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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 March 31, 2022

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)

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 Par Value Per Share

 

MTEM

 

The 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 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 

On May 9, 2022 there were 56,339,205 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, including the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, 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-6402, MT-5111, MT-0169, MT-8421 and other engineered toxin body (“ETB”) biologic candidates;

 

our utilization of a next-generation ETB scaffold that has been designed to reduce or eliminate the propensity for innate immunity, including capillary leak syndrome (“CLS”);

 

the timing and our ability to advance the development of our drug or biologic 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 biologic candidates;

 

our ability to obtain the benefits we anticipate from partnering or collaboration agreements that we may enter into;

 

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

 

the anticipated progress of our drug or biologic 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 drug or biologic candidates;

 

our ability to establish and maintain intellectual property rights for our drug or biologic candidates;

 

whether any drug or biologic 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 drug or biologic candidates suitable for clinical testing;

 

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

 

our anticipated research and development activities and projected expenditures;

 

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

 

our ability to have manufactured active pharmaceutical ingredient, or API, and drug or biologic 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 anticipated use of proceeds from any financing activities;

 

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

 

the extent to which COVID-19 will continue to impact our business operations or financial condition;

 

our projected financial performance; 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.

As used in this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise indicates, references to “Molecular,” the “Company,” “we,” “our,” “us” or similar terms refer to Molecular Templates, Inc., and our wholly owned subsidiaries.

 

 


 

 

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 (Unaudited)

 

5

 

 

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

 

6

 

 

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

 

7

 

  

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

8

 

  

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9

Item 2.

  

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

 

20

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

29

Item 4.

  

Controls and Procedures

 

29

PART II.

  

OTHER INFORMATION

 

30

Item 1

  

Legal Proceedings

 

30

Item 1A.

  

Risk Factors

 

30

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

73

Item 3.

  

Defaults Upon Senior Securities

 

73

Item 4.

  

Mine Safety Disclosures

 

73

Item 5.

  

Other Information

 

73

Item 6.

  

Exhibits

 

74

SIGNATURES

 

75

 

 

 

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,

2022(unaudited)

 

 

December 31,

2021

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,572

 

 

$

24,983

 

Marketable securities, current

 

 

104,947

 

 

 

118,061

 

Prepaid expenses

 

 

2,615

 

 

 

3,917

 

Other current assets

 

 

5,251

 

 

 

1,254

 

Total current assets

 

 

132,385

 

 

 

148,215

 

Marketable securities, non-current

 

 

 

 

 

8,986

 

Operating lease right-of-use assets

 

 

8,206

 

 

 

8,608

 

Property and equipment, net

 

 

18,634

 

 

 

19,309

 

Other assets

 

 

3,940

 

 

 

7,244

 

Total assets

 

$

163,165

 

 

$

192,362

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

 

$

1,612

 

Accrued liabilities

 

 

7,905

 

 

 

9,515

 

Deferred revenue, current

 

 

34,586

 

 

 

32,937

 

Other current liabilities

 

 

2,533

 

 

 

2,606

 

Total current liabilities

 

 

45,024

 

 

 

46,670

 

Deferred revenue, long-term

 

 

24,252

 

 

 

33,350

 

Long-term debt, net of current portion

 

 

35,737

 

 

 

35,491

 

Operating lease liabilities

 

 

9,009

 

 

 

9,564

 

Other liabilities

 

 

1,661

 

 

 

1,625

 

Total liabilities

 

 

115,683

 

 

 

126,700

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value:

 

 

 

 

 

 

 

 

Authorized: 2,000,000 shares at March 31, 2022 and

   December 31, 2021; issued and outstanding: 250 shares at

March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value:

 

 

 

 

 

 

 

 

Authorized: 150,000,000 shares at March 31, 2022 and

   December 31, 2021; issued and outstanding: 56,305,049 shares at

March 31, 2022 and 56,305,049 shares at December 31, 2021

 

 

56

 

 

 

56

 

Additional paid-in capital

 

 

421,386

 

 

 

417,704

 

Accumulated other comprehensive loss

 

