SEC Filing | ImmunoGen, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

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 September 30, 2021

☐ 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: 202,619,488 shares outstanding as of October 26, 2021.

Table of Contents

IMMUNOGEN, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS


Item		Page Number
	Part I
	Financial Information
1.	Financial Statements (Unaudited)	2

1a.	Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	2

1b.	Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020	3

1c.	Consolidated Statements of Shareholders’ Equity (Deficit) for the three months ended March 31, June 30, and September 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 nine months ended September 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	18

3.	Quantitative and Qualitative Disclosures about Market Risk	24

4.	Controls and Procedures	24

	Part II
	Other Information
1A.	Risk Factors	24

6.	Exhibits	25

	Signatures	26

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.

Table of Contents

ITEM 1. Financial Statements

IMMUNOGEN, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

In thousands, except per share amounts


	September 30,		December 31,
	2021		2020
ASSETS
Cash and cash equivalents	$	245,761	$	293,856
Accounts receivable		221		35
Unbilled receivables		4,706		11
Contract assets		2,500		—
Non-cash royalty receivable		3,369		22,451
Prepaid and other current assets		14,330		7,901
Total current assets		270,887		324,254
Property and equipment, net of accumulated depreciation		4,636		5,760
Operating lease right-of-use assets		12,745		14,072
Other assets		8,535		10,986
Total assets	$	296,803	$	355,072
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	10,520	$	9,538
Accrued compensation		4,718		4,620
Other accrued liabilities		34,718		29,320
Convertible 4.5% senior notes, net of deferred financing costs of $0 and $7, respectively		—		2,093
Current portion of liability related to the sale of future royalties, net of deferred financing costs of $206 and $319, respectively		4,945		44,357
Current portion of operating lease liability		3,358		3,146
Current portion of deferred revenue		53,526		29,249
Total current liabilities		111,785		122,323
Deferred revenue, net of current portion		52,479		80,860
Operating lease liability, net of current portion		16,045		18,651
Liability related to the sale of future royalties, net of current portion and deferred financing costs of $427 and $584, respectively		37,322		41,082
Other long-term liabilities		2,079		2,586
Total liabilities		219,710		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 September 30, 2021 and December 31, 2020		—		—
Common stock, $.01 par value; authorized 300,000 shares; issued and outstanding 202,443 and 194,998 shares as of September 30, 2021 and December 31, 2020, respectively		2,024		1,950
Additional paid-in capital		1,509,040		1,419,460
Accumulated deficit		(1,433,971)		(1,331,840)
Total shareholders’ equity		77,093		89,570
Total liabilities and shareholders’ equity	$	296,803	$	355,072

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

Table of Contents

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

In thousands, except per share amounts



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenues:
Non-cash royalty revenue related to the sale of future royalties	$	6,533	$	18,087	$	38,768	$	45,159
License and milestone fees		2,677		97		3,086		1,325
Research and development support		—		5		10		17
Total revenues		9,210		18,189		41,864		46,501
Operating expenses:
Research and development		33,147		24,685		102,149		75,014
General and administrative		10,297		10,231		30,234		28,862
Restructuring charges		—		—		—		1,524
Total operating expenses		43,444		34,916		132,383		105,400
Loss from operations		(34,234)		(16,727)		(90,519)		(58,899)
Investment income, net		11		11		35		719
Non-cash interest expense on liability related to the sale of future royalties and convertible senior notes		(2,751)		(5,645)		(10,952)		(17,428)
Interest expense on convertible senior notes		—		(24)		(47)		(71)
Other (expense) income, net		(365)		11		(648)		(81)
Net loss	$	(37,339)	$	(22,374)	$	(102,131)	$	(75,760)
Basic and diluted net loss per common share	$	(0.18)	$	(0.13)	$	(0.51)	$	(0.44)
Basic and diluted weighted-average common shares outstanding		204,844		174,508		201,212		172,215
Total comprehensive loss	$	(37,339)	$	(22,374)	$	(102,131)	$	(75,760)

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

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
Net loss							(37,339)		(37,339)
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan	95		1		367		—		368
Issuance of common stock, net of issuance costs	2,150		21		12,336		—		12,357
Issuance of pre-funded warrant, net of issuance costs	—		—		29,765		—		29,765
Restricted stock award forfeitures	(57)		(1)		1		—		—
Stock option and restricted stock compensation expense	—		—		3,298		—		3,298
Directors’ deferred share unit compensation	—		—		179		—		179
Balance at September 30, 2021	202,443	$	2,024	$	1,509,040	$	(1,433,971)	$	77,093

