# REGENXBIO Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [REGENXBIO Inc.](/companies/rgnx.md) (CIK 1590877)
- Form: 10-Q
- Filed: 2023-08-02
- Accepted by EDGAR: Aug 2, 2023, 20:15 ET
- Period: 2023-06-30
- Accession: 0000950170-23-037178
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1590877/000095017023037178/rgnx-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1590877/000095017023037178/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $20.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $39.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $9.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $13.6m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $59.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $118.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | −$73.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | −$139.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $1.1m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $3.9m | us-gaap:InterestExpense |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | −$72.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | −$138.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | −$1.66 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | −$3.19 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | −$1.66 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | −$3.19 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 43,531 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 43,491 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$128.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $7.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $68.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $378.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $682.5m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $117.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $276.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-06-30 | $405.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,742 characters.

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, which we filed with the SEC on February 28, 2023. In addition, you should read the “Risk Factors” and “Information Regarding Forward-Looking Statements” sections of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.*

### Overview

We are a leading clinical-stage biotechnology company seeking to improve lives through the curative potential of gene therapy. Our investigational gene therapies are designed to deliver functional genes to address genetic defects in cells, enabling the production of therapeutic proteins or antibodies that are intended to impact disease. Through a single administration, gene therapy could potentially alter the course of disease significantly and deliver improved patient outcomes with long-lasting effects.

### Overview of Product Candidates

We have developed a broad pipeline of gene therapy programs using our proprietary adeno-associated virus (AAV) gene therapy delivery platform (NAV Technology Platform) to address genetic diseases. Our programs and product candidates are described below:

- **ABBV-RGX-314:** We are developing ABBV-RGX-314 in collaboration with AbbVie as a potential one-time treatment for wet AMD, diabetic retinopathy (DR) and other additional chronic retinal conditions which cause total or partial vision loss. ABBV-RGX-314 is currently being evaluated in nine ongoing clinical trials in the United States and Canada. Such ongoing clinical trials include two pivotal trials, one Phase II bridging study, one Long-term Follow-up study, and a Fellow Eye Treatment study in patients with wet AMD, all utilizing subretinal delivery, as well as two Phase II clinical trials in patients with wet AMD and DR are also ongoing along with two corresponding Long-term Follow-up studies, all utilizing in-office suprachoroidal delivery. ABBV-RGX-314 uses the NAV® AAV8 vector to deliver a gene encoding a therapeutic antibody fragment to inhibit vascular endothelial growth factor (VEGF). We have licensed certain exclusive rights to the SCS Microinjector® from Clearside Biomedical, Inc. (Clearside) to deliver gene therapy treatments to the suprachoroidal space of the eye.

Enrollment is ongoing in the ATMOSPHERE® and ASCENT™ pivotal trials as well as the Fellow Eye treatment study for the treatment of patients with wet AMD using subretinal delivery. Material from our NAVXpress™ platform process has been incorporated in the pivotal trials and is expected to be produced by us for future commercialization of ABBV-RGX-314. These trials are expected to support global regulatory submissions with the U.S. Food and Drug Agency (FDA) and the European Medicines Agency (EMA) in late 2025 through the first half of 2026.

Our study evaluating the pharmacodynamics, safety and efficacy of ABBV-RGX-314 in patients with wet AMD using the subretinal delivery approach in a Phase II bridging study using cGMP material produced by our NAVXpress platform process is now fully enrolled. This Phase II pharmacodynamic study is designed to evaluate the same dose levels being used in the two pivotal trials. In July 2023, updated interim data was presented at the American Society of Retina Specialists annual meeting, demonstrating that ABBV-RGX-314 manufactured using our NAVXpress platform process was well tolerated at both dose levels, initial data in the low dose cohort through 6 months exhibited expected protein levels along with stable to improved best corrected visual acuity and central retinal thickness, as well as meaningful reductions in anti-VEGF burden, with most subjects (11/15, 73%) remaining injection-free.

The AAVIATE® trial, is a multi-center, open label, randomized, controlled, dose-escalation Phase II trial to evaluate the efficacy, safety and tolerability of suprachoroidal delivery of ABBV-RGX-314 for the treatment of wet AMD. The ALTITUDE® trial, is a multi-center, open label, randomized, controlled, dose-escalation Phase II trial to evaluate the efficacy, safety and tolerability of ABBV-RGX-314 for the treatment of DR. In July 2023, we presented interim data from the AAVIATE and ALTITUDE trials demonstrating that ABBV-RGX-314 suprachoroidal delivery administered to patients in cohorts at dose level 3 (1.0x1012 genome copies per eye) with short-course (seven-week) prophylactic topical steroid eye drops (N=39) resulted in zero reported cases of intraocular inflammation. Time of post-administration follow up ranged from six weeks to six months. We expect to report additional interim data from the ALTITUDE trial at the American Academy of Ophthalmology meeting (November 3-6, 2023). We expect to report additional interim data from the AAVIATE trial, including full six-month results from Cohorts 5 and 6, at the Hawaiian Eye and Retina meeting (January 13-19, 2024).

