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EX-32.1 - EX-32.1 - AGENUS INCagen-ex321_8.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 March 31, 2016

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 May 2, 2016: 86,882,451 shares

 

 

 


Agenus Inc.

Three Months Ended March 31, 2016

Table of Contents

 

 

 

 

 

Page

PART I

 

 

ITEM 1.

 

Financial Statements:

 

2

 

 

Condensed Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2016 and 2015 (Unaudited)

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (Unaudited)

 

4

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

ITEM 2.

 

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

 

12

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

16

ITEM 4.

 

Controls and Procedures

 

17

 

 

 

PART II

 

 

ITEM 1A.

 

Risk Factors

 

18

ITEM 6.

 

Exhibits

 

40

 

 

Signatures

 

41

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31, 2016

 

 

December 31, 2015

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

78,330,566

 

 

$

136,702,873

 

Short-term investments

 

 

69,899,364

 

 

 

34,964,730

 

Inventories

 

 

88,200

 

 

 

88,200

 

Accounts Receivable

 

 

10,224,299

 

 

 

9,800,342

 

Prepaid expenses

 

 

2,780,937

 

 

 

1,956,941

 

Other current assets

 

 

289,445

 

 

 

582,280

 

Total current assets

 

 

161,612,811

 

 

 

184,095,366

 

Property, plant and equipment, net of accumulated amortization and depreciation of

   $30,171,945 and $29,488,793 at March 31, 2016 and December 31, 2015, respectively

 

 

16,587,788

 

 

 

15,310,623

 

Goodwill

 

 

23,267,789

 

 

 

22,792,778

 

Acquired intangible assets, net of accumulated amortization of $1,583,654 and

   $987,394 at March 31, 2016 and December 31, 2015, respectively

 

 

18,388,271

 

 

 

18,759,662

 

Other long-term assets

 

 

1,282,662

 

 

 

1,270,055

 

Total assets

 

$

221,139,321

 

 

$

242,228,484

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current portion, long-term debt

 

$

146,061

 

 

$

146,061

 

Current portion, deferred revenue

 

 

3,156,659

 

 

 

3,829,371

 

Accounts payable

 

 

2,512,567

 

 

 

4,488,561

 

Accrued liabilities

 

 

19,852,005

 

 

 

14,165,816

 

Other current liabilities

 

 

5,590,802

 

 

 

6,304,281

 

Total current liabilities

 

 

31,258,094

 

 

 

28,934,090

 

Long-term debt, net of current portion

 

 

118,161,987

 

 

 

114,326,489

 

Deferred revenue, net of current portion

 

 

14,200,898

 

 

 

15,065,754

 

Contingent purchase price consideration

 

 

5,266,000

 

 

 

5,608,000

 

Other long-term liabilities

 

 

7,799,602

 

 

 

7,566,601

 

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 March 31, 2016 and December 31, 2015; liquidation value

   of $32,266,373 at March 31, 2016

 

 

316

 

 

 

316

 

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

   86,529,579 and 86,390,697 shares issued at March 31, 2016 and December 31, 2015, respectively

 

 

865,296

 

 

 

863,907

 

Additional paid-in capital

 

 

856,067,607

 

 

 

851,103,934

 

Accumulated other comprehensive loss

 

 

(1,514,512

)

 

 

(2,053,143

)

Accumulated deficit

 

 

(810,965,967

)

 

 

(779,187,464

)

Total stockholders’ equity

 

 

44,452,740

 

 

 

70,727,550

 

Total liabilities and stockholders’ equity

 

$

221,139,321

 

 

$

242,228,484

 

 

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 March 31,

 

 

 

 

2016

 

 

2015

 

 

Revenue:

 

 

 

 

 

 

 

 

 

Service revenue

 

$

147,456

 

 

$

 

 

Research and development

 

 

5,811,420

 

 

 

3,953,299

 

 

Total revenues

 

 

5,958,876

 

 

 

3,953,299

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

(25,038,478

)

 

 

(9,220,143

)

 

General and administrative

 

 

(9,231,521

)

 

 

(5,487,109

)

 

Contingent purchase price consideration fair value adjustment

 

 

342,000

 

 

 

(7,537,700

)

 

