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Table of Contents

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 June 30, 2020

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 0-17999

ImmunoGen, Inc.

Massachusetts

04-2726691

(State or other jurisdiction of incorporation or
organization)

(I.R.S. Employer Identification No.)

830 Winter Street, Waltham, MA 02451

(Address of principal executive offices, including zip code)

(781) 895-0600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $.01 par value

IMGN

Nasdaq Global Select Market

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 every Interactive Data File required to be submitted 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 such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of common stock, par value $.01 per share: 174,542,115 shares outstanding as of July 30, 2020.

Table of Contents

IMMUNOGEN, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS

Item

    

  

Page Number

Part I

Financial Information

1.

Financial Statements (Unaudited)

2

1a.

Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

2

1b.

Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2020 and 2019

3

1c.

Consolidated Statements of Shareholders’ (Deficit) Equity for the three months ended March 31 and June 30, 2020 and the three months ended March 31, June 30, September 30, and December 31, 2019

4

1d.

Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

5

1e.

Notes to Consolidated Financial Statements

6

2.

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

20

3.

Quantitative and Qualitative Disclosures about Market Risk

30

4.

Controls and Procedures

30

Part II

Other Information

1A.

Risk Factors

30

6.

Exhibits

32

Signatures

33

Forward looking statements

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts that are not yet determinable.

These statements also relate to our future prospects, developments, and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and other similar terms and phrases, including references to assumptions. These statements are contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections, as well as other sections of this report.

These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from those contemplated by our forward-looking statements. These known and unknown risks, uncertainties, and other factors are described in detail in the “Risk Factors” section and in other sections of this report and our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 11, 2020 as updated and/or supplemented in subsequent filings with the SEC. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

1

Table of Contents

ITEM 1. Financial Statements

IMMUNOGEN, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

In thousands, except per share amounts

    

June 30,

    

December 31,

2020

2019

ASSETS

Cash and cash equivalents

$

219,506

$

176,225

Accounts receivable

 

313

 

7,500

Unbilled revenue/reimbursement

 

5

 

1,001

Contract assets

1,042

3,631

Non-cash royalty receivable

14,079

15,116

Prepaid and other current assets

 

6,426

 

5,425

Total current assets

 

241,371

 

208,898

Property and equipment, net of accumulated depreciation

 

5,902

 

6,993

Operating lease right-of-use assets

14,864

15,587

Other assets

 

7,591

 

3,784

Total assets

$

269,728

$

235,262

LIABILITIES AND SHAREHOLDERS’ DEFICIT

Accounts payable

$

12,739

$

9,933

Accrued compensation

 

4,321

 

8,991

Other accrued liabilities

 

15,363

 

13,932

Current portion of liability related to the sale of future royalties, net of deferred financing costs of $470 and $635, respectively

55,213

41,274

Current portion of operating lease liability

3,163

2,971

Current portion of deferred revenue

 

80

 

309

Total current liabilities

 

90,879

 

77,410

Deferred revenue, net of current portion

 

126,535

 

127,123

Operating lease liability, net of current portion

20,171

21,798

Convertible 4.5% senior notes, net of deferred financing costs of $15 and $22, respectively

2,085

2,078

Liability related to the sale of future royalties, net of current portion and deferred financing costs of $699 and $859, respectively

51,994

82,267

Other long-term liabilities

 

2,587

 

707

Total liabilities

 

294,251

 

311,383

Commitments and contingencies (Note I)

Shareholders’ deficit:

Preferred stock, $.01 par value; authorized 5,000 shares; no shares issued and outstanding as of June 30, 2020 and December 31, 2020

 

 

Common stock, $.01 par value; authorized 300,000 shares; issued and outstanding 174,540 and 150,136 shares as of June 30, 2020 and December 31, 2019, respectively

 

1,745

 

1,501

Additional paid-in capital

 

1,314,586

 

1,209,846

Accumulated deficit

 

(1,340,854)

 

(1,287,468)

Total shareholders’ deficit

 

(24,523)

 

(76,121)

Total liabilities and shareholders’ deficit

$

269,728

$

235,262

The accompanying notes are an integral part of the consolidated financial statements.

2

Table of Contents

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

In thousands, except per share amounts

Three Months Ended

Six Months Ended

June 30,

June 30,

    

2020

    

2019

    

2020

    

2019

Revenues:

License and milestone fees

$

945

$

5,079

$

1,228

$

5,158

Non-cash royalty revenue related to the sale of future royalties

14,075

10,412

27,072

18,900

Research and development support

 

5

 

51

 

12

 

68

Total revenues

 

15,025

 

15,542

 

28,312

 

24,126

Operating expenses:

Research and development

 

22,921

 

28,559

 

50,329

 

67,452

General and administrative

 

9,767

 

8,700

 

18,631

 

19,478

Restructuring charge

699

19,342

1,524

19,901

Total operating expenses

 

33,387

 

56,601

 

70,484

 

106,831

Loss from operations

 

(18,362)

 

(41,059)

 

(42,172)

 

(82,705)

Investment income, net

 

62

 

1,287

 

708

 

