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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 June 30, 2020

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

 

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, par value $0.001 per share

 

ARVN

 

The Nasdaq Stock Market LLC

 

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  

 

As of July 24, 2020, the registrant had 39,237,530 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 and Comprehensive Loss

3

 

Condensed Consolidated Statements of Changes in 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

14

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

65

Item 6.

Exhibits

66

Signatures

67

 

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 and conduct of our clinical trial programs of ARV-110 and ARV-471, including statements regarding the conduct of our ongoing Phase 1/2 clinical trials of ARV-110 and ARV-471 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 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 COVID-19 on our business and operations;

 

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)

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,593,656

 

 

$

9,211,057

 

Marketable securities

 

 

221,103,306

 

 

 

271,661,456

 

Other receivables

 

 

3,564,317

 

 

 

6,280,828

 

Prepaid expenses and other current assets

 

 

3,320,609

 

 

 

3,727,294

 

Total current assets

 

 

249,581,888

 

 

 

290,880,635

 

Property, equipment and leasehold improvements, net

 

 

10,541,408

 

 

 

8,455,411

 

Operating lease right of use assets

 

 

2,429,500

 

 

 

2,278,623

 

Other assets

 

 

28,777

 

 

 

26,757

 

Total assets

 

$

262,581,573

 

 

$

301,641,426

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,429,757

 

 

$

4,556,827

 

Accrued expenses

 

 

7,404,460

 

 

 

7,602,904

 

Deferred revenue

 

 

22,964,819

 

 

 

19,979,525

 

Current portion of operating lease liability

 

 

920,765

 

 

 

673,896

 

Total current liabilities

 

 

33,719,801

 

 

 

32,813,152

 

Deferred revenue

 

 

27,489,590

 

 

 

38,427,882

 

Long term debt

 

 

2,000,000

 

 

 

2,000,000

 

Operating lease liability

 

 

1,590,758

 

 

 

1,714,111

 

Total liabilities

 

 

64,800,149

 

 

 

74,955,145

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 38,825,190 and 38,461,353 shares

   issued and outstanding as of June 30, 2020 and December 31, 2019,

   respectively

 

 

38,825

 

 

 

38,461

 

Accumulated deficit

 

 

(419,522,556

)

 

 

(372,556,846

)

Additional paid-in capital

 

 

615,601,031

 

 

 

599,097,090

 

Accumulated other comprehensive income

 

 

1,664,124

 

 

 

107,576

 

Total stockholders’ equity

 

 

197,781,424

 

 

 

226,686,281

 

Total liabilities and stockholders’ equity

 

$

262,581,573

 

 

$

301,641,426

 

 

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 June 30,

 

 

For the Six Months

Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

5,747,681

 

 

$

4,016,489

 

 

$

11,987,309

 

 

$

8,032,979

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

23,416,090

 

 

 

16,000,638

 

 

 

45,142,776

 

 

 

30,190,996

 

General and administrative

 

 

8,815,474

 

 

 

6,440,779

 

 

 

16,740,479

 

 

 

12,081,409

 

Total operating expenses

 

 

32,231,564

 

 

 

22,441,417

 

 

 

61,883,255

 

 

 

42,272,405

 

Income (loss) from operations

 

 

(26,483,883

)

 

 

(18,424,928

)

 

 

(49,895,946

)

 

 

(34,239,426

)

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

 

307,743

 

 

 

191,729

 

 

 

697,752

 

 

 

434,850

 

Interest income

 

 

965,851

 

 

 

1,091,331

 

 

 

2,264,984

 

 

 

2,281,853

 

Interest expense

 

 

(16,250

)

 

 

(22,778

)

 

 

(32,500

)

 

 

(46,416

)

Total other income

 

 

1,257,344

 

 

 

1,260,282

 

 

 

2,930,236

 

 

 

2,670,287

 

Net loss

 

 

(25,226,539

)

 

 

(17,164,646

)

 

 

(46,965,710

)

 

 

(31,569,139

)

Net loss per common share, basic and diluted

 

$

(0.65

)

 

$

(0.55

)

 

