Voyager Therapeutics, Inc. - Quarter Report: 2019 March (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

For the quarterly period ended March 31, 2019.

For the transition period from ______ to ______

Commission file number: 001-37625

 

 

Voyager  Therapeutics, Inc.

 

(Exact name of Registrant as specified in its charter)

 

 

(857) 259-5340

(Registrant’s telephone number, including area code)

Not Applicable

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

 

 

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

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

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

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

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

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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of May 3, 2019 was 36,832,397.



 

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “contemplate,” “anticipate,” “goals,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

These forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. You should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in “Part II, Item 1A  - Risk Factors,” and in “Part I, Item 1A – Risk Factors” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2019 that could cause actual future results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

VOYAGER THERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Voyager Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share and per share data)

(unaudited)

 

 

 

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

Voyager Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(amounts in thousands, except share and per share data)

(unaudited)

 

 

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

 

 

Voyager Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(amounts in thousands, except share data)

(unaudited)

 

 

 

 

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

 

 

Voyager Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

 

 

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

VOYAGER THERAPEUTICS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Nature of business

Voyager Therapeutics, Inc. (the “Company”) is a clinical-stage gene therapy company focused on developing life-changing treatments for patients suffering from severe neurological diseases. The Company is focused on neurological diseases where it believes an adeno-associated virus (“AAV”) gene therapy approach that either increases or decreases the production of a specific protein can slow or reduce the symptoms experienced by patients, and therefore have a clinically meaningful impact. The Company has built a gene therapy platform that it believes positions itself to be a leading company at the intersection of AAV gene therapy and severe neurological disease. The Company’s gene therapy platform enables it to engineer, optimize, manufacture and deliver its AAV-based gene therapies that have the potential to provide durable efficacy following a single administration.

Additionally, the Company is working to identify novel AAV capsids, which are the outer viral protein shells that enclose the genetic material of the virus payload. The Company’s team of experts in the fields of AAV gene therapy and neuroscience first identifies and selects severe neurological diseases that are well-suited for treatment using AAV gene therapy. The Company then engineers and optimizes AAV vectors for delivery of the virus payload to the targeted tissue or cells. The Company’s manufacturing process employs an established system that it believes will enable production of high quality AAV vectors at commercial-scale. In addition to the Company’s capsid optimization efforts, it leverages novel delivery paradigms, established routes of administration, and advances in dosing techniques to optimize delivery of its AAV gene therapies to target tissues, regions and cell types that are critical to the disease of interest. The Company believes it can achieve this directly, with targeted infusions to discrete regions of the brain or spinal cord, or systemically, in conjunction with its novel capsids.

The Company’s business strategy focuses on discovering, developing, manufacturing, and commercializing its gene therapy programs. As part of this strategy, the Company has developed core competencies specific to AAV gene therapy development and manufacturing and is beginning to build its commercial infrastructure. This business strategy also includes business development activities that may include in-licensing activities or partnering certain programs in certain geographies with collaborators, as the Company has demonstrated through its collaboration with Sanofi Genzyme (the “Sanofi Genzyme Collaboration”), its collaboration with AbbVie Biotechnology Ltd (the “AbbVie Tau Collaboration”), its collaboration with AbbVie Ireland Unlimited Company (the “AbbVie Alpha-Synuclein Collaboration”), and its collaboration with Neurocrine Biosciences, Inc. (the “Neurocrine Collaboration”). The Company is devoting substantially all of its efforts to product research and development, market development, and raising capital. The Company is subject to risks common to companies in the biotechnology and gene therapy industry, including but not limited to, the need to obtain sufficient capital to continue to fund its operations, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for its product candidates, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and ability to transition from pilot-scale manufacturing to large-scale production of products.

The Company has incurred annual net operating losses in every year since inception. As of March 31, 2019, the Company had an accumulated deficit of $296.2 million. The Company has not generated any product revenue and has financed its operations primarily through public offerings, private placements of its equity securities, and funding from its collaborations with Sanofi Genzyme, AbbVie Biotechnology Ltd and AbbVie Ireland Unlimited Company (collectively, “AbbVie”), and Neurocrine.  