- **RGX-202:** We are developing RGX-202 as an investigational one-time AAV therapeutic for the treatment of Duchenne muscular dystrophy (Duchenne), using the NAV AAV8 vector to deliver a transgene for a novel microdystrophin that includes the functional elements of the C-Terminal (CT) domain as well as a muscle-specific promoter to support a targeted therapy for improved resistance to muscle damage associated with Duchenne.

AFFINITY DUCHENNE™, is a multicenter, open-label dose evaluation and dose expansion clinical trial to evaluate the safety, tolerability and clinical efficacy of a one-time intravenous (IV) dose of RGX-202 in patients with Duchenne. In July 2023, we reported that two patients have received doses of RGX-202 and that RGX-202 is reported to be well-tolerated in the patients dosed, aged 4 and 10 years, with no reported drug-related serious adverse events. Time of post-administration follow up was 45 days and more than three months. The trial continues to recruit patients (aged 4 to 11 years). The trial is using commercial-scale cGMP manufactured using our NAVXpress platform process. We expect to report additional interim data of the AFFINITY DUCHENNE trial, including longer-term safety and microdystrophin protein expression levels in muscle at three months at the World Muscle Society Congress (October 3-7, 2023).

The AFFINITY BEYOND™ trial, an observational screening study, is also active and recruiting patients. The primary objective is to evaluate the prevalence of AAV8 antibodies in patients with Duchenne up to 12 years of age. Information collected in this study may be used to identify potential participants for the AFFINITY DUCHENNE trial and potential future trials of RGX-202.

- **RGX-121:** We are developing RGX-121 for the treatment of Mucopolysaccharidosis Type II (MPS II), a rare disease caused by a deficiency of the *IDS* gene which encodes I2S, an enzyme that is responsible for the breakdown of structures that dispose of waste products inside cells.

CAMPSIITETM, is a Phase I/II/III multi-center, open-label trial to evaluate the efficacy, safety, tolerability and pharmacodynamics of RGX-121 in patients with MPS II aged 4 months up to 5 years old. We have completed enrollment of 10 MPS II patients to support a Biologics License Application filing in 2024 using the accelerated approval pathway.

In May 2023, we announced that the FDA granted regenerative medicine advanced therapy (RMAT) designation for RGX-121. RMAT designation is designed to expedite the drug development and review processes for promising new treatments, including gene therapies, and recognizes that the preliminary clinical evidence from RGX-121 indicates its potential to address unmet medical needs for MPS II.

- **RGX-111:** We are developing RGX-111 as an investigational one-time AAV therapeutic for the treatment of Mucopolysaccharidosis Type I (MPS I) also known as Hurler syndrome, a rare disease caused by a deficiency of α-l-iduronidase (IDUA), an enzyme required for the breakdown of structures that dispose of waste products inside cells.

The Phase I/II clinical trial in patients with MPS I to evaluate the safety, tolerability and pharmacodynamics of RGX-111, as well as the effects of RGX-111 on biomarkers of IDUA activity, neurocognitive development and other outcome measures is fully enrolled with follow-up ongoing. We expect to complete analytical characterization of recently manufactured commercial-scale cGMP material and share additional updates on program plans by the end of 2023.

- **RGX-181:** We are developing RGX-181 for the treatment of late-infantile neuronal ceroid lipofuscinosis type 2 (CLN2) disease, a form of Batten disease, caused by mutations in the tripeptidyl peptidase 1 gene.

Physician investigators in Brazil continue with follow up for the first child with CLN2 disease dosed with RGX-181 under a single-patient investigator-initiated study. We expect investigators to report initial interim data from the single-patient investigator-initiated study, including 6-month results, at the Society for the Study of Inborn Errors of Metabolism Annual Symposium meeting being held August 29 to September 1, 2023.