$

(1.22

)

 

$

(1.01

)

Weighted average common shares outstanding, basic

   and diluted

 

 

38,739,922

 

 

 

31,440,051

 

 

 

38,644,209

 

 

 

31,408,658

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

For the Three Months

Ended June 30,

 

 

For the Six Months

Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

$

(25,226,539

)

 

$

(17,164,646

)

 

$

(46,965,710

)

 

$

(31,569,139

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

2,266,738

 

 

 

220,119

 

 

 

1,556,548

 

 

 

517,873

 

Comprehensive loss

 

$

(22,959,801

)

 

$

(16,944,527

)

 

$

(45,409,162

)

 

$

(31,051,266

)

 

See accompanying notes

 

 

3


Arvinas, INC. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

Total

 

 

 

Common

 

 

Accumulated

 

 

Paid-in

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Capital

 

 

Income (Loss)

 

 

Equity

 

Balance at March 31, 2019

 

 

31,368,864

 

 

$

31,369

 

 

$

(316,669,112

)

 

$

444,295,404

 

 

$

80,031

 

 

$

127,737,692

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

5,312,607

 

 

 

 

 

 

5,312,607

 

Net loss

 

 

 

 

 

 

 

 

(17,164,646

)

 

 

 

 

 

 

 

 

(17,164,646

)

Restricted stock vesting

 

 

129,642

 

 

 

130

 

 

 

 

 

 

(130

)

 

 

 

 

 

 

Exercise of stock options

 

 

24,968

 

 

 

25

 

 

 

 

 

 

399,463

 

 

 

 

 

 

399,488

 

Unrealized gain on available-for

   -sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

220,119

 

 

 

220,119

 

Balance at June 30, 2019

 

 

31,523,474

 

 

$

31,524

 

 

$

(333,833,758

)

 

$

450,007,344

 

 

$

300,150

 

 

$

116,505,260

 

Balance at March 31, 2020

 

 

38,672,433

 

 

$

38,672

 

 

$

(394,296,017

)

 

$

606,567,072

 

 

$

(602,614

)

 

$

211,707,113

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

7,754,959

 

 

 

 

 

 

7,754,959

 

Net loss

 

 

 

 

 

 

 

 

(25,226,539

)

 

 

 

 

 

 

 

 

(25,226,539

)

Restricted stock vesting

 

 

84,177

 

 

 

84

 

 

 

 

 

 

(84

)

 

 

 

 

 

 

Exercise of stock options

 

 

68,580

 

 

 

69

 

 

 

 

 

 

1,279,084

 

 

 

 

 

 

1,279,153

 

Unrealized gain on available-for

   -sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,266,738

 

 

 

2,266,738

 

Balance at June 30, 2020

 

 

38,825,190

 

 

$

38,825

 

 

$

(419,522,556

)

 

$

615,601,031

 

 

$

1,664,124

 

 

$

197,781,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

Total

 

 

 

Common

 

 

Accumulated

 

 

Paid-in

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Capital

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2018

 

 

31,235,458

 

 

$

31,236

 

 

$

(302,264,619

)

 

$

439,118,089

 

 

$

(217,723

)

 

$

136,666,983

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

10,490,055

 

 

 

 

 

 

10,490,055

 

Net loss

 

 

 

 

 

 

 

 

(31,569,139

)

 

 

 

 

 

 

 

 

(31,569,139

)

Restricted stock vesting

 

 

263,048

 

 

 

263

 

 

 

 

 

 

(263

)

 

 

 

 

 

 

Exercise of stock options

 

 

24,968

 

 

 

25

 

 

 

 

 

 

399,463

 

 

 

 

 

 

399,488

 

Unrealized gain on available-for

   -sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

517,873

 

 

 

517,873

 

Balance at June 30, 2019

 

 

31,523,474

 

 

$

31,524

 

 

$

(333,833,758

)

 

$

450,007,344

 

 

$

300,150

 

 

$

116,505,260

 

Balance at December 31, 2019

 

 

38,461,353

 

 

$

38,461

 

 

$

(372,556,846

)

 

