REGENXBIO INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , which we filed with theSEC onMarch 1, 2022 . In addition, you should read the "Risk Factors" and "Information Regarding Forward-Looking Statements" sections of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2021 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a leading clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. Our investigational gene therapies are designed to deliver functional genes to address genetic defects in cells, enabling the production of therapeutic proteins or antibodies that are intended to impact disease. Through a single administration, gene therapy could potentially alter the course of disease significantly and deliver improved patient outcomes with long-lasting effects.
Overview of Product Candidates
We have developed a broad pipeline of gene therapy programs using our proprietary adeno-associated virus (AAV) gene therapy delivery platform (NAV Technology Platform) to address genetic diseases. Our programs and product candidates are described below:
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RGX-314: We are developing RGX-314 in collaboration with AbbVie as a potential one-time treatment for wet age-related macular degeneration (wet AMD), diabetic retinopathy (DR) and other additional chronic retinal conditions which cause total or partial vision loss. We are evaluating two separate routes of administration of RGX-314 to the eye: a subretinal delivery procedure as well as a targeted, in-office administration to the suprachoroidal space. We have licensed certain exclusive rights to the SCS Microinjector® from Clearside Biomedical, Inc. (Clearside) to deliver gene therapy treatments to the suprachoroidal space of the eye. Enrollment is ongoing in two pivotal trials, ATMOSPHERE® and ASCENT™, to evaluate the efficacy and safety of RGX-314 in patients with wet AMD using the subretinal delivery approach, and we expect these pivotal trials to support a Biologics License Application (BLA) submission in 2024. ATMOSPHERE and ASCENT are multi-center, randomized, active-controlled trials to evaluate the efficacy and safety of a single-administration of RGX-314 versus standard of care in patients with wet AMD. InOctober 2022 , we announced data from the Phase I/IIa Long-term Follow-up study of RGX-314 for the treatment of wet AMD using subretinal delivery. As ofAugust 29, 2022 , RGX-314 continued to be generally well-tolerated in the long-term follow-up study (n=37). Patients treated with RGX-314 continued to demonstrate a long-term, durable treatment effect in Cohort 3 up to four years and in Cohort 4 up to three years. Stable to improved visual acuity was observed, with a mean best corrected visual acuity (BCVA) of +12 letters from baseline at four years for Cohort 3 patients and -5 letters from baseline at three years for Cohort 4 patients following RGX-314 administration. We are also evaluating the efficacy, safety and tolerability of suprachoroidal delivery of RGX-314 through AAVIATE®, a multi-center, open label, randomized, controlled, dose-escalation Phase II trial of RGX-314 for the treatment of wet AMD. InOctober 2022 , we announced additional positive interim data from AAVIATE. As ofAugust 1, 2022 , RGX-314 suprachoroidal delivery was reported to be well tolerated across 85 patients dosed in Cohorts 1-5. Mild intraocular inflammation was reported at similar incidence in the first and second dose levels, with an increase in incidence in mild to moderate inflammation seen at the third dose level (Cohort 4). All intraocular inflammation resolved with topical corticosteroids. Patients treated in the RGX-314 arms and the ranibizumab control arm both continued to demonstrate stable BCVA and central retinal thickness (CRT) at 6 months. In addition, a meaningful reduction in anti-vascular endothelial growth factor (anti-VEGF) treatment burden following administration of RGX-314 was observed and ranged from -64% to -85% across all cohorts. The highest reduction in treatment burden was observed in the third dose level, with patients receiving a mean of 1.3 injections over six months following administration of RGX-314, which represents an 85% reduction in anti-VEGF treatment burden. Ten out of 15 patients (67%) in the third dose level received no anti-VEGF injections over six months following RGX-314 administration. Interim data from the second dose level (Cohorts 2 and 3) suggested there was no meaningful difference in safety and vision outcomes for patients who are neutralizing antibody (NAb) positive. We have expanded the AAVIATE trial to include a new cohort at the third dose level with short-course prophylactic ocular steroids following RGX-314 administration to evaluate the ability to prevent or reduce the occurrence of the mild to moderate intraocular inflammation seen in previous cohorts. Patients will be enrolled in Cohort 6 regardless of NAb status. 23
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We are also evaluating the efficacy, safety and tolerability of RGX-314 for the treatment of DR through ALTITUDE®, a multi-center, open label, randomized, controlled, dose-escalation Phase II trial. InNovember 2022 , we announced additional positive interim data from ALTITUDE. As ofOctober 17, 2022 , RGX-314 was reported to be well tolerated across 50 patients dosed in Cohorts 1-3 at two dose levels (D1 and D2). Three patients had intraocular inflammation, all of which were mild and resolved on topical corticosteroids. No meaningful differences in safety outcomes were observed at six months for patients who are NAb positive. BCVA remained stable in Cohorts 1-3 through six months. Patients treated with RGX-314 in Cohorts 1-3 demonstrated clinically meaningful improvements in disease severity and less disease worsening versus observation control at six months as measured by the Early Treatment Diabetic Retinopathy Study-Diabetic Retinopathy Severity Scale (DRSS). Specifically, 20% (D1: 40%, D2: 11%) achieved ?2-step DRSS improvement vs. 10% in control, 54% (D1: 60%, D2: 51%) achieved any DRSS improvement vs. 20% in control, and 0% (D1: 0%, D2: 0%) worsened ?2 steps vs. 20% in control. We have expanded the ALTITUDE trial to include a higher third dose level (1x1012 GC/eye), with patients stratified by DRSS levels across cohorts and all receiving short-course prophylactic ocular steroids following RGX-314 administration.
