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EX-32.1 - EX-32.1 - AGENUS INCagen-ex321_6.htm
EX-31.2 - EX-31.2 - AGENUS INCagen-ex312_8.htm
EX-31.1 - EX-31.1 - AGENUS INCagen-ex311_7.htm
EX-10.3 - EX-10.3 - AGENUS INCagen-ex103_120.htm
EX-10.2 - EX-10.2 - AGENUS INCagen-ex102_121.htm
EX-10.1 - EX-10.1 - AGENUS INCagen-ex101_124.htm
EX-4.1 - EX-4.1 - AGENUS INCagen-ex41_123.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 March 31, 2018

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 May 4, 2018: 103,999,081 shares

 

 

 

 


Agenus Inc.

Three Months Ended March 31, 2018

Table of Contents

 

 

 

 

 

Page

PART I

 

 

ITEM 1.

 

Financial Statements:

 

2

 

 

Condensed Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2018 and 2017 (Unaudited)

 

3

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (Unaudited)

 

4

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

5

ITEM 2.

 

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

 

20

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

ITEM 4.

 

Controls and Procedures

 

24

 

 

 

PART II

 

 

ITEM 1A.

 

Risk Factors

 

26

ITEM 6.

 

Exhibits

 

49

 

 

Signatures

 

50

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

52,347,634

 

 

$

60,186,617

 

Inventories

 

 

62,241

 

 

 

79,491

 

Accounts Receivable

 

 

1,128,827

 

 

 

1,134,493

 

Prepaid expenses

 

 

11,056,433

 

 

 

11,070,960

 

Other current assets

 

 

597,943

 

 

 

1,081,993

 

Total current assets

 

 

65,193,078

 

 

 

73,553,554

 

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

   $35,038,032 and $34,029,085 at March 31, 2018 and December 31, 2017, respectively

 

 

27,035,584

 

 

 

26,178,622

 

Goodwill

 

 

23,398,080

 

 

 

23,048,804

 

Acquired intangible assets, net of accumulated amortization of $6,058,173 and

   $5,461,834 at March 31, 2018 and December 31, 2017, respectively

 

 

13,974,560

 

 

 

14,406,650

 

Other long-term assets

 

 

1,214,394

 

 

 

1,214,394

 

Total assets

 

$

130,815,696

 

 

$

138,402,024

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current portion, long-term debt

 

$

146,061

 

 

$

20,639,735

 

Current portion, liability related to sale of future royalties

 

 

4,262,392

 

 

 

 

Current portion, deferred revenue

 

 

1,148,420

 

 

 

4,484,882

 

Accounts payable

 

 

5,407,180

 

 

 

8,086,992

 

Accrued liabilities

 

 

18,057,061

 

 

 

21,569,449

 

Other current liabilities

 

 

1,141,104

 

 

 

1,657,063

 

Total current liabilities

 

 

30,162,218

 

 

 

56,438,121

 

Long-term debt, net of current portion

 

 

12,765,588

 

 

 

142,385,024

 

Liability related to sale of future royalties, net of current portion

 

 

186,823,241

 

 

 

 

Deferred revenue, net of current portion

 

 

1,755,300

 

 

 

7,748,284

 

Contingent purchase price considerations

 

 

9,389,000

 

 

 

4,373,000

 

Other long-term liabilities

 

 

3,153,940

 

 

 

3,273,387

 

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 March 31, 2018 and December 31, 2017; liquidation value

   of $32,676,808 at March 31, 2018

 

 

316

 

 

 

316

 

Common stock, par value $0.01 per share; 240,000,000 shares authorized; 103,280,951

   and 101,706,117 shares issued at March 31, 2018 and December 31, 2017,

   respectively

 

 

1,032,810

 

 

 

1,017,061

 

Additional paid-in capital

 

 

960,046,528

 

 

 

951,811,958

 

Accumulated other comprehensive loss

 

 

(2,706,425

)

 

 

(2,169,354

)

Accumulated deficit

 

 

(1,071,759,790

)

 

 

(1,026,475,773

)

Total stockholders’ deficit attributable to Agenus Inc.

