advm-10q_20190630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 30, 2019

or

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

For the transition period from                      to                     

Commission File Number: 001-36579

 

Adverum Biotechnologies, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

 

20-5258327

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1035 O’Brien Drive,

Menlo Park, CA

(Address of principal executive offices)

94025

(Zip Code)

(650) 272-6269

(Registrant’s telephone number, including area code)

 

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

ADVM

The Nasdaq Global 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 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 July 31, 2019 there were 64,459,232 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

 


 

 

 

 


Table of Contents

 

Adverum Biotechnologies, Inc.

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I—FINANCIAL INFORMATION

  

3

 

 

 

Item 1. Financial Statements (unaudited)

  

3

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

  

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2019 and 2018

  

4

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018

 

5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

  

6

Notes to Condensed Consolidated Financial Statements

  

7

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

  

13

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

18

Item 4. Controls and Procedures

  

18

 

 

 

PART II—OTHER INFORMATION

  

20

 

 

 

Item 1. Legal Proceedings

  

20

Item 1A. Risk Factors

  

20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  

49

Item 3. Defaults Upon Senior Securities

  

49

Item 4. Mine Safety Disclosures

  

49

Item 5. Other Information

  

49

Item 6. Exhibits

  

50

 

 

 

SIGNATURES

  

51

 

 

 

 

 

 

2


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements

Adverum Biotechnologies, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

 

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

97,808

 

 

$

154,949

 

Short-term investments

 

79,834

 

 

 

50,130

 

Prepaid expenses and other current assets

 

2,919

 

 

 

3,675

 

Total current assets

 

180,561

 

 

 

208,754

 

Operating lease right-of-use asset

 

22,053

 

 

 

 

Property and equipment, net

 

6,097

 

 

 

3,586

 

Restricted cash

 

999

 

 

 

999

 

Deposit and other long-term assets

 

174

 

 

 

156

 

Total assets

$

209,884

 

 

$

213,495

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

740

 

 

$

1,707

 

Accrued expenses and other current liabilities

 

5,467

 

 

 

8,784

 

Lease liability, current portion

 

3,942

 

 

 

 

Deferred rent, current portion

 

 

 

 

228

 

Total current liabilities

 

10,149

 

 

 

10,719

 

Deferred rent, net of current portion

 

 

 

 

1,366

 

Lease liability, net of current portion

 

21,804

 

 

 

 

Other noncurrent liabilities

 

191

 

 

 

243

 

Total liabilities

 

32,144

 

 

 

12,328

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

6

 

 

 

6

 

Additional paid-in capital

 

528,458

 

 

 

522,503

 

Accumulated other comprehensive loss

 

(738

)

 

 

(799

)

Accumulated deficit

 

(349,986

)

 

 

(320,543

)

Total stockholders’ equity

 

177,740

 

 

 

201,167

 

Total liabilities and stockholders' equity

$

209,884

 

 

$

213,495

 

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

3


Table of Contents

 

Adverum Biotechnologies, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands except per share data)

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Collaboration and license revenue

 

$

 

 

$

493

 

 

$

 

 

$

709

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

8,970

 

 

 

11,217

 

 

 

19,101

 

 

 

24,011

 

General and administrative

 

 

7,132

 

 

 

9,179

 

 

 

12,708

 

 

 

14,547

 

Total operating expenses

 

 

16,102

 

 

 

20,396

 

 

 

31,809

 

 

 

38,558

 

Operating loss

 

 

(16,102

)

 

 

(19,903

)

 

 

(31,809

)

 

 

(37,849

)

Other income, net

 

 

1,148

 

 

 

1,093

 

 

 

2,366

 

 

 

1,839

 

Net loss

 

 

(14,954

)

 

 

(18,810

)

 

 

(29,443

)

 

 

(36,010

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on marketable securities

 

 

20

 

 

 

59

 

 

 

23

 

 

 

76

 

Foreign currency translation adjustment

 

 

(4

)

 

 

54

 

 

 

38

 

 

 

(21

)

Comprehensive loss

 

$

(14,938

)

 

$

(18,697

)

 

$

(29,382

)

 

$

(35,955

)

Net loss per share basic and diluted

 

$

(0.23

)

 

$

(0.30

)

 

$

(0.46

)

 

$

(0.60

)

