# Voyager Therapeutics, Inc. (VYGR) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Voyager Therapeutics, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1640266/000155837023002989/vygr-20221231x10k.htm
Accession: 0001558370-23-002989
Filing date: 2023-03-07
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/VYGR/
All MD&A years: /company/VYGR/mda/
Previous year: /company/VYGR/mda/fy2021/ (FY 2021)
Next year: /company/VYGR/mda/fy2023/ (FY 2023)

ITEM 7.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. “Risk Factors” and under “Forward-Looking Statements” in this Annual Report on Form 10-K.

We are a biotechnology company dedicated to breaking through barriers in gene therapy and neurology. We believe the potential of both disciplines has been constrained by delivery challenges; we are leveraging expertise in capsid discovery and neuropharmacology to address these constraints. Our gene therapy platforms enable us to engineer, optimize, manufacture and deliver adeno-associated virus, or AAV, based gene therapies that we believe have the potential to safely provide durable efficacy. Our team of experts in the field of AAV gene therapy and neuroscience first identifies and selects diseases in which we believe an AAV gene therapy or other biological therapy will answer a high unmet medical need, be supported by target validation, offer an efficient path to human proof of biology, present robust preclinical pharmacology, and offer strong commercial potential. We then engineer and optimize an AAV vector or other biological therapy for activity in, efficacy in, or delivery to, the targeted tissue or cells.

We are identifying proprietary AAV capsids, the outer viral protein shells that enclose genetic material that makes up the vector payload. Our team has developed a proprietary AAV capsid discovery platform called TRACERTM (Tropism Redirection of AAV by Cell Type-Specific Expression of RNA) that employs directed evolution to facilitate the selection of AAV capsids with enhanced tissue delivery characteristics, such as more effective delivery across the blood brain barrier, or BBB. The TRACER discovery platform is a broadly applicable, functional RNA-based AAV capsid discovery platform that allows for rapid in vivo evolution of AAV capsids with cell-specific transduction properties in multiple species, including non-human primates. We believe that capsids we discover through our TRACER discovery platform, which we refer to as TRACER capsids, have the potential to significantly enhance the efficacy and safety of our single dose gene therapies, which we expect to be delivered with targeted surgical delivery or systemic infusions, as compared with conventional capsids.

In addition to leveraging TRACER capsids in potential licensing arrangements, we are advancing our own proprietary pipeline of drug candidates for neurological diseases. Our wholly-owned prioritized pipeline programs include: superoxide dismutase 1, or SOD1, gene therapy for amyotrophic lateral sclerosis, or ALS, and an anti-tau antibody for Alzheimer’s disease. We have identified a lead development candidate for our anti-tau antibody program and we expect to identify a lead development candidate for our SOD1 program during the first half of 2023. We expect to file INDs for both programs in 2024. In addition to these two wholly-owned programs, we are actively advancing two programs in collaboration with Neurocrine Biosciences, Inc., or Neurocrine: a glucocerebrosidase 1, or GBA1, gene therapy program for Parkinson’s disease and other GBA1-mediated diseases, and a FXN gene therapy program for Friedreich’s ataxia. We also maintain a robust early research pipeline of wholly-owned and collaborative gene therapy programs for neurological diseases.

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We have a history of incurring significant losses. We reported a net loss of $46.4 million for the year ended December 31, 2022. As of December 31, 2022, we had an accumulated deficit of $393.5 million. We reported a net loss of $71.2 million for the year ended December 31, 2021. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase substantially in connection with our ongoing activities, as we:

