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EX-32.2 - EX-32.2 - Clovis Oncology, Inc.clvs-ex322_8.htm
EX-32.1 - EX-32.1 - Clovis Oncology, Inc.clvs-ex321_6.htm
EX-31.2 - EX-31.2 - Clovis Oncology, Inc.clvs-ex312_9.htm
EX-31.1 - EX-31.1 - Clovis Oncology, Inc.clvs-ex311_7.htm
EX-10.38 - EX-10.38 - Clovis Oncology, Inc.clvs-ex1038_282.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2016.

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from            to           .

Commission file number: 001-35347

 

Clovis Oncology, Inc.

(Exact name of Registrant as specified in its charter)

 

Delaware

 

90-0475355

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5500 Flatiron Parkway, Suite 100

Boulder, Colorado

 

80301

(Address of principal executive offices)

 

(Zip Code)

(303) 625-5000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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      No  

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

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of October 28, 2016 was 38,585,662.

 

 

 

 


 

CLOVIS ONCOLOGY, INC.

FORM 10-Q

TABLE OF CONTENTS

 

PART I. Financial Information

  

 

3

  

 

 

 

 

 

 

 

ITEM 1.

 

Financial Statements (unaudited)

  

 

3

  

 

 

 

 

 

 

 

 

 

Consolidated Statements of Operations — for the three and nine months ended September 30, 2016 and 2015

  

 

3

  

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Loss — for the three and nine months ended September 30, 2016 and 2015

 

 

4

  

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets — as of September 30, 2016 and December 31, 2015

  

 

5

  

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows — for the nine months ended September 30, 2016 and 2015

  

 

6

  

 

 

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

  

 

7

  

 

 

 

 

 

 

 

ITEM 2.

 

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

  

 

21

  

 

 

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

 

31

  

 

 

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

  

 

31

  

 

 

 

 

 

PART II. Other Information

  

 

32

  

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

  

 

32

  

 

 

 

 

 

 

 

ITEM 1A.

 

Risk Factors

  

 

34

  

 

 

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

 

34

  

 

 

 

 

 

 

 

ITEM 3.

 

Defaults Upon Senior Securities

  

 

34

  

 

 

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

  

 

34

  

 

 

 

 

 

 

 

ITEM 5.

 

Other Information

  

 

34

  

 

 

 

 

 

 

 

ITEM 6.

 

Exhibits

  

 

35

  

 

 

 

 

 

SIGNATURES

  

 

38

  

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CLOVIS ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License and milestone revenue

 

$

 

 

$

 

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

54,338

 

 

 

76,138

 

 

 

196,675

 

 

 

193,256

 

General and administrative

 

 

9,162

 

 

 

8,331

 

 

 

28,541

 

 

 

22,286

 

Acquired in-process research and development

 

 

500

 

 

 

12,000

 

 

 

800

 

 

 

12,000

 

Impairment of intangible asset

 

 

 

 

 

 

 

 

104,517

 

 

 

 

Change in fair value of contingent purchase consideration

 

 

 

 

 

783

 

 

 

(24,936

)

 

 

2,271

 

Total expenses

 

 

64,000

 

 

 

97,252

 

 

 

305,597

 

 

 

229,813

 

Operating loss

 

 

(64,000

)

 

 

(97,252

)

 

 

(305,597

)

 

 

(229,813

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,108

)

 

 

(2,099

)

 

 

(6,318

)

 

 

(6,271

)

Foreign currency gains (losses)

 

 

(66

)

 

 

(101

)

 

 

(434

)

 

 

2,004

 

Other income

 

 

252

 

 

 

179

 

 

 

473

 

 

 

252

 

Other expense, net

 

 

(1,922

)

 

 

(2,021

)

 

 

(6,279

)

 

 

(4,015

)

Loss before income taxes

 

 

(65,922

)

 

 

(99,273

)

 

 

(311,876

)

 

 

(233,828

)

Income tax benefit

 

 

227

 

 

 

628

 

 

