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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, 2017

or

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      No  

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      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

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

Number of shares outstanding of the issuer’s Common Stock as of November 2, 2017: 100,182,914 shares

 

 

 

 


Agenus Inc.

Nine Months Ended September 30, 2017

Table of Contents

 

 

 

 

 

Page

PART I

 

 

ITEM 1.

 

Financial Statements:

 

2

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016 (Unaudited)

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 (Unaudited)

 

4

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

ITEM 2.

 

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

 

14

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

20

ITEM 4.

 

Controls and Procedures

 

20

 

 

 

PART II

 

 

ITEM 1A.

 

Risk Factors

 

22

ITEM 5.

 

Other Information

 

45

ITEM 6.

 

Exhibits

 

46

 

 

Signatures

 

47

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

September 30, 2017

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

65,075,357

 

 

$

71,448,016

 

Short-term investments

 

 

4,975,860

 

 

 

4,988,751

 

Inventories

 

 

80,241

 

 

 

88,200

 

Accounts Receivable

 

 

2,191,043

 

 

 

11,352,022

 

Prepaid expenses

 

 

10,784,602

 

 

 

2,596,675

 

Other current assets

 

 

1,236,566

 

 

 

838,538

 

Total current assets

 

 

84,343,669

 

 

 

91,312,202

 

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

   $33,204,359 and $31,243,967 at September 30, 2017 and December 31, 2016, respectively

 

 

25,635,484

 

 

 

25,633,985

 

Goodwill

 

 

23,078,686

 

 

 

22,392,411

 

Acquired intangible assets, net of accumulated amortization of $4,952,856 and

   $3,193,092 at September 30, 2017 and December 31, 2016, respectively

 

 

14,929,743

 

 

 

16,364,726

 

Other long-term assets

 

 

1,282,662

 

 

 

1,282,662

 

Total assets

 

$

149,270,244

 

 

$

156,985,986

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current portion, long-term debt

 

$

19,956,079

 

 

$

146,061

 

Current portion, deferred revenue

 

 

2,228,407

 

 

 

2,610,719

 

Accounts payable

 

 

6,719,496

 

 

 

5,428,452

 

Accrued liabilities

 

 

20,559,065

 

 

 

27,874,703

 

Other current liabilities

 

 

4,943,705

 

 

 

4,791,265

 

Total current liabilities

 

 

54,406,752

 

 

 

40,851,200

 

Long-term debt, net of current portion

 

 

123,291,452

 

 

 

130,542,424

 

Deferred revenue, net of current portion

 

 

10,720,367

 

 

 

12,344,782

 

Contingent purchase price considerations

 

 

7,684,000

 

 

 

7,561,000

 

Other long-term liabilities

 

 

4,761,933

 

 

 

4,812,846

 

Commitments and contingencies

 

 

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

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, 2017 and December 31, 2016; liquidation value

   of $32,573,712 at September 30, 2017

 

 

316

 

 

 

316

 

Common stock, par value $0.01 per share; 240,000,000 shares authorized; 99,743,257

   and 87,794,933 shares issued at September 30, 2017 and December 31, 2016,

   respectively

 

 

997,433

 

 

 

877,949

 

Additional paid-in capital

 

 

940,907,876

 

 

 

866,854,348

 

Accumulated other comprehensive loss

 

 

(2,058,677

)

 

 

(1,529,559

)

Accumulated deficit

 

 

(991,441,208

)

 

 

(905,329,320

)

Total stockholders’ deficit

 

 

(51,594,260

)

 

 

(39,126,266

)

Total liabilities and stockholders’ deficit

 

$

149,270,244

 

 

$

156,985,986

 

 

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,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

 

 

$

 

 

$

 

 

$

147,456

 

Research and development

 

 

3,359,399

 

 

 

4,446,171

 

 

 

34,522,815

 

 

 

16,849,876

 

Total revenues

 

 

3,359,399

 

 

 

4,446,171

 

 

 

34,522,815

 

 

 

16,997,332

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

(25,788,707

)

 

 

(21,588,026

)

 

 

(84,253,129

)

 

 

(68,988,290

)

General and administrative

 

 

(8,050,783

)

 

 

(8,107,262

)

 

 

(23,956,543

)

