BLUEBIRD BIO : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

The following information should be read in conjunction with the consolidated
financial statements and related notes thereto included in this Annual Report on
Form 10-K.
In addition to historical information, this report contains forward-looking
statements that involve risks and uncertainties which may cause our actual
results to differ materially from plans and results discussed in forward-looking
statements. We encourage you to review the risks and uncertainties discussed in
the sections entitled Item 1A. "Risk Factors" and "Forward-Looking Statements"
included at the beginning of this Annual Report on Form 10-K. The risks and
uncertainties can cause actual results to differ significantly from those
forecast in forward-looking statements or implied in historical results and
trends.
We caution readers not to place undue reliance on any forward-looking statements
made by us, which speak only as of the date they are made. We disclaim any
obligation, except as specifically required by law and the rules of the SEC, to
publicly update or revise any such statements to reflect any change in our
expectations or in events, conditions or circumstances on which any such
statements may be based, or that may affect the likelihood that actual results
will differ from those set forth in the forward-looking statements.
Overview
We are a biotechnology company committed to researching, developing, and
commercializing potentially transformative gene therapies for severe genetic
diseases and cancer. We have built an integrated product platform with broad
therapeutic potential in a variety of indications based on our lentiviral gene
addition platform, gene editing and cancer immunotherapy capabilities. We
believe that gene therapy for severe genetic diseases has the potential to
change the way patients living with these diseases are treated by addressing the
underlying genetic defect that is the cause of their disease, rather than
offering treatments that only address their symptoms. Our gene therapy programs
include LentiGlobin for ?-thalassemia; LentiGlobin for SCD; and Lenti-D for
CALD. Our programs in oncology are focused on developing novel T cell-based
immunotherapies, including CAR and TCR T cell therapies. bb2121 (idecabtagene
vicleucel, or ide-cel), and bb21217 are CAR-T cell product candidates for the
treatment of multiple myeloma and partnered under our collaboration arrangement
with Bristol-Myers Squibb, or BMS.

We are commercializing ZYNTEGLO in the European Union and expect to begin to
generate product revenue in the first half of 2020. We are engaged with the U.S.
Food and Drug Administration, or FDA, and the European Medicines Agency, or EMA,
in discussions regarding our proposed development plans for ZYNTEGLO in patients
with TDT and a ?0/?0 genotype. We are engaged with the FDA in discussions
regarding the requirements and timing for providing certain information
regarding various release assays for LentiGlobin for ?-thalassemia, and subject
to these ongoing discussions, we are currently planning to complete the BLA
submission in the second half of 2020.