 

33,467

 

 

 

508

 

Net loss

 

$

(65,695

)

 

$

(98,645

)

 

$

(278,409

)

 

$

(233,320

)

Basic and diluted net loss per common share

 

$

(1.70

)

 

$

(2.62

)

 

$

(7.24

)

 

$

(6.62

)

Basic and diluted weighted-average common shares outstanding

 

 

38,538

 

 

 

37,613

 

 

 

38,429

 

 

 

35,252

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

 


 

3


 

CLOVIS ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended September 30 ,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(65,695

)

 

$

(98,645

)

 

$

(278,409

)

 

$

(233,320

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

 

 

58

 

 

 

416

 

 

 

2,190

 

 

 

(17,186

)

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

 

 

(18

)

 

 

7

 

 

 

260

 

 

 

148

 

Other comprehensive income (loss)

 

 

40

 

 

 

423

 

 

 

2,450

 

 

 

(17,038

)

Comprehensive loss

 

$

(65,655

)

 

$

(98,222

)

 

$

(275,959

)

 

$

(250,358

)

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

 

4


 

CLOVIS ONCOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except for share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

243,724

 

 

$

278,756

 

Available-for-sale securities

 

 

75,054

 

 

 

249,832

 

Prepaid research and development expenses

 

 

7,376

 

 

 

3,377

 

Other current assets

 

 

5,194

 

 

 

7,736

 

Total current assets

 

 

331,348

 

 

 

539,701

 

Property and equipment, net

 

 

4,707

 

 

 

4,946

 

Intangible assets

 

 

 

 

 

101,500

 

Goodwill

 

 

60,748

 

 

 

59,327

 

Other assets

 

 

1,821

 

 

 

7,912

 

Total assets

 

$

398,624

 

 

$

713,386

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

11,076

 

 

$

11,260

 

Accrued research and development expenses

 

 

36,088

 

 

 

53,011

 

Other accrued expenses

 

 

11,906

 

 

 

11,305

 

Total current liabilities

 

 

59,070

 

 

 

75,576

 

Contingent purchase consideration

 

 

 

 

 

24,661

 

Deferred income taxes, net

 

 

266

 

 

 

31,133

 

Convertible senior notes

 

 

280,813

 

 

 

279,885

 

Deferred rent, long-term

 

 

1,437

 

 

 

1,481

 

Total liabilities

 

 

341,586

 

 

 

412,736

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued

  and outstanding at September 30, 2016 and December 31, 2015

 

 

 

 

 

 

Common stock, $0.001 par value per share, 100,000,000 shares authorized at

   September 30, 2016 and December 31, 2015; 38,582,755 and 38,359,454 shares issued

   and outstanding at September 30, 2016 and December 31, 2015, respectively

 

 

39

 

 

 

38

 

Additional paid-in capital

 

 

1,162,324

 

 

 

1,129,978

 

Accumulated other comprehensive loss

 

 

(45,010

)

 

 

(47,460

)

Accumulated deficit

 

 

(1,060,315

)

 

 

(781,906

)

Total stockholders' equity

 

 

57,038

 

 

 

300,650

 

Total liabilities and stockholders' equity

 

$

398,624

 

 

$

713,386

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

 

5


 

CLOVIS ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(278,409

)

 

$

(233,320

)

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

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

29,744

 

 

 

29,458

 

Depreciation and amortization

 

 

819

 

 

 

548

 

Amortization of premiums and discounts on available-for-sale securities

 

 

190

 

 

 

1,319

 

Amortization of debt issuance costs

 

 

928

 

 

 

900

 

Impairment of intangible asset

 

 

104,517

 

 

 

 

Change in fair value of contingent purchase consideration

 

 

(24,661

)

 

 

(32

)

Loss on disposal of property and equipment

 

 

105

 

 

 

 

Deferred income taxes

 

 

(33,320

)

 

 

(529

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid and accrued research and development expenses

 

 

(14,877

)

 

 

21,046

 

Other operating assets

 

