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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, 2021

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: 201,625,336 shares outstanding as of July 27, 2021.

Table of Contents

IMMUNOGEN, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2021

TABLE OF CONTENTS

Item

    

  

Page Number

Part I

Financial Information

1.

Financial Statements (Unaudited)

2

1a.

Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

2

1b.

Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020

3

1c.

Consolidated Statements of Shareholders’ Equity (Deficit) for the three months ended March 31 and June 30, 2021 and the three months ended March 31, June 30, September 30, and December 31, 2020

4

1d.

Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

5

1e.

Notes to Consolidated Financial Statements

6

2.

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

15

3.

Quantitative and Qualitative Disclosures about Market Risk

21

4.

Controls and Procedures

21

Part II

Other Information

1A.

Risk Factors

21

6.

Exhibits

22

Signatures

23

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 the notes to our financial statements and 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, 2020 filed with the Securities and Exchange Commission (SEC) on March 1, 2021, 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,

2021

2020

ASSETS

Cash and cash equivalents

$

239,538

$

293,856

Accounts receivable

 

7

 

35

Unbilled receivables

 

4,227

 

11

Non-cash royalty receivable

16,121

22,451

Prepaid and other current assets

 

14,504

 

7,901

Total current assets

 

274,397

 

324,254

Property and equipment, net of accumulated depreciation

 

4,957

 

5,760

Operating lease right-of-use assets

13,206

14,072

Other assets

 

8,886

 

10,986

Total assets

$

301,446

$

355,072

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable

$

11,631

$

9,538

Accrued compensation

 

3,599

 

4,620

Other accrued liabilities

 

29,185

 

29,320

Convertible 4.5% senior notes, net of deferred financing costs of $0 and $7, respectively

1,100

2,093

Current portion of liability related to the sale of future royalties, net of deferred financing costs of $231 and $319, respectively

17,816

44,357

Current portion of operating lease liability

3,196

3,146

Current portion of deferred revenue

 

53,792

 

29,249

Total current liabilities

 

120,319

 

122,323

Deferred revenue, net of current portion

 

55,480

 

80,860

Operating lease liability, net of current portion

16,974

18,651

Liability related to the sale of future royalties, net of current portion and deferred financing costs of $473 and $584, respectively

37,766

41,082

Other long-term liabilities

 

2,442

 

2,586

Total liabilities

 

232,981

 

265,502

Commitments and contingencies (Note I)

Shareholders’ equity:

Preferred stock, $.01 par value; authorized 5,000 shares; no shares issued and outstanding as of each of June 30, 2021 and December 31, 2020

 

 

Common stock, $.01 par value; authorized 300,000 shares; issued and outstanding 200,255 and 194,998 shares as of June 30, 2021 and December 31, 2020, respectively

 

2,003

 

1,950

Additional paid-in capital

 

1,463,094

 

1,419,460

Accumulated deficit

 

(1,396,632)

 

(1,331,840)

Total shareholders’ equity

 

68,465

 

89,570

Total liabilities and shareholders’ equity

$

301,446

$

355,072

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,

    

2021

    

2020

    

2021

    

2020

Revenues:

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

$

16,690

$

14,075

$

32,235

$

27,072

License and milestone fees

 

252

 

945

 

409

 

1,228

Research and development support

 

6

 

5

 

10

 

12

Total revenues

 

16,948

 

15,025

 

32,654

 

28,312

Operating expenses:

Research and development

 

34,589

 

22,921

 

69,002

 

50,329

General and administrative

 

9,728

 

9,767

 

19,937

 

18,631

Restructuring charges

699

1,524

Total operating expenses

 

44,317

 

33,387

 

88,939

 

70,484

Loss from operations

 

(27,369)

 

(18,362)

 

(56,285)

 

(42,172)

Investment income, net

 

11

 

62

 

24

 

708

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

(3,557)

(6,081)

(8,201)

(11,783)

Interest expense on convertible senior notes

(23)

(23)

(47)

(47)

Other income (expense), net

 

197

 

106

 

(283)

 

(92)

Net loss

$

(30,741)

$

(24,298)

$

(64,792)

$

(53,386)

Basic and diluted net loss per common share

$

(0.15)

$

(0.14)

$

(0.32)

$

(0.31)

Basic and diluted weighted average common shares outstanding

 

199,890

 

174,354

 

199,365

 

171,055

Total comprehensive loss

$

(30,741)

$

(24,298)

$

(64,792)

$

(53,386)

