blue-10q_20190331.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

OR

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

For the transition period from                     to                    

Commission File Number: 001-35966

 

bluebird bio, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

13-3680878

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

60 Binney Street

Cambridge, Massachusetts

 

02142

(Address of Principal Executive Offices)

 

(Zip Code)

(339) 499-9300

(Registrant’s Telephone Number, Including Area Code)

 

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. (Check one):

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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

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

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

BLUE

The NASDAQ Global Select Market LLC

 

As of April 26, 2019, there were 55,123,256 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

  

 

 

 

 


 

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

the initiation, timing, progress and results of our preclinical and clinical studies, and our research and development programs;

 

our ability to advance product candidates into, and successfully complete, clinical studies;

 

our ability to advance our viral vector and drug product manufacturing capabilities;

 

the timing or likelihood of regulatory filings and approvals for our product candidates;

 

the timing or success of commercialization of our product candidates, if approved;

 

the pricing and reimbursement of our product candidates, if approved;

 

the implementation of our business model, strategic plans for our business, product candidates and technology;

 

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

 

the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

 

our ability to maintain and establish collaborations and licenses;

 

developments relating to our competitors and our industry; and

 

other risks and uncertainties, including those listed under Part II, Item 1A. Risk Factors.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other 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 these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

 

 

 

 


 

bluebird bio, Inc.

Table of Contents

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

2

Item 1.

 

Financial Statements (unaudited)

 

2

 

 

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

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018

 

3

 

 

Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2019 and 2018

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

 

5

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

6

Item 2.

 

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

 

27

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

 

35

Item 4.

 

Controls and Procedures

 

35

 

 

 

PART II. OTHER INFORMATION

 

36

Item 1.

 

Legal Proceedings

 

36

Item 1A.

 

Risk Factors

 

36

Item 2.

 

Unregistered Sales of Equity Securities and Uses of Proceeds

 

65

Item 3.

 

Defaults Upon Senior Securities

 

65

Item 4.

 

Mine Safety Disclosures

 

65

Item 5.

 

Other Information

 

65

Item 6.

 

Exhibits

 

65

 

 

 

 

 

SIGNATURES

 

69

 

 

 

 

 

CERTIFICATIONS

 

 

 

 

 

 


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

bluebird bio, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except par value amounts)

 

 

 

As of

 

 

As of

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

221,738

 

 

$

402,579

 

Marketable securities

 

 

1,100,079

 

 

 

982,725

 

Prepaid expenses

 

 

23,766

 

 

 

19,762

 

Receivables and other current assets

 

 

19,449

 

 

 

13,931

 

Total current assets

 

 

1,365,032

 

 

 

1,418,997

 

Marketable securities

 

 

408,949

 

 

 

506,123

 

Property, plant and equipment, net

 

 

114,030

 

 

 

246,622

 

Intangible assets, net

 

 

12,228

 

 

 

13,169

 

Goodwill

 

 

13,128

 

 

 

13,128

 

Operating lease right-of-use assets

 

 

184,618

 

 

 

 

Restricted cash and other non-current assets

 

 

40,630

 

 

 

44,805

 

Total assets

 

$

2,138,615

 

 

$

2,242,844

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

30,241

 

 

$

17,831

 

Accrued expenses and other current liabilities

 

 

76,152

 

 

 

99,393

 

Operating lease liability, current portion

 

 

17,566

 

 

 

 

Deferred revenue, current portion

 

 

11,490

 

 

 

18,602

 

Collaboration research advancement, current portion

 

 

11,242

 

 

 

10,605

 

Total current liabilities

 

 

146,691

 

 

 

146,431

 

Deferred revenue, net of current portion

 

 

14,777

 

 

 

16,338

 

Collaboration research advancement, net of current portion

 

 

30,746

 

 

 

33,349

 

Contingent consideration

 

 

5,526

 

 

 

5,230

 

Operating lease liability, net of current portion

 

 

168,200

 

 

 

 

