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EX-31.1 - EX-31.1 - AGENUS INCagen-ex311_291.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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

o

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: 000-29089

 

Agenus Inc.

(exact name of registrant as specified in its charter)

 

 

Delaware

 

06-1562417

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3 Forbes Road, Lexington, Massachusetts 02421

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(781) 674-4400

 

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  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

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.

 

Large accelerated filer

 

o  

 

Accelerated filer

 

x

 

 

 

 

 

 

 

Non-accelerated filer

 

o  (Do not check if a smaller reporting company)

 

Smaller reporting company

 

o

 

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

Number of shares outstanding of the issuer's Common Stock as of October 30, 2015: 84,646,215 shares

 

 

 


Agenus Inc.

Nine Months Ended September 30, 2015

Table of Contents

 

 

 

 

 

Page

PART I

 

 

ITEM 1.

 

Financial Statements:

 

2

 

 

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

 

2

 

 

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

 

3

 

 

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

 

4

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

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

 

22

ITEM 4.

 

Controls and Procedures

 

22

 

 

 

PART II

 

 

ITEM 1A.

 

Risk Factors

 

24

ITEM 6.

 

Exhibits

 

47

 

 

Signatures

 

48

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30, 2015

 

 

December 31, 2014

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

184,138,960

 

 

$

25,714,519

 

Short-term investments

 

 

14,993,700

 

 

 

14,509,570

 

Inventories

 

 

88,200

 

 

 

95,700

 

Accounts Receivable

 

 

7,331,624

 

 

 

463,007

 

Prepaid expenses

 

 

1,953,486

 

 

 

1,247,548

 

Other current assets

 

 

437,311

 

 

 

639,957

 

Total current assets

 

 

208,943,281

 

 

 

42,670,301

 

Plant and equipment, net of accumulated amortization and depreciation of $29,351,331

   and $28,369,982 at September 30, 2015 and December 31, 2014, respectively

 

 

7,829,693

 

 

 

5,996,687

 

Goodwill

 

 

18,139,991

 

 

 

17,869,023

 

Acquired intangible assets, net of accumulated amortization of $873,667 and $462,248

   at September 30, 2015 and December 31, 2014, respectively

 

 

6,490,481

 

 

 

6,773,722

 

Other long-term assets

 

 

1,204,804

 

 

 

1,216,795

 

Total assets

 

$

242,608,250

 

 

$

74,526,528

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current portion, long-term debt

 

$

146,061

 

 

$

1,257,178

 

Current portion, deferred revenue

 

 

5,967,198

 

 

 

184,421

 

Accounts payable

 

 

3,091,199

 

 

 

1,710,946

 

Accrued liabilities

 

 

13,738,916

 

 

 

5,501,527

 

Other current liabilities

 

 

5,342,496

 

 

 

575,351

 

Total current liabilities

 

 

28,285,870

 

 

 

9,229,423

 

Long-term debt

 

 

110,553,452

 

 

 

4,769,359

 

Deferred revenue

 

 

15,498,207

 

 

 

3,009,568

 

Contingent royalty obligation

 

 

 

 

 

15,279,000

 

Contingent purchase price consideration

 

 

3,747,000

 

 

 

16,420,300

 

Other long-term liabilities

 

 

7,547,617

 

 

 

2,800,491

 

Commitments and contingencies

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Series A-1 convertible preferred stock; 31,620 shares designated, issued, and

   outstanding at September 30, 2015 and December 31, 2014; liquidation value

   of $32,164,572 at September 30, 2015

 

 

316

 

 

 

316

 

Common stock, par value $0.01 per share; 140,000,000 shares authorized;

   84,646,215 and 62,720,065 shares issued at September 30, 2015 and

   December 31, 2014, respectively

 

 

846,462

 

 

 

627,201

 

Additional paid-in capital

 

 

841,041,405

 

 

 

715,667,633

 

Accumulated other comprehensive loss

 

 

(1,331,638

)

 

 

(1,970,420

)

Accumulated deficit

 

 

(763,580,441

)

 

 

(691,306,343

)

Total stockholders’ equity

 

 

76,976,104

 

 

 

23,018,387

 

Total liabilities and stockholders’ equity

 

$

242,608,250

 

 

$

74,526,528

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

2


AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development revenue

 

$

6,848,194

 

 

$

1,563,378

 

 

$

17,178,191

 

 

$

5,358,322

 

Total revenues

 

 

6,848,194

 

 

 

1,563,378

 

 

 

17,178,191

 

 

 

5,358,322

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

(18,502,063

)

 

 

(5,284,607

)

 

 

(52,495,316

)

 

 

(14,979,844

)

General and administrative

 

 

(6,407,902

)

 

 

(4,919,675

)

 

 

(19,910,650

)

 

 

(16,209,790

)

Contingent purchase price consideration fair value adjustment

 

 

6,994,000

 

 

 

969,000

 

 

 

(7,326,700

)

 

 

(164,000

)

Operating loss

 

 

(11,067,771

)

 

 

(7,671,904

)

 

 

(62,554,475

)

 

 

(25,995,312

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating (expense) income

 

 

(653,376

)

 

 

(127,367

)

 

 

(7,356,139

)

 

 

10,449,462

 

Interest expense, net

 

 

(1,401,102

)

 

 

(310,080

)

 

 

(2,363,484

)

 

 

(962,015

)

Net loss

 

 

(13,122,249

)

 

 

(8,109,351

)

 

 

(72,274,098

)

 

 

(16,507,865

)