Weighted-average common shares used to compute net loss per share - basic and diluted

 

 

63,740

 

 

 

62,366

 

 

 

63,429

 

 

 

59,907

 

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

 

 

4


Table of Contents

 

Adverum Biotechnologies, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands except share data)

 

 

Common Stock

 

 

Additional Paid-In

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)/Income

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

62,965,468

 

 

$

6

 

 

$

522,503

 

 

$

(799

)

 

$

(320,543

)

 

$

201,167

 

Stock-based compensation expense

 

 

 

 

 

 

 

1,762

 

 

 

 

 

 

 

 

 

1,762

 

Issuance of common stock upon exercise of stock options

 

118,482

 

 

 

 

 

 

162

 

 

 

 

 

 

 

 

 

162

 

Issuance of common stock upon release of restricted stock units

 

397,302

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock surrendered for taxes

 

(145,603

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid for RSUs

 

 

 

 

 

 

 

(504

)

 

 

 

 

 

 

 

 

(504

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

42

 

 

 

 

 

 

42

 

Unrealized gain on marketable securities, net

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,489

)

 

 

(14,489

)

Balance at March 31, 2019

 

63,335,649

 

 

$

6

 

 

$

523,923

 

 

$

(754

)

 

$

(335,032

)

 

$

188,143

 

Stock-based compensation expense

 

 

 

 

 

 

 

2,626

 

 

 

 

 

 

 

 

 

2,626

 

Issuance of common stock

 

20,000

 

 

 

 

 

 

134

 

 

 

 

 

 

 

 

 

134

 

Issuance of common stock upon exercise of stock options

 

823,028

 

 

 

 

 

 

2,312

 

 

 

 

 

 

 

 

 

2,312

 

Common stock issued under employee stock purchase plan

 

51,112

 

 

 

 

 

 

163

 

 

 

 

 

 

 

 

 

163

 

Issuance of common stock upon release of restricted stock units

 

219,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock surrendered for taxes

 

(72,516

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid for RSUs

 

 

 

 

 

 

 

(700

)

 

 

 

 

 

 

 

 

(700

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Unrealized gain on marketable securities, net

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,954

)

 

 

(14,954

)

Balance at June 30, 2019

 

64,376,977

 

 

$

6

 

 

$

528,458

 

 

$

(738

)

 

$

(349,986

)

 

$

177,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

49,015,339

 

 

$

5

 

 

$

439,048

 

 

$

(963

)

 

$

(254,062

)

 

$

184,028

 

Stock-based compensation expense

 

 

 

 

 

 

 

3,429

 

 

 

 

 

 

 

 

 

3,429

 

Adoption of Topic 606

 

 

 

 

 

 

 

 

 

 

 

 

 

6,146

 

 

 

6,146

 

Issuance of common stock upon follow-on offerings, net of issuance costs

 

11,642,128

 

 

 

2

 

 

 

70,189

 

 

 

 

 

 

 

 

 

70,191

 

Issuance of common stock upon exercise of stock options

 

1,361,546

 

 

 

 

 

 

308

 

 

 

 

 

 

 

 

 

308

 

Issuance of common stock upon release of restricted stock units

 

328,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock surrendered for taxes

 

(115,593

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes paid for RSUs

 

 

 

 

 

 

 

(801

)

 

 

 

 

 

 

 

 

(801

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

(75

)

 

 

 

 

 

(75

)

Unrealized gain on marketable securities, net

 

 

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

17

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,200

)

 

 

(17,200

)

Balance at March 31, 2018

 

62,232,372

 

 

$

7

 

 

$

512,173

 

 

$

(1,021

)

 

$

(265,116

)

 

$

246,043

 

Stock-based compensation expense

 

 

 

 

 

 

 

5,826

 

 

 

 

 

 

 

 

 

5,826

 

Issuance of common stock upon follow-on offerings, net of issuance costs

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

(2

)

Issuance of common stock upon exercise of stock options

 

127,554

 

 

 

 

 

 

264

 

 

 

 

 

 

 

 

 

264

 

Issuance of common stock upon release of restricted stock units

 

241,764

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock surrendered for taxes

 

(22,873

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Taxes paid for RSUs

 

-

 

 

 

 

 

 

(135

)

 

 

 

 

 

 

 

 

(135

)

Common stock issued under employee stock purchase plan

 