[[GREPCENT_TABLE]]
[["","\u25cf","conduct preclinical development activities and initiate investigational new drug, or IND, application-enabling studies and clinical trials in connection with our tau antibody program and our SOD1 ALS gene therapy program;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","continue investing in our gene therapy platform to optimize capsid engineering and payload development, manufacturing, dosing, and delivery techniques by continuing to develop our proprietary antibodies and vectorized antibody platform;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","increase our investment in and support for TRACERTM (Tropism Redirection of AAV by Cell Type-Specific Expression of RNA), our proprietary discovery platform to facilitate the selection of AAV capsids and expand our investment to discover TRACER capsids with broad tropism in central nervous system, or CNS, and other tissues with cell-specific transduction properties for particular therapeutic applications;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","conduct joint research and development under our strategic collaborations for the research, development, and commercialization of certain of our pipeline programs, including our FA Program pursuant to a collaboration with Neurocrine entered into in January 2019, or the 2019 Neurocrine Collaboration Agreement, and our GBA1 gene therapy program pursuant to our collaboration and license agreement with Neurocrine entered into on January 8, 2023, or the 2023 Neurocrine Collaboration Agreement;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","initiate additional preclinical studies and clinical trials for, and continue research and development of, our other programs;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","continue our process research and development activities, as well as establish our research-grade and commercial manufacturing capabilities;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","identify additional diseases for treatment with our AAV gene therapies and develop additional programs or product candidates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","seek marketing and regulatory approvals for any of our product candidates that successfully complete clinical development;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","maintain, expand, protect and enforce our intellectual property portfolio;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","identify, acquire or in-license other product candidates and technologies;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","expand our operational, financial and management systems and personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","increase our product liability and clinical trial insurance coverage as we expand our clinical trials and commercialization efforts; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","continue to operate as a public company."]]
[[/GREPCENT_TABLE]]

We refer to our collaboration agreement with Neurocrine dated as of January 28, 2019 as the 2019 Neurocrine Collaboration Agreement. We refer to our option and license agreement with Pfizer Inc., or Pfizer, as the Pfizer Agreement, and to our option and license agreement with Novartis Pharma AG, or Novartis, as the Novartis Agreement.

​

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Financial Operations Overview

Revenue

​

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future. For the year ended December 31, 2022, we recognized $40.9 million of collaboration revenue from the Pfizer Agreement and the 2019 Neurocrine Collaboration Agreement. For additional information about our revenue recognition policy, see the section titled “—Critical Accounting Policies and Estimates—Revenue.”

​

For the foreseeable future, we expect substantially all of our revenue will be generated from the 2019 Neurocrine Collaboration Agreement and the 2023 Neurocrine Collaboration Agreement, the Pfizer Agreement, the Novartis Agreement, and any other strategic collaborations and out-licensing arrangements we may enter into in the future. If our development efforts are successful, we may also generate revenue from product sales.

​

Expenses

​

Research and Development Expenses

​

Research and development expenses consist primarily of costs incurred for our research activities, including our program discovery efforts, and the development of our programs, gene therapy platform, proprietary antibodies, and vectorized antibody platform which include:

​

[[GREPCENT_TABLE]]
[["","\u25cf","employee-related expenses including salaries, benefits, and stock-based compensation expense;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","costs of funding research performed by third parties that conduct research and development, preclinical activities, manufacturing and production design on our behalf;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the cost of purchasing laboratory supplies and non-capital equipment used in designing, developing and manufacturing preclinical study materials;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","consultant fees;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","facility costs including rent, depreciation and maintenance expenses;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the cost of securing and protecting intellectual property rights associated with our research and development activities; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","fees for maintaining licenses under our third-party licensing agreements."]]
[[/GREPCENT_TABLE]]

Research and development costs are expensed as incurred. Costs for certain activities, such as manufacturing, preclinical studies, and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators.

​

Research and development activities are central to our business model. We are in the early stages of development of our product candidates. On August 6, 2021, our board of directors approved a strategic restructuring plan to eliminate a portion of our workforce as part of an initiative to reduce expenses and enhance operations. Our research and development costs have decreased relative to pre-2021 levels as a result of this strategic restructuring, and also due to the reevaluation of our product candidate pipeline, our strategic shift to invest in TRACER capsid development efforts, and our initiation of other cost-saving initiatives. As our development programs progress and as we identify product candidates and initiate preclinical studies and clinical trials, we expect research and development costs to increase. However, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates.