Dividends on Series A-1 convertible preferred stock

 

 

(50,780

)

 

 

(51,159

)

 

 

(152,099

)

 

 

(153,292

)

Net loss attributable to common stockholders

 

$

(13,173,029

)

 

$

(8,160,510

)

 

$

(72,426,197

)

 

$

(16,661,157

)

Per common share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss attributable to common stockholders

 

$

(0.16

)

 

$

(0.13

)

 

$

(0.95

)

 

$

(0.28

)

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

84,569,118

 

 

 

62,831,541

 

 

 

75,935,985

 

 

 

58,710,338

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

$

(680,993

)

 

$

(1,294,720

)

 

$

625,132

 

 

$

(1,161,036

)

Unrealized gain on investments

 

 

7,760

 

 

 

1,863

 

 

 

13,650

 

 

 

3,816

 

Other comprehensive income (loss)

 

 

(673,233

)

 

 

(1,292,857

)

 

 

638,782

 

 

 

(1,157,220

)

Comprehensive loss

 

$

(13,846,262

)

 

$

(9,453,367

)

 

$

(71,787,415

)

 

$

(17,818,377

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

3


AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine months ended September 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(72,274,098

)

 

$

(16,507,865

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,403,324

 

 

 

1,019,073

 

Share-based compensation

 

 

5,218,479

 

 

 

3,700,518

 

Non-cash interest expense

 

 

1,643,417

 

 

 

461,653

 

Loss on disposal of assets

 

 

 

 

 

1,150

 

Change in fair value of contingent obligations

 

 

14,190,000

 

 

 

(10,652,557

)

In-process research and development purchase

 

 

12,245,230

 

 

 

 

Loss on extinguishment of debt

 

 

154,117

 

 

 

 

Change in fair value of assumed convertible notes

 

 

 

 

 

(205,143

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,232,669

)

 

 

1,200

 

Inventories

 

 

7,500

 

 

 

(95,700

)

Prepaid expenses

 

 

(693,981

)

 

 

(425,485

)

Accounts payable

 

 

1,266,219

 

 

 

35,207

 

Deferred revenue

 

 

18,465,694

 

 

 

(2,695,737

)

Accrued liabilities and other current liabilities

 

 

8,390,007

 

 

 

(2,021,879

)

Other operating assets and liabilities

 

 

(10,367,586

)

 

 

(341,034

)

Net cash used in operating activities

 

 

(27,584,347

)

 

 

(27,726,599

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash acquired in acquisition

 

 

 

 

 

514,470

 

Purchases of plant and equipment

 

 

(2,818,429

)

 

 

(1,105,472

)

Purchases of available-for-sale securities

 

 

(15,006,730

)

 

 

(14,517,644

)

Proceeds from sale of available-for-sale securities

 

 

14,534,486

 

 

 

 

Net cash used in investing activities

 

 

(3,290,673

)

 

 

(15,108,646

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from sale of equity

 

 

109,669,980

 

 

 

56,792,252

 

Proceeds from employee stock purchases and option exercises

 

 

1,963,738

 

 

 

150,140

 

Financing of plant and equipment

 

 

 

 

 

(39,156

)

Proceeds from issuance of long-term debt

 

 

109,000,000

 

 

 

 

Debt issuance costs

 

 

(1,774,323

)

 

 

 

Payments of debt

 

 

(1,111,112

)

 

 

(2,500,000

)

Payment of contingent purchase price consideration

 

 

(8,380,483

)

 

 

 

Payment of preferred stock dividends

 

 

 

 

 

(460,963

)

Payment of contingent royalty obligation

 

 

(20,000,000

)

 

 

(400,000

)

Net cash provided by financing activities

 

 

189,367,800

 

 

 

53,542,273

 

Effect of exchange rate changes on cash

 

 

(68,339

)

 

 

327,128

 

Net increase in cash and cash equivalents

 

 

158,424,441

 

 

 

11,034,156

 

Cash and cash equivalents, beginning of period

 

 

25,714,519

 

 

 

27,351,969

 

Cash and cash equivalents, end of period

 

$

184,138,960

 

 

$

38,386,125

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

770,538

 

 

$

531,863

 

Supplemental disclosures - non-cash activities:

 

 

 

 

 

 

 

 

Purchases of plant and equipment in accounts payable and accrued liabilities

 

 

111,903

 

 

 

292,106

 

Issuance of common stock, $0.01 par value, issued in connection with the settlement of     the contingent royalty obligation

 

 

2,142,000

 

 

 

 

Issuance of common stock, $0.01 par value, issued in connection with the acquisition

   of the SECANT Yeast Display technology

 

 

3,000,000

 

 

 

 

Issuance of common stock, $0.01 par value, for acquisition of 4-Antibody AG

 

 

 

 

 

10,102,259

 

Issuance of common stock, $.01 par value, in connection with payment of the contingent purchase price obligation

 

 

344,550

 

 

 

 

Contingent purchase price consideration issued in connection with the acquisition of

   4-Antibody AG

 

 

 

 

 

9,721,000

 

Issuance of common stock, $0.01 par value, as payment of long-term debt

 

 

 

 

 

953,765

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4


AGENUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

 

Note A - Business, Liquidity and Basis of Presentation

Agenus Inc. (including its subsidiaries, also referred to as “Agenus,” the “Company,” “we,” “us,” and “our”) is an immunology company discovering and developing novel checkpoint modulators, vaccines and adjuvants to treat cancer and other diseases. Our approaches are driven by three platform technologies:

 

·

our antibody platforms, including our proprietary Retrocyte Display™, SECANT® yeast display, our phage display technologies, and our antibody programs, including checkpoint modulators, or CPMs;

 

·

our heat shock protein (HSP)-based vaccines; and

 

·

our saponin-based vaccine adjuvants, principally our QS-21 Stimulon® adjuvant, or QS-21 Stimulon.

We have a portfolio of programs in pre-clinical and clinical stages, including a series of CPMs in investigational new drug (IND)-enabling studies, our Prophage vaccine, a HSP-based autologous vaccine candidate for glioblastoma multiforme, or GBM, a form of brain cancer, and a number of advanced QS-21 Stimulon-containing vaccine candidates in late stage development by our partner, GlaxoSmithKline plc (GSK).

For the treatment of cancer, our programs aim to stimulate the immune system to recognize and eradicate cancer cells and disable the mechanisms that cancer cells employ to evade detection and destruction by the immune system. Because of the breadth of our portfolio, we have the ability to combine our proprietary vaccines with a portfolio of checkpoint modulating antibodies against major checkpoint targets to explore and optimize cancer treatments. Our strategy is to develop these agents either alone or in combinations to yield best-in-class treatments. We assess the development, commercialization and/or partnering strategies with respect to each of our internal product candidates periodically based on several factors, including clinical trial results, competitive positioning and funding requirements and resources.

Agenus’ core technologies include Retrocyte Display, a powerful proprietary platform designed to effectively discover and optimize novel, fully human and humanized monoclonal antibodies against antigens of interest. Our Retrocyte Display technology is applied to the discovery and development of antibodies, including those targeting significant checkpoint targets. Agenus and its partners currently have pre-clinical programs targeting GITR, OX40, CTLA-4, LAG-3, TIM-3, PD-1, CEACAM1 and other undisclosed check-point programs. In April 2015, we expanded our antibody discovery platform through the acquisition of key antibody assets from Celexion, LLC (Celexion); see Note L. Among the acquired assets was the SECANT yeast display platform for the generation of novel monoclonal antibodies and efficient integration of drug targets such as CPMs.

On January 9, 2015 and effective February 19, 2015, we entered into a broad, global alliance with Incyte Corporation and a wholly-owned subsidiary thereof (collectively "Incyte") to pursue the discovery and development of CPMs, initially targeting GITR, OX40, TIM-3 and LAG-3 in the fields of hematology and oncology.  We also began collaborating with Merck Sharp & Dohme Corp in April 2014 to discover antibodies against two undisclosed CPM targets. We anticipate initiating clinical trials with the first of our CPM antibody candidates in 2016.

We have also been advancing a series of HSP-based vaccines to treat cancer and infectious disease. In June 2015, at the American Society of Clinical Oncology (ASCO) meeting, we reported positive results from a Phase 2 clinical trial with our Prophage vaccine, which showed that patients with newly-diagnosed GBM who were treated with a combination of our Prophage vaccine and standard of care showed substantial improvement both in progression-free survival and median overall survival, as compared to historical control data. The most significant clinical improvements were seen in patients with less elevated PD-L1 expression in peripheral blood monocytes.  These observations suggested that while some patients may derive the greatest benefit from standard of care and the Prophage vaccine alone, patients with more elevated PD-L1 expression on peripheral monocytes may benefit from a combination of Prophage in addition to checkpoint modulators PD-1 or PD-L1.  We are currently exploring advancing our Prophage vaccine into well-controlled randomized trials designed to study Prophage versus the standard of care. In addition, efforts are currently underway to conduct adequately controlled and randomized combination studies using Prophage while we simultaneously explore partnership opportunities to license Prophage. In 2014, we also reported positive results from a Phase 2 clinical trial with our HerpV vaccine candidate for genital herpes, and while we do not expect to advance into a Phase 3 clinical trial for genital herpes, we are currently in the process of evaluating the broader application of our HSP peptide-based vaccines.

The Company’s QS-21 Stimulon adjuvant is a key component in several of GSK’s pre-clinical and clinical stage vaccine programs, which target prophylactic or therapeutic impact in a variety of infectious diseases and cancer. In December 2014, GSK reported that its Phase 3 clinical trial with shingles vaccine candidate, HZ/su, using our QS-21 Stimulon adjuvant, met its primary

5


endpoint, reducing the risk of shingles by 97.2% in adults aged 50 years and older compared to placebo. GSK also reported positive Phase 3 clinical trial results in October 2013 for its malaria vaccine candidate using QS-21 Stimulon, Mosquirix™ (RTS,S), which recently received a positive opinion from the Committee for Medicinal Products for Human Use of the European Medicines Agency. In September 2015, we monetized a portion of the future royalties we are contractually entitled to receive from GSK from sales of its shingles and malaria vaccines through a Note Purchase Agreement and received net proceeds of approximately $98.2 million; refer to Note E for additional information.  QS-21 Stimulon is also the subject of an out-license agreement with Janssen Sciences Ireland Uc for use in a vaccine for Alzheimer’s disease.

Our business activities include product research and development, intellectual property prosecution, manufacturing, regulatory and clinical affairs, corporate finance and development activities, and support of our collaborations. Our product candidates require clinical trials and approvals from regulatory agencies, as well as acceptance in the marketplace.  Part of our strategy is to develop and commercialize some of our product candidates by continuing our existing arrangements with academic and corporate collaborators and licensees and by entering into new collaborations.