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

3

Table of Contents

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

In thousands

Additional

Total

Common Stock

Paid-In

Accumulated

Shareholders’

Shares

Amount

Capital

Deficit

Equity (Deficit)

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)

Net loss

 

(22,374)

(22,374)

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

 

45

1

127

128

Stock option and restricted stock compensation expense

 

3,729

3,729

Directors’ deferred share unit compensation

 

149

149

Balance at September 30, 2020

 

174,585

$

1,746

$

1,318,591

$

(1,363,228)

$

(42,891)

Net loss

31,388

31,388

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

205

2

676

678

Issuance of common stock, net of issuance costs

19,972

200

96,328

96,528

Restricted stock units vested

236

2

(2)

Stock option and restricted stock compensation expense

3,718

3,718

Directors’ deferred share unit compensation

149

149

Balance at December 31, 2020

 

194,998

$

1,950

$

1,419,460

$

(1,331,840)

$

89,570

Net loss

(34,051)

(34,051)

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

397

4

1,282

1,286

Issuance of common stock, net of issuance costs

4,544

45

33,447

33,492

Restricted stock units vested

2

Stock option and restricted stock compensation expense

3,674

3,674

Directors’ deferred share unit compensation

149

149

Balance at March 31, 2021

199,941

1,999

1,458,012

(1,365,891)

94,120

Net loss

(30,741)

(30,741)

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

75

1

377

378

Conversion of convertible senior notes

239

3

997

1,000

Common stock issuance costs

(34)

(34)

Stock option and restricted stock compensation expense

3,598

3,598

Directors’ deferred share unit compensation

144

144

Balance at June 30, 2021

200,255

2,003

1,463,094

(1,396,632)

68,465

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,

    

2021

    

2020

    

Cash flows from operating activities:

Net loss

$

(64,792)

$

(53,386)

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

Non-cash royalty revenue related to sale of future royalties

(31,721)

(27,072)

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

8,201

11,783

Depreciation and amortization

 

1,093

 

1,045

Gain on sale/disposal of fixed assets and impairment charges

 

 

(691)

Stock and deferred share unit compensation

 

7,565

 

6,576

Change in operating assets and liabilities:

Accounts receivable

 

28

 

7,187

Unbilled receivable

 

(4,216)

 

996

Contract asset

 

2,589

Prepaid and other current assets

 

(6,603)

 

(1,001)

Operating lease right-of-use assets

866

723

Other assets

 

2,100

 

(3,807)

Accounts payable

 

2,482

 

2,161

Accrued compensation

 

(893)

 

(4,191)

Other accrued liabilities

 

(146)

 

2,832

Deferred revenue

 

(837)

 

(817)

Operating lease liability

(1,627)

(1,435)

Net cash used for operating activities

 

(88,500)

 

(56,508)

Cash flows from investing activities:

Purchases of property and equipment

 

(940)

(44)

Proceeds from sale of equipment

1,426

Net cash (used for) provided by investing activities

 

(940)

 

1,382

Cash flows from financing activities:

Proceeds from issuance of common stock under stock plans

 

1,664

 

664

Proceeds from common stock issuance, net of $106 and $230 of transaction costs, respectively

33,458

97,743

Net cash provided by financing activities

 

35,122

 

98,407

Net change in cash and cash equivalents

 

(54,318)

 

43,281

Cash and cash equivalents, beginning of period

 

293,856

176,225

Cash and cash equivalents, end of period

$

239,538

$

219,506

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, 2021

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 (ADCs). The Company has generally incurred operating losses and negative cash flows from operations since inception, incurred a net loss of $64.8 million during the six months ended June 30, 2021, and has an accumulated deficit of approximately $1.4 billion as of June 30, 2021. 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 to continue to incur operating expenses related to research and development and potential commercialization of its portfolio over the next several years.

As of June 30, 2021, the Company had $239.5 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 were 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 equity, debt, 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.

Basis of Presentation and 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, 2020 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, 2020 filed with the SEC on March 1, 2021.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three and six months ended June 30, 2021 are consistent with those discussed in Note B. to the consolidated financial statements included in the Company’s 2020 Annual Report on Form 10-K, except as described under Recently Adopted Accounting Pronouncements below.

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Subsequent Events

The Company has evaluated all events or transactions that occurred after June 30, 2021, up through the date the Company issued these financial statements. Pursuant to an Open Market Sale AgreementSM under which the Company may issue and sell shares of its common stock for an aggregate sales price of up to $150.0 million, subsequent to June 30, 2021 and through the date the Company issued these financial statements, the Company has sold 1,891,030 shares of its common stock, generating net proceeds of approximately $11.0 million after deducting offering commissions and expenses. The Company did not have any other material recognized or unrecognized subsequent events during this period.

