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f

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 March 31, 2021

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 April 29, 2021, the registrant had 48,988,096 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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

25

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 5.

Other Information

25

Item 6.

Exhibits

26

Signatures

27

 

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 initiation, timing, progress and results of our current and future clinical trials of ARV-110, ARV-471 and ARV-766, including statements regarding 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 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


 

We use Arvinas, the Arvinas logo, and other marks as trademarks in the United States and other countries. This Quarterly Report on Form 10-Q contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Arvinas, INC. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

346,068,406

 

 

$

588,373,232

 

Marketable securities

 

 

305,203,086

 

 

 

100,157,618

 

Account receivable

 

 

 

 

 

1,000,000

 

Other receivables

 

 

5,175,378

 

 

 

7,443,654

 

Prepaid expenses and other current assets

 

 

8,209,888

 

 

 

6,113,122

 

Total current assets

 

 

664,656,758

 

 

 

703,087,626

 

Property, equipment and leasehold improvements, net

 

 

12,210,324

 

 

 

12,259,515

 

Operating lease right of use assets

 

 

4,876,584

 

 

 

1,992,669

 

Other assets

 

 

28,777

 

 

 

28,777

 

Total assets

 

$

681,772,443

 

 

$

717,368,587

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,002,938

 

 

$

7,121,879

 

Accrued expenses

 

 

8,001,201

 

 

 

18,859,840

 

Deferred revenue

 

 

22,150,861

 

 

 

22,150,861

 

Current portion of operating lease liability

 

 

1,216,914

 

 

 

952,840

 

Total current liabilities

 

 

40,371,914

 

 

 

49,085,420

 

Deferred revenue

 

 

20,400,518

 

 

 

22,938,233

 

Long term debt

 

 

2,000,000

 

 

 

2,000,000

 

Operating lease liability

 

 

3,701,991

 

 

 

1,087,422

 

Total liabilities

 

 

66,474,423

 

 

 

75,111,075

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 48,785,692 and 48,455,741 shares

   issued and outstanding as of March 31, 2021 and December 31,

   2020, respectively

 

 

48,786

 

 

 

48,455

 

Accumulated deficit

 

 

(532,853,201

)

 

 

(491,888,910

)

Additional paid-in capital

 

 

1,148,345,190

 

 

 

1,133,537,171

 

Accumulated other comprehensive income (loss)

 

 

(242,755

)

 

 

560,796

 

Total stockholders’ equity

 

 

615,298,020

 

 

 

642,257,512

 

Total liabilities and stockholders’ equity

 

$

681,772,443

 

 

$

717,368,587

 

 

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,

 

 

2021

 

 

2020

 

Revenue

$

5,539,365

 

 

$

6,239,628

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

34,866,882

 

 

 

21,726,686

 

General and administrative

 

12,318,713

 

 

 

7,925,005

 

Total operating expenses

 

47,185,595

 

 

 

29,651,691

 

Loss from operations

 

(41,646,230

)

 

 

(23,412,063

)

Other income (expenses)

 

 

 

 

 

 

 

Other income, net

 

247,806

 

 

 

390,009

 

Interest income

 

450,383

 

 

 

1,299,133

 

Interest expense

 

(16,250

)

 

 

(16,250

)

Total other income

 

681,939

 

 

 

1,672,892

 

Net loss

 

(40,964,291

)

 

 

(21,739,171

)

Net loss per common share, basic and diluted

$

(0.84

)

 

$

(0.56

)

Weighted average common shares outstanding, basic

   and diluted

 

48,621,663

 

 

 

38,548,483

 

 

Condensed Consolidated Statements of Comprehensive Loss

For the Three Months

Ended March 31,

 

 

2021

 

 

2020

 

Net loss

$

(40,964,291

)

 

$

(21,739,171

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

(803,551

)

 

 

(710,190

)

Comprehensive loss

$

(41,767,842

)

 

$

(22,449,361

)

 

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 December 31, 2019

 

 

38,461,353

 

 

$

38,461

 

 

$

(372,556,846

)

 

$

599,097,090

 

 

$

107,576

 

 