Financing lease obligation, net of current portion

 

 

 

 

 

153,319

 

Other non-current liabilities

 

 

576

 

 

 

3,107

 

Total liabilities

 

 

366,516

 

 

 

357,774

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 5,000 shares authorized; 0 shares issued and

   outstanding at March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.01 par value, 125,000 shares authorized; 55,069 and 54,738

   shares issued and outstanding at March 31, 2019 and December 31, 2018,

   respectively

 

 

551

 

 

 

547

 

Additional paid-in capital

 

 

3,430,030

 

 

 

3,386,958

 

Accumulated other comprehensive loss

 

 

(1,792

)

 

 

(3,627

)

Accumulated deficit

 

 

(1,656,690

)

 

 

(1,498,808

)

Total stockholders’ equity

 

 

1,772,099

 

 

 

1,885,070

 

Total liabilities and stockholders’ equity

 

$

2,138,615

 

 

$

2,242,844

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

2


 

bluebird bio, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except per share data)

 

 

 

For the three months ended

March 31,

 

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

Collaboration revenue

 

$

11,177

 

 

$

15,608

 

License and royalty revenue

 

 

1,294

 

 

 

349

 

Total revenues

 

 

12,471

 

 

 

15,957

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

122,640

 

 

 

97,109

 

General and administrative

 

 

60,279

 

 

 

34,926

 

Cost of license and royalty revenue

 

 

430

 

 

 

17

 

Change in fair value of contingent consideration

 

 

296

 

 

 

534

 

Total operating expenses

 

 

183,645

 

 

 

132,586

 

Loss from operations

 

 

(171,174

)

 

 

(116,629

)

Interest income, net

 

 

10,102

 

 

 

1,388

 

Other (expense) income, net

 

 

(3,389

)

 

 

115

 

Loss before income taxes

 

 

(164,461

)

 

 

(115,126

)

Income tax benefit

 

 

15

 

 

 

 

Net loss

 

$

(164,446

)

 

$

(115,126

)

Net loss per share - basic and diluted:

 

$

(2.99

)

 

$

(2.31

)

Weighted-average number of common shares used in computing net loss

   per share - basic and diluted:

 

 

54,957

 

 

 

49,923

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax expense of $0.4 million and $0.0

   million for the three months ended March 31, 2019 and 2018, respectively

 

 

1,835

 

 

 

(844

)

Total other comprehensive income (loss)

 

 

1,835

 

 

 

(844

)

Comprehensive loss

 

$

(162,611

)

 

$

(115,970

)

 

See accompanying notes to unaudited condensed consolidated financial statements.


3


 

bluebird bio, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

Total

 

 

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

stockholders'

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

equity

 

Balances at December 31, 2018

 

 

54,738

 

 

$

547

 

 

$

3,386,958

 

 

$

(3,627

)

 

$

(1,498,808

)

 

$

1,885,070

 

Adjustment to beginning accumulated deficit from

   adoption of ASU 2016-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,564

 

 

 

6,564

 

Vesting of restricted stock units

 

 

131

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

189

 

 

 

2

 

 

 

9,502

 

 

 

 

 

 

 

 

 

9,504

 

Purchase of common stock under ESPP

 

 

11

 

 

 

 

 

 

1,231

 

 

 

 

 

 

 

 

 

1,231

 

Stock-based compensation

 

 

 

 

 

 

 

 

32,341

 

 

 

 

 

 

 

 

 

32,341

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,835

 

 

 

 

 

 

1,835

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(164,446

)

 

 

(164,446

)

Balances at March 31, 2019

 

 

55,069

 

 

$

551

 

 

$

3,430,030

 

 

$

(1,792

)

 

$

(1,656,690

)

 

$

1,772,099

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

Total

 

 

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

stockholders'

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

equity

 

Balances at December 31, 2017

 

 

49,406

 

 

$

494

 

 

$

2,540,951

 

 

$

(4,205

)

 

$

(913,808

)

 

$

1,623,432

 