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RGX-202: We are developing RGX-202 for the treatment of Duchenne muscular dystrophy (Duchenne), a rare disease caused by mutations in the gene responsible for making dystrophin, a protein of central importance for muscle cell structure and function. Without dystrophin, muscles throughout the body degenerate and become weak, eventually leading to loss of movement and independence, required support for breathing, cardiomyopathy and premature death. We have received clearance of our Investigational New Drug (IND) application by theU.S. Food and Drug Administration (the FDA) to evaluate RGX-202 in a first-in-human, Phase I/II clinical trial named AFFINITY DUCHENNETM. This will be a multicenter, open-label dose escalation and dose expansion clinical trial to evaluate the safety, tolerability and clinical efficacy of RGX-202 in patients with Duchenne. We anticipate dosing the first patient in this trial in the first half of 2023.
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RGX-121: We are developing RGX-121 for the treatment of Mucopolysaccharidosis Type II (MPS II), a rare disease caused by a deficiency of the IDS gene which encodes I2S, an enzyme that is responsible for the breakdown of structures that dispose of waste products inside cells. Enrollment is ongoing in the pivotal program of CAMPSIITETM, a Phase I/II/III multi-center, open-label trial to evaluate the efficacy, safety, tolerability and pharmacodynamics of RGX-121 in patients with MPS II up to 5 years old. The trial is expected to enroll up to 10 MPS II patients using commercial-scale cGMP material to support a BLA filing in 2024 using the accelerated approval pathway, with the potential to enroll additional patients. InAugust 2022 ,REGENXBIO announced positive interim data from the CAMPSIITE trial of RGX-121. As ofAugust 1, 2022 , RGX-121 was reported to be well-tolerated across all cohorts in 14 patients dosed with RGX-121. Patients in all three cohorts demonstrated encouraging, dose-dependent reductions of cerebrospinal fluid (CSF) glycosaminoglycans (GAGs), key biomarkers of I2S enzyme activity, following one-time administration of RGX-121. Improvements in neurodevelopmental function and caregiver reported outcomes in Cohorts 1 and 2 demonstrated CNS activity up to 2 years after RGX-121 administration. GAGs in the CSF have the potential to be considered a surrogate biomarker that is reasonably likely to predict clinical benefit in MPS II disease under the accelerated approval pathway, as buildup of GAGs in the CSF of MPS II patients correlates with clinical manifestations, including neurodevelopmental deficits. A second Phase I/II trial of RGX-121 is ongoing for the treatment of pediatric patients with MPS II ages 5-18 years old to evaluate the safety of a single administration of RGX-121, the effects of RGX-121 on biomarkers of I2S enzyme activity, and changes in cognitive function, adaptive behavior, daily function and quality of life.
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RGX-111: We are developing RGX-111 for the treatment of Mucopolysaccharidosis Type I (MPS I), a rare disease caused by a deficiency of IDUA, an enzyme required for the breakdown of structures that dispose of waste products inside cells. We are conducting a Phase I/II clinical trial in patients with MPS I to evaluate the safety, tolerability and pharmacodynamics of RGX-111, as well as the effects of RGX-111 on biomarkers of IDUA activity, neurocognitive development and other outcome measures. We continue with plans to enroll additional patients in a Cohort 2 expansion arm of the Phase I/II trial.
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RGX-181: We are developing RGX-181 for the treatment of late-infantile neuronal ceroid lipofuscinosis type 2 (CLN2) disease, a form of Batten disease, caused by mutations in the tripeptidyl peptidase 1 (TPP1) gene.
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RGX-381: We are developing RGX-381 for the treatment of the ocular manifestations of CLN2 disease.
