SEC Filing | ImmunoGen, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ 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) (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: 248,943,426 shares outstanding as of July 25, 2023.

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IMMUNOGEN, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2023

TABLE OF CONTENTS

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

1a.	Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	2

1b.	Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022	3

1c.	Consolidated Statements of Shareholders’ Equity for the three months ended June 30, 2023 and March 31, 2023 and the three months ended March 31, June 30, September 30, and December 31, 2022	4

1d.	Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022	5

1e.	Notes to Consolidated Financial Statements	6

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

3.	Quantitative and Qualitative Disclosures about Market Risk	27

4.	Controls and Procedures	27

	Part II
	Other Information
1A.	Risk Factors	28

5.	Other Information	28

6.	Exhibits	30

	Signatures	31

Forward-looking statements

This Form 10-Q includes forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, these forward-looking statements relate to analyses and other information that are based on beliefs, expectations, assumptions, and forecasts of future results and estimates of amounts that are not yet determinable. These statements also relate to our prospects, future clinical, regulatory, and other developments and data releases, commercialization efforts, product candidates, 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.

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and investors should not place undue reliance on our forward-looking statements. Additionally, 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, 2022 filed with the Securities and Exchange Commission (SEC) on March 1, 2023, as supplemented by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, and as updated and/or supplemented in subsequent filings with the SEC. The forward-looking statements contained herein represent our views as of the date of this Form 10-Q. 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.

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ITEM 1. Financial Statements

IMMUNOGEN, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

In thousands, except per share amounts


	June 30,		December 31,
	2023		2022
ASSETS
Cash and cash equivalents	$	571,987	$	275,138
Accounts receivable		75,360		12,596
Unbilled receivable		1,717		1,531
Non-cash royalty receivable		2,887		3,851
Inventory		3,233		—
Prepaid and other current assets		14,089		11,005
Total current assets		669,273		304,121
Property and equipment, net of accumulated depreciation		3,776		4,377
Operating lease right-of-use assets		8,997		10,231
Inventory, net of current portion		17,981		16,196
Other assets		14,300		14,011
Total assets	$	714,327	$	348,936
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	18,441	$	45,353
Accrued compensation		10,734		11,111
Other accrued liabilities		36,292		38,783
Current portion of liability related to the sale of future royalties, net of deferred financing costs of $143 and $162, respectively		9,512		8,659
Current portion of operating lease liability		4,334		4,096
Current portion of deferred revenue		14,389		13,856
Total current liabilities		93,702		121,858
Senior secured term loan, net		71,957		—
Deferred revenue, net of current portion		30,217		36,355
Operating lease liability, net of current portion		8,920		11,148
Liability related to the sale of future royalties, net of current portion and deferred financing costs of $136 and $205, respectively		18,389		23,449
Other long-term liabilities		300		300
Total liabilities		223,485		193,110
Commitments and contingencies (Note K)
Shareholders’ equity:
Preferred stock, $.01 par value; authorized 5,000 shares; 22 and 0 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		—		—
Common stock, $.01 par value; authorized 600,000 shares; 248,712 and 226,046 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		2,374		2,260
Additional paid-in capital		2,227,802		1,847,638
Accumulated deficit		(1,739,334)		(1,694,072)
Total shareholders’ equity		490,842		155,826
Total liabilities and shareholders’ equity	$	714,327	$	348,936

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

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

In thousands, except per share amounts



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenues:
Product revenue, net	$	77,371	$	—	$	106,915	$	—
License and milestone fees		40		6,973		15,071		37,865
Non-cash royalty revenue related to the sale of future royalties		5,742		7,116		10,581		13,544
Research and development support		—		73		455		831
Total revenues		83,153		14,162		133,022		52,240
Cost and operating expenses:
Cost of sales		909		—		1,535		—
Research and development		50,077		51,422		101,697		95,704
Selling, general and administrative		36,356		23,793		76,372		40,441
Total cost and operating expenses		87,342		75,215		179,604		136,145
Loss from operations		(4,189)		(61,053)		(46,582)		(83,905)
Interest income		5,223		590		7,392		644
Interest expense on term loan		(3,318)		—		(3,318)		—
Non-cash interest expense on liability related to the sale of future royalties and term loan		(1,079)		(1,078)		(1,932)		(2,327)
Other (expense) income, net		(8)		(480)		55		(578)
Net loss before income taxes		(3,371)		(62,021)		(44,385)		(86,166)
Income tax expense		877		—		877		—
Net loss		(4,248)		(62,021)		(45,262)		(86,166)
Basic and diluted net loss per common share	$	(0.02)	$	(0.24)	$	(0.17)	$	(0.34)
Basic and diluted weighted-average common shares outstanding		263,446		253,336		261,160		253,263