 

2,358

 

 

 

(3,500

)

Accounts payable

 

 

(322

)

 

 

6,124

 

Other accrued expenses

 

 

923

 

 

 

609

 

Net cash used in operating activities

 

 

(212,005

)

 

 

(177,377

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(761

)

 

 

(1,175

)

Proceeds from sale of property and equipment

 

 

65

 

 

 

-

 

Purchases of available-for-sale securities

 

 

 

 

 

(392,540

)

Maturities of available-for-sale securities

 

 

175,000

 

 

 

 

Sales of available-for-sale securities

 

 

 

 

 

140,996

 

Net cash provided by (used in) investing activities

 

 

174,304

 

 

 

(252,719

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from the sale of common stock, net of issuance costs

 

 

 

 

 

298,509

 

Proceeds from the exercise of stock options and employee stock purchases

 

 

2,602

 

 

 

5,027

 

Net cash provided by financing activities

 

 

2,602

 

 

 

303,536

 

Effect of exchange rate changes on cash and cash equivalents

 

 

67

 

 

 

(674

)

Decrease in cash and cash equivalents

 

 

(35,032

)

 

 

(127,234

)

Cash and cash equivalents at beginning of period

 

 

278,756

 

 

 

482,677

 

Cash and cash equivalents at end of period

 

$

243,724

 

 

$

355,443

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

7,188

 

 

$

7,307

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements.

 

 

 

6


 

CLOVIS ONCOLOGY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1. Nature of Business and Basis of Presentation

Clovis Oncology, Inc. (the “Company”, “Clovis”, “we”, “our”, “us”) is a biopharmaceutical company focused on acquiring, developing and commercializing cancer treatments in the United States, Europe and other international markets. We have and intend to continue to license or acquire rights to oncology compounds in all stages of development. In exchange for the right to develop and commercialize these compounds, we generally expect to provide the licensor with a combination of upfront payments, milestone payments and royalties on future sales. In addition, we generally expect to assume the responsibility for future drug development and commercialization costs. We currently operate in one segment. Since inception, our operations have consisted primarily of developing in-licensed compounds, evaluating new product acquisition candidates and general corporate activities.

Basis of Presentation

All financial information presented includes the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited financial statements of Clovis Oncology, Inc. included herein reflect all adjustments, consisting only of normal recurring adjustments, except for those discussed in the following footnotes, which in the opinion of management are necessary to fairly state our financial position, results of operations and cash flows for the periods presented. Interim results may not be indicative of the results that may be expected for the full year. Certain information and footnote disclosures normally included in audited financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto which are included in our Annual Report on Form 10-K for the year ended December 31, 2015 for a broader discussion of our business and the opportunities and risks inherent in such business.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These reclassifications had no effect on our previously reported results of operations, financial position or cash flows.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and revenue and related disclosures. On an ongoing basis, we evaluate our estimates, including estimates related to contingent purchase consideration, the allocation of purchase consideration, intangible asset impairment, clinical trial accruals and share-based compensation expense. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.

Liquidity

We have incurred significant net losses since inception and have relied on our ability to fund our operations through debt and equity financings. We expect operating losses and negative cash flows to continue for the foreseeable future. As we continue to incur losses, transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and achieving a level of revenues adequate to support our cost structure. We may never achieve profitability, and unless or until we do, we will continue to need to raise additional cash.

We intend to fund future operations through additional private or public debt or equity offerings and may seek additional capital through arrangements with strategic partners or from other sources. Based on our current estimates, we believe that our cash, cash equivalents and available-for-sale securities as of September 30, 2016 will allow us to fund activities through at least the next 12 months.

2. Summary of Significant Accounting Policies

Our significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”).

 

7


 

Recently Issued Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU No. 2016-09 requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. The guidance also requires the presentation of excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. This update is effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted. Amendments related to the timing of when excess tax benefits are recognized should be applied using a modified retrospective transition method. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. We are currently evaluating our planned method of adoption and the impact the standard may have on our consolidated financial statements and related disclosures.