 

 

(24,456,016

)

Contingent purchase price consideration fair value adjustment

 

 

(1,184,000

)

 

 

(10,975,000

)

 

 

(123,000

)

 

 

(11,354,000

)

Operating loss

 

 

(31,664,091

)

 

 

(36,224,117

)

 

 

(73,809,857

)

 

 

(87,800,974

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating income (expense)

 

 

(472,745

)

 

 

(139,636

)

 

 

1,917,200

 

 

 

(325,347

)

Interest expense, net

 

 

(4,704,871

)

 

 

(4,409,767

)

 

 

(13,765,271

)

 

 

(12,745,581

)

Net loss

 

 

(36,841,707

)

 

 

(40,773,520

)

 

 

(85,657,928

)

 

 

(100,871,902

)

Dividends on Series A-1 convertible preferred stock

 

 

(51,426

)

 

 

(51,102

)

 

 

(154,034

)

 

 

(153,064

)

Net loss attributable to common stockholders

 

$

(36,893,133

)

 

$

(40,824,622

)

 

$

(85,811,962

)

 

$

(101,024,966

)

Per common share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss attributable to common stockholders

 

$

(0.37

)

 

$

(0.47

)

 

$

(0.88

)

 

$

(1.16

)

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

99,891,980

 

 

 

87,206,685

 

 

 

97,557,409

 

 

 

86,954,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

$

231,177

 

 

$

98,514

 

 

$

(529,118

)

 

$

493,602

 

Other comprehensive income (loss)

 

 

231,177

 

 

 

98,514

 

 

 

(529,118

)

 

 

493,602

 

Comprehensive loss

 

$

(36,661,956

)

 

$

(40,726,108

)

 

$

(86,341,080

)

 

$

(100,531,364

)

 

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,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(85,657,928

)

 

$

(100,871,902

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,561,815

 

 

 

3,658,483

 

Share-based compensation

 

 

7,083,948

 

 

 

8,701,292

 

Non-cash interest expense

 

 

13,360,630

 

 

 

12,193,674

 

Gain on disposal of assets

 

 

(19,822

)

 

 

 

Gain on issuance of stock for settlement of milestone obligation

 

 

(14,063

)

 

 

 

Change in fair value of contingent obligations

 

 

123,000

 

 

 

11,354,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

9,160,979

 

 

 

(480,833

)

Inventories

 

 

7,959

 

 

 

-

 

Prepaid expenses

 

 

(8,178,360

)

 

 

(1,067,534

)

Accounts payable

 

 

1,006,808

 

 

 

(1,272,690

)

Deferred revenue

 

 

(2,006,858

)

 

 

(3,286,987

)

Accrued liabilities and other current liabilities

 

 

(5,962,198

)

 

 

6,340,539

 

Other operating assets and liabilities

 

 

(1,823,880

)

 

 

887,383

 

Net cash used in operating activities

 

 

(68,357,970

)

 

 

(63,844,575

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of plant and equipment

 

 

120,000

 

 

 

 

Purchases of plant and equipment

 

 

(2,366,429

)

 

 

(8,191,515

)

Purchases of held-to-maturity securities

 

 

(14,936,047

)

 

 

(54,884,101

)

Proceeds from securities held-to-maturity

 

 

15,000,000

 

 

 

70,000,000

 

Net cash provided by (used in) investing activities

 

 

(2,182,476

)

 

 

6,924,384

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from sale of equity

 

 

63,677,302

 

 

 

 

Proceeds from employee stock purchases and option exercises

 

 

833,982

 

 

 

1,092,722

 

Purchase of treasury shares to satisfy tax withholdings

 

 

(527,223

)

 

 

(667,050

)

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

 

 

 

 

 

(5,000,000

)

Payment of capital lease obligation

 

 

(216,982

)

 

 

(72,330

)

Net cash provided by (used in) financing activities

 

 

63,767,079

 

 

 

(4,646,658

)

Effect of exchange rate changes on cash

 

 

400,708

 

 

 

302,465

 

Net decrease in cash and cash equivalents

 

 

(6,372,659

)

 

 

(61,264,384

)

Cash and cash equivalents, beginning of period

 

 

71,448,016

 

 

 

136,702,873

 