Revenue Recognition

Transaction Price Allocated to Future Performance Obligations

Deferred revenue under ASC 606, Revenue from Contracts with Customers, represents the portion of the transaction price received under various contracts for which the associated performance obligation has not been satisfied (or has been partially satisfied) and includes unexercised contract options that are considered material rights. As of June 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations comprising deferred revenue was $109.3 million. The Company expects to recognize revenue on approximately 49%, 38%, and 13% of the remaining performance obligations over the next 12 months, 13 to 60 months, and 61 to 120 months, respectively; however, it does not control when or if any collaborator will terminate existing development and commercialization licenses.

Contract Balances from Contracts with Customers

The following tables present changes in the Company’s contract assets and contract liabilities during the six months ended June 30, 2021 and 2020 (in thousands):

Balance at

Balance at

Six months ended June 30, 2021

December 31, 2020

 

Additions

Deductions

Impact of Netting

June 30, 2021

Contract asset

$

$

$

$

$

Contract liabilities (deferred revenue)

$

110,109

$

$

(837)

$

$

109,272

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 (deferred revenue)

$

127,432

$

$

(1,228)

$

411

$

126,615

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,

2021

2020

2021

2020

Revenue recognized in the period from:

Amounts included in contract liabilities at the beginning of the period

$

765

$

945

$

837

$

1,228

During the six months ended June 30, 2021, the Company recorded $0.2 million as license and milestone fee revenue for delivery of certain materials to Viridian Therapeutics that had been previously deferred, and $0.1 million of amortization of deferred revenue related to numerous collaborators’ rights to technological improvements. Additionally, the Company recorded $0.5 million of previously deferred non-cash royalty revenue related to the sale of rights to Kadcyla royalties, further details of which can be found in Note E, “Liability Related to Sale of Future Royalties.”

During the six months ended June 30, 2020, the Company recorded $0.2 million 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 $0.9 million related to the

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termination of a license agreement with Takeda. Additionally, a contract asset of $2.7 million, net of a related $0.3 million 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.

The timing of revenue recognition, billings, and cash collections results in billed receivables, unbilled 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 (under the caption deferred revenue). 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, 2021 and December 31, 2020. 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, 2021 and December 31, 2020, the Company held $239.5 million and $293.9 million, respectively, in cash and money market funds, which were classified as cash and cash equivalents.

Non-cash Investing and Financing Activities

During the six months ended June 30, 2021, $1.0 million of convertible 4.5% senior notes outstanding was converted to 238,777 shares of the Company’s common stock. There was no similar activity during the six months ended June 30, 2020.

The Company had $0.7 million of accrued capital expenditures as of December 31, 2020, which were subsequently paid during the six months ended June 30, 2021. The Company had no accrued capital expenditures as of June 30, 2021.

Fair Value of Financial Instruments

Fair value is defined under ASC 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.

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As of June 30, 2021, 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, 2021 (in thousands):

Fair Value Measurements at June 30, 2021

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

    

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

Cash equivalents

$

222,150

$

222,150

$

$

As of December 31, 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 December 31, 2020 (in thousands):

Fair Value Measurements at December 31, 2020

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

    

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

Cash equivalents

$

194,525

$

194,525

    

$

    

$

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 gross carrying amount and estimated fair value of the convertible 4.5% senior notes was $1.1 million and $2.3 million, respectively, as of June 30, 2021 compared to $2.1 million and $4.3 million, respectively, as of December 31, 2020. In June 2021, $1.0 million of convertible 4.5% senior notes outstanding was converted to 238,777 shares of the Company’s common stock, with the remaining $1.1 million of convertible 4.5% senior notes paid in cash upon maturity on July 1, 2021. The fair value of the convertible notes was 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 were no trades involving the convertible notes since September 2019, the fair value as of June 30, 2021 and December 31, 2020 used Level 3 inputs.

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 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.