​

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Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses. Our expenses will increase if:

​

[[GREPCENT_TABLE]]
[["","\u25cf","we are required by the FDA or the European Medicines Agency, or EMA, or other regulatory agencies to redesign or modify trials or studies or to perform trials or studies in addition to those currently expected;"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","there are any delays in the receipt of regulatory clearance to begin our planned clinical programs; or"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","there are any delays in enrollment of patients in or completing our clinical trials or the development of our product candidates."]]
[[/GREPCENT_TABLE]]

​

General and Administrative Expenses

​

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, business development, legal and human resource functions. Other significant costs include corporate facility costs not otherwise included in research and development expenses, legal fees related to patent and corporate matters and fees for accounting and consulting services.

​

Our general and administrative expenses have decreased relative to pre-2021 levels as a result of our strategic restructuring. As a result of the strategic restructuring, there are decreases including a reduction in personnel costs and fees paid to outside consultants, as well as other cost-saving initiatives including a reduction in facility-related expenditures. As our development programs progress and we identify product candidates and initiate preclinical studies and clinical trials, we expect general and administrative expenses to increase to support these additional research and development activities.

​

Other Income, Net

​

Other income, net consists primarily of an employee retention tax credit under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and interest income on our marketable securities.

​

Critical Accounting Policies and Estimates

​

Our management’s discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the financial statements prospectively from the date of change in estimates.

​

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our financial statements require the most significant judgments and estimates.

Revenue Recognition – ASC 606

​

We recognize revenue in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 606 Revenue from Contracts with Customers, or ASC 606.

​

We enter into license, option, and collaboration agreements which are within the scope of ASC 606, under which we license or provide options to license certain of our product candidates and, in certain cases, perform research and development. The terms of these arrangements typically include payment of one or more of the following: non-

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refundable, upfront fees; reimbursement of research and development costs; development, regulatory and commercial milestone payments; option exercise fees; and royalties on net sales of licensed products.

​

We estimate the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the inception of each arrangement that includes variable consideration, we evaluate the amount of potential payment and the likelihood that the payments will be received. We utilize either the most likely amount method or expected amount method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration which is included in the transaction price may be constrained, and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

​

Our contracts often include development and regulatory milestone payments which are assessed under the most likely amount method and constrained if it is probable that a significant revenue reversal would occur. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues in the period of adjustment. To date, we have not recognized any consideration related to the achievement of development, regulatory, or commercial milestone revenue resulting from any of our collaboration arrangements.

​

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any consideration related to sales-based royalty revenue resulting from any of our collaboration arrangements.

​

We allocate the transaction price based on the estimated stand-alone selling price of each of the performance obligations. We must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. We utilize key assumptions to determine the stand-alone selling price for performance obligations, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Additionally, in determining the standalone selling price for material rights, we utilize comparable transactions, industry standards for product development and clinical trial success probabilities and estimates of option exercise likelihood. Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts we would expect to receive for the satisfaction of each performance obligation.

​

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

​

Upfront payments and fees are recorded as contract liabilities within deferred revenue upon receipt or when due until we perform our obligations under these arrangements. Amounts are recorded as accounts receivable when our rights to consideration are unconditional. A significant portion of revenue recognized from the 2019 Neurocrine Collaboration Agreement is related to performance obligations pursuant to which revenue is recognized using a proportional performance model. Revenue is recognized using input-based measurements, which involves the measurement of progress toward each performance obligation based on the actual costs incurred compared to total projected costs. We estimate the expected remaining costs to complete the research and development services for each performance obligation. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure and related

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revenue recognition. Changes in our estimates of the expected remaining costs to complete the research and development services for our performance obligations, such as the significant change that occurred in the fourth quarter of 2021 as a result of decisions made by the JSC for the 2019 Neurocrine Collaboration Agreement, can result in significant changes to the amount of revenue we recognize each period.