 

3. EOS Acquisition

On November 19, 2013, we acquired all of the outstanding common and preferred stock of Ethical Oncology Science, S.p.A. (“EOS”) (now known as Clovis Oncology Italy S.r.l.). We paid $11.8 million in cash and issued $173.7 million of common stock at the acquisition date and are obligated to pay additional future cash payments if certain lucitanib regulatory and sales milestones are achieved. The potential contingent milestone payments range from a zero payment, which assumes lucitanib fails to achieve any of the regulatory milestones, to approximately $193.5 million ($65.0 million and €115.0 million) if all regulatory and sales milestones are met, utilizing the translation rate at September 30, 2016.

During the second quarter of 2016, we recorded a $25.5 million reduction in the fair value of the contingent purchase consideration liability due to our and our development partner’s decision to discontinue the development of lucitanib for breast cancer (see Note 4). At September 30, 2016, the contingent purchase consideration liability recorded on the Consolidated Balance Sheets was zero due to the uncertainty of achieving any of the lucitanib regulatory milestones. At December 31, 2015, the liability for the estimated fair value of the payments recorded on the Consolidated Balance Sheets was $24.7 million.

 

4. Financial Instruments and Fair Value Measurements

Cash, Cash Equivalents and Available-for-Sale Securities

We consider all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits and money market funds that invest primarily in certificate of deposits, commercial paper and U.S. government and U.S. government agency obligations.

Marketable securities are considered to be available-for-sale securities and consist of U.S. Treasury securities. Available-for-sale securities are reported at fair value on the Consolidated Balance Sheets and unrealized gains and losses are included in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets. Realized gains and losses, amortization of premiums and discounts and interest and dividends earned are included in other income (expense) on the Consolidated Statements of Operations. The cost of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method. Investments with maturities beyond one year are classified as short-term based on our intent to fund current operations with these securities or to make them available for current operations.

A decline in the market value of a security below its cost that is deemed to be other than temporary is charged to earnings and results in the establishment of a new cost basis for the security. Factors evaluated to determine if an investment is other-than-temporarily impaired include significant deterioration in earnings performance, credit rating, asset quality or business prospects of the issuer; adverse changes in the general market conditions in which the issuer operates; and our intent and ability to hold the security until an anticipated recovery in value occurs.

Fair Value Measurements

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (at exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The three levels of inputs that may be used to measure fair value include:

Level 1:

  

Quoted prices in active markets for identical assets or liabilities. Our Level 1 assets consist of money market investments. We do not have Level 1 liabilities.

 

8


 

 

 

 

Level 2:

  

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Our Level 2 assets consist of U.S. treasury securities. We do not have Level 2 liabilities.

 

 

 

Level 3:

  

Unobservable inputs that are supported by little or no market activity. We do not have Level 3 assets that are measured at fair value on a recurring basis. The contingent purchase consideration related to the undeveloped lucitanib product rights acquired with the purchase of EOS is a Level 3 liability. The fair value of this liability is based on unobservable inputs and includes valuations for which there is little, if any, market activity. See Note 3 of our 2015 Form 10-K for further discussion of the unobservable inputs and valuation techniques related to the contingent purchase consideration liability.

The following table identifies our assets and liabilities that were measured at fair value on a recurring basis (in thousands):

 

 

Balance

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market

 

$

227,182

 

 

$

227,182

 

 

$

 

 

$

 

U.S. treasury securities

 

 

75,054

 

 

 

 

 

 

75,054

 

 

 

 

Total assets at fair value

 

$

302,236

 

 

$

227,182

 

 

$

75,054

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent purchase consideration

 

$

 

 

$

 

 

$

 

 

$

 

Total liabilities at fair value

 

$

 

 

$

 

 

$

 

 

$

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market

 

$

251,037

 

 

$

251,037

 

 

$

 

 

$

 

U.S. treasury securities

 

 

249,832

 

 

 

 

 

 

249,832

 

 

 

 

Total assets at fair value

 

$

500,869

 

 

$

251,037

 

 

$

249,832

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent purchase consideration

 

$

24,661

 

 

$

 

 

$

 

 

$

24,661

 

Total liabilities at fair value

 

$

24,661

 

 

$

 

 

$

 

 

$

24,661

 

 

There were no transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category during the nine months ended September 30, 2016.