2,709

Non-cash interest expense on liability related to the sale of future royalties and convertible senior notes

(6,081)

(3,818)

(11,783)

(7,250)

Interest expense on convertible senior notes

(23)

(23)

(47)

(47)

Other income (expense), net

 

106

 

167

 

(92)

 

96

Net loss

$

(24,298)

$

(43,446)

$

(53,386)

$

(87,197)

Basic and diluted net loss per common share

$

(0.14)

$

(0.29)

$

(0.31)

$

(0.59)

Basic and diluted weighted average common shares outstanding

 

174,354

 

148,129

 

171,055

 

147,972

Total comprehensive loss

$

(24,298)

$

(43,446)

$

(53,386)

$

(87,197)

The accompanying notes are an integral part of the consolidated financial statements.

3

Table of Contents

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

(UNAUDITED)

In thousands

Additional

Total

Common Stock

Paid-In

Accumulated

Shareholders’

Shares

Amount

Capital

Deficit

(Deficit) Equity

Balance at December 31, 2018

 

149,400

$

1,494

$

1,192,813

$

(1,183,335)

$

10,972

Net loss

 

 

 

 

(43,751)

 

(43,751)

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

 

25

68

 

 

68

Stock option and restricted stock compensation expense

 

5,007

 

 

5,007

Directors’ deferred share unit compensation

 

100

 

 

100

Balance at March 31, 2019

 

149,425

$

1,494

$

1,197,988

$

(1,227,086)

$

(27,604)

Net loss

 

 

 

 

(43,446)

 

(43,446)

Issuance of common stock pursuant to stock plans

 

354

3

667

 

 

670

Restricted stock award

106

1

(1)

Stock option and restricted stock compensation expense

 

2,106

 

 

2,106

Directors’ deferred share unit compensation

 

100

 

 

100

Balance at June 30, 2019

 

149,885

$

1,498

$

1,200,860

$

(1,270,532)

$

(68,174)

Net loss

 

 

 

 

(21,750)

 

(21,750)

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

 

30

73

 

 

73

Restricted stock award forfeitures

(227)

Stock option and restricted stock compensation expense

 

3,580

 

 

3,580

Directors’ deferred share unit compensation

 

46

 

 

46

Balance at September 30, 2019

 

149,688

$

1,498

$

1,204,559

$

(1,292,282)

$

(86,225)

Net income

 

4,814

 

4,814

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

 

741

7

2,054

 

2,061

Restricted stock award, net of forfeitures

(293)

(4)

4

Stock option and restricted stock compensation expense

 

3,138

 

3,138

Directors’ deferred share unit compensation

 

91

 

91

Balance at December 31, 2019

 

150,136

$

1,501

$

1,209,846

$

(1,287,468)

$

(76,121)

Net loss

 

(29,088)

(29,088)

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

 

86

1

239

240

Issuance of common stock, net of issuance costs

24,524

245

97,499

97,744

Restricted stock units vested

2

Restricted stock award forfeitures

(487)

(4)

4

Stock option and restricted stock compensation expense

 

3,122

3,122

Balance at March 31, 2020

 

174,261

$

1,743

$

1,310,710

$

(1,316,556)

$

(4,103)

Net loss

 

(24,298)

(24,298)

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

 

122

1

424

425

Adjustment of issuance costs

(1)

(1)

Restricted stock units vested

157

1

(1)

Stock option and restricted stock compensation expense

 

3,409

3,409

Directors’ deferred share unit compensation

 

45

45

Balance at June 30, 2020

 

174,540

$

1,745

$

1,314,586

$

(1,340,854)

$

(24,523)

The accompanying notes are an integral part of the consolidated financial statements.

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

In thousands

Six Months Ended

June 30,

    

2020

    

2019

    

Cash flows from operating activities:

Net loss

$

(53,386)

$

(87,197)

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

Non-cash royalty revenue related to sale of future royalties

(27,072)

(18,900)

Non-cash interest expense on liability related to sale of future royalties and convertible senior notes

11,783

7,250

Depreciation and amortization

 

1,045

 

2,438

(Gain) loss on sale/disposal of fixed assets and impairment charges

 

(691)

 

2,404

Operating lease right-of-use asset impairment

 

 

559

Stock and deferred share unit compensation

 

6,576

 

7,313

Change in operating assets and liabilities:

Accounts receivable

 

7,187

 

1,701

Unbilled revenue/reimbursement

 

996

 

(1,857)

Contract asset

2,589

 

500

Prepaid and other current assets

 

(1,001)

 

(2,187)

Operating lease right-of-use assets

723

664

Other assets

 

(3,807)

 

1,859

Accounts payable

 

2,161

 

(3,199)

Accrued compensation

 

(4,191)

 

9,238

Other accrued liabilities

 

2,832

 

(5,346)

Deferred revenue

 

(817)

 

65,129

Operating lease liability

(1,435)

(1,179)

Net cash used for operating activities

 

(56,508)

 

(20,810)

Cash flows from investing activities:

Purchases of property and equipment

 

(44)

(2,355)

Proceeds from sale of equipment

1,426

Net cash provided by (used for) investing activities

 

1,382

 

(2,355)

Cash flows from financing activities:

Proceeds from issuance of common stock under stock plans

 

664

 

738

Proceeds from common stock issuance, net of $230 of transaction costs

97,743

Net cash provided by financing activities

 

98,407

 

738

Net change in cash and cash equivalents

 

43,281

 

(22,427)

Cash and cash equivalents, beginning of period

 

176,225

262,252

Cash and cash equivalents, end of period

$

219,506

$

239,825

The accompanying notes are an integral part of the consolidated financial statements.