Operating loss

 

 

(27,969,123

)

 

 

(18,291,653

)

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

Non-operating income (expense)

 

 

323,083

 

 

 

(52,945

)

 

Interest expense, net

 

 

(4,132,463

)

 

 

(396,863

)

 

Net loss

 

 

(31,778,503

)

 

 

(18,741,461

)

 

Dividends on Series A-1 convertible preferred stock

 

 

(50,941

)

 

 

(50,620

)

 

Net loss attributable to common stockholders

 

$

(31,829,444

)

 

$

(18,792,081

)

 

Per common share data:

 

 

 

 

 

 

 

 

 

Basic and diluted net loss attributable to common stockholders

 

$

(0.37

)

 

$

(0.28

)

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

86,686,515

 

 

 

66,667,290

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

$

539,396

 

 

$

764,321

 

 

Unrealized loss on investments

 

 

(765

)

 

 

 

 

Other comprehensive gain

 

 

538,631

 

 

 

764,321

 

 

Comprehensive loss

 

$

(31,290,813

)

 

$

(18,027,760

)

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

3


AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(31,778,503

)

 

$

(18,741,461

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,244,417

 

 

 

445,497

 

Share-based compensation

 

 

4,762,477

 

 

 

1,492,791

 

Non-cash interest expense

 

 

3,954,998

 

 

 

203,347

 

Change in fair value of contingent obligations

 

 

(342,000

)

 

 

7,058,700

 

Loss on extinguishment of debt

 

 

 

 

 

154,117

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(369,445

)

 

 

(2,055,256

)

Inventories

 

 

 

 

 

7,500

 

Prepaid expenses

 

 

(811,976

)

 

 

(973,812

)

Accounts payable

 

 

(2,263,635

)

 

 

2,273,733

 

Deferred revenue

 

 

(1,537,574

)

 

 

23,635,860

 

Accrued liabilities and other current liabilities

 

 

5,575,656

 

 

 

724,760

 

Other operating assets and liabilities

 

 

32,606

 

 

 

(10,930,439

)

Net cash (used in) provided by operating activities

 

 

(21,532,979

)

 

 

3,295,337

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of plant and equipment

 

 

(1,536,948

)

 

 

(323,552

)

Purchases of available-for-sale securities

 

 

(34,923,535

)

 

 

 

Proceeds from sale of available-for-sale securities

 

 

 

 

 

14,534,486

 

Net cash (used in) provided by investing activities

 

 

(36,460,483

)

 

 

14,210,934

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from sale of equity

 

 

 

 

 

35,000,000

 

Proceeds from employee stock purchases and option exercises

 

 

437,074

 

 

 

1,108,906

 

Proceeds from issuance of long-term debt

 

 

 

 

 

9,000,000

 

Payments of debt

 

 

 

 

 

(833,334

)

Payment of contingent purchase price consideration

 

 

 

 

 

(8,180,000

)

Payment under a purchase agreement for in-process research and development

 

 

(1,000,000

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(562,926

)

 

 

36,095,572

 

Effect of exchange rate changes on cash

 

 

184,081

 

 

 

(12,155

)

Net (decrease) increase in cash and cash equivalents

 

 

(58,372,307

)

 

 

53,589,688

 

Cash and cash equivalents, beginning of period

 

 

136,702,873

 

 

 

25,714,519

 

Cash and cash equivalents, end of period

 

$

78,330,566

 

 

$

79,304,207

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

276,164

 

 

$

201,731

 

Supplemental disclosures - non-cash activities:

 

 

 

 

 

 

 

 

Purchases of plant and equipment in accounts payable and

   accrued liabilities

 

$

333,045

 

 

$

 

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

   the acquisition of 4-Antibody AG

 

 

 

 

 

216,597

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4


AGENUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016

 

Note A - Business, Liquidity and Basis of Presentation

Agenus Inc. (including its subsidiaries, collectively referred to as “Agenus,” the “Company,” “we,” “us,” and “our”) is an immuno-oncology company focused on the discovery and development of revolutionary new treatments that engage the body’s immune system to benefit patients suffering from cancer. We are developing a comprehensive immuno-oncology portfolio driven by the following platforms and programs, which we intend to utilize individually and in combination:

 

·

our antibody discovery platforms, including our Retrocyte Display™, SECANT® yeast display, and phage display technologies designed to produce quality human antibodies;

 

·

our antibody candidate programs, including our checkpoint modulator (“CPM”) programs;

 

·

our vaccine programs, including Prophage™ and AutoSynVax™; and

 

·

our saponin-based vaccine adjuvants, principally our QS-21 Stimulon® adjuvant (“QS-21 Stimulon”).

