering) at a price of $22.00 per share. The shares began trading on The Nasdaq Global Select Market on September 17, 2015. The aggregate net proceeds from the offering were $145,184, net of underwriting discounts and commissions and offering expenses payable by us. Upon the closing of the IPO, all outstanding shares of convertible preferred stock converted into 16,298 shares of common stock.

Financial Overview

Revenue

We classify our revenue into three categories: license revenue, grant revenue and reagent sales. To date, we have generated limited revenue through our licensing agreements with our NAV Technology Licensees for research, development and commercialization of product candidates using our proprietary technology. Additionally, we have generated limited revenue from grant programs and sales of licensed reagents to customers for use in research and development. We have not generated any revenue from sales of approved products or drug therapies. If we fail to complete the development of our product candidates in a timely manner, or fail to obtain their regulatory approval, our ability to generate future revenue will be compromised.

License Revenue

The terms of our license agreements require delivery of a license for use of our intellectual property in either research only, or in research and commercial development of drug therapies for various diseases. License agreements generally have a term equal to the life of the intellectual property, but are terminable at the option of the licensee. Non-refundable payments to us under these arrangements may include: (i) up-front license fees, (ii) option fees to exercise options to obtain commercial licenses, (iii) annual

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maintenance fees, (iv) sublicense fees, (v) payments based on the achievement of certain milestones by the licensee and (vi) royalties on product sales. Due to the contingent nature of option fees, sublicense fees, milestone payments and future royalties on product sales under our licensing arrangements, future license revenue is highly dependent on the successful development and commercialization of products by our licensees, which is uncertain and may fluctuate significantly from period to period.

Grant Revenue

Grant revenue is generated through research and development grant programs offered by the United States (U.S.) federal government and the European Union (EU). As of March 31, 2016, all grants from the U.S. federal government have been completed. Grant revenue is expected to decrease in future periods as we expect to incur significantly less costs under the MeuSIX grant funded by the EU. We are not currently seeking any further grant awards.

Reagent Sales

Reagent sales consist of the sales of licensed reagents to third-parties for use in research and development. We do not consider reagent sales a core aspect of our business model and we do not dedicate significant resources to sales efforts for reagents. Accordingly, future revenue from sales of reagents is uncertain and may fluctuate significantly from period to period.

Expenses

We classify our expenses into three categories: costs of revenue, research and development and general and administrative expenses. Personnel costs including salaries, benefits, bonuses and stock-based compensation expense, comprise a significant component of research and development and general and administrative expenses. We allocate expenses associated with our facilities, information technology costs, depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee.

Costs of Revenue

Costs of revenue primarily consist of our expenses related to the generation of revenue from our intellectual property licensing arrangements and sales of reagents. These expenses fall into the following categories: sublicense fees that are included in licensing costs to related parties, and royalties and production costs that are included in costs of reagent sales. Future costs of revenue are uncertain due to the nature of our license agreements and reagent sales, and significant fluctuations in costs of revenue 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, travel and any stock-based compensation, for our scientific personnel performing research and development activities;

 

·

costs related to executing preclinical studies and clinical trials;

 

·

costs related to acquiring, developing and manufacturing materials for preclinical studies and clinical trials;

 

·

fees paid to consultants and other third-parties who support our internal product candidate development;

 

·

other costs in seeking regulatory approval of our internal product candidates; and

 

·

allocated facility-related costs and overhead.

Up-front fees incurred in obtaining technology licenses for research and development activities are expensed as incurred if the technology licensed has no alternative future use.

We typically utilize our employee, consultant and infrastructure resources across our development programs. We do not allocate personnel costs, other internal costs or certain external costs to specific product candidates or development programs.

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