 

(299

)

 

 

(48

)

Accumulated deficit

 

 

(373,661

)

 

 

(352,050

)

Total stockholders’ equity

 

 

47,482

 

 

 

65,662

 

Total liabilities and stockholders’ equity

 

$

163,165

 

 

$

192,362

 

 

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

4


 

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

Research and development revenue, related party

 

$

 

 

$

237

 

Research and development revenue, other

 

 

8,486

 

 

 

2,983

 

Total revenue

 

 

8,486

 

 

 

3,220

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

21,497

 

 

 

21,368

 

General and administrative

 

 

7,620

 

 

 

8,181

 

Total operating expenses

 

 

29,117

 

 

 

29,549

 

Loss from operations

 

 

20,631

 

 

 

26,329

 

Interest and other income, net

 

 

70

 

 

 

52

 

Interest and other expense, net

 

 

(1,050

)

 

 

(501

)

Net loss

 

 

21,611

 

 

 

26,778

 

Net loss attributable to common shareholders

 

$

21,611

 

 

$

26,778

 

Net loss per share attributable to common shareholders:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.38

 

 

$

0.51

 

Weighted average number of shares used in net loss per share

   calculations:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

56,305,049

 

 

 

52,564,628

 

 

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

5


 

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

21,611

 

 

$

26,778

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

(251

)

 

 

(15

)

Comprehensive loss

 

$

21,862

 

 

$

26,793

 

 

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

6


 

MOLECULAR TEMPLATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

Total Stockholders' Equity (Deficit), beginning balances

 

$

65,662

 

 

$

59,340

 

 

 

 

 

 

 

 

 

 

Preferred Stock:

 

 

 

 

 

 

 

 

Beginning balance

 

 

 

 

 

 

Issuance of preferred stock

 

 

 

 

 

 

Ending balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock:

 

 

 

 

 

 

 

 

Beginning balance

 

 

56

 

 

 

50

 

Issuance of common stock pursuant to public offering

 

 

 

 

 

6

 

Ending balance

 

 

56

 

 

 

56

 

 

 

 

 

 

 

 

 

 

Additional Paid-In Capital

 

 

 

Beginning balance

 

 

417,704

 

 

 

328,314

 

Issuance of common stock pursuant to stock plans

 

 

 

 

 

597

 

Stock-based compensation

 

 

3,682

 

 

 

4,066

 

Issuance of common stock pursuant to public offering

 

 

 

 

 

71,139

 

Ending balance

 

 

421,386

 

 

 

404,116

 

 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Income, (Loss):

 

 

 

 

 

 

 

 

Beginning balance

 

 

(48

)

 

 

17

 

Other comprehensive income, (loss)

 

 

(251

)

 

 

(15

)

Ending balance

 

 

(299

)

 

 

2

 

 

 

 

 

 

 

 

 

 

Accumulated deficit:

 

 

 

 

 

 

 

 

Beginning balance

 

 

(352,050

)

 

 

(269,041

)

Net loss

 

 

(21,611

)

 

 

(26,778

)

Ending balance

 

 

(373,661

)

 

 

(295,819

)

 

 

 

 

 

 

 

 

 

Total Stockholders' Equity

 

$

47,482

 

 

$

108,355

 

 

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

7


 

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

21,611

 

 

$

26,778

 

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

 

 

 

 

 

 

 

 

Depreciation, amortization and other

 

 

1,872

 

 

 

1,509

 

Stock-based compensation expense

 

 

3,682

 

 

 

4,066

 

Interest accrued on long-term debt

 

 

3

 

 

 

 

Amortization of debt discount and accretion related to debt

 

 

246

 

 

 

105

 

Accretion of asset retirement obligations

 

 

36

 

 

 

33

 

Loss on disposal of property and equipment

 

 

1

 

 

 

36

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

1,302

 

 

 

(98

)

Accounts receivable, related party

 

 

 

 

 

234

 

Other assets

 

 

(1,706

)

 

 

442

 

Operating lease right-of-use assets and liabilities

 

 

(226

)

 

 