We have incurred significant losses since our inception.  As of September 30, 2015, we had an accumulated deficit of $763.6 million. To date, we have financed our operations primarily through the sale of equity and debt securities. We believe that, based on our current plans and activities, our working capital resources at September 30, 2015 will be sufficient to satisfy our liquidity requirements into the first half of 2018.

We may attempt to raise additional funds by: (1) pursuing collaboration, out-licensing and/or partnering opportunities for our portfolio programs and product candidates with one or more third parties, (2) renegotiating third party agreements, (3) selling assets, (4) securing additional debt financing and/or (5) selling equity securities. Satisfying long-term liquidity needs may require the successful commercialization and/or substantial out-licensing or partnering arrangements for our antibody discovery platforms, CPM antibody programs, HSP-based vaccines, and vaccines containing QS-21 Stimulon under development by our licensees. Our long-term success will also be dependent on the successful identification, development and commercialization of potential other product candidates, each of which will require additional capital with no certainty of timing or probability of success. If we incur operating losses for longer than we expect and/or we are unable to raise additional capital, we may become insolvent and be unable to continue our operations.

Our research and development program costs include compensation and other direct costs plus an allocation of indirect costs, based on certain assumptions, and our review of the status of each program. Our product candidates are in various stages of research and development and significant additional expenditures will be required if we start new clinical trials, encounter delays in our programs, apply for regulatory approvals, continue development of our technologies, expand our operations, and/or bring our product candidates to market. The eventual total cost of each clinical trial is dependent on a number of factors such as trial design, length of the trial, number of clinical sites, number of patients, and trial sponsorship. The process of obtaining and maintaining regulatory approvals for new therapeutic products is lengthy, expensive, and uncertain. Because our CPM antibody programs are pre-clinical and the further development of our HSP-based vaccines is subject to evaluation and uncertainty, we are unable to reliably estimate the cost of completing our research and development programs or the timing for bringing such programs to various markets or substantial partnering or out-licensing arrangements. Therefore, we cannot predict if or when material cash inflows from operating activities are likely to commence. We will continue to adjust other spending as needed in order to preserve liquidity. Active programs involving QS-21 Stimulon depend on our collaboration partners or licensees successfully completing clinical trials, successfully manufacturing QS-21 Stimulon to meet demand, obtaining regulatory approvals and successfully commercializing product candidates containing QS-21 Stimulon.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual consolidated financial statements. In the opinion of our management, the condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of our financial position and operating results. All significant intercompany transactions and accounts have been eliminated in consolidation. Certain reclassifications have been made to previously reported amounts to conform to the current presentation. Operating results for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. For further information, refer to our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (the “SEC”).

For our foreign subsidiaries the local currency is the functional currency. Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars using rates in effect at the balance sheet date while revenues and expenses are translated into U.S. dollars using average exchange rates during the period. The cumulative translation adjustment resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive loss in total stockholders’ equity.

6


The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

 

 

Note B - Net Loss Per Share

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our Directors’ Deferred Compensation Plan, or DDCP). Diluted net loss per common share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our DDCP) plus the dilutive effect of outstanding instruments such as warrants, stock options, nonvested shares, and convertible preferred stock. Because we reported a net loss attributable to common stockholders for all periods presented, diluted net loss per common share is the same as basic net loss per common share, as the effect of utilizing the fully diluted share count would have reduced the net loss per common share. Therefore, the following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding because they would be anti-dilutive:

 

 

 

Nine months ended

September 30,

 

 

 

2015

 

 

2014

 

Warrants

 

 

4,351,450

 

 

 

2,951,450

 

Stock options

 

 

8,226,791

 

 

 

6,841,400

 

Nonvested shares

 

 

1,734,821

 

 

 

78,828

 

Convertible preferred stock

 

 

333,333

 

 

 

333,333

 

 

 

Note C - Investments

Cash equivalents and short-term investments consisted of the following as of September 30, 2015 and December 31, 2014 (in thousands):

 

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

Cost

 

 

Estimated Fair Value

 

 

Cost

 

 

Estimated Fair Value

 

Institutional Money Market Funds

 

$

172,811

 

 

$

172,811

 

 

$

25,149

 

 

$

25,149

 

U.S. Treasury Bills

 

 

14,971

 

 

 

14,994

 

 

 

14,508

 

 

 

14,510

 

    Total

 

$

187,782

 

 

$

187,805

 

 

$

39,657

 

 

$

39,659

 

 

For the nine months ended September 30, 2015, we received proceeds of approximately $14.5 million from the sale of available-for-sale securities.  No proceeds from the maturity of available-for-sale securities were received for the year ended December 31, 2014.  Gross realized gains included in net loss as a result of the sale of available-for-sale securities were immaterial for the nine months ended September 30, 2015. As a result of the short-term nature of our investments, there were minimal unrealized holding gains or losses as of September 30, 2015 and December 31, 2014.

Of the investments listed above, $172.8 million and $25.1 million have been classified as cash equivalents and $15.0 million and $14.5 million as short-term investments on our condensed consolidated balance sheet as of September 30, 2015 and December 31, 2014, respectively.

 

 

Note D - Goodwill and Acquired Intangible Assets

The following table sets forth the changes in the carrying amount of goodwill for the nine months ended September 30, 2015 (in thousands):

 

Balance, December 31, 2014

 

$

17,869

 

Foreign currency translation adjustment

 

 

271

 

Balance, September 30, 2015

 

$

18,140

 

 

7


Acquired intangible assets consisted of the following at September 30, 2015 (in thousands):

 

 

 

Amortization period

(years)

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying amount

 

Intellectual Property

 

15 years

 

$

4,425

 

 

$

(479

)

 

$

3,946

 

Trademarks

 

4.5 years

 

 

829

 

 

 

(300

)

 

 

529

 

Other

 

3 years

 

 

175

 

 

 

(95

)

 

 

80

 

In-process research and development

 

Indefinite

 

 

1,935

 

 

 

 

 

 

1,935

 

Total

 

 

 

$

7,364

 

 

$

(874

)

 

$

6,490

 

 

The weighted average amortization period of our finite-lived intangible assets is 13 years.  Amortization expense related to acquired intangibles is estimated at $134,000 for the remainder of 2015, $512,000 for each of the years ending 2016 and 2017, $410,000 for the year ending 2018, $295,000 for the year ending 2019, and $299,000 for each of the years ending 2020-2029.

The acquired in-process research and development ("IPR&D") asset relates to the pre-clinical CPM antibody programs acquired with our acquisition of 4-Antibody AG (“4-AB”) 4-AB in February 2014.  IPR&D acquired in a business combination is capitalized at fair value until the underlying project is completed and is subject to impairment testing at least annually.  Once the project is completed, the carrying value of IPR&D is amortized over the estimated useful life of the asset.  Post-acquisition research and development expenses related to the acquired IPR&D are expensed as incurred.

 

 

Note E - Debt

Debt obligations consisted of the following as of September 30, 2015 and December 31, 2014 (in thousands):  

 

Debt instrument

 

Principal  at September 30,

2015

 

 

Non-cash Interest

 

 

Unamortized Debt Issuance Costs

 

 

Unamortized Debt Discount

 

 

Balance at September 30, 2015

 

Current Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

 

$

146

 

 

$

 

 

$

 

 

$

 

 

$

146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 Subordinated Notes

 

 

14,000

 

 

 

 

 

 

 

 

 

(2,510

)

 

 

11,490

 

Note Purchase Agreement

 

 

100,000

 

 

 

825

 

 

 

(1,514

)

 

 

(248

)

 

 

99,063

 

    Total long-term

 

$

114,000

 

 

$

825

 

 

$

(1,514

)

 

$

(2,758

)

 

$

110,553

 

    Total

 

$

114,146

 

 

$

825

 

 

$

(1,514

)

 

$

(2,758

)

 

$

110,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt instrument

 

Principal  at December 31, 2014

 

 

Non-cash Interest

 

 

Unamortized Debt Issuance Costs

 

 

Unamortized Debt Discount

 

 

Balance at December 31, 2014

 

Current Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

 

$

146

 

 

$

 

 

$

 

 

$

 

 

$

146

 

SVB Loan

 

 

1,111

 

 

 

 

 

 

 

 

 

 

 

 

1,111

 

    Total current

 

$

1,257

 

 

$

 

 

$

 

 

$

 

 

$

1,257

 

Long-term Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013 Notes

 

 

5,000

 

 

 

 

 

 

 

 

 

(231

)

 

 

4,769

 

    Total

 

$

6,257

 

 

$

 

 

$

 

 

$

(231

)

 

$

6,026

 

 

Subordinated Notes

On February 20, 2015, we, certain existing investors and certain additional investors entered into an Amended and Restated Note Purchase Agreement, pursuant to which we (i) canceled our senior subordinated promissory notes issued in April 2013 (the "2013 Notes") in exchange for new senior subordinated promissory notes (the “2015 Subordinated Notes”) in the aggregate principal amount of $5.0 million, (ii) issued additional 2015 Subordinated Notes in the aggregate principal amount of $9.0 million and (iii) issued five year warrants to purchase 1,400,000 shares of our common stock at an exercise price of $5.10 per share.

The 2015 Subordinated Notes bear interest at a rate of 8% per annum, payable in cash on the first day of each month in arrears. Among other default and acceleration terms customary for indebtedness of this type, the 2015 Subordinated Notes include default provisions which allow for the noteholders to accelerate the principal payment of the 2015 Subordinated Notes in the event we

8


become involved in certain bankruptcy proceedings, become insolvent, fail to make a payment of principal or (after a grace period) interest on the 2015 Subordinated Notes, default on other indebtedness with an aggregate principal balance of $13.5 million or more if such default has the effect of accelerating the maturity of such indebtedness, or become subject to a legal judgment or similar order for the payment of money in an amount greater than $13.5 million if such amount will not be covered by third-party insurance. The 2015 Subordinated Notes are not convertible into shares of our common stock and will mature on February 20, 2018, at which point we must repay the outstanding balance in cash. The Company may prepay the 2015 Subordinated Notes at any time, in part or in full, without premium or penalty.

The exchange of the 2013 Notes for the 2015 Subordinated Notes was accounted for as a debt extinguishment under the guidance of Accounting Standards Codification (ASC) 470-50 Debt: Modifications and Extinguishments. For the nine months ended September 30, 2015 we recorded a loss on debt extinguishment of approximately $154,000 in non-operating (expense) income in our condensed consolidated statements of operations and comprehensive loss.  The debt discount of approximately $3.0 million, which relates to the warrants issued in connection with the 2015 Subordinated Notes, is being amortized using the effective interest method over three years, the expected life of the 2015 Subordinated Notes.

Note Purchase Agreement Related to Sale of Future Royalties

On September 4, 2015, we and our wholly-owned subsidiaries, Antigenics LLC (“Antigenics”) and Aronex Pharmaceuticals, Inc. (“Aronex”), entered into a Note Purchase Agreement (the “NPA”) with Oberland Capital SA Zermatt LLC, as collateral agent (“Oberland”), an affiliate of Oberland as the lead purchaser and other purchasers. Pursuant to the terms of the NPA, on September 8, 2015 (the “Closing Date”), Antigenics issued $100.0 million aggregate principal amount of limited recourse notes (the “Notes”) to the purchasers. Antigenics has the option to issue an additional $15.0 million aggregate principal amount of Notes (the “Additional Notes”) to the purchasers within 15 days after approval of GSK’s shingles vaccine, HZ/su, by the Food and Drug Administration, provided such approval occurs on or before June 30, 2018.

The Notes accrue interest at a rate of 13.5% per annum, compounded quarterly, from and after the Closing Date computed on the basis of a 360-day year and the actual number of days elapsed. Principal and interest payments are due on each of March 15, June 15, September 15 and December 15, and shall be made solely from the royalties paid from GSK to Antigenics on sales of GSK’s shingles and malaria vaccines. The Notes are limited recourse and secured solely by a first priority security interest in the royalties and accounts and payment intangibles relating thereto plus various rights of Antigenics related to the royalties under its contracts with GSK (the “Collateral”). GSK will send all royalty payments to a segregated bank account, and to the extent there are insufficient royalties deposited into the account to fund a quarterly interest payment, the interest will be capitalized and added to the aggregate principal balance of the loan. The final legal maturity date of the Notes is the earlier of (i) the 10 th anniversary of the first commercial sale of GSK’s shingles or malaria vaccines and (ii) September 8, 2030 (the “Maturity Date”). Antigenics’ obligation to repay all principal and accrued and unpaid interest by the Maturity Date is secured only by the Collateral.

At our option, we may redeem all, but not less than all, of the Notes at any time prior to the Maturity Date. The redemption price is equal to the outstanding principal amount of the Notes, plus all accrued and unpaid interest thereon, plus a premium payment that would yield an aggregate internal rate of return (“IRR”) for the purchasers as follows: (i) an IRR of 20% if the redemption occurs within 24 months of the Closing Date, (ii) an IRR of 17.5% if the redemption occurs after 24 months but within 48 months of the Closing Date, and (iii) an IRR of 15% if the redemption occurs more than 48 months after the Closing Date (the “Redemption Payment”).

On September 8, 2018, each purchaser has the option to require Antigenics to repurchase up to 15% of the Notes issued to such purchaser on the Closing Date (the “Put Notes”) at a purchase price equal to the principal amount thereof plus accrued and unpaid interest thereon (the “Put Payment”). Antigenics is required to complete any such repurchase within 90 days after September 8, 2018.

On the earlier of (i) September 8, 2027 and (ii) the Maturity Date, Antigenics is required to pay the purchasers an amount equal to the following (the “Make-Whole Payment”): $100.0 million (or $115.0 million if the Additional Notes are sold) minus the aggregate amount of all payments made in respect of the Notes (regardless of whether characterized as principal or interest at the time of payment), including the original principal amount of any repaid Put Notes.

The NPA specifies a number of events of default (some of which are subject to applicable cure periods), including (i) failure to cause royalty payments to be deposited into the segregated bank account, (ii) payment defaults, (iii) breaches of representations and warranties made at the time the Notes were issued, (iv) covenant defaults, (v) a final and unappealable judgment against Antigenics for the payment of money in excess of $1.0 million, (vi) bankruptcy or insolvency defaults, (vii) the failure to maintain a first-priority perfected security interest in the Collateral in favor of the collateral agent and (viii) the occurrence of a change of control of Agenus. Upon the occurrence of an event of default, subject to cure periods in certain circumstance and some limited exceptions, Oberland may declare the Notes immediately due and payable, in which case Antigenics would owe a payment equal to the Redemption

9


Payment (the “Accelerated Default Payment”). Upon the occurrence and during the continuance of any event of default, interest on the Notes also increases by 2.5% per annum.

Agenus and Aronex (together, the “Guarantors”), are parties to the NPA as guarantors of certain of Antigenics’ obligations under the NPA. The Guarantors generally guarantee the Put Payment, the Make-Whole Payment, the Redemption Payment and the Accelerated Default Payment.

In accordance with the guidance of ASC 470-10-25 Debt: Recognition, we determined the NPA represents a debt transaction and does not purport to be a sale; the balance of the outstanding notes and interest will be repaid over the estimated term of the NPA.  We will periodically assess the expected royalties using a combination of historical results, internal projections and forecasts from external sources. To the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, we will prospectively adjust the estimated time period over which the debt and interest will be repaid. There are a number of factors that could materially affect the amount and timing of royalty payments from GSK, all of which are not within our control. Such factors include, but are not limited to, changing standards of care, the introduction of competing products, manufacturing or other delays, biosimilar competition, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates, and other events or circumstances that could result in reduced royalty payments from GSK, all of which would result in a reduction of royalty revenues and the interest expense over the life of the NPA.

As royalties are remitted to the purchasers, we will record non-cash royalty revenues and non-cash interest expense within our consolidated statements of operations and comprehensive loss over the term of the NPA as interest accrues and royalties are generated. We did not recognize any royalty revenue and recorded $825,000 in non-cash interest expense for the three and nine months-ended September 30, 2015 within our condensed consolidated statement of operations and comprehensive loss.