 

The following table rolls forward the fair value of Level 3 instruments (significant unobservable inputs) (in thousands):

 

 

 

For the Nine

 

 

 

Months Ended

 

 

 

September 30, 2016

 

Liabilities:

 

 

 

 

Balance at beginning of period

 

$

24,661

 

Change in fair value (a)

 

 

(24,936

)

Change in foreign currency gains and losses

 

 

275

 

Balance at end of period

 

$

 

 

 

(a)

During the second quarter of 2016, we recorded a $25.5 million reduction in the fair value of the contingent purchase consideration due to our and our development partner’s decision to discontinue the development of lucitanib for breast cancer. At September 30, 2016, the contingent purchase consideration liability recorded on the Consolidated Balance Sheets was zero due to the uncertainty of achieving any of the lucitanib regulatory milestones.

 

The change in the fair value of Level 3 instruments is included in change in fair value of contingent purchase consideration and foreign currency gains (losses) for changes in the foreign currency translation rate on the Consolidated Statements of Operations.

 

9


 

Assets measured at fair value on a nonrecurring basis include our in-process research and development (IPR&D) intangible assets, which were recorded as part of the acquisition of EOS (see Note 3 and Note 7). The fair value of the IPR&D intangible assets was established based upon discounted cash flow models using assumptions related to the timing of development, probability of development and regulatory success, sales and commercialization factors and estimated product life. As the valuation is based on significant unobservable inputs, the fair value measurement is classified as Level 3. IPR&D assets are evaluated for impairment at least annually or more frequently if impairment indicators exist.

During the second quarter of 2016, we recorded a $104.5 million impairment charge due to our and our development partner’s decision to discontinue the development of lucitanib for breast cancer. At September 30, 2016, the IPR&D intangible asset recorded on the Consolidated Balance Sheets was zero.

Financial instruments not recorded at fair value include our convertible senior notes. At September 30, 2016, the carrying amount of the convertible senior notes was $287.5 million, which represents the aggregate principal amount, and the fair value was $273.8 million. The fair value was determined using Level 2 inputs based on the indicative pricing published by certain investment banks or trading levels of the Notes, which are not listed on any securities exchange or quoted on an inter-dealer automated quotation system. See Note 9 for discussion of the convertible senior notes.

5. Available-for-Sale Securities

As of September 30, 2016, available-for-sale securities consisted of the following (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Aggregate

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. treasury securities

 

$

75,024

 

 

$

30

 

 

$

 

 

$

75,054

 

 

As of December 31, 2015, available-for-sale securities consisted of the following (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Aggregate

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

U.S. treasury securities

 

$

250,215

 

 

$

 

 

$

(383

)

 

$

249,832

 

 

As of September 30, 2016, there were no available-for-sale securities that have been in a continuous unrealized loss position for less than 12 months.

 

As of December 31, 2015, the fair value and gross unrealized losses of available-for-sale securities that have been in a continuous unrealized loss position for less than 12 months were as follows (in thousands):

 

 

 

Aggregate

 

 

Gross

 

 

 

Fair

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

U.S. treasury securities

 

$

249,832

 

 

$

(383

)

As of September 30, 2016, the amortized cost and fair value of available-for-sale securities by contractual maturity were (in thousands):

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Due in one year or less

 

$

75,024

 

 

$

75,054

 

Total

 

$

75,024

 

 

$

75,054

 

 

 

10


 

6. Other Current Assets

Other current assets were comprised of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Receivable from partners

 

$

1,258

 

 

$

3,241

 

Prepaid expenses- other

 

 

2,613

 