58,294

 

 

 

 

 

 

149

 

 

 

 

 

 

 

 

 

149

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

54

 

Unrealized gain on marketable securities, net

 

 

 

 

 

 

 

 

 

 

59

 

 

 

 

 

 

59

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,810

)

 

 

(18,810

)

Balance at June 30, 2018

 

62,637,111

 

 

 

6

 

 

 

518,275

 

 

 

(908

)

 

 

(283,926

)

 

 

233,447

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


Table of Contents

 

Adverum Biotechnologies, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

Six Months Ended June 30,

 

 

2019

 

 

2018

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(29,443

)

 

$

(36,010

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

846

 

 

 

1,099

 

Stock-based compensation expense

 

4,388

 

 

 

9,255

 

Amortization of premium and accrued interest on marketable securities

 

(414

)

 

 

 

Amortization of operating lease right-of-use asset

 

1,078

 

 

 

 

Other

 

38

 

 

 

(21

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

589

 

 

 

(113

)

Other asset

 

(18

)

 

 

 

Accounts payable

 

(924

)

 

 

394

 

Accrued expenses and other current liabilities

 

(2,029

)

 

 

1,322

 

Deferred revenue

 

 

 

 

(201

)

Deferred rent

 

 

 

 

(59

)

Lease liability

 

1,084

 

 

 

 

Net cash used in operating activities

 

(24,805

)

 

 

(24,334

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of marketable securities

 

(70,549

)

 

 

(46,136

)

Maturities of marketable securities

 

41,385

 

 

 

86,797

 

Purchases of property and equipment

 

(4,683

)

 

 

(382

)

Net cash (used in) provided by investing activities

 

(33,847

)

 

 

40,279

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from offerings of common stock, net of issuance costs

 

 

 

 

70,188

 

Proceeds from issuance of common stock

 

134

 

 

 

 

Proceeds from issuance of common stock pursuant to option exercises

 

2,474

 

 

 

572

 

Taxes paid related to net share settlement of restricted stock units

 

(1,204

)

 

 

(936

)

Proceeds from employee stock purchase plan

 

163

 

 

 

149

 

Proceeds from a financing arrangement

 

 

 

 

100

 

Repayment of loan

 

(56

)

 

 

(88

)

Net cash provided by financing activities

 

1,511

 

 

 

69,985

 

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

 

(57,141

)

 

 

85,930

 

Cash and cash equivalents and restricted cash at beginning of period

 

155,948

 

 

 

70,519

 

Cash and cash equivalents and restricted cash at end of period

$

98,807

 

 

$

156,449

 

Supplemental schedule of noncash investing and financing information

 

 

 

 

 

 

 

Fixed assets in accounts payable, accrued expenses and other current liabilities

$

291

 

 

$

38

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

6


Table of Contents

 

Adverum Biotechnologies, Inc.

June 30, 2019

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

1. Organization and Basis of Presentation

Adverum Biotechnologies, Inc. (the “Company”) is a clinical-stage gene therapy company targeting unmet medical needs in ocular and rare diseases. The Company develops gene therapy product candidates designed to provide durable efficacy by inducing sustained expression of a therapeutic protein. The Company’s core capabilities include clinical development, novel vector discovery, and in‑house manufacturing expertise, specifically in scalable process development, assay development, and current Good Manufacturing Practices (“cGMP”) quality control. Since the Company’s inception, it has devoted its efforts to performing research and development activities, filing patent applications, hiring personnel and raising capital to support these activities.

The Company has not generated any revenue from the sale of products since its inception. The Company has experienced net losses since its inception and had an accumulated deficit of $350.0 million as of June 30, 2019. The Company expects to incur losses and have negative net cash flows from operating activities as it engages in further research and development activities. The Company believes that it has sufficient funds to continue operations into 2021.

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s consolidated financial information. The results of operations for the three and six months ended June 30, 2019, are not necessarily indicative of the results to be expected for the full year or any other future period. The balance sheet as of December 31, 2018 is derived from the audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC.