28

 

Accounts payable

 

 

(1,612

)

 

 

(869

)

Accrued liabilities

 

 

(2,234

)

 

 

(3,010

)

Other liabilities, related party

 

 

 

 

 

(265

)

Deferred revenue

 

 

(7,449

)

 

 

67,018

 

Deferred revenue, related party

 

 

 

 

 

(237

)

Net cash used in/provided by operating activities

 

 

(27,696

)

 

 

42,214

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(553

)

 

 

(435

)

Purchase of marketable securities

 

 

(12,732

)

 

 

(73,652

)

Sales of marketable securities

 

 

34,570

 

 

 

33,700

 

Net cash used in/provided by investing activities

 

 

21,285

 

 

 

(40,387

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments of capital and finance lease obligations

 

 

 

 

 

(1

)

Proceeds from stock option exercises

 

 

 

 

 

597

 

Proceeds from issuance of common stock and warrants, net offering expenses

 

 

 

 

 

71,145

 

Net cash provided by financing activities

 

 

 

 

 

71,741

 

Net increase/(decrease) in cash, cash equivalents, and restricted cash

 

 

(6,411

)

 

 

73,568

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

28,651

 

 

 

28,886

 

Cash, cash equivalents and restricted cash, end of period

 

$

22,240

 

 

$

102,454

 

Reconciliation of cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,572

 

 

$

98,786

 

Restricted cash included in other assets

 

 

2,668

 

 

 

3,668

 

Total cash, cash equivalents and restricted cash

 

$

22,240

 

 

$

102,454

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

753

 

 

$

317

 

Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

Fixed asset additions in accounts payable and accrued expenses

 

$

621

 

 

$

559

 

 

 

 

 

 

 

 

 

 

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

 

 


8


 

 

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”) 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 serious diseases, headquartered in Austin, Texas. The Company’s focus is on the research and development of therapeutic compounds for a variety of cancers. The Company operates its business as a single segment, as defined by U.S. generally accepted accounting principles (“U.S. GAAP”).

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. While the COVID-19 pandemic has not had a material adverse impact on the Company’s operations to date, the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain. Additionally, the duration of the pandemic (including any resurgences), impact of the new COVID-19 variants, the rollout of COVID-19 vaccines, new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others, could have an adverse impact on the Company. Refer to Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q for a complete description of risks.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiary and reflect the elimination of intercompany accounts and transactions.

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. Certain accounts in the prior financial statements have been reclassified for comparative purposes to conform to the presentation in the current financial statements. These reclassifications have no material effect on previously reported financials.

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, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2022.

Liquidity

At March 31, 2022, the Company had cash, cash equivalents, and marketable securities of $124.5 million. The Company has devoted substantially all of our resources to developing our ETB candidates and platform technology, building our intellectual property portfolio, developing our supply chain, conducting business planning, raising capital and providing for general and administrative support for these operations. The Company expects that existing cash, cash equivalents and marketable securities will enable it to fund operating expenses and capital expenditure requirements to the end of 2023.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2022, 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, 2021.

 

Cash and Cash Equivalents

The Company considers temporary investments having 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. Other assets include $2.7 million of restricted cash at March 31, 2022 related to letters of credit in lieu of a cash deposit for the Company’s leases.

9


 

Fair Value Measurement

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 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.

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 Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”), Vertex Pharmaceuticals Incorporated (“Vertex”) and Bristol Myers Squibb Company (“Bristol Myers Squibb” or “BMS”). Takeda accounted for approximately 30% and 7% of total revenues for the three months ended March 31, 2022 and 2021, respectively. Vertex accounted for approximately 0% and 63% of total revenues for the three months ended March 31, 2022 and 2021, respectively. BMS accounted for approximately 70% and 30% of total revenue for the three months ended March 31, 2022 and 2021, respectively.