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

Table of Contents

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

In thousands




	Nine Months Ended
	September 30,
	2021		2020

Cash flows from operating activities:
Net loss	$	(102,131)	$	(75,760)
Adjustments to reconcile net loss to net cash used for operating activities:
Non-cash royalty revenue related to sale of future royalties		(35,035)		(45,159)
Non-cash interest expense on liability related to sale of future royalties and convertible senior notes		10,952		17,428
Depreciation and amortization		1,555		1,569
Gain on sale/disposal of fixed assets and impairment charges		—		(691)
Stock and deferred share unit compensation		11,042		10,454
Change in operating assets and liabilities:
Accounts receivable		(186)		2,450
Unbilled receivable		(4,695)		996
Contract asset		(2,500)		3,631
Prepaid and other current assets		(6,429)		(2,450)
Operating lease right-of-use assets		1,327		1,110
Other assets		2,451		(4,786)
Accounts payable		1,354		(1,028)
Accrued compensation		98		(4,651)
Other accrued liabilities		5,153		8,829
Deferred revenue		(4,104)		3,094
Operating lease liability		(2,394)		(2,191)
Net cash used for operating activities		(123,542)		(87,155)
Cash flows from investing activities:
Purchases of property and equipment		(1,065)		(815)
Proceeds from sale of equipment		—		1,426
Net cash (used for) provided by investing activities		(1,065)		611
Cash flows from financing activities:
Payments upon settlement of convertible senior notes		(1,100)		—
Proceeds from issuance of common stock under stock plans		2,032		793
Proceeds from warrant issuance, net of $181 of transaction costs		29,765		—
Proceeds from common stock issuance, net of $143 and $230 of transaction costs, respectively		45,815		97,743
Net cash provided by financing activities		76,512		98,536
Net change in cash and cash equivalents		(48,095)		11,992
Cash and cash equivalents, beginning of period		293,856		176,225
Cash and cash equivalents, end of period	$	245,761	$	188,217

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

Table of Contents

IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 $102.1 million during the nine months ended September 30, 2021, and has an accumulated deficit of approximately $1.4 billion as of September 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 had 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 September 30, 2021, the Company had $245.8 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. 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

Common Stock Warrants

The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC

Table of Contents

815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance and remeasured each balance sheet date thereafter. Changes in the estimated fair value of the liability-classified warrants are recognized as a non-cash gain or loss in the accompanying consolidated statements of operations and comprehensive loss.

Other than the accounting for warrants noted above, the significant accounting policies used in preparation of these condensed consolidated financial statements for the three and nine months ended September 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.

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 September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations comprising deferred revenue was $106.0 million. The Company expects to recognize revenue on approximately 50%, 38%, and 12% 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 nine months ended September 30, 2021 and 2020 (in thousands):


	Balance at								Balance at
Nine months ended September 30, 2021	December 31, 2020		Additions		Deductions		Impact of Netting		September 30, 2021
Contract asset	$	—	$	2,500	$	—	$	—	$	2,500
Contract liabilities (deferred revenue)	$	110,109	$	25	$	(4,129)	$	—	$	106,005



	Balance at								Balance at
Nine months ended September 30, 2020	December 31, 2019		Additions		Deductions		Impact of Netting		September 30, 2020
Contract asset	$	3,631	$	—	$	(8,000)	$	4,369	$	—
Contract liabilities (deferred revenue)	$	127,432	$	50	$	(1,325)	$	4,369	$	130,526

Table of Contents

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				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$	3,292	$	72	$	4,129	$	1,300

During the nine months ended September 30, 2021, the Company recorded a contract asset of $2.5 million for a probable development milestone pursuant to its license agreement with Viridian Therapeutics, Inc. (Viridian), which was subsequently achieved in October 2021. The Company also recorded $0.2 million as license and milestone fee revenue for delivery of certain materials to Viridian that had been previously deferred, and $0.2 million of license and milestone fee revenue related to numerous collaborators’ rights to technological improvements that had been previously deferred. Additionally, the Company recorded $3.7 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 nine months ended September 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 $1.1 million of license and milestone fee revenue related to numerous collaborators’ rights to technological improvements that had been previously deferred, which included $0.9 million related to the termination of a license agreement with Takeda. Additionally, a contract asset of $3.6 million, net of $4.4 million of related contract liabilities, was recorded for two probable milestones in 2019 pursuant to license agreements with CytomX and Novartis, which were subsequently achieved and paid during the nine months ended September 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 September 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

The Company considers all highly liquid financial instruments with maturities of three months or less when purchased to be cash equivalents. As of September 30, 2021 and December 31, 2020, the Company held $245.8 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 nine months ended September 30, 2021, $1.0 million of outstanding convertible 4.5% senior notes were converted into 238,777 shares of the Company’s common stock. There was no similar activity during the nine months ended September 30, 2020.