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IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

A.

Nature of Business and Plan of Operations

ImmunoGen, Inc. (the Company) was incorporated in Massachusetts in 1981 and is focused on the development of antibody-drug conjugates, or ADCs. The Company has generally incurred operating losses and negative cash flows from operations since inception, incurred a net loss of $53.4 million during the six months ended June 30, 2020, and has an accumulated deficit of approximately $1.3 billion as of June 30, 2020. The Company has primarily funded these losses through payments received from its collaborations and equity, convertible debt, and other financings. To date, the Company has no product revenue and management expects operating losses to continue for the foreseeable future.

At June 30, 2020, the Company had $219.5 million of cash and cash equivalents on hand. The Company anticipates that its current capital resources will enable it to meet its operational expenses and capital expenditures for more than twelve months after the date these financial statements are issued. The Company may raise additional funds through equity, debt, or other financings, or generate revenues from collaborators through a combination of upfront license payments, milestone payments, royalty payments, and research funding. There can be no assurance that the Company will be able to obtain additional debt, equity, or other financing or generate revenues from collaborators on terms acceptable to the Company or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial condition and require the Company to defer or limit some or all of its research, development, and/or clinical projects.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, the development by its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, manufacturing and marketing limitations, complexities associated with managing collaboration arrangements, third-party reimbursements, and compliance with governmental regulations.

B.

Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ImmunoGen Securities Corp., ImmunoGen Europe Limited, ImmunoGen BioPharma (Ireland) Limited, and Hurricane, LLC. All intercompany transactions and balances have been eliminated. The consolidated financial statements include all of the adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the Company’s financial position in accordance with accounting principles generally accepted in the U.S. for interim financial information. The December 31, 2019 consolidated balance sheet presented for comparative purposes was derived from the Company’s audited financial statements, and certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenditures during the reported periods. The results of the interim periods are not necessarily indicative of the results for the entire year. Accordingly, the interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 11, 2020.

Subsequent Events

The Company has evaluated all events or transactions that occurred after June 30, 2020, up through the date the Company issued these financial statements. The Company did not have any material recognized or unrecognized subsequent events during this period.

Revenue Recognition

The Company enters into licensing and development agreements with collaborators for the development of ADCs. The terms of these agreements contain multiple promised goods and services which may include (i) licenses, or options to obtain licenses, to the Company’s ADC technology, (ii) rights to future technological improvements, and (iii)

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miscellaneous other activities to be performed on behalf of the collaborative partner. Payments to the Company under these agreements may include upfront fees, option fees, exercise fees, payments for miscellaneous other activities, payments based upon the achievement of certain milestones, and royalties on product sales. The Company follows the provisions of Accounting Standards Codification Topic 606 - Revenue from Contracts with Customers (ASC 606) in accounting for these agreements.

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under the agreements, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when or as the Company satisfies each performance obligation.  

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, based on whether each promised good or service is distinct from other promised goods and services. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied.

As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the selling price for each performance obligation that was identified in the contract, which is discussed in further detail below.

At June 30, 2020, the Company had the following types of material agreements with the parties identified below:

Development and commercialization licenses, which provide the counterparty with the right to use the Company’s ADC technology and/or certain other intellectual property to develop and commercialize anticancer compounds to a specified antigen target:

Bayer (one exclusive single-target license)

Biotest (one exclusive single-target license – pending termination)

CytomX (two exclusive single-target licenses)

Debiopharm (one exclusive single-compound license)

Fusion Pharmaceuticals (one exclusive single-target license)

Novartis (five exclusive single-target licenses)

Oxford BioTherapeutics/Menarini (one exclusive single target license sublicensed from Amgen)

Roche, through its Genentech unit (five exclusive single-target licenses)

Sanofi (five fully-paid, exclusive single-target licenses)

Takeda, through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc. (one exclusive single-target license – pending termination)

Collaboration and option agreement for a defined period of time to secure a license to develop and commercialize a specified anticancer compound on established terms:

Jazz Pharmaceuticals

Collaboration and license agreement to co-develop and co-commercialize a specified anticancer compound on established terms:

MacroGenics

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There are no performance, cancellation, termination, or refund provisions in any of the arrangements that contain material financial consequences to the Company.

Development and Commercialization Licenses

The obligations under a development and commercialization license agreement generally include the license to the Company’s ADC technology with respect to a specified antigen target, and may also include obligations related to rights to future technological improvements and miscellaneous other activities to be performed on behalf of the collaborative partner.