We have a portfolio of programs in various stages of development, including a series of antibodies in discovery and pre-clinical and clinical development, our Prophage vaccine, a Heat Shock Protein (“HSP”)-based autologous vaccine candidate for a form of brain cancer that has successfully completed Phase 2 trials, and a number of advanced QS-21 Stimulon-containing vaccine candidates in late stage development by our licensee, GlaxoSmithKline (“GSK”).

Our core antibody technologies include our antibody discovery platforms that are designed to effectively discover and produce quality human antibodies against antigens of interest. We and our partners currently have programs targeting GITR, OX40, CTLA-4, LAG-3, TIM-3, PD-1, CEACAM1 and other undisclosed targets.

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 March 31, 2016, we had an accumulated deficit of $811.0 million. Since our inception, we have financed our operations primarily through the sale of equity and convertible and other notes, and interest income earned on cash, cash equivalents, and short-term investment balances. We believe that, based on our current plans and activities, our cash, cash equivalents and short-term investments balance of $148.2 million as of March 31, 2016 will be sufficient to satisfy our liquidity requirements through the first half of 2017.

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. Operating results for the three months ended March 31, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. 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, 2015 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.

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.

 

5


 

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 income per common share is calculated by dividing net income 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, convertible preferred stock, and convertible notes. Because we reported a net loss attributable to common stockholders for all periods presented, diluted loss per common share is the same as basic 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 as of March 31, 2016 and 2015, as they would be anti-dilutive:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Warrants

 

 

4,351,450

 

 

 

4,351,450

 

Stock options

 

 

9,474,652

 

 

 

7,834,555

 

Nonvested shares

 

 

1,934,951

 

 

 

67,578

 

Convertible preferred stock

 

 

333,333

 

 

 

333,333

 

 

Note C - Investments

Cash equivalents and short-term investments consisted of the following as of March 31, 2016 and December 31, 2015 (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Cost

 

 

Estimated

Fair Value

 

 

Cost

 

 

Estimated

Fair Value

 

Institutional money market funds

 

$

26,296

 

 

$

26,296

 

 

$

106,370

 

 

$

106,370

 

U.S. Treasury Bills

 

 

114,840

 

 

 

114,867

 

 

 

54,945

 

 

 

54,961

 

    Total

 

$

141,136

 

 

$

141,163

 

 

$

161,315

 

 

$

161,331

 

 

For the three months ended March 31, 2016, we received proceeds of approximately $15.0 million from the maturity of U.S. Treasury Bills classified as cash equivalents. For the three months ended March 31, 2015, we received proceeds of approximately $14.5 million from the sale of available-for-sale securities. As a result of the short-term nature of our investments, there were minimal unrealized holding gains or losses as of March 31, 2016 and 2015.

Of the investments listed above, $71.3 million and $126.4 million have been classified as cash equivalents and $69.9 million and $35.0 million as short-term investments on our condensed consolidated balance sheets as of March 31, 2016 and December 31, 2015, respectively.

 

 

Note D - Goodwill and Acquired Intangible Assets

The following table sets forth the changes in the carrying amount of goodwill for the three months ended March 31, 2016 (in thousands):

 

Balance, December 31, 2015

 

$

22,793

 

Foreign currency translation adjustment

 

 

475

 

Balance, March 31, 2016

 

$

23,268

 

 

6


Acquired intangible assets consisted of the following as of March 31, 2016 and December 31, 2015 (in thousands):

 

 

 

As of March 31, 2016

 

 

 

Amortization

period

(years)

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

Intellectual property

 

7-15 years

 

$

16,607

 

 

$

(1,027

)

 

$

15,580

 

Trademarks

 

4.5 years

 

 

837

 

 

 

(396

)

 