Results of Operations

Comparison of the years ended December 31, 2022 and 2021:

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021, respectively, together with the changes in those items in dollars:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year ended","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","\u200b","\u200b"],["\u200b","\u200b","2022","","2021","","Change","\u200b"],["\u200b","\u200b","(in thousands)","\u200b"],["Collaboration revenue","\u200b","$","40,907","","$","37,415","","$","3,492","\u200b"],["Operating expenses:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Research and development","\u200b","","60,764","\u200b","","73,787","\u200b","","(13,023)","\u200b"],["General and administrative","\u200b","","30,980","\u200b","","37,246","\u200b","","(6,266)","\u200b"],["Total operating expenses","\u200b","","91,744","\u200b","","111,033","\u200b","","(19,289)","\u200b"],["Other income, net:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest income (expense)","\u200b","","1,792","\u200b","","(390)","\u200b","","2,182","\u200b"],["Other income","\u200b","","2,653","\u200b","","2,811","\u200b","","(158)","\u200b"],["Total other income, net","\u200b","","4,445","\u200b","","2,421","\u200b","","2,024","\u200b"],["Loss before income taxes","\u200b","\u200b","(46,392)","\u200b","\u200b","(71,197)","\u200b","\u200b","24,805","\u200b"],["Income tax provision","\u200b","\u200b","16","\u200b","\u200b","\u2014","\u200b","\u200b","16","\u200b"],["Net loss","\u200b","$","(46,408)","\u200b","$","(71,197)","\u200b","$","24,789","\u200b"]]
[[/GREPCENT_TABLE]]

Collaboration Revenue

Collaboration revenue was $40.9 million for the year ended December 31, 2022, and $37.4 million for the year ended December 31, 2021. The increase in collaboration revenue was largely a result of revenue recognized in connection with Pfizer’s decision to exercise the first material right for the option to receive an exclusive license, or the Pfizer License Option, along with the expiration of the second material right associated with the Pfizer License Option. This resulted in total revenue recognized of $40.0 million from Pfizer during the year ended December 31, 2022. The increase in collaboration revenue is partially offset by decreased revenue recognized under the 2019 Neurocrine Collaboration Agreement during the year ended December 31, 2022. During the fourth quarter of 2021, we recorded significant revenue associated with a change in estimate of the expected remaining costs to complete the research and development services for our performance obligations under the 2019 Neurocrine Collaboration Agreement, resulting in a significant decrease in revenue to be recorded in future periods. During the year ended December 31, 2021, collaboration revenue was entirely related to research services and cost reimbursement from the 2019 Neurocrine Collaboration Agreement. Our collaboration revenues were not materially impacted by the COVID-19 pandemic during the year ended December 31, 2022.

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Research and Development Expense

Research and development expense decreased by $13.0 million from $73.8 million for the year ended December 31, 2021 to $60.8 million for the year ended December 31, 2022. The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year ended","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,","\u200b","\u200b","\u200b"],["\u200b","\u200b","2022","","2021","","Change","\u200b"],["\u200b","\u200b","(in thousands)","\u200b"],["Employee and consultant","\u200b","$","29,209","","$","36,385","\u200b","$","(7,176)","\u200b"],["External research and development","\u200b","","15,679","\u200b","","18,486","\u200b","","(2,807)","\u200b"],["Facilities and other","\u200b","","7,863","\u200b","","9,483","\u200b","","(1,620)","\u200b"],["Professional fees","\u200b","","8,014","\u200b","","9,433","\u200b","","(1,420)","\u200b"],["Total research and development expenses","\u200b","$","60,764","\u200b","$","73,787","\u200b","$","(13,023)","\u200b"]]
[[/GREPCENT_TABLE]]

​

The decrease in research and development expense for the year ended December 31, 2022 was primarily attributable to the following:

​

[[GREPCENT_TABLE]]
[["","\u25cf","approximately $7.2 million for decreased compensation costs and stock-based compensation costs associated with lower headcount in research and development functions compared to prior year;"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","approximately $2.8 million for decreased external research and development costs primarily related to a reduction in clinical and manufacturing activities to prepare for the first-in-humans trial of the VY-HTT01 for Huntington\u2019s disease and a reduction in external costs incurred in connection with the 2019 Neurocrine Collaboration Agreement, partially offset by the technology access fee for our license agreement with Touchlight IP Limited, or the Touchlight License Agreement;"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","approximately $1.6 million of decreased facility costs primarily related to the termination of the lease for office and laboratory space at 75 Sidney Street during the second quarter of 2022; and"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","approximately $1.4 million for decreased professional fees and related expenses to support the pipeline programs."]]
[[/GREPCENT_TABLE]]

General and Administrative Expense

General and administrative expense decreased by $6.3 million from $37.2 million for the year ended December 31, 2021 to $31.0 million for the year ended December 31, 2022. The decrease in general and administrative expense was primarily attributable to the following:

​

[[GREPCENT_TABLE]]
[["","\u25cf","approximately $3.1 million for decreased compensation costs and stock-based compensation costs associated with lower headcount in general and administrative functions as compared to prior year;"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","approximately $1.6 million for decreased facility and other costs primarily related to the termination of the lease for office and laboratory space at 75 Sidney Street during the second quarter of 2022; and"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["","\u25cf","approximately $1.5 million for decreased legal costs and intellectual property related expenses."]]
[[/GREPCENT_TABLE]]

​

Other Income, Net

Other income, net of approximately $4.4 million was recognized during the year ended December 31, 2022, as compared to $2.4 million during the year ended 2021. Other income, net during the year ended December 31, 2022 primarily related to an employee retention tax credit under the CARES Act and interest income on marketable securities

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balances, while other income, net during the year ended December 31, 2021 primarily related to interest income on marketable securities balances.

​

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations primarily through private placements of redeemable convertible preferred stock, public offerings of our common stock, strategic collaborations and option and license arrangements, including our 2019 Neurocrine Agreement and 2023 Neurocrine Collaboration Agreement, our ongoing option and license arrangements with Pfizer and Novartis under the Pfizer Agreement and the Novartis Agreement, respectively, and with our prior collaboration agreements.

As of December 31, 2022, we had cash, cash equivalents, and marketable securities of $118.8 million. Based upon our current operating plan, we expect that our existing cash, cash equivalents, and marketable securities at December 31, 2022, together with the upfront payment received in February 2023 in connection with the 2023 Neurocrine Collaboration Agreement, along with amounts expected to be received as reimbursement for development costs under our 2019 Neurocrine Agreement and 2023 Neurocrine Collaboration Agreement, will enable us to meet our planned operating expenses and capital expenditure requirements into 2025.

Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2022, 2021, and 2020.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year ended","\u200b"],["\u200b","\u200b","December 31,","\u200b"],["\u200b","\u200b","2022","","2021","","2020","\u200b"],["\u200b","","(in thousands)","\u200b"],["Net cash (used in) provided by:","\u200b","","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating activities","\u200b","$","(12,509)","\u200b","$","(53,525)","\u200b","$","(96,716)","\u200b"],["Investing activities","\u200b","","(7,339)","\u200b","","65,906","\u200b","","112,995","\u200b"],["Financing activities","\u200b","","1,110","\u200b","","612","\u200b","","3,163","\u200b"],["Net (decrease) increase in cash, cash equivalents, and restricted cash","\u200b","$","(18,738)","\u200b","$","12,993","\u200b","$","19,442","\u200b"]]
[[/GREPCENT_TABLE]]

Cash Flows from Operating Activities

Net cash used in operating activities was $12.5 million during the year ended December 31, 2022. The cash used in operating activities for the year ended December 31, 2022 was primarily driven by operating expenses, net of stock-based compensation and depreciation, offset by an increase in deferred revenue partially driven by the upfront payment of $54.0 million from Novartis during the year ended December 31, 2022.

Net cash used in operating activities was $53.5 million during the year ended December 31, 2021. The cash used in operating activities for the year ended December 31, 2021 was primarily driven by operating expenses, net of stock-based compensation and depreciation. We also received an upfront payment of $30.0 million pursuant to the Pfizer Agreement.

Net cash used in operating activities was $96.7 million during the year ended December 31, 2020. The cash used in operating activities for the year ended December 31, 2020 was primarily driven by the one-time recognition of $105.2 million deferred revenue related to the termination of the AbbVie Tau Collaboration and the AbbVie Alpha-Synuclein Collaboration, offset by $36.7 million of net income, and changes in working capital.

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Cash Flows from Investing Activities

Net cash used in investing activities was $7.3 million during the year ended December 31, 2022. The cash used in investing activities for the year ended December 31, 2022 was primarily due to $54.8 million for purchases of marketable securities and $2.5 million for purchases of property and equipment, offset by $50.0 million from proceeds from maturities and sales of marketable securities.

Net cash provided by investing activities was $65.9 million during the year ended December 31, 2021. The cash provided by investing activities for the year ended December 31, 2021 was primarily due to $70.0 million from maturities of marketable securities and $12.6 million from proceeds of sales of marketable securities partially offset by $15.1 million for purchases of marketable securities and $1.6 million for purchases of property and equipment.

Net cash provided by investing activities was $113.0 million during the year ended December 31, 2020. The cash provided by investing activities for the year ended December 31, 2020 was primarily due to proceeds from maturities of marketable securities of $195.5 million, offset by purchases of marketable securities of $70.4 million and purchases of property and equipment of $12.1 million.

Cash Flows from Financing Activities

Net cash provided by financing activities was $1.1 million during the year ended December 31, 2022 primarily due to the proceeds from the exercise of stock options, and purchases by our employees of our common stock under our employee stock purchase plan.

Net cash provided by financing activities was $0.6 million during the year ended December 31, 2021 primarily due to the proceeds from the exercise of stock options, and purchases by our employees of our common stock under our employee stock purchase plan.

Net cash provided by financing activities was $3.2 million during the year ended December 31, 2020 primarily due to the proceeds from the exercise of stock options, and purchases by our employees of our common stock under our employee stock purchase plan.

Funding Requirements

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Our expenses decreased during the year ended December 31, 2022 as compared with the prior year as a result of our strategic restructuring, the reevaluation of our product candidate pipeline, our strategic shift to invest in TRACER capsid development efforts, and our initiation of other cost-saving initiatives. We expect our expenses to increase in the longer term, however, as we continue the research and development of, conduct clinical trials of, and seek marketing approval for, our product candidates and as we continue to enter into or conduct activities in connection with our collaboration agreements. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant expenses related to program sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Furthermore, we expect to incur increasing costs associated with operating as a public company, executing financial statement controls, satisfying regulatory and quality standards, fulfilling healthcare compliance requirements, and maintaining product, clinical trial and directors’ and officers’ liability insurance coverage. We also anticipate the cost of goods and services and the levels of compensation paid to employee will increase due to inflationary conditions existing in the general economy. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital or enter into business development transactions when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

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Based upon our current operating plan, we expect that our existing cash, cash equivalents, and marketable securities at December 31, 2022, together with the upfront payment received in February 2023 in connection with the 2023 Neurocrine Collaboration Agreement, along with amounts expected to be received as reimbursement for development costs under our 2019 Neurocrine Agreement and 2023 Neurocrine Collaboration Agreement, will enable us

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to meet our planned operating expenses and capital expenditure requirements into 2025. Our future capital requirements will depend on many factors, including:

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[[GREPCENT_TABLE]]
[["","\u25cf","the scope, progress, results, and costs of product discovery, preclinical studies and clinical trials for our product candidates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the scope, progress, results, costs, prioritization, and number of our research and development programs;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the progress and status of our strategic collaborations and option and license agreements and any similar arrangement we may enter into in the future, including any research and development costs for which we are responsible, and our receipt of any future milestone payments and royalties from our collaboration partners or licensors;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the extent to which we are obligated to reimburse preclinical development and clinical trial costs, or the achievement of milestones or occurrence of other developments that trigger milestone and royalty payments, under any collaboration or license agreements to which we might become a party, such as the Touchlight License Agreement;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the costs, timing and outcome of regulatory review of our product candidates;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","our ability to establish and maintain collaboration, distribution, or other marketing arrangements for our product candidates on favorable terms, if at all;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the extent to which we acquire or in-license other product candidates and technologies, including any intellectual property associated with such candidates or technologies, acquire or invest in other businesses, or out-license our product candidates, capsids or other technologies;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the costs of advancing our manufacturing capabilities and securing manufacturing arrangements for pre-commercial and commercial production;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the level of product sales by us or our collaborators from any product candidates for which we obtain marketing approval in the future;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the costs of operating as a public company and maintaining adequate product, clinical trial, and directors\u2019 and officers\u2019 liability insurance coverage; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","the costs of establishing or contracting for sales, manufacturing, marketing, distribution, and other commercialization capabilities if we obtain regulatory approvals to market our product candidates."]]
[[/GREPCENT_TABLE]]

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete. We may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our product revenues, if any, and any commercial milestone payments or royalty payments under our collaboration agreements, will be derived from sales of products that may not be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing and business development transactions to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.

​

Until such time, if ever, as we can generate product revenues sufficient to achieve consistent profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and option and license arrangements. We do not have any committed external source of funds other than the

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amounts we are entitled to receive from our collaboration partners and licensors for reimbursement of certain research and development expenses, potential option exercises, the achievement of specified regulatory and commercial milestones, and royalty payments under our collaboration, and option and license agreements, as applicable. To the extent that we raise additional capital through the sale of equity or equity-linked securities, including convertible debt, our stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights as holders of our common stock. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, obtaining additional capital, acquiring or divesting businesses, making capital expenditures or declaring dividends.

​

If we raise additional funds through collaborations, strategic alliances, or option and license arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

​

Contractual Obligations

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We enter into agreements in the normal course of business with clinical research organizations, contract manufacturing organizations, and institutions to license intellectual property. These contracts generally are cancelable at any time by us, upon 30 to 90 days prior written notice.

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Our agreements to license intellectual property include potential milestone payments that are dependent upon the development of products using the intellectual property licensed under the agreements and contingent upon the achievement of clinical trial or regulatory approval milestones. We may also be required to pay annual maintenance fees or minimum amounts payable ranging from low-four digits to low five-digits depending upon the terms of the applicable agreement. In certain instances, we are also obligated to pay our licensors royalties based on sales of products, if approved, using the intellectual property licensed under the applicable agreement.

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We also have non-cancelable operating lease commitments arising from our leases of office and laboratory space at our facilities in Cambridge and Lexington, Massachusetts. For more information, refer to Note 7 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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Off-Balance Sheet Arrangements

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We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable rules of the Securities and Exchange Commission, or the SEC.

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Smaller Reporting Company Status

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As of June 30, 2022, we have requalified as a “smaller reporting company,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. We would cease to qualify as a smaller reporting company if we have (a) a non-affiliate public float in excess of $250 million and annual revenues in excess of $100 million during our last fiscal year, or (b) a non-affiliate public float in excess of $700 million, in each case determined on an annual basis as of the last business day of our second quarter. As a smaller reporting company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not smaller reporting companies. These exemptions include:

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[[GREPCENT_TABLE]]
[["","\u25cf","being permitted to provide only two years of audited consolidated financial statements in this Annual Report on Form 10-K, with correspondingly reduced Management's Discussion and Analysis of Financial Condition and Results of Operations\u201d disclosure;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","reduced disclosure obligations regarding executive compensation; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","not being required to furnish a stock performance graph in our annual report."]]
[[/GREPCENT_TABLE]]

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We expect to take advantage of some or all of the available exemptions until we cease to be a smaller reporting company. We may cease to qualify as a smaller reporting company as early as June 30, 2023, which would require us to comply with disclosure requirements that are applicable to other public companies that are not smaller reporting companies following the filing of our Annual Report on Form 10-K for the year ending December 31, 2023, and any portions of our definitive proxy statement relating to our 2024 Annual Meeting of Stockholders incorporated by reference therein.

​