10-Q 1 rgnx-10q_20220331.htm 10-Q rgnx-10q_20220331.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from ___ to ___

Commission File Number 001-37553

 

REGENXBIO Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

47-1851754

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

9804 Medical Center Drive

Rockville, MD

 

20850

(Address of principal executive offices)

 

(Zip Code)

(240) 552-8181

(Registrant’s telephone number, including area code)

Not Applicable

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

 

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

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

RGNX

The Nasdaq Global Select Market

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

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

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

As of April 28, 2022, there were 43,133,927 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.

 

 

 

 


Table of Contents

 

 

REGENXBIO INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

TABLE OF CONTENTS

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

 

3

 

 

Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021

 

4

 

 

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021

 

5

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

 

6

 

 

Notes to Consolidated Financial Statements

 

7

Item 2.

 

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

 

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4.

 

Controls and Procedures

 

32

 

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

33

Item 1A.

 

Risk Factors

 

33

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Item 3.

 

Defaults Upon Senior Securities

 

33

Item 4.

 

Mine Safety Disclosures

 

33

Item 5.

 

Other Information

 

33

Item 6.

 

Exhibits

 

34

Signatures

 

35

 

 

 

 


Table of Contents

 

 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

 

our ability to establish and maintain development partnerships, including our collaboration with AbbVie to develop and commercialize RGX-314;

 

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

 

the timing of enrollment, commencement and completion and the success of our clinical trials, including the timing and commencement of our AFFINITY DUCHENNE clinical trial;

 

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

 

the timely development and launch of new products;

 

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

 

our ability to obtain, maintain and enforce intellectual property protection for our product candidates and technology, and defend against third-party intellectual property-related claims;

 

our expectations regarding the development and commercialization of product candidates currently being developed by third parties that utilize our technology;

 

the impact of the COVID-19 pandemic on our business, operations and preclinical and clinical development timelines and plans;

 

our anticipated growth strategies;

 

our expectations regarding competition;

 

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

 

our ability to attract or retain key personnel;

 

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

 

the rate and degree of market acceptance of any of our products that are approved;

 

our expectations regarding our expenses and revenue;

 

our expectations regarding the outcome of legal proceedings;

 

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

 

our ability to accurately predict how long our existing cash resources will be sufficient to fund our anticipated operating expenses.

1


Table of Contents

 

You should carefully read the factors discussed in the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2021 and in our other filings with the U.S. Securities and Exchange Commission (the SEC) for additional discussion of the risks, uncertainties, assumptions and other important factors that could cause our actual results or developments to differ materially and adversely from those projected in the forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on us or our businesses or operations. Such statements are not guarantees of future performance and actual results or developments may differ materially and adversely from those projected in the forward-looking statements. These forward-looking statements speak only as of the date of this report. Except as required by law, we disclaim any duty to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Available Information

Our principal offices are located at 9804 Medical Center Drive, Rockville, MD 20850, and our telephone number is (240) 552-8181. Our website address is www.regenxbio.com. The information contained in, or that can be accessed through, our website is not a part of, or incorporated by reference in, this Quarterly Report on Form 10-Q. We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Exchange Act. You may obtain any reports, proxy and information statements, and other information that we file electronically with the SEC at www.sec.gov.

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

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

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

2


Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

REGENXBIO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except per share data)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

191,873

 

 

$

345,209

 

Marketable securities

 

 

202,261

 

 

 

112,230

 

Accounts receivable, net

 

 

27,022

 

 

 

32,439

 

Prepaid expenses

 

 

18,542

 

 

 

18,752

 

Other current assets

 

 

7,179

 

 

 

10,196

 

Total current assets

 

 

446,877

 

 

 

518,826

 

Marketable securities

 

 

370,659

 

 

 

391,907

 

Accounts receivable, net

 

 

2,084

 

 

 

2,262

 

Property and equipment, net

 

 

135,264

 

 

 

131,547

 

Operating lease right-of-use assets

 

 

59,925

 

 

 

60,904

 

Restricted cash

 

 

2,030

 

 

 

2,030

 

Other assets

 

 

8,529

 

 

 

6,428

 

Total assets

 

$

1,025,368

 

 