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The Company’s common stock equivalents, as calculated in accordance with the treasury-stock method for 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,

    

2021

    

2020

    

2021

    

2020

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

21,681

19,065

21,682

19,065

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

2,772

 

982

3,138

1,204

Shares issuable upon conversion of convertible notes at end of period

-

501

-

501

Common stock equivalents under if-converted method for convertible notes

-

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, 2021, the Company was authorized to grant future awards under three employee share-based compensation plans, which are the ImmunoGen, Inc. Amended and Restated 2018 Employee, Director and Consultant Equity Incentive Plan (the 2018 Plan), the Employee Stock Purchase Plan (the ESPP), and the ImmunoGen Inducement Equity Incentive Plan (the Inducement Plan). At the annual meeting of shareholders on June 16, 2021, the 2018 Plan was amended to provide for the issuance of stock grants, the grant of options, and the grant of stock-based awards for up to an additional 6,600,000 shares of the Company’s common stock, as well as up to 22,392,986 shares of common stock which represent the number of shares of common stock remaining under the 2018 Plan as of March 31, 2021, and awards previously granted under the 2018 Plan and the Company’s former stock-based plans, including 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 March 31, 2021. The Inducement Plan was approved by the Board of Directors in December 2019, and pursuant to subsequent amendments, provides for the issuance of non-qualified option grants for up to 3,500,000 shares of the Company’s common stock as of June 30, 2021. 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 under each of these plans.

The stock-based awards are accounted for under ASC 718, Compensation—Stock Compensation. Pursuant to ASC 718, the estimated grant date fair value of awards is charged to the statement of operations over the requisite service period, which is the vesting period. 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 of the stock options 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,

    

2021

2020

2021

2020

Dividend

None

None

None

None

Volatility

84.7%

88.0%

85.3%

84.7%

Risk-free interest rate

1.01%

0.41%

0.67%

1.30%

Expected life (years)

6.0

6.0

6.0

6.0

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Using the Black-Scholes option-pricing model, the weighted average grant date fair values of options granted during the three months ended June 30, 2021 and 2020 were $4.92 and $3.39 per share, respectively, and $5.40 and $3.26 for options granted during the six months ended June 30, 2021 and 2020, respectively.

A summary of option activity under the Company’s equity plans for the six months ended June 30, 2021 is presented below (in thousands, except weighted-average data):

    

    

Weighted-

    

Number

Average

of Stock

Exercise

Options

Price

Outstanding at December 31, 2020

18,398

$

6.10

Granted

4,202

7.60

Exercised

(408)

3.22

Forfeited/Canceled

(570)

8.98

Outstanding at June 30, 2021

21,622

6.37

In September 2018, the Company granted 295,200 performance-based stock options to certain employees that will vest in two equal installments upon the achievement of specified performance goals. At June 30, 2021, 128,700 of these options were still outstanding. In 2020, the Company issued 2.6 million additional performance-based stock options to certain employees, all of which remain outstanding as of June 30, 2021, that will vest upon the achievement of specified performance goals. The Company determined it is not currently probable that any of these performance goals will be achieved and, therefore, no expense has been recorded to date. The fair value of the performance-based stock options that could be expensed in future periods is $9.4 million.

A summary of restricted stock and restricted stock unit activity under the Company’s equity plans for the six months ended June 30, 2021 is presented below (in thousands, except weighted-average data):

Number of

Weighted-

Restricted

Average Grant

Stock Shares

Date Fair Value

Unvested at December 31, 2020

61

$

2.47

Vested

 

(2)

2.53

Unvested at June 30, 2021

59

$

2.47

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 shares have since been forfeited. The restrictions on these 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 is $0.1 million.

In June 2018, the Company's Board of Directors, with shareholder approval, adopted the ESPP. Following the automatic share increase on January 1, 2021, pursuant to the ESPP’s “evergreen” provision, an aggregate of 2,000,000 shares of common stock have been reserved for issuance under the ESPP. On June 30, 2021 and June 30, 2020, approximately 64,000, and 78,000 shares, respectively, were issued to participating employees at a fair value of $2.14 and $1.86 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 Company recognizes share-based compensation expense equal to the fair value of the ESPP awards on a straight-line basis over the offering period.

Stock compensation expense related to stock options and restricted stock awards granted under the stock plans and the ESPP was $3.6 million and $7.3 million during the three and six months ended June 30, 2021, respectively, compared to stock compensation expense of $3.4 million and $6.5 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2021, the estimated fair value of unvested employee awards, exclusive of performance awards, was $32.7 million. The weighted average remaining vesting period for these awards is approximately three years.

Segment Information

During all periods presented, the Company continued to operate in one reportable business segment under the management approach of ASC 280, Segment Reporting, which is the business of the discovery and development of ADCs for the treatment of cancer.