We are engaged with the FDA and EMA in discussions regarding our proposed
development plans, and anticipate a potential first submission in 2022 for
marketing approval of LentiGlobin for the treatment of patients with SCD on the
basis of our clinical data from our ongoing HGB-206 and HGB-210 studies.
Based on our discussions with the FDA and EMA, we believe that we may be able to
seek approval for our Lenti-D product candidate for the treatment of patients
with CALD on the basis of our clinical data from our ongoing Starbeam study, and
the ongoing ALD-103 observational study. We anticipate a potential first
submission in 2020 for regulatory approval of our Lenti-D product candidate for
the treatment of patients with CALD.
In collaboration with BMS (which acquired Celgene in November 2019), we are
developing ide-cel and the bb21217 product candidates as treatments for multiple
myeloma, a hematologic malignancy that develops in the bone marrow and is fatal
if untreated. We are co-developing and co-promoting ide-cel in the United States
with BMS and we have exclusively licensed to BMS the development and
commercialization rights for ide-cel outside of the United States. We and BMS
anticipate a potential first submission in the first half of 2020 for regulatory
approval of ide-cel as a treatment for relapsed and refractory multiple myeloma.
We have exclusively licensed the development and commercialization rights for
the bb21217 product candidate to BMS, with an option for us to elect to
co-develop and co-promote bb21217 within the United States.
Since our inception in 1992, we have devoted substantially all of our resources
to our development efforts relating to our product candidates, including
activities to manufacture product candidates in compliance with good
manufacturing practices, or GMP, to conduct clinical studies of our product
candidates, to provide selling, general and administrative support for these
operations and to protect our intellectual property. We have not generated any
revenue from product sales. We have funded our
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operations primarily through the sale of common stock in our public offerings,
private placements of preferred stock and warrants and through collaborations.
As of December 31, 2019, we had cash, cash equivalents and marketable securities
of approximately $1.24 billion. We have never been profitable and have incurred
net losses in each year since inception. Our net losses were $789.6 million for
the year ended December 31, 2019 and our accumulated deficit was $2.28 billion
as of December 31, 2019. Substantially all of our net losses resulted from costs
incurred in connection with our research and development programs and from
selling, general and administrative costs associated with our operations. We
expect to continue to incur significant expenses and operating losses for at
least the next several years. We expect our expenses will increase substantially
in connection with our ongoing and planned activities, as we:
•conduct clinical studies for our clinical programs in ?-thalassemia, SCD, and
ALD, fund our share of the costs of clinical studies for our program in multiple
myeloma in collaboration with BMS, and advance our preclinical programs into
clinical development;
•increase research and development-related activities for the discovery and
development of product candidates in severe genetic diseases and oncology;
•continue our research and development efforts internally and through our
collaborations with external partners, such as with Regeneron;
•manufacture clinical study materials and establish the infrastructure necessary
to support and develop large-scale manufacturing capabilities;
•seek regulatory approval for our product candidates;
•add personnel to support our product development and commercialization efforts;
and
•increase activities associated with the commercial launch of ZYNTEGLO in
multiple markets.
We do not expect to generate revenue from product sales until the first half of
2020. While we are in the process of completing construction and qualification
of our internal lentiviral vector manufacturing capacity, currently all of our
manufacturing activities are contracted out to third parties. Additionally, we
currently utilize third-party contract research organizations, or CROs, to carry
out our clinical development activities. As we seek to obtain regulatory
approval for our product candidates and begin to commercialize ZYNTEGLO, we
expect to incur significant commercialization expenses, in addition to our
significant and increasing research and development expenses, as we prepare for
product sales, marketing, manufacturing, and distribution. Accordingly, until we
generate significant revenues from product sales, we will seek to fund our
operations through public or private equity or debt financings, strategic
collaborations, or other sources. However, we may be unable to raise additional
funds or enter into such other arrangements when needed on favorable terms or at
all. Our failure to raise capital or enter into such other arrangements as and
when needed would have a negative impact on our financial condition and our
ability to develop our products.
Because of the numerous risks and uncertainties associated with product
development, we are unable to predict the timing or amount of increased expenses
or when or if we will be able to achieve or maintain profitability. Even if we
are able to generate revenues from the sale of our products, we may not become
profitable. If we fail to become profitable or are unable to sustain
profitability on a continuing basis, then we may be unable to continue our
operations at planned levels and be forced to reduce our operations.
Financial operations overview
Revenue
To date, we have not generated any revenues from the sale of products. Our
revenues have been derived from collaboration arrangements, out-licensing
arrangements, research fees, and grant revenues. Effective January 1, 2018, we
adopted Accounting Standards Codification ("ASC"), Topic 606, Revenue from
Contracts with Customers ("Topic 606"), using the modified retrospective
transition method.
To date, our collaboration revenue has been primarily generated from our
collaboration arrangement with BMS. The terms of the arrangement with respect to
ide-cel contain multiple promised goods or services, which include at inception:
(i) research and development services, (ii) a license to ide-cel, and (iii)
manufacture of vectors and associated payload for incorporation into ide-cel
under the license. As of September 2017, the collaboration also included the
following promised goods or services with respect to bb21217: (i) research and
development services, (ii) a license to bb21217, and (iii) manufacture of
vectors and associated payload for incorporation into bb21217 under the
license. In March 2018, we entered into an agreement with BMS
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to co-develop and co-promote ide-cel in which both parties will share equally in
U.S. costs and profits. Collaboration revenue is recognized as the performance
obligations are satisfied.
We analyze our collaboration arrangements to assess whether they are within the
scope of ASC 808, Collaborative Arrangements ("ASC 808") to determine whether
such arrangements involve joint operating activities performed by parties that
are both active participants in the activities and exposed to significant risks
and rewards dependent on the commercial success of such activities. This
assessment is performed throughout the life of the arrangement based on changes
in the responsibilities of all parties in the arrangement. For collaboration
arrangements within the scope of ASC 808, we first determine which elements of
the collaboration are deemed to be within the scope of ASC 808 and those that
are more reflective of a vendor-customer relationship and therefore within the
scope of Topic 606. For elements of collaboration arrangements that are
accounted for pursuant to ASC 808, an appropriate recognition method is
determined and applied consistently, generally by analogy to Topic 606. Amounts
that are owed to collaboration partners are recognized as an offset to
collaboration revenues as such amounts are incurred by the collaboration
partner. Where amounts owed to a collaboration partner exceed our collaboration
revenues in a quarterly period, such amounts in excess are classified as
research and development expense. For those elements of the arrangement that are
accounted for pursuant to Topic 606, we apply the five-step model prescribed in
Topic 606.
Nonrefundable license fees are recognized as revenue upon delivery of the
license provided there are no unsatisfied performance obligations in the
arrangement. License revenue has historically been generated from our
out-license agreements with Novartis Pharma AG, or Novartis, and Orchard
Therapeutics Limited, or Orchard. Under our out-licensing agreements we may also
recognize revenue from potential future milestone payments and royalties.
For arrangements with licenses of intellectual property that include sales-based
royalties, including milestone payments based on the level of sales, and the
license is deemed to be the predominant item to which the royalties relate, we
recognize revenue at the later of (i) when the related sales occur, or (ii) when
the performance obligation to which the royalty has been allocated has been
satisfied.
Research and development expenses
Research and development expenses consist primarily of costs incurred for the
development of our product candidates, which include:
•employee-related expenses, including salaries, benefits, travel and stock-based
compensation expense;
•expenses incurred under agreements with CROs and clinical sites that conduct
our clinical studies;
•costs of acquiring, developing, and manufacturing inventory, which includes
pre-launch inventory;
•reimbursable costs to our partners for collaborative activities;
•facilities, depreciation, and other expenses, which include direct and
allocated expenses for rent and maintenance of facilities, information
technology, insurance, and other supplies in support of research and development
activities;
•costs associated with our research platform and preclinical activities;
•milestones and upfront license payments to acquire and maintain intellectual
property rights pertaining to aspects of our technologies;
•costs associated with our regulatory, quality assurance and quality control
operations; and
•amortization of certain intangible assets.
Research and development costs are expensed as incurred. Costs for certain
development activities are recognized based on an evaluation of the progress to
completion of specific tasks using information and data provided to us by our
vendors and our clinical sites. We cannot determine with certainty the duration
and completion costs of the current or future clinical studies of our product
candidates or if, when, or to what extent we will generate revenues from the
commercialization and sale of any of our product candidates that obtain
regulatory approval. We may not succeed in achieving regulatory approval for all
of our product candidates. The duration, costs, and timing of clinical studies
and development of our product candidates will depend on a variety of factors,
any of which could mean a significant change in the costs and timing associated
with the development of our product candidates including:
•the advancement of our preclinical programs into clinical development;
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•the scope, rate of progress, and expense of our ongoing as well as any
additional clinical studies and other research and development activities we
undertake;
•future clinical study results;
•uncertainties in clinical study enrollment rates;
•changing standards for regulatory approval; and
•the timing and receipt of any regulatory approvals.
We plan to increase our research and development expenses for the foreseeable
future as we continue to conduct our clinical development programs in
?-thalassemia, SCD, CALD, and multiple myeloma (including funding our share of
the costs in our collaboration with BMS), advance our preclinical programs in
severe genetic diseases and oncology into clinical development, and continue the
research and discovery of new product candidates in the fields of severe genetic
diseases and oncology. Our research and development expenses include expenses
associated with the following activities:
•Northstar-2 Study (HGB-207) - a multi-site, international phase 3 study to
examine the safety and efficacy of LentiGlobin for TDT in the treatment of
patients with TDT and a non-?0/?0 genotype.
•Northstar-3 Study (HGB-212) - a multi-site, international phase 3 study to
examine the safety and efficacy of LentiGlobin for TDT in the treatment of
patients with TDT and a ?0/?0 genotype or an IVS-I-110 mutation.
•HGB-206 study - a multi-site phase 1/2 study in the United States to study the
safety and efficacy of LentiGlobin for SCD in the treatment of patients with
SCD.
•HGB-210 study - our multi-site, international phase 3 study of LentiGlobin for
SCD in the treatment of patients with SCD and a history of vaso-occlusive
events.
•HGB-211 study - our planned multi-site phase 3 study of LentiGlobin for SCD in
the treatment of patients with SCD and elevated stroke risk We plan to initiate
this study in 2020.
•Starbeam Study (ALD-102) - a multi-site, international phase 2/3 study to
examine the safety and efficacy of our Lenti-D product candidate in the
treatment of patients with CALD.
•ALD-104 study - our multi-site, international phase 3 study to examine the
safety and efficacy of our Lenti-D product candidate in the treatment of
patients with CALD after myeloablative conditioning using busulfan and
fludarabine .
•CRB-401 study - an open label, single-arm, multi-center, phase 1 study to
examine the safety and efficacy of ide-cel in the treatment of patients with
relapsed and refractory multiple myeloma.
•KarMMA study - an open label, single-arm, multi-center phase 2 study to examine
the efficacy and safety of ide-cel in the treatment of patients with relapsed
and refractory multiple myeloma.
•KarMMa-2 study - a multi-cohort, open-label, multicenter phase 2 study to
examine the safety and efficacy of ide-cel in the treatment of patients with
relapsed and refractory multiple myeloma and in high-risk multiple myeloma.
•KarMMa-3 study - a multicenter, randomized, open-label phase 3 study comparing
the efficacy and safety of ide-cel versus standard triplet regimens in patients
with relapsed and refractory multiple myeloma.
•KarMMa-4 study -, a multi-cohort, open-label, multicenter phase 1 study
intended to determine the optimal target dose and safety of ide-cel in subjects
with newly-diagnosed multiple myeloma.
•CRB-402 study - an open label, single-arm, multicenter, phase 1 study to
examine the safety and efficacy of the bb21217 product candidate in the
treatment of patients with relapsed and refractory multiple myeloma.
•Costs related to the manufacture of clinical study materials in support of our
clinical studies.
•Support for strategic collaborations in early pipeline activities, including in
our severe genetic disease and oncology programs.
•Support for academic collaborations in early pipeline activities, including
investigator-initiated proof-of-concept clinical trials in our severe genetic
disease and oncology programs.
Our direct research and development expenses consist principally of external
costs, such as fees paid to investigators, consultants, central laboratories and
CROs in connection with our clinical studies, and costs related to acquiring and
manufacturing clinical study materials. We allocate salary and benefit costs
directly related to specific programs. We do not allocate personnel-related
discretionary bonus or stock-based compensation costs, costs associated with our
general discovery
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platform improvements, depreciation or other indirect costs that are deployed
across multiple projects under development and, as such, the costs are
separately classified as other research and development expenses in the table
below:
                                                          Year ended December 31,
                                                    2019            2018            2017
                                                               (in thousands)
LentiGlobin (including ZYNTEGLO)(1)             $ 124,692       $ 125,058       $  85,710
Lenti-D                                            40,352          38,244          16,223
Ide-cel                                           121,182          75,667          32,144
bb21217(2)                                         19,827          15,624           7,402
Preclinical programs(2)                            49,700          50,115          40,167

Total direct research and development expense 355,753 304,708

181,646

Employee- and contractor-related expenses 52,617 35,697

23,698

Stock-based compensation expense                   80,139          54,422          26,633
Platform-related expenses                          19,229          18,187          15,414
Facility expenses                                  67,274          32,158          24,700
Other expenses                                      7,401           3,417             949