$

1,113,904

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

24,708

 

 

$

11,387

 

Accrued expenses and other current liabilities

 

 

48,423

 

 

 

76,111

 

Deferred revenue

 

 

3,333

 

 

 

3,333

 

Operating lease liabilities

 

 

2,121

 

 

 

1,752

 

Liability related to sale of future royalties

 

 

41,352

 

 

 

37,889

 

Total current liabilities

 

 

119,937

 

 

 

130,472

 

Operating lease liabilities

 

 

85,568

 

 

 

84,929

 

Liability related to sale of future royalties

 

 

122,514

 

 

 

133,460

 

Other liabilities

 

 

7,680

 

 

 

745

 

Total liabilities

 

 

335,699

 

 

 

349,606

 

Stockholders’ equity

 

 

 

 

 

 

 

 

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

   and outstanding at March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock; $0.0001 par value; 100,000 shares authorized at March 31, 2022

   and December 31, 2021; 42,982 and 42,831 shares issued and outstanding at

   March 31, 2022 and December 31, 2021, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

939,570

 

 

 

928,095

 

Accumulated other comprehensive loss

 

 

(11,950

)

 

 

(2,569

)

Accumulated deficit

 

 

(237,955

)

 

 

(161,232

)

Total stockholders’ equity

 

 

689,669

 

 

 

764,298

 

Total liabilities and stockholders’ equity

 

$

1,025,368

 

 

$

1,113,904

 

 

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

 

 

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Table of Contents

 

 

REGENXBIO INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenues

 

 

 

 

 

 

 

 

License and royalty revenue

 

$

22,218

 

 

$

18,884

 

Total revenues

 

 

22,218

 

 

 

18,884

 

Operating Expenses

 

 

 

 

 

 

 

 

Cost of revenues

 

 

15,717

 

 

 

4,851

 

Research and development

 

 

55,627

 

 

 

39,722

 

General and administrative

 

 

22,318

 

 

 

17,838

 

Credit losses and other

 

 

83

 

 

 

515

 

Total operating expenses

 

 

93,745

 

 

 

62,926

 

Loss from operations

 

 

(71,527

)

 

 

(44,042

)

Other Income (Expense)

 

 

 

 

 

 

 

 

Interest income from licensing

 

 

94

 

 

 

29

 

Investment income

 

 

799

 

 

 

580

 

Interest expense

 

 

(6,130

)

 

 

(6,702

)

Total other income (expense)

 

 

(5,237

)

 

 

(6,093

)

Loss before income taxes

 

 

(76,764

)

 

 

(50,135

)

Income Tax Benefit (Expense)

 

 

41

 

 

 

(4

)

Net loss

 

$

(76,723

)

 

$

(50,139

)

Other Comprehensive Loss

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities, net

 

 

(9,381

)

 

 

(1,008

)

Total other comprehensive loss

 

 

(9,381

)

 

 

(1,008

)

Comprehensive loss

 

$

(86,104

)

 

$

(51,147

)

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(1.79

)

 

$

(1.20

)

Weighted-average common shares outstanding, basic and diluted

 

 

42,944

 

 

 

41,819

 

 

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

 

 

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Table of Contents

 

 

REGENXBIO INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2021

 

 

42,831

 

 

$

4

 

 

$

928,095

 

 

$

(2,569

)

 

$

(161,232

)

 

$

764,298

 

Vesting of restricted stock units, net of tax

 

 

52

 

 

 

 

 

 

(284

)

 

 

 

 

 

 

 

 

(284

)

Exercise of stock options, net of tax

 

 

76

 

 

 

 

 

 

337

 

 

 

 

 

 

 

 

 

337

 

Issuance of common stock under employee

   stock purchase plan

 

 

22

 

 

 

 

 

 

622

 

 

 

 

 

 

 

 

 

622

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

10,800

 

 

 

 

 

 

 

 

 

10,800

 

Unrealized loss on available-for-sale securities, net

 

 

 

 

 

 

 

 

 

 

 

(9,381

)

 

 

 

 

 

(9,381

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(76,723

)

 

 

(76,723

)

Balances at March 31, 2022

 

 

42,982

 

 

$

4

 