Table of Contents

The Company had $0.1 million and $0.7 million of accrued capital expenditures as of September 30, 2021 or December 31, 2020, respectively, which have been treated as a non-cash investing activity and, accordingly, are not reflected in the consolidated statement of cash flows.

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.

As of September 30, 2021 and December 31, 2020, the Company held certain assets that are required to be measured at fair value on a recurring basis. The fair value of the Company’s cash equivalents is based on quoted prices from active markets (Level 1 inputs). The carrying amounts reflected in the consolidated balance sheets for accounts receivable, unbilled receivables, 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 $2.1 million and $4.3 million, respectively, as of December 31, 2020. The fair value of the convertible notes was influenced by interest rates, the Company’s stock price, 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 December 31, 2020 used Level 3 inputs. During the nine months ended September 30, 2021, $1.0 million of outstanding convertible 4.5% senior notes converted into 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.

Computation of Net Loss per Common Share

Basic and diluted net loss per share is calculated based upon the weighted-average number of shares of common stock outstanding during the period. Shares of the Company’s common stock underlying pre-funded warrants are included in the calculation of basic and diluted earnings per share. 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 shares of common stock 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.

Table of Contents

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		Nine Months Ended
	September 30,		September 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	20,862	19,181	20,862	19,181
Common stock equivalents under treasury stock method for options, shares issuable under the employee stock purchase plan, and unvested restricted stock/units	2,116	929	2,743	1,112
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. 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 (“ASC 718”). 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 September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Dividend	None	None	None	None
Volatility	82.7%	88.3%	85.2%	85.0%
Risk-free interest rate	0.95%	0.36%	0.68%	1.23%
Expected life (years)	6.0	6.0	6.0	6.0

Table of Contents

Using the Black-Scholes option-pricing model, the weighted-average grant date fair values of options granted during the three months ended September 30, 2021 and 2020 were $3.99 and $4.56 per share, respectively, and $5.34 and $4.57 for options granted during the nine months ended September 30, 2021 and 2020, respectively.

A summary of option activity under the Company’s equity plans for the nine months ended September 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	4,380		7.53
Exercised	(503)		3.34
Forfeited/Canceled	(1,415)		8.06
Outstanding at September 30, 2021	20,860		6.34

In 2020, the Company issued 2.6 million performance-based stock options to certain employees, all of which remain outstanding as of September 30, 2021, that will vest upon the achievement of specified performance goals. As of September 30, 2021, the Company determined it was not probable that any of these performance goals will be achieved and, therefore, no expense had been recorded to date. In October 2021, upon approval by the Compensation Committee of the Company’s Board of Directors, certain terms of the performance-based stock option award agreements were modified. Pursuant to ASC 718, the Company determined the modification to be a Type IV (improbable-to-improbable) modification, revalued the modified awards as of the modification date, and determined the modified performance goals were not probable of being achieved. The modified fair value of the performance-based stock options that could be expensed in future periods is $10.5 million.

A summary of restricted stock and restricted stock unit activity under the Company’s equity plans for the nine months ended September 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
Forfeited	(57)		2.47
Unvested at September 30, 2021	2	$	2.53

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 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 $3.3 million and $10.6 million during the three and nine months ended September 30, 2021, respectively, compared to stock compensation expense of $3.7 million and $10.3 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, the estimated fair value of unvested employee awards, exclusive of performance awards, was $28.3 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.

Table of Contents

During the three and nine months ended September 30, 2021, 71% and 93%, respectively, of revenues were from Roche, consisting primarily of non-cash royalty revenue, compared to 99% and 97% of revenue from Roche in the three and nine months ended September 30, 2020, respectively. During the three months ended September 30, 2021, 28% of revenues were from Viridian. There were no other customers of the Company that generated significant revenues in the three or nine months ended September 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, $38.8 million and $45.2 million of non-cash royalties on net sales of Kadcyla were recorded and included in non-cash royalty revenue for the nine months ended September 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.

Viridian

In October 2020, the Company entered into a license agreement with Viridian pursuant to which the Company granted Viridian the exclusive right to develop and commercialize an insulin-like growth factor-1 receptor (IGF-1R) antibody for all non-oncology indications that do not use radiopharmaceuticals in exchange for an upfront payment, with the potential to receive up to a total of $143.0 million in milestone payments plus royalties on the commercial sales of any resulting product. The total milestones are categorized as follows: development and regulatory milestones—$48.0 million; and sales milestones—$95.0 million. During the quarter ended September 30, 2021, a development milestone became probable of being achieved, which resulted in $2.5 million that was allocated to the delivered license being recorded as revenue and included in license and milestone fees for the three and nine months ended September 30, 2021. The development milestone was subsequently achieved in October 2021.