Total other research and development expenses 226,660 143,881

91,394

Total research and development expense $ 582,413 $ 448,589

$ 273,040

(1) Following our receipt of conditional approval for the marketing
authorization of ZYNTEGLO by the European Commission in June 2019, all
manufacturing costs associated with the production of LentiGlobin for use in the
commercial sale of ZYNTEGLO in the European Union will be evaluated for
capitalization as inventory on our consolidated balance sheets.
(2) The costs associated with our bb21217 program were included in preclinical
programs in the table shown above through June 30, 2017. The costs associated
with our bb21217 program are presented separately in the table above beginning
in the third quarter of 2017 as we initiated the first clinical study for
bb21217 in the third quarter of 2017.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of salaries and
related costs for personnel, including stock-based compensation and travel
expenses for our employees in executive, operational, finance, legal, business
development, commercial, information technology, and human resource functions.
Other selling, general and administrative expenses include facility-related
costs, professional fees for accounting, tax, legal and consulting services,
directors' fees and expenses associated with obtaining and maintaining patents.
We anticipate that our selling, general and administrative expenses, including
payroll and sales and marketing expenses, will increase in the future as we
increase our headcount and continue to develop and commercialize our product
candidates.
Cost of license and royalty revenue
Cost of license and royalty revenue represents expense associated with amounts
owed to third party licensors as a result of revenue recognized under our
out-license arrangements with Novartis and Orchard.
We anticipate that our cost of license and royalty revenue will increase in the
future contingent upon the achievement of regulatory milestones by Novartis or
Orchard. Additionally, we anticipate that our cost of license and royalty
revenue will increase in the future as we expect to continue to recognize
royalty revenue related to Novartis' commercial sale of tisagenlecleucel.
Change in fair value of contingent consideration
On June 30, 2014, we acquired Precision Genome Engineering, Inc., or Pregenen.
The agreement provided for up to $135.0 million in future contingent cash
payments by us upon the achievement of certain preclinical, clinical and
commercial milestones related to the Pregenen technology.
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As of December 31, 2019, there are $120.0 million in future contingent cash
payments, of which $20.1 million relates to clinical milestones and $99.9
million relates to commercial milestones. We estimate future contingent cash
payments have a fair value of $8.0 million as of December 31, 2019, all of which
is classified as a non-current liability on our consolidated balance sheet.
Interest income (expense), net
For the year ended December 31, 2019, interest income (expense), net consists
primarily of interest income earned on investments. For the years ended
December 31, 2018 and 2017, interest income (expense), net consisted primarily
of interest income earned on investments and interest expense on the financing
lease obligation for our headquarters at 60 Binney Street in Cambridge,
Massachusetts. Upon adoption of ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"
or "ASC 842") on January 1, 2019, we de-recognized the financing lease
obligation and, as a result, no longer recognize interest expense associated
with the financing lease obligation. Please refer to Note 2, Summary of
significant accounting policies and basis of presentation, and Note 8, Leases,
in the Notes to Consolidated Financial Statements for further information.
Other (expense) income, net
Other (expense) income, net consists primarily of unrealized gains and losses on
equity securities, gains and losses on disposal of fixed assets, realized gains
and losses on debt securities, and gains and losses on foreign currency
transactions.
Critical accounting policies and significant judgments and estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in the U.S. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, and expenses
and the disclosure of contingent assets and liabilities in our financial
statements. On an ongoing basis, we evaluate our estimates and judgments,
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. We base
our estimates on historical experience, known trends and events and various
other factors that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. In making estimates and judgments, management employs critical
accounting policies.
While our significant accounting policies are described in more detail in the
notes to our financial statements appearing elsewhere in this annual report, we
believe the following accounting policies to be most critical to the judgments
and estimates used in the preparation of our financial statements.
Revenue recognition
Revenue recognition
Effective January 1, 2018, we adopted Accounting Standards Codification ("ASC"),
Topic 606, Revenue from Contracts with Customers ("Topic 606"), using the
modified retrospective transition method. Under this method, we have recognized
the cumulative effect of the adoption as an adjustment to the opening balance of
accumulated deficit in the current period consolidated balance sheet. We have
not revised our consolidated financial statements for prior periods. This
standard applies to all contracts with customers, except for contracts that are
within the scope of other standards, such as collaboration arrangements and
leases.
Under Topic 606, an entity recognizes revenue when its customer obtains control
of promised goods or services, in an amount that reflects the consideration that
the entity expects to receive in exchange for those goods or services. To
determine revenue recognition for arrangements that an entity determines are
within the scope of Topic 606, the entity performs the following five steps: (i)
identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price, including
variable consideration, if any; (iv) allocate the transaction price to the
performance obligations in the contract; and (v) recognize revenue when (or as)
the entity satisfies a performance obligation. We only apply the five-step model
to contracts when it is probable that the entity will collect the consideration
to which it is entitled in exchange for the goods or services it transfers to
the customer.
Once a contract is determined to be within the scope of Topic 606, we assess the
goods or services promised within each contract and determine those that are
performance obligations. Arrangements that include rights to additional goods or
services
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that are exercisable at a customer's discretion are generally considered
options. We assess if these options provide a material right to the customer and
if so, they are considered performance obligations. The identification of
material rights requires judgments related to the determination of the value of
the underlying license relative to the option exercise price, including
assumptions about technical feasibility and the probability of developing a
candidate that would be subject to the option rights. The exercise of a material
right is accounted for as a contract modification for accounting purposes.
We assess whether each promised good or service is distinct for the purpose of
identifying the performance obligations in the contract. This assessment
involves subjective determinations and requires management to make judgments
about the individual promised goods or services and whether such are separable
from the other aspects of the contractual relationship. Promised goods and
services are considered distinct provided that: (i) the customer can benefit
from the good or service either on its own or together with other resources that
are readily available to the customer (that is, the good or service is capable
of being distinct) and (ii) the entity's promise to transfer the good or service
to the customer is separately identifiable from other promises in the contract
(that is, the promise to transfer the good or service is distinct within the
context of the contract). In assessing whether a promised good or service is
distinct, we consider factors such as the research, manufacturing and
commercialization capabilities of the collaboration partner and the availability
of the associated expertise in the general marketplace. We also consider the
intended benefit of the contract in assessing whether a promised good or service
is separately identifiable from other promises in the contract. If a promised
good or service is not distinct, an entity is required to combine that good or
service with other promised goods or services until it identifies a bundle of
goods or services that is distinct.
The transaction price is then determined and allocated to the identified
performance obligations in proportion to their standalone selling prices ("SSP")
on a relative SSP basis. SSP is determined at contract inception and is not
updated to reflect changes between contract inception and when the performance
obligations are satisfied. Determining the SSP for performance obligations
requires significant judgment. In developing the SSP for a performance
obligation, we consider applicable market conditions and relevant
entity-specific factors, including factors that were contemplated in negotiating
the agreement with the customer and estimated costs. We validate the SSP for
performance obligations by evaluating whether changes in the key assumptions
used to determine the SSP will have a significant effect on the allocation of
arrangement consideration between multiple performance obligations.
If the consideration promised in a contract includes a variable amount, we
estimate the amount of consideration to which we will be entitled in exchange
for transferring the promised goods or services to a customer. We determine the
amount of variable consideration by using the expected value method or the most
likely amount method. We include the unconstrained amount of estimated variable
consideration in the transaction price. The amount included in the transaction
price is constrained to the amount for which it is probable that a significant
reversal of cumulative revenue recognized will not occur. At the end of each
subsequent reporting period, we re-evaluate the estimated variable consideration
included in the transaction price and any related constraint, and if necessary,
adjust our estimate of the overall transaction price. Any such adjustments are
recorded on a cumulative catch-up basis in the period of adjustment.
If an arrangement includes development and regulatory milestone payments, we
evaluate whether the milestones are considered probable of being reached and
estimate the amount to be included in the transaction price using the most
likely amount method. If it is probable that a significant revenue reversal
would not occur, the associated milestone value is included in the transaction
price. Milestone payments that are not within our control or the licensee's
control, such as regulatory approvals, are generally not considered probable of
being achieved until those approvals are received.
For arrangements with licenses of intellectual property that include sales-based
royalties, including milestone payments based on the level of sales, and the
license is deemed to be the predominant item to which the royalties relate, we
recognize royalty revenue and sales-based milestones at the later of (i) when
the related sales occur, or (ii) when the performance obligation to which the
royalty has been allocated has been satisfied.
In determining the transaction price, we adjust consideration for the effects of
the time value of money if the timing of payments provides us with a significant
benefit of financing. We do not assess whether a contract has a significant
financing component if the expectation at contract inception is such that the
period between payment by the licensees and the transfer of the promised goods
or services to the licensees will be one year or less. We assessed each of our
revenue generating arrangements in order to determine whether a significant
financing component exists and concluded that a significant financing component
does not exist in any of our arrangements.
We then recognize as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) each performance
obligation is satisfied, either at a point in time or over time, and if over
time recognition is based on the use of an output or input method.
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Collaboration revenue
To date, collaboration revenue has been primarily generated from our
collaboration arrangement with BMS, which was originally entered into in March
2013 and was subsequently amended in June 2015, as further described in Note 11,
Collaborative arrangements in the Notes to Consolidated Financial Statements. In
August 2018, we entered into a collaboration arrangement with Regeneron, and
began recognizing collaboration revenue under this arrangement in the fourth
quarter of 2018.
We analyze our collaboration arrangements to assess whether they are within the
scope of ASC 808, Collaborative Arrangements ("ASC 808") to determine whether