Cash and cash equivalents, end of period

 

$

65,075,357

 

 

$

75,438,489

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

837,699

 

 

$

837,699

 

Supplemental disclosures - non-cash activities:

 

 

 

 

 

 

 

 

Purchases of plant and equipment in accounts payable and

   accrued liabilities

 

 

222,203

 

 

 

1,000,101

 

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

   settlement of milestone obligation

 

 

1,485,937

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

4


AGENUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017

 

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 a clinical stage immuno-oncology (“I-O”) company focused on the discovery and development of therapies that engage the body’s immune system to fight cancer. Our approach to cancer immunotherapy involves a diverse portfolio consisting of antibody-based therapeutics, adjuvants and cancer vaccine platforms. We, in collaboration with our partners, are developing a number of immuno-modulatory antibodies against important nodes of immune regulation.  These include antibodies targeting CTLA-4, GITR, OX40 and PD-1 that are in clinical development. Our discovery pipeline consists of a number of proprietary checkpoint modulating (“CPM”) antibodies against innovative targets such as TIGIT and CD-137.  We believe that tailored combination therapies are essential to combat some of the most resistant cancers.  Accordingly, our immune education strategy focuses on pursing antibodies as well as vaccine candidates in conjunction with adjuvants.  

We are developing a comprehensive I-O 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 CPM programs;

 

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

 

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

We also have our own good manufacturing practices manufacturing facility with the capacity to support early phase

clinical programs.

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.

Our cash, cash equivalents, and short-term investments at September 30, 2017 were $70.1 million, a decrease of $6.4 million from December 31, 2016.

The following table outlines our quarter end cash, cash equivalents and short-term investments balances and the changes therein.

 

 

 

Quarter Ended

 

 

 

March 31, 2017

 

 

June 30, 2017

 

 

September 30, 2017

 

Cash, cash equivalents and short-term investments

 

$

123.8

 

 

$

96.8

 

 

$

70.1

 

Increase (decrease) in cash, cash equivalents and short-term

   investments

 

$

47.4

 

 

$

(27.0

)

 

$

(26.7

)

Cash used in operating activities

 

$

(14.8

)

 

$

(27.4

)

 

$

(26.2

)

Reported net loss

 

$

(17.3

)

 

$

(31.7

)

 

$

(36.8

)

 We have incurred significant losses since our inception. As of September 30, 2017, we had an accumulated deficit of $991.4 million. Since our inception, we have successfully financed our operations through the sale of equity, notes, corporate partnerships, and interest income. Based on our current plans, including additional funding we anticipate from multiple sources between now and the end of the first quarter of 2018, including out-licensing and/or partnering opportunities, we believe that our cash resources of $70.1 million as of September 30, 2017 plus the additional $15 million of proceeds we have irrevocably elected to draw down from our existing note agreement (see Note L) will be sufficient to satisfy our liquidity requirements into the third quarter of 2018. We also continue to monitor the likelihood of success of our key initiatives and can discontinue funding of such activities if they do not prove to be successful, restrict capital expenditures and/or reduce the scale of our operations if necessary.  However, in spite of these anticipated sources of funding and our ability to control our cash burn, in accordance with the requirements of ASU 2014-15, we are required to disclose the existence of a substantial doubt regarding our ability to continue as a going concern for twelve months from when these financial statements were issued.

5


Our future liquidity needs will be determined primarily by the success of our operations with respect to the progression of our product candidates and key development and regulatory events in the future. Potential sources of additional funding include: (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.  We believe the execution of one or more of these transactions will enable us to fund our planned operations for at least one year from when these financial statements were issued.  Our ability to address our liquidity needs will largely be determined by the success of our product candidates and key development and regulatory events and our decisions in the future as well as the execution of one or more of the aforementioned contemplated transactions.

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 nine months ended September 30, 2017, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016 filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2017.

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.

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’ deficit.