$

599,097,090

 

 

$

107,576

 

 

$

226,686,281

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

13,874,670

 

 

 

 

 

 

13,874,670

 

Net loss

 

 

 

 

 

 

 

 

(46,965,710

)

 

 

 

 

 

 

 

 

(46,965,710

)

Restricted stock vesting

 

 

212,909

 

 

 

213

 

 

 

 

 

 

(213

)

 

 

 

 

 

 

Exercise of stock options

 

 

150,928

 

 

 

151

 

 

 

 

 

 

2,629,484

 

 

 

 

 

 

2,629,635

 

Unrealized gain on available-for

   -sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,556,548

 

 

 

1,556,548

 

Balance at June 30, 2020

 

 

38,825,190

 

 

$

38,825

 

 

$

(419,522,556

)

 

$

615,601,031

 

 

$

1,664,124

 

 

$

197,781,424

 

 

See accompanying notes

4


 

Arvinas, INC. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

 

For the Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(46,965,710

)

 

$

(31,569,139

)

Adjustments to reconcile net loss to net cash

   used in operating activities:

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

 

 

 

8,982

 

Depreciation and amortization

 

 

1,252,573

 

 

 

556,619

 

Net accretion of bond discounts/premiums

 

 

823,694

 

 

 

(88,852

)

Amortization of right to use assets

 

 

395,735

 

 

 

366,610

 

Stock-based compensation

 

 

13,874,670

 

 

 

10,490,055

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Account receivable

 

 

 

 

 

2,775,831

 

Other receivables

 

 

2,716,511

 

 

 

853,881

 

Prepaid expenses and other current assets

 

 

404,665

 

 

 

(17,534

)

Accounts payable

 

 

(2,279,547

)

 

 

(1,419,457

)

Accrued expenses

 

 

(198,444

)

 

 

(2,302

)

Deferred revenue

 

 

(7,952,998

)

 

 

(8,032,978

)

Operating lease liabilities

 

 

(423,096

)

 

 

(223,168

)

Net cash used in operating activities

 

 

(38,351,947

)

 

 

(26,301,452

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(41,196,165

)

 

 

(37,852,640

)

Maturities of marketable securities

 

 

88,253,053

 

 

 

75,266,000

 

Sales of marketable securities

 

 

4,234,116

 

 

 

 

Purchase of property, equipment and leasehold

   improvements

 

 

(3,186,093

)

 

 

(3,267,330

)

Net cash provided by investing activities

 

 

48,104,911

 

 

 

34,146,030

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

 

 

 

(91,944

)

Proceeds from exercise of stock options

 

 

2,629,635

 

 

 

399,488

 

Net cash provided by financing activities

 

 

2,629,635

 

 

 

307,544

 

Net increase in cash and cash equivalents

 

 

12,382,599

 

 

 

8,152,122

 

Cash and cash equivalents, beginning of the period

 

 

9,211,057

 

 

 

3,190,056

 

Cash and cash equivalents, end of the period

 

$

21,593,656

 

 

$

11,342,178

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Purchases of property, equipment and leasehold improvements

   unpaid at period end

 

$

152,477

 

 

$

72,744

 

Cash paid for interest

 

$

32,500

 

 

$

37,434

 

 

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 clinical-stage biopharmaceutical company dedicated to improving the lives of patients suffering from debilitating and life-threatening diseases through the discovery, development and commercialization of therapies that degrade disease-causing proteins. The Company expects to incur additional operating losses and negative operating cash flows for the foreseeable future.

A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served.  The Company has instated some and may take additional precautionary measures intended to help ensure the well-being of its employees and minimize business disruption. The Company temporarily shut down its laboratories in mid-March 2020 but has now reopened its laboratories as well as initiated work with biology contract research organizations (CROs). The Company’s office-based employees continue to work remotely. The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s results of operations and financial position as of June 30, 2020. The full extent of the future impacts of COVID-19 on the Company’s operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of Company to complete certain clinical trials and other efforts required to advance its preclinical pipeline.