such arrangements involve joint operating activities performed by parties that
are both active participants in the activities and exposed to significant risks
and rewards dependent on the commercial success of such activities. This
assessment is performed throughout the life of the arrangement based on changes
in the responsibilities of all parties in the arrangement. For collaboration
arrangements within the scope of ASC 808 that contain multiple elements, we
first determine which elements of the collaboration are deemed to be within the
scope of ASC 808 and those that are more reflective of a vendor-customer
relationship and therefore within the scope of Topic 606. For elements of
collaboration arrangements that are accounted for pursuant to ASC 808, an
appropriate recognition method is determined and applied consistently, generally
by analogy to Topic 606. Amounts that are owed to collaboration partners are
recognized as an offset to collaboration revenues as such amounts are incurred
by the collaboration partner. Where amounts owed to a collaboration partner
exceed our collaboration revenues in each quarterly period, such amounts are
classified as research and development expense. For those elements of the
arrangement that are accounted for pursuant to Topic 606, we apply the five-step
model described above.
The recognition of collaboration revenue (expense) requires management judgment
due to the fact that the terms of our collaboration arrangements are complicated
and the nature of the collaborative activities change over time. This process
includes the identification of costs that we incur that relate to each
particular collaboration arrangement, evaluating the nature of these costs (for
example, whether the costs relate to a particular geography or territory or
whether the costs relate to clinical or commercial activities), and applying the
terms of the respective collaborative arrangement to determine the portion of
such costs that are the responsibility of the collaboration partner, which in
certain circumstances requires significant judgment.
Leases
Effective January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842), ("ASU
2016-02" or "ASC 842"), using the required modified retrospective approach and
utilizing the effective date as the date of initial application. As a result,
prior periods are presented in accordance with the previous guidance in ASC 840,
Leases ("ASC 840").
At the inception of an arrangement, we determine whether the arrangement is or
contains a lease based on the unique facts and circumstances present in the
arrangement. Leases with a term greater than one year are recognized on the
balance sheet as right-of-use assets and short-term and long-term lease
liabilities, as applicable. We do not have material financing leases.
Operating lease liabilities and their corresponding right-of-use assets are
initially recorded based on the present value of lease payments over the
expected remaining lease term. Certain adjustments to the right-of-use asset may
be required for items such as incentives received. The interest rate implicit in
lease contracts is typically not readily determinable. As a result, we utilize
our incremental borrowing rate to discount lease payments, which reflects the
fixed rate at which we could borrow on a collateralized basis the amount of the
lease payments in the same currency, for a similar term, in a similar economic
environment. To estimate our incremental borrowing rate, a credit rating
applicable to us is estimated using a synthetic credit rating analysis since we
do not currently have a rating agency-based credit rating. Prospectively, we
will adjust the right-of-use assets for straight-line rent expense or any
incentives received and remeasure the lease liability at the net present value
using the same incremental borrowing rate that was in effect as of the lease
commencement or transition date.
We have elected not to recognize leases with an original term of one year or
less on the balance sheet. We typically only includes an initial lease term in
our assessment of a lease arrangement. Options to renew a lease are not included
in our assessment unless there is reasonable certainty that we will renew.
Assumptions that we made at the commencement date are re-evaluated upon
occurrence of certain events, including a lease modification. A lease
modification results in a separate contract when the modification grants the
lessee an additional right of use not included in the original lease and when
lease payments increase commensurate with the standalone price for the
additional right of use. When a lease modification results in a separate
contract, it is accounted for in the same manner as a new lease.
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ASC 842 transition practical expedients and application of transition provisions
to leases at the transition date
We elected the following practical expedients, which must be elected as a
package and applied consistently to all of our leases at the transition date
(including those for which we are a lessee or a lessor): i) we did not reassess
whether any expired or existing contracts are or contain leases; ii) we did not
reassess the lease classification for any expired or existing leases (that is,
all existing leases that were classified as operating leases in accordance with
ASC 840 are classified as operating leases, and all existing leases that were
classified as capital leases in accordance with ASC 840 are classified as
finance leases); and iii) we did not reassess initial direct costs for any
existing leases.
For leases that existed prior to the date of initial application of ASC 842
(which were previously classified as operating leases), a lessee may elect to
use either the total lease term measured at lease inception under ASC 840 or the
remaining lease term as of the date of initial application of ASC 842 in
determining the period for which to measure its incremental borrowing rate. In
transition to ASC 842, we utilized the remaining lease term of its leases in
determining the appropriate incremental borrowing rates.
Application of ASC 842 policy elections to leases post adoption
We have made certain policy elections to apply to our leases executed post
adoption, or subsequent to January 1, 2019, as further described below.
In accordance with ASC 842, components of a lease should be split into three
categories: lease components, non-lease components, and non-components. The
fixed and in-substance fixed contract consideration (including any consideration
related to non-components) must be allocated based on the respective relative
fair values to the lease components and non-lease components.
Entities may elect not to separate lease and non-lease components. Rather,
entities would account for each lease component and related non-lease component
together as a single lease component. We have elected to account for lease and
non-lease components together as a single lease component for all underlying
assets and allocate all of the contract consideration to the lease component
only.
ASC 842 allows for the use of judgment in determining whether the assumed lease
term is for a major part of the remaining economic life of the underlying asset
and whether the present value of lease payments represents substantially all of
the fair value of the underlying asset. We apply the bright line thresholds
referenced in ASC 842-10-55-2 to assist in evaluating leases for appropriate
classification. The aforementioned bright lines are applied consistently to our
entire portfolio of leases.
Accrued research and development expenses
As part of the process of preparing our financial statements, we are required to
estimate our accrued expenses. This process involves reviewing open contracts
and purchase orders, communicating with our personnel to identify services that
have been performed on our behalf and estimating the level of service performed
and the associated cost incurred for the service when we have not yet been
invoiced or otherwise notified of the actual cost. The majority of our service
providers invoice us monthly in arrears for services performed or when
contractual milestones are met. We make estimates of our accrued expenses as of
each balance sheet date in our financial statements based on facts and
circumstances known to us at that time.
We recognize expenses related to clinical studies based on our estimates of the
services received and efforts expended pursuant to contracts with multiple CROs
that conduct and manage clinical studies on our behalf. The financial terms of
these agreements are subject to negotiation, vary from contract to contract and
may result in uneven payment flows. There may be instances in which payments
made to our vendors will exceed the level of services provided and result in a
prepayment of the clinical expense. Payments under some of these contracts
depend on factors such as the successful enrollment of subjects and the
completion of clinical study milestones. In accruing service fees, we estimate
the time period over which services will be performed and the level of effort to
be expended in each period and adjust accordingly.
Other examples of estimated accrued research and development expenses include
fees paid to:
•investigative sites in connection with clinical studies;
•vendors in connection with preclinical development activities; and
•vendors related to the development, manufacturing, and distribution of clinical
trial materials.
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Stock-based compensation
We issue stock-based awards to employees and non-employees, generally in the
form of stock options and restricted stock units. We account for our stock-based
awards in accordance with FASB ASC Topic 718, Compensation-Stock Compensation,
or ASC 718. ASC 718 requires all stock-based payments to employees, including
grants of employee stock options and modifications to existing stock options, to
be recognized in the consolidated statements of operations and comprehensive
loss based on their fair values. Prior to the adoption of Accounting Standards
Update ("ASU") No. 2018-07, Compensation - Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"), the
measurement date for non-employee awards was generally the date the services are
completed, resulting in financial reporting period adjustments to stock-based
compensation during the vesting terms for changes in the fair value of the
awards. After the adoption of ASU 2018-07, the measurement date for non-employee
awards is the date of grant without changes in the fair value of the award.
Stock-based compensation costs for non-employees are recognized as expense over
the vesting period on a straight-line basis.
Our stock-based awards are subject to either service or performance-based
vesting conditions. Compensation expense related to awards to employees,
non-employees, and directors, with service-based vesting conditions is
recognized on a straight-line basis based on the grant date fair value over the
associated service period of the award, which is generally the vesting term.
Compensation expense related to awards to employees and non-employees with
performance-based vesting conditions is recognized based on the grant date fair
value over the requisite service period using the accelerated attribution method
to the extent achievement of the performance condition is probable. We estimate
the probability that certain performance criteria will be met and do not
recognize compensation expense until it is probable that the performance-based
vesting condition will be achieved.
We estimate the fair value of our stock-based awards to employees,
non-employees, and directors, using the Black-Scholes option pricing model,
which requires the input of subjective assumptions, including (i) the expected
volatility of our stock, (ii) the expected term of the award, (iii) the
risk-free interest rate, and (iv) expected dividends. Due to the lack of company
specific historical and implied volatility data, we based our estimate of
expected volatility on the estimate and expected volatilities of a
representative group of publicly traded companies. For these analyses, we select
companies with comparable characteristics to ours including enterprise value,
risk profiles, position within the industry, and with historical share price
information sufficient to meet the expected life of the stock-based awards. We
compute the historical volatility data using the daily closing prices for the
selected companies' shares during the equivalent period of the calculated
expected term of our stock-based awards. We will continue to apply this process
until a sufficient amount of historical information regarding the volatility of
our own stock price becomes available. We estimate the expected life of our
employee stock options using the "simplified" method, whereby, the expected life
equals the average of the vesting term and the original contractual term of the
option. The risk-free interest rates for periods within the expected life of the
option were based on the U.S. Treasury yield curve in effect during the period
the options were granted.
Recent accounting pronouncements
See Note 2, Summary of significant accounting policies and basis of
presentation, in the Notes to Consolidated Financial Statements for a
description of recent accounting pronouncements applicable to our business.