 

 

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, non-vested 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 September 30, 2017 and 2016, as they would be anti-dilutive:

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Warrants

 

 

4,351,450

 

 

 

4,351,450

 

Stock options

 

 

14,749,924

 

 

 

11,761,554

 

Non-vested shares

 

 

1,915,991

 

 

 

1,937,023

 

Convertible preferred stock

 

 

333,333

 

 

 

333,333

 

 

6


Note C - Investments

Cash equivalents and short-term investments consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

Cost

 

 

Estimated

Fair Value

 

 

Cost

 

 

Estimated

Fair Value

 

Institutional money market funds

 

$

58,690

 

 

$

58,690

 

 

$

38,913

 

 

$

38,913

 

U.S. Treasury Bills

 

 

9,962

 

 

 

9,962

 

 

 

14,978

 

 

 

14,978

 

Total

 

$

68,652

 

 

$

68,652

 

 

$

53,891

 

 

$

53,891

 

 

For the nine months ended September 30, 2017, we received proceeds of approximately $15.0 million from the maturity of U.S. Treasury Bills classified as short-term investments. As a result of the short-term nature of our investments, there were minimal unrealized holding gains or losses for the three and nine months ended September 30, 2017 and 2016.

Of the investments listed above, $63.7 million and $48.9 million have been classified as cash equivalents and $5.0 million as short-term investments on our condensed consolidated balance sheets as of each of September 30, 2017 and December 31, 2016.

 

 

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, 2017 (in thousands):

 

Balance, December 31, 2016

 

$

22,392

 

Foreign currency translation adjustment

 

 

687

 

Balance, September 30, 2017

 

$

23,079

 

 

Acquired intangible assets consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

As of September 30, 2017

 

 

 

Amortization

period

(years)

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

Intellectual property

 

7-15 years

 

$

16,553

 

 

$

(3,824

)

 

$

12,729

 

Trademarks

 

4.5 years

 

 

828

 

 

 

(667

)

 

 

161

 

Other

 

2-6 years

 

 

571

 

 

 

(462

)

 

 

109

 

In-process research and development

 

Indefinite

 

 

1,931

 

 

 

 

 

 

1,931

 

Total

 

 

 

$

19,883

 

 

$

(4,953

)

 

$

14,930

 

 

 

 

As of December 31, 2016

 

 

 

Amortization

period

(years)

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

Intellectual property

 

7-15 years

 

$

16,358

 

 

$

(2,384

)

 

$

13,973

 

Trademarks

 

4.5 years

 

 

791

 

 

 

(505

)

 

 

286

 

Other

 

2-6 years

 

 

563

 

 

 

(303

)

 

 

260

 

In-process research and development

 

Indefinite

 

 

1,846

 

 

 

 

 

 

1,846

 

Total

 

 

 

$

19,558

 

 

$

(3,193

)

 

$

16,365

 

 

The weighted average amortization period of our finite-lived intangible assets is 9 years. Amortization expense related to acquired intangibles is estimated at $0.9 million for the remainder of 2017, $2.0 million for the year ending December 31, 2018, $1.9 million for the year ending December 31, 2019 and $1.9 million for each of the years ending December 31, 2020 and 2021.

 

 

7


Note E - Debt

Debt obligations consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):  

 

Debt instrument

 

Principal at

September 30,

2017

 

 

Non-cash

Interest

 

 

Unamortized

Debt Issuance

Costs

 

 

Unamortized

Debt Discount

 

 

Balance at

September 30,

2017

 

Current Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

 

$

146

 

 

$

 

 

$

 

 

$

 

 

$

146

 

Note Purchase Agreement

 

 

15,000

 

 

 

4,810

 

 

 

-

 

 

 

-

 

 

 

19,810

 

Total current

 

 

15,146

 

 

 

4,810

 

 

 

-

 

 

 

-

 

 

 

19,956

 

Long-term Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 Subordinated Notes

 

 

14,000

 

 

 

 

 

 

 

 

 

(1,513

)

 

 

12,487

 

Note Purchase Agreement

 

 

85,000

 

 

 

27,257

 

 

 

(1,246

)

 

 

(207

)

 

 

110,804

 

Total long-term

 

 

99,000

 

 

 

27,257

 

 

 

(1,246

)

 

 

(1,720

)

 

 

123,291

 

Total

 

$

114,146

 

 

$

32,067

 

 

$

(1,246

)

 

$

(1,720

)

 

$

143,247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt instrument

 

Principal at

December 31,

2016

 

 

Non-cash

Interest

 

 

Unamortized

Debt Issuance

Costs

 