 

$

939,570

 

 

$

(11,950

)

 

$

(237,955

)

 

$

689,669

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2020

 

 

37,476

 

 

$

4

 

 

$

667,181

 

 

$

(360

)

 

$

(289,072

)

 

$

377,753

 

Issuance of common stock upon public offering,

   net of transaction costs of $14,194

 

 

4,899

 

 

 

 

 

 

216,059

 

 

 

 

 

 

 

 

 

216,059

 

Exercise of stock options

 

 

111

 

 

 

 

 

 

1,292

 

 

 

 

 

 

 

 

 

1,292

 

Issuance of common stock under employee

   stock purchase plan

 

 

19

 

 

 

 

 

 

627

 

 

 

 

 

 

 

 

 

627

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

9,920

 

 

 

 

 

 

 

 

 

9,920

 

Unrealized loss on available-for-sale securities, net

 

 

 

 

 

 

 

 

 

 

 

(1,008

)

 

 

 

 

 

(1,008

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,139

)

 

 

(50,139

)

Balances at March 31, 2021

 

 

42,505

 

 

$

4

 

 

$

895,079

 

 

$

(1,368

)

 

$

(339,211

)

 

$

554,504

 

 

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

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Table of Contents

 

REGENXBIO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(76,723

)

 

$

(50,139

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

10,800

 

 

 

9,920

 

Depreciation and amortization

 

 

2,591

 

 

 

1,929

 

Provision for credit losses

 

 

 

 

 

565

 

Net amortization of premiums on marketable debt securities

 

 

1,460

 

 

 

1,288

 

Net gains on investments

 

 

 

 

 

(7

)

Imputed interest income from licensing

 

 

(94

)

 

 

(29

)

Non-cash interest expense

 

 

54

 

 

 

3,786

 

Other non-cash adjustments

 

 

(43

)

 

 

(154

)

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5,689

 

 

 

1,618

 

Prepaid expenses

 

 

210

 

 

 

(3,334

)

Other current assets

 

 

3,042

 

 

 

(873

)

Operating lease right-of-use assets

 

 

979

 

 

 

1,232

 

Other assets

 

 

(2,101

)

 

 

(3,789

)

Accounts payable

 

 

16,755

 

 

 

278

 

Accrued expenses and other current liabilities

 

 

(26,473

)

 

 

(10,544

)

Operating lease liabilities

 

 

1,008

 

 

 

4,244

 

Other liabilities

 

 

6,935

 

 

 

(38

)

Net cash used in operating activities

 

 

(55,911

)

 

 

(44,047

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable debt securities

 

 

(129,486

)

 

 

(233,627

)

Maturities of marketable debt securities

 

 

49,862

 

 

 

50,465

 

Purchases of property and equipment

 

 

(10,967

)

 

 

(31,021

)

Net cash used in investing activities

 

 

(90,591

)

 

 

(214,183

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

337

 

 

 

1,292

 

Taxes paid related to net settlement of stock-based awards

 

 

(284

)

 

 

 

Proceeds from issuance of common stock under employee stock purchase plan

 

 

622

 

 

 

627

 

Proceeds from public offering of common stock, net of underwriting discounts

   and commissions

 

 

 

 

 

216,438

 

Issuance costs for public offering of common stock

 

 

 

 

 

(251

)

Repayments under liability related to sale of future royalties, net of imputed interest

 

 

(7,509

)

 

 

(6,555

)

Transaction costs for sale of future royalties

 

 

 

 

 

(265

)

Net cash provided by (used in) financing activities

 

 

(6,834

)

 

 

211,286

 

Net decrease in cash and cash equivalents and restricted cash

 

 

(153,336

)

 

 

(46,944

)

Cash and cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Beginning of period

 

 

347,239

 

 

 

339,756

 

End of period

 

$

193,903

 

 

$

292,812

 

 

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

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Table of Contents

 

REGENXBIO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1. Nature of Business

REGENXBIO Inc. (the Company) is a clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. The Company has developed a broad pipeline of gene therapy product candidates using its proprietary adeno-associated virus (AAV) gene delivery platform (NAV Technology Platform), which consists of exclusive rights to over 100 novel AAV vectors, including AAV7, AAV8, AAV9 and AAVrh10. In addition to its internal product development efforts, the Company also selectively licenses the NAV® Technology Platform to other leading biotechnology and pharmaceutical companies (NAV Technology Licensees). As of March 31, 2022, the NAV Technology Platform was being applied by NAV Technology Licensees in one commercially available product, Zolgensma®, and in the preclinical and clinical development of a number of licensed products. Additionally, the Company has licensed intellectual property rights to collaborators for the joint development and commercialization of certain product candidates. The Company was formed in 2008 in the State of Delaware and is headquartered in Rockville, Maryland.