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Results of Operations
Comparison of the years ended December 31, 2019 and 2018:
                                                             Year ended December 31,
                                                             2019                2018               Change
                                                                            (in thousands)
Revenue:
Collaboration revenue                                   $    36,469          $   52,353          $  (15,884)
License and royalty revenue                                   8,205               2,226               5,979
Total revenues                                               44,674              54,579              (9,905)
Operating expenses:
Research and development                                    582,413             448,589             133,824
Selling, general and administrative                         271,362             174,129              97,233
Cost of license and royalty revenue                           2,978                 885               2,093
Change in fair value of contingent consideration              2,747               2,999                (252)
Total operating expenses                                    859,500             626,602             232,898
Loss from operations                                       (814,826)           (572,023)           (242,803)
Interest income (expense), net                               34,761              14,624              20,137
Other (expense) income, net                                 (10,088)              1,961             (12,049)
Loss before income taxes                                   (790,153)           (555,438)           (234,715)
Income tax benefit (expense)                                    545                (187)                732
Net loss                                                $  (789,608)         $ (555,625)         $ (233,983)


Revenue. Total revenue was $44.7 million for the year ended December 31, 2019,
compared to $54.6 million for the year ended December 31, 2018. The decrease of
$9.9 million was primarily attributable to a decrease in collaboration revenue
recognized for the ide-cel license and manufacturing services under our
agreement with BMS. This decrease was partially offset by an increase in license
and royalty revenue and an increase in collaboration revenue under our agreement
with Regeneron.
Research and development expenses. Research and development expenses were
$582.4 million for the year ended December 31, 2019, compared to $448.6 million
for the year ended December 31, 2018. The increase of $133.8 million was
primarily attributable to the following:
•$66.1 million of increased employee compensation, benefit, and other headcount
related expenses, which is primarily driven by an increase in research and
development headcount to support overall growth, including an increase of $25.7
million in stock-based compensation expense. Refer to Note 14, Stock-based
compensation, in the Notes to Consolidated Financial Statements for discussion
of stock-based compensation expense recognized on the performance-based
restricted stock units;
•$34.8 million of increased IT and facility related costs, which includes the
impact of adopting ASU 2016-02;
•$26.3 million of increased collaboration research funding costs;
•$13.1 million of increased laboratory expenses, material production, and other
platform costs;
•$9.7 million of increased research consulting and medical research costs; and
•$3.6 million of increased clinical trial costs.
These increased costs were partially offset by $20.6 million of decreased
license and milestone fees.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $271.4 million for the year ended December 31,
2019, compared to $174.1 million for the year ended December 31, 2018. The
increase of $97.2 million was primarily due to the following:
•$65.3 million of increased employee compensation, benefit, and other headcount
related expenses, which is primarily driven by an increase in selling, general,
and administrative headcount to support overall growth, including an increase of
$24.1 million in stock-based compensation expense. Refer to Note 14, Stock-based
compensation, in the Notes to
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Consolidated Financial Statements for discussion of stock-based compensation
expense recognized on the performance-based restricted stock units;
•$18.4 million of increased costs related to commercial-readiness activities;
and
•$13.2 million of increased consulting fees.
Cost of license and royalty revenue. Cost of license and royalty revenue was
$3.0 million for the year ended December 31, 2019, compared to $0.9 million for
the year ended December 31, 2018. The increase is attributable to increased
royalty revenue in the same periods.
Change in fair value of contingent consideration. The change in fair value of
contingent consideration is driven by changes in assumptions related to
estimated milestone achievement dates or probabilities of achievement.
Interest income (expense), net. The change in interest income (expense), net was
primarily related to increased interest income earned on investments, as well as
a decrease in interest expense incurred due to the de-recognition of the
financing lease obligation associated with our corporate headquarters at 60
Binney Street related to the adoption of ASU 2016-02 on January 1, 2019.
Other (expense) income, net. The change in other (expense) income, net was
primarily related to changes in fair value on equity securities.
Comparison of the years ended December 31, 2018 and 2017:
                                                             Year ended December 31,
                                                             2018                2017               Change
                                                                            (in thousands)
Revenue:
Collaboration revenue                                   $    52,353          $   22,207          $   30,146
License and royalty revenue                                   2,226              13,220             (10,994)
Total revenues                                               54,579              35,427              19,152
Operating expenses:
Research and development                                    448,589             273,040             175,549
Selling, general and administrative                         174,129              93,550              80,579
Cost of license and royalty revenue                             885               1,527                (642)
Change in fair value of contingent consideration              2,999                (525)              3,524
Total operating expenses                                    626,602             367,592             259,010
Loss from operations                                       (572,023)           (332,165)           (239,858)
Interest income (expense), net                               14,624              (2,001)             16,625
Other income (expense), net                                   1,961              (1,267)              3,228
Loss before income taxes                                   (555,438)           (335,433)           (220,005)
Income tax benefit (expense)                                   (187)               (210)                 23
Net loss                                                $  (555,625)         $ (335,643)         $ (219,982)