 

Unamortized

Debt Discount

 

 

Balance at

December 31,

2016

 

Current Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

 

$

146

 

 

$

 

 

$

 

 

$

 

 

$

146

 

Long-term Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 Subordinated Notes

 

 

14,000

 

 

 

 

 

 

 

 

 

(1,311

)

 

 

12,689

 

Note Purchase Agreement

 

 

100,000

 

 

 

19,421

 

 

 

(1,345

)

 

 

(222

)

 

 

117,853

 

Total long-term

 

 

114,000

 

 

 

19,421

 

 

 

(1,345

)

 

 

(1,533

)

 

 

130,542

 

Total

 

$

114,146

 

 

$

19,421

 

 

$

(1,345

)

 

$

(1,533

)

 

$

130,688

 

 

In June 2016, we executed a capital lease agreement that expires in June 2020 for equipment with a carrying value of approximately $0.9 million, which is included in property, plant and equipment, net on our condensed consolidated balance sheets as of September 30, 2017. Under the terms of the capital lease agreement, we will remit payments to the lessor of $72,000 for the remainder of 2017, $288,000 for each of the years 2018 through 2019 and $144,000 for the year ending December 31, 2020.  As of September 30, 2017, our remaining obligations under the capital lease agreement are approximately $0.7 million, of which $290,000 and $399,000 are classified as other current and other long-term liabilities, respectively, on our condensed consolidated balance sheets.

In March 2017, we and the holders of our subordinated notes issued in February 2015 (the “2015 Subordinated Notes”) entered into an Amendment to Notes and Warrants, pursuant to which the parties (i) extended the term of the 2013 Warrants by two years from April 15, 2017 to April 15, 2019 and (ii) extended the maturity date of the 2015 Notes by two years from February 20, 2018 to February 20, 2020.  This resulted in an additional debt discount of $0.7 million, which will be amortized using the effective interest method over three years, the expected life of the 2015 Subordinated Notes. The 2013 Warrants and 2015 Subordinated Notes are otherwise unchanged.

 

 

Note F - Accrued and Other Current Liabilities

Accrued liabilities consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Payroll

 

$

5,316

 

 

$

6,504

 

Professional fees

 

 

3,892

 

 

 

2,373

 

Contract manufacturing costs

 

 

6,037

 

 

 

10,492

 

Research services

 

 

3,821

 

 

 

5,639

 

Leasehold improvements

 

 

-

 

 

 

1,280

 

Other

 

 

1,493

 

 

 

1,587

 

Total

 

$

20,559

 

 

$

27,875

 

8


 

Other current liabilities consisted of the following as of September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Current portion of deferred purchase price

 

$

4,000

 

 

$

3,948

 

Other

 

 

944

 

 

 

843

 

Total

 

$

4,944

 

 

$

4,791

 

 

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 values of our contingent purchase price considerations, $7.7 million, are based on significant inputs not observable in the market, which require them 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

 

September 30, 2017

 

 

Quoted Prices in

Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

4,986

 

 

$

4,986

 

 

$

 

 

$

 

Short-term investments

 

 

4,976

 

 

 

4,976

 

 

 

 

 

 

 

Total

 

$

9,962

 

 

$

9,962

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent purchase price considerations

 

$

7,684

 

 

$

 

 

$

 

 

$

7,684

 

Total

 

$

7,684

 

 

$

 

 

$

 

 

$

7,684

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

December 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

 

$

9,990

 

 

$

9,990

 

 

$

 

 

$

 

Short-term investments

 

 

4,988

 

 

 

4,988

 

 

 

 

 

 

 

Total

 

$

14,978

 

 

$

14,978

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent purchase price consideration

 

$

7,561

 

 

$

 

 

$

 

 

$

7,561

 

Total

 

$

7,561

 

 

$

 

 

$

 

 

$

7,561

 

 

The following table presents our liabilities measured at fair value using significant unobservable inputs (Level 3), as of September 30, 2017 (in thousands):

 

Balance, December 31, 2016

 

$

7,561

 

Change in fair value of contingent purchase price considerations

   during the period

 

 

123

 

Balance, September 30, 2017

 

$

7,684

 

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

9


The fair value of our outstanding debt balance at September 30, 2