Drug or biologic 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 or biologic 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 August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Subtopic 470-20: Debt with Conversion and Other Options and Subtopic 815-40: Derivatives and Hedging - Contracts in Entity’s Own Equity). The new guidance simplifies accounting for convertible instruments by removing major separation models, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. The amendment is effective for the Company for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance: Disclosures by Business Entities about Government Assistance”. The amendments in this Update improve financial reporting by requiring disclosures that increase the transparency of transactions with a government. The amendments require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy (i) the type of transaction, (ii) the accounting for the transaction, and (iii) the effect of the transaction on the entity’s financial statements. The Company adopted this standard as of January 1, 2022, using a prospective approach and it did not have a material impact on the Company’s financial statements and related disclosures.

10


 

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 utilizing the two-class method. Preferred Stock Shareholders participate equally with Common Stock Shareholders in earnings, but do not participate in losses, and are excluded from the basic net loss calculation. Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including outstanding options, warrants and convertible preferred stock. More specifically, at March 31, 2022 and March 31, 2021, stock options, warrants and, if converted, preferred stock totaling approximately 12,999,361 and 12,144,173 common shares, respectively, were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive.

 

NOTE 3 — RESEARCH AND DEVELOPMENT AGREEMENTS

Disaggregated Research and Development Revenue

Research and development revenue is attributable to regions based on the location of each 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,

 

 

 

2022

 

 

2021

 

Japan

 

$

2,586

 

 

$

237

 

United States

 

 

5,900

 

 

 

2,983

 

Total research and development revenue

 

$

8,486

 

 

$

3,220

 

 

Collaboration Agreements - Takeda

Research and development revenue from a previously related party was with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”) and were as follows (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2022

 

 

2021

 

Takeda Development and License Agreement

 

 

 

 

 

215

 

Takeda Multi-Target Agreement

 

 

2,586

 

 

 

22

 

Total research and development revenue, Takeda

 

$

2,586

 

 

$

237

 

 

Takeda Development and License Agreement

In September 2018, the Company entered into a Development Collaboration and Exclusive License Agreement, as amended, with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Limited (“Takeda”), 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 (the “Takeda Development and License Agreement”). In April 2021, the Company received a notice of termination from Takeda for the Takeda Development and License Agreement. Following receipt of the termination notice from Takeda, the Company notified Takeda of its intent to assume full rights to TAK-169, now known as MT-0169, a second-generation ETB targeting CD38, by entering into an agreement for such rights pursuant to the termination provisions of the Takeda Development and License Agreement. The termination of the Takeda Development and License Agreement was effective in August 2021.

 

As of the same date, the Company assumed full rights to MT-0169, including full control of MT-0169 clinical development, per the terms of the terminated Takeda Development and License Agreement. Following the transfer of the full MT-0169 rights to the Company, the Company may owe low-single digit royalties on future net sales of MT-0169 to Takeda as well as to certain third-party licensors. The Company may also owe certain third-party licensors potential aggregate clinical and regulatory milestone payments of up to $22.25 million.

The Company recognized 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 was 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.

11


 

Takeda Multi-Target Agreement

In June 2017, the Company entered into a Multi-Target Collaboration and License Agreement with Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda (the “Takeda Multi-Target Agreement”), in which the Company agreed to collaborate with Takeda to identify and generate ETBs, against two targets designated by Takeda. In March 2022, following the Company’s request to bring the agreement to an end, the Company and Takeda mutually agreed to terminate the Takeda Multi-Target Agreement. As a result of the termination, the Company regained full rights to pursue the targets worked on under the Takeda Multi-Target Agreement. There are no ongoing activities or economic obligations in connection with the Takeda Multi-Target Agreement.

As of March 31, 2022, the Company received cumulative payments of $5.0 million from Takeda pursuant to the Takeda Multi-Target Agreement. Prior to the termination, the Company also had the opportunity to receive payments of the following:

 

 

$30.0 million in aggregate through the exercise of the option to license ETBs.

 

Up to approximately $397.0 million in clinical development milestone payments for achievement of development milestones and regulatory approval of collaboration products under the Takeda Multi-Target Agreement.

 

Up to $150.0 million in commercial milestone payments for achievement of pre-specified sales milestones related to net sales of all collaboration products under the Takeda Multi-Target Agreement.

 

Tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions.