Revenue. Total revenue was $54.6 million for the year ended December 31, 2018,
compared to $35.4 million for the year ended December 31, 2017. The increase of
$19.2 million was primarily attributable to collaboration revenue recognized
associated with the ide-cel license and manufacturing services under our
agreement with BMS, of which $13.9 million is attributable to differences
resulting from the application of Topic 606 and ASC 605 to our arrangement with
BMS during the year ended December 31, 2018 and 2017, respectively, offset by a
decrease in license and royalty revenue.
Research and development expenses. Research and development expenses were $448.6
million for the year ended December 31, 2018, compared to $273.0 million for the
year ended December 31, 2017. The increase of $175.5 million was primarily
attributable to the following:
•$84.5 million of increased costs incurred for material production, laboratory
expenses, and collaboration research;
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•$61.1 million of increased employee compensation, benefit, and other headcount
related expenses, of which $27.8 million is stock based compensation expense,
primarily due to an increase in headcount to support overall growth;
•$17.8 million of increased facility related costs and professional and
consulting fees;
•$10.5 million of increased clinical trial-related costs to support the
advancement of our clinical programs; and
•$1.3 million of increased license and milestone fees (exclusive of any costs
recorded in cost of license and royalty revenue) and increased grants and
scholarships.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $174.1 million for the year ended December 31,
2018, compared to $93.6 million for the year ended December 31, 2017. The
increase of approximately $80.6 million was primarily due to the following:
•$47.4 million of increased employee compensation and benefits, inclusive of
$29.8 million of increased stock-based compensation expense;
•$10.1 million of increased commercial-related costs, primarily attributed to
market research costs;
•$14.6 million due to increased consultant and professional services expenses;
•$5.7 million in other headcount related costs; and
•$4.3 million of increased office expenses.
These increases were offset by decreased facility-related costs of $1.7 million.
Cost of license and royalty revenue. Cost of license and royalty revenue was
$0.9 million for the year ended December 31, 2018, compared to $1.5 million for
the year ended December 31, 2017. The decrease is attributable to decreased
license and royalty revenue in the same periods.
Change in fair value of contingent consideration. The change in fair value of
contingent consideration is driven by changes in assumptions related to
estimated milestone achievement dates or probabilities of achievement.
Interest income (expense), net. The change in interest income (expense), net was
primarily related to increased interest income earned on investments due to the
increase in investment in marketable securities, partially offset by interest
expense on the 60 Binney financing obligation.
Other income (expense), net. Other income, net was $2.0 million for the year
ended December 31, 2018, compared to other expense, net of $1.3 million for the
year ended December 31, 2017. The change is primarily related to an unrealized
gain recognized on equity securities as well as fluctuations in foreign currency
exchange rates.
Liquidity and Capital Resources
As of December 31, 2019, we had cash, cash equivalents and marketable securities
of approximately $1.24 billion. We expect cash, cash equivalents, marketable
securities, anticipated collaboration payments, and payments from sales of our
current and potential future product candidates to fund planned operations into
the second half of 2021. Cash in excess of immediate requirements is invested in
accordance with our investment policy, primarily with a view to liquidity and
capital preservation. As of December 31, 2019, our funds are primarily held in
U.S. Treasury securities, U.S. government agency securities, equity securities,
certificates of deposit, corporate bonds, commercial paper, and money market
accounts.
We have incurred losses and cumulative negative cash flows from operations since
our inception in April 1992, and as of December 31, 2019, we had an accumulated
deficit of $2.28 billion. We expect that our research and development and
selling, general and administrative expenses will continue to increase and, as a
result, we will need additional capital to fund our operations, which we may
raise through public or private equity or debt financings, strategic
collaborations, or other sources. The likelihood of our long-term success must
be considered in light of the expenses, difficulties, and potential delays to be
encountered in the development and commercialization of new pharmaceutical
products, competitive factors in the marketplace and the complex regulatory
environment in which we operate. We may never achieve significant revenue or
profitable operations.
We have funded our operations principally from the sale of common stock in
public offerings and through our collaborations with BMS and Regeneron as
outlined below:
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•In June 2017, we sold 4.4 million shares of common stock (inclusive of 0.6
million shares of common stock sold by us pursuant to the full exercise of an
overallotment option granted to the underwriters in connection with the
offering) through an underwritten public offering at a price of $105.00 per
share for aggregate net proceeds to us of $436.8 million.
•In December 2017, we sold 3.2 million shares of common stock (excluding any
shares sold by us pursuant to an overallotment option granted to the
underwriters in connection with the offering) through an underwritten public
offering at a price of $185.00 per share for aggregate net proceeds to us of
$569.8 million.
•In January 2018, we sold 0.3 million shares of common stock pursuant to the
partial exercise of an overallotment option granted to the underwriters in
connection with the December 2017 underwritten public offering at a price of
$185.00 per share for aggregate net proceeds of $48.7 million.
•In July 2018, we sold 3.9 million shares of common stock through an
underwritten public offering at a price of $162.50 per share for aggregate net
proceeds to us of $600.6 million.
•In August 2018, we sold 0.4 million shares of common stock to Regeneron in
connection with our collaboration arrangement at a price of $238.10 per share
for aggregate net proceeds to us of $100.0 million, of which $45.5 million was
attributed to a prepayment of joint research activities. See Note 11,
Collaborative arrangements, in the Notes to Consolidated Financial Statements
for more information.
Sources of Liquidity
Cash Flows
The following table summarizes our cash flow activity:
                                                                      Year ended December 31,
                                                           2019                2018                2017
                                                                          (in thousands)
Net cash used in operating activities                  $ (564,384)         $ (413,426)         $ (280,553)
Net cash provided by (used in) investing activities       507,807            (679,435)           (316,630)
Net cash provided by financing activities                  21,187             737,692           1,076,174
(Decrease) increase in cash, cash equivalents and
restricted cash                                        $  (35,390)

$ (355,169) $ 478,991

Operating Activities. The net cash used in operating activities was $564.4
million for the year ended December 31, 2019 and primarily consisted of a net
loss of $789.6 million adjusted for non-cash items including stock-based
compensation of $160.6 million and depreciation and amortization of $17.4
million, as well as the change in our net working capital.
The net cash used in operating activities was $413.4 million for the year ended
December 31, 2018 and primarily consisted of a net loss of $555.6 million
adjusted for non-cash items including stock-based compensation of $110.8 million
and depreciation and amortization of $17.2 million, as well as the change in our
net working capital.
The net cash used in operating activities was $280.6 million for the year ended
December 31, 2017 and primarily consisted of a net loss of $335.6 million
adjusted for non-cash items including stock-based compensation of $53.3 million
and depreciation and amortization of $13.5 million, as well as the change in our
net working capital.
Investing Activities. Net cash provided by investing activities for the year
ended December 31, 2019 was $507.8 million and was primarily due to proceeds
from the maturities of available-for-sale marketable securities of $1.34 billion
offset by the purchase of $756.6 million of marketable securities and the
purchase of $71.0 million of property, plant and equipment.
Net cash used in investing activities for the year ended December 31, 2018 was
$679.4 million and was primarily due to the purchase of $1.52 billion of
marketable securities and the purchase of $55.7 million of property, plant and
equipment offset by proceeds from the maturities of available-for-sale
marketable securities of $894.3 million.
Net cash used in investing activities for the year ended December 31, 2017 was
$316.6 million and was primarily due to the purchase of $686.2 million of
available-for-sale marketable securities and the purchase of $62.2 million of
property, plant and equipment offset by proceeds from the maturities of
available-for-sale marketable securities of $431.8 million.
Financing Activities: Net cash provided by financing activities for the year
ended December 31, 2019 was $21.2 million and was primarily due to net cash
proceeds from employee option exercises and ESPP contributions.
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Net cash provided by financing activities for the year ended December 31, 2018
was $737.7 million and was primarily due to net cash proceeds from our January
2018 and July 2018 common stock offerings, as well as our issuance of common
stock to Regeneron.
Net cash provided by financing activities for the year ended December 31, 2017
was $1.1 billion and was primarily due to net cash proceeds from our June 2017
and December 2017 common stock offerings.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations at December 31, 2019,
which excludes potential milestone payments.
                                                                                 2021               2023              2025
                                                                               through            through              and
                                          Total               2020               2022               2024              after
                                                                           (in thousands)
Operating leases                       $ 251,553          $  33,257          $  66,868          $  63,092          $ 88,336
Contract manufacturing                   247,947            129,950             46,907             71,090                 -