In connection with the execution of the NPA, we reimbursed the purchasers for legal fees of $250,000 and incurred debt issuance costs of approximately $1.5 million.  Under the relevant accounting guidance, legal fees and debt issuance costs have been recorded as a reduction to the gross proceeds.  These amounts are being amortized over 12 years, the expected term of the Notes, using the effective interest rate method.

Other

In April 2015, we made our final payment of approximately $278,000 under our $5.0 million Loan and Security Agreement with Silicon Valley Bank (the "SVB Loan") in accordance with the terms of the SVB Loan.  We have no further outstanding indebtedness or obligations under the SVB Loan.

 

Note F – Revenue Interest Assignment Termination

On April 15, 2013, we and Antigenics entered into a Revenue Interests Assignment Agreement (the “Original Agreement”) with Ingalls & Snyder Value Partners, L.P. and Arthur Koenig (together, “Ingalls”), pursuant to which we and Antigenics sold to Ingalls 20% of all the royalties Antigenics was entitled to receive from GSK and Janssen Sciences Ireland Uc on products associated with Agenus’s QS-21 Stimulon (collectively, the “Assigned Interests”).

On September 4, 2015, we and Antigenics entered into a Revenue Interest Assignment and Termination Agreement (the “Assignment and Termination Agreement”) with Ingalls, pursuant to which we terminated the Original Agreement and repurchased the Assigned Interests in exchange for (i) $20.0 million in cash and (ii) 300,000 shares of Agenus common stock for total consideration of approximately $22.1 million. The closing under the Assignment and Termination Agreement took place on September 8, 2015 immediately prior to the closing under the NPA. Effective September 8, 2015, we have no further obligations under the Original Agreement.

For the three months ended September 30, 2015 we recorded a fair value adjustment of approximately $495,000 upon settlement of the contingent royalty obligation recorded within non-operating (expense) income in our condensed consolidated statement of operations and comprehensive loss.

 

 

10


Note G - Accrued and Other Current Liabilities

Accrued liabilities consisted of the following as of September 30, 2015 and December 31, 2014 (in thousands):

 

 

 

September 30, 2015

 

 

December 31, 2014

 

Payroll

 

$

3,592

 

 

$

3,134

 

Professional fees

 

 

3,349

 

 

 

1,438

 

Contract Manufacturing Costs

 

 

2,495

 

 

 

245

 

License Fees Payable

 

 

2,200

 

 

 

 

Other

 

 

2,103

 

 

 

685

 

    Total

 

$

13,739

 

 

$

5,502

 

 

Other current liabilities consisted of the following as of September 30, 2015 and December 31, 2014 (in thousands):

 

 

 

September 30, 2015

 

 

December 31, 2014

 

Current portion of deferred purchase price (Note L)

 

$

4,933

 

 

$

 

Other

 

 

409

 

 

 

575

 

    Total

 

$

5,342

 

 

$

575

 

 

 

Note H - Collaborations

Incyte Corporation-

On January 9, 2015 and effective February 19, 2015, we entered into a global license, development and commercialization agreement (the “Collaboration Agreement”) with Incyte pursuant to which the parties plan to develop and commercialize novel immuno-therapeutics using our proprietary antibody discovery platforms. The Collaboration Agreement is initially focused on four checkpoint modulator programs directed at GITR, OX40, LAG-3 and TIM-3. In addition to the four identified antibody programs, the parties have an option to jointly nominate and pursue the development and commercialization of antibodies against additional targets during a five year discovery period which, upon mutual agreement of the parties for no additional consideration, can be extended for an additional three years.

On January 9, 2015 we also entered into a Stock Purchase Agreement with Incyte Corporation (the “Stock Purchase Agreement”) whereby, for an aggregate purchase price of $35.0 million, Incyte purchased approximately 7.76 million shares of our common stock; see Note K for more details.

Agreement Structure

Under the terms of the Collaboration Agreement, we received a non-creditable, nonrefundable upfront payment of $25.0 million.  In addition, the parties will share all costs and profits for the GITR and OX40 antibody programs on a 50:50 basis (profit-share products), and we are eligible to receive up to $20 million in future contingent development milestones under these programs.  Incyte is obligated to reimburse us for all development costs that we incur in connection with the TIM-3 and LAG-3 antibody programs (royalty-bearing products) and we are eligible to receive (i) up to $155 million in future contingent development, regulatory, and commercialization milestone payments and (ii) tiered royalties on global net sales at rates generally ranging from 6% to 12%. For each royalty-bearing product, we will also have the right to elect to co-fund 30% of development costs incurred following initiation of pivotal clinical trials in return for an increase in royalty rates. Additionally, we retain co-promotion participation rights in the United States on any profit-share product. Through the direction of a joint steering committee, the parties anticipate that, for each program, we will serve as the lead for pre-clinical development activities through investigational new drug application filing, and Incyte will serve as the lead for clinical development activities. The parties expect to initiate the first clinical trials of antibodies arising from these programs in 2016.  For each additional program beyond GITR, OX40, TIM-3 and LAG-3 that the parties elect to bring into the collaboration, if any, we will have the option to designate it as a profit-share product or a royalty-bearing product.

The Collaboration Agreement will continue as long as (i) any product is being developed or commercialized or (ii) the discovery period remains in effect.  After the first anniversary of the effective date of the Collaboration Agreement, Incyte may terminate the Collaboration Agreement or any individual program for convenience upon 12 months’ notice. The Collaboration Agreement may also be terminated by either party upon the occurrence of an uncured material breach of the other party or by us if Incyte challenges patent rights controlled by us. In addition, either party may terminate the Collaboration Agreement as to any program if the other party is acquired and the acquiring party controls a competing program.