 Generally, development and commercialization licenses contain non-refundable terms for payments and, depending on the terms of the agreement, provide that the Company will earn payments upon the achievement of certain milestones and royalty payments, generally until the later of the last applicable patent expiration or a fixed period of years after product launch. Royalty rates may vary over the royalty term depending on the Company’s intellectual property rights and/or the presence of comparable competing products. In the case of Sanofi, its licenses are fully-paid and no further milestones or royalties will be received. In the case of Debiopharm, no royalties will be received. The Company may also provide technical assistance and share any technology improvements with its collaborators during the term of the collaboration agreements. The Company does not directly control when or whether any collaborator will request research, achieve milestones, or become liable for royalty payments.

In determining the performance obligations, management evaluates whether the license is distinct, and has significant standalone functionality, from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of ADC technology research expertise in the general marketplace and whether technological improvements are required for the continued functionality of the license. 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 revenues from non-refundable, upfront 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.

The Company estimates the selling prices of the license and all other performance obligations based on market conditions, similar arrangements entered into by third parties, and entity-specific factors such as the terms of the Company’s previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use the Company’s ADC technology, the Company’s pricing practices and pricing objectives, the likelihood that technological improvements will be made, and, if made, will be used by the Company’s collaborators, and the nature of the other services to be performed on behalf of its collaborators and market rates for similar services.

The Company recognizes revenue related to other services as they are performed. The Company is compensated at negotiated rates that are consistent with what other third parties would charge. The Company records amounts received for services performed as a component of research and development support revenue.

The Company recognizes revenue related to the rights to future technological improvements over the estimated term of the applicable license.

The Company’s development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) development milestones, (ii) regulatory milestones, and (iii) sales milestones. Development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases. Regulatory milestones are typically payable upon submission for marketing approval with the U.S. Food and Drug Administration (FDA) or other countries’ regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications. Sales milestones are typically payable when annual sales reach certain levels.

At the inception of each arrangement that includes development and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service. If the milestone payment is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance

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obligations using the relative standalone selling price method. In addition, the Company evaluates the milestone to determine whether the milestone is considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated; otherwise, such amounts are considered constrained and excluded from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development or regulatory milestones and any related constraint and, if necessary, adjusts its estimate of the transaction price. Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation shall be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes.

For development and commercialization license agreements 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) in accordance with the royalty recognition constraint. Under the Company’s development and commercialization license agreements, except for the Sanofi and Debiopharm licenses, the Company receives royalty payments based upon its licensees’ net sales of covered products. Generally, under the development and commercialization agreements, the Company receives royalty reports and payments from its licensees approximately one quarter in arrears. The Company estimates the amount of royalty revenue to be recognized based on historical and forecasted sales and/or sales information from its licensees if available.

Collaboration and Option Agreements/Right-to-Test Agreements

The Company’s right-to-test agreements provide collaborators the right to test the Company’s ADC technology for a defined period of time through a research, or right-to-test, license. Under both right-to-test agreements and collaboration and option agreements, collaborators may (a) take options, for a defined period of time, to specified targets and (b) upon exercise of those options, secure or “take” licenses to develop and commercialize products for the specified targets on established terms. Under these agreements, fees may be due to the Company (i) at the inception of the arrangement (referred to as “upfront” fees or payments), (ii) upon the opt-in to acquire a development and commercialization license(s) (referred to as exercise fees or payments earned, if any, when the development and commercialization license is “taken”), (iii) at the collaborator’s request, after providing other services at negotiated prices, which are generally consistent with what other third parties would charge, or (iv) upon some combination of all of these fees.

The accounting for collaboration and option agreements and right-to-test agreements is dependent on the nature of the options granted to the collaborative partner. Options are considered distinct performance obligations if they provide a collaborator with a material right. Factors that are considered in evaluating whether options convey a material right include the overall objective of the arrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the fair value of the licenses, and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options. As of June 30, 2020, all right-to-test agreements have expired.

If the Company concludes that an option provides the customer a material right, and therefore is a separate performance obligation, the Company then determines the estimated selling prices of the option and all other units of accounting using the following inputs: (a) estimated fair value of each program, (b) the amount the partner would pay to exercise the option to obtain the license, and (c) probability of exercise.

The Company does not control when or if any collaborator will exercise its options for development and commercialization licenses. As a result, the Company cannot predict when or if it will recognize revenues in connection with any of the foregoing.

Upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone functionality and is distinct from the undelivered elements.

In determining whether a collaboration and option agreement is within the scope of ASC 808, Collaborative Arrangements, management evaluates the level of involvement of both companies in the development and

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commercialization of the products to determine if both parties are active participants and if both parties are exposed to risks and rewards dependent on the commercial success of the licensed products. If the agreement is determined to be within the scope of ASC 808, the Company segregates the research and development activities and the related cost sharing arrangement. Payments made by the Company for such activities will be recorded as research and development expense and reimbursements received from its partner will be recognized as an offset to research and development expense.

