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 |
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.
|
|
Page |
PART I. |
2 |
|
Item 1. |
2 |
|
|
2 |
|
|
3 |
|
|
Condensed Consolidated Statements of Comprehensive Income (Loss) |
3 |
|
4 |
|
|
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. |
23 |
|
Item 4. |
23 |
|
PART II. |
24 |
|
Item 1. |
24 |
|
Item 1A. |
24 |
|
Item 2. |
62 |
|
Item 6. |
62 |
|
64 |
||
|
|
i
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
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
7
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|