UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission file number
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(
(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 | ||||
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. ⌧
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). ⌧
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.
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).
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:
IMMUNOGEN, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
Item |
|
| Page Number | ||
Financial Information | |||||
2 | |||||
Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 | 2 | ||||
3 | |||||
4 | |||||
Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 | 5 | ||||
6 | |||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
24 | |||||
24 | |||||
Part II | |||||
Other Information | |||||
24 | |||||
25 | |||||
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.
1
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 | $ | | $ | | ||
Accounts receivable |
| |
| | ||
Unbilled receivables |
| |
| | ||
Contract assets | | — | ||||
Non-cash royalty receivable | | | ||||
Prepaid and other current assets |
| |
| | ||
Total current assets |
| |
| | ||
Property and equipment, net of accumulated depreciation |
| |
| | ||
Operating lease right-of-use assets | | | ||||
Other assets |
| |
| | ||
Total assets | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Accounts payable | $ | | $ | | ||
Accrued compensation |
| |
| | ||
Other accrued liabilities |
| |
| | ||
Convertible | — | | ||||
Current portion of liability related to the sale of future royalties, net of deferred financing costs of $ | | | ||||
Current portion of operating lease liability | | | ||||
Current portion of deferred revenue |
| |
| | ||
Total current liabilities |
| |
| | ||
Deferred revenue, net of current portion |
| |
| | ||
Operating lease liability, net of current portion | | | ||||
Liability related to the sale of future royalties, net of current portion and deferred financing costs of $ | | | ||||
Other long-term liabilities |
| |
| | ||
Total liabilities |
| |
| | ||
Commitments and contingencies (Note I) | ||||||
Shareholders’ equity: | ||||||
Preferred stock, $ |
|
| ||||
Common stock, $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Total shareholders’ equity |
| |
| | ||
Total liabilities and shareholders’ equity | $ | | $ | |
The accompanying notes are an integral part of the consolidated financial statements.
2
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 | $ | | $ | | $ | | $ | | |||||
License and milestone fees |
| |
| |
| |
| | |||||
Research and development support |
| — |
| |
| |
| | |||||
Total revenues |
| |
| |
| |
| | |||||
Operating expenses: | |||||||||||||
Research and development |
| |
| |
| |
| | |||||
General and administrative |
| |
| |
| |
| | |||||
Restructuring charges | — | — | — | | |||||||||
Total operating expenses |
| |
| |
| |
| | |||||
Loss from operations |
| ( |
| ( |
| ( |
| ( | |||||
Investment income, net |
| |
| |
| |
| | |||||
Non-cash interest expense on liability related to the sale of future royalties and convertible senior notes | ( | ( | ( | ( | |||||||||
Interest expense on convertible senior notes | — | ( | ( | ( | |||||||||
Other (expense) income, net |
| ( |
| |
| ( |
| ( | |||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Basic and diluted net loss per common share | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Basic and diluted weighted-average common shares outstanding |
| |
| |
| |
| | |||||
Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of the consolidated financial statements.
3
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 |
| | $ | | $ | | $ | ( | $ | ( | ||||
Net loss |
| — | — | — | ( | ( | ||||||||
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| | | | — | | ||||||||
Issuance of common stock, net of issuance costs | | | | — | | |||||||||
Restricted stock units vested | | — | — | — | — | |||||||||
Restricted stock award forfeitures | ( | ( | | — | — | |||||||||
Stock option and restricted stock compensation expense |
| — | — | | — | | ||||||||
Balance at March 31, 2020 |
| | $ | | $ | | $ | ( | $ | ( | ||||
Net loss |
| — | — | — | ( | ( | ||||||||
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| | | | — | | ||||||||
Adjustment of issuance costs | — | — | ( | — | ( | |||||||||
Restricted stock units vested | | | ( | — | — | |||||||||
Stock option and restricted stock compensation expense |
| — | — | | — | | ||||||||
Directors’ deferred share unit compensation |
| — | — | | — | | ||||||||
Balance at June 30, 2020 |
| | $ | | $ | | $ | ( | $ | ( | ||||
Net loss |
| — | — | — | ( | ( | ||||||||
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| | | | — | | ||||||||
Stock option and restricted stock compensation expense |
| — | — | | — | | ||||||||
Directors’ deferred share unit compensation |
| — | — | | — | | ||||||||
Balance at September 30, 2020 |
| | $ | | $ | | $ | ( | $ | ( | ||||
Net loss | — | — | — | | | |||||||||
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan | | | | — | | |||||||||
Issuance of common stock, net of issuance costs | | | | — | | |||||||||
Restricted stock units vested | | | ( | — | — | |||||||||
Stock option and restricted stock compensation expense | — | — | | — | | |||||||||
Directors’ deferred share unit compensation | — | — | | — | | |||||||||
Balance at December 31, 2020 |
| | $ | | $ | | $ | ( | $ | | ||||
Net loss | — | — | — | ( | ( | |||||||||
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan | | | | — | | |||||||||
Issuance of common stock, net of issuance costs | | | | — | | |||||||||
Restricted stock units vested | | — | — | — | — | |||||||||
Stock option and restricted stock compensation expense | — | — | | — | | |||||||||
Directors’ deferred share unit compensation | — | — | | — | | |||||||||
Balance at March 31, 2021 | | $ | | $ | | $ | ( | $ | | |||||
Net loss | — | — | — | ( | ( | |||||||||
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan | | | | — | | |||||||||
Conversion of convertible senior notes | | | | — | | |||||||||
Common stock issuance costs | — | — | ( | ( | ||||||||||
Stock option and restricted stock compensation expense | — | — | | — | | |||||||||
Directors’ deferred share unit compensation | — | — | | — | | |||||||||
Balance at June 30, 2021 | | $ | | $ | | $ | ( | $ | | |||||
Net loss | ( | ( | ||||||||||||
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan | | | | — | | |||||||||
Issuance of common stock, net of issuance costs | | | | — | | |||||||||
Issuance of pre-funded warrant, net of issuance costs | — | — | | — | | |||||||||
Restricted stock award forfeitures | ( | ( | | — | — | |||||||||
Stock option and restricted stock compensation expense | — | — | | — | | |||||||||
Directors’ deferred share unit compensation | — | — | | — | | |||||||||
Balance at September 30, 2021 | | $ | | $ | | $ | ( | $ | |
The accompanying notes are an integral part of the consolidated financial statements.