- **RGX-381:** We are evaluating the safety and tolerability, as well as the effect on retinal anatomic and functional outcomes, of the subretinal delivery of RGX-381 for the treatment of ocular manifestations of CLN2 disease. In August 2023, we announced dosing of the first patient in the Phase I/II trial of RGX-381. Initial data from this trial is expected to be shared in 2024.
- **Exon-Skipping Therapy for Duchenne Muscular Dystrophy:** In July 2023, we announced the development of a potential one-time gene therapy for Duchenne, which is based on a novel exon-skipping construct, targeting exon 53 of the DMD gene. We have data demonstrating that AAV-mediated exon skipping by the expression of antisense ribonucleic acid sequences has the potential to restore high and sustained levels of near full-length dystrophin in Duchenne patients with relevant mutations in the DMD gene. We are initiating Investigational New Drug (IND) application-enabling studies and expect to submit an IND to the FDA in the first half of 2025.

### Overview of Our NAV Technology Platform

In addition to our internal product development efforts, we also selectively license the NAV Technology Platform to other leading biotechnology and pharmaceutical companies, which we refer to as NAV Technology Licensees. As of June 30, 2023, our NAV Technology Platform was being applied in one commercialized product, Zolgensma®, and the preclinical and clinical development of a number of other licensed products. Licensing the NAV Technology Platform allows us to maintain our internal product development focus on our core disease indications and therapeutic areas while still expanding the NAV gene therapy pipeline, developing a greater breadth of treatments for patients, providing additional technological and potential clinical proof-of-concept for our NAV Technology Platform and creating potential additional revenue.

### Financial Overview

### Revenues

Our revenues to date consist primarily of license and royalty revenue resulting from the licensing of our NAV Technology Platform and other intellectual property rights. We have not generated any revenues from commercial sales of our own products. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval and adequate labeling, our ability to generate future revenues will be materially compromised.

We license our NAV Technology Platform and other intellectual property rights to other biotechnology and pharmaceutical companies, including collaborators for the joint development and commercialization of our product candidates. The terms of the licenses vary, and licenses may be exclusive or non-exclusive and may be sublicensable by the licensee. Licenses may grant intellectual property rights for purposes of internal and preclinical research and development only, or may include the rights, or options to obtain future rights, to commercialize drug therapies for specific diseases using the NAV Technology Platform and other licensed rights. License agreements generally have a term at least equal to the life of the underlying patents, but are terminable at the option of the licensee. Consideration from licensees under our license agreements may include: (i) up-front and annual fees, (ii) milestone payments based on the achievement of certain development and sales-based milestones, (iii) sublicense fees, (iv) royalties on sales of licensed products and (v) other consideration payable upon optional goods and services purchased by licensees.

Future license and royalty revenues are dependent on the successful development and commercialization of licensed products, which is uncertain, and revenues may fluctuate significantly from period to period. Additionally, we may never receive consideration in our license agreements that is contemplated on option fees, development and sales-based milestone payments, royalties on sales of licensed products or sublicense fees, given the contingent nature of these payments. Our revenues are concentrated among a low number of licensees and licenses are terminable at the option of the licensee. The termination of our licenses by licensees may materially impact the amount of revenue we recognize in future periods.

#### Zolgensma Royalties

Royalty revenue to date consists primarily of royalties on net sales of Zolgensma, which is marketed by Novartis Gene Therapies, Inc. (formerly AveXis, Inc.) (Novartis Gene Therapies), a wholly owned subsidiary of Novartis AG (Novartis), for the treatment of spinal muscular atrophy (SMA). Zolgensma is a licensed product under our license agreement with Novartis Gene Therapies for the development and commercialization of treatments for SMA using the NAV Technology Platform.

#### Collaboration and License Agreement with AbbVie

Effective in November 2021, we entered into a collaboration and license agreement with AbbVie Global Enterprises Ltd. (AbbVie), a subsidiary of AbbVie Inc., to jointly develop and commercialize ABBV-RGX-314 (the AbbVie Collaboration Agreement). The AbbVie Collaboration Agreement may materially impact our future revenues, research and development expenses, other operating expenses and operating cash flows associated with the development and commercialization of ABBV-RGX-314. For additional information regarding the AbbVie Collaboration Agreement, please refer to Note 8, “License and Collaboration Agreements—AbbVie Collaboration and License Agreement” to the accompanying unaudited consolidated financial statements.

### Operating Expenses

Our operating expenses consist primarily of cost of revenues, research and development expenses and general and administrative expenses. Personnel costs including salaries, wages, benefits, bonuses and stock-based compensation expense, comprise a significant component of research and development and general and administrative expenses. We allocate indirect expenses associated with our facilities, information technology costs, depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee or using other reasonable allocation methodologies.