 

441

 

Other

 

2-6 years

 

 

573

 

 

 

(161

)

 

 

412

 

In-process research and development

 

Indefinite

 

 

1,955

 

 

 

-

 

 

 

1,955

 

Total

 

 

 

$

19,972

 

 

$

(1,584

)

 

$

18,388

 

 

 

 

As of December 31, 2015

 

 

 

Amortization

period

(years)

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

Intellectual property

 

7-15 years

 

$

16,472

 

 

$

(541

)

 

$

15,931

 

Trademarks

 

4.5 years

 

 

812

 

 

 

(339

)

 

 

473

 

Other

 

2-6 years

 

 

567

 

 

 

(107

)

 

 

460

 

In-process research and development

 

Indefinite

 

 

1,896

 

 

 

 

 

 

1,896

 

Total

 

 

 

$

19,747

 

 

$

(987

)

 

$

18,760

 

 

The weighted average amortization period of our finite-lived intangible assets is 9 years. Amortization expense related to acquired intangibles is estimated at $1.8 million for the remainder of 2016, $2.2 million for the year ending 2017, $2.1 million for the year ending 2018 and $1.9 million for each of the years ending 2019 and 2020.

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 in February 2014. IPR&D acquired in a business combination is capitalized at fair value and is subject to impairment testing at least annually until the underlying project is completed. 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 March 31, 2016 and December 31, 2015 (in thousands):  

 

Debt instrument

 

Principal  at

March 31,

2016

 

 

Non-cash

Interest

 

 

Unamortized

Debt Issuance

Costs

 

 

Unamortized

Debt Discount

 

 

Balance at

March 31,

2016

 

Current Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

 

$

146

 

 

$

 

 

$

 

 

$

 

 

$

146

 

Long-term Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 Subordinated Notes

 

 

14,000

 

 

 

 

 

 

 

 

 

(2,059

)

 

 

11,941

 

Note Purchase Agreement

 

 

100,000

 

 

 

7,903

 

 

 

(1,445

)

 

 

(237

)

 

 

106,221

 

Total long-term

 

$

114,000

 

 

$

7,903

 

 

$

(1,445

)

 

$

(2,296

)

 

$

118,162

 

Total

 

$

114,146

 

 

$

7,903

 

 

$

(1,445

)

 

$

(2,296

)

 

$

118,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt instrument

 

Principal  at

December 31,

2015

 

 

Non-cash

Interest

 

 

Unamortized

Debt Issuance

Costs

 

 

Unamortized

Debt Discount

 

 

Balance at

December 31,

2015

 

Current Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

 

$

146

 

 

$

 

 

$

 

 

$

 

 

$

146

 

Long-term Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 Subordinated Notes

 

 

14,000

 

 

 

 

 

 

 

 

 

(2,292

)

 

 

11,708

 

Note Purchase Agreement

 

 

100,000

 

 

 

4,342

 

 

 

(1,481

)

 

 

(243

)

 

 

102,618

 

Total long-term

 

$

114,000

 

 

$

4,342

 

 

$

(1,481

)

 

$

(2,535

)

 

$

114,326

 

Total

 

$

114,146

 

 

$

4,342

 

 

$

(1,481

)

 

$

(2,535

)

 

$

114,472

 

 

 

7


Note F - Accrued and Other Current Liabilities

Accrued liabilities consisted of the following as of March 31, 2016 and December 31, 2015 (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

Payroll

 

$

3,543

 

 

$

4,600

 

Professional fees

 

 

3,770

 

 

 

3,343

 

Contract manufacturing costs

 

 

8,844

 

 

 

3,886

 

Contract research costs

 

 

2,103

 

 

 

1,368

 

Other

 

 

1,592

 

 

 

969

 

Total

 

$

19,852

 

 

$

14,166

 

 

Other current liabilities consisted of the following as of March 31, 2016 and December 31, 2015 (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

Current portion of deferred purchase price

 

$

4,973

 

 

$

5,906

 

Other

 

 

618

 

 

 

398

 

Total

 

$

5,591

 

 

$

6,304

 

 

Note G - Fair Value Measurements

We measure our cash equivalents and short-term investments and contingent purchase price considerations at fair value.  Our cash equivalents and 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 contingent purchase price consideration, $5.3 million, is based on significant inputs not observable in the market, which require it to be reported as Level 3 liabilities within the fair value hierarchy. The valuation of these liabilities use assumptions we believe would be made by a market participant and are based on estimates from a Monte Carlo simulation of our market capitalization and share price, and other factors impacting the probability of triggering the milestone payments. Market capitalization and share price were evolved using a geometric brownian motion, calculated daily for the life of the contingent purchase price considerations.