11


Collaboration Revenue

For the three and nine months ended September 30, 2015, we have recognized revenue of approximately $6.5 million and $16.1 million, respectively, under the Collaboration Agreement, of which, $2.6 million and $6.6 million, respectively, is related to the amortization of the $25.0 million non-creditable, nonrefundable upfront payment.  As of September 30, 2015, we have deferred revenue outstanding under the Collaboration Agreement of approximately $18.4 million, of which approximately $5.8 million and $12.6 million are classified as current and long-term, respectively, on our condensed consolidated balance sheet.

 

 

Note I - Fair Value Measurements

We measure our short-term investments, contingent purchase price consideration and in the past, our contingent royalty obligation, at fair value.  Our short-term investments are comprised solely of U.S. Treasury Bills that are valued using quoted market prices with no valuation adjustments applied.  Accordingly, these securities are categorized as Level 1 assets.

The fair value of our $3.7 million contingent purchase price consideration is based on significant inputs not observable in the market, which require it to be reported as a Level 3 liability within the fair value hierarchy. The valuation of this liability uses assumptions we believe would be made by a market participant. In particular, the fair value of our contingent purchase price consideration is based on estimates from a Monte Carlo simulation of our market capitalization and other factors impacting the probability of triggering the milestone payments. Market capitalization was evolved using a geometric brownian motion, calculated daily for the life of the contingent purchase price consideration.

We completed the valuation analysis for the contingent royalty obligation using discounted cash flow based on the sum of the economic income that an asset is anticipated to produce in the future. In this case, that asset was the potential royalty income to be paid to us as a result of certain license agreements for QS-21 Stimulon. The fair value of the contingent royalty obligation was estimated by applying a risk adjusted discount rate (10.2%) to the probability adjusted royalty revenue stream based on expected approval dates. These fair value estimates were most sensitive to changes in the probability of regulatory approvals.  

Assets and liabilities measured at fair value are summarized below (in thousands):

 

Description

 

September 30,

2015

 

 

Quoted Prices in Active

Markets for Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

$

14,994

 

 

$

14,994

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent purchase price consideration

 

 

3,747

 

 

 

 

 

 

 

 

 

3,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

December 31,

2014

 

 

Quoted Prices in Active

Markets for Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

 

$

14,510

 

 

$

14,510

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent royalty obligation

 

 

15,279

 

 

 

 

 

 

 

 

 

15,279

 

Contingent purchase price consideration

 

 

16,420

 

 

 

 

 

 

 

 

 

16,420

 

    Total

 

$

31,699

 

 

$

 

 

$

 

 

$

31,699

 

 

12


The following table presents our liabilities measured at fair value using significant unobservable inputs (Level 3), as of September 30, 2015 (amounts in thousands):

 

Balance, December 31, 2014

 

$

31,699

 

Change in fair value of contingent royalty obligation during the

   period

 

 

6,863

 

Change in fair value of contingent purchase price consideration

   during the period

 

 

7,327

 

Payment of contingent purchase price milestone

 

 

(20,000

)

Settlement of contingent royalty obligation

 

 

(22,142

)

Balance, September 30, 2015

 

$

3,747

 

 

The change in fair value of the contingent royalty obligation liability is included in non-operating (expense) income in our condensed consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2015.  There were no changes in the valuation techniques during the period and there were no transfers into or out of Levels 1 and 2.

On January 23, 2015, we achieved the first contingent milestone pursuant to the terms of our Share Exchange Agreement dated January 10, 2014, by and among us, 4-AB, the former shareholder of 4-AB and Vischer AG, as Representative (the "Share Exchange Agreement"), and accordingly we paid $20.0 million.

As outlined in Note F, we settled our contingent royalty obligation owed to Ingalls for consideration of $22.1 million as of the transaction date, which we concluded approximated its fair value.

The estimated fair values of all of our financial instruments, excluding our outstanding debt, approximate their carrying amounts in the condensed consolidated balance sheets. The fair value of our outstanding debt was derived by evaluating the nature and terms of each note and considering the prevailing economic and market conditions at the balance sheet date.

The fair value of our outstanding debt balance at September 30, 2015 and December 31, 2014 was $116.2 million and $6.1 million, respectively, based on the Level 2 valuation hierarchy of the fair value measurements standard using a present value methodology.  The principal amount of our outstanding debt balance at September 30, 2015 and December 31, 2014 was $114.1 million and $6.3 million, respectively.

 

 

Note J - Share-based Compensation Plans

We primarily use the Black-Scholes option pricing model to value stock options granted to employees and non-employees, including stock options granted to members of our Board of Directors. All stock options have 10-year terms and generally vest ratably over a 3 or 4-year period. A non-cash charge to operations for the stock options granted to non-employees that have vesting or other performance criteria is affected each reporting period, until the non-employee options vest, by changes in the fair value of our common stock.

A summary of option activity for the nine months ended September 30, 2015 is presented below:

 

 

 

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding at December 31, 2014

 

 

6,525,724

 

 

$

4.40

 

 

 

 

 

 

 

 

 

Granted

 

 

2,585,544

 

 

 

5.93

 

 

 

 

 

 

 

 

 

Exercised

 

 

(458,678

)

 

 

3.83

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(292,426

)

 

 

3.77

 

 

 

 

 

 

 

 

 

Expired

 

 

(133,373

)

 

 

9.87

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2015