Transaction Price Allocated to Future Performance Obligations

Remaining performance obligations represent the transaction price of contracts for which work has not been performed (or has been partially performed) and includes unexercised contract options that are considered material rights. As of June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations comprising deferred revenue was $126.6 million. The Company expects to recognize revenue on approximately 90% and 10% of the remaining performance obligations over the next 13 to 60 months and 61 to 120 months, respectively; however, it does not control when or if any collaborator will exercise its options for, or terminate existing development and commercialization licenses.

Contract Balances from Contracts with Customers

The following table presents changes in the Company’s contract assets and contract liabilities during the six months ended June 30, 2020 and 2019 (in thousands):

Balance at

Balance at

Six months ended June 30, 2020

December 31, 2019

 

Additions

Deductions

Impact of Netting

June 30, 2020

Contract asset

$

3,631

$

$

(3,000)

$

411

$

1,042

Contract liabilities

$

127,432

$

$

(1,228)

$

411

$

126,615

Balance at

Balance at

Six months ended June 30, 2019

December 31, 2018

Additions

Deductions

June 30, 2019

Contract asset

$

500

$

$

(500)

$

Contract liabilities

$

80,802

$

65,287

$

(158)

$

145,931

The Company recognized the following revenues as a result of changes in contract asset and contract liability balances in the respective periods (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Revenue recognized in the period from:

Amounts included in contract liabilities at the beginning of the period

$

945

$

79

$

1,228

$

158

Performance obligations satisfied in previous periods

$

$

5,000

$

$

5,000

During the six months ended June 30, 2020, the Company recorded $200,000 as license and milestone fee revenue for delivery of certain materials to CytomX that had been previously deferred, and $1.0 million of amortization related to numerous collaborators’ rights to technological improvements, which includes $870,000 related to a notice of termination of the license agreement with Takeda. Additionally, a contract asset of $2.7 million, net of a $0.3 million related contract liability, was recorded for a probable milestone in 2019 pursuant to a license agreement with CytomX, which was subsequently achieved and paid during the six months ended June 30, 2020.

A contract asset of $500,000 was recorded for a probable milestone in 2018 pursuant to a license agreement with Fusion Pharmaceuticals, which was subsequently paid during the six months ended June 30, 2019. During the three and six months ended June 30, 2019, the Company received a $5.0 million regulatory milestone payment earned under its license agreement with Genentech, a member of the Roche Group. The full amount of the milestone was recognized as revenue in the period as the amount allocated to future rights to technological improvements was not material. Also during the six months ended June 30, 2019, $65.2 million was recorded as deferred revenue as a result of a sale of the Company’s residual rights to receive royalty payments on commercial sales of Kadcyla® (ado-trastuzumab emtansine) as discussed in

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Note E, and $158,000 of amortization of deferred revenue was recorded related to numerous collaborators’ rights to technological improvements.

The timing of revenue recognition, billings, and cash collections results in billed receivables, contract assets, and contract liabilities on the consolidated balance sheets. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.

Financial Instruments and Concentration of Credit Risk

Cash and cash equivalents are primarily maintained with three financial institutions in the U.S. Deposits with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. The Company’s cash equivalents consist of money market funds with underlying investments primarily being U.S. Government-issued securities and high quality, short term commercial paper. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, and marketable securities. The Company held no marketable securities as of June 30, 2020 and December 31, 2019. The Company’s investment policy, approved by the Board of Directors, limits the amount it may invest in any one type of investment, thereby reducing credit risk concentrations.

Cash and Cash Equivalents

All highly liquid financial instruments with maturities of three months or less when purchased are considered cash equivalents. As of June 30, 2020 and December 31, 2019, the Company held $219.5 million and $176.2 million, respectively, in cash and money market funds, which were classified as cash and cash equivalents.

Non-cash Investing and Financing Activities

The Company had $645,000 of accrued capital expenditures as of June 30, 2020 which have been treated as a non-cash investing activity and, accordingly, are not reflected in the consolidated statement of cash flows. The Company had no accrued capital expenditures as of December 31, 2019.

Fair Value of Financial Instruments

Fair value is defined under ASC Topic 820, Fair Value Measurements and Disclosures, as the exchange price that would be received for an asset or paid to transfer a liability (an 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a hierarchy to measure fair value which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of June 30, 2020, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2020 (in thousands):

Fair Value Measurements at June 30, 2020 Using

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

    

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

Cash equivalents

$

204,807

$

204,807

$

$

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As of December 31, 2019, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2019 (in thousands):

Fair Value Measurements at December 31, 2019 Using

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

    

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

Cash equivalents

$

163,674

$

163,674

    

$

    

$

The fair value of the Company’s cash equivalents is based on quoted prices from active markets.

The carrying amounts reflected in the consolidated balance sheets for accounts receivable, unbilled revenue, prepaid and other current assets, accounts payable, accrued compensation, and other accrued liabilities approximate fair value due to their short-term nature. The estimated fair value of the convertible 4.5% senior notes (the “Convertible Notes”) and gross carrying value is $3.0 million and $2.1 million, respectively, as of June 30, 2020 and had the same values as of December 31, 2019. The fair value of the Convertible Notes is influenced by interest rates, the Company’s stock price and stock price volatility, and by prices observed in trading activity for the Convertible Notes. However, because there have been no trades involving the Convertible Notes since September 2019, the fair value as of June 30, 2020 and December 31, 2019 uses Level 3 inputs.