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During each of the three and six months ended June 30, 2021, 99% of revenues were from Roche, consisting primarily of non-cash royalty revenue, compared to 94% and 96% of revenue from Roche in the three and six months ended June 30, 2020, respectively. There were no other customers of the Company that generated significant revenues in the three or six months ended June 30, 2021 and 2020.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted the standard on January 1, 2021, and it did not have a material effect on the Company’s consolidated financial statements.

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, Kadcyla, in the U.S., Japan, the European Union, and numerous other countries. In accordance with the Company’s revenue recognition policy, $32.2 million and $27.1 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, 2021 and 2020, 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 initially remitted to Immunity Royalty Holdings, L.P. (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 on the commercial sales of Kadcyla received from that date on.

For additional information related to this agreement, as well as the Company’s other significant collaborative agreements, please read Note C, “Agreements - Significant Collaborative Agreements,” to the audited financial statements included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021.

D.Convertible 4.5% Senior Notes

In 2016, the Company issued convertible notes with an aggregate principal amount of $100.0 million, of which $1.1 million remained outstanding as of June 30, 2021, which were subsequently repaid in full by a cash payment upon maturity on July 1, 2021. In June 2021, $1.0 million of convertible notes were converted to 238,777 shares of the Company’s common stock. The convertible notes were senior unsecured obligations with an interest rate of 4.5% per year, paid 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, 2021 and 2020. The Company analyzed the terms of the convertible notes and determined that under current accounting guidance the notes were entirely accounted for as debt and none of the terms of the notes required separate accounting.

E.

Liability Related to Sale of Future Royalties

In 2015, IRH purchased the right to receive 100% of the royalty payments on commercial sales of Kadcyla subsequent to December 31, 2014, arising under the Company’s development and commercialization license with Genentech, until IRH had received aggregate royalties equal to $235 million or $260 million, depending on when the aggregate royalties received by IRH reach a specified milestone. Once the applicable threshold was met, the Company would thereafter have received 85% and IRH would have received 15% of the Kadcyla royalties for the remaining royalty term. At the consummation of the transaction, the Company received cash proceeds of $200 million. As part of this sale, the Company incurred $5.9 million of transaction costs, which are presented net of the liability in the accompanying consolidated balance sheet and are being amortized to interest expense over the estimated life of the royalty purchase

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agreement. Although the Company sold its rights to receive royalties from the sales of Kadcyla, as a result of its then ongoing involvement in the cash flows related to these royalties, the Company continues to account for these royalties as revenue and recorded the $200 million in proceeds from this transaction as a liability related to sale of future royalties (Royalty Obligation) that is being amortized using the interest method over the estimated life of the royalty purchase agreement.

In January 2019, the Company sold its residual rights to receive royalty payments on commercial sales of Kadcyla to OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada, for a payment of $65.2 million (amount is net of $1.5 million in broker fees). Simultaneously, OMERS purchased IRH’s right to the royalties the Company previously sold to IRH as described above, therefore obtaining the rights to 100% of the royalties received from that date on. Because the Company will not be involved with the cash flows related to the residual royalties, the $65.2 million of net proceeds received from the sale of its residual rights to receive royalty payments was recorded as deferred revenue and will be amortized as the royalty revenue related to the residual rights is earned using the units of revenue approach. During the three months ended June 30, 2021, the aggregate royalty threshold was met and, in accordance with the Company’s revenue recognition policy, $0.5 million of revenue related to the residual rights was recorded and is included in non-cash royalty revenue for the three and six months ended June 30, 2021. Additionally, the purchase of IRH’s interest by OMERS did not result in an extinguishment or modification of the original instrument and, accordingly, the Company continues to account for the remaining obligation as a liability as outlined above.

The following table shows the activity within the liability account during the six-month period ended June 30, 2021 (in thousands):

Six Months Ended

    

June 30, 2021

Liability related to sale of future royalties, net — beginning balance

$

85,439

Proceeds from sale of future royalties, net

 

Kadcyla royalty payments received and paid

 

(38,051)