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Overview of Our NAV Technology Platform
In addition to our internal product development efforts, we also selectively license the NAV Technology Platform to other leading biotechnology and pharmaceutical companies, which we refer to as NAV Technology Licensees. As ofSeptember 30, 2022 , our NAV Technology Platform was being applied in one FDA approved product (Zolgensma®), and the preclinical and clinical development of a number of partnered programs. Licensing the NAV Technology Platform allows us to maintain our internal product development focus on our core disease indications and therapeutic areas while still expanding the NAV gene therapy pipeline, developing a greater breadth of treatments for patients, providing additional technological and potential clinical proof-of-concept for our NAV Technology Platform and creating potential additional revenue.
Impact of COVID-19
We are continuing to actively monitor the impact of the COVID-19 pandemic, including the emergence of variant strains and governmental reactions, on our business, results of operations and financial condition. The COVID-19 pandemic has caused delays to our clinical trials and may further delay or prevent us from proceeding with our clinical trials. Our other business initiatives, such as preclinical development and manufacturing operations, may also be affected by the COVID-19 pandemic. For example, the construction of our current good manufacturing practice production facility was delayed from our original estimates due to various government orders and restrictions relating to the COVID-19 pandemic. In addition, if the business and operations of our licensees are adversely affected by the COVID-19 pandemic, our revenues could in turn be adversely affected. We are proactively taking measures to mitigate or reduce any adverse impact of the COVID-19 pandemic on the progress of our clinical trials and other business initiatives. Our results of operations for the three and nine months endedSeptember 30, 2022 and 2021 were not significantly impacted by the COVID-19 pandemic. However, the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition in the future remains unknown at this time and will depend on future developments that are highly unpredictable. Please refer to the "Risk Factors" section of our Annual Report on Form 10-K for the year endedDecember 31, 2021 for further discussion of the risks we face as a result of the COVID-19 pandemic.
Financial Overview
Revenues
Our revenues to date consist primarily of license and royalty revenue resulting from the licensing of our NAV Technology Platform and other intellectual property rights. We have not generated any revenues from commercial sales of our own products. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval and adequate labeling, our ability to generate future revenues will be materially compromised. We license our NAV Technology Platform and other intellectual property rights to other biotechnology and pharmaceutical companies, including collaborators for the joint development and commercialization of our product candidates. The terms of the licenses vary, and licenses may be exclusive or non-exclusive and may be sublicensable by the licensee. Licenses may grant intellectual property rights for purposes of internal and preclinical research and development only, or may include the rights, or options to obtain future rights, to commercialize drug therapies for specific diseases using the NAV Technology Platform and other licensed rights. License agreements generally have a term at least equal to the life of the underlying patents, but are terminable at the option of the licensee. Consideration from licensees under our license agreements may include: (i) up-front and annual fees, (ii) milestone payments based on the achievement of certain development and sales-based milestones, (iii) sublicense fees, (iv) royalties on sales of licensed products and (v) other consideration payable upon optional goods and services purchased by licensees. Future license and royalty revenues are dependent on the successful development and commercialization of licensed products, which is uncertain, and revenues may fluctuate significantly from period to period. Additionally, we may never receive consideration in our license agreements that is contemplated on option fees, development and sales-based milestone payments, royalties on sales of licensed products or sublicense fees, given the contingent nature of these payments. Our revenues are concentrated among a low number of licensees and licenses are terminable at the option of the licensee. The termination of our licenses by licensees may materially impact the amount of revenue we recognize in future periods. Zolgensma Royalties
Royalty revenue to date consists primarily of royalties on net sales of
Zolgensma, which is marketed by
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treatment of spinal muscular atrophy (SMA). Zolgensma is a licensed product under our license agreement with Novartis Gene Therapies for the development and commercialization of treatments for SMA.
Collaboration and License Agreement with AbbVie
Effective inNovember 2021 , we entered into a collaboration and license agreement withAbbVie Global Enterprises Ltd. (AbbVie), a subsidiary of AbbVie Inc., to jointly develop and commercialize RGX-314 (the AbbVie Collaboration Agreement). The AbbVie Collaboration Agreement may materially impact our future revenues, research and development expenses, other operating expenses and operating cash flows associated with the development and commercialization of RGX-314. For additional information regarding the AbbVie Collaboration Agreement, please refer to Note 8, "License and Collaboration Agreements-AbbVie Collaboration and License Agreement" to the accompanying unaudited consolidated financial statements. Operating Expenses Our operating expenses consist primarily of cost of revenues, research and development expenses and general and administrative expenses. Personnel costs including salaries, benefits, bonuses and stock-based compensation expense, comprise a significant component of research and development and general and administrative expenses. We allocate indirect expenses associated with our facilities, information technology costs, depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee or using other reasonable allocation methodologies.