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

 

Description

 

March 31,

2016

 

 

Quoted Prices in

Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

44,968

 

 

$

44,968

 

 

$

 

 

$

 

Short-term investments

 

 

69,899

 

 

 

69,899

 

 

 

 

 

 

 

Total

 

$

114,867

 

 

$

114,867

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent purchase price consideration

 

$

5,266

 

 

$

 

 

$

 

 

$

5,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

December 31,

2015

 

 

Quoted Prices in

Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

19,996

 

 

$

19,996

 

 

$

 

 

$

 

Short-term investments

 

 

34,965

 

 

 

34,965

 

 

 

 

 

 

 

Total

 

$

54,961

 

 

$

54,961

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent purchase price consideration

 

$

5,608

 

 

$

 

 

$

 

 

$

5,608

 

 

8


The following table presents our liabilities measured at fair value using significant unobservable inputs (Level 3), as of March 31, 2016 (in thousands):

 

Balance, December 31, 2015

 

$

5,608

 

Change in fair value of contingent purchase price consideration

   during the period

 

 

(342

)

Balance, March 31, 2016

 

$

5,266

 

The estimated fair values of all of our financial instruments, excluding our outstanding debt, approximate their carrying amounts in our condensed consolidated balance sheets.

The fair value of our outstanding debt balance at March 31, 2016 and December 31, 2015 was $118.9 million and $115.9 million, respectively, based on the Level 2 valuation hierarchy of the fair value measurements standard using a present value methodology that 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 principal amount of our outstanding debt balance at March 31, 2016 and December 31, 2015 was $122.0 million, inclusive of $7.9 million of accrued interest, and $118.5 million, inclusive of $4.3 million of accrued interest, respectively.

 

 

Note H - 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 three months ended March 31, 2016 is presented below:

 

 

 

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

(in years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding at December 31, 2015

 

 

8,345,835

 

 

$

4.77

 

 

 

 

 

 

 

 

 

Granted

 

 

1,288,856

 

 

 

4.18

 

 

 

 

 

 

 

 

 

Exercised

 

 

(82,254

)

 

 

2.98

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(19,132

)

 

 

5.34

 

 

 

 

 

 

 

 

 

Expired

 

 

(58,653

)

 

 

7.21

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

 

9,474,652

 

 

$

4.69

 

 

 

7.56

 

 

$

3,968,159

 

Vested or expected to vest at March 31, 2016

 

 

8,548,437

 

 

$

4.71

 

 

 

7.44

 

 

$

3,648,388

 

Exercisable at March 31, 2016

 

 

5,025,089

 

 

$

4.82

 

 

 

6.36

 

 

$

2,498,980

 

 

The weighted average grant-date fair values of stock options granted during the three months ended March 31, 2016 and 2015 were $1.83 and $3.21, respectively.

As of March 31, 2016, $8.1 million of total unrecognized compensation cost related to stock options granted to employees and directors is expected to be recognized over a weighted average period of 1.8 years.  

As of March 31, 2016, unrecognized expense for options granted to outside advisors for which performance (vesting) has not yet been completed but the exercise price of the option is known is $672,000. Such amount is subject to change each reporting period based upon changes in the fair value of our common stock, expected volatility, and the risk-free interest rate, until the outside advisor completes his or her performance under the option agreement.

Certain employees and consultants have been granted nonvested stock. The fair value of nonvested stock is calculated based on the closing sale price of our common stock on the date of issuance.

9


A summary of nonvested stock activity for the three months ended March 31, 2016 is presented below:

 

 

 

Nonvested

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

Outstanding at December 31, 2015

 

 

1,730,604

 

 

$

8.55

 

Granted

 

 

221,811

 

 

 

4.46

 

Vested

 

 

(6,250

)

 

 

4.24

 

Forfeited

 

 

(11,214

)

 

 

8.78

 

Outstanding at March 31, 2016

 

 

1,934,951

 

 

$

7.58

 

 

As of March 31, 2016, there was approximately $11.9 million of unrecognized share-based compensation expense related to these nonvested shares awarded to employees which pertained primarily to performance based awards for which, if all milestones are achieved, will be recognized over a 2.25 year period.  As of March 31, 2016, unrecognized expense for nonvested shares awarded to outside advisors is $15,000. The total intrinsic value of shares vested during the three months ended March 31, 2016, was $26,500.

During the three months ended March 31, 2016, 50,387 shares were issued under the 2009 Employee Stock Purchase Plan, 6,250 shares were issued as a result of the vesting of nonvested stock and 82,254 shares were issued as a result of stock option exercises.

The impact on our results of operations from share-based compensation for the three ended March 31, 2016 and 2015, was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Research and development

 

$

2,290

 

 

$

570

 

General and administrative

 

 

2,472

 

 

 

923

 

Total share-based compensation expense

 

$

4,762

 

 

$

1,493

 

 

 

Note I - Benefit Plans

We maintain a multiple employer benefit plan that covers our international employees. The annual measurement date for this plan is December 31. Benefits are based upon years of service and compensation.

For the three months ended March 31, 2016 and 2015 we contributed approximately $39,000 and $24,000, respectively, to our international multiple employer benefit plan. For the remainder of the year ending December 31, 2016, we expect to contribute approximately $108,000 to our international multiple employer benefit plan.

 

 

Note J - Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, ("ASU 2014-09").  ASU 2014-09 amends revenue recognition principles and provides a single set of criteria for revenue recognition among all industries. This new standard provides a five step framework whereby revenue is recognized when promised goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures pertaining to revenue recognition in both interim and annual periods. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations.  These ASUs are effective for interim and annual periods beginning after December 15, 2017. We are currently evaluating the potential impact these ASUs may have on our financial position and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, ("ASU 2014-15").  ASU 2014-15 describes how an entity should assess its ability to meet obligations and sets rules for how this information should be disclosed in the financial statements.  The standard provides accounting that will be used along with existing auditing standards.  ASU 2014-15 applies to all entities and is effective for the annual period ending after December 15, 2016 and for annual and interim periods thereafter with early adoption permitted. We are currently evaluating the potential impact that ASU 2014-15 may have on our consolidated financial statements and related disclosures.

 

10


In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes Topic 840, Leases. ASU2016-02 requires lessees to recognize a right-of-use asset and a lease liability on their balance sheets for all leases with terms greater than twelve months. Based on certain criteria, leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced before the effective date of Topic 842, including continuing to account for leases that commence before the effective date in accordance with previous guidance, unless the lease is modified. We are evaluating the impact of the adoption of the standard on our consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, (“ASU 2016-09”). ASU 2016-09 provides for the simplification of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 applies to all entities and is effective for the annual effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. We are currently evaluating the potential impact that ASU 2016-09 may have on our financial position and results of operations.

 

11


Item 2.

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

Forward Looking Statements

This Quarterly Report on Form 10-Q and other written and oral statements we make from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). You can identify these forward-looking statements by the fact they use words such as “could,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe,” “will,” “potential,” “opportunity,” “future” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, our business strategy, our research and development, our product development efforts, our ability to commercialize our product candidates, the activities of our licensees, our prospects for initiating partnerships or collaborations, the timing of the introduction of products, the effect of new accounting pronouncements, uncertainty regarding our future operating results and our profitability, anticipated sources of funds as well as our plans, objectives, expectations, and intentions.

We have included more detailed descriptions of these risks and uncertainties and other risks and uncertainties applicable to our business that we believe could cause actual results to differ materially from any forward-looking statements in Part II-Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. We encourage you to read those descriptions carefully. Although we believe we have been prudent in our plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved.  We caution investors not to place significant reliance on forward-looking statements contained in this document; such statements need to be evaluated in light of all the information contained in this document. Furthermore, the statements speak only as of the date of this document, and we undertake no obligation to update or revise these statements.

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