rgnx-10q_20190331.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from ___ to ___

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.)

 

 

 

9600 Blackwell Road, Suite 210

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

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

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Ticker symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

RGNX

The Nasdaq Global Select Market

As of May 3, 2019, there were 36,636,825 outstanding shares of the registrant’s common stock, par value $0.0001 per share.

 

 

 


Table of Contents

 

REGENXBIO INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

TABLE OF CONTENTS

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

3

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2019 and 2018

 

4

 

 

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018

 

5

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

 

6

 

 

Notes to Consolidated Financial Statements

 

7

Item 2.

 

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

 

23

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4.

 

Controls and Procedures

 

32

 

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

33

Item 1A.

 

Risk Factors

 

33

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Item 3.

 

Defaults Upon Senior Securities

 

33

Item 4.

 

Mine Safety Disclosures

 

33

Item 5.

 

Other Information

 

33

Item 6.

 

Exhibits

 

34

Signatures

 

35

 

 

 


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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements express a belief, expectation or intention and are generally accompanied by words that convey projected future events or outcomes such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “assume,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or by variations of such words or by similar expressions. We have based these forward-looking statements on our current expectations and assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks, uncertainties, assumptions and other important factors, including, but not limited to:

 

the timing of enrollment, commencement and completion and the success of our clinical trials;

 

the timing of commencement and completion and the success of preclinical studies conducted by us and our development partners;

 

the timely development and launch of new products;

 

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 and technology;

 

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 our expenses and revenue;

 

our expectations regarding regulatory developments in the United States and foreign countries; and

 

the use or sufficiency of our cash and cash equivalents and needs for additional financing.

You should carefully read the factors discussed in the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2018 and in our other filings with the U.S. Securities and Exchange Commission (the SEC) for additional discussion of the risks, uncertainties, assumptions and other important factors that could cause our actual results or developments to differ materially and adversely from those projected in the forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on us or our businesses or operations. Such statements are not guarantees of future performance and actual results or developments may differ materially and adversely from those projected in the forward-looking statements. These forward-looking statements speak only as of the date of this report. Except as required by law and the rules of the SEC, we do not undertake any obligation, and specifically decline any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Available Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Exchange Act. You may obtain any reports, proxy and information statements, and other information that we file electronically with the SEC at www.sec.gov.

You also may view and download copies of our SEC filings free of charge at our website, www.regenxbio.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and is not considered part of, this Quarterly Report on Form 10-Q. Investors should also note that we use our website, as well as SEC filings, press releases, public conference calls and webcasts, to announce financial information and other material developments regarding our business. We use these channels, as well as any social media channels listed on our website, to communicate with investors and members of the public about our business. It is possible that the information that we post on our social media channels could be deemed material information. Therefore, we encourage investors, the media and others interested in our company to review the information that we post on our social media channels.

As used in this Quarterly Report on Form 10-Q, the terms “REGENXBIO,” “we,” “us,” “our” or the “Company” mean REGENXBIO Inc. and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.

NAV, REGENXBIO and the REGENXBIO logos are our registered trademarks. Any other trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

REGENXBIO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except per share data)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,852

 

 

$

75,561

 

Marketable securities

 

 

229,373

 

 

 

244,200

 

Accounts receivable

 

 

8,372

 

 

 

8,587

 

Prepaid expenses

 

 

6,292

 

 

 

5,734

 

Other current assets

 

 

3,995

 

 

 

3,831

 

Total current assets

 

 

303,884

 

 

 

337,913

 

Marketable securities

 

 

159,083

 

 

 

150,819

 

Accounts receivable

 

 

22,758

 

 

 

23,012

 

Property and equipment, net

 

 

23,140

 

 

 

28,702

 

Operating lease right-of-use assets

 

 

6,858

 

 

 

 

Restricted cash

 

 

1,053

 

 

 

1,053

 

Other assets

 

 

2,255

 

 

 

2,315

 

Total assets

 

$

519,031

 

 

$

543,814

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,204

 

 

$

4,412

 

Accrued expenses and other current liabilities

 

 

14,189

 

 

 

17,164

 

Deferred revenue

 

 

600

 

 

 

600

 

Operating lease liabilities

 

 

2,397

 

 

 

 

Total current liabilities

 

 

21,390

 

 

 

22,176

 

Deferred revenue

 

 

3,333

 

 

 

3,333

 

Operating lease liabilities

 

 

5,483

 

 

 

 

Deferred rent

 

 

 

 

 

1,098

 

Financing lease obligations

 

 

 

 

 

5,854

 

Other liabilities

 

 

1,772

 

 

 

2,505

 

Total liabilities

 

 

31,978

 

 

 

34,966

 

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, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock; $0.0001 par value; 100,000 shares authorized at March 31, 2019

   and December 31, 2018; 36,611 and 36,120 shares issued and outstanding at

   March 31, 2019 and December 31, 2018, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

602,425

 

 

 

592,580

 

Accumulated other comprehensive loss

 

 

(59

)

 

 

(720

)

Accumulated deficit

 

 

(115,317

)

 

 

(83,016

)

Total stockholders’ equity

 

 

487,053

 

 

 

508,848

 

Total liabilities and stockholders’ equity

 

$

519,031

 

 

$

543,814

 

 

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

 

 

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REGENXBIO INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

License revenue

 

$

884

 

 

$

132,391

 

Total revenues

 

 

884

 

 

 

132,391

 

Operating Expenses

 

 

 

 

 

 

 

 

Costs of revenues

 

 

 

 

 

 

 

 

Licensing costs

 

 

29

 

 

 

2,408

 

Research and development

 

 

25,203

 

 

 

19,550

 

General and administrative

 

 

11,558

 

 

 

8,380

 

Other operating expenses

 

 

 

 

 

28

 

Total operating expenses

 

 

36,790

 

 

 

30,366

 

Income (loss) from operations

 

 

(35,906

)

 

 

102,025

 

Other Income

 

 

 

 

 

 

 

 

Interest income from licensing

 

 

613

 

 

 

1,355

 

Investment income

 

 

2,995

 

 

 

859

 

Total other income

 

 

3,608

 

 

 

2,214

 

Income (loss) before income taxes

 

 

(32,298

)

 

 

104,239

 

Income Tax Benefit

 

 

70

 

 

 

 

Net income (loss)

 

$

(32,228

)

 

$

104,239

 

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities,

   net of reclassifications and income tax expense

 

 

621

 

 

 

(188

)

Total other comprehensive income (loss)

 

 

621

 

 

 

(188

)

Comprehensive income (loss)

 

$

(31,607

)

 

$

104,051

 

Net income (loss) applicable to common stockholders

 

$

(32,228

)

 

$

104,239

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.89

)

 

$

3.30

 

Diluted

 

$

(0.89

)

 

$

3.04

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

36,366

 

 

 

31,632

 

Diluted

 

 

36,366

 

 

 

34,275

 

 

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

 

 

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REGENXBIO INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2018

 

 

36,120

 

 

$

4

 

 

$

592,580

 

 

$

(720

)

 

$

(83,016

)

 

$

508,848

 

Adoption of ASU 2016-02 (Topic 842)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(33

)

 

 

(33

)

Adoption of ASU 2018-02

 

 

 

 

 

 

 

 

 

 

 

40

 

 

 

(40

)

 

 

 

Exercise of stock options

 

 

481

 

 

 

 

 

 

3,762

 

 

 

 

 

 

 

 

 

3,762

 

Issuance of common stock under employee

   stock purchase plan

 

 

10

 

 

 

 

 

 

365

 

 

 

 

 

 

 

 

 

365

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,718

 

 

 

 

 

 

 

 

 

5,718

 

Unrealized gain on available-for-sale securities,

   net of reclassifications and income tax expense

 

 

 

 

 

 

 

 

 

 

 

621

 

 

 

 

 

 

621

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,228

)

 

 

(32,228

)

Balances at March 31, 2019

 

 

36,611

 

 

$

4

 

 

$

602,425

 

 

$

(59

)

 

$

(115,317

)

 

$

487,053

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2017

 

 

31,295

 

 

$

3

 

 

$

371,497

 

 

$

(715

)

 

$

(187,756

)

 

$

183,029

 

Adoption of ASU 2014-09 (Topic 606)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,803

 

 

 

4,803

 

Exercise of stock options

 

 

586

 

 

 

 

 

 

3,824

 

 

 

 

 

 

 

 

 

3,824

 

Issuance of common stock under employee

   stock purchase plan

 

 

20

 

 

 

 

 

 

342

 

 

 

 

 

 

 

 

 

342

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,291

 

 

 

 

 

 

 

 

 

3,291

 

Unrealized loss on available-for-sale securities,

   net of reclassifications and income tax expense

 

 

 

 

 

 

 

 

 

 

 

(188

)

 

 

 

 

 

(188

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

104,239

 

 

 

104,239

 

Balances at March 31, 2018

 

 

31,900

 

 

$

3

 

 

$

378,954

 

 

$

(903

)

 

$

(78,714

)

 

$

299,340

 

 

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

 

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REGENXBIO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(32,228

)

 

$

104,239

 

Adjustments to reconcile net income (loss) to net cash provided by (used in)

   operating activities

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

5,718

 

 

 

3,291

 

Net amortization of premiums and accretion of discounts on marketable

   debt securities

 

 

(368

)

 

 

378

 

Depreciation and amortization

 

 

1,614

 

 

 

834

 

Imputed interest income from licensing

 

 

(613

)

 

 

(1,355

)

Other non-cash adjustments

 

 

327

 

 

 

10

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

591

 

 

 

(51,414

)

Prepaid expenses

 

 

(790

)

 

 

667

 

Other current assets

 

 

(295

)

 

 

(446

)

Operating lease right-of-use assets

 

 

573

 

 

 

 

Other assets

 

 

26

 

 

 

(21

)

Accounts payable

 

 

316

 

 

 

477

 

Accrued expenses and other current liabilities

 

 

(2,932

)

 

 

490

 

Operating lease liabilities

 

 

(592

)

 

 

 

Deferred rent

 

 

 

 

 

27

 

Other liabilities

 

 

(644

)

 

 

957

 

Net cash provided by (used in) operating activities

 

 

(29,297

)

 

 

58,134

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(79,249

)

 

 

(54,267

)

Maturities of marketable securities

 

 

87,165

 

 

 

19,525

 

Purchases of property and equipment

 

 

(2,455

)

 

 

(2,344

)

Net cash provided by (used in) investing activities

 

 

5,461

 

 

 

(37,086

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

3,762

 

 

 

3,824

 

Proceeds from issuance of common stock under employee stock purchase plan

 

 

365

 

 

 

342

 

Net cash provided by financing activities

 

 

4,127

 

 

 

4,166

 

Net increase (decrease) in cash and cash equivalents and restricted cash

 

 

(19,709

)

 

 

25,214

 

Cash and cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

76,614

 

 

 

46,881

 

End of period

 

$

56,905

 

 

$

72,095

 

 

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

 

 

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REGENXBIO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1. Nature of Business

REGENXBIO Inc. (the Company) is a leading clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. The Company’s proprietary adeno-associated virus (AAV) gene delivery platform (NAV Technology Platform) consists of exclusive rights to over 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10. The Company’s NAV® Technology Platform is being applied by the Company, as well as by third-party licensees (NAV Technology Licensees), in the development of product candidates for a variety of diseases with unmet needs. The Company was formed in 2008 in the State of Delaware and is headquartered in Rockville, Maryland.

Liquidity and Risks

As of March 31, 2019, the Company had generated an accumulated deficit of $115.3 million since inception. As the Company has incurred cumulative losses since inception, transition to recurring 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 recurring profitability, and unless and until it does, the Company will continue to need to raise additional capital. As of March 31, 2019, the Company had cash, cash equivalents and marketable securities of $444.3 million, which management believes is sufficient to fund operations for at least the next 12 months from the date these consolidated financial statements were issued.

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

 

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The interim unaudited consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 27, 2019. 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 include all normal and recurring adjustments necessary for the fair statement of the Company’s financial position as of March 31, 2019, and the results of its operations and its cash flows for the interim periods ended March 31, 2019 and 2018.

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, 2018, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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.

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Use of Estimates

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

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, 2019

 

 

March 31, 2018

 

Cash and cash equivalents

 

$

55,852

 

 

$

71,870

 

Restricted cash

 

 

1,053

 

 

 

225

 

Total cash and cash equivalents and restricted cash

 

$

56,905

 

 

$

72,095

 

 

Marketable Securities

Marketable securities consist of debt securities and are classified as available-for-sale and carried at fair value. Marketable securities with remaining maturity dates exceeding 12 months which are not intended to be sold prior to maturity for use in current operations are classified as non-current. Unrealized gains and losses, net of any related tax effects, are excluded from results of operations and are included in other comprehensive income (loss) and reported as a separate component of stockholders’ equity until realized. The Company uses the aggregate portfolio approach to release the tax effects of unrealized gains and losses on available-for-sale debt securities in accumulated other comprehensive income (loss). Purchase premiums and discounts are amortized or accreted into the cost basis over the life of the related security as adjustments to the yield using the effective-interest method. Interest income is recognized when earned. 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.

A decline in the fair value below cost of available-for-sale securities that is deemed other-than-temporary is charged to results of operations, resulting in the establishment of a new cost basis for the security. The Company regularly evaluates whether declines in the fair value of its investments below their cost are other-than-temporary. The evaluation includes consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. The Company has not recorded any impairment of available-for-sale securities which was deemed to be to be other-than-temporary.

Leases

Effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) which supersedes the lease accounting requirements in Accounting Standards Codification (ASC) 840, Leases (Topic 840). Please refer to Recent Accounting Pronouncements below for additional information on the adoption of Topic 842 and the impact upon adoption to the Company’s consolidated financial statements.

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Under Topic 842, the Company applies a dual approach to all leases in which it is a lessee and classifies leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the Company. Lease classification is evaluated at the inception of the lease agreement. Regardless of classification, the Company records a right-of-use asset and a lease liability for all leases with a term greater than 12 months. All of the Company’s leases as of March 31, 2019 have been classified as operating leases. Operating lease expense is recognized on a straight-line basis over the term of the lease. Variable lease expense is recognized as incurred.

The Company identifies leases in its contracts if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company does not allocate lease consideration between lease and nonlease components and records a lease liability equal to the present value of the remaining fixed consideration under the lease. The interest rates implicit in the Company’s leases are generally not readily determinable. Accordingly, the Company uses its estimated incremental borrowing rate at the commencement date of the lease to determine the present value discount of the lease liability. The Company estimates its incremental borrowing rate for each lease based on an evaluation of its expected credit rating and the prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the term of the lease. The right-of-use asset for each lease is equal to the lease liability, adjusted for unamortized initial direct costs and lease incentives and prepaid or accrued rent. Initial direct costs of entering into a lease are included in the right-of-use asset and amortized as lease expense over the term of the lease. Lease incentives, such as tenant improvements allowances, are recorded as a reduction of the right-of-use asset and amortized as a reduction of lease expense over the term of the lease. The Company excludes options to extend or terminate leases from the calculation of the lease liability unless it is reasonably certain the option will be exercised.

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. ASC 820, Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

 

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair values of the Company’s Level 2 instruments are based on quoted market prices or broker or dealer quotations for similar assets. These investments are initially valued at the transaction price and subsequently valued utilizing third party pricing providers or other market observable data. Please refer to Note 4 for further information on the fair value measurement of the Company’s financial instruments.

Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) applicable to common stockholders by the weighted-average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (loss) per share is calculated by adjusting the weighted-average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Contingently convertible shares in which conversion is based on non-market-priced contingencies are excluded from the calculations of both basic and diluted net income (loss) per share until the contingency has been fully met. For purposes of the diluted net income (loss) per share calculation, common stock equivalents are excluded from the calculation of diluted net income (loss) per share if their effect would be anti-dilutive.

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Recent Accounting Pronouncements

Adoption of ASU 2016-02, Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842) which supersedes the lease accounting requirements in ASC 840, Leases (Topic 840). Effective January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition method. Under this method, the Company applied Topic 842 to all leases in effect as of, or entered into after, January 1, 2019 and recorded the cumulative impact of the adoption as an adjustment to its accumulated deficit on January 1, 2019. The Company’s consolidated financial statements for periods ending after January 1, 2019 are presented in accordance with the requirements of Topic 842, while comparative prior period amounts have not been adjusted and continue to be reported in accordance with Topic 840. Please refer to Leases above for a description of the Company’s lease accounting policies upon the adoption on Topic 842.

The Company elected certain practical expedients allowed by Topic 842 for transition purposes, including the package of practical expedients which permitted the Company to not reassess lease identification, classification and initial direct costs under Topic 842 for leases that commenced prior to January 1, 2019. Additionally, the Company elected the practical expedient allowed for transition purposes to use hindsight in determining the terms of leases that commenced prior to January 1, 2019.

Upon the adoption of Topic 842, the Company recorded operating lease right-of-use assets of $7.4 million and operating lease liabilities of $8.4 million for its leases which were in effect and had commenced prior to January 1, 2019 and had original lease terms of more than 12 months. Additionally, upon the adoption of Topic 842, the Company derecognized $5.9 million of property and equipment and $5.9 million of financing lease obligations related to construction-in-progress at 9800 Medical Center Drive, as the Company does not control the building during the construction period under the requirements of Topic 842. The lease term for the facility at 9800 Medical Center Drive does not commence until certain construction is completed by the landlord and the building is delivered to the Company. The right-of-use assets and lease liabilities related to the facility at 9800 Medical Center Drive will not be recognized on the Company’s consolidated balance sheets until the commencement date of the lease, which is expected to occur in 2020.

The cumulative impact of the adoption of Topic 842 resulted in an increase in accumulated deficit of less than $0.1 million on January 1, 2019. The adoption of Topic 842 did not have a material impact on the Company’s results of operations for the three months ended March 31, 2019, nor does the Company believe it will have a material impact on future results of operations based on its current leasing arrangements.

Other recently adopted accounting pronouncements

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends the current guidance on comprehensive income to provide an option for an entity to reclassify the stranded tax effects of the Tax Cuts and Jobs Act of 2017 (the TCJA) that was signed into law in December 2017 from accumulated other comprehensive income directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement. The Company adopted this standard effective January 1, 2019, and upon adoption recorded a cumulative adjustment of less than $0.1 million to reclassify the stranded tax effects of unrealized gains and losses on available-for-sale securities from accumulated other comprehensive loss to accumulated deficit. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In April 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), which amends the required amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. The Company adopted this standard effective January 1, 2019. The adoption of this standard required no cumulative-effect adjustments and did not have a material impact on the Company’s financial position or results of operations.

Recent accounting pronouncements not yet adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies certain disclosure requirements regarding fair value measurements. The standard is effective for the Company beginning January 1, 2020, with early adoption permitted upon issuance. The Company does not believe the application of this standard will have a material impact on the Company’s disclosures.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the accounting for credit losses for most financial assets and certain other instruments. The standard requires that entities holding financial assets that are not accounted for at fair value through net income be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The standard is effective for the Company beginning January 1, 2020, with early adoption permitted for annual and interim periods beginning January 1, 2019. The Company does not believe the application of this standard will have a material impact on the Company’s financial position or results of operations.

 

 

3. Marketable Securities

The following tables present a summary of the Company’s marketable securities, which consist solely of available-for-sale debt securities (in thousands):

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and federal agency securities

 

$

105,533

 

 

$

202

 

 

$

(3

)

 

$

105,732

 

Certificates of deposit

 

 

9,237

 

 

 

42

 

 

 

 

 

 

9,279

 

Corporate bonds

 

 

272,988

 

 

 

502

 

 

 

(45

)

 

 

273,445

 

 

 

$

387,758

 

 

$

746

 

 

$

(48

)

 

$

388,456

 

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and federal agency securities

 

$

103,410

 

 

$

93

 

 

$

(37

)

 

$

103,466

 

Certificates of deposit

 

 

8,992

 

 

 

 

 

 

 

 

 

8,992

 

Corporate bonds

 

 

282,902

 

 

 

36

 

 

 

(377

)

 

 

282,561

 

 

 

$

395,304

 

 

$

129

 

 

$

(414

)

 

$

395,019

 

As of March 31, 2019 and December 31, 2018, 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, or to the earliest call date for callable debt securities purchased at a premium. As of March 31, 2019 and December 31, 2018, the balance in the Company’s accumulated other comprehensive loss consisted solely of net unrealized gains and losses on available-for-sale securities, net of income tax effects and reclassification adjustments for realized gains and losses.

During the three months ended March 31, 2019, the Company recognized net unrealized gains on available-for-sale securities of $1.0 million and income tax expense of $0.4 million in other comprehensive income for the period. The Company recognized net realized gains of less than $0.1 million on the sale or maturity of available-for-sale securities during the three months ended March 31, 2019, which were reclassified out of accumulated other comprehensive loss during the period and are included in investment income in the consolidated statements of operations and comprehensive income (loss). During the three months ended March 31, 2018, the Company recognized net unrealized losses on available-for-sale securities of $0.2 million and income tax expense of zero in other comprehensive loss for the period. The Company did not recognize any realized gains or losses on the sale or maturity of available-for-sale securities during the three months ended March 31, 2018. Realized gains and losses from the sale or maturity of marketable securities are determined based on the specific identification method.

 

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The following tables present the fair values and unrealized losses of marketable 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, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and federal

   agency securities

 

$

13,923

 

 

$

(3

)

 

$

 

 

$

 

 

$

13,923

 

 

$

(3

)

Corporate bonds

 

 

110,103

 

 

 

(44

)

 

 

1,999

 

 

 

(1

)

 

 

112,102

 

 

 

(45

)

 

 

$

124,026

 

 

$

(47

)

 

$

1,999

 

 

$

(1

)

 

$

126,025

 

 

$

(48

)

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

 

Fair Value

 

 

Unrealized

Losses

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and federal

   agency securities

 

$

53,124

 

 

$

(37

)

 

$

 

 

$

 

 

$

53,124

 

 

$

(37

)

Corporate bonds

 

 

245,283

 

 

 

(354

)

 

 

12,424

 

 

 

(23

)

 

 

257,707

 

 

 

(377

)

 

 

$

298,407

 

 

$

(391

)

 

$

12,424

 

 

$

(23

)

 

$

310,831

 

 

$

(414

)

As of March 31, 2019, marketable securities held by the Company which were in an unrealized loss position consisted of 40 investment grade security positions. The Company has the intent and ability to hold such securities until recovery and has determined that none of its investments were other-than-temporarily impaired as of March 31, 2019 or December 31, 2018.

 

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, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market mutual funds

 

$

 

 

$

55,834

 

 

$

 

 

$

55,834

 

Total cash equivalents

 

 

 

 

 

55,834

 

 

 

 

 

 

55,834

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and federal agency securities

 

 

 

 

 

105,732

 

 

 

 

 

 

105,732

 

Certificates of deposit

 

 

 

 

 

9,279

 

 

 

 

 

 

9,279

 

Corporate bonds

 

 

 

 

 

273,445

 

 

 

 

 

 

273,445

 

Total marketable securities

 

 

 

 

 

388,456

 

 

 

 

 

 

388,456

 

Total cash equivalents and marketable securities

 

$

 

 

$

444,290

 

 

$