blue-10q_20150930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended September 30, 2015

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.)

 

150 Second Street

Cambridge, Massachusetts

 

02141

(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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨

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

 

Large accelerated filer

 

x  

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of October 30, 2015, there were 36,676,917 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,” “will,” “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 manufacturing and transduction capabilities;

 

·

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

 

·

the 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 or obtain additional grant funding;

 

·

our financial performance;

 

·

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.

Form 10-Q

For the three and nine months ended September 30, 2015

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

2

Item 1.

 

Financial Statements (unaudited)

 

2

 

 

Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2015 and 2014

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014

 

4

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

5

Item 2.

 

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

 

17

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

 

Controls and Procedures

 

28

 

 

 

PART II. OTHER INFORMATION

 

28

Item 1.

 

Legal Proceedings

 

28

Item 1A.

 

Risk Factors

 

28

Item 5.

 

Other Information

 

55

Item 6.

 

Exhibits

 

55

 

 

 

 

 

SIGNATURES

 

56

 

 

 

 

 

CERTIFICATIONS

 

 

 

 

 

 

 

 


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

bluebird bio, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except par value amounts)

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

417,510

 

 

$

347,845

 

Marketable securities

 

289,954

 

 

 

125,710

 

Deferred tax assets

 

734

 

 

 

1,913

 

Prepaid expenses and other current assets

 

4,957

 

 

 

4,521

 

Total current assets

 

713,155

 

 

 

479,989

 

Marketable securities

 

194,247

 

 

 

18,448

 

Property and equipment, net

 

61,564

 

 

 

15,740

 

Intangible assets, net

 

25,397

 

 

 

28,219

 

Goodwill

 

13,128

 

 

 

13,128

 

Restricted cash and other non-current assets

 

10,150

 

 

 

1,215

 

Total assets

$

1,017,641

 

 

$

556,739

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

3,469

 

 

$

2,954

 

Accrued expenses and other current liabilities

 

24,219

 

 

 

14,649

 

Deferred revenue, current portion

 

5,889

 

 

 

25,375

 

Total current liabilities

 

33,577

 

 

 

42,978

 

Deferred rent, net of current portion

 

8,010

 

 

 

8,674

 

Deferred revenue, net of current portion

 

37,431

 

 

 

5,302

 

Contingent consideration, net of current portion

 

4,840

 

 

 

6,321

 

Construction financing lease obligation

 

43,777

 

 

 

 

Deferred tax liabilities

 

734

 

 

 

1,913

 

Other non-current liabilities

 

266

 

 

 

294

 

Total liabilities

 

128,635

 

 

 

65,482

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

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

   0 shares issued and outstanding at September 30, 2015

   and December 31, 2014

 

 

 

 

 

Common stock, $0.01 par value, 125,000 shares authorized;

   36,641 and 32,340 shares issued and outstanding at

   September 30, 2015 and December 31, 2014, respectively

 

366

 

 

 

323

 

Additional paid-in capital

 

1,155,482

 

 

 

638,389

 

Accumulated other comprehensive income (loss)

 

50

 

 

 

(71

)

Accumulated deficit

 

(266,892

)

 

 

(147,384

)

Total stockholders’ equity

 

889,006

 

 

 

491,257

 

Total liabilities and stockholders’ equity

$

1,017,641

 

 

$

556,739

 

 

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)

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

$

1,324

 

 

$

6,250

 

 

$

12,607

 

 

$

18,750

 

Research and license fees

 

 

 

 

115

 

 

 

 

 

 

285

 

Total revenue

 

1,324

 

 

 

6,365

 

 

 

12,607

 

 

 

19,035

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

30,395

 

 

 

16,649

 

 

 

98,380

 

 

 

42,043

 

General and administrative

 

13,704

 

 

 

6,648

 

 

 

31,765

 

 

 

17,924

 

Change in fair value of contingent consideration

 

352

 

 

 

78

 

 

 

2,540

 

 

 

78

 

Total operating expenses

 

44,451

 

 

 

23,375

 

 

 

132,685

 

 

 

60,045

 

Loss from operations

 

(43,127

)

 

 

(17,010

)

 

 

(120,078

)

 

 

(41,010

)

Other income (expense), net

 

263

 

 

 

(20

)

 

 

630

 

 

 

48

 

Loss before income taxes

 

(42,864

)

 

 

(17,030

)

 

 

(119,448

)

 

 

(40,962

)

Income tax (expense) benefit

 

(60

)

 

 

 

 

 

(60

)

 

 

11,797

 

Net loss

$

(42,924

)

 

$

(17,030

)

 

$

(119,508

)

 

$

(29,165

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities, net of tax

 

103

 

 

 

(74

)

 

 

121

 

 

 

(74

)

Comprehensive loss

$

(42,821

)

 

$

(17,104

)

 

$

(119,387

)

 

$

(29,239

)

Net loss per share - basic and diluted:

$

(1.18

)

 

$

(0.61

)

 

$

(3.52

)

 

$

(1.14

)

Weighted-average number of common shares used

   in computing net loss per share - basic and diluted:

 

36,384

 

 

 

28,115

 

 

 

33,979

 

 

 

25,593

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

3


 

bluebird bio, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

Nine months ended September 30,

 

 

 

2015

 

 

 

2014

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(119,508

)

 

$

(29,165

)

Adjustments to reconcile net loss to net cash

   used in operating activities:

 

 

 

 

 

 

 

Non-cash benefit on release of tax valuation allowance

 

 

 

 

(11,797

)

Depreciation and amortization

 

5,381

 

 

 

2,558

 

Stock-based compensation expense

 

31,011

 

 

 

7,757

 

Change in fair value of contingent consideration

 

2,015

 

 

 

78

 

Other non-cash items

 

528

 

 

 

246

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

(2,717

)

 

 

166

 

Accounts payable

 

623

 

 

 

(2,604

)

Accrued expenses and other liabilities

 

5,320

 

 

 

5,613

 

Deferred revenue

 

12,643

 

 

 

(19,005

)

Deferred rent

 

(640

)

 

 

2,124

 

Net cash used in operating activities

 

(65,344

)

 

 

(44,029

)

Investing activities

 

 

 

 

 

 

 

Restricted cash

 

(8,816

)

 

 

209

 

Purchase of property and equipment

 

(3,618

)

 

 

(6,303

)

Acquisition of business, net of cash acquired

 

 

 

 

(4,673

)

Purchases of marketable securities

 

(470,499

)

 

 

(174,021

)

Proceeds from maturities of marketable securities

 

132,239

 

 

 

 

Net cash used in investing activities

 

(350,694

)

 

 

(184,788

)

Financing activities

 

 

 

 

 

 

 

Cash paid for contingent purchase price consideration

 

(453

)

 

 

 

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

 

477,247

 

 

 

109,766

 

Proceeds from issuance of common stock

 

8,909

 

 

 

2,375

 

Net cash provided by financing activities

 

485,703

 

 

 

112,141

 

Increase (decrease) in cash and cash equivalents

 

69,665

 

 

 

(116,676

)

Cash and cash equivalents at beginning of period

 

347,845

 

 

 

206,279

 

Cash and cash equivalents at end of period

$

417,510

 

 

$

89,603

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Assets acquired in acquisition

$

 

 

$

43,759

 

Liabilities assumed in acquisition

$

 

 

$

12,768

 

Equity issued in acquisition

$

 

 

$

19,348

 

Construction financing lease obligation

$

43,777

 

 

$

 

Purchases of property and equipment included in accounts payable and accrued expenses

$

1,475

 

 

$

1,298

 

Stock option exercise proceeds receivable

$

24

 

 

$

223

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

4


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 develops, manufactures and intends to market therapies to safely and effectively deliver genes useful in the treatment of severe genetic and rare diseases and in the field of T cell-based immunotherapy. 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.

In June 2015, the Company sold 2,941,176 shares of common stock through an underwritten public offering at a price of $170.00 per share. The aggregate net proceeds received by the Company from the offering were $477.2 million, net of underwriting discounts and commissions and offering expenses of approximately $22.8 million.

 

 

2. Summary of significant accounting policies and basis of presentation

Basis of presentation and principles of consolidation

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 September 30, 2015 and 2014.

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 financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2014, 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 25, 2015.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Precision Genome Engineering, Inc. (“Pregenen”), bluebird bio France – SARL, bluebird bio Australia Pty Ltd. and bluebird bio Securities Corporation. 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. All material long-lived assets of the Company reside in the United States.

Summary of accounting policies

The significant accounting policies and estimates used in preparation of the condensed consolidated financial statements are described in the Company’s audited financial statements as of and for the year ended December 31, 2014, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. Beginning in the third quarter of 2015, the Company records certain estimated construction costs incurred and reported to us by a landlord as an asset and corresponding construction financing lease obligation on the condensed consolidated balance sheets. See Note 7, “Commitments and contingencies,” for additional information. There have been no other material changes in the Company’s significant accounting policies during the nine months ended September 30, 2015.

Contingent consideration

Each reporting period, the Company revalues the contingent consideration obligations associated with business combinations to their fair value and records within operating expenses increases in their fair value as contingent consideration expense and decreases in the fair value as contingent consideration income. Changes in contingent consideration result from changes in the assumptions regarding probabilities of successful achievement of related milestones, the estimated timing in which the milestones are achieved and the discount rate used to estimate the fair value of the liability. Contingent consideration may change significantly as development of the Company’s programs in certain indications progress and additional data are obtained, impacting the Company’s assumptions. The

5


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

assumptions used in estimating fair value require significant judgment. The use of different assumptions and judgments could result in a materially different estimate of fair value. See Note 4, “Fair value measurements,” for additional information.

Net income (loss) per share

Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common equivalent shares outstanding for the period, including any dilutive effect from outstanding stock options, unvested restricted stock, restricted stock units, employee stock purchase plan, warrants, and acquisition holdback shares using the treasury stock method.

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. Estimates are used in the following areas, among others: fair value estimates used to assess potential impairment of long-lived assets, construction financing lease obligations, contingent consideration, stock-based compensation expense, accrued expenses, revenue and income taxes. Actual results could materially differ from those estimates.  

 

 

3. Marketable securities

The following table summarizes the available-for-sale securities held at September 30, 2015 and December 31, 2014 (in thousands):

 

Description

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

$

472,191

 

 

$

126

 

 

$

(82

)

 

$

472,235

 

Certificates of deposit

 

 

11,960

 

 

 

7

 

 

 

(1

)

 

 

11,966

 

Total

 

$

484,151

 

 

$

133

 

 

$

(83

)

 

$

484,201

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

$

131,589

 

 

$

6

 

 

$

(59

)

 

$

131,536

 

Certificates of deposit

 

 

12,640

 

 

 

 

 

 

(18

)

 

 

12,622

 

Total

 

$

144,229

 

 

$

6

 

 

$

(77

)

 

$

144,158

 

 

No available-for-sale securities held as of September 30, 2015 or December 31, 2014 had remaining maturities greater than three years.

 

6


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

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 September 30, 2015 and December 31, 2014 (in thousands):

 

Description

 

Total

 

 

Quoted

prices in

active

markets

(Level 1)

 

 

Significant

other

observable

inputs

(Level 2)

 

 

Significant

unobservable

inputs

(Level 3)

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

417,510

 

 

$

338,073

 

 

$

79,437

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities and treasuries

 

 

472,235

 

 

 

 

 

 

472,235

 

 

 

 

Certificates of deposit

 

 

11,966

 

 

 

 

 

 

11,966

 

 

 

 

Total assets

 

$

901,711

 

 

$

338,073

 

 

$

563,638

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

8,336

 

 

$

 

 

$

 

 

$

8,336

 

Total liabilities

 

$

8,336

 

 

$

 

 

$

 

 

$

8,336

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

347,845

 

 

$

347,845

 

 

$

 

 

$

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

 

131,536

 

 

 

 

 

 

131,536

 

 

 

 

Certificates of deposit

 

 

12,622

 

 

 

 

 

 

12,622

 

 

 

 

Total assets

 

$

492,003

 

 

$

347,845

 

 

$

144,158

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

6,796

 

 

$

 

 

$

 

 

$

6,796

 

Total liabilities

 

$

6,796

 

 

$

 

 

$

 

 

$

6,796

 

 

Cash and cash equivalents

The Company considers all highly liquid securities with original final maturities of three months or less from the date of purchase to be cash equivalents. As of September 30, 2015 and December 31, 2014, cash and cash equivalents comprise funds in cash, money market accounts and U.S. government agency securities.

Marketable securities

The amortized cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity. At September 30, 2015 and December 31, 2014, the balance in the Company’s accumulated other comprehensive income (loss) was composed solely of activity related to the Company’s available-for-sale marketable securities. There were no realized gains or losses recognized on the sale or maturity of available-for-sale securities during the nine months ended September 30, 2015, and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive income for the same period.

The aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months as of September 30, 2015 and December 31, 2014 was $197.0 million and $134.4 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 an other-than-temporary impairment as of September 30, 2015 and December 31, 2014.

7


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Contingent consideration

In connection with the acquisition of Pregenen, the Company recorded contingent consideration pertaining to the amounts potentially payable to Pregenen’s former equityholders pursuant to the Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among the Company, Pregenen and Pregenen’s former equityholders. 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.

Contingent consideration may change significantly as development progresses and additional data are obtained, impacting the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

The significant unobservable inputs used in the measurement of fair value of the Company’s contingent consideration are probabilities of successful achievement of preclinical, clinical and commercial milestones, the period in which these milestones are expected to be achieved ranging from 2016 to 2026 and discount rates ranging from 9.8% to 14.0%. 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 these 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):

 

 

Nine Months Ended

 

 

September 30, 2015

 

Beginning balance

$

6,796

 

Additions

 

 

Changes in fair value

 

2,540

 

Payments

 

(1,000

)

Ending balance

$

8,336

 

 

As of September 30, 2015, $3.5 million of the fair value of the Company’s total contingent consideration obligations was reflected as a component of accrued expenses and other current liabilities within the condensed consolidated balance sheets, with the remaining balance of $4.8 million reflected as a non-current liability. A $1.0 million milestone under the Stock Purchase Agreement was achieved during the second quarter of 2015, and was paid to the former equityholders of Pregenen during the third quarter of 2015.     

 

 

8


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

5. Property and equipment, net

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

 

 

September 30, 2015

 

 

December 31, 2014

 

Computer equipment and software

$

1,092

 

 

$

814

 

Office equipment

 

1,085

 

 

 

786

 

Laboratory equipment

 

9,747

 

 

 

7,223

 

Leasehold improvements

 

10,969

 

 

 

10,318

 

Construction-in-progress

 

44,527

 

 

 

 

Total property and equipment, gross

 

67,420

 

 

 

19,141

 

Less accumulated depreciation and amortization

 

(5,856

)

 

 

(3,401

)

Total Property and equipment, net

$

61,564

 

 

$

15,740

 

 

Construction-in-progress as of September 30, 2015 includes $43.8 million related to construction costs incurred by the landlord at 60 Binney Street in Cambridge, Massachusetts. Please refer to Note 7, "Commitments and contingencies," for further information.

 

 

6. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

 

 

September 30, 2015

 

 

December 31, 2014

 

Employee compensation

$

5,358

 

 

$

4,943

 

Accrued goods and services

 

13,034

 

 

 

7,358

 

Accrued professional fees

 

1,063

 

 

 

428

 

Deferred rent, current portion

 

938

 

 

 

914

 

Contingent consideration, current portion

 

3,496

 

 

 

475

 

Other

 

330

 

 

 

531

 

Total accrued expenses and other current liabilities

$

24,219

 

 

$

14,649

 

 

The change in fair value of contingent consideration was primarily related to an increase in the probability of successful achievement of milestones expected to be achieved within the next twelve months.

 

 

7. Commitments and contingencies

The Company is party to various agreements, principally relating to licensed technology, that require future payments relating to milestones not met at September 30, 2015 and December 31, 2014 or royalties on future sales of specified products.

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with claims by any third party with respect to the Company’s products or business activities. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

The Company’s wholly-owned subsidiary bluebird bio France – SARL participates in the French Crédit d’Impôt Recherche (“CIR”) program, which allows companies to monetize up to 30% of eligible research expenses. The Company received aggregate reimbursement of €1.6 million related to years 2012 through 2014.  The Company has not yet applied for €0.5 million related to the nine months ended September 30, 2015, which is classified as a current asset within the condensed consolidated balance sheets as of September 30, 2015.  The years 2012 through 2015 are open and subject to examination.

9


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

On June 30, 2014, the Company acquired Pregenen. During the second quarter of 2015, a $1.0 million milestone under the Stock Purchase Agreement was achieved, which resulted in a $1.0 million payment to the former equityholders of Pregenen during the third quarter of 2015. The Company may be required to make up to an additional $134.0 million in future contingent cash payments to the former equityholders of Pregenen upon the achievement of certain preclinical, clinical and commercial milestones related to the Pregenen technology, of which $14.0 million relates to preclinical milestones, $20.1 million relates to clinical milestones and $99.9 million relates to commercial milestones. In accordance with accounting for business combinations guidance, contingent consideration liabilities are required to be recognized on the condensed consolidated balance sheets at fair value. Estimating the fair value of contingent consideration requires the use of significant assumptions primarily relating to probabilities of successful achievement of certain preclinical, clinical and commercial milestones, the expected timing in which these milestones will be achieved and discount rates. The use of different assumptions could result in materially different estimates of fair value. See Note 4, “Fair value measurements,” for additional information.

On June 3, 2013, the Company entered into a nine-year building lease for approximately 43,600 square feet of space located at 150 Second Street, Cambridge, Massachusetts, commencing on the earlier of the substantial completion of the Company’s build-out work or January 1, 2014. This lease was amended in June 2014 to add an additional approximately 9,900 square feet. The lease originally had monthly lease payments of $0.2 million for the first 12 months, which increased to $0.3 million per month beginning in December 2014 due to the lease amendment, with annual rent escalations thereafter and provides a rent abatement of $0.2 million per month for the first six months. The total operating lease obligation of the noncancellable term of this agreement is $29.5 million. In addition, the lease provides a contribution from the landlord towards the initial build-out of the space of up to $7.8 million. The Company has the option to extend this lease by an additional five years. In accordance with the lease, the Company entered into a cash-collateralized irrevocable standby letter of credit in the amount of $1.3 million, naming the landlord as beneficiary. This letter of credit was reduced to $0.8 million during the second quarter of 2015, which was the first anniversary of the rent commencement date, and may be further reduced to $0.6 million upon the second anniversary of the rent commencement date.  

On June 29, 2015, the Company entered into a lease agreement for additional office space located at 215 First Street, Cambridge, Massachusetts.  Under the terms of the lease, the Company leased approximately 15,120 square feet starting on July 13, 2015 for $0.5 million per year in base rent, which is subject to a 3% annual rent increase plus certain operating expenses and taxes. The lease will continue until the end of the 60th full calendar month following the date the landlord delivers the premises to the Company, and includes early termination provisions that could allow the Company to terminate the lease at the end of the 20th full calendar month following the delivery of the premises if the Company meets certain conditions specified within the lease.  Under the terms of the lease, the Company will also lease an additional 8,075 square feet of office space in the same premises starting on January 1, 2016 for an additional $0.3 million per year in base rent, which is subject to a 3% annual rent increase plus certain operating expenses and taxes.

 

On September 21, 2015, the Company entered into a lease agreement for additional office and laboratory space located in a building (the “Building”) under construction at 60 Binney Street, Cambridge, Massachusetts (the “60 Binney Lease”).  Under the terms of the 60 Binney Lease, starting on October 1, 2016, the Company will lease approximately 253,108 square feet of office and laboratory space at $72.50 per square foot per year, or $18.4 million per year in base rent, which is subject to scheduled annual rent increases of 1.75% plus certain operating expenses and taxes. The Company also executed a $9.2 million letter of credit upon signing the 60 Binney Lease, which was required to be collateralized with a bank account at a financial institution in accordance with the 60 Binney Lease agreement. The 60 Binney Lease will continue until the end of the 120th full calendar month following April 2017 or the earlier the date the Company occupies the Building or other conditions specified in the 60 Binney Lease occur.  Pursuant to a work letter entered into in connection with the 60 Binney Lease, the landlord will contribute an aggregate of $42.4 million toward the cost of construction and tenant improvements for the Building. The purpose of the 60 Binney Lease is to supplement and eventually replace the Company’s current leased premises at 150 Second Street and 215 First Street in Cambridge, Massachusetts and the Company intends to move its corporate headquarters to 60 Binney Street in mid-2017. The Company has the option to extend the 60 Binney Lease for two successive five-year terms.

 

Because the Company is involved in the construction project, including having responsibility to pay for a portion of the costs of finish work and mechanical, electrical, and plumbing elements of the Building, the Company is deemed for accounting purposes to be the owner of the Building during the construction period. Accordingly, the Company has recorded project construction costs incurred by the landlord as an asset in “Property and equipment, net” and a related financing obligation in “Construction financing lease obligation” on the Company’s condensed consolidated balance sheet.

 

10


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

The Company bifurcates its future lease payments pursuant to the 60 Binney Lease into (i) a portion that is allocated to the Building and (ii) a portion that is allocated to the land on which the Building is being constructed, which is recorded as rental expense. Although the Company estimates that the Company will not begin making lease payments pursuant to the 60 Binney Lease until April 2017, the portion of the lease obligation allocated to the land is treated for accounting purposes as an operating lease that commenced upon execution of the 60 Binney Lease in September 2015. During the nine months ended September 30, 2015, the Company recognized $0.1 million of non-cash rental expense attributable to the land.

 

As of September 30, 2015, Property and equipment, net, includes $43.8 million related to construction costs for the Building. The construction financing lease obligation related to the Building was $43.8 million. No cash was paid to the landlord related to the Building for the three and nine months ended September 30, 2015.

 

Once the landlord completes the construction of the Building, the Company will evaluate the 60 Binney Lease in order to determine whether or not the 60 Binney Lease meets the criteria for “sale-leaseback” treatment. If the 60 Binney Lease meets the “sale-leaseback” criteria, the Company will remove the asset and the related liability from its consolidated balance sheet and treat the 60 Binney Lease as either an operating or a capital lease based on the Company’s assessment of the accounting guidance.  The Company expects that upon completion of construction of the Building the 60 Binney Lease will not meet the “sale-leaseback” criteria. If the 60 Binney Lease does not meet “sale-leaseback” criteria, the Company will treat the 60 Binney Lease as a financing obligation and will depreciate the asset in accordance with the Company’s accounting policy.

 

As of September 30, 2015, future minimum commitments under the 60 Binney Lease were as follows (in thousands):

 

Years ended December 31,

 

 

 

 

2015

 

$

 

2016

 

$

 

2017

 

$

13,061

 

2018

 

$

18,591

 

2019

 

$

18,917

 

2020 and thereafter

 

$

147,379

 

Total

 

$

197,948

 

 

The table above sets forth the future minimum rental payments that the Company is obligated to pay after taking occupancy of the 60 Binney Lease, including amounts reflected on the condensed consolidated balance sheet under the caption "Construction financing lease obligation". The Company expects to commence these rental payments upon completion of the Building, estimated to be April 2017.

 

 

8. Significant agreements

Celgene Corporation

Original Collaboration Agreement

On March 19, 2013, the Company entered into a Master Collaboration Agreement (the “Collaboration Agreement”) with Celgene Corporation (“Celgene”) to discover, develop and commercialize potentially disease-altering gene therapies in oncology. The collaboration is focused on applying gene therapy technology to genetically modify a patient’s own T cells, known as chimeric antigen receptor, or CAR T cells, to target and destroy cancer cells. Additionally, on March 19, 2013, the Company entered into a Platform Technology Sublicense Agreement (the “Sublicense Agreement”) with Celgene pursuant to which the Company obtained a sublicense to certain intellectual property from Celgene, originating under Celgene’s license from Baylor College of Medicine, for use in the collaboration.

Under the terms of the Collaboration Agreement, the Company received a $75.0 million up-front, non-refundable cash payment. The Company was responsible for conducting discovery, research and development activities through completion of Phase I clinical studies, if any, during the initial term of the Collaboration Agreement, or three years. The collaboration is governed by a joint steering committee (“JSC”) formed by an equal number of representatives from the Company and Celgene. The JSC, among other activities, reviews the collaboration program, reviews and evaluates product candidates and approves regulatory plans. In addition to the JSC,

11


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

the Collaboration Agreement provides that the Company and Celgene each appoint representatives to a patent committee, which is responsible for managing the intellectual property developed and used during the collaboration.

Amended Collaboration Agreement

On June 3, 2015, the Company and Celgene amended and restated the Collaboration Agreement (the “Amended Collaboration Agreement”).  Under the Amended Collaboration Agreement, the parties will now focus the collaboration exclusively on anti- B-cell maturation antigen (“BCMA”) product candidates for a new three-year term. In connection with the Amended Collaboration Agreement, the Company received an upfront, one-time, non-refundable, non-creditable payment of $25.0 million to fund research and development under the collaboration. The collaboration will continue to be governed by the JSC. 

Under the terms of the Amended Collaboration Agreement, for up to two product candidates selected for development under the collaboration, the Company is responsible for conducting and funding all research and development activities performed up through completion of the initial Phase I clinical study, if any, of such product candidate.

On a product candidate-by-product candidate basis, up through a specified period following enrollment of the first patient in an initial Phase I clinical study for such product candidate (the “Option Period”), the Company has granted Celgene an option to obtain an exclusive worldwide license to develop and commercialize such product candidate pursuant to a written agreement, the form of which the Company has already agreed upon, provided that, if Celgene does not exercise its option with respect to the first product candidate under the Amended Collaboration Agreement prior to the expiration of the applicable Option Period then it will not be permitted to exercise its option with respect to any future product candidates under the Amended Collaboration Agreement.  In the event that Celgene exercises its option with respect to any product candidate, the Company may elect to co-develop and co-promote the product candidate in the United States, provided that, if the Company does not exercise its option co-develop and co-promote the first product candidate in-licensed by Celgene under the Amended Collaboration Agreement, then the Company will not be permitted to exercise its option to co-develop and co-promote any future product candidates under the Amended Collaboration Agreement.

If Celgene elects to exercise its option to exclusively in-license a product candidate, it must pay the Company an option fee in the amount of $10.0 million for the first product candidate and $15.0 million for any additional product candidates, plus an additional fee in the amount of $10.0 million in the event the Company does not exercise its option to co-develop and co-promote that product candidate in the United States. In addition to the applicable option fee, for each product candidate that is in-licensed by Celgene, and for which the Company does not exercise its option to co-develop and co-promote in the United States, the Company will be eligible to receive up to $10.0 million in clinical milestone payments, up to $117.0 million in regulatory milestone payments and up to $78.0 million in commercial milestone payments. The Company will also be eligible to receive a percentage of net sales as a royalty in a range from the mid-single digits to low-teens. The royalties payable to the Company are subject to certain reductions, including for any royalty payments required to be made by Celgene to acquire patent rights, with an aggregate minimum floor.  Celgene will assume certain development obligations and must report on its progress in achieving these milestones on a quarterly basis.

If the Company elects to co-develop and co-promote a product candidate licensed by Celgene, then the Company and Celgene would share equally in all costs incurred relating to the development, commercialization and manufacturing of the product candidate within the United States and share equally in the profits generated by such product candidate in the United States. Additionally, if the Company elects to co-develop and co-promote a product candidate, then the milestones and royalties would decrease compared to those described above. Under this scenario, the Company would receive, per product, up to $10.0 million in clinical milestone payments and, outside of the United States, up to $54.0 million in regulatory milestone payments and up to $36.0 million in commercial milestone payments. In addition, to the extent any of the product candidates licensed by Celgene and co-developed and co-promoted by the Company are commercialized, the Company would be entitled to receive tiered royalty payments ranging from the mid-single digits to low-teens based on a percentage of net sales from sales generated outside of the United States. The royalties payable to the Company are subject to certain reductions, including for any royalty payments required to be made by Celgene to acquire patent rights, with an aggregate minimum floor. The co-development and co-promotion agreement would be governed by a joint governance committee, or JGC, formed by representatives from the Company and Celgene. The JGC will, among other activities, supervise the overall performance of the development and commercialization of elected product candidates and licensed products for United States administration.

Celgene is solely responsible for the manufacture and supply of drug product for any optioned product candidate.  Under the Amended Collaboration Agreement, subject to customary “back-up” supply rights granted to Celgene, the Company has the sole right to manufacture or have manufactured supplies of vectors and associated payloads manufactured for incorporation into the optioned

12


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

product candidate.  Celgene would reimburse the Company for its costs to manufacture and supply such vectors and associated payloads, plus a mid-single digit mark-up.  

If Celgene does not exercise its option with respect to any product candidate prior to expiration of the applicable option period, then the Company has the right to develop that product candidate outside the scope of the Amended Collaboration Agreement.

Either party may terminate the Amended Collaboration Agreement upon written notice to the other party in the event of the other party’s uncured material breach. Celgene may terminate the Amended Collaboration Agreement for any reason upon prior written notice to the Company. If the agreement is terminated, rights to product candidates in development at the time of such termination will be allocated to the parties through a mechanism included in the agreement. In addition, if Celgene terminates the agreement for the Company’s breach, any then-existing co-development and co-promotion agreement will be automatically terminated and replaced with a license agreement for such product candidate and any amounts payable by Celgene under any then-existing product license agreements will be reduced.  

Under the Amended Collaboration Agreement, the so-called “call option” under the prior collaboration agreement, pursuant to which Celgene had the option to terminate the collaboration agreement and obtain fully paid-up licenses to product candidates in the event of a change of control transaction involving the Company, has been eliminated.

Under the Sublicense Agreement, the Company will continue to have access to certain intellectual property rights in-licensed to Celgene pursuant to its collaboration agreement with the Baylor College of Medicine, which was first established in connection with the initiation of the original Collaboration Agreement between the Company and Celgene.

Accounting Analysis

The Company’s Amended Collaboration Agreement with Celgene contains the following deliverables: (i) research and development services, (ii) participation on the JSC, (iii) participation on the patent committee, (iv) a license to the first product candidate, (v) manufacture of vectors and associated payload for incorporation into the first optioned product candidate under the license, and (vi) participation on the JGC under the co-development and co-promotion agreement for the first optioned product candidate under the license.

The license to the first product candidate is considered a deliverable at the inception of the arrangement and therefore the associated option fee is included in allocable arrangement consideration. The Company believes there is minimal risk with regard to whether Celgene will exercise the option based on the successful completion of preclinical activities and proximity of enrollment of the first patient in an initial Phase I clinical study for this product candidate. Further, Celgene loses the right to option any other product candidates if it does not agree to license the first product candidate. The Company has determined that the obligation within the license to manufacture or have manufactured supplies of vectors and associated payloads for incorporation into the first optioned product candidate is a deliverable, consistent with the option to license the first product candidate.

However, the Company has determined that the options to license any additional product candidates are substantive options and therefore are not considered deliverables at execution of the Amended Collaboration Agreement. Celgene is not contractually obligated to exercise the options. Additionally, as a result of the uncertain outcome of the discovery, research and development activities, the Company is at risk with regard to whether Celgene will exercise the options to license additional product candidates. Moreover, the Company has determined that the options are not priced at a significant and incremental discount. Accordingly, the options to other product candidates are not considered deliverables at the inception of the arrangement and the associated option fees are not included in allocable arrangement consideration.

The Company concluded that each of the three delivered elements at the inception of the agreement (research and development services, participation on the JSC and participation on the patent committee) has standalone value from the other undelivered elements. Additionally, the Amended Collaboration Agreement does not include return rights related to the collaboration term. Accordingly, each deliverable qualifies as a separate unit of accounting.

The Company determined that each of the identified deliverables have the same period of performance (the three year term through projected initial Phase I study completion) and have the same pattern of revenue recognition, ratably over the period of performance as there is no other discernible pattern of recognition. The Company identified the allocable arrangement consideration as the $25.0 million up-front research and development funding payment, $10.0 million option fee for the first product candidate, $20.0

13


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

million related to remaining deferred revenue from the original Collaboration Agreement, and $54.1 million of contingent revenue related to the estimated amounts that will be received from Celgene for manufacturing services. The $109.0 million total allocable arrangement consideration was allocated based on the relative estimated selling price of the separate units of accounting at the inception of the amended agreement, resulting in $17.3 million allocated to the three delivered elements at the inception of the agreement, which will be recognized over an initial three year term. This initial term will be revisited as the development plan timing changes or as a result of other events that impact the period over which the Company’s obligations relate.

The Company evaluated all of the milestones that may be received in connection with Celgene’s option to license a product candidate resulting from the collaboration. In evaluating if a milestone is substantive, the Company assesses whether: (i) the consideration is commensurate with either the Company’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the Company’s performance to achieve the milestone, (ii) the consideration relates solely to past performance and (iii) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. All clinical and regulatory milestones that may be received under the option to the license agreement are considered substantive on the basis of the contingent nature of the milestone, specifically reviewing factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the milestone as well as the level of effort and investment required. Accordingly, such amounts will be recognized as revenue in full in the period in which the associated milestone is achieved, assuming all other revenue recognition criteria are met. All commercial milestones will be accounted for in the same manner as royalties and recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.

During the nine months ended September 30, 2015 and 2014 the Company recognized $12.6 million and $18.7 million, respectively, of revenue associated with its collaboration with Celgene related to the recognition of discovery, research and development services. As of September 30, 2015 and December 31, 2014, there was $43.3 million and $30.7 million, respectively, of total deferred revenue related to the Company’s collaboration with Celgene, which is classified as current or non-current in the condensed consolidated balance sheets, $15.6 million of which is currently expected to be recognized through the first half of 2018 with the remaining amount deferred until a later date.

 

 

9. Stock-based compensation and warrants

In January 2015, the number of shares of common stock available for issuance under the 2013 Stock Option and Incentive Plan (“2013 Plan”) was increased by approximately 1.3 million shares as a result of the automatic increase provision of the 2013 Plan. As of September 30, 2015, the total number of shares of common stock available for issuance under the 2013 Plan was approximately 0.6 million.

Stock-based compensation expense

Stock-based compensation expense by award type was as follows (in thousands):

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

Stock options

$

8,407

 

 

$

2,303

 

 

$

28,472

 

 

$

7,115

 

Restricted stock awards

 

 

 

 

16

 

 

 

 

 

 

47

 

Restricted stock units

 

1,056

 

 

 

567

 

 

 

2,341

 

 

 

567

 

Employee stock purchase plan

 

66

 

 

 

28

 

 

 

198

 

 

 

28

 

 

$

9,529

 

 

$

2,914

 

 

$

31,011

 

 

$

7,757

 

 

As of September 30, 2015, the Company had $97.1 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to unvested stock options, restricted stock units, and the employee stock purchase plan that is expected to be recognized over a weighted-average period of 3.0 years.

On January 29, 2015, the Company entered into a Transitional Services and Separation Agreement with its Chief Scientific Officer, ending his employment with the Company effective July 6, 2015. Subsequent to this separation date, he is serving as a member of the Company’s Scientific Advisory Board. Under the terms of the agreement, outstanding options held by the Chief

14


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Scientific Officer were modified. The incremental value of the modification was estimated to be $3.0 million using a Black-Scholes option valuation model, which is being recognized within research and development expense on a straight-line basis through the date of separation. As a result of the modification, the Company recognized $0.2 million and $3.0 million of stock-based compensation expense during the three and nine months ended September 30, 2015, respectively.

On April 10, 2015, the Company modified the vesting conditions of a stock option award held by a non-employee founder, which resulted in $6.7 million of stock-based compensation expense recognized to research and development expense during the second quarter of 2015.

Stock options

The following table summarizes the stock option activity under the Company’s equity award plans (shares in thousands):

 

 

Shares

 

 

Weighted-average

exercise price

per share

 

Outstanding at December 31, 2014

 

3,652

 

 

$

12.30

 

Granted

 

1,188

 

 

$

115.69

 

Exercised

 

(1,124

)

 

$

7.58

 

Canceled or forfeited

 

(55

)

 

$

43.05

 

Outstanding at September 30, 2015

 

3,661

 

 

$

46.83

 

Exercisable at September 30, 2015

 

1,090

 

 

$

9.47

 

Vested and expected to vest at September 30, 2015

 

3,552

 

 

$

37.87

 

 

Options exercisable for approximately 1.1 million shares of common stock were exercised during the nine months ended September 30, 2015, resulting in total proceeds to the Company of $8.5 million. In accordance with the Company’s equity award plans, the shares were issued from a pool of shares reserved for issuance under the equity award plans.

 

Restricted stock units

The following table summarizes the restricted stock unit activity under the Company’s equity award plans (shares in thousands):

 

 

Shares

 

 

Weighted-average

grant date

fair value

 

Unvested balance at December 31, 2014

 

179

 

 

$

30.47

 

Granted

 

37

 

 

$

165.62

 

Vested

 

(62

)

 

$

30.47

 

Forfeited

 

(5

)

 

$

30.47

 

Unvested balance at September 30, 2015

 

149

 

 

$

64.11

 

 

Employee stock purchase plan

The Company’s 2013 Employee Stock Purchase Plan (“2013 ESPP”) authorizes the initial issuance of up to a total of 238,000 shares of the Company’s common stock to participating employees. The first offering period under the 2013 ESPP closed on January 31, 2015, resulting in the purchase of 6,780 shares of common stock. The second offering period under the 2013 ESPP closed on July 31, 2015, resulting in the purchase of 3,765 shares of common stock.  

Warrants

As of September 30, 2015 and December 31, 2014, the Company had no and 0.2 million warrants outstanding to purchase common stock. During the three and nine months ended September 30, 2015, there were 0.2 million warrants exercised and no cancellations or expirations.

15


bluebird bio, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

10. Income taxes

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has recorded a full valuation allowance against the Company’s otherwise recognizable net deferred tax assets. The Company has allocated its valuation allowance in accordance with the provisions of ASC 740, Income Taxes, which resulted in a current deferred tax asset of $0.7 million and a non-current deferred tax liability of $0.7 million as of September 30, 2015.

 

 

11. Net loss per share

The following common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect (in thousands):

 

 

September 30,

 

 

 

2015

 

 

 

2014

 

Warrants

 

 

 

 

338

 

Outstanding stock options

 

3,661

 

 

 

4,042

 

Unvested restricted stock

 

 

 

 

7

 

Restricted stock units

 

149

 

 

 

184

 

ESPP shares

 

3

 

 

 

2

 

Acquisition holdback

 

94

 

 

 

94

 

 

 

3,907

 

 

 

4,667

 

 

 

 

 

16


 

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

The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or the SEC, on February 25, 2015.

Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. 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. In this Quarterly Report on Form 10-Q, words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.

Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We are a clinical-stage biotechnology company committed to developing potentially transformative gene therapies for severe genetic and rare diseases and in the field of T cell-based immunotherapy.  With our lentiviral-based gene therapy and gene editing capabilities, we have built an integrated product platform with broad potential application in these areas. We believe that gene therapy for severe genetic diseases has the potential to change the way these patients are treated by correcting the underlying genetic defect that is the cause of their disease, rather than offering treatments that only address their symptoms. We and our scientific collaborators have generated what we believe is human proof-of-concept data for our gene therapy platform in three underserved diseases.

We are conducting a Phase II/III clinical study, called the Starbeam Study, of our most advanced product candidate, Lenti-D, to evaluate its safety and efficacy in subjects with childhood cerebral adrenoleukodystrophy, or CCALD, a rare, hereditary neurological disorder affecting young boys that is often fatal. In October 2013, we announced that the first subject had been treated in this study and in May 2015 we announced the achievement of enrollment of 18 subjects in this study. We are also conducting an observational study of subjects with CCALD treated by allogeneic hematopoietic stem-cell transplant referred to as the ALD-103 study. Lenti-D has been granted Orphan Drug status by the U.S. Food and Drug Administration, or FDA, and the European Medicines Agency, or EMA, for the treatment of adrenoleukodystrophy.  

We are also conducting two Phase I/II clinical studies in the United States, Australia, and Thailand and in France, called the Northstar (HGB-204) and HGB-205 studies, respectively, of our product candidate, LentiGlobin, to evaluate its safety and efficacy in subjects with beta-thalassemia major and sickle cell disease, or SCD, which are rare, hereditary blood disorders that often lead to severe anemia and shortened lifespans. We have initiated a Phase I clinical study in the United States, called the HGB-206 Study, to evaluate the safety and efficacy of LentiGlobin in subjects with severe SCD.  In June 2015, we announced that the first patient with severe SCD had been infused in the HGB-206 Study and we are planning to increase the number of subjects to be enrolled in the HGB-206 study from eight to twenty subjects. LentiGlobin has been granted Orphan Drug status by the FDA and EMA for both beta-thalassemia and severe SCD. LentiGlobin was granted Fast-Track designation by the FDA for the treatment of beta-thalassemia major in January 2013 and for the treatment of certain patients with severe SCD in May 2014. In January 2015, the FDA granted Breakthrough Therapy designation to LentiGlobin for the treatment of transfusion dependent patients with beta-thalassemia.

17


 

We have announced clinical data from our ongoing clinical studies of LentiGlobin in subjects with beta-thalassemia major and SCD. These data are summarized below.

 

·

In December 2014, at the annual meeting of the American Society of Hematology (ASH), we announced data from the first eight subjects treated with LentiGlobin in these studies. As of December 2014, in the first four subjects, each of whom had at least three months of follow-up, treatment with LentiGlobin resulted in sufficient hemoglobin production to reduce or eliminate the need for transfusion support among patients with beta-thalassemia major who would otherwise require chronic blood transfusions. These data included the first five subjects treated in the Northstar study and the first three subjects (two with beta-thalassemia major and one with severe SCD) from the HGB-205 study.

 

·

In June 2015, at the 20th Congress of the European Hematology Association, we announced long-term follow up of two subjects with beta-thalassemia major and early safety and efficacy data in the first subject with severe SCD treated with LentiGlobin in the HGB-205 study. As of May 2015, the two patients with beta-thalassemia major remained transfusion-independent for 16 and 14 months, respectively, and neither experienced a LentiGlobin-related adverse event. As of May 2015, the proportion of anti-sickling hemoglobin being produced by the first-ever subject with severe SCD treated with gene therapy has risen steadily and accounted for 45% of all hemoglobin production at the patient’s six-month visit post-drug product infusion; this is above the 30% threshold expected to potentially achieve a disease-modifying clinical effect. Further, as of May 2015, the patient with severe SCD had been free of transfusions for more than three months without complications or hospitalizations for SCD-related events post-transplant, and has demonstrated improvement in hemolysis markers.

In November 2015, we announced that three abstracts related to our ongoing clinical studies of LentiGlobin have been accepted for presentation at the ASH annual meeting to be held in December 2015.  As of the July 31, 2015 data cutoff for these abstracts:

 

·

With respect to the Northstar study, for the seven subjects that have been monitored for at least 6 months post-infusion, three of the β0/β0 genotype and four of the non- β0/β0 genotype, the median level of HbAT87Q expression among these seven subjects was 5.2 g/dL, a range of 1.9 to 8.2 g/dL, with total hemoglobin ranging from 8.5 to 11.1 g/dL at last visit. All four non-β0/β0 subjects had been transfusion-free for at least 90 days, with a median of 287 days transfusion-free (range: 171 to 396 days).  Two of the β0/β0 subjects received a single transfusion post-discharge, and one remained transfusion-dependent.

 

 

·

With respect to the HGB-205 study, the patient with severe SCD was producing approximately 51.5% anti-sickling hemoglobin (48 percent HbAT87Q, 1.8 percent HbF, 1.7 percent HbA2) at nine months post-infusion and remained free of transfusions.  The patient with severe SCD had not had a post-treatment hospitalization for a disease-related event despite ceasing chronic transfusions on Day 88.  Both patients in the study with beta-thalassemia major have remained transfusion-free for at least 15 months post-infusion, with consistent expression of HbAT87Q – both subjects are the β0/ βE genotype.

 

 

·

With respect to the HGB-206 study, LentiGlobin drug product had been manufactured for two patients with severe SCD and one subject had been infused.

We currently plan to initiate two new clinical trials of LentiGlobin, called HGB-207, for adult and adolescent patients with beta-thalassemia major, and HGB-208, for pediatric patients with beta-thalassemia major. Each of these trials, once initiated, are currently expected to enroll approximately 15 patients to be evaluated for 24 months following treatment, and we expect that the primary endpoint of these trials will be 12 months of transfusion independence following treatment.

In May 2015, we announced that we believe we have reached general agreement with regulatory authorities in Europe and the United States regarding our development plans for LentiGlobin, which could potentially result in accelerated approvals in these jurisdictions. These discussions are summarized below.

 

·

In Europe, we are participating in the Adaptive Pathways (formerly referred to as Adaptive Licensing) pilot program of the European Medicines Agency, or EMA. Based on our discussions with EMA, we believe it is possible to seek conditional approval of LentiGlobin for the treatment of adults and adolescents with beta-thalassemia major on the basis of the totality of clinical data, in particular reduction in transfusion need, from the ongoing Northstar study and supportive HGB-205 study. We believe that conversion to full approval will be subject to the successful completion of the HGB-207 and HGB-208 clinical trials, and collection of supportive long-term follow-up data and “real-life” post-approval data.

 

·

In the United States, we believe we have reached general agreement with the U.S. Food and Drug Administration, or FDA, on the major elements of our planned HGB-207 and HGB-208 clinical trials. Based on our discussions with the FDA, we believe that the data from these trials, together with data from our ongoing beta-thalassemia major clinical studies (Northstar and HGB-205), could form the basis for a Biologics License Application, or BLA, submission for LentiGlobin for the treatment of beta-thalassemia major.

18


 

In March 2013, we entered into a global strategic collaboration with Celgene Corporation, or Celgene, to discover, develop and commercialize chimeric antigen receptor-modified T cells, or CAR T cells, as potentially disease-altering therapies in oncology. This collaboration had an initial term of three years, and Celgene made a $75.0 million up-front, non-refundable cash payment to us as consideration for entering into the collaboration. In June 2015, we amended and restated the collaboration agreement, or the Amended Collaboration Agreement, to focus exclusively on anti-BCMA product candidates for a new three-year term.  B-cell maturation antigen, or BCMA, is a cell surface protein that is expressed in normal plasma cells and in most multiple myeloma cells, but is absent from other normal tissues. As consideration for the Amended Collaboration Agreement, we received an upfront, non-refundable cash payment of $25.0 million to fund research and development under the collaboration.  During the three and nine months ended September 30, 2015, we recognized $1.3 million and $12.6 million, respectively, of revenue associated with our collaboration with Celgene related to the research and development services performed. As of September 30, 2015, we have classified $43.3 million of deferred revenue related to our collaboration with Celgene in the accompanying balance sheets. We expect the first anti-BCMA product candidate from this collaboration, bb2121, to enter clinical trials in early 2016.

In June 2014, we acquired Precision Genome Engineering, Inc., or Pregenen, a privately-held biotechnology company headquartered in Seattle, Washington. Through the acquisition, we obtained rights to Pregenen’s gene editing and cell signaling technology. The agreement provided for up to $135.0 million in future contingent cash payments by us upon the achievement of certain preclinical, clinical and commercial milestones related to the Pregenen technology, of which $15.0 million relates to preclinical milestones, $20.1 million relates to clinical milestones and $99.9 million relates to commercial milestones. During the second quarter of 2015, a $1.0 million milestone was achieved, which resulted in a $1.0 million payment to the former equityholders of Pregenen during the third quarter of 2015. We estimate future contingent cash payments have a fair value of $8.3 million as of September 30, 2015, $3.5 million of which is classified as a current liability.

As of September 30, 2015, we had cash, cash equivalents and marketable securities of approximately $901.7 million. We expect that our existing cash, cash equivalents and marketable securities will be sufficient to fund our current operations through 2018.

Since our inception in 1992, we have devoted substantially all of our resources to our development efforts relating to our product candidates, including activities to manufacture product in compliance with good manufacturing practices, or GMP, to conduct clinical studies of our product candidates, to provide general and administrative support for these operations and to protect our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through the sale of common stock in our public offerings, private placements of preferred stock and warrants and through collaborations.

We have never been profitable and have incurred net losses in each year since inception. Our net losses were $119.5 million for the nine months ended September 30, 2015 and our accumulated deficit was $266.9 million as of September 30, 2015. Substantially all our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect our expenses will increase substantially in connection with our ongoing and planned activities, as we:

 

·

conduct clinical studies for our Lenti-D and LentiGlobin product candidates;

 

·

increase research and development-related activities for the discovery and development of oncology product candidates, including bb2121;

 

·

continue our research and development efforts;

 

·

manufacture clinical study materials and develop large-scale manufacturing capabilities;

 

·

seek regulatory approval for our product candidates; and

 

·

add personnel to support our product development and commercialization efforts.

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. We have no commercial-scale manufacturing facilities, and all of our manufacturing activities are contracted out to third parties. Additionally, we currently utilize third-party contract research organizations, or CROs, to carry out our clinical development activities; and we do not yet have a sales and marketing organization. If we seek to obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses as we prepare for product sales, marketing, manufacturing, and distribution. Accordingly, we will seek to fund our operations through public or private equity or debt financings, strategic collaborations, or other sources. However, we may be unable to raise additional funds or enter into such other arrangements

19


 

when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our products.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenues from the sale of our products, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.

 

Financial operations overview

Revenue

To date, we have not generated any revenues from the sale of products. Our revenues have been derived from collaboration arrangements, research fees, license fees and grant revenues.

Collaboration revenue is generated exclusively from our collaboration arrangement with Celgene. The terms of this arrangement contain multiple deliverables, which include: (i) research and development services, (ii) participation on the joint steering committee (iii) participation on the patent committee, (iv) a license to the first product candidate, (v) manufacture of vectors and associated payload for incorporation into the first optioned product candidate under the license, and (vi) participation on the joint governance committee under the co-development and co-promotion agreement for the first optioned product candidate under the license. We recognize arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or ASC 605, are satisfied for that particular unit of accounting. We expect that $17.3 million of revenue from the Celgene arrangement associated with research and development services, joint steering committee services and patent committee services will be recognized ratably over the associated period of performance, which was initially estimated to be three years from the date of the agreement in June 2015.

Research and license fee revenue is primarily generated through license and research and development agreements with strategic partners and nonprofit organizations for the development and commercialization of our product candidates. There are no performance, cancellation, termination, or refund provisions in any of our arrangements that contain material financial consequences to us.

Nonrefundable license fees are recognized as revenue upon delivery provided there are no undelivered elements in the arrangement. Research fees are recognized as revenue over the period we perform the associated services or on a straight-line basis if the pattern of performance cannot be estimated.

Research and development expenses

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

 

·

employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;

 

·

expenses incurred under agreements with CROs and clinical sites that conduct our clinical studies;

 

·

costs of acquiring, developing, and manufacturing clinical study materials;

 

·

facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies;

 

·

costs associated with our research platform and preclinical activities;

 

·

costs associated with in-licensing other product candidates or technologies for use in preclinical and clinical activities;

 

·

costs associated with our regulatory, quality assurance and quality control operations; and

 

·

amortization of intangible assets.

Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites. We cannot determine with certainty the duration and completion costs of the current or future clinical studies of our product candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

20


 

The duration, costs, and timing of clinical studies and development of our product candidates will depend on a variety of factors, including:

 

·

the scope, rate of progress, and expense of our ongoing as well as any additional clinical studies and other research and development activities we undertake;

 

·

future clinical study results;

 

·

uncertainties in clinical study enrollment rates;

 

·

changing standards for regulatory approval; and

 

·

the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, or another regulatory authority were to require us to conduct clinical studies beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any of our clinical studies, we could be required to expend significant additional financial resources and time on the completion of clinical development for our product candidates.

We plan to increase our research and development expenses for the foreseeable future as we continue to advance the clinical development of our Lenti-D and LentiGlobin product candidates, conduct research and development activities in the field of oncology and continue the research and development of product candidates using our gene editing technology platform. Our research and development activities include the following:

 

·

We are conducting a Phase II/III clinical study to examine the safety and efficacy of our Lenti-D product candidate in the treatment of CCALD. In October 2013, we announced that the first subject had been treated in this study and in May 2015 we announced the achievement of enrollment of 18 subjects in this study. We are also conducting an observational study of subjects with CCALD treated by allogeneic hematopoietic stem-cell transplant.

 

·

We are conducting a Phase I/II clinical study in the United States, Australia and Thailand to study the safety and efficacy of our LentiGlobin product candidate in the treatment of subjects with beta-thalassemia major. In March 2014, we announced that the first subject had been treated in this study. We recently amended the protocol for this study to expand enrollment to include up to three adolescent patients.

 

·

We are conducting a Phase I/II clinical study in France to study the safety and efficacy of our LentiGlobin product candidate in the treatment of subjects with beta-thalassemia major and severe SCD. In December 2013, we announced that the first subject beta-thalassemia major had been treated in this study and in October 2014, we announced that the first subject with SCD had been treated in this study.

 

·

We have initiated a Phase I clinical study in the United States to study the safety and efficacy of our LentiGlobin product candidate in the treatment of subjects with severe SCD. In June 2015, we announced that the first patient with severe SCD had been infused in the HGB-206 Study and we are planning to increase the number of subjects to be enrolled in the HGB-206 study from eight to twenty subjects.

 

·

We are conducting research and development activities in the field of oncology and expect the first product candidate from our collaboration with Celgene, bb2121 to treat multiple myeloma, to enter clinical trials in early 2016.

 

·

We are planning to initiate two new clinical trials of LentiGlobin, called HGB-207, for adult and adolescent patients with beta-thalassemia major, and HGB-208, for pediatric patients with beta-thalassemia major.

 

·

We will continue to manufacture clinical study materials in support of our clinical studies.

21


 

Our direct research and development expenses consist principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical studies, costs to in-license product candidates and new technologies, and costs related to acquiring and manufacturing clinical study materials. We allocate salary and benefit costs directly related to specific programs. We do not allocate personnel-related discretionary bonus or stock-based compensation costs, costs associated with our general discovery platform improvements, depreciation or other indirect costs that are deployed across multiple projects under development and, as such, the costs are separately classified as personnel and other expenses in the table below:

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2015

 

 

 

2014

 

 

 

2015

 

 

 

2014

 

 

(in thousands)

 

 

(in thousands)

 

Lenti-D

$

2,837

 

 

$

2,762

 

 

$

10,729

 

 

$

7,804

 

LentiGlobin

 

10,937

 

 

 

5,789

 

 

 

25,070

 

 

 

15,927

 

Pre-clinical programs

 

3,680

 

 

 

1,467

 

 

 

11,596

 

 

 

3,723

 

Total direct research and development expense

 

17,454

 

 

 

10,018

 

 

 

47,395

 

 

 

27,454

 

Employee- and contractor-related expenses

 

3,568

 

 

 

2,097

 

 

 

9,029

 

 

 

4,329

 

Stock-based compensation expense

 

4,426

 

 

 

1,477

 

 

 

19,726

 

 

 

3,602

 

Platform-related expenses

 

2,985

 

 

 

522

 

 

 

17,047

 

 

 

1,038

 

Facility expenses

 

1,724

 

 

 

1,206

 

 

 

4,710

 

 

 

3,735

 

Other expenses

 

238

 

 

 

1,329

 

 

 

473

 

 

 

1,885

 

Unallocated personnel and other expenses

 

12,941

 

 

 

6,631

 

 

 

50,985

 

 

 

14,589

 

Total research and development expense

$

30,395

 

 

$

16,649

 

 

$

98,380

 

 

$

42,043

 

 

General and administrative expenses

General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance, legal, business development, commercial and human resource functions. Other general and administrative expenses include facility-related costs, professional fees for accounting and legal services, directors’ fees and expenses associated with obtaining and maintaining patents.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. Additionally, if and when we believe a regulatory approval of the first product candidate appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Other income, net

Other income, net consists primarily of interest income earned on investments, foreign currency gain or loss and tax incentives from the Massachusetts Life Sciences Center.

Critical accounting policies and estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued research and development expenses, revenue, construction financing lease obligations, stock-based compensation, income taxes, contingent consideration and fair value estimates used to assess potential impairment of long-lived assets. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies. Beginning in the third quarter of 2015, we record certain estimated construction costs incurred and reported to us by a landlord as an asset and corresponding construction financing lease obligation on our condensed consolidated balance sheets. During the nine months ended September 30, 2015, there were no other material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on February 25, 2015.

 

22


 

Results of Operations

Comparison of the three months ended September 30, 2015 and 2014:

 

 

Three months ended September 30,

 

 

 

 

 

 

 

2015

 

 

 

2014

 

 

Change

 

 

(in thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

$

1,324

 

 

$

6,250

 

 

$

(4,926

)

Research and license fees

 

 

 

 

115

 

 

 

(115

)

Total revenue

 

1,324

 

 

 

6,365

 

 

 

(5,041

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

30,395

 

 

 

16,649

 

 

 

13,746

 

General and administrative

 

13,704

 

 

 

6,648

 

 

 

7,056

 

Change in fair value of contingent consideration

 

352

 

 

 

78

 

 

 

274

 

Total operating expenses

 

44,451

 

 

 

23,375

 

 

 

21,076

 

Loss from operations

 

(43,127

)

 

 

(17,010

)

 

 

26,117

 

Other income (expense), net

 

263

 

 

 

(20

)

 

 

(283

)

Loss before income taxes

 

(42,864

)

 

 

(17,030

)

 

 

25,834

 

Income tax expense

 

(60

)

 

 

 

 

 

60

 

Net loss

$

(42,924

)

 

$

(17,030

)

 

$

25,894

 

 

Revenue. Total revenue was $1.3 million for the three months ended September 30, 2015 compared to $6.4 million for the three months ended September 30, 2014. The decrease of $5.1 million was primarily attributable to a reduction in collaboration revenue as a result of the amendment to our collaboration agreement with Celgene in the second quarter of 2015.

Research and development expenses. Research and development expenses were $30.4 million for the three months ended September 30, 2015, compared to $16.6 million for the three months ended September 30, 2014. The increase of $13.7 million was primarily attributable to the following:

 

·

$6.6 million of increased employee compensation and benefit expense, $2.9 million of which related to stock-based compensation expense and $1.9 million of which related to increased payroll expense.

 

·

$1.4 million of increased manufacturing related costs, $1.2 million of increased lab expenses, and $1.0 million of increased clinical trial related costs necessary to support the advancement of our clinical and pre-clinical programs.

General and administrative expenses. General and administrative expenses were $13.7 million for the three months ended September 30, 2015, compared to $6.6 million for the three months ended September 30, 2014. The increase of $7.1 million was primarily attributable to $5.7 million of increased employee compensation and benefit expense to support our overall growth, of which $3.7 million was stock-based compensation expense.

 

Change in fair value of contingent consideration. The change in fair value of contingent consideration of $0.3 million was primarily related to an increase in the probability of successful achievement of milestones expected to be achieved within the next twelve months.

23


 

Comparison of the nine months ended September 30, 2015 and 2014

 

 

Nine months ended September 30,

 

 

 

 

 

 

 

2015

 

 

 

2014

 

 

Change

 

 

(in thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

Collaboration revenue

$

12,607

 

 

$

18,750

 

 

$

(6,143

)

Research and license fees

 

 

 

 

285

 

 

 

(285

)

Total revenue

 

12,607

 

 

 

19,035

 

 

 

(6,428

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

98,380

 

 

 

42,043

 

 

 

56,337

 

General and administrative

 

31,765

 

 

 

17,924

 

 

 

13,841

 

Change in fair value of contingent consideration

 

2,540

 

 

 

78

 

 

 

2,462

 

Total operating expenses

 

132,685

 

 

 

60,045

 

 

 

72,640

 

Loss from operations

 

(120,078

)

 

 

(41,010

)

 

 

79,068

 

Other income, net

 

630

 

 

 

48

 

 

 

(582

)

Loss before income taxes

 

(119,448

)

 

 

(40,962

)

 

 

78,486

 

Income tax (expense) benefit

 

(60

)

 

 

11,797

 

 

 

11,857

 

Net loss

$

(119,508

)

 

$

(29,165

)

 

$

90,343

 

 

Revenue. Total revenue was $12.6 million for the nine months ended September 30, 2015 compared to $19.0 million for the nine months ended September 30, 2014. The decrease of $6.4 million was primarily attributable to a reduction in collaboration revenue as a result of the amendment to our collaboration agreement with Celgene in the second quarter of 2015.  

Research and development expenses. Research and development expenses were $98.4 million for the nine months ended September 30, 2015 compared to $42.0 million for the nine months ended September 30, 2014. The increase of $56.3 million was primarily attributable to the following:

 

·

$16.1 million of increased stock-based compensation expense, $6.7 million of which related to the modification of a stock option award held by a non-employee founder and $3.0 million of which related to the modification of a stock option award held by our former Chief Scientific Officer, each of which were one-time charges.

 

·

$10.6 million of non-recurring in-license milestones and fees, of which $5.4 million related to an upfront payment for amending and restating an existing patent sublicense agreement; $3.3 million (€3.0 million) related to an upfront payment for amending an existing license agreement with Institut Pasteur; and $1.5 million related to an upfront payment for a new license and collaboration agreement with Five Prime Therapeutics, Inc.

 

·

$9.0 million of increased other employee compensation and benefit expense, $4.4 million of increased manufacturing related costs, $4.0 million of increased clinical trial related costs, and $3.4 million of increased lab expenses necessary to support the advancement of our clinical and pre-clinical programs.

General and administrative expenses. General and administrative expenses were $31.8 million for the nine months ended September 30, 2015 compared to $17.9 million for the nine months ended September 30, 2014. The increase of $13.9 million was primarily attributable to $10.4 million of increased employee and contractor related costs to support our overall growth, of which $7.1 million was stock-based compensation expense, and $1.0 million of increased consulting costs.    

 

Change in fair value of contingent consideration. The change in fair value of contingent consideration of $2.5 million was primarily related to an increase in the probability of successful achievement of milestones expected to be achieved within the next twelve months.

 

Income tax (expense) benefit. The change income tax (expense) benefit was primarily attributable to a non-recurring tax benefit recognized in 2014 as a result of the acquisition of Pregenen in the second quarter of 2014.

 

 

Liquidity and Capital Resources

As of September 30, 2015, we had cash, cash equivalents and marketable securities of approximately $901.7 million. We expect that our existing cash, cash equivalents and marketable securities will be sufficient to fund our current operations through 2018. Cash

24


 

in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. As of September 30, 2015, our funds are held in U.S. Treasuries, U.S. government agency securities, federally insured certificates of deposit and money market funds.

We have incurred losses and cumulative negative cash flows from operations since our inception in April 1992, and as of September 30, 2015 we had an accumulated deficit of $266.9 million. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through public or private equity or debt financings, strategic collaborations, or other sources.

We have funded our operations principally from the sale of common stock, preferred stock and through the Celgene collaboration. On June 24, 2013, we completed our initial public offering, or IPO, whereby we sold 6,832,352 shares of common stock at a price of $17.00 per share for aggregate net proceeds received by us of $104.9 million. On July 14, 2014, we sold 3,450,000 shares of common stock (inclusive of 450,000 shares of common stock sold by us pursuant to the full exercise of an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $34.00 per share for aggregate net proceeds to us of $109.8 million. On December 19, 2014, we sold 3,047,500 shares of common stock (inclusive of 397,500 shares of common stock sold by us pursuant to the full exercise of an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $85.00 per share for aggregate net proceeds to us of $243.3 million. On June 29, 2015, we sold 2,941,176 shares of common stock through an underwritten public offering at a price of $170.00 per share for aggregate net proceeds to us of $477.2 million.

Sources of Liquidity

Cash Flows

The following table sets forth the primary sources and uses of cash for each of the periods below:

 

 

Nine months ended September 30,

 

 

 

2015

 

 

 

2014

 

 

(in thousands)

 

Net cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

$

(65,344

)

 

$

(44,029

)

Investing activities

 

(350,694

)

 

 

(184,788

)

Financing activities

 

485,703

 

 

 

112,141

 

Net increase (decrease)  in cash and cash equivalents

$

69,665

 

 

$

(116,676

)

 

Cash Flows from Operating Activities. The $21.3 million increase in cash used in operating activities for the nine months ended September 30, 2015, compared to the nine months ended September 30, 2014, was primarily due to the increase in net loss during this period which was primarily attributable to increased stock-based compensation expense, in-license milestones and fees, and spending on our clinical and pre-clinical stage programs, partially offset by cash received in connection with the Amended Collaboration Agreement with Celgene.  Net loss was $119.5 million for the nine months ended September 30, 2015 compared to $29.2 million for the nine months ended September 30, 2014, an increase of $90.3 million.  

Cash Flows from Investing Activities. The net cash used in investing activities was $350.7 million for the nine months ended September 30, 2015 and was primarily due to our purchase of $470.5 million of marketable securities partially offset by proceeds from maturities of marketable securities of $132.2 million.  

Cash Flows from Financing Activities: The net cash provided by financing activities was $485.7 million for the nine months ended September 30, 2015 and was due to $477.2 million net proceeds from an offering of our common stock and $8.9 million of proceeds from the exercise of stock options and ESPP contributions, offset by payment of contingent purchase price consideration of $0.4 million.

25


 

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments at September 30, 2015:

 

 

Total

 

 

2015

 

 

2016

through

2017

 

 

2018

through

2019

 

 

After

2019

 

 

(in thousands)

 

150 Second Street Lease

$

25,777

 

 

$

791

 

 

$

6,619

 

 

$

7,023

 

 

$

11,344

 

60 Binney Street Lease

 

197,948

 

 

 

 

 

 

13,061

 

 

 

37,508

 

 

 

147,379

 

Other operating leases (1)

 

1,552

 

 

 

235

 

 

 

1,317

 

 

 

 

 

 

 

License costs (2)

 

4,408

 

 

 

121

 

 

 

1,670

 

 

 

1,745

 

 

 

872

 

Sponsored research agreements

 

2,809

 

 

 

357

 

 

 

2,020

 

 

 

432

 

 

 

 

Total

$

232,494

 

 

$

1,504

 

 

$

24,687

 

 

$

46,708

 

 

$

159,595

 

 

(1)

Includes costs of our 215 First Street, Cambridge, Massachusetts office lease and the lease for our lab and office space in Seattle, Washington.  

(2)

License costs include annual license maintenance fee payments. We have not included annual license maintenance fees or minimum royalty payments after December 31, 2019, as we cannot determine if they will occur.

We also have obligations to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones (such as the start of a clinical trial, filing of a BLA, approval by the FDA or product launch). We have not included these commitments on our balance sheet or in the table above because the achievement and timing of these milestones is not fixed and determinable. These commitments include:

 

·

In connection with the Pregenen acquisition, we agreed to make contingent cash payments to the former equityholders of Pregenen. In accordance with accounting for business combinations guidance, these contingent cash payments are recorded as contingent consideration liabilities on our consolidated balance sheets at fair value. During the second quarter of 2015, a $1.0 million milestone was achieved, which resulted in a $1.0 million payment to the former equityholders of Pregenen during the third quarter of 2015. The aggregate remaining undiscounted amount of contingent consideration potentially payable is $134.0 million.

 

·

Under a license agreement with Inserm-Transfert pursuant to which we license certain patents for use in human adrenoleukodystrophy therapy, we will be required to make payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. The maximum aggregate payments we may be obligated to pay for each of these milestone categories per product is €0.3, €0.2 and €1.6 million, respectively. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits. The royalty is subject to reduction for any third-party payments required to be made, with a minimum floor in the low single digits.

 

·

Under a license agreement with Institut Pasteur pursuant to which we license certain patents for use in ex vivo gene therapy, we will be required to make payments per product covered by the in-licensed intellectual property upon the achievement of development and regulatory milestones, depending on the indication and the method of treatment. The maximum aggregate payments we may be obligated to pay for each of these milestone categories per product is €1.5 and €2.0 million, respectively. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits, which varies slightly depending on the indication of the product. We have the right to sublicense our rights under this agreement, and we will be required to pay a percentage of such license income varying from the low single digits to mid-double digits depending on the nature of the sublicense and stage of development. Starting in 2016, we will be required to make an annual maintenance payment, which is creditable against royalty payments on a year-by-year basis. On April 1, 2015, we amended this license agreement with Institut Pasteur, which resulted in a payment of $3.3 million (€3.0 million) that was paid during the second quarter of 2015.  

 

·

Under a license agreement with the Board of Trustees of the Leland Stanford Junior University, or Stanford, pursuant to which we license the HEK293T cell line for use in gene therapy products, we are required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits that varies with net sales. The royalty is reduced for each third-party license that requires payments by us with respect to a licensed product, provided that the royalty to Stanford is not less than a specified percentage that is less than one percent. We are required to pay Stanford an annual maintenance fee based on net sales of licensed products, which is creditable against our royalty payments.

 

·

Under a license agreement with the Massachusetts Institute of Technology, or MIT, pursuant to which we license various patents, we will be required to make a payment of $0.1 million based upon a regulatory filing milestone. We will also be

26


 

 

required to pay a royalty on net sales of products covered by the in-licensed intellectual property by us or our sublicensees. The royalty is in the low single digits and is reduced for royalties payable to third parties, provided that the royalty to MIT is not less than a specified percentage that is less than one percent. We have the right to sublicense our rights under this agreement, and we will be required to pay a percentage of such license income varying from the mid-single digits to low double digits. We are required to pay MIT an annual maintenance fee based on net sales of licensed products, which is creditable against our royalty payments.  

 

·

Under a license agreement with Research Development Foundation pursuant to which we license patents that involve lentiviral vectors, we will be required to make payments of $1.0 million based upon a regulatory milestone for each product covered by the in-licensed intellectual property. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property in the low single digits, which is reduced by half if during the ten year following first marketing approval the last valid claim within the licensed patent that covers the licensed product expires or ends.

We enter into contracts in the normal course of business with CROs for preclinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments

On June 3, 2013, we entered into a nine-year building lease for approximately 43,600 square feet of space located at 150 Second Street, Cambridge, Massachusetts, commencing on the earlier of the substantial completion of our build-out work or January 1, 2014. This lease was amended in June 2014 to add an additional approximately 9,900 square feet. The lease originally had monthly lease payments of $0.2 million for the first 12 months, which increased to $0.3 million per month beginning in December 2014 due to the lease amendment, with annual rent escalations thereafter and provides a rent abatement of $0.2 million per month for the first six months. The total operating lease obligation of the noncancellable term of this agreement is $29.5 million. In addition, the lease provides a contribution from the landlord towards the initial build-out of the space of up to $7.8 million. We have the option to extend this lease by an additional five years. In accordance with the lease, we entered into a cash-collateralized irrevocable standby letter of credit in the amount of $1.3 million, naming the landlord as beneficiary. This letter of credit was reduced to $0.8 million during the second quarter of 2015, which was the first anniversary of the rent commencement date, and may be further reduced to $0.6 million upon the second anniversary of the rent commencement date.

On June 29, 2015, we entered into a lease agreement for additional office space located at 215 First Street, Cambridge, Massachusetts.  Under the terms of the lease, we leased approximately 15,120 square feet starting on July 13, 2015 for $483,840 per year in base rent, which is subject to a 3% annual rent increase plus certain operating expenses and taxes. The lease will continue until the end of the 60th full calendar month following the date the landlord delivers the premises to us, and includes early termination provisions that could allow us to terminate the lease at the end of the 20th full calendar month following the delivery of the premises if we meet certain conditions specified within the lease.  Under the terms of the lease, we will also lease an additional 8,075 square feet of office space in the same premises starting on January 1, 2016 for an additional $258,400 per year in base rent, which is subject to a 3% annual rent increase plus certain operating expenses and taxes.

On September 21, 2015, we entered into a lease agreement for additional office and laboratory space located in a building under construction at 60 Binney Street, Cambridge, Massachusetts.  Under the terms of the lease, starting on October 1, 2016, we will lease approximately 253,108 square feet at $72.50 per square foot per year, or $18.4 million per year in base rent, which is subject to scheduled annual rent increases of 1.75% plus certain operating expenses and taxes. We also executed a $9.2 million letter of credit upon signing the lease, which was required to be collateralized with a bank account at a financial institution in accordance with the lease agreement. The lease will continue until the end of the 120th full calendar month following April 2017 or the earlier the date we occupy the building or other conditions specified in the lease occur.  Pursuant to a work letter entered into in connection with the lease, the landlord will contribute an aggregate of $42.4 million toward the cost of construction and tenant improvements for the building. The purpose of the lease is to supplement and eventually replace our current leased premises at 150 Second Street and 215 First Street in Cambridge, Massachusetts and we intend to move our corporate headquarters to 60 Binney Street in mid-2017. We have the option to extend the lease for two successive five-year terms.

We also lease approximately 7,800 square feet of office and laboratory space in Seattle, Washington, which lease expires in December 2016.

 

Off-Balance Sheet Arrangements

As of September 30, 2015, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

 

 

27


 

Item 3. Quantitative and Qualitative Disclosures about Market Risks

We are exposed to market risk related to changes in interest rates. As of September 30, 2015 and December 31, 2014, we had cash, cash equivalents and marketable securities of $901.7 million and $492.0 million, respectively, primarily invested in U.S. government agency securities, federally insured certificates of deposit and money market mutual funds invested in U.S. Treasuries or U.S. government agency securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Our available for sale securities are subject to interest rate risk and will fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 100 basis points, or one percentage point, from levels at September 30, 2015, the net fair value of our interest-sensitive marketable securities would have resulted in a hypothetical decline of approximately $5.1 million.

 

Item 4. Controls and Procedures

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of September 30, 2015, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of September 30, 2015, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2015, there have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements, employment and other matters. While the outcome of these proceedings and claims cannot be predicted with certainty, as of September 30, 2015, we were not party to any legal or arbitration proceedings that may have, or have had in the recent past, significant effects on our financial position. No governmental proceedings are pending or, to our knowledge, contemplated against us. We are not a party to any material proceedings in which any director, member of executive management or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.

 

Item 1A. Risk Factors

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Quarterly Report on Form 10-Q, including our financial statements and related notes hereto, before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.

Those risk factors below denoted with a “*” are newly added or have been materially updated from our Annual Report on 10-K filed with the Securities and Exchange Commission, or the SEC, on February 25, 2015.

28


 

Risks related to the discovery and development of our product candidates

*Our gene therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval. At the moment, no gene therapy products have been approved in the United States and only one product has been approved in the European Union, or EU.

We have concentrated our therapeutic product research and development efforts on our gene therapy platform, and our future success depends on the successful development of this therapeutic approach. There can be no assurance that any development problems we experience in the future related to our gene therapy platform will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and commercial-scale manufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical studies or commercializing our products on a timely or profitable basis, if at all.

In addition, the clinical study requirements of the U.S. Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates. At the moment, only one gene therapy product, UniQure’s Glybera, which received marketing authorization in the EU in 2012, has been approved in the Western world, which makes it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in the United States, the EU or other jurisdictions. Approvals by the EMA and the European Commission may not be indicative of what the FDA may require for approval.

Regulatory requirements governing gene and cell therapy products have evolved and may continue to change in the future. For example, the FDA has established the Office of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Gene therapy clinical studies conducted at institutions that receive funding for recombinant DNA research from the U.S. National Institutes of Health, or the NIH, are also subject to review by the NIH Office of Biotechnology Activities’ Recombinant DNA Advisory Committee, or the RAC. Although the FDA decides whether individual gene therapy protocols may proceed, the RAC review process can impede the initiation of a clinical study, even if the FDA has reviewed the study and approved its initiation. For example, although we believe we reached general agreement with the FDA on the design of our planned HGB-208 pediatric study protocol for our LentiGlobin product candidate, in June 2015, the RAC completed its public review and recommended a delay of initiation of the HGB-208 study in the United States for an additional one to two years. We cannot predict if this recommendation may delay enrollment of the HGB-208 study. Clinical trial sites in the United States that receive NIH funding for research involving recombinant or synthetic nucleic acid molecules are required to follow RAC recommendations, or risk losing NIH funding for such research or needing NIH pre-approval before conducting such research. In addition, the FDA can put an investigational new drug application, or IND, on clinical hold if the information in an IND is not sufficient to assess the risks in pediatric patients. Before a clinical study can begin at any institution, that institution’s institutional review board, or IRB, and its Institutional Biosafety Committee will have to review the proposed clinical study to assess the safety of the study. Moreover, serious adverse events or developments in clinical trials of gene therapy product candidates conducted by others may cause the FDA or other regulatory bodies to initiate a clinical hold on our clinical trials or otherwise change the requirements for approval of any of our product candidates.

These regulatory review agencies, committees and advisory groups and the new requirements and guidelines they promulgate may lengthen the regulatory review process, require us to perform additional or larger studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of our product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue to maintain our business.

We may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our product candidates.

Identifying and qualifying patients to participate in clinical studies of our product candidates is critical to our success. The timing of our clinical studies depends on the speed at which we can recruit patients to participate in testing our product candidates. We have experienced delays in some of our clinical studies, and we may experience similar delays in the future. If patients are unwilling to participate in our gene therapy studies because of negative publicity from adverse events in the biotechnology or gene therapy industries or for other reasons, including competitive clinical studies for similar patient populations, the timeline for recruiting

29


 

patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical studies altogether.

We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study, to complete our clinical studies in a timely manner. Patient enrollment is affected by factors including:

 

·

severity of the disease under investigation;

 

·

design of the study protocol;

 

·

size of the patient population;

 

·

eligibility criteria for the study in question;

 

·

perceived risks and benefits of the product candidate under study;

 

·

proximity and availability of clinical study sites for prospective patients;

 

·

availability of competing therapies and clinical studies;

 

·

efforts to facilitate timely enrollment in clinical studies;

 

·

patient referral practices of physicians; and

 

·

ability to monitor patients adequately during and after treatment.

In particular, each of the conditions for which we plan to evaluate our current product candidates are rare genetic disorders with limited patient pools from which to draw for clinical studies. It has been estimated that about 1.5% (80 to 90 million people) of the global population are carriers of beta-thalassemia, with about 60,000 symptomatic individuals born annually, the great majority in the developing world. According to Thalassemia International Federation, about 288,000 patients with beta-thalassemia major are alive and registered as receiving regular treatment around the world, of which we estimate that about 10,000-15,000 live in the United States and Europe. The global incidence of SCD is estimated to be 250,000-300,000 births annually with a global prevalence estimated to be about 20-25 million. The worldwide incidence rate for adrenoleukodystrophy, or ALD, the superset of CCALD, is approximately one in 20,000 newborn males. CCALD accounts for about 30-40% of patients diagnosed with ALD. Further, because newborn screening for CCALD is not widely adopted, and it can be difficult to diagnose CCALD in the absence of a genetic screen, we may have difficulty finding patients who are eligible to participate in our study. The eligibility criteria of our clinical studies will further limit the pool of available study participants. Additionally, the process of finding and diagnosing patients may prove costly. Finally, our treatment process requires that the procurement of autologous cells from subjects be conducted where the cells can be shipped to a transduction facility within the required timelines, as the hematopoietic stem cells, or HSCs, have limited viability following harvest.

Our current product candidates are being developed to treat rare conditions and certain cancers. We plan to seek initial marketing approval in the United States and the European Union. We may not be able to initiate or continue clinical studies if we cannot enroll a sufficient number of eligible patients to participate in the clinical studies required by the FDA or the EMA or other regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical study in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:

 

·

difficulty in establishing or managing relationships with contract research organizations, or CROs, and physicians;

 

·

different standards for the conduct of clinical studies;

 

·

our inability to locate qualified local consultants, physicians and partners; and

 

·

the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment.

If we have difficulty enrolling a sufficient number of patients to conduct our clinical studies as planned, we may need to delay, limit or terminate ongoing or planned clinical studies, any of which would have an adverse effect on our business.

30


 

We may encounter substantial delays in our clinical studies or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety, purity and potency, or efficacy, of the product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

 

·

delays in reaching a consensus with regulatory agencies on study design;

 

·

delays in obtaining required Institutional Review Board, or IRB, or Institutional Ethics Committee approval at each clinical study site;

 

·

delays in recruiting suitable patients to participate in our clinical studies;

 

·

imposition of a clinical hold by regulatory agencies, after an inspection of our clinical study operations or study sites or due to unforeseen safety issues;

 

·

failure by our CROs, other third parties or us to adhere to clinical study requirements;

 

·

failure to perform in accordance with the FDA’s good clinical practices, or GCP, or applicable regulatory requirements in other countries;

 

·

delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites;

 

·

failure to obtain sufficient cells from patients to manufacture enough drug product or achieve target cell doses;

 

·

delays in having patients complete participation in a study or return for post-treatment follow-up;

 

·

clinical study sites or patients dropping out of a study;

 

·

occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; or

 

·

changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.

Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional studies to demonstrate comparability of our modified product candidates to earlier versions. Clinical study delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

If the results of our clinical studies are inconclusive or if there are safety concerns or adverse events associated with our product candidates, we may:

 

·

be delayed in obtaining regulatory approval for our product candidates, if at all;

 

·

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

·

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

 

·

be required to perform additional clinical studies or clinical studies of longer duration to support approval or be subject to additional post-marketing testing requirements;

 

·

have regulatory authorities withdraw their approval of the product or impose restrictions on its use;

 

·

be subject to the addition of labeling statements, such as warnings or contraindications;

 

·

be sued; or

 

·

experience damage to our reputation.

Treatment with our gene therapy product candidates involves chemotherapy and myeloablative treatments, which can cause side effects or adverse events that are unrelated to our product candidate, but may still impact the success of our clinical studies. Additionally, our product candidates could potentially cause other adverse events that have not yet been predicted. The inclusion of

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critically ill patients in our clinical studies may result in deaths or other adverse medical events due to other therapies or medications that such patients may be using. As described above, any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and impair our ability to commercialize our products.

We have not completed any clinical studies of our current viral vectors or product candidates derived from these viral vectors. Success in early clinical studies may not be indicative of results obtained in later studies.

Our current viral vectors and our product candidates first initiated evaluation in human clinical studies in 2013, and we may experience unexpected results in the future. Earlier gene therapy clinical studies, which we believe serve as proof-of-concept for our product candidates, utilized lentiviral vectors similar to ours. However, these studies should not be relied upon as evidence that our future clinical studies will succeed. Study designs and results from previous studies are not necessarily predictive of our future clinical study designs or results, and initial results may not be confirmed upon full analysis of the complete study data. Our product candidates may also fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through initial clinical studies.

There is a high failure rate for drugs and biologics proceeding through clinical studies. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later stage clinical studies even after achieving promising results in earlier stage clinical studies. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.

*Initial success in our ongoing clinical studies may not be indicative of results obtained when these studies are completed.

In December 2014, at the Annual Meeting of the American Society of Hematology (ASH), we announced data from the first eight subjects treated with our LentiGlobin product candidate. In June 2015, at the 20th Congress of the European Hematology Association, we announced long-term follow up of two patients with beta-thalassemia major and early safety and efficacy data in the first patient with severe SCD treated with our LentiGlobin product candidate in the HGB 205 Study. Although the initial clinical data on these subjects are encouraging, the data are preliminary in nature, based on limited periods of time since patient infusion, and the Northstar and HGB-205 Studies are not complete. There is limited data concerning long-term safety and efficacy following treatment with LentiGlobin drug product.  These data, or other positive data, may not continue or occur for these subjects or for any future subjects in this study, and may not be repeated or observed in ongoing or future studies involving our LentiGlobin product candidate, including the HGB-205 Study, the Northstar Study or the HGB-206 Study in severe SCD. There can be no assurance that subjects for whom periodic transfusion support has been reduced or temporarily eliminated will not receive transfusion support in the future. Furthermore, there can be no assurance that any of these studies will ultimately be successful or support further clinical advancement of this product candidate.  There is a high failure rate for drugs and biologics proceeding through clinical studies. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could have a material adverse effect on our business and operating results.  

* The results from our Starbeam Study may not be sufficiently robust to support the submission of marketing approval for our Lenti-D product candidate. Before we submit Lenti-D for marketing approval, the FDA and the EMA may require us to enroll additional subjects, conduct additional clinical studies, or evaluate subjects for an additional follow-up period.

The FDA has advised us that our Starbeam Study, which is a single-arm, open-label study to evaluate the safety and efficacy of our Lenti-D product candidate to halt the progression of CCALD, may not be deemed to be a pivotal study or may not provide sufficient support for a Biologics License Application, or BLA, submission. The FDA normally requires two pivotal clinical studies to approve a drug or biologic product, and thus the FDA may require that we conduct larger or additional clinical studies of Lenti-D prior to a BLA submission. The FDA typically does not consider a single clinical study to be adequate to serve as a pivotal study unless it is, among other things, well-controlled and demonstrates a clinically meaningful effect on mortality, irreversible morbidity, or prevention of a disease with potentially serious outcome, and a confirmatory study would be practically or ethically impossible. Due to the nature of CCALD and the limited number of patients with this condition, we believe a placebo-controlled and blinded study is not practicable for ethical and other reasons. However, it is still possible that, even if we achieve favorable results in the Starbeam Study, the FDA may require us to enroll additional subjects or conduct additional clinical studies, possibly involving a larger sample size or a different clinical study design, particularly if the FDA does not find the results from the Starbeam Study to be sufficiently persuasive to support a BLA submission. The FDA may also require that we conduct a longer follow-up period of subjects treated with our Lenti-D product candidate prior to accepting our BLA submission.

In addition, the Starbeam Study was not designed to achieve a statistically significant efficacy determination. Rather, we anticipate that Lenti-D safety and efficacy will be evaluated in light of the data collected in our retrospective ALD-101 Study and

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potentially our observational ALD-103 study. However, due to the retrospective nature of the ALD-101 study, and the limited number of patients with this condition, the FDA has advised us that the ALD-101 Study is not sufficiently robust to serve as a conventional historical control group and as a basis of comparison against the results of the Starbeam Study. Thus, we expect that the FDA will assess the totality of the safety and efficacy data from our CCALD clinical studies in reviewing any future BLA submission for our Lenti-D product candidate. Based on this assessment, the FDA may require that we conduct additional preclinical or clinical studies prior to submitting or approving a BLA for this indication.

It is possible that the FDA or the EMA may not consider the results of this study to be sufficient for approval of Lenti-D for this indication. If the FDA or the EMA requires additional studies, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, it is possible that the FDA and the EMA may have divergent opinions on the elements necessary for a successful BLA and Marketing Authorization Application, or MAA, respectively, which may cause us to alter our development, regulatory and/or commercialization strategies.

*We cannot be certain that our planned HGB-207 and HGB-208 clinical trials of LentiGlobin, together with data from our ongoing beta-thalassemia major clinical studies (Northstar and HGB-205), will be sufficient to form the basis for a Biologics License Application, or BLA, submission for LentiGlobin.

In general, the FDA requires the successful completion of two pivotal trials to support approval of a BLA, but in certain circumstances, will approve a BLA based on only one pivotal trial. If successful, we believe the results from our planned clinical trials, called HGB-207, for adult and adolescent patients with beta-thalassemia major, and HGB-208, for pediatric patients with beta-thalassemia major, together with data from our ongoing beta-thalassemia major clinical studies (Northstar and HGB-205), could be sufficient to form the basis for a BLA submission for LentiGlobin to treat patients with beta-thalassemia major. However, it should be noted that our ability to submit and obtain approval of a BLA is ultimately an FDA review decision, which will be dependent upon the data available at such time, and the available data may not be sufficiently robust from a safety and/or efficacy perspective to support the submission or approval of a BLA. Depending on the outcome of these planned and ongoing clinical trials, the FDA may require that we conduct additional or larger pivotal trials before we can submit or obtain approval for a BLA for LentiGlobin.

In June 2015, the RAC recommended that we delay the initiation of the HGB-208 trial for pediatric patients with beta-thalassemia major for one to two years. Any delay in the initiation or completion of the HGB-208 clinical trial could similarly delay our ability to submit a BLA for LentiGlobin or obtain full approval in Europe.

In addition, while we believe we and the FDA are in general agreement on the design and key elements of our planned HGB-207 and HGB-208 clinical trials of LentiGlobin , before beginning these trials, the FDA must review the final protocols for the trials, along with additional information supporting the respective proposed trial designs. Concurrent with starting the trial, the FDA will review certain updated chemistry, manufacturing and controls, or CMC, information that we are required to submit. If the FDA does not approve the protocols for the planned trials in the forms in which we submit them, or if the FDA is not satisfied with the additional CMC information we plan to provide, the start or continuation of these clinical trials may be delayed or the design of the trials may change.

*There can be no assurance that we will ultimately receive conditional marketing approval of LentiGlobin in the European Union, or the nature of the conditions that would be imposed on us if conditionally approved.

The EMA Adaptive Pathways program in which we are participating is intended to facilitate either an initial approval in a well-defined patient subgroup with a high medical need and subsequent widening of the indication to a larger patient population, or an early regulatory approval (e.g. conditional approval), which is prospectively planned, and where uncertainty is reduced through the collection of post-approval data on a drug’s use in patients. Based on our discussions with the EMA, we believe our LentiGlobin product candidate may be eligible for conditional approval under this program for the treatment of patients with beta-thalassemia major on the basis of the totality of clinical data, in particular reduction in transfusion need, from the ongoing Northstar study and supportive HGB-205 study.

However, it should be noted that the EMA Adaptive Pathways program is a pilot program, and as such there is limited information and precedent regarding the potential outcomes for sponsors that participate in this program. Whether our LentiGlobin  product candidate is eligible for conditional approval will ultimately be determined at the discretion of the EMA and will be dependent upon the data available at such time, and the available data may not be sufficiently robust from a safety and/or efficacy perspective to support conditional approval. Depending on the outcome of our planned and ongoing clinical trials, the EMA may require that we conduct additional or larger clinical trials before LentiGlobin is eligible for conditional approval. Even if conditional approval is obtained, the conditions to be imposed on us under this program are unknown and will be imposed at the time of any such conditional approval.

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In previous clinical studies involving viral vectors for gene therapy, some subjects experienced serious adverse events, including the development of leukemia due to vector-related insertional oncogenesis.  If our vectors demonstrate a similar effect, we may be required to halt or delay further clinical development of our product candidates.

A significant risk in any gene therapy product based on viral vectors is that the vector will insert in or near cancer-causing oncogenes leading to uncontrolled clonal proliferation of mature cancer cells in the patient.  For example, in 2003, 20 subjects treated for X-linked severe combined immunodeficiency in two gene therapy studies using a murine, or mouse-derived, gamma-retroviral vector showed correction of the disease, but the studies were terminated after five subjects developed leukemia (four of whom were subsequently cured). The cause of these adverse events was shown to be insertional oncogenesis, which is the process whereby the corrected gene inserts in or near a gene that is important in a critical cellular process like growth or division, and this insertion results in the development of a cancer (often leukemia). Using molecular diagnostic techniques, it was determined that clones from these subjects showed retrovirus insertion in proximity to the promoter of the LMO2 proto-oncogene. Earlier generation retroviruses like the one used in these two studies have been shown to preferentially integrate in regulatory regions of genes that control cell growth.

These well-publicized adverse events led to the development of new viral vectors, such as lentiviral vectors, with improved safety profiles and also the requirement of enhanced safety monitoring in gene therapy clinical trials, including periodic analyses of the therapy’s genetic insertion sites. In published studies, lentiviral vectors have demonstrated an improved safety profile over gamma-retroviral vectors, with no disclosed events of gene therapy-related adverse events, which we believe is due to a number of factors including the tendency of these vectors to integrate within genes rather than in areas that control gene expression, as well as their lack of strong viral enhancers. However, it should be noted that in our Phase I/II study (the LG001 Study) of autologous HSCs transduced ex vivo using an earlier generation of our LentiGlobin vector, called HPV569, we initially observed in one subject that a disproportionate number of the cells expressing our functional gene had the same insertion site. Tests showed that this partial clonal dominance contained an insertion of the functional gene in the HMGA2 gene that persisted for a period of two to three years. Although there was some initial concern that the observed clonal dominance might represent a pre-leukemic event, there have been no adverse clinical consequences of this event, or any signs of cancer, in over seven years since the observation was made. The presence of the HMGA2 clone has steadily declined in this subject over time to the point that it is no longer the most common clone observed in this subject.

Notwithstanding the historical data regarding the potential safety improvements of lentiviral vectors, the risk of insertional oncogenesis remains a significant concern for gene therapy and we cannot assure that it will not occur in any of our ongoing or planned clinical studies. There is also the potential risk of delayed adverse events following exposure to gene therapy products due to persistent biological activity of the genetic material or other components of products used to carry the genetic material. The FDA has stated that lentiviral vectors possess characteristics that may pose high risks of delayed adverse events. If any such adverse events occur, further advancement of our clinical studies could be halted or delayed, which would have a material adverse effect on our business and operations.

Even if we complete the necessary preclinical and clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize a product candidate or the approval may be for a more narrow indication than we expect.

We cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if our product candidates demonstrate safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory advisory group or authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. Regulatory agencies also may approve a treatment candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our treatment candidates. For example, the development of our product candidates for pediatric use is an important part of our current business strategy, and if we are unable to obtain regulatory approval for the desired age ranges, our business may suffer.

Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.

Even if we obtain regulatory approval in a jurisdiction, the regulatory authority may still impose significant restrictions on the indicated uses or marketing of our product candidates, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. For example, the FDA typically advises that patients treated with gene therapy undergo follow-up observations for potential adverse events for a 15-year period. Additionally, the holder of an approved BLA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. The holder of an approved BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling

34


 

or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.

In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with good manufacturing practices, or GMP, and adherence to commitments made in the BLA. If we or a regulatory agency discovers previously unknown problems with a product such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

If we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory agency may:

 

·

issue a warning letter asserting that we are in violation of the law;

 

·

seek an injunction or impose civil or criminal penalties or monetary fines;

 

·

suspend or withdraw regulatory approval;

 

·

suspend any ongoing clinical studies;

 

·

refuse to approve a pending marketing application, such as a BLA or supplements to a BLA submitted by us;

 

·

seize product; or

 

·

refuse to allow us to enter into supply contracts, including government contracts.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenues.

Risks related to our reliance on third parties

We expect to rely on third parties to conduct some or all aspects of our vector production, drug product manufacturing, research and preclinical and clinical testing, and these third parties may not perform satisfactorily.

We do not expect to independently conduct all aspects of our vector production, product manufacturing, research and preclinical and clinical testing. We currently rely, and expect to continue to rely, on third parties with respect to these items. In some cases these third parties are academic, research or similar institutions that may not apply the same quality control protocols utilized in certain commercial settings.

Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations and study protocols. For example, for product candidates that we develop and commercialize on our own, we will remain responsible for ensuring that each of our IND-enabling studies and clinical studies are conducted in accordance with the study plan and protocols.

If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may be delayed in completing, the preclinical and clinical studies required to support future IND and BLA submissions and approval of our product candidates.

Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it could delay our product development activities.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:

 

·

the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;

 

·

reduced control as a result of using third-party manufacturers for all aspects of manufacturing activities;

 

·

the risk that these activities are not conducted in accordance with our study plans and protocols;

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·

termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and  

 

·

disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier.

Any of these events could lead to clinical study delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize future products. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production.

We and our contract manufacturers are subject to significant regulation with respect to manufacturing our products. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.

We currently have relationships with a limited number of suppliers for the manufacturing of our viral vectors and product candidates. Each supplier may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain and we may be unable to transfer or sublicense the intellectual property rights we may have with respect to such activities.

All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including our existing contract manufacturers for our product candidates, are subject to extensive regulation. Some components of a finished therapeutic product approved for commercial sale or used in late-stage clinical studies must be manufactured in accordance with GMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA or MAA on a timely basis and where required, must adhere to the FDA’s or other regulator’s good laboratory practices, or GLP, and GMP regulations enforced by the FDA or other regulator through facilities inspection programs. Some of our contract manufacturers have not produced a commercially-approved product and therefore have not obtained the requisite FDA or other regulatory approvals to do so. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection, FDA or other regulatory approval of the products will not be granted.

The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other regulators can impose regulatory sanctions including, among other things, refusal to approve a pending application for a biologic product, or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be materially harmed.

Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. The number of manufacturers with the necessary manufacturing capabilities is limited. In addition, an alternative manufacturer would need to be qualified through a BLA supplement or similar regulatory submission which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause the delay of clinical studies, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical studies may be delayed or we could lose potential revenue.

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We expect to rely on third parties to conduct, supervise and monitor our clinical studies, and if these third parties perform in an unsatisfactory manner, it may harm our business.

We expect to rely on CROs and clinical study sites to ensure our clinical studies are conducted properly and on time. While we will have agreements governing their activities, we will have limited influence over their actual performance. We will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our clinical studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities.

We and our CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical studies to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical study participants are protected. The FDA enforces these GCPs through periodic inspections of study sponsors, principal investigators and clinical study sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical studies may be deemed unreliable and the FDA may require us to perform additional clinical studies before approving any marketing applications. Upon inspection, the FDA may determine that our clinical studies did not comply with GCPs. In addition, our future clinical studies will require a sufficient number of test subjects to evaluate the safety and efficacy of our product candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical studies, which would delay the regulatory approval process.

Employees of our CROs are not our employees, and we are therefore unable to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical programs, which must be conducted in accordance with GCPs and GLPs, respectively. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical studies may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

We also expect to rely on other third parties to store and distribute our vectors and products for any clinical studies that we may conduct. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, if approved, producing additional losses and depriving us of potential product revenue.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to manufacture our vectors and our product candidates, and because we collaborate with various organizations and academic institutions on the advancement of our gene therapy platform, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. We also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

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Risks related to our financial condition and capital requirements

* We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

We are a clinical-stage biotechnology company, and we have not yet generated significant revenues. We have incurred net losses in each year since our inception in 1992, including net losses of $48.7 million and $25.3 million for the years ended December 31, 2014 and 2013, respectively. As of September 30, 2015, we had an accumulated deficit of $266.9 million.

We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. To date, we have financed our operations primarily through the sale of equity securities and, to a lesser extent, through collaboration agreements and grants from governmental agencies and charitable foundations. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations or additional grants. We have not completed pivotal clinical studies for any product candidate and it will be several years, if ever, before we have a product candidate ready for commercialization. Even if we obtain regulatory approval to market a product candidate, our future revenues will depend upon the size of any markets in which our product candidates have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for our product candidates in those markets.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

 

·

continue our research and preclinical and clinical development of our product candidates;

 

·

expand the scope of our current clinical studies for our product candidates;

 

·

initiate additional preclinical, clinical or other studies for our oncology product candidates;

 

·

further develop the manufacturing process for our vectors or our product candidates;

 

·

change or add additional manufacturers or suppliers;

 

·

seek regulatory and marketing approvals for our product candidates that successfully complete clinical studies;

 

·

seek to identify and validate additional product candidates;

 

·

acquire or in-license other product candidates and technologies;

 

·

make milestone or other payments under any license agreements or our stock purchase agreement with the former equityholders of Pregenen;

 

·

maintain, protect and expand our intellectual property portfolio;

 

·

establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

 

·

attract and retain skilled personnel;

 

·

build additional infrastructure to support our operations as a public company and our product development and planned future commercialization efforts; and

 

·

experience any delays or encounter issues with any of the above.

The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.

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We have never generated any revenue from product sales and may never be profitable.

Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory, pricing and reimbursement approvals necessary to commercialize our product candidates. We do not anticipate generating revenues from product sales for the foreseeable future, if ever. Our ability to generate future revenues from product sales depends heavily on our success in:

 

·

completing research and preclinical and clinical development of our product candidates;

 

·

seeking and obtaining regulatory and marketing approvals for product candidates for which we complete clinical studies;

 

·

developing a sustainable, commercial-scale, reproducible, and transferable manufacturing process for our vectors and product candidates;

 

·

establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) products and services to support clinical development and the market demand for our product candidates, if approved;

 

·

launching and commercializing product candidates for which we obtain regulatory and marketing approval, either by collaborating with a partner or, if launched independently, by establishing a sales force, marketing and distribution infrastructure;

 

·

obtaining sufficient pricing and  reimbursement for our product candidates from third-party and governmental payors;

 

·

obtaining market acceptance of our product candidates and gene therapy as a viable treatment option;

 

·

addressing any competing technological and market developments;

 

·

identifying and validating new gene therapy product candidates;

 

·

negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; and

 

·

maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how.

Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, domestic or foreign, to perform clinical and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

*From time to time, we will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

We are currently advancing our Lenti-D and LentiGlobin product candidates through clinical development and other product candidates through preclinical development. Developing gene therapy products is expensive, and we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates in clinical studies.

As of September 30, 2015, our cash, cash equivalents and marketable securities were $901.7 million. We expect that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our current operations through 2018. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we will require additional capital to obtain regulatory approval for, and to commercialize, our product candidates. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic objectives.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such

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issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

Risks related to commercialization of our product candidates

We intend to rely on third-party manufacturers to produce our vector, product candidates and other key materials, but we have not entered into binding agreements with any such manufacturers to support commercialization. Additionally, these manufacturers do not have experience producing our vectors and product candidates at commercial levels and may not achieve the necessary regulatory approvals or produce our vectors and products at the quality, quantities, locations and timing needed to support commercialization.

We have not yet secured manufacturing capabilities for commercial quantities of our viral vectors or established transduction facilities in the desired commercialization regions to support commercialization of our products. Although we intend to rely on third-party manufacturers for commercialization, we have only entered into agreements with such manufacturers to support our clinical studies. We may be unable to negotiate binding agreements with the manufacturers to support our commercialization activities at commercially reasonable terms.

No manufacturer currently has the experience or ability to produce our vectors and product candidates at commercial levels. We are currently developing a commercial-scale manufacturing process for LentiGlobin and Lenti-D, which we are beginning to transfer to one or more contract manufacturers. We may run into technical or scientific issues related to manufacturing or development that we may be unable to resolve in a timely manner or with available funds. Although we have been able to produce our Lenti-D vector at commercial scale, we have not completed the characterization and validation activities necessary for commercial and regulatory approvals. If our manufacturing partners do not obtain such regulatory approvals, our commercialization efforts will be harmed.

Additionally, since the HSCs have a limited window of stability following procurement from the subject, we must set up transduction facilities in the regions where we wish to commercialize our product. Currently, we rely on third-party contract manufacturers in the United States and Europe to produce our product candidates for our clinical studies. Since a portion of our target patient populations will be outside the United States and Europe, we will need to set up additional transduction facilities that can replicate our transduction process. Establishment of such facilities may be financially impractical or impeded by technical, quality, or regulatory issues related to these new sites and we may also run into technical or scientific issues related to transfer of our transduction process or other developmental issues that we may be unable to resolve in a timely manner or with available funds.

Even if we timely develop a manufacturing process and successfully transfer it to the third-party vector and product manufacturers, if such third-party manufacturers are unable to produce the necessary quantities of viral vectors and our product candidates, or in compliance with GMP or other pertinent regulatory requirements, and within our planned time frame and cost parameters, the development and sales of our products, if approved, may be materially harmed.

In addition, any significant disruption in our supplier relationships could harm our business. We source key materials from third parties, either directly through agreements with suppliers or indirectly through our manufacturers who have agreements with suppliers. There are a small number of suppliers for certain key materials that are used to manufacture our product candidates. Such suppliers may not sell these key materials to our manufacturers at the times we need them or on commercially reasonable terms. We do not have any control over the process or timing of the acquisition of these key materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these key materials.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenues.

We have no experience selling and marketing our product candidates. To successfully commercialize any products that may result from our development programs, we will need to develop these capabilities, either on our own or with others. We may enter into

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collaborations with other entities to utilize their mature marketing and distribution capabilities, but we may be unable to enter into marketing agreements on favorable terms, if at all. If our future collaborative partners do not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

We face intense competition and rapid technological change and the possibility that our competitors may develop therapies that are more advanced or effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.

We are engaged in gene therapy and in the field of CAR T cells in oncology, both of which are competitive and rapidly changing fields. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. Some of the pharmaceutical and biotechnology companies we expect to compete with include GlaxoSmithKline plc through their collaboration with TIGET/MolMed, Sangamo BioSciences Inc. through their collaboration with Biogen Idec, Merck & Co., Inc., Novartis AG through their collaboration with the University of Pennsylvania, GlycoMimetics Inc., Acceleron Pharma, Inc., Kite Pharma, Inc., Pfizer Inc. through their collaboration with Cellectis SA, Adaptimmune Inc. and Juno Therapeutics, Inc. through their collaboration with Celgene Corporation. In addition, many universities and private and public research institutes are active in our target disease areas.

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization and market penetration than us. Additionally, technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.

Even if we are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors, we may face competition from biosimilars due to the changing regulatory environment. In the United States, the Biologics Price Competition and Innovation Act of 2009 created an abbreviated approval pathway for biological products that are demonstrated to be “highly similar,” or biosimilar, to or “interchangeable” with an FDA-approved biological product. This pathway could allow competitors to reference data from biological products already approved after 12 years from the time of approval. In Europe, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In Europe, a competitor may reference data from biological products already approved, but will not be able to get on the market until 10 years after the time of approval. This 10-year period will be extended to 11 years if, during the first eight of those 10 years, the marketing authorization holder obtains an approval for one or more new therapeutic indications that bring significant clinical benefits compared with existing therapies. In addition, companies may be developing biosimilars in other countries that could compete with our products. If competitors are able to obtain marketing approval for biosimilars referencing our products, our products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences. Expiration or successful challenge of our applicable patent rights could also trigger competition from other products, assuming any relevant exclusivity period has expired.

In addition, although our product candidates have been granted orphan drug status by the FDA and EMA, there are limitations to the exclusivity. In the United States, the exclusivity period for orphan drugs is seven years, while pediatric exclusivity adds six months to any existing patents or exclusivity periods. In Europe, orphan drugs may be able to obtain 10 years of marketing exclusivity and up to an additional two years on the basis of qualifying pediatric studies. However, orphan exclusivity may be reduced to six years if the drug no longer satisfies the original designation criteria. Additionally, a marketing authorization holder may lose its orphan exclusivity if it consents to a second orphan drug application or cannot supply enough drug. Orphan drug exclusivity also can be lost when a second applicant demonstrates its drug is “clinically superior” to the original orphan drug.

Finally, as a result of the expiration or successful challenge of our patent rights, we could face more litigation with respect to the validity and/or scope of patents relating to our competitors’ products. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize.

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The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.

Ethical, social and legal concerns about gene therapy and genetic research could result in additional regulations restricting or prohibiting the products and processes we may use. Even with the requisite approvals, the commercial success of our product candidates will depend in part on the medical community, patients, and third-party or governmental payors accepting gene therapy products in general, and our product candidates in particular, as medically useful, cost-effective, and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of these product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

·

the potential efficacy and potential advantages over alternative treatments;

 

·

the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;

 

·

the prevalence and severity of any side effects resulting from the chemotherapy and myeloablative treatments associated with the procedure by which our product candidates are administered;

 

·

relative convenience and ease of administration;

 

·

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

·

the strength of marketing and distribution support and timing of market introduction of competitive products;

 

·

the pricing of our products;

 

·

publicity concerning our products or competing products and treatments; and

 

·

sufficient third-party insurance coverage or reimbursement.

Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional technologies marketed by our competitors.

If we obtain approval to commercialize our product candidates outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If any of our product candidates are approved for commercialization, we may enter into agreements with third parties to market them on a worldwide basis or in more limited geographical regions. We expect that we will be subject to additional risks related to entering into international business relationships, including:

 

·

different regulatory requirements for approval of drugs and biologics in foreign countries;

 

·

reduced protection for intellectual property rights;

 

·

economic weakness, including inflation, or political instability in particular foreign economies and markets; and

 

·

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country.

The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.

The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments, such as stem cell transplants or gene therapy. Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.

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There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products, including gene therapies. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products. Reimbursement agencies in Europe may be more conservative than CMS. For example, a number of cancer drugs have been approved for reimbursement in the United States and have not been approved for reimbursement in certain European countries. In addition, costs or difficulties associated with the reimbursement of Glybera could create an adverse environment for reimbursement of other gene therapies.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicines, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.

Moreover, increasing efforts by governmental and third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.

Due to the novel nature of our technology and the potential for our product candidates to offer therapeutic benefit in a single administration, we face uncertainty related to pricing and reimbursement for these product candidates.

Our target patient populations are relatively small, as a result, the pricing and reimbursement of our product candidates, if approved, must be adequate to support commercial infrastructure. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell our product candidates will be adversely affected. The manner and level at which reimbursement is provided for services related to our product candidates (e.g., for administration of our product to patients) is also important. Inadequate reimbursement for such services may lead to physician resistance and adversely affect our ability to market or sell our products.

If the market opportunities for our product candidates are smaller than we believe they are, our revenues may be adversely affected and our business may suffer. Because the target patient populations of our product candidates are small, we must be able to successfully identify patients and achieve a significant market share to maintain profitability and growth.

We focus our research and product development on treatments for severe genetic and rare diseases. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates. These estimates may prove to be incorrect and new studies may change the estimated incidence or prevalence of these diseases. The number of patients in the United States, Europe and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business.

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Risks related to our business operations

If we undertake business combinations, collaborations or similar strategic transactions, they may disrupt our business, divert management’s attention, dilute stockholder value or be difficult to integrate.

On a regular basis, we consider various business combination transactions, collaborations, license agreements and strategic transactions with third parties, including transactions which may result in us acquiring, or being acquired by, a third party. The consummation or performance of any future business combination, collaboration or strategic transaction may involve risks, such as:

 

·

diversion of managerial resources from day-to-day operations;

 

·

challenges associated with integrating acquired technologies and operations of acquired companies;

 

·

exposure to unforeseen liabilities;

 

·

difficulties in the assimilation of different cultures and practices, as well as in the assimilation and retention of broad and geographically dispersed personnel and operations;

 

·

misjudgment with respect to value, return on investment or strategic fit;

 

·

higher than expected transaction costs; and

 

·

additional dilution to our existing stockholders if we issue equity securities as consideration for any acquisitions.

As a result of these risks, we may not be able to achieve the expected benefits of any such transaction. If we are unsuccessful in completing or integrating any acquisition, we may be required to reevaluate that component of our strategy only after we have incurred substantial expenses and devoted significant management time and resources in seeking to complete and integrate the acquisition.

Future business combinations could involve the acquisition of significant intangible assets. We may need to record write-downs from future impairments of identified intangible assets and goodwill. These accounting charges would increase a reported loss or reduce any future reported earnings. In addition, we could use substantial portions of our available cash to pay the purchase price for company or product candidate acquisitions. Subject to the limitations under our existing indebtedness, it is possible that we could incur additional debt or issue additional equity securities as consideration for these acquisitions, which could cause our stockholders to suffer significant dilution.

The failure to successfully integrate Precision Genome Engineering, Inc.’s business and operations or fully realize the benefits of this acquisition may adversely affect our future results.

On June 30, 2014, we acquired all of the outstanding capital stock of Precision Genome Engineering, Inc., or Pregenen. Based in Seattle, Washington, Pregenen is focused on the development of gene editing and cell signaling technologies. The success of our acquisition of Pregenen will depend, in part, on our ability to successfully integrate Pregenen’s business and operations and fully realize the anticipated benefits and synergies from combining our business with Pregenen’s business, in particular our ability to advance Pregenen’s gene editing and cell signaling technologies to the stage where they can be incorporated into our existing or new product candidates. However, to realize these anticipated benefits, we must successfully combine these businesses and continue the research and development activities previously undertaken by Pregenen as a stand-alone company. If we are unable to achieve these objectives, the anticipated benefits of our acquisition of Pregenen may not be realized fully or at all or may take longer to realize than expected. Any failure to timely realize these anticipated benefits could have a material adverse effect on our development programs, expenses and operating results.

Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public perception of our product candidates or adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.

Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians specializing in the treatment of those diseases that our product candidates target prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments they are already familiar with and for which greater clinical data may be available. More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop. For example, in 2003, 20 subjects treated for X-linked severe combined immunodeficiency in two gene therapy studies using a murine gamma-retroviral vector showed correction of the disease, but the studies were terminated after five subjects developed leukemia (four of whom were

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subsequently cured). Although none of our current product candidates utilize these gamma-retroviruses, our product candidates use a viral delivery system. Adverse events in our clinical studies, even if not ultimately attributable to our product candidates (such as the many adverse events that typically arise from the transplant process) and the resulting publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates.

Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.

We are highly dependent on principal members of our executive team and key employees, the loss of whose services may adversely impact the achievement of our objectives. While we have entered into employment agreements with each of our executive officers, any of them could leave our employment at any time, as all of our employees are “at will” employees. Recruiting and retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in preclinical or clinical studies may make it more challenging to recruit and retain qualified personnel. The inability to recruit or loss of the services of any executive, key employee, consultant or advisor may impede the progress of our research, development and commercialization objectives.

*We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.

As of September 30, 2015, we had 207 full-time employees. As our business, research and development activities expand, we expect to expand our full-time employee base and to hire more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy.

Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation or could cause regulatory agencies not to approve our product candidates. We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

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We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use of our product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our product candidates, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims.

The use of our product candidates in clinical studies and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by subjects participating in clinical trials, consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. There is a risk that our product candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 

·

impairment of our business reputation;

 

·

withdrawal of clinical study participants;

 

·

costs due to related litigation;

 

·

distraction of management’s attention from our primary business;

 

·

substantial monetary awards to patients or other claimants;

 

·

the inability to commercialize our product candidates; and

 

·

decreased demand for our product candidates, if approved for commercial sale.

We carry product liability insurance and we believe our product liability insurance coverage is sufficient in light of our current clinical programs; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

Patients with the diseases targeted by our product candidates are often already in severe and advanced stages of disease and have both known and unknown significant pre-existing and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research,

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development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

We may not be successful in our efforts to identify or discover additional product candidates.

The success of our business depends primarily upon our ability to identify, develop and commercialize products based on our gene therapy and gene editing platforms.  Although our Lenti-D and LentiGlobin product candidates are currently in clinical development, our research programs, including our oncology research programs, may fail to identify other potential product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval.

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.

We may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs for product candidates may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

We incur significant increased costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC, and The NASDAQ Global Select Market have imposed various requirements on public companies. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted, resulting in significant corporate governance and executive compensation-related regulations. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain our current levels of such coverage.

Risks related to our intellectual property

If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to compete effectively in our markets.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our product candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue and even if such patents cover our product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

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If the patent applications we hold or have in-licensed with respect to our programs or product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our product candidates, it could dissuade companies from collaborating with us to develop product candidates, and threaten our ability to commercialize, future products. Several patent applications covering our product candidates have been filed recently. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file any patent application related to a product candidate. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be initiated by a third party to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available however the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic medications.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all.

Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the U.S. Patent and Trademark Office, or U.S. PTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.

Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently

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pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

We may not be successful in obtaining or maintaining necessary rights to gene therapy product components and processes for our development pipeline through acquisitions and in-licenses.

Presently we have rights to the intellectual property, through licenses from third parties and under patents that we own, to develop our gene therapy product candidates. Because our programs may involve additional product candidates that may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and these rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

For example, we sometimes collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such right of first negotiation for intellectual property, we may be unable to negotiate a license within the specified time frame or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program.

In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We are a party to a number of intellectual property license agreements that are important to our business and expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license.

We may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current product candidates or future products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.

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In many cases, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

·

the scope of rights granted under the license agreement and other interpretation-related issues;

 

·

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

·

the sublicensing of patent and other rights under our collaborative development relationships;

 

·

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

·

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

 

·

the priority of invention of patented technology.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.

Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. PTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, were enacted March 16, 2013. However, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

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We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We have had in the past, and we may also have to in the future, ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the U.S. PTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. The U.S. PTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court.

If we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection would have a material adverse impact on our business.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore

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obtaining and enforcing biotechnology patents is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. PTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Risks related to ownership of our common stock

The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the price at which you purchase them.

Companies trading in the stock market in general, and The NASDAQ Global Select Market in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.

The market price of our common stock may be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:

 

·

adverse results or delays in preclinical or clinical studies;

 

·

reports of adverse events in other gene therapy products or clinical studies of such products;

 

·

inability to obtain additional funding;

 

·

any delay in filing an IND or BLA for any of our product candidates and any adverse development or perceived adverse development with respect to the FDA’s review of that IND or BLA;

 

·

failure to develop successfully and commercialize our product candidates;

 

·

failure to maintain our existing strategic collaborations or enter into new collaborations;

 

·

failure by us or our licensors and strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights;

 

·

changes in laws or regulations applicable to future products;

 

·

inability to obtain adequate product supply for our product candidates or the inability to do so at acceptable prices;

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·

adverse regulatory decisions;  

 

·

introduction of new products, services or technologies by our competitors;

 

·

failure to meet or exceed financial projections we may provide to the public;

 

·

failure to meet or exceed the financial projections of the investment community;

 

·

the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;

 

·

announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our strategic collaboration partner or our competitors;

 

·

disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

·

additions or departures of key scientific or management personnel;

 

·

significant lawsuits, including patent or stockholder litigation;

 

·

changes in the market valuations of similar companies;

 

·

sales of our common stock by us or our stockholders in the future; and

 

·

trading volume of our common stock.

Actual or potential sales of our common stock by our employees, including our executive officers, pursuant to pre-arranged stock trading plans could cause our stock price to fall or prevent it from increasing for numerous reasons, and actual or potential sales by such persons could be viewed negatively by other investors.

In accordance with the guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, and our policies regarding stock transactions, a number of our employees, including executive officers, have adopted and may continue to adopt stock trading plans pursuant to which they have arranged to sell shares of our common stock from time to time in the future. Generally, sales under such plans by our executive officers and directors require public filings. Actual or potential sales of our common stock by such persons could cause the price of our common stock to fall or prevent it from increasing for numerous reasons.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

Additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

Pursuant to our 2013 Stock Option and Incentive Plan, or the 2013 Plan, our management is authorized to grant stock options and other equity-based awards to our employees, directors and consultants. The number of shares available for future grant under the 2013 Plan automatically increases each year by up to 4% of all shares of our capital stock outstanding as of December 31 of the prior calendar year, subject to the ability of our board of directors or compensation committee to take action to reduce the size of the increase in any given year. Currently, we plan to register the increased number of shares available for issuance under the 2013 Plan each year. If our board of directors or compensation committee elects to increase the number of shares available for future grant by the maximum amount each year, our stockholders may experience additional dilution, which could cause our stock price to fall. We also have an Employee Stock Purchase Plan and any shares of common stock purchased pursuant to that plan will also cause dilution.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

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Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We have completed several financings since our inception which we believe have resulted in a change in control as defined by IRC Section 382. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.

Provisions in our amended and restated certificate of incorporation and by-laws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management.

Our amended and restated certificate of incorporation, amended and restated by-laws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and by-laws, include provisions that:

 

·

authorize “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

 

·

create a classified board of directors whose members serve staggered three-year terms;

 

·

specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, our chief executive officer or our president;

 

·

prohibit stockholder action by written consent;

 

·

establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

 

·

provide that our directors may be removed only for cause;

 

·

provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

·

specify that no stockholder is permitted to cumulate votes at any election of directors;

 

·

expressly authorize our board of directors to modify, alter or repeal our amended and restated by-laws; and

 

·

require supermajority votes of the holders of our common stock to amend specified provisions of our amended and restated certificate of incorporation and amended and restated by-laws.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.

Any provision of our amended and restated certificate of incorporation or amended and restated by-laws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

 

 

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Item 5. Other Information

Our policy governing transactions in our securities by our directors, officers, and employees permits our officers, directors and certain other persons to enter into trading plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. We have been advised that certain of our officers (including Nick Leschly, Chief Executive Officer, Jeffrey Walsh, Chief Operating Officer, David Davidson, Chief Medical Officer and Eric Sullivan, Senior Director, Finance and Principal Accounting Officer) and certain of our directors (including Daniel Lynch and James Mandell) have entered into trading plans covering periods after the date of this quarterly report on Form 10-Q in accordance with Rule 10b5-1 and our policy governing transactions in our securities. Generally, under these trading plans, the individual relinquishes control over the transactions once the trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before, simultaneously with, or immediately after significant events involving our company. We do not undertake to report Rule 10b5-1 trading plans that may be adopted by any officers or directors in the future, or to report any modifications or termination of any publicly announced trading plan, except to the extent required by law.

Item 6. Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which is incorporated herein by reference.

 

 

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

bluebird bio, Inc.

 

 

 

 

Date: November 5, 2015

 

 

 

By:

 

/s/ Nick Leschly

 

 

 

 

 

 

Nick Leschly

President, Chief Executive Officer and Director (Principal Executive Officer and Duly Authorized Officer)

 

 

 

 

Date: November 5, 2015

 

 

 

By:

 

/s/ James M. DeTore

 

 

 

 

 

 

James M. DeTore

Chief Financial Officer and Treasurer (Principal Financial Officer and Duly Authorized Officer)

 

 

 

 


 

Exhibit Index

 

 

  

 

  

Incorporated by Reference

Exhibit
Number

  

Exhibit Title

  

Form

  

File no.

 

  

Exhibit

 

  

Filing Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.1

  

Stock Purchase Agreement by and between the Registrant and Precision Genome Engineering, Inc.

  

8-K

  

 

001-35966

  

  

 

2.1

  

  

June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.1

  

Amended and Restated Certificate of Incorporation of the Registrant

  

8-K

  

 

001-35966

  

  

 

3.1

  

  

June 24, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.2

  

Amended and Restated By-laws of the Registrant

  

8-K

  

 

001-35966

  

  

 

3.2

  

  

June 24, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.1

  

Specimen Common Stock Certificate

  

S-1/A

  

 

333-188605

  

  

 

4.1

  

  

June 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.2

  

Form of Series A-1 Preferred Stock Warrant

  

S-1/A

  

 

333-188605

  

  

 

4.3

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.3

  

Form of Series B Preferred Stock Warrant

  

S-1/A

  

 

333-188605

  

  

 

4.4

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.4

  

Amended and Restated Investors’ Rights Agreement, dated as of July 23, 2012, by and among the Registrant and the Investors listed therein.

  

S-1/A

  

 

333-188605

  

  

 

4.5

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.5

  

Amendment to Amended and Restated Investors’ Rights Agreement, dated as of July 8, 2014, by and among the Registrant and the Investors listed therein.

  

10-Q

  

 

001-35966

  

  

 

4.6

  

  

August 12, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.1

  

Second Amended and Restated 2002 Employee, Director and Consultant Plan, as amended, and forms of award agreement thereunder

  

S-1/A

  

 

333-188605

  

  

 

10.1

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.2

  

2010 Stock Option and Grant Plan, as amended, and forms of award agreement thereunder

  

S-1/A

  

 

333-188605

  

  

 

10.2

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.3

  

2013 Stock Option and Incentive Plan and forms of award agreement thereunder

  

S-1/A

  

 

333-188605

  

  

 

10.3

  

  

June 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.4

  

Form of Indemnification Agreement between the Registrant and each of its Executive Officers and Directors

  

S-1/A

  

 

333-188605

  

  

 

10.4

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.5

  

Amended and Restated Lease Agreement, dated May 18, 2007, by and between the Registrant and Rivertech Associates II, LLC, as amended

  

10-Q

  

 

001-35966

  

  

 

10.1

  

  

November 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.6†

  

Patent License Agreement, dated December 11, 1996, by and between the Registrant (formerly known as Genetix Pharmaceuticals Inc., successor-in-interest to Innogene Pharmaceuticals Inc.) and Massachusetts Institute of Technology, as amended

  

S-1/A

  

 

333-188605

  

  

 

10.6

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.7†

  

Patent and Know-How License Agreement No. 07554F30, dated May 14, 2009, by and between the Registrant (formerly known as Genetix Pharmaceuticals Inc.) and INSERM-TRANSFERT, as amended

  

S-1/A

  

 

333-188605

  

  

 

10.7

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.8†

  

License Agreement, dated September 13, 2011, by and between the Registrant and Institut Pasteur, as amended

  

S-1/A

  

 

333-188605

  

  

 

10.8

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.9†

  

Amendment No. 3 to License Agreement, dated September 10, 2013, by and between the Registrant and Institut Pasteur

  

10-Q

  

 

001-35966

  

  

 

10.2

  

  

November 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.10†

  

Amendment No. 4 to License Agreement, dated April 1, 2015, by and between the Registrant and Institut Pasteur

  

10-Q

  

 

001-35966

  

  

 

10.10

  

  

May 6, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.11†

  

License Agreement, dated December 7, 2011, by and between the Registrant and Research Development Foundation

  

S-1/A

  

 

333-188605

  

  

 

10.9

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.12†

  

Novation Agreement, dated April 2, 2012, by and between the Registrant and The Board of Trustees of the Leland Stanford Junior University

  

S-1/A

  

 

333-188605

  

  

 

10.10

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

  

 

  

Incorporated by Reference

Exhibit
Number

  

Exhibit Title

  

Form

  

File no.

 

  

Exhibit

 

  

Filing Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.13†

  

Master Collaboration Agreement by and between the Registrant and Celgene Corporation, dated March 19, 2013

  

S-1/A

  

 

333-188605

  

  

 

10.11

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.14†

  

Amended and Restated Master Collaboration Agreement by and between the Registrant and Celgene Corporation, dated June 3, 2015

  

10-Q

  

 

001-35966

  

 

 

10.14

  

 

August 6, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.15

  

Amended and Restated Employment Agreement by and between the Registrant and Nick Leschly

  

S-1/A

  

 

333-188605

  

  

 

10.12

  

  

June 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.16

  

Amended and Restated Employment Agreement by and between the Registrant and Jeffrey T. Walsh

  

S-1/A

  

 

333-188605

  

  

 

10.13

  

  

June 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.17

  

Amended and Restated Employment Agreement by and between the Registrant and Mitch Finer

  

S-1/A

  

 

333-188605

  

  

 

10.14

  

  

June 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.18

  

Transitional Services and Separation Agreement by and between the Registrant and Mitch Finer

  

10-Q

  

 

001-35966

  

  

 

10.17

  

  

May 6, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.19

  

Amended and Restated Employment Agreement by and between the Registrant and David M. Davidson, M.D.

  

S-1/A

  

 

333-188605

  

  

 

10.15

  

  

June 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.20

  

Employment Agreement, dated October 20, 2014, by and between the Registrant and James DeTore

  

8-K

  

 

001-35966

  

  

 

10.1

  

  

November 10, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.21

 

Employment Agreement, dated May 30, 2015, by and between the Registrant and Philip D. Gregory

 

10-Q

  

 

001-35966

  

  

 

10.21

  

  

August 6, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.22

  

Employment Agreement, dated February 3, 2014, by and between the Registrant and Jason F. Cole

  

10-Q

  

 

001-35966

  

  

 

10.19

  

  

May 13, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.23

  

Offer Letter, dated October 14, 2013, by and between the Registrant and Eric Sullivan

  

10-Q

  

 

001-35966

  

  

 

10.20

  

  

May 13, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.24

  

2013 Employee Stock Purchase Plan

  

S-1/A

  

 

333-188605

  

  

 

10.17

  

  

June 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.25

  

Executive Cash Incentive Bonus Plan

  

S-1/A

  

 

333-188605

  

  

 

10.18

  

  

May 14, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.26

  

Lease, dated June 3, 2013, by and between the Registrant and 150 Second Street, LLC, as amended

  

S-1/A

  

 

333-188605

  

  

 

10.19

  

  

June 4, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.27

  

Lease Amendment, dated November 15, 2013, by and between the Registrant and 150 Second Street, LLC, as amended

  

10-K

  

 

001-35966

  

  

 

10.19

  

  

March 5, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.28

  

Lease Amendment, dated June 9, 2014, by and between the Registrant and 150 Second Street, LLC, as amended

  

10-Q

  

 

011-35966

  

  

 

10.24

  

  

August 12, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.29

 

Lease, dated June 29, 2015, by and between the Registrant and ARE-MA Region No. 38, LLC

 

10-Q

  

 

011-35966

  

  

 

10.29

  

  

August 6, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.30†

 

Lease, dated September 21, 2015, by and between the Registrant and ARE-MA Region No. 40 LLC

 

  

 

  

  

 

  

  

Filed herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21.1

  

Subsidiaries of the Registrant

  

10-Q

  

 

011-35966

  

  

 

21.1

  

  

August 12, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

  

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  

  

 

  

  

 

  

  

Filed herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.2

  

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  

  

 

  

  

 

  

  

Filed herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1

  

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  

  

 

  

  

 

  

  

Filed herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

  

 

  

Incorporated by Reference

Exhibit
Number

  

Exhibit Title

  

Form

  

File no.

 

  

Exhibit

 

  

Filing Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101

  

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014, (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2015 and 2014, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.

  

  

 

  

  

 

  

  

Filed herewith

Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been submitted separately to the SEC.