#### Cost of Revenues

Our cost of revenues consists primarily of upstream fees due to our licensors as a result of revenue generated from the licensing of our NAV Technology Platform and other intellectual property rights, including sublicense fees and royalties on net sales of licensed products. Sublicense fees are based on a percentage of license fees received by us from licensees and are recognized in the period that the underlying license revenue is recognized. Royalties are based on a percentage of net sales of licensed products by licensees and are recognized in the period that the underlying sales occur. Future costs of revenues are uncertain due to the nature of our license agreements and significant fluctuations in cost of revenues may occur from period to period.

#### Research and Development Expense

Our research and development expenses consist primarily of:

- salaries, wages and personnel-related costs, including benefits, travel and stock-based compensation, for our scientific personnel and others performing research and development activities;
- costs related to executing preclinical studies and clinical trials;
- costs related to acquiring, developing and manufacturing materials for preclinical studies and clinical trials;
- fees paid to consultants and other third-parties who support our product candidate development;
- other costs in seeking regulatory approval of our product candidates; and
- direct costs and allocated costs related to laboratories and facilities, depreciation expense, information technology and other overhead.

Up-front fees incurred in obtaining technology licenses for research and development activities, as well as associated milestone payments, are charged to research and development expense as incurred if the technology licensed has no alternative future use.

We expect to continue to incur significant research and development expenses for the foreseeable future as we continue the development of our product candidates and engage in early research and development for prospective product candidates and new technologies. The following table summarizes our research and development expenses incurred during the three and six months ended June 30, 2023 and 2022 (in thousands):

| Direct Expenses | Three Months Ended June 30, 2023 | 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| ABBV-RGX-314 | $5,333 | $14,604 | $10,369 | $22,131 |
| RGX-202 | 1,568 | 1,214 | 6,145 | 3,707 |
| RGX-121 and RGX-111 | 7,531 | 2,799 | 10,605 | 6,048 |
| Other product candidates | 1,173 | 779 | 1,565 | 1,322 |
| Total direct expenses | 15,605 | 19,396 | 28,684 | 33,208 |
| **Unallocated Expenses** |  |  |  |  |
| Platform and new technologies | 11,556 | 13,026 | 22,905 | 26,068 |
| Personnel-related | 23,943 | 22,221 | 49,417 | 45,592 |
| Facilities and depreciation expense | 7,273 | 5,088 | 14,350 | 9,618 |
| Other unallocated | 1,509 | 1,277 | 3,046 | 2,149 |
| Total unallocated expenses | 44,281 | 41,612 | 89,718 | 83,427 |
| Total research and development | $59,886 | $61,008 | $118,402 | $116,635 |

Direct expenses related to the development of ABBV-RGX-314 include $18.2 million and $36.7 million for the three and six months ended June 30, 2023, respectively, and $5.2 million and $8.1 million for the three and six months ended June 30, 2022, respectively, in net cost reimbursement from AbbVie under our eye care collaboration which were recorded as a reduction of research and development expenses during the periods. Net cost reimbursement from AbbVie includes reimbursement of personnel and overhead costs attributable to the development of ABBV-RGX-314, the underlying costs of which are reported as unallocated expenses in the table above. We typically utilize our employee and infrastructure resources across our development programs. In general, we do not allocate personnel and other internal costs, such as facilities and other overhead costs, to specific product candidates or development programs. Platform and new technologies include direct costs not identifiable with a specific lead product candidate, including costs associated with our research and development platform used across programs, process development, manufacturing analytics and early research and development for prospective product candidates and new technologies.

#### General and Administrative Expense

Our general and administrative expenses consist primarily of salaries, wages and personnel-related costs, including benefits, travel and stock-based compensation, for employees performing functions other than research and development. This includes certain personnel in executive, commercial, corporate development, finance, legal, human resources, information technology, facilities and administrative support functions. Additionally, general and administrative expenses include facility-related and overhead costs not otherwise allocated to research and development expense, professional fees for accounting, legal, commercial and other advisory services, expenses associated with obtaining and maintaining patents, insurance costs, costs of our information systems and other general corporate activities. We expect that our general and administrative expenses will continue to increase as we continue to develop, and potentially commercialize, our product candidates.

### Other Income (Expense)

#### Interest Income from Licensing

In accordance with our revenue recognition policy, interest income from licensing consists of imputed interest recognized from significant financing components identified in our license agreements with NAV Technology Licensees as well as interest income accrued on unpaid balances due from licensees.

#### Investment Income

Investment income consists of interest income earned and gains and losses realized from our cash equivalents, marketable securities and non-marketable equity securities, as well as unrealized gains and losses on marketable equity securities. Cash equivalents are comprised of money market mutual funds and highly liquid debt securities with original maturities of 90 days or less at acquisition. Marketable securities are comprised of available-for-sale debt securities and equity securities.

