arvn-10q_20190331.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 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: 001-38672

 

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, 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

 

Trading

Symbol

 

Name of each exchange on which registered

Common stock, par value $0.001 per share

 

ARVN

 

The Nasdaq Stock Market LLC

 

As of May 3, 2019, the registrant had 32,326,249 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’/Stockholders’ 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

23

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 6.

Exhibits

62

Signatures

64

 

 

 

i


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “goals,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

 

the timing of our planned investigational new drug, or IND, submission for ARV-471;

 

the timing and conduct of our clinical trial programs of ARV-110 and ARV-471, including statements regarding the timing of initiation and completion of the clinical trials and the period during which the results of the clinical trials will become available;

 

the timing of, and our ability to obtain, marketing approval of ARV-110 and ARV-471, and the ability of ARV-110 and ARV-471 and our other product candidates to meet existing or future regulatory standards;

 

our plans to pursue research and development of other product candidates;

 

the potential advantages of our platform technology and our product candidates;

 

the extent to which our scientific approach and platform technology may potentially address a broad range of diseases;

 

the potential benefits of our arrangements with Yale University and Professor Crews;

 

the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

 

the potential receipt of revenue from future sales of our product candidates;

 

the rate and degree of market acceptance and clinical utility of our product candidates;

 

our estimates regarding the potential market opportunity for our product candidates;

 

our sales, marketing and distribution capabilities and strategy;

 

our ability to establish and maintain arrangements for manufacture of our product candidates;

 

the potential achievement of milestones and receipt of payments under our collaborations;

 

our ability to enter into additional collaborations with third parties;

 

our intellectual property position;

 

our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

 

the impact of government laws and regulations; and

 

our competitive position.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements except as required by applicable law.

In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to the “Company,” “Arvinas,” “we,” “us,” and “our,” except where the context requires otherwise, refer to Arvinas, Inc. and its consolidated subsidiaries, or any one or more of them as the context may require, and “our board of directors” refers to the board of directors of Arvinas, Inc.

 

 

ii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Arvinas, INC. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,786,247

 

 

$

3,190,056

 

Marketable securities

 

 

146,175,265

 

 

 

184,637,640

 

Account receivable

 

 

 

 

 

2,775,831

 

Other receivables

 

 

2,469,514

 

 

 

2,255,966

 

Prepaid expenses and other current assets

 

 

2,304,852

 

 

 

2,818,286

 

Total current assets

 

 

179,735,878

 

 

 

195,677,779

 

Property, equipment and leasehold improvements, net

 

 

4,227,487

 

 

 

3,583,036

 

Operating lease right of use assets

 

 

2,584,002

 

 

 

 

Other assets

 

 

20,760

 

 

 

20,760

 

Total assets

 

$

186,568,127

 

 

$

199,281,575

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,563,909

 

 

$

2,758,184

 

Accrued expenses

 

 

2,947,556

 

 

 

4,001,276

 

Deferred revenue

 

 

15,440,957

 

 

 

16,065,957

 

Current portion of long-term debt

 

 

113,410

 

 

 

154,461

 

Current portion of operating lease liability

 

 

534,340

 

 

 

 

Total current liabilities

 

 

20,600,172

 

 

 

22,979,878

 

Deferred revenue

 

 

34,093,225

 

 

 

37,484,714

 

Long term debt, net of current portion

 

 

2,000,000

 

 

 

2,000,000

 

Operating lease liability

 

 

2,137,037

 

 

 

 

Other noncurrent liability

 

 

 

 

 

150,000

 

Total liabilities

 

 

58,830,434

 

 

 

62,614,592

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 31,368,864 and 31,235,458 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

31,369

 

 

 

31,236

 

Accumulated deficit

 

 

(316,669,111

)

 

 

(302,264,619

)

Additional paid-in capital

 

 

444,295,404

 

 

 

439,118,089

 

Accumulated other comprehensive income (loss)

 

 

80,031

 

 

 

(217,723

)

Total stockholders’ equity

 

 

127,737,693

 

 

 

136,666,983

 

Total liabilities and stockholders’ equity

 

$

186,568,127

 

 

$

199,281,575

 

 

See accompanying notes

2


Arvinas, INC. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

 