Through March 31, 2019, the Company has raised approximately $635.0 million of proceeds from sales of convertible preferred stock and common stock, including its initial public offering and follow-on public offering, and proceeds from collaboration agreements. The Company believes that its cash, cash equivalents, and marketable debt securities of $358.5 million as of March 31, 2019, as well as amounts expected to be received for reimbursement of development costs from the Neurocrine Collaboration Agreement, are sufficient to fund its operating expenses and capital expenditure requirements into mid-2022. There can be no assurance that the Company will be able to obtain

additional debt or equity financing or generate product revenue or revenue from collaborative partners on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial condition.

2. Summary of significant accounting policies and basis of presentation

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (“SEC”) on February 26, 2019. These interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the periods presented. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). See “Recently Adopted Accounting Pronouncements” below for discussion of the Company’s adoption of new guidance effective January 1, 2019. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q reflect adoption of these changes.

Principles of consolidation

The unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiary as disclosed in Note 2, Summary of Significant Accounting Policies, within the “Notes to Consolidated Financial Statements” accompanying the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Intercompany accounts and transactions have been eliminated.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not limited to, estimates related to revenue recognition, accrued expenses, stock-based compensation expense, and income taxes. The Company bases its estimates on historical experience and other market specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions. Certain reclassifications have been made to prior periods to conform to current period presentation.

Leases

Effective January 1, 2019, the Company accounted for its operating leases in accordance with ASC Topic 842 Leases (“ASC 842”). ASC 842 provides guidance on accounting for lease arrangements by both lessors and lessees and requires lessees to recognize a lease liability and a right-of-use asset for most leases. The Company determines if an arrangement is a lease at inception. The Company’s operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and other non-current liabilities on the consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at adoption date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, an incremental borrowing rate was used based on the information available at the lease commencement date in determining the present value of lease payments. On future lease obligations, the implicit rate will be set when readily determinable. The operating lease ROU assets also include the effect of any lease payments made and exclude lease incentives. The Company’s lease terms may include options to

extend or terminate the lease even when it is not reasonably certain that the option will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are accounted for separately. Non-lease components generally refer to common area maintenance charges related to the premises.

Revenue recognition

The Company enters into collaboration agreements which are within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”), under which the Company licenses rights to certain of the Company’s product candidates and performs research and development services. The terms of these arrangements typically include payment of one or more of the following: non-refundable, upfront fees; reimbursement of research and development costs; development, regulatory, and commercial milestone payments; and royalties on net sales of licensed products.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.

The promised goods or services in the Company’s arrangements typically consist of license rights to the Company’s intellectual property and research and development services. The Company provides options to additional items in the contracts, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily available and whether the goods or services are integral or dependent to other goods or services in the contract.

The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected amount method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration which is included in the transaction price may be constrained, and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

The Company’s contracts often include development and regulatory milestone payments which are assessed under the most likely amount method and constrained if it is probable that a significant revenue reversal would occur. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues in the period of adjustment. To date, the Company has not

recognized any consideration related to the achievement of development, regulatory, or commercial milestone revenue resulting from any of the Company’s collaboration arrangements.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any consideration related to sales-based royalty revenue resulting from any of the Company’s collaboration arrangements.

The Company allocates the transaction price based on the estimated stand-alone selling price of each of the performance obligations. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the stand-alone selling price for service obligations, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Additionally, in determining the standalone selling price for material rights, the Company utilizes comparable transactions, clinical trial success probabilities, and estimates of option exercise likelihood. Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Upfront payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Stock‑based compensation expense

The Company accounts for its stock‑based compensation awards in accordance with ASC Topic 718 Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock‑based payments to employees, nonemployees, and directors, including grants of restricted stock units and stock options, to be recognized as expense in the statements of operations based on their grant date fair values. The Company estimates the fair value of options granted using the Black‑Scholes option pricing model. The Company uses the fair value of its common stock on the grant date to determine the fair value of restricted stock units.