 

 

1,023

 

Receivable - other

 

 

825

 

 

 

889

 

Prepaid insurance

 

 

406

 

 

 

1,231

 

Receivable from landlord

 

 

 

 

 

1,153

 

Other

 

 

92

 

 

 

199

 

Total

 

$

5,194

 

 

$

7,736

 

 

7. Intangible Assets and Goodwill

IPR&D intangible assets and goodwill were established as part of the purchase accounting of EOS (see Note 3) and consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

IPR&D intangible assets:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

101,500

 

 

$

212,900

 

Impairment of intangible asset (a)

 

 

(104,517

)

 

 

(89,557

)

Change in foreign currency gains (losses)

 

 

3,017

 

 

 

(21,843

)

Balance at end of period

 

$

 

 

$

101,500

 

 

 

 

 

 

 

 

 

 

Goodwill:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

59,327

 

 

$

66,055

 

Change in foreign currency gains (losses)

 

 

1,421

 

 

 

(6,728

)

Balance at end of period

 

$

60,748

 

 

$

59,327

 

 

(a)

During the second quarter of 2016, we recorded a $104.5 million impairment charge due to our and our development partner’s decision to discontinue the development of lucitanib for breast cancer. At September 30, 2016, the IPR&D intangible asset recorded on the Consolidated Balance Sheets was zero.

 

During the fourth quarter of 2015, we recorded an $89.6 million impairment charge due to our and our development partner’s decision to discontinue the development of lucitanib for lung cancer, as well as updates to the probability-weighted discounted cash flow assumptions for the breast cancer indication.

IPR&D intangible assets are evaluated for impairment at least annually in the fourth quarter or more frequently if impairment indicators exist and any reduction in fair value is recorded as impairment of intangible asset on the Consolidated Statements of Operations.

As part of the acquisition of EOS, we recorded a deferred tax liability to recognize the difference between the book and tax basis of the assets and liabilities acquired. During the first quarter of 2016, we updated the annual effective tax rate to reflect a reduction in the statutory rate of the foreign jurisdiction, resulting in the recognition of a $3.6 million income tax benefit.

During the second quarter of 2016, we recognized a $29.2 million deferred tax benefit associated with the impairment of the IPR&D intangible asset.

 

 

11


 

8. Other Accrued Expenses

Other accrued expenses were comprised of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accrued personnel costs

 

$

10,345

 

 

$

8,250

 

Accrued interest payable

 

 

299

 

 

 

2,096

 

Accrued expenses - other

 

 

1,262

 

 

 

959

 

Total

 

$

11,906

 

 

$

11,305

 

 

9. Convertible Senior Notes

On September 9, 2014, we completed a private placement of $287.5 million aggregate principal amount of 2.5% convertible senior notes due 2021 (the “Notes”) resulting in net proceeds of $278.3 million after deducting offering expenses. In accordance with the accounting guidance, the conversion feature did not meet the criteria for bifurcation, and the entire principal amount was recorded as a long-term liability on the Consolidated Balance Sheets.

The Notes are governed by the terms of the indenture between the Company, as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee. The Notes are senior unsecured obligations and bear interest at a rate of 2.5% per year, payable semi-annually in arrears on March 15 and September 15 of each year. The Notes will mature on September 15, 2021, unless earlier converted, redeemed or repurchased.

Holders may convert all or any portion of the Notes at any time prior to the close of business on the business day immediately preceding the maturity date. Upon conversion, the holders will receive shares of our common stock at an initial conversion rate of 16.1616 shares per $1,000 in principal amount of Notes, equivalent to a conversion price of approximately $61.88 per share. The conversion rate is subject to adjustment upon the occurrence of certain events described in the indenture, but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or upon our issuance of a notice of redemption, we will increase the conversion rate for holders who elect to convert the Notes in connection with such a corporate event or during the related redemption period in certain circumstances.

On or after September 15, 2018, we may redeem the Notes, at our option, in whole or in part, if the last reported sale price of our common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending not more than two trading days preceding the date on which we provide written notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.