 

 

(113,386,561

)

 

 

(75,815,792

)

Non-controlling interest

 

 

152,970

 

 

 

 

Total stockholders’ deficit

 

 

(113,233,591

)

 

 

(75,815,792

)

Total liabilities and stockholders’ deficit

 

$

130,815,696

 

 

$

138,402,024

 

 

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,

 

 

 

2018

 

 

2017

 

Revenue (research and development)

 

$

1,636,041

 

 

$

26,955,843

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

(29,441,285

)

 

 

(32,639,991

)

General and administrative

 

 

(8,927,559

)

 

 

(7,769,508

)

Contingent purchase price consideration fair value adjustment

 

 

(5,016,000

)

 

 

196,000

 

Operating loss

 

 

(41,748,803

)

 

 

(13,257,656

)

Other expense:

 

 

 

 

 

 

 

 

Loss on early extinguishment of debt

 

 

(10,766,625

)

 

 

 

Non-operating income

 

 

1,035,175

 

 

 

740,134

 

Interest expense, net

 

 

(2,780,890

)

 

 

(4,585,657

)

Net loss

 

 

(54,261,143

)

 

 

(17,103,179

)

Dividends on Series A-1 convertible preferred stock

 

 

(51,589

)

 

 

(51,264

)

Less: net loss attributable to non-controlling interest

 

 

(120,630

)

 

 

 

Net loss attributable to Agenus Inc. common stockholders

 

$

(54,192,102

)

 

$

(17,154,443

)

Per common share data:

 

 

 

 

 

 

 

 

Basic and diluted net loss attributable to Agenus Inc. common stockholders

 

$

(0.53

)

 

$

(0.18

)

Weighted average number of Agenus Inc. common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

102,576,334

 

 

 

93,508,120

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

$

(537,071

)

 

$

(131,839

)

Other comprehensive loss

 

 

(537,071

)

 

 

(131,839

)

Comprehensive loss

 

$

(54,729,173

)

 

$

(17,286,282

)

 

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,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(54,261,143

)

 

$

(17,103,179

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,558,417

 

 

 

1,527,748

 

Share-based compensation

 

 

2,205,328

 

 

 

2,377,164

 

Non-cash interest expense

 

 

2,669,115

 

 

 

4,403,836

 

Loss on disposal of assets

 

 

74,942

 

 

 

29,287

 

Gain on issuance of stock for settlement of milestone obligation

 

 

 

 

 

(14,063

)

Change in fair value of contingent obligations

 

 

5,016,000

 

 

 

(196,000

)

Loss on extinguishment of debt

 

 

10,766,625

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5,666

 

 

 

4,577,040

 

Inventories

 

 

17,250

 

 

 

 

Prepaid expenses

 

 

26,749

 

 

 

(4,028,153

)

Accounts payable

 

 

(2,818,135

)

 

 

(1,076,393

)

Deferred revenue

 

 

(472,949

)

 

 

(652,631

)

Accrued liabilities and other current liabilities

 

 

(3,523,864

)

 

 

(3,947,380

)

Other operating assets and liabilities

 

 

(1,513,624

)

 

 

(728,288

)

Net cash used in operating activities

 

 

(40,249,623

)

 

 

(14,831,012

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of plant and equipment

 

 

5,218

 

 

 

115,000

 

Purchases of plant and equipment

 

 

(1,494,901

)

 

 

(417,002

)

Purchases of held-to-maturity securities

 

 

 

 

 

(9,960,188

)

Proceeds from securities held-to-maturity

 

 

 

 

 

5,000,000

 

Net cash used in investing activities

 

 

(1,489,683

)

 

 

(5,262,190

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from sale of equity

 

 

5,257,531

 

 

 

61,836,887

 

Proceeds from employee stock purchases and option exercises

 

 

1,060,660

 

 

 

304,003

 

Purchase of treasury shares to satisfy tax withholdings

 

 

 

 

 

 

Proceeds from sale of future royalties

 

 

189,878,400

 

 

 

 

Transaction costs from sale of future royalties

 

 

(494,394

)

 

 

 

Repayments of debt

 

 

(161,847,223

)

 

 

 

Payment of capital lease obligation

 

 

(64,970

)

 

 

(66,861

)

Net cash provided by financing activities

 

 

33,790,004

 

 

 

62,074,029

 

Effect of exchange rate changes on cash

 

 

110,319

 

 

 