Total contractual obligations(1) $ 499,500 $ 163,207

$ 113,775 $ 134,182 $ 88,336

(1)We are subject to several in-licenses that include annual license maintenance
fee payments and minimum royalties. The future obligations related to
maintenance fee payments and minimum royalties in license agreements are not
considered material and are not included in the table above.
Operating leases
60 Binney Street lease
On September 21, 2015, we entered into a lease agreement for office and
laboratory space located at 60 Binney Street, Cambridge, Massachusetts.  Under
the terms of the lease, starting on October 1, 2016, we leased approximately
253,108 square feet of office and laboratory space at $72.50 per square foot per
year, or $18.4 million per year in base rent, which is subject to scheduled
annual rent increases of 1.75% plus certain operating expenses and taxes. The
Company currently maintains a $13.8 million collateralized letter of credit and,
subject to the terms of the lease and certain reduction requirements specified
therein, including market capitalization requirements, this amount may decrease
to $9.2 million over time. The lease will continue until March 31, 2027.
 Pursuant to a work letter entered into in connection with the lease, the
landlord contributed an aggregate of $42.4 million toward the cost of
construction and tenant improvements for the building.
50 Binney Street sublease
In April 2019, we entered into a sublease agreement for office space located at
50 Binney Street in Cambridge, Massachusetts (the "50 Binney Street Sublease")
to supplement our corporate headquarters located at 60 Binney Street in
Cambridge, Massachusetts. Under the terms of the 50 Binney Street Sublease, we
will lease 267,278 square feet of office space for $99.95 per square foot, or
$26.7 million per year in base rent subject to certain operating expenses, taxes
and annual rent increases of approximately 3%. The lease will commence when the
space is available for use, which is anticipated to be in the second half of
2021, and end on December 31, 2030, unless we earlier occupy the premises or
other conditions specified in the 50 Binney Street Sublease occur. The sublessor
has the right to postpone the commencement date until January 1, 2022 by
providing us not less than nine months' prior written notice. Upon signing the
50 Binney Street Sublease, we executed a $40.1 million cash-collateralized
letter of credit, which may be reduced in the future subject to the terms of the
50 Binney Street Sublease and certain reduction requirements specified therein.
The $40.1 million of cash collateralizing the letter of credit is classified as
restricted cash and other non-current assets on our consolidated balance sheets.
Payments will commence at the earlier of (i) the date which is 90 days following
the commencement date and (ii) the date we take occupancy of all or any portion
of the premises. In connection with the execution of the 50 Binney Street
Sublease, we also entered into a Purchase Agreement for furniture and equipment
(the "Furniture Purchase Agreement") located on the premises upon lease
commencement. Upon execution of the Furniture Purchase Agreement, we made an
upfront payment of $7.5 million, all of which was recorded within restricted
cash and other non-current assets on our consolidated balance sheets as of
December 31, 2019.
Seattle, Washington leases
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In July 2018, we entered into a lease agreement for office and laboratory space
located in a portion of a building in Seattle, Washington. The lease was amended
in October 2018 to increase the total rentable space to approximately 36,126
square feet at $54.00 per square foot in base rent per year, which is subject to
scheduled annual rent increases of 2.5% plus certain operating expenses and
taxes. The lease commenced on January 1, 2019 and the lease term will continue
through January 31, 2027. The Company moved into the facility in June 2019. The
lease allowed for a tenant improvement allowance of up to $215.00 per square
foot, or approximately $8.0 million. We utilized the $8.0 million tenant
improvement allowance and it has been fully reimbursed by the landlord as of
December 31, 2019.
In September 2019, we entered into a second amendment to the lease (the "Second
Amendment"). The Second Amendment added approximately 22,188 square feet to the
existing space and extended the lease term of the entire premises by 16 months,
or until April 2028. Fixed monthly rent for the expanded space will be incurred
at a rate of $62.80 per square foot per year beginning in January 2021, subject
to annual increases of 2.5%. The Second Amendment includes a five-year option to
extend the term.
Embedded leases
On June 3, 2016, we entered into a manufacturing agreement for the future
commercial production of our Lenti-D and LentiGlobin product candidates with a
contract manufacturing organization. Under this 12 year agreement, the contract
manufacturing organization will complete the design, construction, validation
and process validation of the leased suites prior to anticipated commercial
launch of the product candidates. During construction, we were required to pay
$12.5 million upon the achievement of certain contractual milestones, and may
pay up to $8.0 million in additional contractual milestones if we elect our
option to lease additional suites. We paid $5.0 million for the achievement of
the first and second contractual milestones during 2016 and paid $5.5 million
for the third and fourth contractual milestones achieved during 2017. In March
2018, $1.5 million of the possible $2.0 million related to the fifth contractual
milestone was achieved and was paid in the second quarter of 2018. Given that
construction was completed in March 2018, beginning in April 2018 we will pay
$5.1 million per year in fixed suite fees as well as certain fixed labor, raw
materials, testing and shipping costs for manufacturing services, and may pay
additional suite fees if it elects its option to reserve or lease additional
suites.
We may terminate this agreement at any time upon payment of a one-time
termination fee and up to 24 months of fixed suite and labor fees. We concluded
that this agreement contains an embedded lease as the suites are designated for
our exclusive use during the term of the agreement. We concluded that we are not
the deemed owner during construction nor is it a capital lease under ASC
840-10, Leases - Overall. As a result, in prior periods we accounted for the
agreement as an operating lease under ASC 840 and recognized straight-line rent
expense over the non-cancellable term of the embedded lease. As part of our
adoption of ASC 842, effective January 1, 2019, we carried forward the existing
lease classification under ASC 840. Additionally, we recorded a right-of-use
asset and lease liability for this operating lease on the effective date and are
recognizing rent expense on a straight-line basis throughout the remaining term
of the embedded lease.
Contingent Consideration Related to Business Combinations
In connection with the Pregenen acquisition, we agreed to make contingent cash
payments to the former equity holders of Pregenen. In accordance with accounting
guidance for business combinations, these contingent cash payments are recorded
as contingent consideration liabilities on our consolidated balance sheets at
fair value. During the second quarter of 2017, a $5.0 million preclinical
milestone was achieved, which resulted in a $5.0 million payment to the former
equityholders of Pregenen during the third quarter of 2017. The aggregate
remaining undiscounted amount of contingent consideration potentially payable is
$120.0 million. We have not included these payments in the table above because
the achievement and timing of these milestones is not fixed and determinable. As
of December 31, 2019, and 2018, $8.0 million and $5.2 million, respectively, is
reflected as a non-current liability in the consolidated balance sheet, which
represents the fair value of our contingent consideration obligations as of this
date.
Contingent Milestone and Royalty Payments
We also have obligations to make future payments to third parties that become
due and payable on the achievement of certain development, regulatory and
commercial milestones (such as the start of a clinical trial, filing of a BLA,
approval by the FDA or product launch). We have not included these commitments
on our balance sheet or in the table above because the achievement and timing of
these milestones is not fixed and determinable.
Based on our development plans as of December 31, 2019, we may be obligated to
make future development, regulatory and commercial milestone payments and
royalty payments on future sales of specified products associated with our
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collaboration and license agreements. Payments under these agreements generally
become due and payable upon achievement of such milestones or sales. Because the
achievement of these milestones or sales had not occurred as of December 31,
2019, such contingencies have not been recorded in our financial statements.
Amounts related to contingent milestone payments and sales-based royalties are
not yet considered contractual obligations as they are contingent upon success.
•Under a license agreement with Inserm-Transfert pursuant to which we license
certain patents and know-how for use in adrenoleukodystrophy therapy, we will be