#### Interest Expense

Interest expense consists primarily of interest imputed on the liability related to the sale of future Zolgensma royalties to entities managed by Healthcare Royalty Management, LLC (collectively, HCR). Interest expense is recognized using the effective interest method, based on our estimate of total royalty payments expected to be received by HCR under the royalty purchase agreement. For further information regarding the royalty purchase agreement with HCR, please refer to Note 6, “Liability Related to Sale of Future Royalties” to the accompanying unaudited consolidated financial statements.

### Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities for the periods presented. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities, and other reported amounts, that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Our significant accounting policies are fully described in Note 2 to the accompanying unaudited consolidated financial statements and in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes in our critical accounting policies and estimates since December 31, 2022.

### Results of Operations

Our consolidated results of operations were as follows (in thousands):

| Revenues | Three Months Ended June 30, 2023 | 2022 | Change | Six Months Ended June 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| License and royalty revenue | $19,977 | $32,649 | $(12,672) | $39,115 | $54,867 | $(15,752) |
| Total revenues | 19,977 | 32,649 | (12,672) | 39,115 | 54,867 | (15,752) |
| **Operating Expenses** |  |  |  |  |  |  |
| Cost of revenues | 9,475 | 12,951 | (3,476) | 13,587 | 28,668 | (15,081) |
| Research and development | 59,886 | 61,008 | (1,122) | 118,402 | 116,635 | 1,767 |
| General and administrative | 23,698 | 20,832 | 2,866 | 46,332 | 43,150 | 3,182 |
| Other operating expenses | 26 | 391 | (365) | 59 | 474 | (415) |
| Total operating expenses | 93,085 | 95,182 | (2,097) | 178,380 | 188,927 | (10,547) |
| Loss from operations | (73,108) | (62,533) | (10,575) | (139,265) | (134,060) | (5,205) |
| **Other Income (Expense)** |  |  |  |  |  |  |
| Interest income from licensing | 40 | 153 | (113) | 110 | 247 | (137) |
| Investment income | 2,127 | 1,061 | 1,066 | 4,293 | 1,860 | 2,433 |
| Interest expense | (1,120) | (6,860) | 5,740 | (3,875) | (12,990) | 9,115 |
| Total other income (expense) | 1,047 | (5,646) | 6,693 | 528 | (10,883) | 11,411 |
| Loss before income taxes | (72,061) | (68,179) | (3,882) | (138,737) | (144,943) | 6,206 |
| **Income Tax Benefit** | — | — | — | — | 41 | (41) |
| Net loss | $(72,061) | $(68,179) | $(3,882) | $(138,737) | $(144,902) | $6,165 |

### Comparison of the Three Months Ended June 30, 2023 and 2022

*License and Royalty Revenue.* License and royalty revenue decreased by $12.7 million, from $32.6 million for the three months ended June 30, 2022 to $20.0 million for the three months ended June 30, 2023. The decrease was primarily attributable to Zolgensma royalty revenues, which decreased by $9.4 million, from $28.4 million for the second quarter of 2022 to $19.0 million for the second quarter of 2023. As reported by Novartis, sales of Zolgensma for the second quarter of 2023 decreased by 18% (USD) as compared to the second quarter of 2022, primarily declining in the United States as a result of fewer prevalent patients, and in Europe mainly due to price mix and other one-time events in the second quarter of 2022. Per Novartis, the number of patients treated globally remained relatively stable.

*Research and Development Expense.* Research and development expenses decreased by $1.1 million, from $61.0 million for the three months ended June 30, 2022 to $59.9 million for the three months ended June 30, 2023. The decrease was primarily attributable to the following:

- a decrease of $2.0 million in manufacturing expenses and other costs of clinical supply for our lead product candidates, largely driven by a decrease in expenses for ABBV-RGX-314 clinical supply;
- a decrease of $1.7 million in costs associated with clinical trial and regulatory activities, largely driven by a decrease in clinical trial expenses for ABBV-RGX-314 as a result of an increase in net development cost reimbursement from AbbVie, and partially offset by an increase in clinical trial expenses for our other lead product candidates; and
- a decrease of $1.2 million in costs associated with preclinical activities and other early stage research and development.

The decrease in research and development expenses was partially offset by the following:

- an increase of $1.9 million in costs for laboratories and facilities used by research and development personnel, including a $1.8 million increase in depreciation expense allocated to research and development functions, largely driven by the activation of our cGMP facility in mid-2022; and
- an increase of $1.7 million in personnel-related costs as a result of increased headcount of research and development personnel, including a $0.1 million increase in stock-based compensation expense, largely driven by the commencement of in-house manufacturing of clinical supply in mid-2022.