4
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
In thousands
Nine Months Ended | |||||||
September 30, | |||||||
| 2021 |
| 2020 |
| |||
Cash flows from operating activities: | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used for operating activities: | |||||||
Non-cash royalty revenue related to sale of future royalties | ( | ( | |||||
Non-cash interest expense on liability related to sale of future royalties and convertible senior notes | | | |||||
Depreciation and amortization |
| |
| | |||
Gain on sale/disposal of fixed assets and impairment charges |
| — |
| ( | |||
Stock and deferred share unit compensation |
| |
| | |||
Change in operating assets and liabilities: | |||||||
Accounts receivable |
| ( |
| | |||
Unbilled receivable |
| ( |
| | |||
Contract asset | ( |
| | ||||
Prepaid and other current assets |
| ( |
| ( | |||
Operating lease right-of-use assets | | | |||||
Other assets |
| |
| ( | |||
Accounts payable |
| |
| ( | |||
Accrued compensation |
| |
| ( | |||
Other accrued liabilities |
| |
| | |||
Deferred revenue |
| ( |
| | |||
Operating lease liability | ( | ( | |||||
Net cash used for operating activities |
| ( |
| ( | |||
Cash flows from investing activities: | |||||||
Purchases of property and equipment |
| ( | ( | ||||
Proceeds from sale of equipment | — | | |||||
Net cash (used for) provided by investing activities |
| ( |
| | |||
Cash flows from financing activities: | |||||||
Payments upon settlement of convertible senior notes | ( | — | |||||
Proceeds from issuance of common stock under stock plans |
| |
| | |||
Proceeds from warrant issuance, net of $ | | — | |||||
Proceeds from common stock issuance, net of $ | | | |||||
Net cash provided by financing activities |
| |
| | |||
Net change in cash and cash equivalents |
| ( |
| | |||
Cash and cash equivalents, beginning of period |
| | | ||||
Cash and cash equivalents, end of period | $ | | $ | |
The accompanying notes are an integral part of the consolidated financial statements.
5
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 $
As of September 30, 2021, the Company had $
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
6
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 $
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 | $ | — | $ | | $ | — | $ | — | $ | | |||||
Contract liabilities (deferred revenue) | $ | | $ | | $ | ( | $ | — | $ | |
Balance at | Balance at | ||||||||||||||
Nine months ended September 30, 2020 | December 31, 2019 | Additions | Deductions | Impact of Netting | September 30, 2020 | ||||||||||
Contract asset | $ | | $ | | $ | ( | $ | | $ | — | |||||
Contract liabilities (deferred revenue) | $ | | $ | | $ | ( | $ | | $ | |
7
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 | $ | | $ | | $ | | $ | |
During the nine months ended September 30, 2021, the Company recorded a contract asset of $
During the nine months ended September 30, 2020, the Company recorded $
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
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 $
Non-cash Investing and Financing Activities
During the nine months ended September 30, 2021, $
8
The Company had $
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
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.
9
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 | ||||||||
Common stock equivalents under treasury stock method for options, shares issuable under the employee stock purchase plan, and unvested restricted stock/units |
| |||||||
Common stock equivalents under if-converted method for convertible notes | - | - |
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
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
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2021 | 2020 | 2021 | 2020 | ||||
Dividend | ||||||||
Volatility | ||||||||
Risk-free interest rate | ||||||||
Expected life (years) |
10
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 $
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 | $ | |||||
Granted | ||||||
Exercised | ( | |||||
Forfeited/Canceled | ( | | ||||
Outstanding at September 30, 2021 |
In 2020, the Company issued
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 | $ | ||||
Vested |
| ( | |||
Forfeited | ( | ||||
Unvested at September 30, 2021 | $ |
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
Stock compensation expense related to stock options and restricted stock awards granted under the stock plans and the ESPP was $
Segment Information
During all periods presented, the Company continued to operate in
11
During the three and nine months ended September 30, 2021,
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, $
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 $
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
In 2016, the Company issued convertible notes with an aggregate principal amount of $
12
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
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 $
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 | $ | | ||
Proceeds from sale of future royalties, net |
| — | ||
Kadcyla royalty payments received and paid |
| ( | ||
Non-cash interest expense recognized | | |||
Liability related to sale of future royalties, net — ending balance | $ | |
The Company receives royalty reports and royalty payments related to sales of Kadcyla from Roche
13
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
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
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
14
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
G.Restructuring Charges
During the nine months ended September 30, 2020, the Company recorded a $(
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 | $ | | |
Payments during the period | ( | ||
Balance at September 30, 2021 | $ | |
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
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
15