 

Up to $10.0 million in certain contingency fees.

At March 31, 2022 there was no deferred revenue related to the performance obligation and at December 31, 2021, deferred revenue was $2.6 million.

Vertex Collaboration Agreement

In November 2019, the Company entered into a Master Collaboration Agreement (the “Vertex Collaboration Agreement”) with Vertex Pharmaceuticals Incorporated (“Vertex”), to perform strategic research leveraging the Company’s engineered toxin body (“ETB”) technology platform to discover and develop novel targeted biologic therapies for applications outside of oncology. In October 2021, the Company received a notice of termination from Vertex for the Vertex Collaboration Agreement. The termination of the Vertex Collaboration Agreement was effective in October 2021. There are no ongoing activities or economic obligations in connection with the Vertex Collaboration Agreement.

Vertex paid the Company an upfront payment of $38.0 million, consisting of $23.0 million in cash and a $15.0 million equity investment pursuant to a Share Purchase Agreement (the “SPA”). In addition to the upfront payments, the Company was also eligible to receive an additional $22.0 million through the exercise of the options to license ETB products or to add an additional target. The Company would have been entitled to receive, subject to certain reductions, tiered mid-single digit royalties as percentages of calendar year net sales, if any, on any licensed product.

The Company also had the opportunity, for each target under the Vertex Collaboration Agreement, to receive up to an additional $180.0 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional $70.0 million in milestone payments upon the achievement of certain sales milestone events. The Company would have been entitled to receive, subject to certain reductions, tiered mid-single digit royalties as percentages of calendar year net sales, if any, on any licensed product.

With the termination of the agreement, the Company’s performance obligations under the Vertex Collaboration Agreement were completed in the fourth quarter of 2021 and the remaining unrecognized transaction price of $14.6 million was recognized as research and development revenue

 

Bristol Myers Squibb Collaboration Agreement

 

In February 2021, the Company, entered into a Collaboration Agreement (the “BMS Collaboration Agreement”), as amended, with Bristol Myers Squibb Company (“Bristol Myers Squibb”) to perform strategic research collaboration leveraging the Company’s ETB technology platform to discover and develop novel products containing ETBs directed to multiple targets.

Pursuant to the terms of the BMS Collaboration Agreement, the Company granted Bristol Myers Squibb a series of exclusive options to obtain one or more exclusive licenses under the Company’s intellectual property to exploit products containing ETBs directed against certain targets designated by Bristol Myers Squibb.

12


 

Bristol Myers Squibb paid the Company an upfront payment of $70.0 million. In addition to the upfront payment, the Company may receive near term and development and regulatory milestone payments of up to $874.5 million. The Company will also be eligible to receive up to an additional $450.0 million in payments upon the achievement of certain sales milestones, and subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product.

The Company will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise of its option for a development candidate, Bristol Myers Squibb will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate.

Unless earlier terminated, the BMS Collaboration Agreement will expire (i) on a country-by-country basis and licensed product-by-licensed product basis, on the date of expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to such licensed product in such country and (ii) in its entirety upon the earlier of (a) the expiration of the royalty payment obligations under the BMS Collaboration Agreement with respect to all licensed products in all countries or (b) upon Bristol Myers Squibb’s decision not to exercise any option on or prior to the applicable option deadlines. Bristol Myers Squibb has the right to terminate the BMS Collaboration Agreement for convenience upon prior written notice to the Company. Either party has the right to terminate the BMS Collaboration Agreement (a) for the insolvency of the other party or (b) subject to specified cure periods, in the event of the other party’s uncured material breach. The Company has the right upon prior written notice to terminate the BMS Collaboration Agreement in the event that Bristol Myers Squibb or any of its affiliates asserts a challenge against the Company’s patents.

 

The Company identified multiple performance obligations at the inception of the BMS Collaboration Agreement consisting of research and development services and material rights related to additional developmental targets. The transaction price of $70.0 million was allocated to the performance obligations based upon their relative stand-alone selling price and will be recognized over time as the underlying research and development services are performed.