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 $2.1 million remained outstanding as of December 31, 2020. In June 2021, $1.0 million of outstanding convertible notes were converted into 238,777 shares of the Company’s common stock and the remaining $1.1 million outstanding was repaid in full by a cash payment upon maturity on July 1, 2021. 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 and $71,000 of interest expense for the nine months ended September

Table of Contents

30, 2021 and 2020, respectively. 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 $235.0 million or $260.0 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 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 $200.0 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 second quarter of 2021, the aggregate royalty threshold was met and, in accordance with the Company’s revenue recognition policy, $3.7 million of revenue related to the residual rights was recorded and is included in non-cash royalty revenue for the nine months ended September 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 nine-month period ended September 30, 2021 (in thousands):



	Nine Months Ended
	September 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		(54,117)
Non-cash interest expense recognized		10,945
Liability related to sale of future royalties, net — ending balance	$	42,267

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 has resulted in an imputed annual interest rate of 10.5%, and a current imputed interest rate of 19.1% as of September 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

Table of Contents

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

Pre-Funded Warrant

On August 11, 2021, the Company entered into a Securities Purchase Agreement (SPA) with RA Capital Healthcare Fund, L.P. (the Investor), pursuant to which the Company agreed to sell to the Investor a pre-funded warrant (the Pre-Funded Warrant) to purchase up to an aggregate of 5,434,782 shares of the Company’s common stock, par value $0.01 per share (common stock), for $5.51 per share of common stock underlying the Pre-Funded Warrant, which, together with the per share exercise price, is equal to $5.52. The private placement resulted in aggregate gross proceeds of $29.9 million, before $0.2 million of transaction costs.

The issuance and sale of the Pre-Funded Warrant under the SPA and the shares of common stock issuable upon exercise of the Pre-Funded Warrant were registered pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-251502).

The Pre-Funded Warrant’s fundamental transaction provision does not provide the warrant holders with the option to settle any unexercised warrants for cash in the event of any fundamental transactions; rather, in all fundamental transaction scenarios, the warrant holder will only be entitled to receive from the Company or any successor entity the same type or form of consideration (and in the same proportion) that is being offered and paid to the stockholders of the Company in connection with the fundamental transaction, whether that consideration be in the form of cash, stock or any combination thereof. The Pre-Funded Warrant also includes a separate provision whereby the exercisability of the warrants may be limited if, upon exercise, the warrant holder or any of its affiliates would beneficially own more than 9.99% of the Company’s common stock. This threshold is subject to the Investor’s rights under the Pre-Funded Warrant to increase or decrease such percentage to any other percentage not in excess of 19.99% upon at least 61 days’ prior notice from the Investor to the Company

The Company has assessed the Pre-Funded Warrant for appropriate equity or liability classification pursuant to the Company’s accounting policy described in Note B, “Summary of Significant Accounting Policies.” During this assessment, the Company determined the Pre-Funded Warrant is a freestanding instrument that does not meet the definition of a liability pursuant to ASC 480 and does not meet the definition of a derivative pursuant to ASC 815. The Pre-Funded Warrant is indexed to the Company’s common stock and meets all other conditions for equity classification under ASC 480 and ASC 815. Based on the results of this assessment, the Company concluded that the Pre-Funded Warrant is a freestanding equity-linked financial instrument that meets the criteria for equity classification under ASC 480 and ASC 815. Accordingly, the Pre-Funded Warrant is classified as equity and is accounted for as a component of additional paid-in capital at the time of issuance. The Company also determined that the Pre-Funded Warrant should be included in the determination of basic and diluted earnings per share in accordance with ASC 260, Earnings per Share.

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 upon initial election to the Board of Directors and annually thereafter. Initial awards and annual retainers vest quarterly over approximately three years and one year from the date of grant, respectively, 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.

Table of Contents

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 308,000 and 300,000 options during the nine months ended September 2021 and 2020, respectively, and the related compensation expense for the three and nine months ended September 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 nine months ended September 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 payments made 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		(278)
Balance at September 30, 2021	$	506

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 a real estate lease 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 in the aggregate through the remaining initial term of the lease. The balance of the space is being used by the Company. A second real estate lease with PDM 930 Unit, LLC for the rental of 10,281 square feet of additional office space at 930 Winter Street, Waltham, Massachusetts expired on August 31, 2021. The Company was 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 $3.0 million in each of the nine-month periods ended September 30, 2021 and 2020 and is included in operating expenses in the consolidated statement of operations. Cash paid against operating lease liabilities was $4.1 million in each of the nine-month periods ended September 30, 2021 and 2020. As of September 30, 2021, the Company’s ROU asset and lease liability for operating leases totaled $12.7 million and $19.4 million, respectively, and the weighted-average remaining term of the operating leases is 4.5 years.

Table of Contents