2. Summary of Significant Accounting Policies

Use of Estimates

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities and the reported amounts of expenses in the condensed consolidated financial statements and the accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to clinical trial accruals, fair value of assets and liabilities, income taxes, and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

Leases

The Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (“Topic 842”) on January 1, 2019. For its long-term operating leases, the Company recognizes a right-of-use asset and a lease liability on its condensed consolidated balance sheets. The Company adopted the new standard using the modified retrospective approach and recorded a lease liability of $24.7 million, and a right‑to‑use asset of $23.1 million, and made no adjustment to the accumulated deficit. In connection with the adoption of the lease standard, the Company also derecognized deferred rent of $1.5 million. The adoption of Topic 842 did not have an impact on the condensed consolidated statement of operations.

The lease liability is determined as the present value of future lease payments using an estimated rate of interest that the Company would pay to borrow equivalent funds on a collateralized basis at the lease commencement date. In order to estimate the incremental borrowing rate, management estimated its credit rating, adjusted the credit rating for the nature of the collateral, and benchmarked the borrowing rate against observable yields on comparable securities with a similar term. As of the adoption date, the Company estimated the incremental borrowing rate to be 8.5%. The Company based the right-of-use asset on the liability adjusted for any

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prepaid or deferred rent. The Company determined the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included it in operating expenses on the statements of operations and comprehensive loss. Variable lease payments include lease operating expenses.

The Company elected the practical expedients permitted under Topic 842, which among other things, allowed the Company to carry forward the historical lease classification of those leases in place as of January 1, 2019. The Company elected to exclude from its condensed consolidated balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for its long-term real-estate leases.

Share-based payment to nonemployees

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“Topic 718”) that expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted ASU 2018–07 on January 1, 2019 and the impact of the adoption resulted in lower stock-based compensation of $0.9 million and $1.4 million in the three and six months ended June 30, 2019. Under the new standard, our share-based payment transactions with non-employees have a fixed measurement and are not remeasured over the vesting period.

 

3. Fair Value Measurements and Fair Value of Financial Instruments

The authoritative guidance on the fair value hierarchy for disclosure of fair value measurements is as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of Level 1 securities is determined using quoted prices in active markets for identical assets. Level 1 securities consist of highly liquid money market funds. Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis. U.S. government and agency securities, commercial paper, corporate bond and certificates of deposit are valued primarily using market prices of comparable securities, bid/ask quotes, interest rate yields and prepayment spreads and are included in Level 2. In certain cases, where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3 within the valuation hierarchy.

The following is a summary of the Company’s cash equivalents and short-term investments:

 

 

 

June 30, 2019

 

 

 

Amortized

Cost Basis

 

 

Unrealized

Gains

 

 

Unrealized

Loses

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

44

 

 

$

 

 

$

 

 

$

44

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

147,334

 

 

 

7

 

 

 

(22

)

 

 

147,319

 

Corporate bonds

 

 

25,304

 

 

 

25

 

 

 

(2

)

 

 

25,327

 

Total cash equivalents and

   short-term investments

 

 

172,682

 

 

 

32

 

 

 

(24

)

 

 

172,690

 

Less: cash equivalents

 

 

(92,871

)

 

 

 

 

 

15

 

 

 

(92,856

)

Total short-term investments

 

$

79,811

 

 

$

32

 

 

$

(9

)

 

$

79,834

 

 

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December 31, 2018

 

 

 

Amortized

Cost Basis

 

 

Unrealized

Gains

 

 

Unrealized

Loses

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

126

 

 

$

 

 

$

 

 

$

126

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

 

25,792

 

 

 

1

 

 

 

(4

)

 

 

25,789

 

Commercial paper

 

 

147,606

 

 

 

 

 

 

 

 

 

147,606

 

Corporate bonds

 

 

27,778

 

 

 

5

 

 

 

(17

)

 

 

27,766

 

Certificates of deposit

 

 

1,420

 

 

 

 

 

 

 

 

 

1,420

 

Total cash equivalents and

   short-term investments

 

 

202,722

 

 

 

6

 

 

 

(21

)

 

 

202,707

 

Less: cash equivalents

 

 

(152,577

)

 

 

 

 

 

 

 

 

(152,577

)

Total short-term investments

 

$

50,145

 

 

$

6

 

 

$

(21

)

 

$

50,130

 

 

There were no transfers within the fair value hierarchy during the three and six months ended June 30, 2019 or 2018.

The Company’s marketable securities as of June 30, 2019 mature within one year. Management regularly reviews all of the Company’s investments for other-than-temporary declines in estimated fair value. Management’s review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether management has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. Management determined that the gross unrealized losses on the Company’s marketable securities as of June 30, 2019 were temporary in nature. Therefore, none of the Company’s marketable securities were other-than-temporarily impaired as of June 30, 2019.

4. Significant Agreements

Editas— In January 2018, the Company entered into an agreement to amend its collaboration, option and license agreement with Editas Medicine, Inc. (“Editas”). The Company originally entered into an agreement with Editas in August 2016 pursuant to which the Company and Editas collaborate on certain studies using AAV vectors in connection with Editas’ genome editing technology and the Company grants to Editas an exclusive option to obtain certain exclusive rights to use the Company’s proprietary vectors in up to five ophthalmic indications.

Under the terms of the agreement, as amended, Editas had until November 2018 to exercise the option with respect to a designated initial indication, which Editas declined to do. With respect to the four other indications, Editas may exercise the option until August 2020, provided that the option will expire on August 8, 2019 if Editas has not exercised one option with respect to any other indication by such date. We have been advised by Editas that it will not exercise an option under the agreement and, as a result, the agreement will terminate on August 8, 2019.

Under Topic 606, the transaction price is $1.5 million, which includes the $1.0 million non-refundable upfront payment for license and research services at contract inception and the one-time, non-refundable cash payment of $0.5 million made by Editas in February 2018 in consideration for extending the agreement. The arrangement provides for additional payments to the Company when certain development and regulatory milestones are achieved. Because these milestone payments are not within the control of the Company and are not considered probable of being achieved until the events occur, the Company did not include them in the transaction price. The transaction price of $1.5 million was allocated to a single performance obligation: research and development.

During the three and six months ended June 30, 2018, the Company recognized revenue of $0.5 million and $0.7 million associated with Editas. The remaining performance obligations for Editas were completed during 2018. During the three and six months ended June 30, 2019, the Company had no recognized revenue from the Editas collaboration agreement.

5. Leases

In June 2018, the Company entered into an operating lease agreement for new office and laboratory space which consists of approximately 81,000 square feet located in Redwood City, California. The lease term is 10 years beginning September 2018 through February 2029 with two options to extend the lease term for a period of seven years each. The Company has the right to make tenant improvements, including the addition of laboratory space, with a lease incentive allowance of $8.1 million. The rent payments began on March 1, 2019. The lease agreement provides for an escalation of rent payments each year after an abatement period. In connection with the lease, the Company has provided the landlord with a letter of credit in the amount of $1.0 million. The security for the letter of credit of $1.0 million is classified as restricted cash under long term assets on the condensed consolidated balance sheet. The

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Company also has an operating lease agreement for its Menlo Park office building which expires on May 8, 2020. The Company may extend this lease for up to four years. The lease agreement provides for an escalation of rent payments each year.

The Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (See Note 2) and recorded right-of-use assets of $23.1 million and a lease liability of $24.7 million as of January 1, 2019. The estimated incremental borrowing rate used to measure the lease liability is 8.5%.

Rent expense for the three months ended June 30, 2019 and 2018 was $1.7 million, and $0.5 million, respectively, which includes variable lease costs for utilities, parking, maintenance, and real estate taxes. Variable lease expenses for the three months ended June 30, 2019 and 2018 were $0.3 million and $0.2 million, respectively. Rent expense for the six months ended June 30, 2019 and 2018 was $3.1 million, and $1.0 million, respectively, including variable lease cost of $0.5 million and $0.5 million, respectively. The Company recognizes rent expense on a straight‑line basis over the lease period.

The undiscounted future non-cancellable lease payments under the Company’s operating leases as of June 30, 2019 is as follows:

 

Year ending December 31,

 

(In thousands)

 

2019 (remaining 6 months)

 

$

2,005

 

2020

 

 

4,221

 

2021

 

 

4,683

 

2022

 

 

4,846

 

2023

 

 

5,016

 

Thereafter

 

 

28,837

 

Total undiscounted lease payments

 

 

49,608

 

Less: Present value adjustment

 

 

(16,743

)

Less: Tenant improvement allowance

 

 

(7,119

)

Total

 

$

25,746

 

 

 

6. Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consists of the following:

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(In thousands)

 

Computer equipment and software

 

$

670

 

 

$

646

 

Laboratory equipment

 

 

6,159