Adjustment to beginning accumulated deficit from

   adoption of ASU 2014-09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,375

)

 

 

(29,375

)

Vesting of restricted stock units

 

 

74

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Issuance of common stock upon public offering, net

   of issuance costs of $2,563

 

 

277

 

 

 

3

 

 

 

48,698

 

 

 

 

 

 

 

 

 

48,701

 

Exercise of stock options

 

 

301

 

 

 

3

 

 

 

19,727

 

 

 

 

 

 

 

 

 

19,730

 

Purchase of common stock under ESPP

 

 

9

 

 

 

 

 

 

687

 

 

 

 

 

 

 

 

 

687

 

Stock-based compensation

 

 

 

 

 

 

 

 

22,995

 

 

 

 

 

 

 

 

 

22,995

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(844

)

 

 

 

 

 

(844

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(115,126

)

 

 

(115,126

)

Balances at March 31, 2018

 

 

50,067

 

 

$

501

 

 

$

2,633,057

 

 

$

(5,049

)

 

$

(1,058,308

)

 

$

1,570,201

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

4


 

bluebird bio, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

For the three months ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(164,446

)

 

$

(115,126

)

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

 

 

 

 

 

 

 

 

Change in fair value of contingent consideration

 

 

296

 

 

 

534

 

Depreciation and amortization

 

 

3,783

 

 

 

4,020

 

Stock-based compensation expense

 

 

32,341

 

 

 

22,995

 

Unrealized loss on equity securities

 

 

3,085

 

 

 

 

Other non-cash items

 

 

(3,456

)

 

 

2,403

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(12,793

)

 

 

(13,486

)

Operating lease right-of-use assets

 

 

5,374

 

 

 

 

Accounts payable

 

 

10,590

 

 

 

(737

)

Accrued expenses and other liabilities

 

 

(21,514

)

 

 

4,541

 

Operating lease liabilities

 

 

3,224

 

 

 

 

Deferred revenue

 

 

(8,672

)

 

 

(13,966

)

Collaboration research advancement

 

 

(1,966

)

 

 

 

Net cash used in operating activities

 

 

(154,154

)

 

 

(108,822

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(19,321

)

 

 

(7,452

)

Purchases of marketable securities

 

 

(381,735

)

 

 

(402,413

)

Proceeds from maturities of marketable securities

 

 

364,143

 

 

 

145,140

 

Net cash used in investing activities

 

 

(36,913

)

 

 

(264,725

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from public offering of common stock, net of issuance costs

 

 

 

 

 

48,701

 

Reimbursement of assets under financing lease obligation

 

 

 

 

 

3,098

 

Payments on financing lease obligation

 

 

 

 

 

(106

)

Proceeds from exercise of stock options and ESPP contributions

 

 

10,223

 

 

 

19,984

 

Net cash provided by financing activities

 

 

10,223

 

 

 

71,677

 

Decrease in cash, cash equivalents and restricted cash

 

 

(180,844

)

 

 

(301,870

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

417,099

 

 

 

772,268

 

Cash, cash equivalents and restricted cash at end of period

 

$

236,255

 

 

$

470,398

 

Supplemental cash flow disclosures from investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment included in accounts payable and accrued

   expenses

 

$

9,302

 

 

$

2,817

 

Assets acquired under operating lease obligation

 

$

5,500

 

 

$

 

Tenant improvements included in receivables and other current assets

 

$

8,009

 

 

$

14

 

Restricted cash included in receivables and other current assets

 

$

100

 

 

$

100

 

Restricted cash included in restricted cash and other non-current assets

 

$

14,417

 

 

$

13,763

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

5


 

bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

1. Description of the business

bluebird bio, Inc. (the “Company” or “bluebird”) was incorporated in Delaware on April 16, 1992, and is headquartered in Cambridge, Massachusetts. The Company researches, develops, manufactures and plans to commercialize gene therapies for the treatment of severe genetic diseases and cancer. Since its inception, the Company has devoted substantially all of its resources to its research and development efforts relating to its product candidates, including activities to manufacture product candidates, conduct clinical studies of its product candidates, perform preclinical research to identify new product candidates and provide general and administrative support for these operations.

The Company’s programs in severe genetic diseases include ZYNTEGLOTM (autologous CD34+ cells encoding βA-T87Q-globin gene) as a treatment for transfusion-dependent β-thalassemia, or TDT; its LentiGlobin® product candidate as a treatment for sickle cell disease, or SCD; and its Lenti-DTM product candidate as a treatment for cerebral adrenoleukodystrophy, or CALD. In the second half of 2018, the Company filed a marketing authorization application with the European Medicines Agency, or EMA, for ZYNTEGLO (formerly referred to as LentiGlobin for TDT) for the treatment of patients 12 years and older with TDT who do not have a β00 genotype, for whom hematopoietic stem cell (HSC) transplantation is appropriate but a human leukocyte-matched related HSC donor is not available. In March 2019, the Committee for Medicinal Products for Human Use of the EMA adopted a positive opinion recommending conditional marketing authorization for ZYNTEGLO in Europe. Assuming that the application is conditionally approved, the Company expects to begin commercializing and generating product revenues in the second half of 2019. The Company’s programs in oncology are focused on developing novel T cell-based immunotherapies, including chimeric antigen receptor (CAR) and T cell receptor (TCR) T cell therapies. Idecabtagene vicleucel, or ide-cel (bb2121), and bb21217, which are product candidates in oncology under the Company’s collaboration arrangement with Celgene Corporation (“Celgene”), are CAR T cell product candidates for the treatment of multiple myeloma. Please refer to Note 9, “Collaborative arrangements” for further discussion of the Company’s collaboration with Celgene.

As of March 31, 2019, the Company had cash, cash equivalents and marketable securities of $1.73 billion. Although the Company has incurred recurring losses and expects to continue to incur losses for the foreseeable future, the Company expects that its existing cash, cash equivalents and marketable securities will be sufficient to fund current planned operations for at least the next twelve months.  

 

2. Basis of presentation, principles of consolidation and significant accounting policies

Basis of presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. 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 interim periods ended March 31, 2019 and 2018.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 21, 2019.

Certain items in the prior year’s condensed consolidated financial statements have been reclassified to conform to the current presentation.  As a result, no subtotals in the prior year condensed consolidated financial statements were impacted.

Amounts reported are computed based on thousands. As a result, certain totals may not sum due to rounding.

6


 

Principles of consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to GAAP. The Company views its operations and manages its business in one operating segment.

Significant accounting policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2019 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2018 Annual Report on Form 10-K, except as noted below with respect to the Company’s lease accounting policies and as noted within the “Recent accounting pronouncements – Recently adopted” section below.  

Leases

 

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), (“ASU 2016-02” or “ASC 842”), using the required modified retrospective approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”).

 

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable. The Company does not have material financing leases.

 

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. To estimate its incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating.  Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.

 

The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.

 

ASC 842 transition practical expedients and application of transition provisions to leases at the transition date

 

The Company elected the following practical expedients, which must be elected as a package and applied consistently to all of its leases at the transition date (including those for which the entity is a lessee or a lessor): i) the Company did not reassess whether any expired or existing contracts are or contain leases; ii) the Company did not reassess the lease classification for any expired or existing leases (that is, all existing leases that were classified as operating leases in accordance with ASC 840 are classified as operating leases, and all existing leases that were classified as capital leases in accordance with ASC 840 are classified as finance leases); and iii) the Company did not reassess initial direct costs for any existing leases.

 

For leases that existed prior to the date of initial application of ASC 842 (which were previously classified as operating leases), a lessee may elect to use either the total lease term measured at lease inception under ASC 840 or the remaining lease term as of the date of initial application of ASC 842 in determining the period for which to measure its incremental borrowing rate.  In transition to ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates.

 

Application of ASC 842 policy elections to leases post adoption

 

The Company has made certain policy elections to apply to its leases executed post adoption, or subsequent to January 1, 2019, as further described below.

 

7


 

In accordance with ASC 842, components of a lease should be split into three categories: lease components, non-lease components, and non-components.  The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.

 

Entities may elect not to separate lease and non-lease components. Rather, entities would account for each lease component and related non-lease component together as a single lease component. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only.

 

ASC 842 allows for the use of judgment in determining whether the assumed lease term is for a major part of the remaining economic life of the underlying asset and whether the present value of lease payments represents substantially all of the fair value of the underlying asset.  The Company applies the bright line thresholds referenced in ASC 842-10-55-2 to assist in evaluating leases for appropriate classification. The aforementioned bright lines are applied consistently to the Company’s entire portfolio of leases.

 

 

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements. Estimates are used in the following areas, among others: subsequent fair value estimates used to assess potential impairment of long-lived assets, including goodwill and intangible assets, right-of-use assets and lease liabilities, contingent consideration, stock-based compensation expense, accrued expenses, revenue and income taxes.

Recent accounting pronouncements

Recently adopted

ASU No. 2016-02, Leases (Topic 842), ASU No. 2018-10 Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, and ASU No. 2019-01 Leases (Topic 842): Codification Improvements

In February 2016, the FASB issued ASU 2016-02, as amended, which superseded the lease accounting requirements in ASC 840 and created ASC 842. ASC 842 requires a lessee to recognize assets and liabilities on the balance sheet for most leases and changes many key definitions, including the definition of a lease. The new standard includes a short-term lease exception for leases with a term of 12 months or less, as part of which a lessee can make an accounting policy election not to recognize lease assets and lease liabilities. Lessees will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases using classification criteria that are substantially similar to the previous guidance.

 

Effective January 1, 2019, the Company adopted ASU 2016-02, using the required modified retrospective approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840.

 

The adoption of this standard resulted in the recognition of operating lease right-of-use assets and operating lease liabilities of $184.4 million and $177.0 million, respectively, on the Company’s condensed consolidated balance sheet relating to its leases for its corporate headquarters at 60 Binney Street in Cambridge, Massachusetts (the “60 Binney Street Lease”), its office and laboratory space in Seattle, Washington, its office space in Zug, Switzerland, and its embedded leases associated with certain of the Company’s contract manufacturing agreements.  The application of the standard’s transition guidance required the de-recognition of the 60 Binney Street Lease building asset, financing lease obligation, current portion, and financing lease obligation, net of current portion in the amounts of $149.3 million, $1.4 million, and $153.3 million, respectively, as well as certain other adjustments to related account balances.  In adopting ASU 2016-02, the Company recorded a total one-time adjustment of $6.6 million to the opening balance of accumulated deficit in the first quarter of 2019 primarily relating to the de-recognition of the 60 Binney Street Lease building asset finance lease obligation.

 

8


 

As a result of adopting ASU 2016-02, the Company recorded an increase to deferred tax assets and deferred tax liabilities of $5.3 million and $7.1 million, respectively. The $1.8 million net increase to deferred tax liabilities and an offsetting valuation allowance adjustment was recorded through the accumulated deficit, such that there was no tax impact on the Company’s condensed consolidated financial statements as a result of adoption.

ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities

In April 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities (“Subtopic 310-20”). The new standard amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. Subtopic 310-20 calls for a modified retrospective application under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company adopted this standard on January 1, 2019 and it did not have a material impact on the Company’s financial position or results of operations upon adoption.  

ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.  The new standard allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.  The Company adopted this standard on January 1, 2019 and it did not have a material impact on the Company’s financial position and results of operations upon adoption.

Not yet adopted

ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 362): Measurement of Credit Losses on Financial Statements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 362): Measurement of Credit Losses on Financial Statements.  The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective beginning January 1, 2020 and early adoption is permitted with measurement dates on or after January 1, 2019.  The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations upon adoption.

ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.  To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this ASU remove the second step of the test. An entity will instead apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The new standard will be effective beginning January 1, 2020 and early adoption is permitted with measurement dates on or after January 1, 2017.  The adoption of this standard is not expected to have a material impact on the Company’s financial position or results of operations upon adoption.

 

ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”). The new standard removes certain disclosures, modifies certain disclosures and adds additional disclosures related to fair value measurement. The new standard will be effective beginning January 1, 2020 and early adoption is permitted. The Company is currently evaluating the potential impact ASU 2018-13 may have on its disclosures upon adoption.

9


 

ASU No. 2018-15, Intangibles-Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, (“ASU 2018-15”). The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The new standard will be effective beginning January 1, 2020 and early adoption is permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.  The Company is currently evaluating the potential impact ASU 2018-15 may have on its financial position and results of operations upon adoption.

ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, (“ASU 2018-18”). The amendments in this update clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. The new standard will be effective beginning January 1, 2020 and early adoption is permitted. The Company is currently evaluating the potential impact ASU 2018-18 may have on its financial position and results of operations upon adoption.

 

 

3. Marketable securities

The following table summarizes the marketable securities held at March 31, 2019 and December 31, 2018 (in thousands):

 

Description

 

Amortized

cost / Cost

 

 

Unrealized

gains

 

 

Unrealized

losses

 

 

Fair

value

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

$

1,357,641

 

 

$

1,604

 

 

$

(1,400

)

 

$

1,357,845

 

Certificates of deposit

 

 

5,960

 

 

 

 

 

 

 

 

 

5,960

 

Corporate bonds

 

 

83,536

 

 

 

81

 

 

 

(19

)

 

 

83,598

 

Commercial paper

 

 

42,542

 

 

 

 

 

 

 

 

 

42,542

 

Equity securities

 

 

20,017

 

 

 

 

 

 

(934

)

 

 

19,083

 

Total

 

$

1,509,696

 

 

$

1,685

 

 

$

(2,353

)

 

$

1,509,028

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

$

1,459,649

 

 

$

963

 

 

$

(3,011

)

 

$

1,457,601

 

Certificates of deposit

 

 

9,080

 

 

 

 

 

 

 

 

 

9,080

 

Equity securities

 

 

20,017

 

 

 

2,150

 

 

 

 

 

 

22,167

 

Total

 

$

1,488,746

 

 

$

3,113

 

 

$

(3,011

)

 

$

1,488,848

 

No available-for-sale debt securities held as of March 31, 2019 or December 31, 2018 had remaining maturities greater than three years.

10


 

4. Fair value measurements

The following table sets forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 (in thousands):

 

Description

 

Total

 

 

Quoted

prices in

active

markets

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

221,738

 

 

$

214,346

 

 

$

7,392

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

 

1,357,845

 

 

 

 

 

 

1,357,845

 

 

 

 

Certificates of deposit

 

 

5,960

 

 

 

 

 

 

5,960

 

 

 

 

Commercial paper

 

 

42,542

 

 

 

 

 

 

42,542

 

 

 

 

Corporate bonds

 

 

83,598

 

 

 

 

 

 

83,598

 

 

 

 

Equity securities

 

 

19,083

 

 

 

19,083

 

 

 

 

 

 

 

Total assets

 

$

1,730,766

 

 

$

233,429

 

 

$

1,497,337

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

5,526

 

 

$

 

 

$

 

 

$

5,526

 

Total liabilities

 

$

5,526

 

 

$

 

 

$

 

 

$

5,526

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

402,579

 

 

$

348,638

 

 

$

53,941

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

 

1,457,601

 

 

 

 

 

 

1,457,601

 

 

 

 

Certificates of deposit

 

 

9,080

 

 

 

 

 

 

9,080

 

 

 

 

Equity securities

 

 

22,167

 

 

 

22,167

 

 

 

 

 

 

 

Total assets

 

$

1,891,427

 

 

$

370,805

 

 

$

1,520,622

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

5,230

 

 

$

 

 

$

 

 

$

5,230

 

Total liabilities

 

$

5,230

 

 

$

 

 

$

 

 

$

5,230

 

 

Cash and cash equivalents

The Company considers all highly liquid securities with original final maturities of 90 days or less from the date of purchase to be cash equivalents. As of March 31, 2019, cash and cash equivalents comprise funds in cash, money market accounts, and commercial paper. As of December 31, 2018, cash and cash equivalents comprise funds in cash, U.S. treasury securities, U.S. government agency securities, and money market accounts.

Marketable securities

Marketable securities classified as Level 2 within the valuation hierarchy generally consist of certificates of deposit, U.S. treasury securities and government agency securities, corporate bonds, and commercial paper. The Company estimates the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. The Company validates the prices provided by its third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.

11


 

The amortized cost of available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to the earliest call date for premiums or to maturity for discounts. At March 31, 2019 and December 31, 2018, the balance in the Company’s accumulated other comprehensive loss was composed primarily of activity related to the Company’s available-for-sale debt securities. There were no material realized gains or losses recognized on the sale or maturity of available-for-sale securities during the three months ended March 31, 2019 or 2018, and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive loss for the same periods.

The aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months as of March 31, 2019 and December 31, 2018 was $189.2 million and $787.5 million, respectively. As of March 31, 2019 and December 31, 2018, there were $411.6 million and $315.3 million in securities held by the Company in an unrealized loss position for more than twelve months, respectively. The aggregate unrealized loss on securities held by the Company for less than twelve months as of March 31, 2019 and December 31, 2018 was $0.1 million and $0.9 million, respectively. The aggregate unrealized loss on securities held by the Company for more than twelve months as of March 31, 2019 and December 31, 2018 was $1.3 million and $2.1 million, respectively. The Company has the intent and ability to hold such securities until recovery. The Company determined that there was no material change in the credit risk of the above investments. As a result, the Company determined it did not hold any investments with any other-than-temporary impairment as of March 31, 2019 and December 31, 2018.

The Company holds equity securities with an aggregate fair value of $19.1 million and $22.2 million as of March 31, 2019 and December 31, 2018, respectively, within short-term marketable securities on its condensed consolidated balance sheet. The Company has recorded a $3.1 million unrealized loss during the three months ended March 31, 2019 related to its equity securities, which is included in other (expense) income, net on the condensed consolidated statements of operations and comprehensive loss.

Contingent consideration

In connection with its prior acquisition of Precision Genome Engineering, Inc. (“Pregenen”), the Company may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory approvals or sales-based milestone events. Contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. The Company assesses these estimates on an on-going basis as additional data impacting the assumptions is obtained. Future changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the condensed consolidated statements of operations and comprehensive loss. In the absence of new information, changes in fair value will reflect changing discount rates and the passage of time.

The significant unobservable inputs used in the measurement of fair value of the Company’s contingent consideration are probabilities of successful achievement of clinical and commercial milestones, the period in which these milestones are expected to be achieved ranging from 2021 to 2028 and discount rates ranging from 14.3% to 15.2%. Significant increases or decreases in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively. Significant increases or decreases in the other inputs would result in a significantly lower or higher fair value measurement, respectively.

The table below provides a roll-forward of fair value of the Company’s contingent consideration obligations, which include Level 3 inputs (in thousands):

 

 

For the

three months ended

 

 

March 31, 2019

 

Beginning balance

$

5,230

 

Additions

 

 

Changes in fair value

 

296

 

Payments

 

 

Ending balance

$

5,526

 

 

Please refer to Note 8, “Commitments and contingencies” for further information.

 

 

12


 

5. Property, plant and equipment, net

Property, plant and equipment, net, consists of the following (in thousands):

 

 

 

As of

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Land

 

$

1,210

 

 

$

1,210

 

Building

 

 

14,913

 

 

 

180,094