435,113

 

Net (decrease) increase in cash and cash equivalents

 

 

(7,838,983

)

 

 

42,415,940

 

Cash and cash equivalents, beginning of period

 

 

60,186,617

 

 

 

71,448,016

 

Cash and cash equivalents, end of period

 

$

52,347,634

 

 

$

113,863,956

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

276,164

 

 

$

276,164

 

Supplemental disclosures - non-cash activities:

 

 

 

 

 

 

 

 

Purchases of plant and equipment in accounts payable and

   accrued liabilities

 

 

283,077

 

 

 

463,719

 

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

March 31, 2018

 

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 dedicated to becoming a leader in the discovery and development of innovative combination therapies and committed to bringing effective medicines to patients with cancer. Our business is designed to drive success in I-O through speed, innovation, and effective combination therapies. We have assembled fully integrated capabilities from novel target discovery, antibody generation, cell line development, and good manufacturing practice (“GMP”) manufacturing together with a comprehensive portfolio consisting of antibody-based therapeutics, adjuvants, cancer vaccine platforms, and cell therapy (through our subsidiary, AgenTus Therapeutics). We leverage our immune biology platforms to identify effective combination therapies for development and have developed productive partnerships to advance our innovation.  

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 drive the discovery of future CPM antibody candidates;

 

our antibody candidate programs, including our CPM programs;

 

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

 

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

 

our cell therapy subsidiary, AgenTus Therapeutics, which is designed to drive the discovery of future adoptive cell therapy, or “living drugs” (CAR-T and TCR) 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 March 31, 2018 were $52.3 million, a decrease of $7.8 million from December 31, 2017.

The following table outlines our quarter end cash and cash equivalents balances and the changes therein (in millions).

 

 

 

Quarter Ended

 

 

 

March 31, 2018

 

Cash and cash equivalents

 

$

52.3

 

Decrease in cash and cash equivalents

 

$

(7.8

)

Cash used in operating activities

 

$

(40.2

)

Reported net loss

 

$

(54.3

)

 We have incurred significant losses since our inception. As of March 31, 2018, we had an accumulated deficit of $1.1 billion. 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, including out-licensing and/or partnering opportunities, we believe that our cash resources of $52.3 million as of March 31, 2018 will be sufficient to satisfy our liquidity requirements through the first quarter of 2019. 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.

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

5


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 three months ended March 31, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017 filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2018.

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 - Summary of Significant Accounting Policies

Except as detailed below, there have been no material changes to our significant accounting policies during the three months ended March 31, 2018, as compared to the significant accounting policies disclosed in Note 2 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

     Revenue

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes existing revenue recognition guidance. We adopted ASU 2014-09 and its related amendments (collectively known as “ASC 606”) on January 1, 2018 using the modified retrospective method- i.e., by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of equity at January 1, 2018. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”). The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of our goods and services and will provide financial statement readers with enhanced disclosures. The details of the significant changes and quantitative impact of the changes are disclosed in Note J.

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. To achieve this core principle, we apply the following five steps:

1) Identify the contract with the customer

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance, and (iii) the Company determines that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s intent and ability to pay, which is based on a variety of factors including the customer’s historical payment experience, or in the case of a new customer, published credit and financial information pertaining to the customer.

2) Identify the performance obligations in the contract

6


Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, the Company must apply judgment to determine whether promised goods and services are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

3) Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment, which is discussed in further detail for each of the Company’s contracts with customers in Note J.

4) Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative stand-alone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative stand-alone selling prices. Determining the amount of the transaction price to allocate to each separate performance obligation requires significant judgement, which is discussed in further detail for each of the Company’s contracts with customers in Note J.

5) Recognize revenue when or as the Company satisfies a performance obligation

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized over time if either 1) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, 2) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or 3) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer. Examples of control are using the asset to produce goods or services, enhance the value of other assets, settle liabilities, and holding or selling the asset.  ASC 606 requires the Company to select a single revenue recognition method for the performance obligation that faithfully depicts the Company’s performance in transferring control of the goods and services. The guidance allows entities to choose between two methods to measure progress toward complete satisfaction of a performance obligation:

 

1.

Output methods - recognize revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract (e.g. surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed, and units of produced or units delivered); and

 

 

2.