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 years ended December 31, 2019 and 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 16, 2020 (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 June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses, which provides a model for recognizing credit losses on financial instruments based on an estimate of current expected losses, requiring immediate recognition of credit losses expected over the life of a financial instrument. The Company adopted ASU 2016-13 in the first quarter of 2020. The adoption of the standard was immaterial to the accompanying condensed consolidated financial statements.

During the three months ended June 30, 2020, there were no changes to the Company’s significant accounting policies as described in Note 2 to the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

3. Research Collaboration and License Agreements

 

In June 2019, the Company and Bayer AG entered into a Collaboration and License Agreement (Bayer Collaboration Agreement) setting forth the Company’s collaboration with Bayer AG to identify or optimize proteolysis targeting chimeras, or PROTAC® targeted protein degraders, that mediate for degradation of target proteins (Targets), using the Company’s proprietary platform technology, which Targets will be selected by Bayer AG, subject to certain exclusions and limitations.  The Bayer Collaboration Agreement became effective in July 2019. Under the terms of the Bayer Collaboration Agreement, the Company received an upfront non-refundable payment of $17.5 million in exchange for the use of the Company’s technology license and a $1.5 million payment to fund research activities. Bayer is committed to fund an additional $10.5 million through 2022, of which $3.0 million was received in March 2020. These payments are being recognized over the total estimated period of performance. The Company is also eligible to receive up to $197.5 million in development milestone payments and up to $490.0 million in sales-based milestone payments for all designated Targets. In addition, the Company is eligible to receive, on net sales of PROTAC targeted protein degrader-related products, mid-single digit to low-double digit tiered royalties, which may be subject to reductions.

6


 

 

The Company determined that the Bayer Collaboration Agreement and a Stock Purchase Agreement entered into with Bayer AG at the same time should be evaluated as a combined contract in accordance with ASC 606, Revenue from Contracts with Customers, given that the agreements were entered into at the same time and have the same commercial objective to provide funding to further the Company’s research utilizing its proprietary technology. The Company identified the elements under the agreements as license and research revenue and the issuance of the common stock. The Company determined the fair value of the shares sold under the Stock Purchase Agreement to be $2.9 million less than the contractual purchase price stipulated in the agreement. In accordance with the applicable accounting guidance in ASC 815-40, Contracts in Entity’s Own Equity, the Company determined that the sale of stock should be recorded at fair value. Therefore, the Company allocated the additional $2.9 million of consideration received under the Stock Purchase Agreement to the Bayer Collaboration Agreement given that the two contracts were determined to be combined contracts. This amount has, therefore, been added to the total transaction price and was included in initial contract liabilities balances.

In December 2017, the Company entered into a Research Collaboration and License Agreement with Pfizer, Inc. (Pfizer) (the Pfizer Collaboration Agreement). Under the terms of the Pfizer Collaboration 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 Collaboration Agreement, as well as tiered royalties based on sales. Pfizer paid the Company $1.2 million in December 2019 and $1.0 million in March 2020 relating to adding additional targets into the collaboration. These payments are being recognized over the estimated period of performance.

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 as well as tiered royalties based on sales.

Information about contract liabilities, which are recorded as deferred revenue on the condensed consolidated balance sheets, is as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Contract liabilities

 

$

50,454,409

 

 

$

58,407,407

 

Revenues recognized in the period from

 

 

 

 

 

 

 

 

Amounts included in deferred revenue in previous periods

 

$

11,364,763

 

 

$

14,335,188

 

 

Changes in deferred revenue from December 31, 2019 to June 30, 2020 were due to additions to deferred revenue of $4.0 million related to the Bayer Collaboration Agreement and Pfizer Collaboration Agreement and $12.0 million of revenue recognized on the research collaboration and license agreements.

7


 

The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of June 30, 2020 was $50.5 million, which is expected to be recognized as revenue for the years ending December 31 are (in millions):

 

Remainder of 2020

 

 

11.5

 

2021

 

 

20.2

 

2022

 

 

14.0

 

2023

 

 

4.8

 

 

 

$

50.5

 

 

4. Fair Value Measurements

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 comprise cash, marketable 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.