Cost of Revenues
Our cost of revenues consists primarily of upstream fees due to our licensors as a result of revenue generated from the licensing of our NAV Technology Platform and other intellectual property rights, including sublicense fees, milestone payments and royalties on net sales of licensed products. Sublicense fees are based on a percentage of license fees received by us from licensees and are recognized in the period that the underlying license revenue is recognized. Milestone payments are payable to licensors upon the achievement of specified milestones by licensees and are recognized in the period the milestone is achieved or deemed probable of achievement. Royalties are based on a percentage of net sales of licensed products by licensees and are recognized in the period that the underlying sales occur. Future costs of revenues are uncertain due to the nature of our license agreements and significant fluctuations in cost of revenues may occur from period to period.
Research and Development Expense
Our research and development expenses consist primarily of:
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salaries, wages and personnel-related costs, including benefits, travel and stock-based compensation, for our scientific personnel performing research and development activities;
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costs related to executing preclinical studies and clinical trials;
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costs related to acquiring, developing and manufacturing materials for preclinical studies and clinical trials;
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fees paid to consultants and other third-parties who support our product candidate development;
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other costs in seeking regulatory approval of our product candidates; and
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direct costs and allocated costs related to laboratories and facilities, depreciation expense, information technology and other overhead.
Up-front fees incurred in obtaining technology licenses for research and development activities, as well as associated milestone payments, are charged to research and development expense as incurred if the technology licensed has no alternative future use. We plan to increase our research and development expenses for the foreseeable future as we continue development of our product candidates. Our current and planned research and development activities include the following:
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continued development of RGX-314 product candidates under our collaboration with AbbVie, including:
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a Phase I/II clinical trial and associated long-term follow-up study to evaluate
the safety and efficacy of the subretinal delivery of RGX-314 for the treatment
of wet AMD;
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pivotal trials (ATMOSPHERE and ASCENT) to evaluate the safety and efficacy of the subretinal delivery of RGX-314 for the treatment of wet AMD;
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Phase II clinical trials to evaluate the safety and efficacy of the suprachoroidal delivery of RGX-314 using the SCS Microinjector for the treatment of wet AMD (AAVIATE) and DR (ALTITUDE); and
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additional long-term follow-up and other studies associated with RGX-314.
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a Phase I/II clinical trial to evaluate the safety and efficacy of RGX-202 for the treatment of Duchenne (AFFINITY DUCHENNE);
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a pivotal Phase I/II/III clinical trial (CAMPSIITE) and a second Phase I/II clinical trial to evaluate the safety and efficacy of RGX-121 for the treatment of MPS II;
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a Phase I/II clinical trial to evaluate the safety and efficacy of RGX-111 for the treatment of MPS I;
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preclinical research and development for RGX-181 for the treatment of CLN2 disease and RGX-381 for the treatment of the ocular manifestations of CLN2 disease;
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preclinical research and development for potential product candidates addressing other diseases across a range of therapeutics areas and other new technologies;
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continued investment in advanced manufacturing analytics and process development activities; and
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continued acquisition and manufacture of clinical trial materials in support of our anticipated clinical trials.
The following table summarizes our research and development expenses incurred
during the three and nine months ended
Three Months Ended September 30 ,
Nine Months Ended
2022 2021 2022 2021
Direct Expenses
RGX-314 $ 11,835 $ 6,714 $ 33,967 $ 17,963
RGX-202 4,674 2,831 8,381 6,607
RGX-121 and RGX-111 3,049 2,608 9,097 8,178
Other product candidates 263 344 1,584 1,473
Total direct expenses 19,821 12,497 53,029 34,221
Unallocated Expenses
Platform and new technologies 12,743 9,471 38,811 25,931
Personnel-related 22,789 19,955 68,381 57,770
Facilities and depreciation expense 6,251 5,189 15,869 13,813
Other unallocated 1,709 743 3,858 1,724
Total unallocated expenses 43,492 35,358 126,919 99,238
Total research and development
Direct expenses related to the development of RGX-314 for the three and nine months endedSeptember 30, 2022 include$4.2 million and$12.3 million , respectively, in net cost reimbursement from AbbVie under our eye care collaboration which was recorded as a reduction of research and development expenses during the periods. Platform and new technologies includes direct costs not identifiable with a specific lead product candidate, including costs associated with our research and development platform used across programs, process development, manufacturing analytics and early research and development for prospective product candidates and new technologies. We typically utilize our employee and infrastructure resources across our development programs. We do not allocate personnel and other internal costs, such as facilities and other overhead costs, to specific product candidates or development programs. 27
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General and Administrative Expense
Our general and administrative expenses consist primarily of salaries, wages and personnel-related costs, including benefits, travel and stock-based compensation, for employees performing functions other than research and development. This includes certain personnel in executive, commercial, corporate development, finance, legal, human resources, information technology, facilities and administrative support functions. Additionally, general and administrative expenses include facility-related and overhead costs not otherwise allocated to research and development expense, professional fees for accounting, legal, commercial and other advisory services, expenses associated with obtaining and maintaining patents, insurance costs, costs of our information systems and other general corporate activities. We expect that our general and administrative expenses will continue to increase as we continue to develop, and potentially commercialize, our product candidates.
Other Income (Expense)
Interest Income from Licensing
In accordance with our revenue recognition policy, interest income from licensing consists of imputed interest recognized from significant financing components identified in our license agreements with NAV Technology Licensees as well as interest income accrued on unpaid balances due from licensees.
Investment Income
Investment income consists of interest income earned and gains and losses realized from our cash equivalents, marketable securities and non-marketable equity securities, as well as unrealized gains and losses on marketable equity securities. Cash equivalents are comprised of money market mutual funds and highly liquid debt securities with original maturities of 90 days or less at acquisition. Marketable securities are comprised of available-for-sale debt securities and equity securities.
Interest Expense
Interest expense consists primarily of interest imputed on the liability related to the sale of future Zolgensma royalties to entities managed byHealthcare Royalty Management, LLC (collectively, HCR). Interest expense is recognized using the effective interest method, based on our estimate of total royalty payments expected to be received by HCR under the royalty purchase agreement. For further information regarding the royalty purchase agreement with HCR, please refer to Note 6, "Liability Related to Sale of Future Royalties" to the accompanying unaudited consolidated financial statements.
Critical Accounting Policies and Estimates
This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted inthe United States of America (GAAP). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities for the periods presented. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities, and other reported amounts, that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. Our significant accounting policies are fully described in Note 2 to the accompanying unaudited consolidated financial statements and in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no significant changes in our critical accounting policies and estimates sinceDecember 31, 2021 . 28
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Our consolidated results of operations were as follows (in thousands):
Three Months Ended
September 30, Nine Months Ended September 30,
2022 2021 Change 2022 2021 Change
Revenues
License and royalty revenue $ 26,512 $ 30,773 $ (4,261 ) $ 81,379 $ 71,692 $ 9,687
Total revenues 26,512 30,773 (4,261 ) 81,379 71,692 9,687
Operating Expenses
Cost of revenues 13,094 14,105 (1,011 ) 41,762 28,775 12,987
Research and development 63,313 47,855 15,458 179,948 133,459 46,489
General and administrative 20,921 21,030 (109 ) 64,071 57,293 6,778
Credit losses and other 229 5,131 (4,902 ) 703 5,781 (5,078 )
Total operating expenses 97,557 88,121 9,436 286,484 225,308 61,176
Loss from operations (71,045 ) (57,348 ) (13,697 ) (205,105 ) (153,616 ) (51,489 )
Other Income (Expense)
Interest income from licensing 18 117 (99 ) 265 700 (435 )
Investment income 1,497 5,535 (4,038 ) 3,357 6,514 (3,157 )
Interest expense (5,954 ) (6,709 ) 755 (18,944 ) (19,777 ) 833
Total other income (expense) (4,439 ) (1,057 ) (3,382 ) (15,322 ) (12,563 ) (2,759 )
Loss before income taxes (75,484 ) (58,405 ) (17,079 ) (220,427 ) (166,179 ) (54,248 )
Income Tax Benefit (Expense) - - - 41 (4 ) 45
Net loss $ (75,484 ) $ (58,405 ) $ (17,079 ) $ (220,386 ) $ (166,183 ) $ (54,203 ) Comparison of the Three Months Ended
License and Royalty Revenue. License and royalty revenue decreased by$4.3 million , from$30.8 million for the three months endedSeptember 30, 2021 to$26.5 million for the three months endedSeptember 30, 2022 . The decrease was primarily attributable to Zolgensma royalty revenues, which decreased by$5.0 million , from$30.3 million for the third quarter of 2021 to$25.2 million for the third quarter of 2022. As reported by Novartis, sales of Zolgensma for the third quarter of 2022 decreased by 15% (USD) as compared to the third quarter of 2021. Per Novartis, Zolgensma sales growth volatility is driven by timing of access and reimbursement decisions, as well as timing of prior year patient bolus in certain markets. Research and Development Expense. Research and development expenses increased by$15.5 million , from$47.9 million for the three months endedSeptember 30, 2021 to$63.3 million for the three months endedSeptember 30, 2022 . The increase was primarily attributable to the following:
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an increase of
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an increase of
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an increase of$2.8 million in personnel-related costs as a result of increased headcount of research and development personnel, including a$0.5 million increase in stock-based compensation expense, largely driven by the commencement of in-house manufacturing of clinical supply in 2022; and
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an increase of$1.7 million in costs for laboratories and facilities used by research and development personnel, including a$0.8 million increase in depreciation expense allocated to research and development functions, largely driven by the occupation of our new corporate headquarters in mid-2021 and the activation of our cGMP facility in mid-2022. 29
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The increase in research and development expenses was partially offset by$4.2 million of net development cost reimbursement from AbbVie recorded in the third quarter of 2022 under our RGX-314 collaboration, which was recorded as a reduction of research and development expenses. General and Administrative Expense. General and administrative expenses remained consistent, decreasing by$0.1 million , from$21.0 million for the three months endedSeptember 30, 2021 to$20.9 million for the three months endedSeptember 30, 2022 . Investment Income. Investment income decreased by$4.0 million , from$5.5 million for the three months endedSeptember 30, 2021 to$1.5 million for the three months endedSeptember 30, 2022 . The decrease was primarily attributable to a realized gain of$5.2 million recognized in the third quarter of 2021 upon the acquisition of our non-marketable equity securities of Corlieve Therapeutics SAS (Corlieve) by uniQure N.V. (uniQure) inJuly 2021 . The decrease in investment income was partially offset by an increase of$1.2 million in interest income for the third quarter of 2022, primarily attributable to higher yields on investments in cash equivalents and marketable debt securities.
Comparison of the Nine Months Ended
License and Royalty Revenue. License and royalty revenue increased by$9.7 million , from$71.7 million for the nine months endedSeptember 30, 2021 to$81.4 million for the nine months endedSeptember 30, 2022 . The increase was primarily attributable to Zolgensma royalty revenues, which increased by$8.2 million , from$66.9 million for the nine months endedSeptember 30, 2021 to$75.1 million for the nine months endedSeptember 30, 2022 . As reported by Novartis, sales of Zolgensma for the nine months endedSeptember 30, 2022 increased by 5% (USD) as compared to the nine months endedSeptember 30, 2021 , driven by geographic expansion of product access outsidethe United States . Per Novartis, Zolgensma sales growth volatility is driven by timing of access and reimbursement decisions, as well as timing of prior year patient bolus in certain markets. Cost of Revenues. Cost of revenues increased by$13.0 million , from$28.8 million for the nine months endedSeptember 30, 2021 to$41.8 million for the nine months endedSeptember 30, 2022 . The increase was primarily attributable to a non-recurring charge of$9.2 million recognized in the first quarter of 2022 related to the amendment of our license agreement with The Trustees of theUniversity of Pennsylvania (Penn) to buy out our obligation to pay sublicense fees to Penn under the license agreement. For further information regarding the amendment of the license agreement with Penn, please refer to Note 7, "Commitments and Contingencies" to the accompanying unaudited consolidated financial statements. Research and Development Expense. Research and development expenses increased by$46.5 million , from$133.5 million for the nine months endedSeptember 30, 2021 to$179.9 million for the nine months endedSeptember 30, 2022 . The increase was primarily attributable to the following:
•
an increase of
•
an increase of
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an increase of$10.6 million in personnel-related costs as a result of increased headcount of research and development personnel, including a$1.4 million increase in stock-based compensation expense, largely driven by the commencement of in-house manufacturing of clinical supply in 2022; and
•
an increase of$6.1 million in costs for laboratories and facilities used by research and development personnel, including a$1.8 million increase in depreciation expense allocated to research and development functions, largely driven by the occupation of our new corporate headquarters in mid-2021 and the activation of our cGMP facility in mid-2022. 30
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The increase in research and development expenses was partially offset by$12.3 million of net development cost reimbursement from AbbVie recorded during the nine months endedSeptember 30, 2022 under our RGX-314 collaboration, which was recorded as a reduction of research and development expenses.
General and Administrative Expense. General and administrative expenses
increased by
•
an increase of
•
an increase of
The remaining$3.7 million increase in general and administrative expenses for the nine months endedSeptember 30, 2022 was primarily attributable to travel and meeting-related expenses, information technology and other corporate overhead costs. Investment Income. Investment income decreased by$3.2 million , from$6.5 million for the nine months endedSeptember 30, 2021 to$3.4 million for the nine months endedSeptember 30, 2022 . The decrease was primarily attributable to a realized gain of$5.2 million recognized in the third quarter of 2021 upon the acquisition of our Corlieve equity securities by uniQure inJuly 2021 . The decrease in investment income was partially offset by an increase of$2.1 million in interest income during the nine months endedSeptember 30, 2022 , primarily attributable to higher yields on investments in cash equivalents and marketable debt securities.
Liquidity and Capital Resources
Sources of Liquidity
As ofSeptember 30, 2022 , we had cash, cash equivalents and marketable securities of$617.0 million , which were primarily derived from the sale of our common stock, license and royalty revenue and the monetization of our Zolgensma royalty stream. We expect that our cash, cash equivalents and marketable securities as ofSeptember 30, 2022 , will enable us to fund our operating expenses and capital expenditure requirements, and are sufficient to meet our financial commitments and obligations, for at least the next 12 months from the date of this report, based on our current business plan. We intend to devote the majority of our current capital to clinical development, seeking regulatory approval of our product candidates and additional capital expenditures needed to support these activities. Because of the numerous risks and uncertainties associated with the development and commercialization of gene therapy product candidates, we are unable to estimate the total amount of operating expenditures and capital outlays necessary to complete the development of our product candidates. Additionally, our estimates are based on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Furthermore, given the continuing uncertainty and volatile market and economic conditions caused by the COVID-19 pandemic, as well as the potential for further effects due to a resurgence in COVID-19 infections, we will continue to monitor the nature and extent of the impact of the COVID-19 pandemic on our liquidity and capital resources.
Cash Flows
Our consolidated cash flows were as follows (in thousands):
Nine Months Ended
2022 2021
Net cash used in operating activities$ (168,116 ) $ (122,622 ) Net cash used in investing activities (38,629 ) (190,283 ) Net cash provided by (used in) financing activities (19,920 )
202,866
Net decrease in cash and cash equivalents and restricted cash$ (226,665 ) $ (110,039 )
Cash Flows from Operating Activities
Our net cash used in operating activities for the nine months endedSeptember 30, 2022 increased by$45.5 million from the nine months endedSeptember 30, 2021 . The increase was largely driven by an increase in operating expenses for the nine months endedSeptember 30, 2022 . We expect to continue to incur regular net cash outflows from operations for the foreseeable future as we continue the development and advancement of our product candidates and other research programs. 31
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For the nine months endedSeptember 30, 2022 , our net cash used in operating activities of$168.1 million consisted of a net loss of$220.4 million , offset by adjustments for non-cash items of$45.1 million and favorable changes in working capital of$7.2 million . Adjustments for non-cash items primarily consisted of stock-based compensation expense of$31.4 million and depreciation and amortization expense of$8.8 million . The changes in working capital include a net decrease in total accounts payable and accrued expenses and other current liabilities of$11.4 million primarily attributable to decreases in accrued personnel costs, accrued sublicense fees and royalties, and income taxes payable. The favorable changes in working capital were partially offset by an increase in other liabilities of$7.9 million primarily attributable to a long-term liability recorded during the period related to the amendment of our license agreement with Penn. Other changes in working capital were incurred in the normal course of business. For the nine months endedSeptember 30, 2021 , our net cash used in operating activities of$122.6 million consisted of a net loss of$166.2 million and unfavorable changes in working capital of$1.9 million , offset by$45.4 million in adjustments for non-cash items. The changes in working capital include a$7.9 million increase in accounts receivable primarily attributable to an increase in Zolgensma royalties receivable at the end of the period, and a$7.9 million increase in prepaid expenses primarily attributable to advances paid during the period to service providers for clinical trial and manufacturing-related services to be performed in future periods. The unfavorable changes in working capital were partially offset by an increase in operating lease liabilities of$10.8 million primarily attributable to funds received under our tenant improvement allowance for the buildout of our new headquarters facility inRockville, Maryland . Other changes in working capital were incurred in the normal course of business. Adjustments for non-cash items primarily consisted of stock-based compensation expense of$29.6 million , depreciation and amortization expense of$7.0 million , a provision for credit losses of$5.5 million , non-cash interest expense of$4.5 million recognized under our royalty purchase agreement with HCR and net amortization of premiums on marketable debt securities of$4.4 million .