Input methods - recognize revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation.

Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

7


Milestone payments: At the inception of each arrangement that includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. ASC 606 suggests two alternatives to use when estimating the amount of variable consideration: the expected value method and the most likely amount method. Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. Whichever method is used, it should be consistently applied throughout the life of the contract; however, it is not necessary for the Company to use the same approach for all contracts. The Company uses the most likely amount method for development and regulatory milestone payments. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis. The Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Up-front Fees: Depending on the nature of the agreement, up-front payments and fees may be recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Contract Balances

Contract assets primarily relate to our rights to consideration for work completed in relation to our research and development (“R&D”) services performed but not billed at the reporting date. The contract assets are transferred to the receivables when the rights become unconditional. Currently, we do not have any contract assets which have not transferred to a receivable. We had no asset impairment charges related to contract assets in the period. The contract liabilities primarily relate to contracts where we received payments but we have not yet satisfied the related performance obligations. The advance consideration received from customers for R&D services or licenses bundled with other promises is a contract liability until the underlying performance obligations are transferred to the customer.

The following table provides information about contract assets and contract liabilities from contracts with customers (in thousands):

 

Three months ended March 31, 2018

 

Balance at beginning of period

 

 

Additions

 

 

Deductions

 

 

Balance at end of period

 

Contract assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unbilled receivables from collaboration partners

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

3,377

 

 

$

-

 

 

$

(473

)

 

$

2,904

 

The change in contract liabilities is primarily related to the recognition of $0.5 million of revenue recognized during the three months ended March 31, 2018. Deferred revenue related to our global license, development and commercialization agreement (the “Collaboration Agreement”), dated January 9, 2015, with Incyte Corporation (“Incyte”) of $2.9 million as of March 31, 2018, which was comprised of the $25.0 million upfront payment, less $22.1 million of license and collaboration revenue recognized from the effective date of the contract, will be recognized as the combined performance obligation is satisfied. We also recorded a $1.1 million receivable from Incyte as of March 31, 2018 for R&D services provided.

During the three months ended March 31, 2018, we did not recognize any revenue from amounts included in the contract asset or the contract liability balances from performance obligations satisfied in previous periods. None of the costs to obtain or fulfill the contract were capitalized.

8


Impact of Adopting ASC 606 on Financial Statements

We adopted ASC 606 using the modified retrospective method. The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. We elected to apply a practical expedient to reflect the aggregate effect of all modifications that occurred before January 1, 2018 when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations. The estimated effect of applying this practical expedient results in a slower recognition of the transaction price, as more consideration is allocated to performance obligations originally identified as a material right at contract inception. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to the consolidated balance sheet as of January 1, 2018 (in thousands):

 

 

 

As Reported December 31, 2017

 

 

ASC 606 Adjustment

 

 

Adjusted January 1, 2018

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

Current portion, deferred revenue

 

$

4,485

 

 

$

(2,986

)

 

$

1,499

 

Deferred revenue

 

 

7,748

 

 

 

(5,870

)

 

 

1,878

 

Accumulated deficit

 

$

(1,026,476

)

 

$

8,856

 

 

$

(1,017,620

)

 

Impact of ASC 606 on Financial Statements

In accordance with Topic 606, the disclosure of the impact of adoption to our condensed consolidated statements of income and balance sheets was as follows (in thousands):

 

 

 

March 31, 2018

 

 

 

As Reported Under ASC 606

 

 

Adjustments

 

 

Notes

 

 

Balances without Adoption of ASC 606

 

Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion, deferred revenue

 

$

1,148

 

 

$

2,742

 

 

 

(1

)

 

$

3,890

 

Deferred revenue

 

 

1,755

 

 

 

5,510

 

 

 

(1

)

 

 

7,265

 

Accumulated deficit

 

 

(1,071,760

)

 

 

(8,276

)

 

 

(2

)

 

 

(1,080,036

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,636

 

 

$

580

 

 

 

(3

)

 

$

2,216

 

 

(1)

Adjustment to deferred revenue to reflect recognition of revenue under ASC 605 primarily attributable to the change in the timing of revenue recognition for amounts received under the Incyte Collaboration Agreement and GSK License and Amended Supply Agreements, see Note J

 

(2)

