Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2021
Commitments and Contingencies Disclosure [Abstract]  



Arbitration Proceeding


We were engaged in an arbitration proceeding with REGENXBIO regarding the former license agreement between us and REGENXBIO relating to use of the AAV9 capsid in our MPS IIIA, MPS IIIB, CLN1 (which has now been sold to Taysha Gene Therapies), and CLN3 programs. The license terminated on May 2, 2020, and on May 25, 2020, we filed an arbitration claim with the American Arbitration Association (“AAA”) alleging that REGENXBIO materially breached the license agreement prior to termination and seeking, among other things, a declaration that as a result of REGENXBIO’s material breach, we were not responsible for payments totaling $28 million (which would otherwise have been due in 2020) plus accrued interest. REGENXBIO disputed our arbitration claim and filed a counterclaim seeking payment of the $28 million plus interest, which REGENXBIO argued remained due. An arbitration hearing before a tribunal of three AAA arbitrators was held on March 8 and March 9, 2021. On July 13, 2021, the tribunal found in favor of REGENXBIO in connection with the parties’ arbitration claims and counterclaims. The tribunal awarded REGENXBIO $28.0 million plus interest.


On August 9, 2021, we filed a second arbitration claim with the AAA asserting that a settlement had been reached before the tribunal’s award in the first arbitration was issued. On September 14, 2021, REGENXBIO filed its answer, a counterclaim seeking attorney fees and costs, and a request for permission to file a case dispositive motion. A preliminary hearing was held on November 1, 2021, during which the AAA Tribunal set timetables for discovery and for REGENXBIO’s filing of its case dispositive motion. Those timetables were formalized in a procedural order issued by the Tribunal on November 8, 2021. Under the schedule set by the Tribunal, REGENXBIO’s opening brief in support of its case dispositive motion was filed on November 8, 2021, briefing was scheduled to be completed on December 29, 2021, and oral argument was scheduled for January 14, 2022. REGENXBIO had also filed suit in the New York State Supreme Court Commercial Division seeking enforcement of the original arbitration award, and we had requested that the Court stay that proceeding until the second arbitration is complete. Oral argument on our request for a stay was set for March 10, 2022.


On November 12, 2021, we entered into a settlement agreement (“Settlement Agreement”) with REGENXBIO to resolve all current disputes between the parties including the aforementioned AAA arbitration and New York State Court action. In accordance with the Settlement Agreement, we agreed to pay REGENXBIO a total of $30 million, payable as follows: (1) $20 million payable within one business day of the execution of the Settlement Agreement, (2) $5 million on the first anniversary of the effective date of the Settlement Agreement, and (3) $5 million upon the earlier of: (i) the third anniversary of the effective date of the Settlement Agreement or (ii) the closing of a Strategic Transaction, as defined in the Settlement Agreement. Under the Settlement Agreement’s terms, the prior license agreement between the parties was not reinstituted, and any future license agreement would need to be negotiated separately and require consideration in addition to the consideration set forth in the Settlement Agreement. As of September 30, 2021, we have recorded the payable to licensor in the balance sheet based on the present value of the payments due to REGENXBIO under the Settlement Agreement. The accounting for the Settlement Agreement resulted in a $6.7 million gain on settlement with licensor in the statement of operations and comprehensive loss during the three and nine months ended September 30, 2021 and a $6.7 million non-cash gain on settlement with licensor in the statement of cash flows during the nine months ended September 30, 2021.


Operating Leases


We lease space under operating leases for manufacturing and laboratory facilities and administrative offices in Cleveland, Ohio, as well as administrative offices in New York, New York. We also lease office space in Madrid, Spain as well as certain office equipment under operating leases, which have a non-cancelable lease term of less than one year and, therefore, we have elected the practical expedient to exclude these short-term leases from our right-of-use assets and lease liabilities.


Components of lease cost are as follows:


    2021     2020     2021     2020  
    For the three months ended September 30,     For the nine months ended September 30,  
    2021     2020     2021     2020  
Operating lease cost   $ 434,000     $ 434,000     $ 1,302,000     $ 1,302,000  
Variable lease cost   $ 105,000     $ 81,000     $ 344,000     $ 256,000  
Short-term lease cost   $ 13,000     $ 19,000     $ 23,000     $ 43,000  


The following table presents information about the amount and timing of cash flows arising from operating leases as of September 30, 2021:


Maturity of lease liabilities:      
2021, remainder   $ 429,000  
2022     1,727,000  
2023     1,741,000  
2024     1,781,000  
2025     1,799,000  
Thereafter     87,000  
Total undiscounted operating lease payments     7,564,000  
Less: imputed interest     1,399,000  
Present value of operating lease liabilities   $ 6,165,000  
Balance sheet classification:        
Current portion of lease liability   $ 1,723,000  
Long-term lease liability     4,442,000  
Total operating lease liabilities   $ 6,165,000  
Other information:        
Weighted-average remaining lease term for operating leases     52 months  
Weighted-average discount rate for operating leases     9.6 %