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

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

In thousands


	Series A Convertible						Additional				Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Shareholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Equity
Balance at December 31, 2021	—	$	—	220,361	$	2,204	$	1,794,525	$	(1,471,143)	$	325,586
Net loss	—		—	—		—		—		(24,145)		(24,145)
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan	—		—	173		1		619		—		620
Issuance of common stock, net of issuance costs	—		—	—		—		—		—		—
Restricted stock units vested	—		—	2		—		—		—		—
Stock option and restricted stock compensation expense	—		—	—		—		4,196		—		4,196
Directors’ deferred share unit compensation	—		—	—		—		211		—		211
Balance at March 31, 2022	—	$	—	220,536	$	2,205	$	1,799,551	$	(1,495,288)	$	306,468
Net loss	—		—	—		—		—		(62,021)		(62,021)
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan	—		—	108		1		410		—		411
Stock option and restricted stock compensation expense	—		—	—		—		4,760		—		4,760
Directors’ deferred share unit compensation	—		—	—		—		213		—		213
Balance at June 30, 2022	—	$	—	220,644	$	2,206	$	1,804,934	$	(1,557,309)	$	249,831
Net loss	—		—	—		—		—		(77,755)		(77,755)
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan	—		—	107		2		447		—		449
Stock option and restricted stock compensation expense	—		—	—		—		5,336		—		5,336
Directors’ deferred share unit compensation	—		—	—		—		146		—		146
Balance at September 30, 2022	—	$	—	220,751	$	2,208	$	1,810,863	$	(1,635,064)	$	178,007
Net loss	—		—	—		—		—		(59,008)		(59,008)
Issuance of common stock, net of issuance costs	—		—	5,167		51		25,596		—		25,647
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan	—		—	103		1		423		—		424
Stock option and restricted stock compensation expense	—		—	—		—		10,610		—		10,610
Restricted stock units vested	—		—	25		—		—		—		—
Directors’ deferred share unit compensation	—		—	—		—		146		—		146
Balance at December 31, 2022	—	$	—	226,046	$	2,260	$	1,847,638	$	(1,694,072)	$	155,826
Net loss	—		—	—		—		—		(41,014)		(41,014)
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan	—		—	16		1		38		—		39
Stock option and restricted stock compensation expense	—		—	—		—		6,916		—		6,916
Directors’ deferred share unit and common stock compensation	—		—	8				151		—		151
Balance at March 31, 2023	—	$	—	226,070	$	2,261	$	1,854,743	$	(1,735,086)	$	121,918
Net loss	—		—	—		—		—		(4,248)		(4,248)
Issuance of common stock, net of issuance costs	—		—	29,900		299		350,534		—		350,833
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan	—		—	3,234		32		14,874		—		14,906
Issuance of common stock pursuant to pre-funded warrant exchange	—		—	11,357		—		—		—		—
Issuance of Series A Preferred Stock in exchange for common stock	22		—	(21,853)		(218)		218		—		—
Stock option and restricted stock compensation expense	—		—	—		—		7,281		—		7,281
Directors’ deferred share unit and common stock compensation	—		—	4		—		152		—		152
Balance at June 30, 2023	22	$	—	248,712	$	2,374	$	2,227,802	$	(1,739,334)	$	490,842

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

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

In thousands




	Six Months Ended
	June 30,
	2023		2022

Cash flows from operating activities:
Net loss	$	(45,262)	$	(86,166)
Adjustments to reconcile net loss to net cash used for operating activities:
Non-cash royalty revenue related to sale of future royalties		(5,036)		(5,590)
Non-cash interest expense on liability related to sale of future royalties		1,793		2,327
Non-cash interest expense on amortization of debt discount and issuance costs		139		—
Depreciation and amortization		875		931
Stock and deferred share unit compensation		14,500		9,380
Change in operating assets and liabilities:
Accounts receivable		(62,764)		3,558
Unbilled receivable		(186)		471
Inventory		(5,018)		—
Contract asset		—		3,000
Prepaid and other current assets		(3,084)		(6,777)
Operating lease right-of-use assets		1,234		1,031
Other assets		(289)		(3,965)
Accounts payable		(26,899)		(1,249)
Accrued compensation		(377)		(509)
Other accrued liabilities		(2,491)		12,643
Deferred revenue		(5,605)		(32,821)
Operating lease liability		(1,990)		(1,657)
Net cash used for operating activities		(140,460)		(105,393)
Cash flows from investing activities:
Purchases of property and equipment		(287)		(514)
Net cash used for investing activities		(287)		(514)
Cash flows from financing activities:
Proceeds from issuance of common stock under stock plans		14,945		1,031
Proceeds from term loan, net of $3,182 of issuance costs		71,818		—
Proceeds from common stock issuance, net of $493 of transaction costs		350,833		—
Net cash provided by financing activities		437,596		1,031
Net change in cash and cash equivalents		296,849		(104,876)
Cash and cash equivalents, beginning of period		275,138		478,750
Cash and cash equivalents, end of period	$	571,987	$	373,874
Supplemental cash flow information:
Cash paid during the year for interest	$	2,318	$	—
Cash paid during the year for taxes	$	77	$	—

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

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IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

A.	Nature of Business and Plan of Operations

ImmunoGen, Inc. (the Company) was incorporated in Massachusetts in 1981 and is focused on the development and commercialization of antibody-drug conjugates (ADCs). On November 14, 2022, the U.S. Food and Drug Administration (FDA) granted accelerated approval for ELAHERE^® (mirvetuximab soravtansine-gynx) for the treatment of adult patients with folate receptor alpha (FRα)-positive, platinum-resistant epithelial ovarian, fallopian tube, or primary peritoneal cancer, who have received one to three prior systemic treatment regimens. ELAHERE was approved under the FDA's accelerated approval program based on objective response rate (ORR), duration of response (DOR), and safety data from the pivotal SORAYA trial. Continued approval may be contingent upon verification and description of clinical benefit in a confirmatory trial.

The Company has generally incurred operating losses and negative cash flows from operations since inception, incurred a net loss of $45.3 million during the six months ended June 30, 2023, and had an accumulated deficit of approximately $1.7 billion as of June 30, 2023. To date, the Company has funded these losses through payments received from its collaborations, equity, convertible debt, and other financings, such as royalty financing transactions and a term loan facility, and, more recently, through commercial sales of ELAHERE. Management expects to continue to generate substantial operating losses for at least the near term as the Company incurs significant operating expenses related to research and development and selling and marketing of ELAHERE.

At June 30, 2023, the Company had $572.0 million of cash and cash equivalents on hand. The Company currently believes that its existing capital resources will be sufficient to fund its operating expenses and capital expenditures for more than twelve months after the date these financial statements were issued. The Company expects to generate additional funds through a combination of commercial sales of ELAHERE and revenues from collaborations, including upfront license payments, milestone payments, royalty payments, and research funding, to support its planned operating activities; however, such activities may not succeed. If such activities are not successful, the Company may be required to seek additional funding through equity or other financings. The failure of the Company to generate sufficient funds from commercial sales of ELAHERE and collaborations or obtain additional funding through equity or other financings on acceptable terms 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, clinical, and/or commercial 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, challenges entering into new collaborations, 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, 2022 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

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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, 2022 filed with the SEC on March 1, 2023.

Significant Accounting Policies

There were no changes to significant accounting policies used in preparation of these condensed consolidated financial statements for the three and six months ended June 30, 2023 from those discussed in Note B to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Revenue Recognition

Transaction Price Allocated to Future Performance Obligations

Deferred revenue under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), Revenue from Contracts with Customers (ASC 606), represents the portion of the transaction price received under various contracts attributed to performance obligations that have not been satisfied (or have been partially satisfied) and includes the portion of the transaction price for certain arrangements attributed to unexercised contract options that are considered material rights. As of June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations comprising deferred revenue was $44.6 million. The Company expects to recognize revenue on approximately 32%, 66%, and 2% of the remaining performance obligations over the next 12 months, 13 to 60 months, and 61 to 120 months, respectively; however, the timing of recognition may vary due to such factors as the amount and timing of future sales of KADCYLA^®, the timing of exercise of contract options considered to be material rights, or termination of existing development and commercialization licenses.

Contract Balances from Contracts with Customers

The following tables present changes in the Company’s contract assets and contract liabilities during the six months ended June 30, 2023 and 2022 (in thousands):


	Balance at								Balance at
	December 31, 2022		Additions		Deductions		Impact of Netting		June 30, 2023
Contract liabilities (deferred revenue)	$	50,211	$	—	$	(5,605)	$	—	$	44,606



	Balance at								Balance at
	December 31, 2021		Additions		Deductions		Impact of Netting		June 30, 2022
Contract asset	$	3,000	$	—	$	(3,000)	$	—	$	—
Contract liabilities (deferred revenue)	$	92,068	$	3,803	$	(36,624)	$	—	$	59,247

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$	2,893	$	10,864	$	5,605	$	36,624

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.

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During the six months ended June 30, 2023, the Company received an upfront payment of $15.0 million pursuant to a multi-target license and option agreement executed with Vertex Pharmaceuticals Incorporated (Vertex) which was recorded as license and milestone fee revenue in the current period, further details of which can be found in Note C, “Collaboration and License Agreements.” The Company also recognized $5.5 million of previously deferred non-cash royalty revenue related to the sale of rights to KADCYLA royalties, further details of which can be found in Note F, “Liability Related to Sale of Future Royalties,” and recognized $0.1 million of license and milestone fee revenue related to numerous collaborators’ rights to technological improvements that had been previously deferred.

During the six months ended June 30, 2022, pursuant to the Company’s license agreement with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. (Huadong), upon delivery of clinical materials in the six months ended June 30, 2022, the Company recognized as license and milestone fee revenue the remaining $28.5 million of the deferred revenue balance as of December 31, 2021 related to the $45.0 million of upfront and development milestone payments previously received. Additionally, pursuant to a license agreement executed with Eli Lilly and Company (Lilly), during the six months ended June 30, 2022, the Company received an upfront payment of $13.0 million, of which $9.2 million was recognized as license and milestone fee revenue and the remainder deferred. The Company also recognized $8.0 million of previously deferred non-cash royalty revenue related to the sale of rights to KADCYLA royalties and recognized $0.2 million of license and milestone fee revenue related to numerous collaborators’ rights to technological improvements that had been previously deferred.

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, the Company does not believe it is exposed to significant risk. The Company’s cash equivalents consist of money market funds with underlying investments primarily being U.S. Government-issued securities and high quality, short-term commercial paper. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, and marketable securities. The Company held no marketable securities as of June 30, 2023 and December 31, 2022. 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 June 30, 2023 and December 31, 2022, the Company held $572.0 million and $275.1 million, respectively, in cash and money market funds, which were classified as cash and cash equivalents.

Non-cash Investing and Financing Activities

The Company had $0.3 million of accrued capital expenditures as of both June 30, 2023 and December 31, 2022, 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.

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As of June 30, 2023 and December 31, 2022, 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, non-cash royalty receivable, prepaid and other current assets, accounts payable, accrued compensation, and other accrued liabilities approximate fair value due to their short-term nature.

As of June 30, 2023, the estimated fair value and gross carrying amount of the term loan was $80.9 million and $75.0 million, respectively. The Company’s disclosed fair value of the term loan falls into the Level 2 category within the fair value level hierarchy and the fair value was determined using quoted prices for similar liabilities in active markets, as well as inputs that are observable for the liability (other than quoted prices), such as interest rates that are observable at commonly quoted intervals.

Accounts Receivable

Accounts receivable arise from product sales and amounts due from the Company’s collaboration partners. The amount from product sales represents amounts due from specialty distributors and specialty pharmacy providers in the U.S. The Company monitors economic conditions and the financial performance and credit worthiness of its counterparties to identify facts or circumstances that may indicate that its receivables are at risk of collection. The Company provides reserves against accounts receivable for estimated losses that may result from a customer’s inability to pay based on the composition of its accounts receivable, considering past events, current economic conditions, and reasonable and supportable forecasts about the future economic conditions. The contractual life of accounts receivable is generally short-term. Amounts determined to be uncollectible are charged or written off against the reserve. For the three and six months ended June 30, 2023 and 2022, the Company did not record any expected credit losses related to outstanding accounts receivable.

Inventory

Inventories are stated at the lower of cost or estimated net realizable value with cost based on the first-in first-out method. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in clinical trials. The Company classifies its inventory costs as long-term when it expects to utilize the inventory beyond its normal operating cycle based on forecasted levels of sales.

Prior to the regulatory approval of its drug candidates, the Company incurs expenses for the manufacture of drug product to support clinical development that could potentially be available to support the commercial launch of those drugs. Until the date at which regulatory approval has been received or is otherwise considered probable, the Company records all such costs as research and development expenses.

The Company performs an assessment of the recoverability of capitalized inventories during each reporting period and writes down any excess and obsolete inventory to its net realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, are recorded as a component of cost of sales in the consolidated statements of operations and comprehensive loss. The determination of whether inventory costs will be realizable requires the use of estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required. There were no expenses recorded for excess inventory or other impairments during the three and six months ended June 30, 2023. There was no inventory held by the Company during the three and six months ended June 30, 2022.

Debt issuance costs and debt discount

Debt issuance costs and debt discounts are presented on the accompanying consolidated balance sheets as a direct reduction from the carrying value of the debt and are amortized to interest expense over the term of the related debt using the effective interest method. See Note G, “Senior Secured Term Loan” for further discussion related to long-term debt.

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, par value $.01 per share, underlying pre-funded warrants are included in the calculation of basic and diluted earnings per share. Shares of the Company’s Series A Convertible Preferred Stock and shares underlying pre-funded warrants 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 income, participating

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securities are allocated a proportional share of income determined by dividing total weighted-average participating securities by the sum of the total weighted average common shares and participating securities (the two-class method). 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 and restricted stock units that are outstanding during the period, except where such non-participating securities would be antidilutive. Diluted net loss per common share is calculated by increasing the denominator by the weighted-average number of additional shares that could have been outstanding from securities convertible into common stock, such as stock options and restricted stock units (using the “treasury stock” method), and Series A Convertible Preferred Stock (using the “if-converted” method), unless their effect on net loss per share is antidilutive. The effect of computing diluted net loss per common share was antidilutive for any potentially issuable shares of common stock from the conversion of stock options, restricted stock units, and Series A Convertible Preferred Stock and, as such, have been excluded from the calculation.

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


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2023	2022	2023	2022
Options outstanding to purchase common stock, shares issuable under the employee stock purchase plan, and unvested restricted stock units at end of period	35,890	29,528	35,890	29,528
Common stock equivalents under treasury stock method for options, shares issuable under the employee stock purchase plan, and unvested restricted stock units	12,603	958	6,215	1,306
Common stock equivalents under if-converted method for Series A Convertible Preferred Stock	21,853	—	21,853	—

Stock-Based Compensation

As of June 30, 2023, 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 15, 2022, 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 13,000,000 shares of the Company’s common stock, as well as up to 28,742,013 shares of common stock, which represent the number of shares of common stock remaining under the 2018 Plan as of April 1, 2022, 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 April 1, 2022. 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 13,500,000 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.

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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 June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Dividend	None	None	None	None
Volatility	82.3%	83.4%	82.3%	83.1%
Risk-free interest rate	3.55%	3.00%	3.64%	2.18%
Expected life (years)	5.6	6.0	5.6	6.0

Using the Black-Scholes option-pricing model, the weighted-average grant date fair values of options granted during the three months ended June 30, 2023 and 2022 were $4.69 and $3.12 per share, respectively, and $3.38 and $3.57 for options granted during the six months ended June 30, 2023 and 2022, respectively.

A summary of option activity under the Company’s equity plans for the six months ended June 30, 2023 is presented below (in thousands, except weighted-average data):


		Weighted-
	Number	Average
	of Stock	Exercise
	Options	Price
Outstanding at December 31, 2022	33,126	$	5.76
Granted	5,221		4.80
Exercised	(2,987)		4.65
Forfeited/Canceled	(1,574)		5.40
Outstanding at June 30, 2023	33,786	$	5.72

In 2020, the Company issued 2.6 million performance-based stock options to certain employees with vesting conditioned upon the achievement of specified performance goals. In 2022, 75% of the 2.6 million performance-based stock options vested upon achievement of specified performance goals and 12.5% were forfeited. There was no stock-based compensation recorded during the three or six months ended June 30, 2023 related to these stock options. The fair value of the remaining unvested performance-based stock options that could be expensed in future periods is $1.3 million.

A summary of restricted stock unit activity under the Company’s equity plans for the six months ended June 30, 2023 is presented below (in thousands, except weighted-average data):


	Number of	Weighted-
	Restricted	Average Grant
	Stock Shares	Date Fair Value
Unvested at December 31, 2022	138	$	5.45
Granted	2,083		4.88
Forfeited	(117)		4.66
Unvested at June 30, 2023	2,104	$	4.93

In June 2018, the Company's Board of Directors, with shareholder approval, adopted the Employee Stock Purchase Plan (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. ESPP

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purchase periods are six months and begin on January 1 and July 1 of each year, with purchase dates occurring on the final business day of the given purchase period. 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 unit awards granted under the stock plans and the ESPP was $7.3 million and $14.2 million during the three and six months ended June 30, 2023, respectively, compared to $4.8 million and $9.0 million for the three and six months ended June 30, 2022, respectively. The increase in stock compensation expense is primarily due to significant growth in personnel in the second half of 2022. As of June 30, 2023, the estimated fair value of unvested employee awards was $65.8 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 development and commercialization of ADCs for the treatment of cancer.

During the three months ended June 30, 2023, 93% of revenues were generated from net U.S. sales of ELAHERE to four specialty distributors and specialty pharmacy providers, and 7% of revenues were generated from an agreement with Roche, compared to agreements with Roche and Huadong each representing 50% of revenues during the three months ended June 30, 2022. During the six months ended June 30, 2023, 80% of revenues were generated from net U.S. sales of ELAHERE to four specialty distributors and specialty pharmacy providers, and 11% and 8% of revenues were generated from agreements with Vertex and Roche, respectively, compared to 56%, 26% and 17% from agreements with Huadong, Roche, and Lilly, respectively, during the six months ended June 30, 2022. There were no other customers of the Company that generated significant revenues in the three and six months ended June 30, 2023 and 2022.

Recently Adopted Accounting Pronouncements

There were no recently issued or effective FASB Accounting Standards Updates (ASUs) that had, or are expected to have, a material effect on the Company's results of operations, financial condition, or liquidity.

C.Collaboration and License Agreements

The Company has numerous collaboration and license agreements with third parties. These agreements typically provide the licensee with rights to use the Company’s ADC platform technology with the licensee’s antibodies or related targeting vehicles to a defined target to develop products. The licensee is generally responsible for the development, clinical testing, manufacturing, registration, and commercialization of any resulting product candidate. As part of these agreements, the Company is generally entitled to receive upfront fees, potential milestone payments, royalties on the sales of any resulting products, and research and development funding based on activities performed at our collaborative partner’s request. See below for details regarding the Company’s collaboration and license agreements with activity in the financial statement periods presented.

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Vertex

In February 2023, the Company entered into a multi-target license and option agreement with Vertex, pursuant to which the Company granted Vertex rights to the Company’s ADC technology to research and evaluate ADCs directed to specified targets, with an option to obtain worldwide exclusive development and commercialization licenses to a specified number of targets (each, an Option and, collectively, the Options) before the end of the research term. Under the terms of the agreement, the Company received a non-refundable upfront payment of $15.0 million, reflecting the initial research targets selected by Vertex. During the research term, Vertex also has the right to select additional research targets in exchange for an additional license fee per target. In addition, upon exercise of each Option by Vertex, the Company will be eligible to receive up to approximately $337.0 million per target in potential option exercise fees and milestone payments based on the achievement of pre-specified development, regulatory, and sales-based milestones. With respect to each target that Vertex exercises an Option, the Company will also be eligible to receive tiered royalties, on a product-by-product basis, as a percentage of worldwide annual net sales by Vertex, its affiliates and sublicensees, based on certain net sales thresholds. Vertex is responsible for all costs related to the research and development of the compounds during the research term and commercialization of any ensuing products.

The Company evaluated the agreement and determined it was within the scope of ASC 606. The Company determined the promised goods and services included a license to use the Company’s intellectual property and know-how to research, manufacture, and evaluate products related to each of the initial research targets selected by Vertex during the research term. The Company determined that the agreement has a single performance obligation for these promised goods and services.

The Options to obtain exclusive development and commercialization licenses and the right to select additional research targets during the research term do not represent a material right as the fees associated with each option are at or above the standalone selling price. Accordingly, upon exercise, these Options will be accounted for as a separate arrangement.

The transaction price related to the single performance obligation was determined to consist of the upfront payment of $15.0 million. The transfer of intellectual property and know-how to Vertex to allow Vertex to derive benefit from the license over the research term was completed during the three months ended March 31, 2023. As such, the Company’s performance obligation was satisfied, and the Company recognized $15.0 million of license and milestone fee revenue during the six months ended June 30, 2023.

Lilly

In February 2022, the Company entered into a license agreement with Lilly, pursuant to which the Company granted Lilly worldwide exclusive rights to research, develop, and commercialize antibody-drug conjugates based on the Company’s novel camptothecin technology. Under the terms of the license agreement, the Company received a non-refundable upfront payment of $13.0 million, reflecting initial targets selected by Lilly. During 2022, pursuant to the terms of the agreement, Lilly selected additional targets for which the Company received an additional $13.0 million in non-refundable payments. Lilly may select a pre-specified number of additional targets, with the Company eligible to receive an additional $19.5 million in exercise fees if Lilly licenses the full number of remaining additional targets over a specified period following the effective date of the license agreement, with the potential for up to $1.7 billion in development and sales-based milestone payments if all targets are selected and all milestones are realized. In addition, the Company is entitled to receive tiered royalties, on a product-by-product basis, as a percentage of worldwide annual net sales by Lilly, based on certain net sales thresholds. Lilly is responsible for all costs associated with the research, development, and commercialization of any ensuing products.

The transfer of intellectual property and know-how to Lilly to allow for Lilly to derive benefit from the initial and additional target licenses was completed during the three months ended March 31, 2022. As such, during 2022 the Company recognized $18.4 million of license and milestone fee revenue related to the portion of the transaction price allocated to the initial and additional target licenses, of which $9.2 million was recorded during the six months ended June 30, 2022. The $7.6 million allocated to the material rights to obtain licenses to replacement targets is included in long-term deferred revenue as of June 30, 2023 and will be recognized when the right is either exercised or expires.

Huadong

In October 2020, the Company entered into a collaboration and license agreement with Huadong. The collaboration and license agreement grants Huadong an exclusive, royalty-bearing, and sublicensable right to develop and

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commercialize ELAHERE (the Licensed Product) in the People’s Republic of China, Hong Kong, Macau, and Taiwan (collectively, Greater China). The Company retains exclusive rights to the Licensed Product outside of Greater China. Under the terms of the collaboration and license agreement, the Company received a non-refundable upfront payment of $40.0 million with the potential for approximately $265.0 million in development, regulatory, and sales-based milestone payments. In addition, the Company is entitled to receive tiered royalties ranging from low double digits to high teens as a percentage of commercial sales of the licensed product, if approved, by Huadong in Greater China, subject to adjustment in specified circumstances. To date, the Company has received $15.0 million in milestone payments.

The Company determined that revenue related to the agreement would be recognized as the clinical supply of the Licensed Product is delivered to Huadong, estimated to be completed over approximately two years. Accordingly, based on clinical supply delivered to Huadong during the six months ended June 30, 2022, the Company recorded the remaining $28.5 million of deferred revenue as of December 31, 2021 related to $45.0 million of upfront and development milestone payments previously received.

Roche

In 2000, the Company granted Genentech, now a unit of Roche, an exclusive development and commercialization 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, $10.6 million and $13.5 million of non-cash royalties on net sales of KADCYLA were recognized and included in non-cash royalty revenue for the six months ended June 30, 2023 and 2022, respectively. The Company sold its rights to receive royalty payments on the net sales of KADCYLA through two separate transactions in 2015 and 2019. Following the 2019 transaction, OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada, is entitled to receive all of these royalties.

For additional information related to these agreements, as well as the Company’s other collaboration and license agreements, please read Note C, “Collaboration and License Agreements,” to the audited financial statements included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023.

D.Product Revenue Reserves and Allowances

In November 2022, the FDA granted accelerated approval for ELAHERE for the treatment of adult patients with FRα positive, platinum-resistant epithelial ovarian, fallopian tube, or primary peritoneal cancer, who have received one to three prior systemic treatment regimens. The Company recorded net product revenue of $77.4 million and $106.9 million from U.S. sales of ELAHERE during the three and six months ended June 30, 2023, respectively.

The following table summarizes activity in each of the product revenue reserve and allowance categories as of June 30, 2023 and 2022, respectively. (in thousands):



	June 30,		June 30,
	2023		2022
Beginning balance at January 1	$	313	$	—
Provision related to sales in the current period		16,758		—
Credits and payments made		(11,500)		—
Ending balance at June 30	$	5,571	$	—

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E.Inventory

Capitalized inventory consists of the following at June 30, 2023 and December 31, 2022 (in thousands):


	June 30,		December 31,
	2023		2022
Raw materials	$	17,981	$	15,952
Work in process		2,161		—
Finished goods		1,072		244
Total inventory	$	21,214	$	16,196

F.	Liability Related to Sale of Future Royalties

In 2015, Immunity Royalty Holdings, L.P. (IRH) purchased the right to receive 100% of the royalty payments on commercial sales of KADCYLA 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 reached 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 consummation of the transaction, the Company received cash proceeds of $200.0 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 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 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 is being 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, $5.5 million and $8.0 million of revenue related to the residual rights was recorded and is included in non-cash royalty revenue for the six months ended June 30, 2023 and 2022, respectively. Additionally, the purchase of IRH’s interest by OMERS did not result in an extinguishment or modification of the original instrument and, accordingly, the Company continues to account for the remaining obligation as a liability as outlined above.

The following table shows the activity within the liability account during the six-month period ended June 30, 2023 (in thousands):


		Six Months Ended
		June 30, 2023
Liability related to sale of future royalties, net — beginning balance	$	32,108
Proceeds from sale of future royalties, net		—
KADCYLA royalty payments received and paid		(6,000)
Non-cash interest expense recognized		1,793
Liability related to sale of future royalties, net — ending balance	$	27,901

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

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agreement. The sum of these amounts less the $200.0 million proceeds the Company received from IRH will be recorded as interest expense over the life of the Royalty Obligation. The Company’s estimate of this total interest expense has resulted in an imputed annual interest rate of 10.5% since inception, and a current imputed interest rate of 12.1% as of June 30, 2023. 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 Roche, most of which are not within the Company’s control. Such factors include, but are not limited to, changing standards of care, the introduction of competing products, manufacturing or other delays, biosimilar competition, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties are paid in U.S. dollars (USD) while significant portions of the underlying sales of KADCYLA are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from KADCYLA, all of which would result in a reduction of non-cash royalty revenues and 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.

G.	Senior Secured Term Loan

On April 6, 2023, the Company entered into a loan agreement with BioPharma Credit PLC as collateral agent, BPCR Limited Partnership, and BioPharma Credit Investments V (Master) LP, which are funds managed by Pharmakon Advisors, LP (collectively, Pharmakon), as lenders and the guarantors party to the agreement. The loan agreement provides for up to a $175.0 million senior secured term loan consisting of two tranches that each mature on April 6, 2028. The initial tranche of $75.0 million was drawn upon execution of the loan agreement. The second tranche of $50.0 million is available at the Company’s option through March 31, 2024 and may be increased to $