As of March 31, 2022, the Company had generated an accumulated deficit of $238.0 million since inception. As the Company has incurred cumulative losses since inception, transition to recurring profitability is dependent upon achieving a level of revenues adequate to support the Company’s cost structure, which depends heavily on the successful development, approval and commercialization of its product candidates. The Company may never achieve recurring profitability, and unless and until it does, the Company will continue to need to raise additional capital, to the extent possible. As of March 31, 2022, the Company had cash, cash equivalents and marketable securities of $764.8 million, which management believes is sufficient to fund operations for at least the next 12 months from the date these consolidated financial statements were issued.

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The interim unaudited consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements as of and for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 1, 2022. Certain information and footnote disclosures required by GAAP which are normally included in the Company’s annual consolidated financial statements have been omitted pursuant to SEC rules and regulations for interim reporting. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year, any other interim periods, or any future year or period. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities for the periods presented. Management bases its estimates on historical experience and various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities, and other reported amounts, that are not readily apparent from other sources. Actual results may differ materially from these estimates. Significant estimates are used in the following areas, among others: license and royalty revenue, the allowance for credit losses, accrued research and development expenses and other accrued liabilities, stock-based compensation expense, interest expense under the liability related to the sale of future royalties, income taxes and the fair value of financial instruments.

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Table of Contents

 

The Company is actively monitoring the impact of the COVID-19 pandemic on its business, results of operations and financial condition. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition in the future remains unknown at this time and will depend on future developments that are highly unpredictable. The most significant estimates affecting the Company’s consolidated financial statements that may be impacted by the COVID-19 pandemic are related to the Company’s assessment of credit losses on accounts receivable, contract assets and available-for-sale debt securities.

Restricted Cash

Restricted cash includes money market mutual funds and other deposits used to collateralize irrevocable letters of credit required under the Company’s lease agreements and other certain agreements. The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported on the consolidated balance sheets to the total of these amounts as reported at the end of the period in the consolidated statements of cash flows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash and cash equivalents

 

$

191,873

 

 

$

291,482

 

Restricted cash

 

 

2,030

 

 

 

1,330

 

Total cash and cash equivalents and restricted cash

 

$

193,903

 

 

$

292,812

 

 

Accounts Receivable

Accounts receivable primarily consist of consideration due to the Company resulting from its license agreements with customers. Accounts receivable include amounts invoiced to licensees as well as rights to consideration which have not yet been invoiced, including unbilled royalties, and for which payment is conditional solely upon the passage of time. If a licensee elects to terminate a license prior to the end of the license term, the licensed intellectual property is returned to the Company and any accounts receivable from the licensee which are not contractually payable to the Company are charged off as a reduction of license revenue in the period of the termination. Accounts receivable which are not expected to be received by the Company within 12 months from the reporting date are stated net of a discount to present value and recorded as non-current assets on the consolidated balance sheets. The present value discount is recognized as a reduction of revenue in the period in which the accounts receivable are initially recorded and is accreted as interest income from licensing over the term of the receivables.

Accounts receivable are stated net of an allowance for credit losses, if deemed necessary based on the Company’s evaluation of collectability and potential credit losses. Management assesses the collectability of its accounts receivable using the specific identification of account balances, and considers the credit quality and financial condition of its significant customers, historical information regarding credit losses and the Company’s evaluation of current and expected future economic conditions. If necessary, an allowance for credit losses is recorded against accounts receivable such that the carrying value of accounts receivable reflects the net amount expected to be collected. Accounts receivable balances are written off against the allowance for credit losses when the potential for collectability is considered remote. Please refer to Note 8 for further information regarding the allowance for credit losses related to accounts receivable.