The Black‑Scholes option pricing model requires inputs based on certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk‑free interest rate and (d) expected dividends. Due to a lack of company-specific historical and implied volatility data, the Company bases the estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded, blended with the most recent period of historic volatility of its common stock. The historical volatility is calculated based on a period of time commensurate with the expected term assumption. The computation of expected volatility is based on the historical volatility of a representative group of companies with similar characteristics to the Company, including stage of product development and life science industry focus. The Company uses the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share‑Based Payment, to calculate the expected term for stock options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. For stock options granted to non‑employees, the Company utilizes the contractual term of the arrangement as the basis for the expected term assumption. The risk‑free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

The Company expenses the fair value of its stock‑based compensation awards on a straight‑line basis over the associated service period, which is generally the period in which the related services are received. The Company records the expense for stock‑based compensation awards subject to performance conditions over the remaining service period when management determines that achievement of the performance condition is probable. Management evaluates if the achievement of a performance condition is probable based on the expected satisfaction of the performance conditions as of the reporting date.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, a comprehensive new lease accounting standard, which provides revised guidance on accounting for lease arrangements by both lessors and lessees and requires lessees to recognize a lease liability and a right-of-use asset for most leases. In July 2018, the FASB issued ASU No. 2018-11, Leases (“ASC 842”), Targeted Improvements, which provides an additional transition method that allowed entities to initially apply the new lease requirements at the adoption date, not the earliest period presented, and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The Company elected this transition method at the adoption date of January 1, 2019. The Company elected a package of practical expedients, under which an entity need not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, or initial direct costs for any existing leases. The impact of adopting ASC 842 was represented as a capitalization of a right-of-use asset of approximately $31.0 million with a corresponding lease liability of approximately $36.7 million to be recognized over the remaining life of the Company’s leases.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting (“ASC 718”). The new standard largely aligns the accounting for share-based payment awards issued to employees and nonemployees by expanding the scope of ASC 718 to apply to nonemployee share-based transactions, as long as the transaction is not effectively a form of financing. The adoption of this ASC on January 1, 2019 did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This standard eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those annual periods and early adoption is permitted. The Company is currently evaluating the potential impact that this guidance may have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact that this guidance may have on its consolidated financial statements.

3. Fair value measurements

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 are as follows:

 

The Company measures the fair value of money market funds, U.S. Treasury notes and equity securities based on quoted prices in active markets for identical securities. The Level 2 equity securities include warrants used to purchase equity securities that are valued using the Black-Scholes model. The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the awards, (c) the risk-free interest rate, and (d) expected dividends. The assumptions utilized to value the warrants to purchase equity securities as of March 31, 2019 and December 31, 2018 are as follows:

 

 

The expected volatility is based on the historic volatility for the equity securities underlying the warrants and is calculated based on a period of time commensurate with the expected term assumption. The expected term is based on the remaining contractual life of the warrants on each measurement date. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the warrants. The expected dividend yield is assumed to be zero as the entity that issued the warrants has never paid and has not indicated any intention to pay dividends.

 

4. Cash, cash equivalents, restricted cash, and available-for-sale marketable securities

Cash equivalents include all highly liquid investments maturing within 90 days from the date of purchase. Investments consist of securities with original maturities greater than 90 days when purchased. The Company classifies these investments as available-for-sale and records them at fair value in the accompanying condensed consolidated balance sheets. Unrealized gains or losses are included in accumulated other comprehensive income (loss). Premiums or discounts from par value are amortized to investment income over the life of the underlying investment.

The Company classifies marketable debt securities with a remaining maturity when purchased of greater than three months as available‑for‑sale. Marketable debt securities with a remaining maturity date greater than one year and marketable equity securities are classified as non‑current where the Company has the intent and ability to hold these securities for at least the next 12 months. Available‑for‑sale debt securities are maintained by an investment manager and consist of U.S. Treasury notes. In 2016, the Company invested in a supplier and received common stock and warrants to purchase common stock in that entity. The common stock is included in non-current marketable securities and the warrants are included in non-current assets.

All available‑for‑sale securities are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss)  as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense. Realized gains and losses are determined using the specific identification method and are included in other income (expense). If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other‑than‑temporary” and, if so, recognizes the unrealized loss through a charge to the Company’s statement of operations and comprehensive loss. No other than temporary losses have been recognized.

Cash, cash equivalents, and marketable securities included the following at March 31, 2019 and December 31, 2018:

 

All of the Company’s marketable debt securities at March 31, 2019, have a contractual maturity of one year or less.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements  of cash flows:

 

 

 

 

5. Accrued expenses

Accrued expenses as of March 31, 2019 and December 31, 2018 consist of the following:

 

 

6. Right-of-use asset and lease liabilities 

The Company adopted ASC 842, which requires balance sheet recognition for leases. The Company adopted the standard using the modified retrospective approach with an effective date as of the beginning of the Company’s fiscal year, January 1, 2019. Prior year interim periods were not recast under the new standard and therefore, those amounts are not presented below. The Company elected to utilize practical expedients available for expired or existing contracts which allowed the Company to carryforward historical assessments of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs.