 

The Company recognizes revenue for research and development services under the BMS Collaboration Agreement using a cost-based input measure. In applying the cost-based input method of revenue recognition, the Company will use actual costs incurred relative to budgeted costs expected to be incurred. 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 had $34.3 million and $32.8 million of deferred revenue, current, at March 31, 2022 and December 31, 2021 respectively, related to the BMS Collaboration Agreement. The Company had $24.3 million and $30.7 million of deferred revenue, non-current at March 31, 2022 and December 31, 2021, respectively, related to the BMS Collaboration Agreement.

Grant Agreements

In September 2018, the Company entered into a Cancer Research Agreement (the “CD38 CPRIT Agreement”) with the Cancer Prevention and Research Institute of Texas (“CPRIT”) which was extended in October 2021, under which CPRIT awarded a $15.2 million product development grant to fund research of a cancer therapy involving a CD38 targeting ETB. Pursuant to the CD38 CPRIT Agreement, the Company may also use such funds to develop a replacement CD38 targeting ETB, with or without a partner.

In 2011, the Company entered into a Cancer Research Agreement (the “CPRIT Agreement”) with CPRIT under which CPRIT awarded a $10.6 million product development grant for the CD20-targeting ETB MT-3724. This product development grant ended in November 2019. At March 31, 2022 the Company had received $20.0 million and has no remaining receivable.

During the three months ended March 31, 2022 and three months ended March 31, 2021, the Company recognized no grant revenue under these awards. Qualified expenditures submitted for reimbursement in excess of amounts received are recorded as receivables in grant revenue receivable. At March 31, 2022 and December 31, 2021, the Company had no recorded grant revenue receivable.

13


 

NOTE 4 — RELATED PARTY TRANSACTIONS

Takeda

In connection with the Takeda Multi-Target Agreement described in Note 3 “Research and Development Collaboration Agreements”, Takeda became a related party, following the Takeda Stock Purchase Agreement described in Note 11 “Stockholders’ Equity”, of the Company’s previously filed Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 29, 2022. Additionally, Jonathan Lanfear, a director of the Company, was the Vice President and Global Head of Oncology and Neuroscience Business Development for Takeda until September 25, 2020. In August 2021, Takeda ceased to be a related party after a sale of the above-mentioned shares.

 

NOTE 5 —MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS

The following table sets forth the Company’s financial assets (cash equivalents and marketable securities) at fair value on a recurring basis (in thousands):

 

 

 

 

 

Basis of Fair Value Measurements

 

 

March 31, 2022

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Money market funds

$

16,913

 

 

$

16,913

 

 

$

 

 

$

 

Commercial paper

 

74,583

 

 

 

 

 

 

74,583

 

 

 

 

United States Treasury Bills

 

21,650

 

 

 

 

 

 

21,650

 

 

 

 

Government-related debt securities

 

3,003

 

 

 

 

 

 

3,003

 

 

 

 

Corporate Bonds

 

5,711

 

 

 

 

 

 

5,711

 

 

 

 

Total

$

121,860

 

 

$

16,913

 

 

$

104,947

 

 

$

 

Amounts included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

16,913

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities, current

 

104,947

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities, non, current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

121,860

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basis of Fair Value Measurements

 

 

December 31, 2021

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Money market funds

$

24,058

 

 

$

24,058

 

 

$

 

 

$

 

Commercial paper

 

103,113

 

 

 

 

 

 

103,113

 

 

 

 

United States Treasury Bills

 

14,023

 

 

 

 

 

 

14,023

 

 

 

 

Government-related debt securities

 

5,185

 

 

 

 

 

 

5,185

 

 

 

 

Corporate Bonds

 

5,726

 

 

 

 

 

 

5,726

 

 

 

 

Total

$

152,105

 

 

$

24,058

 

 

$

128,047

 

 

$

 

Amounts included in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

25,058

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities, current

 

118,061

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities, non-current

 

8,986

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

152,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company invests in highly-liquid, investment-grade securities. The following is a summary of the Company’s available-for-sale securities (in thousands):

 

 

March 31, 2022