Condensed Consolidated Statements of Operations

 

For the Three Months

Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

4,016,489

 

 

$

4,108,596

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

14,190,359

 

 

 

7,143,817

 

General and administrative

 

 

5,640,629

 

 

 

1,246,887

 

Total operating expenses

 

 

19,830,988

 

 

 

8,390,704

 

Loss from operations

 

 

(15,814,499

)

 

 

(4,282,108

)

Other income (expenses)

 

 

 

 

 

 

 

 

Other income, net

 

 

243,122

 

 

 

127,449

 

Change in fair value of preferred unit warrant

 

 

 

 

 

(196,295

)

Interest income

 

 

1,190,523

 

 

 

211,237

 

Interest expense

 

 

(23,638

)

 

 

(10,669

)

Total other income

 

 

1,410,007

 

 

 

131,722

 

Net loss

 

 

(14,404,492

)

 

 

(4,150,386

)

Change in fair value of redeemable convertible

   preferred units

 

 

 

 

 

(71,482,098

)

Net loss attributable to common shares/units

 

$

(14,404,492

)

 

$

(75,632,484

)

Net loss per common share/unit, basic and diluted

 

$

(0.46

)

 

$

(39.86

)

Weighted average common shares/units outstanding, basic

   and diluted

 

 

31,325,516

 

 

 

1,897,544

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

For the Three Months

Ended March 31,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(14,404,492

)

 

$

(4,150,386

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

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

 

 

297,754

 

 

 

(58,032

)

Comprehensive loss

 

$

(14,106,738

)

 

$

(4,208,418

)

 

See accompanying notes

 

 

3


Arvinas, INC. and Subsidiaries

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

 

 

 

Series A

 

 

Series B

 

 

Series C

 

 

 

Redeemable

 

 

Redeemable

 

 

Redeemable

 

 

 

Convertible

 

 

Convertible

 

 

Convertible

 

 

 

Preferred

 

 

Preferred

 

 

Preferred

 

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

 

Units

 

 

Amount

 

Balance at December 31, 2017

 

 

22,463,665

 

 

$

19,768,025

 

 

 

24,977,489

 

 

$

41,712,407

 

 

 

 

 

$

 

Incentive unit-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in redemption

   value of redeemable

   convertible preferred units

 

 

 

 

 

39,760,687

 

 

 

 

 

 

31,721,411

 

 

 

 

 

 

 

Issuance of Series C redeemable

   convertible preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,467,066

 

 

 

55,000,001

 

Unrealized loss on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2018

 

 

22,463,665

 

 

$

59,528,712

 

 

 

24,977,489

 

 

$

73,433,818

 

 

 

16,467,066

 

 

$

55,000,001

 

Balance at December 31, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock vesting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

Stockholders'/

 

 

 

Common

 

 

Common

 

 

Incentive

 

 

Accumulated

 

 

Paid-in

 

 

Comprehensive

 

 

Members’

 

 

 

Units

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Units

 

 

Amount

 

 

Deficit

 

 

Capital

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2017

 

 

1,897,544

 

 

$

6,167

 

 

 

 

 

$

 

 

 

3,669,963

 

 

$

1,186,419

 

 

$

(62,417,397

)

 

$

 

 

$

(9,751

)

 

$

(61,234,562

)

Incentive unit-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

159,260

 

 

 

146,730

 

 

 

 

 

 

 

 

 

 

 

 

146,730

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,150,386

)

 

 

 

 

 

 

 

 

(4,150,386

)

Change in redemption

   value of redeemable

   convertible preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(71,482,098

)

 

 

 

 

 

 

 

 

(71,482,098

)

Issuance of Series C redeemable

   convertible preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(58,032

)

 

 

(58,032

)

Balance at March 31, 2018

 

 

1,897,544

 

 

$

6,167

 

 

 

 

 

$

 

 

 

3,829,223

 

 

$

1,333,149

 

 

$

(138,049,881

)

 

$

 

 

$

(67,783

)

 

$

(136,778,348

)

Balance at December 31, 2018

 

 

 

 

$

 

 

 

31,235,458

 

 

$

31,236

 

 

 

 

 

$

 

 

$

(302,264,619

)

 

$

439,118,089

 

 

$

(217,723

)

 

$

136,666,983

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,177,448

 

 

 

 

 

 

5,177,448

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,404,492

)

 

 

 

 

 

 

 

 

(14,404,492

)

Restricted stock vesting

 

 

 

 

 

 

 

 

133,406

 

 

 

133

 

 

 

 

 

 

 

 

 

 

 

 

(133

)

 

 

 

 

 

 

Unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

297,754

 

 

 

297,754

 

Balance at March 31, 2019

 

 

 

 

$

 

 

 

31,368,864

 

 

$

31,369

 

 

 

 

 

$

 

 

$

(316,669,111

)

 

$

444,295,404

 

 

$

80,031

 

 

$

127,737,693

 

 

See accompanying notes

4


 

Arvinas, INC. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(14,404,492

)

 

$

(4,150,386

)

Adjustments to reconcile net loss to net cash provided by

   (used in) operating activities:

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

4,491

 

 

 

4,491

 

Change in fair value of preferred unit warrant liability

 

 

 

 

 

196,295

 

Depreciation and amortization

 

 

246,159

 

 

 

123,028

 

Net accretion of bond discounts/premiums

 

 

5,383

 

 

 

35,251

 

Amortization of right to use assets

 

 

180,398

 

 

 

 

Non-cash compensation

 

 

5,177,448

 

 

 

146,730

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Account receivable

 

 

2,775,831

 

 

 

25,000,000

 

Other receivables

 

 

(213,548

)

 

 

(394,425

)

Prepaid expenses and other current assets

 

 

363,434

 

 

 

5,057

 

Accounts payable

 

 

(1,704,241

)

 

 

1,370,207

 

Accrued expenses

 

 

(1,053,720

)

 

 

(1,928,437

)

Deferred revenue

 

 

(4,016,489

)

 

 

(1,108,597

)

Operating lease liabilities

 

 

(93,023

)

 

 

 

Net cash provided by (used in) operating activities

 

 

(12,732,369

)

 

 

19,299,214

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(3,261,254

)

 

 

(47,050,834

)

Maturities of marketable securities

 

 

42,016,000

 

 

 

3,351,000

 

Purchase of property, equipment and leasehold

   improvements

 

 

(380,644

)

 

 

(638,643

)

Net cash provided by (used in) investing activities

 

 

38,374,102

 

 

 

(44,338,477

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

(45,542

)

 

 

(42,261

)

Proceeds from sale of redeemable convertible preferred units

 

 

 

 

 

55,000,001

 

Net cash provided by (used in) financing activities

 

 

(45,542

)

 

 

54,957,740

 

Net increase in cash and cash equivalents

 

 

25,596,191

 

 

 

29,918,477

 

Cash and cash equivalents, beginning of the period

 

 

3,190,056

 

 

 

30,912,391

 

Cash and cash equivalents, end of the period

 

$

28,786,247

 

 

$

60,830,868

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Purchases of property, equipment and leasehold improvements

   unpaid at period end

 

$

509,966

 

 

$

-

 

Cash paid for interest

 

$

24,563

 

 

$

6,178

 

Change in redemption value of preferred units

 

$

-

 

 

$

71,482,098

 

 

See accompanying notes

5


 

Arvinas, INC. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Nature of Business

Arvinas, Inc. and subsidiaries (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 underwriting fees and expenses of $12.0 million.  

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.

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, 2018 and 2017 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 26, 2019 (the Annual Report). 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 Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 effective for years beginning after December 15, 2018 and is to be applied using a modified retrospective approach applied at the beginning of the earliest comparative period in the financial statements or in the year of adoption with a cumulative effect to the opening balance of retained earnings. The Company adopted the new guidance as of January 1, 2019 using the modified retrospective adoption method in which it did not restate prior periods. The Company elected the practical expedient to include both lease and non-lease components as a single component and account for it as a lease. In adopting the standard, the Company also elected to utilize several other practical expedients, including not reassessing contracts for classification as a lease, not having to reassess the lease classification of existing leases, and not reassessing the initial direct costs of existing leases. The adoption of this standard resulted in the recognition of right-of-use assets and related lease liabilities of approximately $2.4 million related to its operating lease commitments on the Condensed Consolidated Balance Sheet as of January 1, 2019.

In June 2018, the FASB issued ASU No. 2018-07, Improvements in Nonemployee Share-Based Payment Accounting. ASU 2018-07 aligns the accounting for share-based payment awards to nonemployees with the accounting for share-based awards to employees. ASU 2018-07 is effective for interim and annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company adopted ASU 2018-07 in the first quarter of 2019. The adoption of the standard was immaterial to the accompanying condensed consolidated financial statements.

6


 

During the three months ended March 31, 2019, there were no other changes to the Company’s significant accounting policies as described in Note 2 to the financial statements included in the Company’s condensed consolidated financial statements as of December 31, 2018 and 2017 and for the years then ended included in the Annual Report.

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 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. Pfizer exercised an option for $2.5 million in December 2018 and the amount was included in accounts receivable at December 31, 2018. The option will be recognized as revenue over the estimated period of performance. 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. (together, Genentech) (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.

Information about contract liabilities is as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Contract liabilities

 

$

49,534,182

 

 

$

53,550,671

 

Revenues recognized in the period from:

 

 

 

 

 

 

 

 

Amounts included in deferred revenue in previous periods

 

$

4,016,489

 

 

$

13,553,136

 

 

Changes in deferred revenue from December 31, 2018 to March 31, 2019 were due to $4.0 million of revenue recognized on the research collaboration and license agreements.

The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of March 31, 2019 was $49.5 million, which is expected to be recognized as revenue for the years ending December 31 are:

 

Remainder of 2019

 

$

12.0

 

2020

 

 

13.6

 

2021

 

 

13.5

 

2022

 

 

8.6

 

2023

 

 

1.8

 

 

 

$

49.5

 

 

4. Fair Value Measurements

Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC 825, Financial Instruments, defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The Company’s principal financial instruments are comprised of cash, marketable

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securities, accounts receivable, accounts payable, accrued liabilities and long-term debt. The carrying value of all financial instruments approximates fair value. The three levels of valuation hierarchy are defined as follows:

Level 1—Inputs are based upon observable or quoted prices for identical instruments traded in active markets.

Level 2—Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 investments consist primarily of corporate notes and bonds and U.S. government and agency securities.

Level 3—Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

The Company’s marketable securities consist of corporate bonds and a government bond which are adjusted to fair value each balance sheet date, based on quoted prices, which are considered Level 2 inputs. The fair value of the preferred unit warrant liability was measured on a recurring basis and was considered a Level 3 instrument in the fair value hierarchy. See Note 8 for a description and terms of the warrant, the valuation method used and significant assumptions used in the valuation.

The following is a summary of the Company’s available-for-sale securities as of March 31, 2019 and December 31, 2018:

 

March 31, 2019

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

Description

 

Effective

Maturity

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Corporate bonds

 

2019-2020

 

$

139,869,860

 

 

 

76,719

 

 

 

 

 

$

139,946,579

 

Government bonds

 

2019

 

 

2,975,341

 

 

 

5,909

 

 

 

 

 

 

2,981,250

 

Corporate bonds

 

2020

 

 

3,250,033

 

 

 

 

 

 

(2,597

)

 

 

3,247,436

 

 

 

 

 

$

146,095,234

 

 

$

82,628

 

 

$

(2,597

)

 

$

146,175,265

 

 

December 31, 2018

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

Description

 

Effective

Maturity

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Corporate bonds

 

2019

 

$

154,859,427

 

 

 

 

 

 

(165,630

)

 

$

154,693,797

 

Government bonds

 

2019

 

 

2,966,262

 

 

 

2,778

 

 

 

 

 

 

2,969,040

 

Corporate bonds

 

2020

 

 

27,029,673

 

 

 

 

 

 

(54,870

)

 

 

26,974,803

 

 

 

 

 

$

184,855,362

 

 

 

2,778

 

 

 

(220,500

)

 

$

184,637,640

 

 

The following tables summarize the fair values and levels within the fair value hierarchy in which the fair value measurements fall for assets and liabilities measured on a recurring basis:

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 

 

$

143,194,015

 

 

$

 

 

$

143,194,015

 

Government bonds

 

$

 

 

$

2,981,250

 

 

$

 

 

$

2,981,250

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets: