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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, 2020
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,Massachusetts02142
(Address of Principal Executive Offices)(Zip Code)
(339) 499-9300
(Registrant’s Telephone Number, Including Area Code)
__________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareBLUEThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
As of May 5, 2020, there were 55,652,110 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.



Table of Contents
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, and to ensure adequate supply of our viral vectors and drug products;
the timing or likelihood of regulatory filings and approvals for our product candidates;
the timing or success of commercialization of our approved product, and any future approved products;
the pricing and reimbursement of our approved product, and any future approved products;
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 approved product, 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;
the impact of the COVID-19 pandemic; 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.


Table of Contents
bluebird bio, Inc.
Table of Contents
Page
CERTIFICATIONS



Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
bluebird bio, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except par value amounts)
As of March 31, 2020As of December 31, 2019
Assets
Current assets:
Cash and cash equivalents$346,629  $327,214  
Marketable securities564,054  779,246  
Prepaid expenses40,209  32,888  
Receivables and other current assets16,575  12,826  
Total current assets967,467  1,152,174  
Marketable securities107,674  131,506  
Property, plant and equipment, net153,920  151,176  
Intangible assets, net13,254  14,326  
Goodwill13,128  13,128  
Operating lease right-of-use assets194,469  185,885  
Restricted cash and other non-current assets79,192  79,229  
Total assets$1,529,104  $1,727,424  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$30,527  $42,995  
Accrued expenses and other current liabilities118,091  141,556  
Operating lease liability, current portion20,380  20,175  
Deferred revenue, current portion6,355  8,474  
Collaboration research advancement, current portion9,069  10,380  
Total current liabilities184,422  223,580  
Deferred revenue, net of current portion9,791  9,791  
Collaboration research advancement, net of current portion26,843  27,834  
Contingent consideration4,869  7,977  
Operating lease liability, net of current portion179,962  170,812  
Other non-current liabilities2,784  2,437  
Total liabilities408,671  442,431  
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, 2020 and December 31, 2019
    
Common stock, $0.01 par value, 125,000 shares authorized; 55,620 and 55,368 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
556  554  
Additional paid-in capital3,607,139  3,568,184  
Accumulated other comprehensive loss(2,799) (1,893) 
Accumulated deficit(2,484,463) (2,281,852) 
Total stockholders’ equity1,120,433  1,284,993  
Total liabilities and stockholders’ equity$1,529,104  $1,727,424  
See accompanying notes to unaudited condensed consolidated financial statements.
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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,
20202019
Revenue:
Service revenue$16,833  $9,211  
Collaborative arrangement revenue2,302  1,966  
Royalty revenue2,728  1,294  
Total revenues
21,863  12,471  
Operating expenses:
Research and development
154,123  122,640  
Selling, general and administrative73,248  60,279  
Cost of royalty revenue1,025  430  
Change in fair value of contingent consideration
(3,108) 296  
Total operating expenses
225,288  183,645  
Loss from operations
(203,425) (171,174) 
Interest income, net
5,355  10,102  
Other expense, net(4,447) (3,389) 
Loss before income taxes
(202,517) (164,461) 
Income tax (expense) benefit(94) 15  
Net loss
$(202,611) $(164,446) 
Net loss per share - basic and diluted:
$(3.64) $(2.99) 
Weighted-average number of common shares used in computing net loss per share - basic and diluted:
55,590  54,957  
Other comprehensive (loss) income:
Other comprehensive (loss) income, net of tax expense of $0.0 million and $0.4 million for the three months ended March 31, 2020 and 2019, respectively
(906) 1,835  
Total other comprehensive (loss) income(906) 1,835  
Comprehensive loss
$(203,517) $(162,611) 
See accompanying notes to unaudited condensed consolidated financial statements.
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bluebird bio, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands)
Common stock
Additional
paid-in
capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
stockholders'
equity
Shares
Amount
Balances at December 31, 201955,368  $554  $3,568,184  $(1,893) $(2,281,852) $1,284,993  
Vesting of restricted stock units
204  2  (2) —  —    
Exercise of stock options
20  —  750  —  —  750  
Purchase of common stock under ESPP
28  —  1,872  —  —  1,872  
Stock-based compensation
—  —  36,335  —  —  36,335  
Other comprehensive loss
—  —  —  (906) —  (906) 
Net loss
—  —  —  —  (202,611) (202,611) 
Balances at March 31, 202055,620  $556  $3,607,139  $(2,799) $(2,484,463) $1,120,433  

Common stock
Additional
paid-in
capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
stockholders'
equity
SharesAmount
Balances at December 31, 201854,738  $547  $3,386,958  $(3,627) $(1,498,808) $1,885,070  
Adjustments 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, 201955,069  $551  $3,430,030  $(1,792) $(1,656,690) $1,772,099  
See accompanying notes to unaudited condensed consolidated financial statements.
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bluebird bio, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
For the three months ended
March 31,
20202019
Cash flows from operating activities:
Net loss$(202,611) $(164,446) 
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of contingent consideration(3,108) 296  
Depreciation and amortization4,880  3,783  
Stock-based compensation expense36,293  32,341  
Unrealized loss on equity securities4,520  3,085  
Other non-cash items(1,387) (3,456) 
Changes in operating assets and liabilities:
Prepaid expenses and other assets(10,984) (12,793) 
Operating lease right-of-use assets5,842  5,374  
Accounts payable(9,519) 10,590  
Accrued expenses and other liabilities(20,557) (21,514) 
Operating lease liabilities(5,070) 3,224  
Deferred revenue(2,118) (8,672) 
Collaboration research advancement(2,302) (1,966) 
Net cash used in operating activities(206,121) (154,154) 
Cash flows from investing activities:
Purchase of property, plant and equipment(10,676) (19,321) 
Purchases of marketable securities(101,421) (381,735) 
Proceeds from maturities of marketable securities336,675  364,143  
Net cash provided by (used in) investing activities224,578  (36,913) 
Cash flows from financing activities:
Proceeds from exercise of stock options and ESPP contributions963  10,223  
Net cash provided by financing activities963  10,223  
Increase (decrease) in cash, cash equivalents and restricted cash19,420  (180,844) 
Cash, cash equivalents and restricted cash at beginning of period381,709  417,099  
Cash, cash equivalents and restricted cash at end of period$401,129  $236,255  
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$346,629  $221,738  
Restricted cash included in receivables and other current assets$  $100  
Restricted cash included in restricted cash and other non-current assets$54,500  $14,417  
Total cash, cash equivalents and restricted cash$401,129  $236,255  
Supplemental cash flow disclosures from investing and financing activities:
Purchases of property, plant and equipment included in accounts payable and accrued expenses
$1,125  $9,302  
Right-of-use assets obtained in exchange for operating lease liabilities$14,425  $5,500  
Tenant improvements included in receivables and other current assets$1,516  $8,009  
See accompanying notes to unaudited condensed consolidated financial statements.
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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 is a biotechnology company committed to researching, developing and commercializing potentially transformative gene therapies for 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 selling, general and administrative support for these operations, including commercial-readiness activities.
The Company’s programs in severe genetic diseases include ZYNTEGLO™ (autologous CD34+ cells encoding βA-T87Q-globin gene) gene therapy 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-D™ product candidate as a treatment for cerebral adrenoleukodystrophy, or CALD. 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, and bb21217, which are product candidates in oncology under the Company’s collaboration arrangement with Bristol-Myers Squibb ("BMS"), formerly Celgene Corporation ("Celgene") prior to its acquisition by BMS in November 2019, 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 BMS.
In June 2019, the Company received conditional marketing authorization from the European Commission 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 β0/β0 genotype, for whom hematopoietic stem cell (HSC) transplantation is appropriate but a human leukocyte-matched related HSC donor is not available. Since receiving conditional marketing authorization for ZYNTEGLO, the Company has continued to advance its commercialization readiness activities. Through March 31, 2020, the Company had not generated any revenue from product sales of ZYNTEGLO.
In accordance with Accounting Standards Codification ("ASC") 205-40, Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company has incurred losses since inception and to date has financed its operations primarily through the sale of shares of the Company's stock and, to a lesser extent, through collaboration agreements and grants from governmental agencies and charitable foundations. As of March 31, 2020, the Company had an accumulated deficit of $2.48 billion. During the three months ended March 31, 2020, the Company incurred a loss of $202.6 million and used $206.1 million of cash in operations. The Company expects to continue to generate operating losses and negative operating cash flows for the next few years and will need additional funding to support its planned operating activities through profitability. The transition to profitability is dependent upon the successful development, approval, and commercialization of the Company’s products and product candidates and the achievement of a level of revenues adequate to support its cost structure.
As of March 31, 2020, the Company had cash, cash equivalents and marketable securities of $1.02 billion. The Company expects its cash, cash equivalents and marketable securities will be sufficient to fund current planned operations for at least twelve months from the date of issuance of these financial statements, though it may pursue additional cash resources through public or private equity or debt financings, strategic collaborations or other sources. Management's expectations with respect to its ability to fund current planned operations is based on estimates that are subject to risks and uncertainties. If actual results are different from management's estimates, the Company may need to seek additional strategic or financing opportunities sooner than would otherwise be expected. However, there is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If the Company is unable to obtain additional funding on a timely basis, it may be forced to significantly curtail, delay, or discontinue one or more of its planned research or development programs or be unable to expand its operations or otherwise capitalize on its commercialization of its product candidates.
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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 ASC and Accounting Standards Updates (“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 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, 2020 and 2019.
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 condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2019, 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 18, 2020.
Certain items in the prior year’s condensed consolidated financial statements have been reclassified to conform to the current presentation.  However, no subtotals in the prior year condensed consolidated financial statements were impacted as a result.
Amounts reported are computed based on thousands. As a result, certain totals may not sum due to rounding.
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, 2020 are consistent with those discussed in Note 2 to the consolidated financial statements included in the Company’s 2019 Annual Report on Form 10-K, except as noted immediately below and as noted within the "Recent accounting pronouncements - Recently adopted" section.
Marketable securities
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements ("ASU 2016-13" or "ASC 326"), using the effective date method. As the Company had never recorded any other-than-temporary-impairment adjustments to its available-for-sale debt securities prior to the effective date, no transition provisions are applicable to the Company.
The Company assesses its available-for-sale debt securities under the available-for-sale debt security impairment model in ASC 326 as of each reporting date in order to determine if a portion of any decline in fair value below carrying value recognized on its available-for-sale debt securities is the result of a credit loss. The Company records credit losses in the condensed consolidated statements of operations and comprehensive loss as credit loss expense within other expense, net, which is limited to the difference between the fair value and the amortized cost of the security. To date, the Company has not recorded any credit losses on its available-for-sale debt securities.
Accrued interest receivable related to the Company's available-for-sale debt securities is presented within receivables and other current assets on the Company's condensed consolidated balance sheets. The Company has elected the practical expedient available to exclude accrued interest receivable from both the fair value and the amortized cost basis of available-for-sale debt securities for the purposes of identifying and measuring any impairment. The Company writes off accrued interest receivable once it has determined that the asset is not realizable. Any write offs of accrued interest receivable are recorded by reversing interest income, recognizing credit loss expense, or a combination of both. To date, the Company has not written off any accrued interest receivables associated with its marketable securities.
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Stock-based compensation
The Company estimates the fair value of its option awards using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (i) the expected stock price volatility, (ii) the calculation of the expected term of the award, (iii) the risk-free interest rate, and (iv) expected dividends. Effective January 1, 2020, the Company eliminated the use of a representative peer group and uses only its own historical volatility data in its estimate of expected volatility given that there is now a sufficient amount of historical information regarding the volatility of its own stock price.
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: future undiscounted cash flows and subsequent fair value estimates used to assess potential and measure any impairment of long-lived assets, including goodwill and intangible assets, and the measurement of right-of-use assets and lease liabilities, contingent consideration, stock-based compensation expense, accrued expenses, revenue, income taxes, and the assessment of the Company's ability to fund its operations for at least the next twelve months from the date of issuance of these financial statements.
Recent accounting pronouncements
Recently adopted
ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements, ASU No. 2019-5 Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief, ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements.  The new standard, as amended, 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 targeted transition relief standard allows filers an option to irrevocably elect the fair value option of ASC 825-10, Financial Instruments-Overall, applied on an instrument-by-instrument basis for eligible instruments. The Company adopted this standard on January 1, 2020 on a prospective basis and the adoption did not have a material impact on its financial position and 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. The new standard removes certain disclosures, modifies certain disclosures, and adds additional disclosures related to fair value measurement. The Company adopted this standard on January 1, 2020, and it did not have a material impact on its financial position and results of operations upon adoption.
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. 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
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hosting arrangement that is a service contract is not affected by the amendments in this update. The Company adopted this standard on a prospective basis as of January 1, 2020, and it did not have a material impact 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 under ASC 606, Revenue from Contracts with Customers (“Topic 606” or "ASC 606") when the counter party is a customer in the context of a unit of account. ASU 2018-18 also precludes companies from presenting transactions with collaborative partners that are outside the scope of Topic 606 together with revenue within the scope of Topic 606. The Company adopted this standard on a retrospective basis on January 1, 2020. As a result, revenue for prior periods are presented in accordance with the new standard.
Prior to the adoption of ASU 2018-18, the Company presented all revenue recognized under its collaborative arrangements as collaboration revenue on its condensed consolidated statement of operations and comprehensive loss. However, as the Company recognizes revenue under its collaborative arrangements both within and outside the scope of Topic 606, the Company has revised its presentation of revenue on its condensed consolidated statement of operations and comprehensive loss as follows: service revenue includes revenue from collaborative partners recognized within the scope of Topic 606 and collaborative arrangement revenue includes revenue from collaborative partners recognized outside the scope of Topic 606. The disaggregation of revenue recognized under Topic 606 and outside of Topic 606 had previously otherwise been disclosed in the Notes to Condensed Consolidated Financial Statements.
ASU No. 2019-4, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
In April 2019, the FASB issued ASU 2019-4, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This update provides clarifications for three topics related to financial instruments accounting, some of which apply to the Company. The Company adopted this standard on January 1, 2020 on a prospective basis, and it did not have a material impact on its financial position and results of operations upon adoption.
Not yet adopted
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard will be effective beginning January 1, 2021. The Company is currently evaluating the potential impact ASU 2019-12 may have on its financial position and results of operations upon adoption.
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3. Marketable securities
The following table summarizes the marketable securities held at March 31, 2020 and December 31, 2019 (in thousands):
Description
Amortized
cost / Cost
Unrealized
gains
Unrealized
losses
Fair
value
March 31, 2020
U.S. government agency securities and treasuries
$377,551  $2,741  $(15) $380,277  
Certificates of deposit
240      240  
Corporate bonds
207,708  613  (1,110) 207,211  
Commercial paper
75,650      75,650  
Equity securities
20,017    (11,667) 8,350  
Total
$681,166  $3,354  $(12,792) $671,728  
December 31, 2019
U.S. government agency securities and treasuries$633,970  $2,014  $(48) $635,936  
Certificates of deposit
960      960  
Corporate bonds
185,827  824  (43) 186,608  
Commercial paper
74,378      74,378  
Equity securities
20,017    (7,147) 12,870  
Total
$915,152  $2,838  $(7,238) $910,752  
No available-for-sale debt securities held as of March 31, 2020 or December 31, 2019 had remaining maturities greater than three years.
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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, 2020 and December 31, 2019 (in thousands):
Description
Total
Quoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
March 31, 2020
Assets:
Cash and cash equivalents$346,629  $336,630  $9,999  $  
Marketable securities:
U.S. government agency securities and treasuries380,277    380,277    
Certificates of deposit240    240    
Corporate bonds207,211    207,211    
Commercial paper75,650    75,650    
Equity securities8,350  8,350      
Total$1,018,357  $344,980  $673,377  $  
Liabilities:
Contingent consideration$4,869  $  $  $4,869  
Total$4,869  $  $  $4,869  
December 31, 2019
Assets:
Cash and cash equivalents$327,214  $311,245  $15,969  $  
Marketable securities:
U.S. government agency securities and treasuries635,936    635,936    
Certificates of deposit960    960    
Corporate bonds186,608    186,608    
Commercial paper74,378    74,378    
Equity securities12,870  12,870      
Total$1,237,966  $324,115  $913,851  $  
Liabilities:
Contingent consideration$7,977  $  $  $7,977  
Total$7,977  $  $  $7,977  
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, 2020, cash and cash equivalents comprise funds in cash, money market accounts, and U.S. Treasury securities. As of December 31, 2019, cash and cash equivalents comprise funds in cash, money market accounts, and commercial paper.
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.
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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, 2020 and December 31, 2019, the balance in the Company’s accumulated other comprehensive loss includes 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, 2020 or 2019, and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive loss for the same periods.
Accrued interest receivable on the Company's available-for-sale debt securities totaled $2.9 million and $3.6 million as of March 31, 2020 and December 31, 2019, respectively. No accrued interest receivable was written off during the three months ended March 31, 2020 or 2019.
The following table summarizes available-for-sale debt securities in a continuous unrealized loss position for less than and greater than twelve months, and for which an allowance for credit losses has not been recorded at March 31, 2020 and December 31, 2019 (in thousands):
Less than 12 months12 months or greaterTotal
DescriptionFair valueUnrealized lossesFair valueUnrealized lossesFair valueUnrealized losses
March 31, 2020
U.S. government agency securities
and treasuries
$5,000  $  $40,614  $(15) $45,614  $(15) 
Corporate bonds102,072  (1,110)     102,072  (1,110) 
Total$107,072  $(1,110) $40,614  $(15) $147,686  $(1,125) 
December 31, 2019
U.S. government agency securities
and treasuries
$13,234  $(3) $79,618  $(45) $92,852  $(48) 
Corporate bonds53,983  (43)     53,983  (43) 
Total$67,217  $(46) $79,618  $(45) $146,835  $(91) 
The Company determined that there was no material change in the credit risk of the above investments during the three months ended March 31, 2020. As such, an allowance for credit losses would not be necessary. As of March 31, 2020, the Company does not intend to sell such securities and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases.
The Company holds equity securities with an aggregate fair value of $8.4 million and $12.9 million as of March 31, 2020 and December 31, 2019, respectively, within short-term marketable securities on its condensed consolidated balance sheets. The Company has recorded unrealized losses of $4.5 million and $3.1 million during the three months ended March 31, 2020 and 2019, respectively, related to its equity securities, which is included in other expense, 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 11.8% to 13.5%. Significant increases or decreases in any of the probabilities of success would result in a significantly higher or lower fair value measurement,
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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, 2020
Beginning balance
$7,977  
Additions
  
Changes in fair value
(3,108) 
Payments
  
Ending balance
$4,869  
Please refer to Note 8, Commitments and contingencies, for further information.
5. Property, plant and equipment, net
Property, plant and equipment, net, consists of the following (in thousands):
As of March 31, 2020As of December 31, 2019
Land
$1,210  $1,210  
Building
15,745  15,664  
Computer equipment and software
6,837  6,947  
Office equipment
7,607  7,599  
Laboratory equipment
46,832  44,560  
Leasehold improvements
33,953  33,788  
Construction-in-progress
82,048  77,981  
Total property, plant and equipment
194,232  187,749  
Less accumulated depreciation and amortization
(40,312) (36,573) 
Property, plant and equipment, net
$153,920  $151,176  
North Carolina manufacturing facility
In November 2017, the Company acquired a manufacturing facility, which is in the process of construction, in Durham, North Carolina for the future manufacture of lentiviral vector for the Company’s gene therapies.  As of March 31, 2020, a portion of the facility has been placed into service, and the remainder of the facility is still in process of construction. Construction-in-progress as of March 31, 2020 and December 31, 2019 includes $78.4 million and $74.2 million, respectively, related to the North Carolina manufacturing facility.
6. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
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As of March 31, 2020As of December 31, 2019
Employee compensation$24,018