Operating Leases

During April 2014, the Company entered into an agreement to lease its 75 Sidney Street facility under a non‑cancelable operating lease that would have expired, if not subsequently extended, on December 15, 2019. The lease includes two renewal options, each for five-year terms and at fair market value upon exercise. The lease contains escalating rent clauses which require higher rent payments in future years. The Company expenses rent on a straight‑line basis over the term of the lease, including any rent‑free periods.

In December 2015, the Company executed an amendment to extend the term of the 75 Sidney Street lease and also executed an agreement to lease an additional facility at 64 Sidney Street until December 31, 2024. The facility at 64 Sidney Street includes laboratory and office space and was ready for occupancy in early 2017.

In February 2018, the Company executed a second amendment to the 75 Sidney Street lease to lease additional space to support its continued growth. The additional facility includes laboratory and office space and was ready for occupancy in mid-2018.

In June 2018, the Company executed a third amendment to the 75 Sidney Street lease to lease additional space to further support its continued growth. The additional facility includes laboratory and office space, and was ready for occupancy in late 2018. The third amendment extended the term of the 75 Sidney Street lease to November 30, 2026. Additionally, the Company executed a second amendment to the 64 Sidney Street lease to extend that lease to November 30, 2026.

The Company has received leasehold improvement incentives from the landlord totaling $1.3 million and $3.5 million for 75 Sidney Street and 64 Sidney Street, respectively. The Company recorded these incentives as a component of its ROU asset and is amortizing these incentives as a reduction of rent expense over the life of the leases. The leasehold improvements have been capitalized as fixed assets. The Company is entitled to receive approximately $0.3 million of leasehold improvements for the additional space at 75 Sidney Street acquired under the third amendment to the 75 Sidney Street lease.  

The Company’s lease agreements require the Company to maintain a cash deposit or irrevocable letter of credit of $0.7 million payable to the landlord as security for the performance of its obligations under the leases. These amounts are recorded as restricted cash and included in deposits and other non-current assets in the accompanying balance sheets.

The following table summarizes the Company’s significant contractual obligations under operating leases as of payment due date by period at March 31, 2019:

 

During the three months ended March 31, 2019 and 2018, the Company incurred rent expense of $1.4 million and $0.8 million, respectively, for operating leases. As of March 31, 2019, the weighted average remaining lease term was 7.7 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 8.5%.

 

 

 

 

7. Commitments and contingencies

Significant Agreements

Sanofi Genzyme Collaboration Agreement

Summary of Agreement

In February 2015, the Company entered into a collaboration agreement with Sanofi Genzyme (the “Sanofi Genzyme Collaboration Agreement”) which included a non‑refundable upfront payment of $65.0 million. In addition, contemporaneously with entering into the Sanofi Genzyme Collaboration Agreement, Sanofi Genzyme entered into a Series B Stock Purchase Agreement, under which Sanofi Genzyme purchased 10,000,000 shares of Series B Preferred Stock for $30.0 million. The fair value of the Series B Preferred Stock at the time of issuance was approximately $25.0 million. The $5.0 million premium over the fair value was accounted for as additional consideration under the Sanofi Genzyme Collaboration Agreement.

Under the Sanofi Genzyme Collaboration Agreement, the Company granted Sanofi Genzyme an exclusive option to license, develop, and commercialize (i) ex‑U.S. rights to the following programs, which are referred to as “Split Territory Programs” VY‑AADC (“Parkinson’s Program”), VY‑FXN01 (“Friedreich’s ataxia Program”), a future program to be designated by Sanofi Genzyme (“Future Program”), and VY‑HTT01 (“Huntington’s Program”), with an incremental option to co‑commercialize VY‑HTT01 in the United States and (ii) worldwide rights to VY‑SMN101 (“Spinal Muscular Atrophy Program”). Sanofi Genzyme’s option for the Split Territory Programs and the Spinal Muscular Atrophy Program is triggered following the completion of the first proof‑of‑principle human clinical study (“POP Study”), on a program-by-program basis.

Prior to any option exercise by Sanofi Genzyme, the Company will collaborate with Sanofi Genzyme in the development of products under each Split Territory Program and the Spinal Muscular Atrophy Program pursuant to a written development plan and under the guidance of an Alliance Joint Steering Committee (“AJSC”), comprised of an equal number of employees from the Company and Sanofi Genzyme.

The Company is required to use commercially reasonable efforts to develop products under each Split Territory Program and the Spinal Muscular Atrophy Program through the completion of the applicable POP Study. During the

development of these joint programs, the activities are guided by a Development Advisory Committee (“DAC”). The DAC may elect to utilize certain Sanofi Genzyme technology relating to the Parkinson’s Program, the Huntington’s Program, or generally with the manufacture of Split Territory Program products.

The Company is solely responsible for all costs incurred in connection with the development of the Split Territory Programs and the Spinal Muscular Atrophy Program products prior to the exercise of an option by Sanofi Genzyme with the exception of the following: (i) at the Company’s request and upon mutual agreement, Sanofi Genzyme will provide “in‑kind” services valued at up to $5.0 million and (ii) Sanofi Genzyme shall be responsible for the costs and expenses of activities under the Huntington’s Program development plan to the extent such activities are covered by financial support Sanofi Genzyme is entitled to receive from a patient advocacy group.

Other than the Parkinson’s Program (for which a POP Study has already been completed), if the Company does not initiate a POP Study for a given Split Territory Program by December 31, 2026 (or for the Future Program by the tenth anniversary of the date the Future Program is nominated by Sanofi Genzyme), and Sanofi Genzyme has not terminated the Sanofi Genzyme Collaboration Agreement with respect to the collaboration program, then Sanofi Genzyme shall be entitled, as its sole and exclusive remedy, to a credit of $10.0 million for each such program against other milestone or royalty payments payable by Sanofi Genzyme under the Sanofi Genzyme Collaboration Agreement. However, if the POP Study is not initiated due to a regulatory delay or a force majeure event, such time period shall be extended for so long as such delay continues.

With the exception of the Parkinson’s Program, Sanofi Genzyme is required to pay an option exercise payment of $20.0 million or $30.0 million for each Split Territory Program and Spinal Muscular Atrophy Program.

Upon Sanofi Genzyme’s exercise of its option to license a given product in a Split Territory Program (“Split Territory Licensed Product”), the Company will have sole responsibility for the development of such Split Territory Licensed Product in the United States and Sanofi Genzyme shall have sole responsibility for development of such Split Territory Licensed Product in the rest of the world. The Company and Sanofi Genzyme will have shared responsibility for execution of ongoing development of such Split Territory Licensed Product that is not specific to either territory, including costs associated therewith. The Company is responsible for all commercialization activities relating to Split Territory Licensed Products in the United States, including all of the associated costs. Sanofi Genzyme is responsible for all commercialization activities relating to the Split Territory Licensed Products in the rest of the world, including all of the associated costs. If Sanofi Genzyme exercises its co‑commercialization rights with respect to VY-HTT01,  Sanofi Genzyme will be the lead party responsible for all commercialization activities related to the VY-HTT01 product in the United States.

Upon exercise of the option to license a product in the Spinal Muscular Atrophy Program,  Sanofi Genzyme shall have the sole right to develop the Spinal Muscular Atrophy licensed product worldwide. Sanofi Genzyme shall be responsible for all of the development costs that occur after the option exercise date for the Spinal Muscular Atrophy Program. Sanofi Genzyme is also responsible for commercialization activities relating to the Spinal Muscular Atrophy licensed product worldwide.

Sanofi Genzyme is required to pay the Company for specified regulatory and commercial milestones, if achieved, up to $540.0 million across all programs. The Company is no longer entitled to receive a total of $105.0 million related to regulatory and commercial milestone payments for VY-AADC as a result of Sanofi Genzyme’s decision in October 2017 to not exercise its option for the Parkinson’s Program (the “PD Opt-Out”). The remaining regulatory approval milestones are payable upon either regulatory approval in the United States or regulatory and reimbursement approval in the European Union and range from $40.0 million to $50.0 million per milestone, with an aggregate total of $220.0 million, after accounting for the PD Opt-Out. The remaining commercial milestones are payable upon achievement of specified annual net sales in each program and range from $50.0 million to $100.0 million per milestone, with an aggregate total of $320.0 million, after accounting for the PD Opt-Out.