The decrease in research and development expenses for ABBV-RGX-314 was largely driven by a shift in the development cost sharing arrangement under our collaboration with AbbVie. In accordance with the AbbVie Collaboration Agreement, through December 31, 2022, we were responsible for development expenses related to certain ongoing clinical trials of ABBV-RGX-314 and the remaining ABBV-RGX-314 development expenses were shared with AbbVie. Beginning in 2023, AbbVie became responsible for the majority of all ABBV-RGX-314 development expenses.

*General and Administrative Expense.* General and administrative expenses increased by $2.9 million, from $20.8 million for the three months ended June 30, 2022 to $23.7 million for the three months ended June 30, 2023. The increase was primarily attributable to expenses for professional services, including legal and other corporate advisory services, and other corporate overhead costs.

*Interest Expense.* Interest expense decreased by $5.7 million, from $6.9 million for the three months ended June 30, 2022 to $1.1 million for the three months ended June 30, 2023. The decrease was primarily attributable to a lower balance in our liability related to the sale of future royalties resulting from Zolgensma royalties paid to HCR, as well as changes in the effective interest rate of the liability resulting from changes in the estimated royalties forecasted to be paid to HCR over the life of the royalty purchase agreement.

### Comparison of the Six Months Ended June 30, 2023 and 2022

*License and Royalty Revenue.* License and royalty revenue decreased by $15.8 million, from $54.9 million for the six months ended June 30, 2022 to $39.1 million for the six months ended June 30, 2023. The decrease was primarily attributable to Zolgensma royalty revenues, which decreased by $14.8 million, from $49.9 million for the first half of 2022 to $35.1 million for the first half of 2023. As reported by Novartis, sales of Zolgensma for the first half of 2023 decreased by 16% (USD) as compared to the first half of 2022, primarily declining in the United States as a result of fewer prevalent patients, and in Europe mainly due to price mix and other one-time events. Per Novartis, the number of patients treated globally remained relatively stable.

*Cost of Revenues.* Cost of revenues decreased by $15.1 million, from $28.7 million for the six months ended June 30, 2022 to $13.6 million for the six months ended June 30, 2023. The decrease was primarily attributable to a non-recurring charge of $9.2 million recognized in the first quarter of 2022 related to the amendment of our license agreement with The Trustees of the University of Pennsylvania (Penn) to buy out our obligation to pay sublicense fees to Penn under the license agreement. The remaining decrease in cost of revenues in the first half of 2023 was primarily attributable to a reduction in upstream royalties payable to licensors on net sales of Zolgensma during the period.

*Research and Development Expense.* Research and development expenses increased by $1.8 million, from $116.6 million for the six months ended June 30, 2022 to $118.4 million for the six months ended June 30, 2023. The increase was primarily attributable to the following:

- an increase of $5.6 million in costs for laboratories and facilities used by research and development personnel, including a $3.4 million increase in depreciation expense allocated to research and development functions, largely driven by the activation of our cGMP facility in mid-2022; and
- an increase of $3.8 million in personnel-related costs as a result of increased headcount of research and development personnel, including a $0.5 million increase in stock-based compensation expense, largely driven by the commencement of in-house manufacturing of clinical supply in mid-2022.

The increase in research and development expenses was partially offset by the following:

- a decrease of $4.8 million in costs associated with clinical trial and regulatory activities, largely driven by a decrease in clinical trial expenses for ABBV-RGX-314 as a result of an increase in net development cost reimbursement from AbbVie, and partially offset by an increase in clinical trial expenses for our other lead product candidates;
- a decrease of $2.2 million in costs associated with preclinical activities and other early stage research and development; and
- a decrease of $1.2 million in manufacturing expenses and other costs of clinical supply for our lead product candidates, largely driven by a decrease in expenses for ABBV-RGX-314 clinical supply, and partially offset by an increase in clinical supply costs for our other lead product candidates.

The decrease in research and development expenses for ABBV-RGX-314 was largely driven by a shift in the development cost sharing arrangement under our collaboration with AbbVie. In accordance with the AbbVie Collaboration Agreement, through December 31, 2022, we were responsible for development expenses related to certain ongoing clinical trials of ABBV-RGX-314 and the remaining ABBV-RGX-314 development expenses were shared with AbbVie. Beginning in 2023, AbbVie became responsible for the majority of all ABBV-RGX-314 development expenses.