Cash Flows from Investing Activities
For the nine months endedSeptember 30, 2022 , our net cash used in investing activities primarily consisted of$172.9 million to purchase marketable debt securities and$25.3 million to purchase property and equipment, partially offset by$159.0 million in maturities of marketable debt securities. For the nine months endedSeptember 30, 2021 , our net cash used in investing activities consisted of$262.7 million to purchase marketable debt securities and$69.6 million to purchase property and equipment, offset by$136.4 million in maturities of marketable debt securities and$5.6 million of proceeds received from the acquisition of our Corlieve equity securities by uniQure inJuly 2021 . The majority of our capital expenditures for the nine months endedSeptember 30, 2022 and 2021 were related to the build out of our corporate, manufacturing and research headquarters inRockville, Maryland , including our cGMP facility. The buildout of this facility was completed in the first half of 2022. As a result, we expect capital expenditures for the year ended 2022 to be lower than 2021.
Cash Flows from Financing Activities
For the nine months endedSeptember 30, 2022 , our net cash used in financing activities primarily consisted of$24.1 million of Zolgensma royalties paid, net of imputed interest, under our royalty purchase agreement with HCR, and was partially offset by$4.5 million in proceeds received from the exercise of stock options and issuance of common stock under our employee stock purchase plan. For the nine months endedSeptember 30, 2021 , our net cash provided by financing activities primarily consisted of$216.1 million in net proceeds received from a public offering of our common stock completed inJanuary 2021 , net of underwriting discounts and commissions and other offering expenses paid during the period, and was partially offset by$18.0 million of Zolgensma royalties paid, net of imputed interest, under our royalty purchase agreement with HCR.
Additional Capital Requirements
Our material capital requirements from known contractual and other obligations primarily relate to vendor service contracts and purchase commitments, in-license agreements, operating lease agreements and our Zolgensma royalty purchase agreement with HCR. Our material commitments and obligations are further described in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and in the notes to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Other than the changes described in the notes to the unaudited consolidated financial statements accompanying this Quarterly Report on Form 10-Q, including Note 7, "Commitments and Contingencies," there have been no material changes to our commitments and obligations sinceDecember 31, 2021 . 32
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Table of Contents Future Funding Requirements We have incurred cumulative losses since our inception and had an accumulated deficit of$381.6 million as ofSeptember 30, 2022 . Our transition to recurring profitability is dependent upon achieving a level of revenues adequate to support our cost structure, which depends heavily on the successful development, approval and commercialization of our product candidates. We do not expect to achieve such revenues, and expect to continue to incur losses, for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase for the foreseeable future as we continue the development of, and seek regulatory approval for, our product candidates. Subject to obtaining regulatory approval for our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. Additionally, we expect to continue to incur capital expenditures associated with building out additional laboratory and manufacturing capacity to further support the development of our product candidates and potential commercialization efforts. As a result, we will need significant additional capital to fund our operations, which we may obtain through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements.
Our future capital requirements will depend on many factors, including:
•
the timing of enrollment, commencement and completion of our clinical trials;
•
the results of our clinical trials;
•
the results of our preclinical studies for our product candidates and any subsequent clinical trials;
•
the scope, progress, results and costs of drug discovery, laboratory testing, preclinical development and clinical trials for our product candidates;
•
the costs associated with building out additional laboratory and manufacturing capacity;
•
the costs, timing and outcome of regulatory review of our product candidates;
•
the costs of future product sales, medical affairs, marketing, manufacturing and distribution activities for any of our product candidates for which we receive marketing approval;
•
revenue, if any, received from commercial sales of our products, should any of our product candidates receive marketing approval;
•
revenue received from commercial sales of Zolgensma and other revenue, if any, received in connection with commercial sales of our licensees' and collaborators' products, should any of their product candidates receive marketing approval;
•
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
•
our current licensing agreements or collaborations remaining in effect, including the AbbVie Collaboration Agreement;
•
our ability to establish and maintain additional licensing agreements or collaborations on favorable terms, if at all; and
•
the extent to which we acquire or in-license other product candidates and technologies.
Many of these factors are outside of our control. Identifying potential product
candidates and conducting preclinical testing and clinical trials is a
time-consuming, expensive and uncertain process that takes years to complete,
and we may never generate the necessary data or results required to obtain
regulatory and marketing approval and achieve product sales. In addition, our
product candidates, if approved, may not achieve commercial success. Our product
revenues, if any, and any commercial milestones or royalty payments under our
licensing agreements, will be derived from or based on sales of products that
may not be commercially available for many years, if at all. In addition,
revenue from our NAV Technology Platform licensing is dependent in part on the
clinical and commercial success of our licensing partners, including the
commercialization of Zolgensma. Accordingly, we will need to continue to rely on
additional financing to achieve our business objectives.
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The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline. Adequate additional financing may not be available to us on acceptable terms, or at all. We also could be required to seek funds through arrangements with partners or otherwise that may require us to relinquish rights to our intellectual property, our product candidates or otherwise agree to terms unfavorable to us.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
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