Adjustment to accumulated deficit to reflect the reversal of the cumulative transition adjustment and the difference in revenue from ASC 606 to ASC 605, see Note J

 

(3)

Adjustment to reflect the difference in revenue recognition from ASC 606 to ASC 605 primarily attributable to the change in recognition of an upfront fee related to the GSK License and Amended Supply Agreements, see Note J

 

 

9


Note C - 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 March 31, 2018 and 2017, as they would be anti-dilutive:

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Warrants

 

 

2,900,000

 

 

 

4,351,450

 

Stock options

 

 

14,129,736

 

 

 

14,940,852

 

Non-vested shares

 

 

1,280,750

 

 

 

2,605,674

 

Convertible preferred stock

 

 

333,333

 

 

 

333,333

 

 

Note D - Investments

Cash equivalents consisted of the following as of March 31, 2018 and December 31, 2017 (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

Cost

 

 

Estimated

Fair Value

 

 

Cost

 

 

Estimated

Fair Value

 

Institutional money market funds

 

$

50,904

 

 

$

50,904

 

 

$

57,036

 

 

$

57,036

 

U.S. Treasury Bills

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

50,904

 

 

$

50,904

 

 

$

57,036

 

 

$

57,036

 

 

As a result of the short-term nature of our investments, there were minimal unrealized holding gains or losses for the three months ended March 31, 2018 and 2017.

Of the investments listed above, $50.9 million and $57.0 million have been classified as cash equivalents on our condensed consolidated balance sheets as of each of March 31, 2018 and December 31, 2017.

 

 

Note E - 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, 2018 (in thousands):

 

Balance, December 31, 2017

 

$

23,049

 

Foreign currency translation adjustment

 

 

349

 

Balance, March 31, 2018

 

$

23,398

 

 

Acquired intangible assets consisted of the following as of March 31, 2018 and December 31, 2017 (in thousands):

 

 

 

As of March 31, 2018

 

 

 

Amortization

period

(years)

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

Intellectual property

 

7-15 years

 

$

16,643

 

 

$

(4,784

)

 

$

11,859

 

Trademarks

 

4.5 years

 

 

845

 

 

 

(774

)

 

 

71

 

Other

 

2-6 years

 

 

574

 

 

 

(500

)

 

 

74

 

In-process research and development

 

Indefinite

 

 

1,971

 

 

 

 

 

 

1,971

 

Total

 

 

 

$

20,033

 

 

$

(6,058

)

 

$

13,975

 

 

10


 

 

As of December 31, 2017

 

 

 

Amortization

period

(years)

 

Gross carrying

amount

 

 

Accumulated

amortization

 

 

Net carrying

amount

 

Intellectual property

 

7-15 years

 

$

16,545

 

 

$

(4,290

)

 

$

12,255

 

Trademarks

 

4.5 years

 

 

826

 

 

 

(711

)

 

 

115

 

Other

 

2-6 years

 

 

570

 

 

 

(461

)

 

 

109

 

In-process research and development

 

Indefinite

 

 

1,928

 

 

 

 

 

 

1,928

 

Total

 

 

 

$

19,869

 

 

$

(5,462

)

 

$

14,407

 

 

The weighted average amortization period of our finite-lived intangible assets is 9 years. Amortization expense related to acquired intangibles is estimated at $1.5 million for the remainder of 2018, $1.9 million for the year ending December 31, 2019, $1.9 million for the year ending December 31, 2020 and $1.9 million for each of the years ending December 31, 2021 and 2022.

 

 

Note F - Debt

Debt obligations consisted of the following as of March 31, 2018 and December 31, 2017 (in thousands):  

 

Debt instrument

 

Principal at

March 31,

2018

 

 

Non-cash

Interest

 

 

Unamortized

Debt Issuance

Costs

 

 

Unamortized

Debt Discount

 

 

Balance at

March 31,

2018

 

Current Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

 

$

146

 

 

$

 

 

$

 

 

$

 

 

$

146

 

Long-term Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 Subordinated Notes

 

 

14,000

 

 

 

 

 

 

 

 

 

(1,234

)

 

 

12,766

 

Total

 

$

14,146

 

 

$

 

 

$

 

 

$

(1,234

)

 

$

12,912

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt instrument

 

Principal at

December 31,

2017

 

 

Non-cash

Interest

 

 

Unamortized

Debt Issuance

Costs

 

 

Unamortized

Debt Discount

 

 

Balance at

December 31,

2017

 

Current Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

 

$

146

 

 

$

 

 

$

 

 

$

 

 

$

146

 

Note Purchase Agreement

 

 

15,000

 

 

 

5,494

 

 

 

 

 

 

 

 

 

20,494

 

Total current

 

 

15,146

 

 

 

5,494

 

 

 

 

 

 

 

 

 

20,640

 

Long-term Portion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015 Subordinated Notes

 

 

14,000

 

 

 

 

 

 

 

 

 

(1,375

)

 

 

12,625

 

Note Purchase Agreement

 

 

100,000

 

 

 

31,323

 

 

 

(1,362

)

 

 

(201

)

 

 

129,760

 

Total long-term

 

 

114,000

 

 

 

31,323

 

 

 

(1,362

)

 

 

(1,576

)

 

 

142,385

 

Total

 

$

129,146

 

 

$

36,817

 

 

$

(1,362

)

 

$

(1,576

)

 

$

163,025

 

 

In June 2016, we executed a capital lease agreement that expires in June 2020 for equipment with a carrying value of approximately $0.8 million, which is included in property, plant and equipment, net on our condensed consolidated balance sheet. Under the terms of the capital lease agreement, we will remit payments to the lessor of $216,000 for the remainder of 2018, $288,000 for the year ending 2019 and $144,000 for the year ending December 31, 2020.  As of March 31, 2018, our remaining obligations under the capital lease agreement are approximately $0.6 million, of which $290,000 and $270,000 are classified as other current and other long-term liabilities, respectively, on our condensed consolidated balance sheet.

In January 2018, we, through our wholly-owned subsidiary, Antigenics LLC (“Antigenics”), entered into a Royalty Purchase Agreement (the “Royalty Purchase Agreement”) with Healthcare Royalty Partners III, L.P., and certain of its affiliates (collectively “HCR”), whereby we received gross proceeds of $190.0 million (refer to Note G). Concurrently with the closing of the Royalty Purchase Agreement, we used $161.9 million of these proceeds to redeem Antigenics’ $115.0 million principal amount of notes issued pursuant to the Note Purchase Agreement dated September 4, 2015 with Oberland Capital SA Zermatt LLC and the purchasers named therein (the “Note Purchase Agreement”), as well as the associated accrued and unpaid interest, and the Note Purchase Agreement and the notes issued thereunder were redeemed in full and terminated. In connection with this redemption, we recorded a $10.8 million loss on early extinguishment of debt which primarily reflects the payment of premiums to fully redeem the notes and the write-off of unamortized debt issuance costs and discounts.

 

 

Note G – Liability Related to the Sale of Future Royalties

11


On January 6, 2018, we, through Antigenics, entered into the Royalty Purchase Agreement with HCR, which closed on January 19, 2018. Pursuant to the terms of the Royalty Purchase Agreement, we sold to HCR 100% of Antigenics’ worldwide rights to receive royalties from GlaxoSmithKline (“GSK”) on sales of GSK’s vaccines containing our QS-21 Stimulon adjuvant. At closing, we received gross proceeds of $190.0 million from HCR. As part of the transaction, we reimbursed HCR for transaction costs of $100,000 and incurred approximately $500,000 in transaction costs of our own, which are presented net of the liability in the consolidated balance sheet and will be amortized to interest expense over the estimated life of the Royalty Purchase Agreement. Although we sold all of our rights to receive royalties on sales of GSK’s vaccines containing QS-21, as a result of our obligation to HCR, we are required to account for these royalties as revenue when earned, and we recorded the $190.0 million in proceeds from this transaction as a liability (“Liability Related to Sale of Future Royalties”) on our condensed consolidated balance sheet that will be amortized using the interest method over the estimated life of the Royalty Purchase Agreement. The liability is classified between the current and non-current portion of liability related to sale of future royalties in the consolidated balance sheets based on the estimated recognition of the royalty payments to be received by HCR in the next 12 months from the financial statement reporting date.

The following table shows the activity within the liability account from the inception of the royalty agreement in January 2018 to March 31, 2018 (in thousands):

 

 

 

Period from inception to March 31, 2018

 

Liability related to sale of future royalties - beginning balance

 

$

 

Proceeds from sale of future royalties

 

 

190,000

 

Non-cash royalty revenue payable to HCR

 

 

 

Non-cash interest expense recognized

 

 

1,665

 

Liability related to sale of future royalties - ending balance

 

 

191,665

 

Less: unamortized transaction costs

 

 

(580

)

Liability related to sale of future royalties, net

 

$

191,086

 

 

For the quarter ended March 31, 2018, we recognized no non-cash royalty revenue (refer to Note J), and we recorded $1.7 million of related non-cash interest expense.

As royalties are remitted to HCR from GSK, the balance of the recorded liability will be effectively repaid over the life of the Royalty Purchase Agreement. To determine the amortization of the recorded liability, we are required to estimate the total amount of future royalty payments to be received by HCR. The sum of these amounts less the $190.0 million proceeds we received will be recorded as interest expense over the life of the Royalty Purchase Agreement. Since inception, our estimate of this total interest expense resulted in an effective annual interest rate of approximately 4.4%. Quarterly, we assess the estimated royalty payments to be paid to HCR from GSK, and to the extent the amount or timing of the payments is materially different from our original estimates, we will prospectively adjust the amortization of the liability.

There are a number of factors that could materially affect the amount and timing of royalty payments from GSK, all of which are not within our control. Such factors include, but are not limited to, changing standards of care, the introduction of competing products, manufacturing or other delays, biosimilar competition, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates, and other events or circumstances that could result in reduced royalty payments from GSK, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the Royalty Purchase Agreement. Conversely, if sales of GSK’s vaccines containing QS-21 are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by us would be greater over the life of the Royalty Purchase Agreement.

Pursuant to the Royalty Purchase Agreement, we will also be entitled to receive up to $40.35 million in milestone payments based on sales of GSK’s vaccines as follows: (i) $15.1 million upon reaching $2.0 billion last-twelve-months net sales any time prior to 2024 and (ii) $25.25 million upon reaching $2.75 billion last-twelve-months net sales any time prior to 2026.

Additionally, pursuant to the Royalty Purchase Agreement, we would owe approximately $25.9 million to HCR in 2021 (the “Rebate Payment”) if neither of the following sales milestones are achieved: (i) 2019 sales exceed $1.0 billion or (ii) 2020 sales exceed $1.75 billion. As part of the transaction, we provided a guaranty for the potential Rebate Payment and secured the obligation with substantially all of our assets pursuant to a security agreement, subject to certain customary exceptions and excluding all assets necessary for our subsidiary, AgenTus Therapeutics, Inc.

 

12


Note H - Accrued Liabilities

Accrued liabilities consisted of the following as of March 31, 2018 and December 31, 2017 (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Payroll

 

$

2,852

 

 

$

7,790

 

Professional fees

 

 

2,817

 

 

 

2,021

 

Contract manufacturing costs

 

 

4,018

 

 

 

5,528

 

Research services

 

 

6,880

 

 

 

4,663

 

Other

 

 

1,490

 

 

 

1,567

 

Total

 

$

18,057

 

 

$

21,569

 

 

 

Note I - Fair Value Measurements

We measure our contingent purchase price considerations at fair value.

The fair values of our contingent purchase price considerations, $9.4 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.

Liabilities measured at fair value are summarized below (in thousands):

 

Description

 

March 31, 2018

 

 

Quoted Prices in

Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent purchase price considerations

 

$

9,389

 

 

$

 

 

$

 

 

$

9,389

 

Total

 

$

9,389

 

 

$

 

 

$

 

 

$

9,389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

December 31, 2017

 

 

Quoted Prices in

Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent purchase price consideration

 

$

4,373

 

 

$

 

 

$

 

 

$

4,373

 

Total

 

$

4,373

 

 

$

 

 

$

 

 

$

4,373

 

 

The following table presents our liabilities measured at fair value using significant unobservable inputs (Level 3), as of March 31, 2018 (in thousands):

 

Balance, December 31, 2017

 

$

4,373

 

Change in fair value of contingent purchase price considerations

   during the period

 

 

5,016

 

Balance, March 31, 2018

 

$