Fair Value of Financial Instruments

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

 

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

 

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

 

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

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Table of Contents

 

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

Net Loss Per Share

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

Correction of Previously Issued Financial Statements

During the quarter ended December 31, 2021, the Company identified an immaterial error in the presentation of payments made under the liability related to the sale of future royalties in the consolidated statements of cash flows for the three months ended March 31, 2021, six months ended June 30, 2021 and nine months ended September 30, 2021. Payments made under the liability related to the sale of future royalties were presented as cash outflows from financing activities in the interim financial statements for these periods. Upon further review, the Company determined that the amount of these payments attributable to imputed interest expense should be presented as cash outflows from operating activities, and only the amount attributable to principal repayments should be presented as cash outflows from financing activities. The amounts previously reported as cash outflows from financing activities which should have been reported as cash outflows from operating activities were $2.9 million for the three months ended March 31, 2021, $9.1 million for the six months ended June 30, 2021 and $15.3 million for the nine months ended September 30, 2021. The Company evaluated the materiality of these errors from both a quantitative and qualitative perspective and concluded that they were immaterial to the aforementioned previously issued interim financial statements taken as a whole. The error in presentation did not have an impact on the financial statements for any periods prior to 2021, and did not have an impact on the previously reported assets, liabilities, stockholders’ equity or results of operations for the interim periods ended March 31, 2021, June 30, 2021 and September 30, 2021. Although the Company determined the error was not material to its previously issued interim financial statements for 2021, the Company is revising the previously issued interim financial statements to correct for such error, which revision has been effected in the accompanying consolidated statement of cash flows for the three months ended March 31, 2021, and will be effected in connection with its future filings of Form 10-Q for the interim periods ended June 30, 2022 and September 30, 2022. The accompanying consolidated statement of cash flows for the three months ended March 31, 2021 reflects the as corrected impact of correcting the error, resulting in an increase in net cash used in operating activities and a corresponding increase in net cash provided by financing activities of $2.9 million as compared to the previously issued interim financial statements for the period ended March 31, 2021.

 

3. Marketable Securities

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

 

 

 

Amortized Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

175,578

 

 

$

 

 

$

(2,041

)

 

$

173,537

 

Certificates of deposit

 

 

3,664

 

 

 

 

 

 

(73

)

 

 

3,591

 

Corporate bonds

 

 

404,768

 

 

 

6

 

 

 

(8,982

)

 

 

395,792

 

 

 

$

584,010

 

 

$

6

 

 

$

(11,096

)

 

$

572,920

 

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Table of Contents

 

 

 

 

 

Amortized Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

60,118

 

 

$

 

 

$

(229

)

 

$

59,889

 

Certificates of deposit

 

 

2,936

 

 

 

2

 

 

 

(11

)

 

 

2,927

 

Corporate bonds

 

 

442,792

 

 

 

62

 

 

 

(1,533

)

 

 

441,321

 

 

 

$

505,846

 

 

$

64

 

 

$

(1,773

)

 

$

504,137

 

 

As of March 31, 2022 and December 31, 2021, no available-for-sale debt securities had remaining maturities greater than three years. The amortized cost of marketable debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, or to the earliest call date for callable debt securities purchased at a premium.

As of March 31, 2022 and December 31, 2021, the balance in accumulated other comprehensive loss consisted solely of unrealized gains and losses on available-for-sale debt securities, net of reclassification adjustments for realized gains and losses and income tax effects. The Company uses the aggregate portfolio approach to release the tax effects of unrealized gains and losses on available-for-sale debt securities in accumulated other comprehensive loss. Realized gains and losses from the sale or maturity of marketable securities are based on the specific identification method and are included in results of operations as investment income. Unrealized loss on available-for-sale securities, net, as presented in the statements of operations and comprehensive loss consisted of the following (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Unrealized loss before reclassifications

 

$

(9,381

)

 

$

(1,001

)

Realized gains reclassified to investment income

 

 

 

 

 

(7

)

Income tax expense

 

 

 

 

 

 

Unrealized loss on available-f