In addition, to the extent any Split Territory Licensed Products or the Spinal Muscular Atrophy licensed product are commercialized, the Company is entitled to tiered royalty payments ranging from the mid‑single digits to mid‑teens based on a percentage of net sales by Sanofi Genzyme.  Sanofi Genzyme is entitled to receive tiered royalty payments related to sales of the Split Territory Licensed Product ranging from the low‑single digits to mid‑single digits based on a

percentage of net sales by the Company depending on whether the Company uses Sanofi Genzyme technology in the Split Territory Licensed Product. If Sanofi Genzyme elects to co‑commercialize VY‑HTT01 in the United States, the Company and Sanofi Genzyme will share in any profits or losses from VY‑HTT01 product sales.

The Sanofi Genzyme Collaboration Agreement will continue in effect until the later of (i) the expiration of the last to expire of the option rights and (ii) the expiration of all payment obligations unless sooner terminated by the Company or Sanofi Genzyme. The Company and Sanofi Genzyme have customary termination rights including the right to terminate for an uncured material breach of the agreement committed by the other party and Sanofi Genzyme has the right to terminate for convenience.

Accounting Analysis

At inception, the Sanofi Genzyme Collaboration Agreement included the following performance obligations: (i) research and development services for each of the Split Territory Programs and the Spinal Muscular Atrophy Program, (ii) participation in the AJSC, (iii) participation in the DAC and (iv) a material right associated with an option to obtain a development and commercial license in the Parkinson’s Program (“PD Material Right”). The Company determined that the option to obtain a development and commercial license in the Parkinson’s Program was a material right under ASC 606 primarily because there were no additional option exercise payments payable by Sanofi Genzyme at the time of option exercise. Therefore, the PD Material Right was considered a performance obligation at the inception of the arrangement. The options in the other Split Territory Programs and the Spinal Muscular Atrophy Program do not provide a material right to the customer that it would receive without entering into the contract principally because the option fees are at least equal to the standalone selling price for the underlying goods. Therefore, the other Split Territory Programs and the Spinal Muscular Atrophy Program options are not performance obligations at inception.

The Company has identified $74.6 million of total transaction price consisting of the $65.0 million upfront fee, the $5.0 million premium paid in excess of fair value of the Series B Preferred Stock and $4.6 million of Sanofi Genzyme “in‑kind” funding, which represents the transaction price at inception. Additional consideration to be paid to the Company upon the exercise of the license options by Sanofi Genzyme or upon reaching certain milestones are excluded from the transaction price as they relate to option fees and milestones that can only be achieved subsequent to the option exercise or are outside of the initial contract term.

The Company has allocated the transaction price to the separate performance obligations based on their relative standalone selling price. For all performance obligations, the Company determined the standalone selling price at contract inception based on each obligation’s estimated standalone selling price (“ESP”). The Company determined the ESP for the service related deliverable for the research and development activities based on internal estimates of the costs to perform the services, including expected internal expenses and expenses with third parties for services and supplies, marked up to include a reasonable profit margin and adjusted for the scope of the potential license. Significant inputs used to determine the total expense of the research and development activities include, the length of time required and the number and costs of various studies that will be performed to complete the applicable POP Study. The ESP for the AJSC and DAC have been estimated based on the costs incurred to participate in the committees, marked up to include a reasonable profit margin. The ESP for the PD Material Right was determined based on the estimated value of the license adjusted for the estimated probability that the option would be exercised by Sanofi Genzyme.

Based on the relative standalone selling price allocation, the allocation of the transaction price to the separate performance obligations was as follows:

 

The Company recognizes the amounts associated with research and development services and committee obligations on a proportional performance basis over the period of service using input-based measurements such as costs incurred to date, to estimate proportion performed, and remeasures its progress towards completion at the end of each reporting period. The amount allocated to the PD Material Right was initially deferred and recognized in full prior to the adoption of ASC 606.

During the three months ended March 31, 2019 and 2018, the Company recognized $1.4 million and $0.5 million of revenue, respectively, associated with its collaboration with Sanofi Genzyme related to research and development services and committee obligations performed during the period. As of March 31, 2019, there was  $50.0 million of deferred revenue related to the Sanofi Genzyme Collaboration Agreement, which is classified as either current or non-current in the accompanying balance sheet based on the period the services are expected to be delivered.

Costs incurred relating to the programs that Sanofi Genzyme has the option to license under the Sanofi Genzyme Collaboration Agreement consist of internal and external research and development costs, which primarily include: salaries and benefits, lab supplies and preclinical research studies. These costs are included in research and development expenses in the Company’s statement of operations during the three months ended March 31, 2019 and 2018.

AbbVie Tau Collaboration Agreement

Summary of Agreement

 

In February 2018, the Company entered into an exclusive collaboration and option agreement (the “AbbVie Tau Collaboration Agreement”) with AbbVie for the research, development and commercialization of AAV and other virus-based gene therapy products for the treatment of diseases of the central nervous system and other neurodegenerative diseases related to defective or excess aggregation of tau protein in the human brain, including Alzheimer’s disease. Under the AbbVie Tau Collaboration Agreement, the Company and AbbVie have agreed to collaborate on the research and development of specified vectorized antibody compounds comprised of an AAV or other viral capsid and a virus vector genome that encodes one or more antibodies that target and bind to a tau protein. The collaboration is comprised of a research period (the “Research Period”), a development period (the “Development Period”), and an exclusive license option (the “License Option”). The AbbVie Tau Collaboration Agreement included a non-refundable upfront payment of $69.0 million for services during the Research Period.

 

During the Research Period, each party has agreed to identify up to five antibodies for inclusion in the collaboration. Subject to certain conditions and exceptions, the parties will select up to three antibodies (each, a “Research Antibody”) as candidates for creation of research compounds (each, a “Research Compound”), with AbbVie having the right to select two of the three Research Antibodies. The Company is required to use diligent efforts to

conduct antibody engineering and other research activities to create Research Compounds and to develop product candidates containing or comprised of such Research Compounds (“Product Candidates”). The Company is solely responsible for its costs and expenses during the Research Period. During a specified portion of the Research Period, AbbVie may exercise one or more of its exclusive development options (each, a “Development Option”) to select up to a total of three Research Compounds (the “Selected Research Compounds”) and their corresponding Product Candidates (the “Selected Product Candidates”) to proceed to the Development Period.

 

Upon AbbVie’s exercise of a Development Option, AbbVie will pay the Company $80.0 million for the first Selected Research Compound and $30.0 million each for up to two additional Selected Research Compounds. During the Development Period, the Company is obligated to use diligent efforts to conduct development activities, including Investigational New Drug application-enabling and Phase 1 clinical trial activities, for the Selected Research Compounds and corresponding Selected Product Candidates. The Company will be solely responsible for the costs and expenses during the Development Period. During a specified portion of the Development Period (the “License Option Period”), AbbVie may exercise its License Option to further develop and commercialize all of the Research Compounds (the “Licensed Compounds”), and corresponding product candidates (the “Licensed Products”). Upon AbbVie’s exercise of its License Option, AbbVie will provide a one-time payment of $75.0 million to the Company, and the Company will grant to AbbVie an exclusive, worldwide license, with the right to sublicense, under certain of the Company’s intellectual property rights to develop and commercialize the Licensed Compounds and the Licensed Products for all human diagnostic, prophylactic and therapeutic uses. In addition, after AbbVie’s exercise of the License Option, the Company has certain obligations to complete any remaining research and development activities that have not been completed for any Research Compounds and Product Candidates.

 

The Company’s research and development activities will be conducted pursuant to the plans agreed to by the parties and overseen by a joint governance committee (“JGC”) as detailed in the AbbVie Tau Collaboration Agreement. Any material amendment to the research or development plans must be mutually agreed to by the Company and AbbVie, which may be through the JGC.

 

Under the AbbVie Tau Collaboration Agreement, AbbVie is required to use commercially reasonable efforts to develop and commercialize at least one Licensed Product in each of the United States, Japan, the United Kingdom, Germany, France, Italy, and Spain. After exercise of the License Option, AbbVie is solely responsible for all development and commercialization activities relating to Licensed Compounds and Licensed Products at its sole cost and expense, subject to the agreed-upon research and development plans. The Company may elect to share in AbbVie’s development costs relating to a Licensed Product on an indication-by-indication basis in exchange for a specified increase in royalties (a “Cost-Sharing Option”). If the Company exercises a Cost-Sharing Option, the Company may either reimburse AbbVie for AbbVie’s applicable development costs or, in the case of certain budget overruns, AbbVie may instead deduct applicable development costs, up to a specified cap, from milestone and royalty payments owed by AbbVie to the Company.

 

Under the AbbVie Tau Collaboration Agreement, the Company is eligible to receive specified development and first-sale milestone payments for each Licensed Compound of up to an aggregate of $550.0 million in the case of an Alzheimer’s disease indication, up to $230.0 million in the case of the first indication other than Alzheimer’s disease and up to $115.0 million for a subsequent non-Alzheimer’s disease indication. Additionally, the Company is eligible to receive tiered, escalating royalties, in a range from a high-single digit to a mid-to-high teen (or, if the Company has exercised its Cost-Sharing Option, low-twenties) percentage of aggregate net sales of Licensed Products on a Licensed Compound by Licensed Compound basis, subject to potential reductions in certain circumstances. For each Licensed Product, AbbVie also has the right to decrease or eliminate its royalty payments on such Licensed Product in exchange for a one-time payment by AbbVie at a fair market value to be negotiated by the parties or determined pursuant to dispute resolution procedures specified in the AbbVie Collaboration Agreement.

 

Unless earlier terminated, the AbbVie Tau Collaboration Agreement will expire on the earliest to occur of the expiration of (i) the Development Option Period, without AbbVie’s exercise of a Development Option; (ii) the License Option Period, without AbbVie’s exercise of its License Option; and (iii) the last-to-expire royalty term with respect to all Licensed Products in all countries. The Company and AbbVie have customary termination rights including the right

to terminate for an uncured material breach of the agreement committed by the other party, and AbbVie has the right to terminate for convenience.

 

Accounting Analysis

The Company assessed the promised goods and services under the AbbVie Tau Collaboration Agreement, in accordance with ASC 606, and determined that the AbbVie Tau Collaboration Agreement includes the following performance obligations: (i) research services during the Research Period (through the delivery of the final research report) including the identification of the Research Antibodies, conduct of research activities and provision of information to AbbVie to allow AbbVie to determine whether to exercise up to three development options to be rendered (“Research Services”), and (ii) a material right associated with the Development Option on the first Research Compound and associated Product Candidates (“First Development Option Material Right”). The first Development Option provides AbbVie with (i) additional development services on a selected Research Compound and (ii) the ability to exercise the License Option. The Company has concluded the option provides a material right as the consideration paid by AbbVie upon exercise of the first Development Option is less than the amount that the Company would otherwise expect to receive outside the context of the contract.

The Company has concluded that the First Development Option Material Right is a separate performance obligation under ASC 606 as AbbVie is provided additional services and a License Option for additional consideration that represents a significant discount from amounts that would otherwise be offered outside the context of the contract. The First Development Option Material Right is distinct from the other performance obligations in the arrangement as it is an option in the contract that is not required for AbbVie to obtain the benefit of the other promised goods or services in the arrangement. The First Development Option Material Right does not include the underlying goods or services that are delivered upon exercise of the option, but rather represents the value to the customer of having the right to obtain development services and the right to the License Option at an advantageous price.

The Company received a nonrefundable, upfront payment of $69.0 million as consideration under the AbbVie Collaboration Agreement, which represents the transaction price at inception. Additional consideration to be paid to the Company upon the exercise of the Development and License Options by AbbVie or upon reaching certain milestones are excluded from the transaction price as they relate to option fees and milestones that can only be achieved subsequent to the option exercise or are outside of the initial contact term.

The Company has allocated the transaction price to the separate performance obligations based on their relative standalone selling price. The Company determined the standalone selling price at contract inception based on each obligation’s ESP. The Company determined the ESP for the research services obligation based on internal estimates of the costs to perform the services, including expected internal expenses and expenses with third parties for services and supplies, inclusive of a reasonable profit margin. Significant inputs used to determine the total expense of the research services include the length of time required, the internal hours expected to be incurred on the services and the number and costs of various studies that will be performed to complete the Research Plan. The ESP for the First Development Option Material Right was determined based on the fees AbbVie would pay to exercise the Development and License Options, the estimated costs to perform the development services, inclusive of a reasonable profit margin, the estimated value of the License Option using comparable transactions, and the probability that the Development and License Options would be exercised by AbbVie.

Based on the relative standalone selling price, the allocation of the transaction price to the separate performance obligations was as follows: