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 March 31, 2019

or

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

For the transition period from               to             

Commission File Number: 001-32979

 

Molecular Templates, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

94-3409596

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

9301 Amberglen Blvd

Suite 100

Austin, TX 78729

(Address of principal executive offices)

 

 

78729

(Zip Code)

(512) 869-1555

(Registrant’s telephone number, including area code)

 

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, non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 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 

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

Title of each class

Common Stock, $0.001 Par Value Per Share

Trading Symbol

MTEM

Name of each exchange on which registered

The Nasdaq Capital Market

On May 3, 2019, there were 36,769,151 shares of common stock, par value $0.001 per share, of Molecular Templates, Inc. outstanding.

 

 


 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements, other than statements of historical facts contained herein, regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements about:

 

 

the implementation of our business strategies, including our ability to pursue development pathways and regulatory strategies for MT-3724 and other engineered toxin body, or ETB, product candidates;

 

the timing and our ability to advance the development of our product candidates;

 

our plans to pursue discussions with regulatory authorities, and the anticipated timing, scope and outcome of related regulatory actions or guidance;

 

our ability to establish and maintain potential new partnering or collaboration arrangements for the development and commercialization of ETB product candidates;

 

our financial condition, including our ability to obtain the funding necessary to advance the development of our product candidates;

 

the anticipated progress of our product candidate development programs, including whether our ongoing and potential future clinical trials will achieve clinically relevant results;

 

our ability to generate data and conduct analyses to support the regulatory approval of our product candidates;

 

our ability to establish and maintain intellectual property rights for our product candidates;

 

whether any product candidates that we are able to commercialize are safer or more effective than other marketed products, treatments or therapies;

 

our ability to discover and develop additional product candidates suitable for clinical testing;

 

our ability to identify, in-license or otherwise acquire additional product candidates and development programs;

 

our anticipated research and development activities and projected expenditures;

 

our ability to complete preclinical and clinical testing successfully for new product candidates that we may develop or license;

 

our ability to have manufactured active pharmaceutical ingredient, or API, and drug product that meet required release and stability specifications;

 

our ability to have manufactured sufficient supplies of drug product for clinical testing and commercialization;

 

our ability to obtain licenses to any necessary third-party intellectual property;

 

our ability to retain and hire necessary employees and appropriately staff our development programs; and

 

the sufficiency of our cash resources; and other risks and uncertainties, including those listed under Part II, Item 1A, “Risk Factors”.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

 


 

Molecular Templates, Inc.

TABLE OF CONTENTS

 

 

  

 

Page

PART I.

  

FINANCIAL INFORMATION

 

 4

Item 1.

  

Financial Statements

 

4

 

  

Condensed Consolidated Balance Sheets (Unaudited)

 

4

 

  

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

 

6

 

  

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

7

 

  

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

Item 2.

  

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

 

25

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

35

Item 4.

  

Controls and Procedures

 

36

PART II.

  

OTHER INFORMATION

 

37

Item 1

  

Legal Proceedings

 

37

Item 1A.

  

Risk Factors

 

37

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

70

Item 3.

  

Defaults Upon Senior Securities

 

70

Item 4.

  

Mine Safety Disclosures

 

70

Item 5.

  

Other Information

 

71

Item 6.

  

Exhibits

 

72

SIGNATURES

 

73

 

 

 

3


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Molecular Templates, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

March 31,

2019 (unaudited)

 

 

December 31,

2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

37,855

 

 

$

87,721

 

Marketable securities, current

 

45,720

 

 

 

10,234

 

Prepaid expenses

 

2,005

 

 

 

2,244

 

Accounts receivable from related party

 

295

 

 

 

240

 

Other current assets

 

5,085

 

 

 

4,424

 

Total current assets

 

90,960

 

 

 

104,863

 

Operating lease right-of-use assets, non-current

 

11,131

 

 

 

 

Property and equipment, net

 

7,108

 

 

 

6,851

 

In-process research and development

 

26,623

 

 

 

26,623

 

Other assets

 

4,783

 

 

 

1,821

 

Total assets

$

140,605

 

 

$

140,158

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,582

 

 

$

780

 

Accrued liabilities

 

5,979

 

 

 

5,357

 

Deferred revenue, current

 

19,307

 

 

 

26,231

 

Other current liabilities

 

1,232

 

 

 

141

 

Total current liabilities

 

28,100

 

 

 

32,509

 

Deferred revenue, non-current

 

2,065

 

 

 

2,670

 

Long-term debt, net

 

3,159

 

 

 

3,254

 

Operating lease liabilities, non-current

 

10,770

 

 

 

 

Other liabilities

 

374

 

 

 

819

 

Total liabilities

 

44,468

 

 

 

39,252

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, $0.001 par value:

 

 

 

 

 

 

 

Authorized: 150,000,000 shares; issued and outstanding:

    36,756,651 shares at March 31, 2019 and 36,736,012 shares at December 31, 2018

 

37

 

 

 

37

 

Additional paid-in capital

 

196,972

 

 

 

195,573

 

Accumulated other comprehensive loss

 

 

 

 

 

Accumulated deficit

 

(100,872

)

 

 

(94,704

)

Total stockholders’ equity

 

96,137

 

 

 

100,906

 

Total liabilities and stockholders’ equity

$

140,605

 

 

$

140,158

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

4


 

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

 

Research and development revenue - from related party

$

6,413

 

 

$

163

 

 

Research and development revenue - other

 

 

 

 

68

 

 

Grant revenue

 

595

 

 

 

251

 

 

Total revenue

 

7,008

 

 

 

482

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

8,454

 

 

 

6,687

 

 

General and administrative

 

4,935

 

 

 

2,910

 

 

Total operating expenses

 

13,389

 

 

 

9,597

 

 

Loss from operations

 

6,381

 

 

 

9,115

 

 

Interest and other income, net

 

510

 

 

 

82

 

 

Interest and other expense, net

 

(293

)

 

 

(295

)

 

Change in fair value of warrant liabilities

 

(4

)

 

 

614

 

 

Net loss attributable to common shareholders

$

6,168

 

 

$

8,714

 

 

Net loss per share attributable to common shareholders:

 

 

 

 

 

 

 

 

Basic and diluted

$

0.17

 

 

$

0.32

 

 

Weighted average number of shares used in net loss per share calculations:

 

 

 

 

 

 

 

 

Basic and diluted

 

36,738,993

 

 

 

26,989,693

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

 

 

 

 

Comprehensive loss

$

6,168

 

 

$

8,714

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

5


 

MOLECULAR TEMPLATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stockholders’

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

(Deficit)

 

Balances, December 31, 2018

 

 

36,736,012

 

 

$

37

 

 

$

195,573

 

 

$

 

 

$

(94,704

)

 

$

100,906

 

Issuance of common stock pursuant to stock plans

 

 

20,639

 

 

 

 

 

 

38

 

 

 

 

 

 

 

 

 

38

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,361

 

 

 

 

 

 

 

 

 

1,361

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,168

)

 

 

(6,168

)

Balances, March 31, 2019

 

 

36,756,651

 

 

 

37

 

 

 

196,972

 

 

 

 

 

 

(100,872

)

 

 

96,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2017

 

 

26,898,330

 

 

 

27

 

 

 

141,733

 

 

 

 

 

 

(64,471

)

 

 

77,289

 

Issuance of common stock pursuant to stock plans

 

 

161,705

 

 

 

1

 

 

 

147

 

 

 

 

 

 

 

 

 

148

 

Issuance of warrant to purchase common stock in relation to term loan facility

 

 

 

 

 

 

 

 

1,521

 

 

 

 

 

 

 

 

 

1,521

 

Stock-based compensation

 

 

 

 

 

 

 

 

643

 

 

 

 

 

 

 

 

 

643

 

Cumulative-effect adjustment upon adoption of new accounting standards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

54

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,714

)

 

 

(8,714

)

Balances, March 31, 2018

 

 

27,060,035

 

 

$

28

 

 

$

144,044

 

 

$

 

 

$

(73,131

)

 

$

70,941

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

 

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended

March 31,

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

6,168

 

 

$

8,714

 

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

 

 

 

 

 

 

 

Depreciation

 

177

 

 

 

72

 

Stock-based compensation expense

 

1,360

 

 

 

643

 

Amortization of debt discount and accretion related to debt

 

105

 

 

 

63

 

Change in common stock warrant fair value

 

4

 

 

 

(615

)

Accretion of asset retirement obligations

 

11

 

 

 

8

 

Loss on extinguishment of debt

 

 

 

 

115

 

Loss on disposal of equipment

 

 

 

 

2

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses

 

239

 

 

 

(58

)

Accounts receivable from related party

 

(55

)

 

 

(4,000

)

Other current assets

 

(661

)

 

 

(71

)

Other assets

 

321

 

 

 

 

Accounts payable

 

802

 

 

 

(355

)

Accrued liabilities

 

622

 

 

 

110

 

Other current liabilities

 

 

 

 

34

 

Other liabilities

 

(204

)

 

 

198

 

Deferred revenue

 

(7,529

)

 

 

3,585

 

Net cash used in operating activities

 

(10,976

)

 

 

(8,983

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(625

)

 

 

(1,719

)

Purchase of marketable securities

 

(36,588

)

 

 

 

Sales of marketable securities

 

1,293

 

 

 

 

Net cash used in investing activities

 

(35,920

)

 

 

(1,719

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments of capital lease obligations

 

 

 

 

(13

)

Proceeds from issuance of long-term debt and warrants, net

 

 

 

 

4,537

 

Repayment of long-term debt

 

 

 

 

(3,605

)

Proceeds from stock option exercises

 

38

 

 

 

148

 

Principal payments on finance leases

 

(8

)

 

 

 

Net cash provided by financing activities

 

30

 

 

 

1,067

 

Net decrease in cash, cash equivalents, and restricted cash

 

(46,866

)

 

 

(9,635

)

Cash, cash equivalents and restricted cash, beginning of period

 

87,721

 

 

 

58,910

 

Cash, cash equivalents and restricted cash, end of period

$

40,855

 

 

$

49,275

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

Cash paid for interest

$

174

 

 

$

51

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

7


 

Molecular Templates, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

Molecular Templates, Inc. (the “Company” or “Molecular”) is a clinical stage biopharmaceutical company formed in 2001, with a biologic therapeutic platform for the development of novel targeted therapeutics for cancer and other diseases, headquartered in Austin, Texas. The Company’s focus is on the research and development of therapeutic compounds for a variety of cancers. Molecular operates its business as a single segment, as defined by U.S. generally accepted accounting principles (“U.S. GAAP”).

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP pursuant to the requirements of the Securities and Exchange Commission (“SEC”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for the fair presentation of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimates could result in a change to estimates and impact future operating results.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2019.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and reflect the elimination of intercompany accounts and transactions.

Recently Adopted Accounting Pronouncements 

 

Leases

 

In February 2016, the Financial Accounting Standards Board ("FASB") established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which supersedes ASC 840, Leases, and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. Topic 842, as amended, (the "new lease standard") establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

We adopted the new lease standard on January 1, 2019 and used the effective date as our date of initial adoption. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for earlier periods.

 

We have completed a qualitative and quantitative assessment of our lease portfolio, in which the standard had a material impact on our condensed consolidated balance sheet but did not have an impact on our condensed consolidated income statement. Upon adoption, we recognized lease liabilities of approximately $4.7 million based on the present value of the remaining minimum rental payments under current leasing standards for our existing operating leases. The corresponding ROU assets of $4.2 million recognized upon adoption are net of deferred rent.

The new standard provides a number of optional practical expedients in transition. We elected the practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct

8


 

costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. The new standard also provides practical expedients for an entity's ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components for our office leases.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2019, as compared to the significant accounting policies disclosed in Note 1, Summary of significant accounting policies, to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, other than as noted below.

 

Lease Accounting

At inception of a contract, we determine whether an arrangement is or contains a lease. For all leases, we determine the classification as either operating leases or financing leases. Operating leases are included in Operating lease right-of-use assets and Operating lease liabilities in our Condensed Consolidated Balance Sheets.

Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. If a lease does not provide information to determine an implicit interest rate, we use our incremental borrowing rate in determining the present value of lease payments. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments under the lease. ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease agreements with both lease and nonlease components, are generally accounted for together as a single lease component.

 

Cash and Cash Equivalents

The Company considers temporary investments with original maturities of three months or less from date of purchase to be cash equivalents. Restricted cash is recorded in other assets, based on when the restrictions expire.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash and cash equivalents, investments, long term debt and accounts receivable.

The Company’s cash and cash equivalents are with two major financial institutions in the United States.

The Company performs an ongoing credit evaluation of its strategic partners’ financial conditions and generally does not require collateral to secure accounts receivable from its strategic partners. The Company’s exposure to credit risk associated with non-payment will be affected principally by conditions or occurrences within Takeda Pharmaceutical Company Ltd. (“Takeda”). Approximately 92% and 34% of total revenues for the three months ended March 31, 2019 and March 31, 2018, respectively, were derived from Takeda. There was $0.3 million in accounts receivable due from Takeda at March 31, 2019. See also Note 3, Research and Development Agreements, regarding the collaboration agreements with Takeda.

Drug candidates developed by the Company may require approvals or clearances from the U.S. Food and Drug Administration (“FDA”) or international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s drug candidates will receive any of the required approvals or clearances. If the Company were to be denied approval or clearance or any such approval or clearance were to be delayed, it would have a material adverse impact on the Company.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than by reducing the carrying amount under the current, other-than-temporary-impairment model. The new standard is effective for interim and annual periods beginning on January 1, 2020, but may be adopted earlier. With certain exceptions, adjustments are to be applied

9


 

using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC Topic 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

NOTE 2 — NET LOSS PER COMMON SHARE

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including outstanding options and warrants.  The following is the calculation of basic and diluted net loss per share (in thousands, except share and per share data):

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

 

Numerator:

 

 

 

 

 

 

 

 

Net loss attributable to common shareholders

$

6,168

 

 

$

8,714

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

36,738,993

 

 

 

26,989,693

 

 

Net loss per share attributable to common shareholders:

 

 

 

 

 

 

 

 

Basic and diluted

$

0.17

 

 

$

0.32

 

 

 

The following outstanding warrants and options were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an antidilutive effect (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

 

Shares issuable upon exercise of warrants

 

3,522

 

 

 

3,522

 

 

Shares issuable upon exercise of stock options

 

5,295

 

 

 

2,880

 

 

 

NOTE 3 — RESEARCH AND DEVELOPMENT AGREEMENTS

Disaggregated Research and Development Revenue

Research and Development revenue is attributable to regions based on the location of our collaboration partner's parent company headquarters.  Research and Development revenues disaggregated by location were as follows (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Japan

 

$

6,413

 

 

$

163

 

United States

 

 

 

 

 

68

 

Total Research and Development Revenue

 

$

6,413

 

 

$

231

 

 

 Related Party Collaboration Agreement - Takeda Pharmaceuticals, Inc.

10


 

Research and development revenue from related party relates to revenue from research and development agreements with Takeda Pharmaceuticals, Inc (“Takeda”) and were as follows (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Takeda Collaboration Agreement

 

$

 

 

$

11

 

Takeda Individual Project Agreement

 

 

54

 

 

 

 

Takeda Development and License Agreement

 

 

6,114

 

 

 

 

Takeda Multi-Target Agreement

 

 

245

 

 

 

152

 

Total Research and Development Revenue

 

$

6,413

 

 

$

163

 

Deferred revenue and accounts receivable balances from the research and development agreements with Takeda were as follows (in thousands):

 

 

March 31, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Unbilled revenue

 

$

295

 

 

240

 

Liabilities

 

 

 

 

 

 

 

 

Deferred revenue, current

 

 

19,307

 

 

 

26,231

 

Deferred revenue, non-current

 

 

2,065

 

 

 

2,670

 

Total deferred revenue

 

$

21,372

 

 

$

28,901

 

Takeda Collaboration Agreement

In October 2016, Private Molecular entered into a collaboration and option agreement (the “Takeda Collaboration Agreement”) with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda, to discover and develop CD38-targeting engineered toxin bodies (“ETBs”), which includes MT-4019 for evaluation by Takeda. Under the terms of the Takeda Collaboration Agreement, Molecular is responsible for providing to Takeda (i) new ETBs generated using Takeda’s proprietary fully human antibodies targeting CD38 and (ii) MT-4019 for in vitro and in vivo pharmacological and anti-tumor efficacy evaluations. Molecular granted Takeda (1) a background IP license during the term of the Takeda Collaboration Agreement, and (2) an exclusive option during the term of the Takeda Collaboration Agreement and for a period of thirty days thereafter, to negotiate and obtain an exclusive worldwide license to develop and commercialize any ETB that may result from this collaboration, including MT-4019.

The Company has received payments of $2.0 million in technology access fees and cost reimbursement associated with the Company’s performance obligations under the agreement.

The Company determined that the promised goods and services under the Takeda Collaboration Agreement were the background IP license, as well as the research and development services. The Company determined that there was one performance obligation, since the background IP and manufacturing were not distinct from the research and development services. Revenues are recognized over the period that the research and development services occur. The Company also concluded that, since the option for the exclusive license is deemed to be at fair value that the option does not provide the customer with a material right, and should be accounted for if and when the option is exercised. All research and development services were performed as of December 31, 2018.  

During the three months ended March 31, 2019 and 2018, the Company recorded research and development revenue from Takeda of $0 and $11,000, respectively, under the Takeda Collaboration Agreement. This revenue is deemed to be revenue from a related party (as discussed further in Note 4, Related Party Transactions).

Takeda Individual Project Agreement

In connection with the Takeda Collaboration Agreement, the Company entered into an Individual Project Agreement (the “Takeda Individual Project Agreement”) with Takeda in June 2018, that was subsequently amended in July 2018.  Under the Takeda Individual Project Agreement, the Company is responsible to perform certain research and development services relating to Chemistry, Manufacturing, and Controls (“CMC”) work for three potential lead ETBs targeting CD38.  In consideration of these services, the Company will receive up to $2.2 million in compensation that includes an increase in transaction consideration of $1.1 million as a result of the amendment to the Takeda Individual Project Agreement in July 2018.   

During the three months ended March 31, 2019, the Company recognized research and development revenue from Takeda of $54,000 under the Takeda Individual Project Agreement. No revenue was recognized during the three months ended March 31, 2018 since the agreement was not in place.

11


 

Takeda Development and License Agreement

On September 18, 2018, the Company entered into a Development and License Agreement with Takeda (“Takeda Development and License Agreement”) for the development and commercialization of products incorporating or comprised of one or more CD38 SLT-A fusion proteins (“Licensed Products”) for the treatment of patients with diseases such as multiple myeloma.

Pursuant the Takeda Development and License Agreement Takeda made an upfront payment of $30.0 million to the Company in October 2018.

The Takeda Development and License Agreement also provides for development costs to be shared equally between the Company and Takeda during the Early Stage Development Period. The Company has an option to opt into co-development after the Early Stage Development, that would make the Company eligible to potentially receive higher milestone payments and a higher royalty percentage.

In addition to the upfront fee, if the Company exercises its co-development option and funds its share of development costs, it is eligible to receive pre-clinical and clinical development milestone payments of up to $307.5 million, upon the achievement of certain development milestones and regulatory approvals; and sales milestone payments of up to $325.0 million, upon the achievement of certain sales milestone events. If the Company does not exercise its co-development option, it is eligible to receive development milestone payments of up to $162.5 million upon the achievement of certain development milestones and regulatory approvals; and sales milestone payments of up to $175.0 million upon the achievement of certain sales milestone events. The Company will also be entitled to receive tiered royalties, subject to certain reductions, as percentages of annual aggregate net sales, if any, of Licensed Products. The royalty percentages would range from low double-digits to low twenties if the Company exercises its option to co-develop, and from high-single digits to low teens if the Company does not exercise its option to co-develop.

The Company identified one performance obligation at the inception of the Takeda Development and License Agreement, the research and development services for the CD38 ETBs, including manufacturing. The Company determined that research, development and commercialization license and the participation in the committee meetings are not distinct from the research and development services and therefore those promised services were combined into one combined performance obligation.

The total transaction price of $29.3 million, consisting of the (1) $30.0 million upfront payment, (2) a $10.0 million development milestone payment that is deemed probable of being achieved, (3) minus $10.7 million in expected co-share payment payable to Takeda during Early Stage Development. The expected co-share payment is considered variable consideration, and the Company applied a constraint using the expected value method. Significant judgement was involved in determining transaction consideration, including the determination of the variable consideration, including the constraint on consideration.  

The Company determined that the initial $10.0 million potential development milestone payment under the Takeda Development and License Agreement is probable of being achieved. Therefore, this payment was included in the transaction consideration. As of March 31, 2019, the other potential development milestones and sales milestones are not currently deemed probable of being achieved, as they are dependent on factors outside the Companys control.  Therefore, these future development milestones and sales-based milestone payments have been fully constrained and are not included in the transaction price as of March 31, 2019.

The Company recognizes revenue using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company used actual costs incurred relative to budgeted costs expected to be incurred for the combined performance obligation. These costs consist primarily of internal employee efforts and third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligation over the estimated service period.

The Company recognized revenue of $6.1 million during the three months ended March 31, 2019 related to the Takeda Development and License Agreement. During the three months ended March 31, 2018, the Company recorded no research and development revenue under the Takeda Development and License Agreement, since the agreement was not in place until September 18, 2018. As of March 31, 2019 and December 31, 2018, deferred revenue related to the performance obligation was $17.5 million and $24.8 million, respectively.

12


 

Takeda Multi-Target Agreement

In June 2017, Private Molecular entered into a Multi-Target Collaboration and License Agreement with Takeda (“Takeda Multi-Target Agreement”) in which Molecular agreed to collaborate with Takeda to identify and generate ETBs, against two targets designated by Takeda. Takeda designated certain targets of interest as the focus of the research. Each party granted to the other nonexclusive rights in its intellectual property for purposes of the conduct of the research, and Private Molecular agreed to work exclusively with Takeda with respect to the designated targets.

Under the Takeda Multi-Target Agreement, Takeda has an option during an option period to obtain an exclusive license under the Company’s intellectual property to develop, manufacture, commercialize and otherwise exploit ETBs against the designated targets. The option period for each target ends three months after the completion of the evaluation of such designated target. Under the Takeda Multi-Target Agreement, both parties have the right to terminate the agreement, with a specified notice period.

The Company received an upfront fee of $1.0 million and an additional $2.0 million following the designation of each of the two targets in December 2017. As of March 31, 2019, the Company has received $5.0 million from Takeda pursuant to the Takeda Multi-Target Agreement.

The Company may also receive an additional $25.0 million in aggregate through the exercise of the option to license ETBs. Additionally, the Company may also be entitled to receive clinical development milestone payments of up to approximately $397.0 million, for achievement of development milestones and regulatory approval of collaboration products under the Takeda Multi-Target Agreement. The Company may also be entitled to receive commercial milestone payments of up to $150.0 million, for achievement of pre-specified sales milestones related to net sales of all collaboration products under the Takeda Multi-Target Agreement. The Company is also entitled to tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions. Finally, the Company is entitled to receive up to $10.0 million in certain contingency fees.

The Takeda Multi-Target Agreement will expire on the expiration of the option period (within three months after the completion of the evaluation of each designated target) for the designated targets if Takeda does not exercise its options, or, following exercise of the option, on the later of the expiration of patent rights claiming the licensed ETB or ten years from first commercial sale of a licensed ETB. The Takeda Multi-Target Agreement may be sooner terminated by Takeda for convenience or upon a material change of control, or by either party for an uncured material breach of the agreement.

The Company evaluated the contract termination clause and concluded that it was a non-substantive termination provision. As such, an initial contract term was defined as the length of the termination notice period, with a deemed renewal option to continue the research and development services over the remainder of the contract term as a material right.

The Company determined that the promised goods and services under the Takeda Multi-Target Agreement were the background IP license, the research and development services, and manufacturing during the initial contract period; and a renewal option to continue the research and development services. The Company determined that there were two performance obligations; research and development services, and the renewal options. Since the background IP and manufacturing were not distinct from the research and development services, they were deemed to be one performance obligation. Transaction consideration was allocated to each of the performance obligation using an estimate of the standalone selling price, and revenues are recognized over the period that the research and development services occur. The Company also concluded that, since the option for the exclusive license is deemed to be at fair value that the option does not provide the customer with a material right, and should be accounted for if and when the option is exercised.

In connection with the execution of the Takeda Multi-Target Agreement, Takeda also entered into a stock purchase agreement with the Company (“Takeda Stock Purchase Agreement”), pursuant to which Takeda purchased approximately $20.0 million of shares of the Company’s common stock following the Merger. See Note 10, Stockholders’ Equity, for further details. Since the Takeda Stock Purchase Agreement was dependent on contingent events, the Company determined that the transaction was constrained, and not a performance obligation under the Takeda Multi-Target Agreement. The Company accounted for the stock purchase agreement in August 2017, once the constraints were removed, and recorded the $20.0 million in equity upon the settlement of the stock purchase transaction.

During the three months ended March 31, 2019 and March 31, 2018, the Company recorded $245,000 and $152,000, respectively, in research and development revenue under the Multi-Target Takeda Agreement. As of March 31, 2019, and December 31, 2018, deferred revenue related to the performance obligation was $3.9 million and $4.1 million, respectively.

Other Collaboration Agreements

13


 

In September 2016, Private Molecular entered into a collaboration agreement with an undisclosed pharmaceutical company (“Other Collaboration Agreement”) to generate ETBs, for evaluation for consideration of $500,000. Under the terms of the Other Collaboration Agreement, Private Molecular was responsible for providing to the customer (i) new ETBs generated using the customer’s materials and (ii) ETB study molecules for testing and evaluation.  

The customer also exercised an option under the Other Collaboration Agreement in November 2017, for the manufacture of additional quantities of ETB molecules, for additional consideration of $250,000, upon delivery and acceptance of the additional materials.

The Company determined that at the inception of the agreement, the promised goods and services under the Other Collaboration Agreement were, the research and development services, and manufacturing. The Company determined that there was one performance obligation, since the manufacturing was not distinct from the research and development services. Revenues are recognized over the period that the research and development services occur using an input method to measure progress towards satisfaction of the performance obligation. The option for additional ETB molecules was determined to be at fair value and was accounted for once the option was exercised. All research and development services were performed as of March 31, 2019.

During the three months ended March 31, 2019 and 2018, the Company recorded $0 and $68,000 in research and development revenue under the Other Collaboration Agreement, respectively.

Grant Agreements

Grant revenue relates to funds from a state grant funding program, which are conditional cost reimbursement grants, and revenue is recognized as allowable costs are paid.

In November 2011, Private Molecular was awarded a $10.6 million product development grant from the Cancer Prevention Research Institute of Texas (“CPRIT”) for its CD20-targeting ETB MT-3724. To date, Private Molecular has received $9.5 million in grant funds.

On September 18, 2018, the Company entered into a grant agreement with CPRIT (the “CPRIT Agreement”), in connection with a grant of approximately $15.2 million awarded by CPRIT to the Company to fund research of a cancer therapy involving a CD38 targeting ETB. Pursuant to the CPRIT Agreement, the Company may also use such funds to develop a replacement CD38 targeting ETB, with or without a partner.

During the three months ended March 31, 2019 and 2018, the Company recorded $595,000 and $251,000 in grant revenue under these awards, respectively. Amounts collected in excess of revenue recognized are recorded as deferred revenue. Amounts submitted for reimbursement in excess of amounts received are recorded as receivables in other current assets. As of March 31, 2019, and December 31, 2018, we had $4.1 million recorded in other current assets.

NOTE 4 — RELATED PARTY TRANSACTIONS

Takeda Collaboration and Stock Purchase

In connection with the Takeda Stock Purchase Agreement described in Note 3, Research and Development Collaboration Agreements, Takeda became a related party, following the stock purchase. Refer to Note 3, Research and Development Collaboration Agreements, for more details about the Takeda Collaboration Agreement, the Takeda Multi-Target Agreement and the Takeda Development and License Agreement. Refer to Note 10, Stockholders’ Equity, for more detail about the Takeda Stock Purchase Agreement. Jonathan Lanfear, a director of the Company, is the Vice President and Global Head of Oncology and Neuroscience Business Development for Takeda.

Private Placement

Immediately following the Private Placement described in Note 10, Stockholders’ Equity below, Longitude Venture Partner III, L.P. (“Longitude”) and CDK Associates, L.L.C. (“CDK”) became related parties, with Longitude and CDK beneficially owning 15.3% and 4.99% of the Company, respectively, following investments of $20.0 million and $7.0 million, respectively. Scott Morenstein, a director of the Company is a Managing Director of Caxton Alternative Management LP, the investment manager of CDK. David Hirsch, a director of the Company, is a member of Longitude Capital Partners III, LLC, the general partner of Longitude. Furthermore, Kevin Lalande, a director of the Company is affiliated with Sante Health Ventures I, L.P. and Sante Heath Ventures Annex Fund, L.P., which are stockholders of the Company and were investors in the Concurrent Financing.    

14


 

Public Offering

Following the Public Offering described in Note 10, Stockholders’ Equity below, BVF Partners L.P. (“BVF”) and Perceptive Advisors LLC (“Perceptive”) owned 7.6% and 5.9% of the Company, following investments of $15.3 million and $11.9 million, respectively.

Neither BVF nor Perceptive is affiliated with any director or executive officer of the Company. Longitude Venture Partners III, L.P. and CDK, current stockholders of the Company, purchased 365,000 and 545,454 shares of common stock, respectively, in the Public Offering at the public offering price.  Following the Public Offering, Longitude and CDK beneficially owned 12.33% and 4.96% of the Company, respectively. Scott Morenstein, a director of the Company is a Managing Director of Caxton Alternative Management LP, the investment manager of CDK. David Hirsch, a director of the Company, is a member of Longitude Capital Partners III, LLC, the general partner of Longitude.

 

NOTE 5 —MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

The Company accounts for its marketable securities in accordance with ASC 820 “Fair Value Measurements and Disclosures.” ASC 820 defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. ASC 820 defines fair value 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. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices 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.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. For Level 2 securities that have market prices from multiples sources, a “consensus price” or a weighted average price for each of these securities can be derived from a distribution-curve-based algorithm which includes market prices obtained from a variety of industrial standard data providers (e.g. Bloomberg), security master files from large financial institutions, and other third-party sources. Level 2 securities with short maturities and infrequent secondary market trades are typically priced using mathematical calculations adjusted for observable inputs when available.

The following table sets forth the Company’s financial assets (cash equivalents and marketable securities) at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

Basis of Fair Value Measurements

 

 

Fair Value as of March 31, 2019

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Money market funds

$

20,638

 

 

$

20,638

 

 

$

 

 

$

 

Commercial paper

 

44,525

 

 

 

 

 

 

44,525

 

 

 

 

United States Treasury Bills

 

13,159

 

 

 

 

 

 

13,159

 

 

 

 

Corporate bonds

 

4,240

 

 

 

 

 

 

4,240

 

 

 

 

 

Total

$

82,562

 

 

$

20,638

 

 

$

61,924

 

 

$

 

Amounts included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

36,842

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities, current

 

45,720

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

82,562

 

 

 

 

 

 

 

 

 

 

 

 

 

15


 

 

 

 

 

 

 

Basis of Fair Value Measurements

 

 

Fair Value as of December 31, 2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Money market funds

$

82,843

 

 

$

82,843

 

 

$

 

 

$

 

Commercial paper

 

12,825

 

 

 

 

 

 

12,825

 

 

 

 

Total

$

95,668

 

 

$

82,843

 

 

$

12,825

 

 

$

 

Amounts included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

85,434

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities, current

 

10,234

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

95,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities at March 31, 2019 and December 31, 2018 (in thousands):

 

As of March 31, 2019

Cost Basis

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

 

Maturity Dates

Cash equivalents - money market funds, commercial paper and corporate bonds

$

36,842

 

 

$

 

 

$

 

 

$

36,842

 

 

 

Marketable securities, current - commercial paper, Treasury bills and corporate bonds

$

45,720

 

 

$

 

 

$

 

 

$

45,720

 

 

7/2019 - 12/2019

 

As of December 31, 2018

Cost Basis

 

 

Unrealized

Gain

 

 

Unrealized

Loss

 

 

Fair

Value

 

 

Maturity Dates

Cash equivalents - money market funds and commercial paper

$

85,434

 

 

$

 

 

$

 

 

$

85,434

 

 

 

Marketable securities, current - commercial paper

$

10,234

 

 

$

 

 

$

 

 

$

10,234

 

 

1/2019 - 9/2019

 

The following table sets forth the Company’s financial liabilities measured at fair value on a recurring basis as of the date indicated below:

 

 

 

 

 

Basis of Fair Value Measurements

 

 

Fair Value as of March 31, 2019

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

2017 Warrants

 

7

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

Basis of Fair Value Measurements

 

 

Fair Value as of December 31, 2018

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

2017 Warrants

 

3

 

 

 

 

 

 

 

 

 

3

 

16


 

The Company determined the fair value of the liability associated with its 2017 Warrants to purchase in aggregate 377,273 shares of outstanding common stock using a Black-Scholes Model. See detailed discussion in Note 10, Stockholders’ Equity.

As of March 31, 2019 and December 31, 2018 the fair value of the long-term debt approximated its carrying value of $3.2 million and $3.3 million, respectively, because it is carried at a market observable interest rate, which are considered Level 2.

NOTE 6 — BALANCE SHEET COMPONENTS

Accrued liabilities were comprised of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued liabilities:

 

 

 

 

 

 

 

 

General and administrative

 

$

440

 

 

$

297

 

Clinical trial related costs

 

 

889

 

 

 

598

 

Non-clinical research and manufacturing operations

 

 

3,788

 

 

 

2,644

 

401(k) contributions payable

 

 

19

 

 

 

 

Payroll related

 

 

828

 

 

 

1,787

 

Other accrued expenses

 

 

15

 

 

 

31

 

Total accrued liabilities

 

$

5,979

 

 

$

5,357

 

Deferred revenue was comprised of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Deferred revenue:

 

 

 

 

 

 

 

 

Grant agreements

 

$

 

 

$

 

Research and development agreements

 

 

21,372

 

 

 

28,901

 

Total deferred revenue

 

$

21,372

 

 

$

28,901

 

 

Other assets include $3.0 million of restricted cash as of March 31, 2019.

 

NOTE 7 — BORROWING ARRANGEMENTS

Perceptive Credit Facility

 

On February 27, 2018, the Company entered into a term loan facility with Perceptive Credit Holdings II, LP (“Perceptive”) in the amount of $10.0 million (the “Perceptive Credit Facility”). The Perceptive Credit Facility consists of a $5.0 million term loan, which was drawn on the effective date of the Perceptive Credit Facility, and an additional $5.0 million term loan to be drawn down at a future date. The Company used a portion of the proceeds from the Perceptive Credit Facility to pay off the existing debt facility with SVB. Borrowings under the Perceptive Credit Facility are secured by all of the property and assets of the Company. The principal on the facility accrues interest at an annual rate equal to a three-month LIBOR plus the Applicable Margin. The Applicable Margin is 11.00%. Upon the occurrence, and during the continuance, of an event of default, the Applicable Margin, defined above, will be increased by 4.00% per annum. The interest rate at March 31, 2019 was 13.8%. Payments for the first 24 months are interest only and are paid quarterly. After the second anniversary of the closing date of the Perceptive Credit Facility, principal payments of $200,000 are due each calendar quarter, with a final payment of $3.4 million due on February 27, 2022. This term loan facility matures on February 27, 2022 and includes both financial and non-financial covenants, including a minimum cash balance requirement. The Company is required to pay an exit fee of $100,000 on a pro rata basis on the maturity date or the earlier date of repayment of the term loans in full. The exit fee is being accreted to interest expense over the term of the Perceptive Credit Facility using the effective interest method.

 

For the three months ended March 31, 2019, the Company recorded $172,000 of interest expense and $74,000 of amortization of debt discount related to the Perceptive Credit Facility.  For the three months ended March 31, 2018, the Company recorded $59,000 of interest expense and $54,000 of amortization of debt discount related to the Perceptive Credit Facility.

In connection with the Perceptive Credit Facility, on February 27, 2018 the Company issued Perceptive a warrant to purchase 190,000 shares of the Company’s common stock. The warrant is exercisable for a period of seven years from the date of issuance at an exercise price per share of $9.5792, subject to certain adjustments as specified in the Warrant. See Note 10, Stockholders’ Equity for further discussion of the warrant. The fair value of the warrant of $1.5 million was recorded as a debt discount, which is being amortized to interest expense over the term of the Perceptive Credit Facility using the effective interest method

17


 

 

As of March 31, 2019 and December 31, 2018 the Perceptive Credit Facility principal balance was $5.0 million and $5.0 million, respectively. As of March 31, 2019, the Company was in compliance with the non-financial covenants of the Perceptive Credit Facility.

 

Future required principal and final payments on the Perceptive Credit Facility were as follows as of March 31, 2019:

 

2019 (remaining)

 

$

 

2020

 

 

800

 

2021

 

 

800

 

2022

 

 

3,500

 

2023

 

 

 

Total

 

 

5,100

 

Debt discount and deferred finance costs

 

 

(1,741

)

Total

 

 

3,359

 

Short-term portion

 

 

(200

)

Total

 

$

3,159

 

 

NOTE 8 – LEASES

 

On January 1, 2019, we adopted a new accounting standard that amends the guidance for the accounting and reporting of leases. Required disclosures have been made on a modified retrospective basis in accordance with the guidance of the standard. See Note 1, Organization and Summary of Significant Accounting Policies under the heading Significant accounting policies.

 

We have operating leases for administrative offices and R&D facilities, and certain finance leases for equipment. Our operating leases have remaining terms of less than one year to ten years, and our finance leases have remaining terms of less than one year to two years. Leases with an initial term of 12 months or less will not be recorded on the balance sheet as operating leases or finance leases, and we will recognize lease expense for these leases on a straight-line basis over the lease term. For leases commencing in 2019 and later, we account for lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) with non-lease components (e.g. common area maintenance costs). Certain leases include options to renew, with renewal terms that can extend the lease term from one to five years. The exercise of lease renewal options for our existing leases is at our sole discretion and not included in the measurement of lease liability and ROU asset as they are not reasonably certain to be exercised. Certain finance leases also include options to purchase the leased equipment. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our leases do not contain any residual value guarantees or material restrictive covenants.

 

As a result of applying the modified retrospective method to adopt the lease guidance, the following adjustments were made to accounts on the Condensed Consolidated Balance Sheet as of January 1, 2019 (in thousands):

Balance Sheet

 

December 31, 2018

 

 

Effect of adoption of ASC 842

 

 

January 1, 2019

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets, non-current

 

$

-

 

 

$

4,180

 

 

$

4,180

 

Total assets

 

 

-

 

 

 

4,180

 

 

 

4,180

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liability, current

 

 

-

 

 

 

976