Non-cash interest expense recognized

8,194

Liability related to sale of future royalties, net — ending balance

$

55,582

The Company receives royalty reports and royalty payments related to sales of Kadcyla from Roche one quarter in arrears. As royalties are remitted to OMERS, the balance of the Royalty Obligation will be effectively repaid over the life of the agreement. In order to determine the amortization of the Royalty Obligation, the Company is required to estimate the total amount of future royalty payments to be received and remitted as noted above over the life of the agreement. The sum of these amounts less the $200 million proceeds the Company received from IRH will be recorded as interest expense over the life of the Royalty Obligation. Since inception, the Company’s estimate of this total interest expense results in an imputed annual interest rate of 10.5%, and a current imputed interest rate of 20.3% as of June 30, 2021. The Company periodically assesses the estimated royalty payments to IRH/OMERS and to the extent such payments are greater or less than its initial estimates, or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the Royalty Obligation. There are a number of factors that could materially affect the amount and timing of royalty payments from Genentech, most of which are not within the Company’s 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 as the royalties are paid in U.S. dollars (USD) while significant portions of the underlying sales of Kadcyla are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from Kadcyla, 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 Obligation. Conversely, if sales of Kadcyla are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by the Company would be greater over the term of the Royalty Obligation.

F.

Capital Stock

Compensation Policy for Non-Employee Directors

Pursuant to the Compensation Policy for Non-Employee Directors, as amended, non-employee directors are granted deferred share units as part of their annual retainers that vest quarterly over approximately one year from the date

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of grant, contingent upon the individual remaining a director of ImmunoGen as of each vesting date. The number of deferred share units awarded is fixed per the policy on the date of the award. All unvested deferred share units will automatically vest immediately prior to the occurrence of a change of control. The redemption amount of deferred share units issued will be paid in shares of common stock of the Company on the date a director ceases to be a member of the Board of Directors.

Pursuant to the Compensation Policy for Non-Employee Directors, as amended, non-employee directors also receive stock option awards upon initial election to the Board of Directors and annually thereafter. The directors received a total of 264,000 and 300,000 options in June 2021 and 2020, respectively, and the related compensation expense for the three and six months ended June 30, 2021 and 2020 is included in the amounts discussed in the “Stock-Based Compensation” section of Note B above.

G.Restructuring Charges

During the six months ended June 30, 2020, the Company recorded a $(0.1) million adjustment to severance charges and $1.6 million in incremental benefits related to the 2019 corporate restructuring.

A summary of activity against the corporate restructuring charge related to the employee terminations in 2021 is as follows:

Employee

Termination

    

Benefits Costs

Balance at December 31, 2020

$

784

Payments during the period

(221)

Balance at June 30, 2021

$

563

In addition to the termination benefits and other related charges, the Company has subleased laboratory and office space at 830 Winter Street in Waltham, Massachusetts no longer used in the business. The decision to vacate part of its corporate office resulted in a change in asset groupings and also represented an impairment indicator. The Company determined and continues to believe that the right-of-use asset and leasehold improvements are recoverable based on expected sublease income, and therefore, no impairment has been recorded.

H.

Leases

The Company currently has two real estate leases. The first is an agreement with CRP/King 830 Winter L.L.C. for the rental of approximately 120,000 square feet of laboratory and office space at 830 Winter Street, Waltham, Massachusetts through March 2026. The Company uses this space for its corporate headquarters and other operations. The Company may extend the lease for two additional terms of five years and is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount. During 2020, the Company executed four subleases for approximately 65,000 square feet of this space through the remaining initial term of the lease. The balance of the space will be used by the Company. The second real estate lease is an agreement with PDM 930 Unit, LLC for the rental of 10,281 square feet of additional office space at 930 Winter Street, Waltham, Massachusetts through August 31, 2021. The Company is required to pay certain operating expenses for the leased premises based on its pro-rata share of such expenses for the entire rentable space of the building.

The Company’s operating lease liabilities related to its real estate lease agreements were calculated using a collateralized incremental borrowing rate. The weighted average discount rate for the operating lease liability is approximately 11%. A 100 basis point change in the incremental borrowing rate would result in less than a $1 million impact to the ROU assets and liabilities recorded. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term, which was $2.0 million in each of the six-month periods ended June 30, 2021 and 2020 and is included in operating expenses in the consolidated statement of operations. Cash paid against operating lease liabilities was $2.7 million in each of the six-month periods ended June 30, 2021 and 2020. As of June 30, 2021, the Company’s ROU asset and lease liability for operating leases totaled $13.2 million and $20.2 million, respectively, and the weighted average remaining term of the operating leases is 4.7 years.

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The maturities of operating lease liabilities discussed above are as follows (in thousands):

2021 (six months remaining)

    

$

2,565

2022

 

5,389

2023

 

5,510

2024

 

5,470

2025

 

5,490

Thereafter

 

1,376

Total lease payments

25,800

Less imputed interest

(