required to make payments based upon development, regulatory and commercial
milestones for any products covered by the in-licensed intellectual property.
The maximum aggregate payments we may be obligated to pay for each of these
milestone categories per product is €0.3, €0.2 and €1.6 million, respectively.
We will also be required to pay a royalty on net sales of products covered by
the in-licensed intellectual property in the low single digits. The royalty is
subject to reduction for any third-party payments required to be made, with a
minimum floor in the low single digits.
•Under a license agreement with Institut Pasteur pursuant to which we license
certain patents for use in ex vivo gene therapy, we will be required to make
payments per product covered by the in-licensed intellectual property upon the
achievement of development and regulatory milestones, depending on the
indication and the method of treatment. The maximum aggregate payments we may be
obligated to pay for each of these milestone categories per product is €1.5 and
€2.0 million, respectively. We will also be required to pay a royalty on net
sales of products covered by the in-licensed intellectual property in the low
single digits, which varies slightly depending on the indication of the product.
We have the right to sublicense our rights under this agreement, and we will be
required to pay a percentage of such license income varying from the low single
digits to mid-range double digits depending on the nature of the sublicense and
stage of development. We are required to make an annual maintenance payment,
which is creditable against royalty payments on a year-by-year basis. On April
1, 2015, we amended this license agreement with Institut Pasteur, which resulted
in a payment of €3.0 million that was paid during the second quarter of
2015. During the year ended December 31, 2019 we paid Institut Pasteur €0.5
million in connection with amounts owed to us by sublicensees and €0.5 million
for milestones reached.
•Under a license agreement with the Board of Trustees of the Leland Stanford
Junior University, or Stanford, pursuant to which we license the HEK293T cell
line for use in gene therapy products, we are required to pay a royalty on net
sales of products covered by the in-licensed intellectual property in the low
single digits that varies with net sales. The royalty is reduced for each
third-party license that requires payments by us with respect to a licensed
product, provided that the royalty to Stanford is not less than a specified
percentage that is less than one percent. We have been paying Stanford an annual
maintenance fee, which will be creditable against our royalty payments.
•Under a license agreement with the Massachusetts Institute of Technology, or
MIT, pursuant to which we license various patents, we will be required to make a
payment of $0.1 million based upon a regulatory filing milestone. We will also
be required to pay a royalty on net sales of products covered by the in-licensed
intellectual property by us or our sublicensees. The royalty is in the low
single digits and is reduced for royalties payable to third parties, provided
that the royalty to MIT is not less than a specified percentage that is less
than one percent. We have the right to sublicense our rights under this
agreement, and we will be required to pay a percentage of such license income
varying from the mid-single digits to low double digits. We are required to pay
MIT an annual maintenance fee based on net sales of licensed products, which is
creditable against our royalty payments.
•Under a license agreement with Research Development Foundation pursuant to
which we license patents that involve lentiviral vectors, we will be required to
make payments of $1.0 million based upon a regulatory milestone for each product
covered by the in-licensed intellectual property. We will also be required to
pay a royalty on net sales of products covered by the in-licensed intellectual
property in the low single digits, which is reduced by half if during the ten
years following first marketing approval the last valid claim within the
licensed patent that covers the licensed product expires or ends. During the
year ended December 31, 2019 we paid Research Development Foundation $1.0
million upon receiving milestones reached for a product covered by in-licensed
intellectual property.
•Under a license agreement with Biogen Inc., pursuant to which we license
certain patents and patent applications related to our ide-cel and bb21217
product candidates, we will be required to make certain payments related to
certain development milestone obligations and must report on our progress in
achieving these milestones on a periodic basis. We may be obligated to pay up to
$23.0 million in the aggregate for each licensed product upon the achievement of
remaining milestones. Upon commercialization of our products covered by the
in-licensed intellectual property, we will be obligated to pay a percentage of
net sales as a royalty in the low single digits.
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•Under a license agreement with the National Institutes of Health, or NIH,
pursuant to which we license certain patent applications related to our ide-cel
and bb21217 product candidates, we have agreed to certain development and
regulatory milestone obligations and must report on our progress in achieving
these milestones on a periodic basis. We may be obligated to pay up to $9.7
million in the aggregate for a licensed product upon the achievement of these
milestones. Upon commercialization of our products covered by the in-licensed
intellectual property, we will be obligated to pay NIH a percentage of net sales
as a royalty in the low single digits. The royalties payable under this license
agreement are subject to reduction for any third party payments required to be
made, with a minimum floor in the low single digits. During the year ended
December 31, 2019 we paid NIH $0.9 million upon milestones reached for a product
covered by in-licensed intellectual property.
•Under a license agreement with SIRION Biotech GmbH, or Sirion, pursuant to
which we license certain patents directed to manufacturing related to our
LentiGlobin product candidate, we will be required to make certain payments
related to certain development milestone obligations and must report on our
progress in achieving these milestones on a periodic basis. We may be obligated
to pay up to $13.4 million in the aggregate for each product covered by the
in-licensed intellectual property. Upon commercialization of our products
covered by the in-licensed intellectual property, we will be obligated to pay
Sirion a percentage of net sales as a royalty in the low single digits. The
royalties payable under this license agreement are subject to reduction for any
third party payments required to be made, with a minimum floor in the low single
digits. During the year ended December 31, 2019 we paid Sirion $4.0 million upon
milestones reached for a product covered by in-licensed intellectual property.
Other Funding Commitments
We enter into contracts in the normal course of business with CROs for
preclinical research studies and clinical trials, research supplies and other
services and products for operating purposes. We have also entered into
multi-year agreements with manufacturing partners in the United States and
Europe (Brammer Bio, now part of Thermo Fisher Scientific, Inc., Novasep and
SAFC Carlsbad, Inc., or SAFC, a subsidiary of MilliporeSigma), which are
partnering with us on production of lentiviral vector across all of our
programs. In addition, we have entered into multi-year agreements with Lonza
Houston, Inc. and apceth Biopharma, or apceth, to produce drug product for
Lenti-D, LentiGlobin and bb21217. Currently, SAFC is the sole manufacturer of
the lentiviral vector and apceth is the sole manufacturer of the drug product to
support commercialization of ZYNTEGLO in Europe for the treatment of TDT. In our
manufacturing agreement with SAFC, we are required to provide rolling forecasts
for products on a quarterly basis, a portion of which will be considered a
binding, firm order, subject to a purchase commitment. In our manufacturing
agreement with apceth, we reserve production capacity for the manufacture of our
drug product. BMS manufactures drug product for ide-cel. We believe our team of
technical personnel has extensive manufacturing, analytical and quality
experience as well as strong project management discipline to effectively
oversee these contract manufacturing and testing activities, and to compile
manufacturing and quality information for our regulatory submissions and
potential commercial launch. We are engaging with apheresis centers, which we
refer to as qualified treatment centers, that will be the centers for collection
of HSCs from the patient and for infusion of drug product to the patient. For
the treatment of patients with our drug product in the commercial setting, we
are entering into agreements with participating qualified treatment centers in
the jurisdictions where we plan to commercialize our products. These contracts
generally provide for termination on notice. Wherever contracts include
stipulated commitment payments, we have included such payments in the table of
contractual obligations and commitments.
Off-Balance Sheet Arrangements
As of December 31, 2019, we did not have any off-balance sheet arrangements as
defined in the rules and regulations of the SEC.
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