Unbilled Revenue/Reimbursement

Unbilled revenue/reimbursement substantially represents research funding earned based on actual resources utilized and external expenses incurred under certain of the Company’s collaboration agreements.

Clinical Trial Accruals

Clinical trial expenses are a significant component of research and development expenses, and the Company outsources a significant portion of these costs to third parties. Third party clinical trial expenses include investigator fees, site costs (patient costs), clinical research organization costs, and costs for central laboratory testing and data management. The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs. These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid assets or accrued clinical trial costs. These third party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. Non-refundable advance payments for goods or services that will be used or rendered for future R&D activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed. The Company also records accruals for estimated ongoing clinical research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received, and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the estimates made by the Company. The historical clinical accrual estimates made by the Company have not been materially different from the actual costs.

Leases

Effective January 1, 2019, the Company adopted ASU 2016-2, Leases (Topic 842), the details of which are further discussed in Note H. The Company determines if an arrangement is a lease at inception. Operating leases include right-of-use (“ROU”) assets and operating lease liabilities (current and non-current), which are recorded in the Company’s consolidated balance sheets. Single payment capital leases for equipment that are considered finance leases are included in property and equipment in the Company’s consolidated balance sheets. As the single payment obligations have all been made, there is no related liability recorded.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when readily determinable. As a number of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate applicable to the Company based on the information

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available at the commencement date in determining the present value of lease payments. As the Company has no existing or proposed collateralized borrowing arrangements, to determine a reasonable incremental borrowing rate, the Company considers collateral assumptions, the lease term, the Company’s current credit risk profile, and rates for existing borrowing arrangements for comparable peer companies. The Company accounts for the lease and fixed non-lease components as a single lease component. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

Computation of Net Loss per Common Share

Basic and diluted net loss per share is calculated based upon the weighted average number of common shares outstanding during the period. During periods of income, participating securities are allocated a proportional share of income determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the “two-class method”). Shares of the Company’s restricted stock participate in any dividends that may be declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to participating securities since they have no contractual obligation to share in the losses of the Company. Diluted (loss) income per share is computed after giving consideration to the dilutive effect of stock options, convertible notes, and restricted stock that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

The Company’s common stock equivalents, as calculated in accordance with the treasury-stock method for the options and unvested restricted stock and the if-converted method for the Convertible Notes, are shown in the following table (in thousands):

Three Months Ended

Six Months Ended

June 30,

June 30,

    

2020

    

2019

    

2020

    

2019

    

Options outstanding to purchase common stock, shares issuable under the employee stock purchase plan, and unvested restricted stock/units at end of period

19,065

20,223

19,065

20,223

Common stock equivalents under treasury stock method for options, shares issuable under the employee stock purchase plan, and unvested restricted stock

982

 

432

1,204

1,005

 

Shares issuable upon conversion of convertible notes at end of period

501

501

501

501

Common stock equivalents under if-converted method for convertible notes

501

501

501

501

The Company’s common stock equivalents have not been included in the net loss per share calculation because their effect is anti-dilutive due to the Company’s net loss position.

Stock-Based Compensation

As of June 30, 2020, the Company was authorized to grant future awards under three employee share-based compensation plans, which are the ImmunoGen, Inc. 2018 Employee, Director and Consultant Equity Incentive Plan, as amended (the 2018 Plan), the Employee Stock Purchase Plan (ESPP), and the ImmunoGen Inducement Equity Incentive Plan, as amended (the Inducement Plan). At the annual meeting of shareholders on June 20, 2018, the 2018 Plan was approved and provides for the issuance of Stock Grants, the grant of Options, and the grant of Stock-Based Awards for up to 7,500,000 shares of the Company’s common stock, as well as up to 19,500,000 shares of common stock which represent awards granted under the previous stock option plans, the ImmunoGen, Inc. 2016 and 2006 Employee, Director and Consultant Equity Incentive Plans, that forfeit, expire, or cancel without delivery of shares of common stock or which resulted in the forfeiture of shares of common stock back to the Company subsequent to June 19, 2018. The Inducement Plan was approved the by Board of Directors in December 2019, and pursuant to subsequent amendments, provides for the issuance of non-qualified option grants for up to 1,500,000 shares of the Company’s common stock. Options awarded under the two plans are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options vest at various periods of up to four years and may be exercised within ten years of the date of grant.

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The stock-based awards are accounted for under ASC Topic 718, Compensation-Stock Compensation. Pursuant to Topic 718, the estimated grant date fair value of awards is charged to the statement of operations and comprehensive loss over the requisite service period, which is the vesting period. Such amounts have been reduced by an estimate of forfeitures of all unvested awards. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the weighted average assumptions noted in the following table. As the Company has not paid dividends since inception, nor does it expect to pay any dividends for the foreseeable future, the expected dividend yield assumption is zero. Expected volatility is based exclusively on historical volatility of the Company’s stock. The expected term of stock options granted is based exclusively on historical data and represents the period of time that stock options granted are expected to be outstanding. The expected term is calculated for and applied to one group of stock options as the Company does not expect substantially different exercise or post-vesting termination behavior among its option recipients. The risk-free rate is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the stock options.

Three Months Ended June 30,

Six Months Ended June 30,

    

2020

2019

2020

2019

Dividend

None

None

None

None

Volatility

88.0%

80.3%

84.7%

73.8%

Risk-free interest rate

.41%

2.04%

1.30%

2.46%

Expected life (years)

6.0

6.0

6.0

6.0

Using the Black-Scholes option-pricing model, the weighted average grant date fair values of options granted during the three months ended June 30, 2020 and 2019 were $3.39 and $1.63 per share, respectively, and $3.26 and $3.39 for options granted during the six months ended June 30, 2020 and 2019, respectively.

A summary of option activity under the Company’s equity plans as of June 30, 2020, and changes during the six-month period then ended is presented below (in thousands, except weighted-average data):

    

    

Weighted-

    

Number

Average

of Stock

Exercise

Options

Price

Outstanding at December 31, 2019

13,518

$

7.53

Granted

6,686

4.57

Exercised

(130)

2.78

Forfeited/Canceled

(1,306)

9.87

Outstanding at June 30, 2020

18,768

$

6.35

In September 2018, the Company granted 295,200 performance stock options to certain employees that will vest in two equal installments upon the achievement of specified performance goals. At June 30, 2020, 139,100 of these options are still outstanding. In the six months ended June 30, 2020, the Company issued 2.5 million additional performance stock options that will vest in four installments upon the achievement of specified performance goals. The Company determined it is not currently probable that these performance goals will be achieved and, therefore, no expense has been recorded to date. The fair value of the performance-based options that could be expensed in future periods, net of estimated forfeitures, is $8.9 million.

A summary of restricted stock and restricted stock unit activity, inclusive of performance-based restricted stock awards, under the Company’s equity plans as of June 30, 2020, and changes during the six-month period then ended is presented below (in thousands):

Number of

Weighted-

Restricted

Average Grant

Stock Shares

Date Fair Value

Unvested at December 31, 2019

 

1,297

$

2.97

Vested

 

(513)

2.62

Forfeited

(487)

3.62

Unvested at June 30, 2020

297

2.55

In 2016, 2017, and 2019, the Company granted shares of performance-based restricted common stock to certain employees of the Company. All but 57,400 of these granted shares have since been forfeited. The restrictions on these

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shares will lapse in three equal installments upon the achievement of specified performance goals. The Company determined it is not currently probable that these performance goals will be achieved and, therefore, no expense has been recorded to date. The fair value of the performance-based shares that could be expensed in future periods, net of estimated forfeitures, is $142,000.

During the six months ended June 30, 2020, holders of options issued under the Company’s equity plans exercised their rights to acquire an aggregate of approximately 130,000 shares of common stock at prices ranging from $2.47 to $3.05 per share. The total proceeds to the Company from these option exercises were $362,000.

In June 2018, the Company's Board of Directors, with shareholder approval, adopted the Employee Stock Purchase Plan, or ESPP. An aggregate of 1,000,000 shares of common stock have been reserved for issuance under the ESPP. On June 30, 2020 and June 30, 2019, 78,000, and 323,000 shares, respectively, were issued to participating employees at a fair value of $1.86 and $1.63 per share, respectively. The fair value of each ESPP award is estimated on the first day of the offering period using the Black-Scholes option-pricing model. The assumptions used in the calculations for each offering period are noted in the table below. The Company recognizes share-based compensation expense equal to the fair value of the ESPP awards on a straight-line basis over the offering period.

    

June 30, 2020

June 30, 2019

Dividend

None

None

Volatility

85.7%

67.3%

Risk-free interest rate

1.57%

2.51%

Expected life (years)

0.5

0.5

Stock compensation expense related to stock options and restricted stock awards granted under the stock plans and related to the ESPP was $3.4 million and $6.5 million during the three and six months ended June 30, 2020, respectively, compared to stock compensation expense of $2.1 million and $7.1 million for the three and six months ended June 30, 2019, respectively. Stock compensation expense related to the ESPP was $140,000 and $292,000 for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, the estimated fair value of unvested employee awards, exclusive of performance awards, was $23.2 million, net of estimated forfeitures. The weighted-average remaining vesting period for these awards is approximately three years.

Segment Information

During the six months ended June 30, 2020, the Company continued to operate in one operating segment, which is the business of development of monoclonal antibody-based anticancer therapeutics.

During the three and six months ended June 30, 2020, 94% and 96%, respectively, of revenues were from Roche, consisting primarily of non-cash royalty revenue, compared to 99% of revenue from Roche in each of the three and six month periods ended June 30, 2019. There were no other customers of the Company that generated significant revenues in the three or six months ended June 30, 2020 and 2019.

Recently Adopted Accounting Pronouncements

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, ASU 2018-18 adds unit-of-account guidance to ASC Topic 808, Collaborative Arrangements, in order to align this guidance with ASC 606 and also precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods. The Company adopted the standard on January 1, 2020, and it did not have a material effect on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions, and forecasts. The ASU is effective for interim and annual periods beginning after December 15, 2019. Adoption of the ASU is on a modified retrospective basis. The Company adopted the standard on January 1, 2020, and it did not have a material effect on the Company’s consolidated financial statements.

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No other recently issued or effective ASUs had, or are expected to have, a material effect on the Company's results of operations, financial condition, or liquidity.

C.Agreements

Significant Collaborative Agreements

Roche

In May 2000, the Company granted Genentech, now a member of the Roche Group, an exclusive license to use the Company’s maytansinoid ADC technology. Pursuant to this agreement, Roche developed and received marketing approval for its HER2-targeting ADC compound, Kadcyla, in the U.S., Europe, Japan, and numerous other countries. The Company receives royalty reports and royalty payments related to sales of Kadcyla from Roche one quarter in arrears. In accordance with the Company’s revenue recognition policy, $27.1 million and $18.9 million of non-cash royalties on net sales of Kadcyla were recorded and included in non-cash royalty revenue for the six months ended June 30, 2020 and 2019, respectively. Kadcyla sales occurring after January 1, 2015 were covered by a royalty purchase agreement whereby the associated cash, except for a residual tail, was remitted to Immunity Royalty Holdings, L.P, or IRH. In January 2019, the Company sold its residual tail to OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada, for a net payment of $65.2 million, as discussed further in Note E. Simultaneously, OMERS purchased IRH’s right to the royalties the Company previously sold as described above, therefore obtaining the rights to 100% of the royalties received from that date on.

On May 3, 2019, Roche notified the Company that the FDA approved Kadcyla for adjuvant (after surgery) treatment of people with HER2-positive early breast cancer who have residual invasive disease after neoadjuvant (before surgery) taxane and Herceptin® (trastuzumab)-based treatment, resulting in a $5 million regulatory milestone payment to the Company for a first extended indication, which is included in license and milestone fees for the three and six months ended June 30, 2019. The Company is entitled to receive up to a total of $44 million in milestone payments pursuant to the license agreement, of which the Company has received $39 million to date. The next potential milestone the Company will be entitled to receive will be a $5 million regulatory milestone for marketing approval of Kadcyla for a second extended indication as defined in the license.

CytomX

In 2016, the Company granted CytomX an exclusive development and commercialization license to the Company’s maytansinoid ADC technology for use with Probodies™ that target CD166 under a now expired reciprocal right-to-test agreement. Pursuant to the license agreement, the Company is entitled to receive up to a total of $160.0 million in milestone payments plus royalties on the commercial sales of any resulting product. The total milestones are categorized as follows: development milestones—$10.0 million; regulatory milestones—$50.0 million; and sales milestones—$100.0 million. In December 2019, a development milestone related to dosing of a first patient in a Phase 2 clinical trial became probable of being attained, which resulted in $3.0 million of license and milestone fee revenue being recorded in 2019. In February 2020, CytomX enrolled its first patient in the aforementioned Phase 2 clinical trial, and subsequently remitted the $3.0 million milestone payment to the Company in March 2020. CytomX is responsible for the manufacturing, development, and marketing of any products resulting from the development and commercialization license taken by CytomX under this collaboration.

Terminated Agreements

During the second quarter, the Company received notice of termination of the exclusive development and commercialization licenses granted to each of Biotest and Takeda. The Company had $870,000 of deferred revenue remaining related to the portion of the upfront license fee from Takeda previously allocated to the right to future technological improvements. In consideration that no technological improvements would be further used by Takeda and, therefore, no unsatisfied obligations were remaining related to the license, the $870,000 was recorded as revenue and is included in license and milestone fees for the three and six months ended June 30, 2020. At the time of notification, there were no unsatisfied performance obligations or balances remaining related to the agreement with Biotest.

For additional information related to these agreements, as well as the Company’s other significant collaborative agreements, please read Note C, Agreements - Significant Collaborative Agreements, to the consolidated financial statements included within the Company’s 2019 Annual Report on Form 10-K filed with the SEC on March 11, 2020.

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D.Convertible 4.5% Senior Notes

In 2016, the Company issued Convertible Notes with an aggregate principal amount of $100 million, of which $2.1 million remains outstanding as of June 30, 2020. The Convertible Notes are governed by the terms of an indenture between the Company, as issuer, and Wilmington Trust, National Association, as the trustee. The Convertible Notes are senior unsecured obligations and bear interest at a rate of 4.5% per year, payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2017. The Company recorded $47,000 of interest expense in each of the six months ended June 30, 2020 and 2019, respectively. The Convertible Notes will mature on July 1, 2021, unless earlier repurchased or converted. Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding the stated maturity date. Upon conversion, the Company will deliver for each $1,000 principal amount of converted notes a number of shares equal to the conversion rate, which will initially be 238.7775 shares of common stock, equivalent to an initial conversion price of approximately $4.19. The conversion rate will be subject to adjustment in some circumstances, but will not be adjusted for any accrued and unpaid interest.