*General and Administrative Expense.* General and administrative expenses increased by $3.2 million, from $43.2 million for the six months ended June 30, 2022 to $46.3 million for the six months ended June 30, 2023. The increase was primarily attributable to expenses for professional services, including legal and other corporate advisory services, facilities costs and other corporate overhead costs.

*Interest Expense.* Interest expense decreased by $9.1 million, from $13.0 million for the six months ended June 30, 2022 to $3.9 million for the six months ended June 30, 2023. The decrease was primarily attributable to a lower balance in our liability related to the sale of future royalties resulting from Zolgensma royalties paid to HCR, as well as changes in the effective interest rate of the liability resulting from changes in the estimated royalties forecasted to be paid to HCR over the life of the royalty purchase agreement.

### Liquidity and Capital Resources

### Sources of Liquidity

As of June 30, 2023, we had cash, cash equivalents and marketable securities of $415.4 million, which were primarily derived from the sale of our common stock, license and royalty revenue and the monetization of our Zolgensma royalty stream. We expect that our cash, cash equivalents and marketable securities as of June 30, 2023, will enable us to fund our operating expenses and capital expenditure requirements, and are sufficient to meet our financial commitments and obligations, for at least the next 12 months from the date of this report, based on our current business plan.

We intend to devote the majority of our current capital to clinical development, seeking regulatory approval of our product candidates and, if approved, commercialization of our product candidates, as well as additional capital expenditures needed to support these activities. Because of the numerous risks and uncertainties associated with the development and commercialization of gene therapy product candidates, we are unable to estimate the total amount of operating expenditures and capital outlays necessary to complete the development of our product candidates. Additionally, our estimates are based on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect.

### Cash Flows

Our consolidated cash flows were as follows (in thousands):

|  | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(128,240) | $(117,660) |
| Net cash provided by (used in) investing activities | 118,312 | (91,672) |
| Net cash used in financing activities | (18,199) | (14,503) |
| Net decrease in cash and cash equivalents and restricted cash | $(28,127) | $(223,835) |

#### Cash Flows from Operating Activities

Our net cash used in operating activities for the six months ended June 30, 2023 increased by $10.6 million from the six months ended June 30, 2022. We expect to continue to incur regular net cash outflows from operations for the foreseeable future as we continue the development and advancement of our product candidates and other research programs.

For the six months ended June 30, 2023, our net cash used in operating activities of $128.2 million consisted of a net loss of $138.7 million and unfavorable changes in operating assets and liabilities of $19.5 million, offset by adjustments for non-cash items of $30.0 million. The changes in operating assets and liabilities include a net decrease in total accounts payable and accrued expenses and other current liabilities of $10.6 million, which was driven primarily by the timing of invoices from suppliers and associated payments made by the Company as of the end of the period, and an increase in total prepaid expenses and other current assets of $14.1 million driven primarily by an increase in amounts due from AbbVie for net cost reimbursement under our ABBV-RGX-314 collaboration. The unfavorable changes in operating assets and liabilities were partially offset by a decrease in accounts receivable of $7.1 million, which was driven primarily by a reduction in Zolgensma royalties receivable. Other changes in operating assets and liabilities occurred in the normal course of business as a result of changes in operating working capital. Adjustments for non-cash items primarily consisted of stock-based compensation expense of $21.7 million and depreciation and amortization expense of $8.6 million.

For the six months ended June 30, 2022, our net cash used in operating activities of $117.7 million consisted of a net loss of $144.9 million and unfavorable changes in operating assets and liabilities of $2.8 million, offset by adjustments for non-cash items of $30.1 million. The changes in operating assets and liabilities include a net decrease in total accounts payable and accrued expenses and other current liabilities of $16.1 million, which was driven primarily by decreases in accrued personnel costs, accrued sublicense fees and royalties, and income taxes payable, and an increase in accounts receivable of $5.0 million driven primarily by license fees billed in the second quarter of 2022 which were receivable at the end of the period. The unfavorable changes in operating assets and liabilities were partially offset by an increase in other liabilities of $7.8 million, which was driven primarily by a long-term liability recorded during the period related to the amendment of our license agreement with Penn. Other changes in operating assets and liabilities occurred in the normal course of business as a result of changes in operating working capital. Adjustments for non-cash items primarily consisted of stock-based compensation expense of $21.1 million and depreciation and amortization expense of $5.2 million.

#### Cash Flows from Investing Activities

For the six months ended June 30, 2023, our net cash provided by investing activities consisted of $175.5 million in maturities of marketable debt securities, offset by $49.8 million to purchase marketable debt securities and $7.4 million to purchase property and equipment.

For the six months ended June 30, 2022, our net cash used in investing activities consisted of $158.4 million to purchase marketable debt securities and $20.2 million to purchase property and equipment, offset by $86.9 million in maturities of marketable debt securities.

#### Cash Flows from Financing Activities

For the six months ended June 30, 2023, our net cash used in financing activities primarily consisted of $19.6 million of Zolgensma royalties paid, net of imputed interest, under our royalty purchase agreement with HCR, and was partially offset by $1.8 million in proceeds received from the exercise of stock options and issuance of common stock under our employee stock purchase plan.

For the six months ended June 30, 2022, our net cash used in financing activities primarily consisted of $16.7 million of Zolgensma royalties paid, net of imputed interest, under our royalty purchase agreement with HCR, and was partially offset by $2.5 million in proceeds received from the exercise of stock options and issuance of common stock under our employee stock purchase plan.

### Additional Capital Requirements

Our material capital requirements from known contractual and other obligations primarily relate to vendor service contracts and purchase commitments, in-license agreements, operating lease agreements and our Zolgensma royalty purchase agreement with HCR. Our material commitments and obligations are further described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, and in the notes to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. Other than the changes described in the notes to the unaudited consolidated financial statements accompanying this Quarterly Report on Form 10-Q, including Note 7, “Commitments and Contingencies,” there have been no material changes to our commitments and obligations since December 31, 2022.

### Future Funding Requirements

We have incurred cumulative losses since our inception and had an accumulated deficit of $580.3 million as of June 30, 2023. Our transition to recurring profitability is dependent upon achieving a level of revenues adequate to support our cost structure, which depends heavily on the successful development, approval and commercialization of our product candidates. We do not expect to achieve such revenues, and expect to continue to incur losses, for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase for the foreseeable future as we continue the development of, and seek regulatory approval for, our product candidates. Subject to obtaining regulatory approval for our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. Additionally, we expect to continue to incur capital expenditures associated with building out additional laboratory and manufacturing capacity to further support the development of our product candidates and potential commercialization efforts. As a result, we will need significant additional capital to fund our operations, which we may obtain through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements.

Our future capital requirements will depend on many factors, including:

- the timing of enrollment, commencement and completion of our clinical trials;
- the results of our clinical trials;
- the results of our preclinical studies for our product candidates and any subsequent clinical trials;
- the scope, progress, results and costs of drug discovery, laboratory testing, preclinical development and clinical trials for our product candidates;
- the costs associated with building out additional laboratory and manufacturing capacity;
- the costs, timing and outcome of regulatory review of our product candidates;
- the costs of future product sales, medical affairs, marketing, manufacturing and distribution activities for any of our product candidates for which we receive marketing approval;
- revenue, if any, received from commercial sales of our products, should any of our product candidates receive marketing approval;
- revenue received from commercial sales of Zolgensma and the timing and amount of Zolgensma royalties paid to HCR under our royalty purchase agreement;
- revenue received from other commercial sales of our licensees’ and collaborators’ products, should any of their product candidates receive marketing approval, and other revenue received under our licensing agreements and collaborations;
- the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
- our current licensing agreements or collaborations remaining in effect, including the AbbVie Collaboration Agreement;
- our ability to establish and maintain additional licensing agreements or collaborations on favorable terms, if at all; and
- the extent to which we acquire or in-license other product candidates and technologies.

Many of these factors are outside of our control. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory and marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our product revenues, if any, and any commercial milestones or royalty payments under our licensing agreements, will be derived from or based on sales of products that may not be commercially available for many years, if at all. In addition, revenue from our NAV Technology Platform licensing is dependent in part on the clinical and commercial success of our licensing partners, including the commercialization of Zolgensma, and on maintaining our license agreements with our licensor partners, including GlaxoSmithKline LLC and Penn. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.

The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline. Adequate additional financing may not be available to us on acceptable terms, or at all. We also could be required to seek funds through arrangements with partners or otherwise that may require us to relinquish rights to our intellectual property, our product candidates or otherwise agree to terms unfavorable to us.

### Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

## Market risk

As filed, 309 characters.

For information regarding market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” included in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to our exposure to market risk during the six months ended June 30, 2023.

## Controls and procedures

As filed, 2,432 characters.

### Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective at a reasonable assurance level.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on the Effectiveness of Controls

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

## Risk factors

As filed, 217 characters.

Our material risk factors are disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes from the risk factors previously disclosed in such filing.

Filed Aug 2, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-037178. Last ingested by Listed: Oct 24, 2026, 15:14 ET. No prices; not investment advice.