arvn-10q_20180930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2018

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: 001-38672

 

ARVINAS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-2566120

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

5 Science Park

395 Winchester Ave.

New Haven, Connecticut

06511

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (203) 535-1456

 

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, 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

 

  

  

Small 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  

As of November 01, 2018, the registrant had 32,350,972 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

3

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Units/Shares and Changes in Members’/Shareholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

25

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 6.

Exhibits

61

Signatures

62

 

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Arvinas, INC. (SUCCESSOR TO aRVINAS hOLDING cOMPANY, llc) and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

 

 

 

September 30,

2018

 

 

December 31,

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,191,004

 

 

$

30,912,391

 

Marketable securities

 

 

83,602,865

 

 

 

8,258,982

 

Account receivable

 

 

 

 

 

25,000,000

 

Other receivable

 

 

2,178,878

 

 

 

1,040,452

 

Prepaid expenses and other current assets

 

 

3,545,309

 

 

 

316,903

 

Total current assets

 

 

95,518,056

 

 

 

65,528,728

 

Property, equipment and leasehold improvements, net

 

 

3,347,242

 

 

 

1,298,881

 

Other assets

 

 

20,760

 

 

 

20,760

 

Total assets

 

$

98,886,058

 

 

$

66,848,369

 

Liabilities and stockholders'/members’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,300,760

 

 

$

596,527

 

Accrued expenses

 

 

4,851,146

 

 

 

3,545,936

 

Deferred revenue

 

 

13,501,056

 

 

 

13,553,136

 

Current portion of long-term debt

 

 

194,669

 

 

 

159,265

 

Total current liabilities

 

 

19,847,631

 

 

 

17,854,864

 

Deferred revenue

 

 

40,713,950

 

 

 

48,545,625

 

Long term debt, net of current portion

 

 

2,000,000

 

 

 

151,122

 

Preferred unit warrant liability

 

 

 

 

 

50,888

 

Total liabilities

 

 

62,561,581

 

 

 

66,602,499

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Series A redeemable convertible preferred units, no par value, at redemption

   value, 22,463,665 units issued and outstanding at December 31, 2017

 

 

 

 

 

19,768,025

 

Series B redeemable convertible preferred units, no par value, at redemption

   value, 24,977,489 units issued and outstanding at December 31, 2017

 

 

 

 

 

41,712,407

 

Series A redeemable convertible preferred stock, $0.001 par value, at redemption value, 22,573,781 shares issued and outstanding at September 30, 2018

 

 

111,132,408

 

 

 

 

Series B redeemable convertible preferred stock, $0.001 par value, at redemption

   value, 24,977,489 shares issued and outstanding at September 30, 2018

 

 

122,965,984

 

 

 

 

Series C redeemable convertible preferred stock, $0.001 par value, at redemption

   value, 16,467,066 shares issued and outstanding at September 30, 2018

 

 

81,068,464

 

 

 

 

Stockholders’/Members’ equity:

 

 

 

 

 

 

 

 

Common units, no par value, 1,897,544 units issued and outstanding

 

 

 

 

 

6,167

 

Incentive units, no par value, 3,066,734 units issued as of

   December 31, 2017

 

 

 

 

 

1,186,419

 

Common stock, $0.001 par value; 3,683,639 shares issued and

   outstanding as of September 30, 2018

 

 

3,684

 

 

 

 

Accumulated deficit

 

 

(286,176,753

)

 

 

(62,417,397

)

Additional paid-in capital

 

 

7,377,913

 

 

 

 

Accumulated other comprehensive loss

 

 

(47,223

)

 

 

(9,751

)

Total members’/stockholders’ equity

 

 

(278,842,379

)

 

 

(61,234,562

)

Total liabilities and members’/stockholders’ equity

 

$

98,886,058

 

 

$

66,848,369

 

 

See accompanying notes

2


Arvinas, INC. (SUCCESSOR TO aRVINAS hOLDING cOMPANY, llc) and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

 

Consolidated Statements of Operations

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue

 

$

3,375,264

 

 

$

1,668,861

 

 

$

10,883,755

 

 

$

5,006,583

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

13,149,879

 

 

 

7,222,897

 

 

 

30,631,531

 

 

 

22,102,713

 

General and administrative

 

 

4,284,231

 

 

 

857,310

 

 

 

7,110,723

 

 

 

2,357,119

 

Total operating expenses

 

 

17,434,110

 

 

 

8,080,207

 

 

 

37,742,254

 

 

 

24,459,832

 

Loss from operations

 

 

(14,058,846

)

 

 

(6,411,346

)

 

 

(26,858,499

)

 

 

(19,453,249

)

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

 

160,100

 

 

 

607

 

 

 

418,494

 

 

 

1,030

 

Change in fair value of preferred unit warrant

 

 

 

 

 

1,546

 

 

 

(193,779

)

 

 

4,338

 

Interest income

 

 

523,338

 

 

 

24,140

 

 

 

1,273,988

 

 

 

165,606

 

Interest expense

 

 

(12,264

)

 

 

(12,219

)

 

 

(32,804

)

 

 

(38,905

)

Total other income

 

 

671,174

 

 

 

14,074

 

 

 

1,465,899

 

 

 

132,069

 

Loss before income taxes

 

 

(13,387,672

)

 

 

(6,397,272

)

 

 

(25,392,600

)

 

 

(19,321,180

)

Benefit from income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(13,387,672

)

 

 

(6,397,272

)

 

 

(25,392,600

)

 

 

(19,321,180

)

Change in fair value of redeemable convertible

   preferred stock/units

 

 

(112,050,609

)

 

 

 

 

 

(198,366,756

)

 

 

 

Net loss attributable to common shares/units

 

$

(125,438,281

)

 

$

(6,397,272

)

 

$

(223,759,356

)

 

$

(19,321,180

)

Net loss per common share/unit, basic and diluted

 

$

(62.38

)

 

$

(3.37

)

 

$

(115.62

)

 

$

(10.18

)

Weighted average common shares/units outstanding, basic

   and diluted

 

 

2,010,807

 

 

 

1,897,544

 

 

 

1,935,299

 

 

 

1,897,544

 

 

Consolidated Statements of Comprehensive Loss

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(13,387,672

)

 

$

(6,397,272

)

 

$

(25,392,600

)

 

$

(19,321,180

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

49,391

 

 

 

9,339

 

 

 

(37,472

)

 

 

18,043

 

Comprehensive loss

 

$

(13,338,281

)

 

$

(6,387,933

)

 

$

(25,430,072

)

 

$

(19,303,137

)

 

See accompanying notes

 

 

3


Arvinas, INC. (SUCCESSOR TO aRVINAS hOLDING cOMPANY, llc) and Subsidiaries

Condensed Consolidated Statements of Redeemable Convertible Preferred Units/Shares and Changes in Members’/Stockholders’ Equity (unaudited)

 

 

 

Series A

 

 

Series B

 

 

Series C

 

 

Series

 

 

 

Redeemable

 

 

Redeemable

 

 

Redeemable

 

 

A, B and C

 

 

 

Convertible

 

 

Convertible

 

 

Convertible

 

 

Convertible

 

 

 

Preferred

 

 

Preferred

 

 

Preferred

 

 

Preferred

 

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Shares

 

 

Amount

 

Balance at December 31, 2016

 

 

22,463,665

 

 

$

15,300,002

 

 

 

24,977,489

 

 

$

41,609,999

 

 

 

 

 

$

 

 

 

 

 

$

 

Incentive unit-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2017

 

 

22,463,665

 

 

$

15,300,002

 

 

 

24,977,489

 

 

$

41,609,999

 

 

 

 

 

$

 

 

 

 

 

$

 

Balance at December 31, 2017

 

 

22,463,665

 

 

$

19,768,025

 

 

 

24,977,489

 

 

$

41,712,407

 

 

 

 

 

$

 

 

 

 

 

$

 

Incentive unit-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of Series A redeemable

   convertible preferred warrant

 

 

110,116

 

 

 

319,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series C redeemable

   convertible preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,467,066

 

 

 

55,000,001

 

 

 

 

 

 

 

Change in redemption

   value of redeemable

   convertible preferred units

 

 

 

 

 

91,044,716

 

 

 

 

 

 

81,253,577

 

 

 

 

 

 

26,068,463

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of redeemable

   convertible preferred units

   to redeemable convertible

   preferred shares

 

 

(22,573,781

)

 

 

(111,132,408

)

 

 

(24,977,489

)

 

 

(122,965,984

)

 

 

(16,467,066

)

 

 

(81,068,464

)

 

 

64,018,336

 

 

 

315,166,856

 

Conversion of common and

   incentive units to common

   and restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

64,018,336

 

 

$

315,166,856

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

Members’

 

 

 

Common

 

 

Common

 

 

Incentive

 

 

Accumulated

 

 

Paid-in

 

 

Comprehensive

 

 

/Stockholders'

 

 

 

Units

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Units

 

 

Amount

 

 

Deficit

 

 

Capital

 

 

Loss

 

 

Equity

 

Balance at

   December 31, 2016

 

 

1,897,544

 

 

$

6,167

 

 

 

 

 

$

 

 

 

9,966,886

 

 

$

941,371

 

 

$

(33,797,760

)

 

$

 

 

$

(28,679

)

 

$

(32,878,901

)

Incentive unit-based

   compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

232,329

 

 

 

162,901

 

 

 

 

 

 

 

 

 

 

 

 

162,901

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,321,180

)

 

 

 

 

 

 

 

 

(19,321,180

)

Unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,043

 

 

 

18,043

 

Balance at

   September 30, 2017

 

 

1,897,544

 

 

$

6,167

 

 

 

 

 

$

 

 

 

10,199,215

 

 

$

1,104,272

 

 

$

(53,118,940

)

 

$

 

 

$

(10,636

)

 

$

(52,019,137

)

Balance at

   December 31, 2017

 

 

1,897,544

 

 

$

6,167

 

 

 

 

 

$

 

 

 

11,927,381

 

 

$

1,186,419

 

 

$

(62,417,397

)

 

$

 

 

$

(9,751

)

 

$

(61,234,562

)

Incentive unit/share-based

   compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,424,605

 

 

 

6,189,011

 

 

 

 

 

 

 

 

 

 

 

 

6,189,011

 

Exercise of Series A

   redeemable convertible

   preferred warrant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series C

   redeemable convertible

   preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in redemption

   value of redeemable

   convertible preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(198,366,756

)

 

 

 

 

 

 

 

 

(198,366,756

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,392,600

)

 

 

 

 

 

 

 

 

(25,392,600

)

Conversion of redeemable

   convertible preferred units

   to redeemable convertible

   preferred shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of common and

   incentive units to common

   and restricted stock

 

 

(1,897,544

)

 

 

(6,167

)

 

 

3,683,639

 

 

 

3,684

 

 

 

(17,351,986

)

 

 

(7,375,430

)

 

 

 

 

 

7,377,913

 

 

 

 

 

 

 

Unrealized loss on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,472

)

 

 

(37,472

)

Balance at

   September 30, 2018

 

 

 

 

$

 

 

 

3,683,639

 

 

$

3,684

 

 

 

 

 

$

 

 

$

(286,176,753

)

 

$

7,377,913

 

 

$

(47,223

)

 

$

(278,842,379

)

 

See accompanying notes

4


 

Arvinas, INC. (SUCCESSOR TO aRVINAS hOLDING cOMPANY, llc) and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(25,392,600

)

 

$

(19,321,180

)

Adjustments to reconcile net loss to net cash

   used in operating activities:

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

13,473

 

 

 

13,473

 

Change in fair value of preferred unit warrant liability

 

 

193,779

 

 

 

(4,338

)

Depreciation and amortization

 

 

483,052

 

 

 

246,367

 

Net accretion of bond discounts/premiums

 

 

213,190

 

 

 

312,561

 

Non-cash compensation

 

 

6,189,011

 

 

 

162,901

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Account receivable

 

 

25,000,000

 

 

 

 

Other receivable

 

 

(1,138,426

)

 

 

887,835

 

Prepaid expenses and other current assets

 

 

(2,565,154

)

 

 

22,940

 

Accounts payable

 

 

704,233

 

 

 

(648,028

)

Accrued expenses

 

 

319,657

 

 

 

289,802

 

Deferred revenue

 

 

(7,883,755

)

 

 

(5,006,582

)

Net cash used in operating activities

 

 

(3,863,540

)

 

 

(23,044,249

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(114,393,545

)

 

 

 

Maturities of marketable securities

 

 

38,799,000

 

 

 

12,033,000

 

Sales of marketable securities

 

 

 

 

 

9,077,435

 

Purchase of property, equipment and leasehold

   improvements

 

 

(2,209,112

)

 

 

(577,859

)

Net cash provided by (used in) investing activities

 

 

(77,803,657

)

 

 

20,532,576

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayments of long term debt

 

 

(129,191

)

 

 

(119,885

)

Proceeds from long term debt

 

 

2,000,000

 

 

 

 

Proceeds from sale of redeemable convertible preferred units

 

 

55,000,001

 

 

 

 

Proceeds from exercise of redeemable convertible preferred warrant

 

 

75,000

 

 

 

 

Net cash provided by (used in) financing activities

 

 

56,945,810

 

 

 

(119,885

)

Net decrease in cash and cash equivalents

 

 

(24,721,387

)

 

 

(2,631,558

)

Cash and cash equivalents, beginning of the period

 

 

30,912,391

 

 

 

5,088,548

 

Cash and cash equivalents, end of the period

 

$

6,191,004

 

 

$

2,456,990

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Purchases of property, equipment and leasehold improvements

   unpaid at period end

 

$

322,301

 

 

$

-

 

Deferred offering costs included in accrued expenses

 

$

663,252

 

 

$

-

 

Cash paid for interest

 

$

19,331

 

 

$

25,433

 

Change in redemption value of preferred units

 

$

(198,366,756

)

 

$

-

 

 

See accompanying notes

5


 

Arvinas, INC. (SUCCESSOR TO aRVINAS hOLDING cOMPANY, llc) and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Nature of Business

Arvinas, Inc. (Arvinas) has five wholly owned subsidiaries, Arvinas Operations, Inc., Arvinas Androgen Receptor, Inc., Arvinas Estrogen Receptor, Inc., Arvinas BRD4, Inc. and Arvinas Winchester, Inc. (collectively, the Company). The Company is a biopharmaceutical company dedicated to improving the lives of patients suffering from debilitating and life-threatening diseases throughout the discovery, development and commercialization of therapies to degrade disease-causing proteins. The Company expects to incur additional operating losses and negative operating cash flows for the foreseeable future.

On October 1, 2018, the Company completed an initial public offering (IPO) in which the Company issued and sold 7,500,000 shares of common stock at a public offering price of $16.00 per share. In October 2018, the underwriters of the IPO exercised in part their option to purchase 200,482 additional shares of the Company’s common stock at an offering price of $16.00 per share. The Company’s aggregate gross proceeds from the sale of shares in the IPO, including the option, was $123.2 million before fees and expenses of $12.0 million, of which $2.8 million were recorded within Other current assets as of September 30, 2018.

The Company’s Board of Managers approved a one-for-3.25 reverse stock split of its issued and outstanding shares of common units and a proportional adjustment to the existing conversion ratios for the Company’s Series A, Series B, and Series C preferred units effective as of September 14, 2018. Accordingly, all share/unit and per share/unit amounts for all periods presented in the accompanying financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect this reverse unit split and adjustment of the preferred unit conversion ratios. Immediately prior to the effectiveness of the registration statement on September 26, 2018, the Company converted from a Delaware limited liability company to a Delaware corporation. Pursuant to the plan of conversion, each outstanding Series A, Series B, and Series C preferred units converted into an equal number of shares of Series A, Series B, and Series C preferred stock, each outstanding common unit converted into a share of common stock and each outstanding incentive unit converted into a number of shares of common stock and restricted stock based on a conversion price determined by the board of directors. The Company issued 1,786,095 shares of common stock and 1,268,923 shares of restricted stock.

On October 1, 2018, all of the outstanding shares of convertible preferred stock automatically converted into 19,697,928 shares of common stock at the applicable conversion ratio then in effect.  Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding.  The financial statements as of September 30, 2018, including share and per share amounts, do not give effect to the IPO, as it closed on October 1, 2018.

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Statements

The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission. The year-end condensed consolidated balance sheet data was derived from the Company’s audited financial statements but does not include all disclosures required by U.S. GAAP. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2017 included in the Company’s final prospectus for its IPO, filed pursuant to Rule 424(b) under the Securities Exchange Act of 1933, as amended, with the Securities Exchange Commission on September 27, 2018 (the Prospectus). The condensed consolidated financial statements, in the opinion of management, reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires lessees to present right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for years beginning after December 15, 2018. Early adoption is permitted. The Company is still in the process of determining the effect that the adoption of ASU 2016-02 will have on the accompanying consolidated financial statements.

6


 

During the nine months ended September 30, 2018, there were no changes to the Company’s significant accounting policies as described in Note 2 to the financial statements included in the Company’s consolidated financial statements as of December 31, 2017 and 2016 and for the years then ended included in the Prospectus.

3. Research Collaboration and License Agreements

In December 2017, the Company entered into a Research Collaboration and License Agreement with Pfizer, Inc. (the Pfizer Agreement) Under the terms of the Pfizer Agreement, the Company received an upfront non-refundable payment and certain additional payments totaling $28.0 million in the nine months ended September 30, 2018 in exchange for use of the Company’s technology license and to fund Pfizer-related research as defined within the agreement. These payments are being recognized as revenue over the total estimated period of performance. The Company is also eligible to receive up to an additional $37.5 million in non-refundable option payments if Pfizer exercises its options for all targets under the agreement. The Company is also entitled to receive up to $225 million in development milestone payments and up to $550 million in sales-based milestone payments for all designated targets under the Pfizer Agreement, as well as tiered royalties based on sales.

In September 2015, the Company entered into an Option and License Agreement with Genentech, Inc. and F. Hoffman-La Roche Ltd. (the Genentech Agreement). During 2015, the Company received an upfront non-refundable payment of $11.0 million in exchange for use of the Company’s technology license and to fund Genentech-related research as defined within the Genentech agreement. In November 2017, the Company entered into an Amended and Restated Option, License, and Collaboration Agreement with Genentech, Inc. and F. Hoffman-La Roche Ltd. (the Genentech Modification), amending the Genentech Agreement. Under the Genentech Modification, the Company received additional upfront non-refundable payments of $34.5 million to fund Genentech-related research and Genentech has the right to designate up to ten targets. The Company is eligible to receive up to $27.5 million in additional expansion target payments if Genentech exercises its options on all remaining targets. Upfront non-refundable payments are recognized as revenue over the total estimated period of performance. The Company is eligible to receive up to $44.0 million per target in development milestone payments, $52.5 million in regulatory milestone payments and $60.0 million in commercial milestones based on sales thresholds as well as tiered royalties based on sales.

In April 2015, the Company entered into a Research Collaboration and License Agreement with Merck Sharp & Dohme Corp. (the Merck Agreement). During 2015, the Company received an upfront non-refundable payment of $7 million, which is being recognized as revenue over the total estimated period of performance, in exchange for use of the Company’s technology license. The Merck Agreement also provided for research program funding to support Merck-related research. The Merck Agreement expired in April 2018.

Information about contract liabilities is as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Contract liabilities

 

$

54,215,006

 

 

$

62,098,761

 

Revenues recognized in the period from:

 

 

 

 

 

 

 

 

Amounts included in deferred revenue in previous periods

 

$

10,354,342

 

 

$

6,600,000

 

 

Changes in deferred revenue from December 31, 2017 to September 30, 2018 were due to billings of $3.0 million under the Pfizer Agreement and $10.9 million of revenue recognized on the research collaboration and license agreements.