If we undergo a fundamental change, as defined in the indenture, prior to the maturity date of the Notes, holders may require us to repurchase for cash all or any portion of the Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The Notes rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to all of our liabilities that are not so subordinated; effectively junior in right of payment to any secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.

In connection with the issuance of the Notes, we incurred $9.2 million of debt issuance costs. The debt issuance costs are presented as a deduction from convertible senior notes on the Consolidated Balance Sheets and are amortized as interest expense over the expected life of the Notes using the effective interest method. We determined the expected life of the debt was equal to the seven-year term of the Notes. As of September 30, 2016 and December 31, 2015, the balance of unamortized debt issuance costs was $6.7 million and $7.6 million, respectively.

 

12


 

The following table sets forth total interest expense recognized related to the Notes during the three and nine months ended September 30, 2016 and 2015 (in thousands):

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Contractual interest expense

 

$

1,797

 

 

$

1,797

 

 

$

5,390

 

 

$

5,371

 

Amortization of debt issuance costs

 

 

311

 

 

 

302

 

 

 

928

 

 

 

900

 

Total interest expense

 

$

2,108

 

 

$

2,099

 

 

$

6,318

 

 

$

6,271

 

 

10. Stockholders’ Equity

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) consists of changes in foreign currency translation adjustments, which includes changes in a subsidiary’s functional currency, and unrealized gains and losses on available-for-sale securities.

The accumulated balances related to each component of other comprehensive income (loss) are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Foreign

 

 

 

 

 

 

Accumulated

 

 

 

Currency

 

 

Unrealized

 

 

Other

 

 

 

Translation

 

 

Gains

 

 

Comprehensive

 

 

 

Adjustments

 

 

(Losses)

 

 

Income (Loss)

 

Balance December 31, 2014

 

$

(24,448

)

 

$

 

 

$

(24,448

)

Period change

 

 

(22,629

)

 

 

(383

)

 

 

(23,012

)

Balance December 31, 2015

 

 

(47,077

)

 

 

(383

)

 

 

(47,460

)

Period change

 

 

3,526

 

 

 

412

 

 

 

3,938

 

Income tax expense

 

 

(1,335

)

 

 

(153

)

 

 

(1,488

)

Balance September 30, 2016

 

$

(44,886

)

 

$

(124

)

 

$

(45,010

)

 

The period change between September 30, 2016 and December 31, 2015 was primarily due to the currency translation of the IPR&D intangible assets, goodwill and deferred income taxes associated with the acquisition of EOS (see Note 3 and Note 7).

 

11. Share-Based Compensation

Share-based compensation expense for all equity based programs, including stock options, restricted stock units and the employee stock purchase plan, for the three and nine months ended September 30, 2016 and 2015 was recognized in the accompanying Consolidated Statements of Operations as follows (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Research and development

 

$

7,039

 

 

$

9,039

 

 

$

20,962

 

 

$

19,798

 

General and administrative

 

 

2,164

 

 

 

3,367

 

 

 

8,782

 

 

 

9,660

 

Total share-based compensation expense

 

$

9,203

 

 

$

12,406

 

 

$

29,744

 

 

$

29,458

 

 

We did not recognize a tax benefit related to share-based compensation expense during the three and nine months ended September 30, 2016 and 2015, respectively, as we maintain net operating loss carryforwards and have established a valuation allowance against the entire net deferred tax asset as of September 30, 2016.

 

13


 

The following table summarizes the activity relating to our options to purchase common stock for the nine months ended September 30, 2016:

 

 

 

Number of Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term (Years)

 

 

Aggregate

Intrinsic

Value (Thousands)

 

Outstanding at December 31, 2015

 

 

5,360,257

 

 

$

51.53

 

 

 

 

 

 

 

 

 

Granted

 

 

1,829,537

 

 

 

21.85

 

 

 

 

 

 

 

 

 

Exercised

 

 

(139,396

)

 

 

7.85