$

226,686,281

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

6,119,711

 

 

 

 

 

 

6,119,711

 

Net loss

 

 

 

 

 

 

 

 

(21,739,171

)

 

 

 

 

 

 

 

 

(21,739,171

)

Restricted stock vesting

 

 

128,732

 

 

 

129

 

 

 

 

 

 

(129

)

 

 

 

 

 

 

Exercise of stock options

 

 

82,348

 

 

 

82

 

 

 

 

 

 

1,350,400

 

 

 

 

 

 

1,350,482

 

Unrealized loss on available-for

   -sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(710,190

)

 

 

(710,190

)

Balance at March 31, 2020

 

 

38,672,433

 

 

$

38,672

 

 

$

(394,296,017

)

 

$

606,567,072

 

 

$

(602,614

)

 

$

211,707,113

 

Balance at December 31, 2020

 

 

48,455,741

 

 

$

48,455

 

 

$

(491,888,910

)

 

$

1,133,537,171

 

 

$

560,796

 

 

$

642,257,512

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

10,327,658

 

 

 

 

 

 

10,327,658

 

Net loss

 

 

 

 

 

 

 

 

(40,964,291

)

 

 

 

 

 

 

 

 

(40,964,291

)

Restricted stock vesting

 

 

66,621

 

 

 

67

 

 

 

 

 

 

(67

)

 

 

 

 

 

 

Exercise of stock options

 

 

263,330

 

 

 

264

 

 

 

 

 

 

4,480,428

 

 

 

 

 

 

4,480,692

 

Unrealized loss on available-for

   -sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(803,551

)

 

 

(803,551

)

Balance at March 31, 2021

 

 

48,785,692

 

 

$

48,786

 

 

$

(532,853,201

)

 

$

1,148,345,190

 

 

$

(242,755

)

 

$

615,298,020

 

 

See accompanying notes

4


 

Arvinas, INC. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(40,964,291

)

 

$

(21,739,171

)

Adjustments to reconcile net loss to net cash

   used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,148,010

 

 

 

617,469

 

Net accretion of bond discounts/premiums

 

 

978,132

 

 

 

366,132

 

Amortization of right to use assets

 

 

305,140

 

 

 

169,904

 

Stock-based compensation

 

 

10,327,658

 

 

 

6,119,711

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Account receivable

 

 

1,000,000

 

 

 

 

Other receivables

 

 

2,268,276

 

 

 

2,402,390

 

Prepaid expenses and other current assets

 

 

(2,096,766

)

 

 

243,036

 

Accounts payable

 

 

1,772,142

 

 

 

(1,911,635

)

Accrued expenses

 

 

(10,858,639

)

 

 

(819,180

)

Deferred revenue

 

 

(2,537,715

)

 

 

(2,211,793

)

Operating lease liabilities

 

 

(310,412

)

 

 

(186,824

)

Net cash used in operating activities

 

 

(38,968,465

)

 

 

(16,949,961

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(240,502,151

)

 

 

(8,605,116

)

Maturities of marketable securities

 

 

33,675,000

 

 

 

52,462,085

 

Purchase of property, equipment and leasehold

   improvements

 

 

(989,902

)

 

 

(1,362,224

)

Net cash (used in) provided by investing activities

 

 

(207,817,053

)

 

 

42,494,745

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

4,480,692

 

 

 

1,350,482

 

Net cash provided by financing activities

 

 

4,480,692

 

 

 

1,350,482

 

Net (decrease) increase in cash and cash equivalents

 

 

(242,304,826

)

 

 

26,895,266

 

Cash and cash equivalents, beginning of the period

 

 

588,373,232

 

 

 

9,211,057

 

Cash and cash equivalents, end of the period

 

$

346,068,406

 

 

$

36,106,323

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Purchases of property, equipment and leasehold improvements

   unpaid at period end

 

$

108,917

 

 

$

375,602

 

Cash paid for interest

 

$

16,250

 

 

$

16,250

 

 

See accompanying notes

5


 

Arvinas, INC. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Nature of Business and Basis of Presentation

Arvinas, Inc. and subsidiaries (“Arvinas” or “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.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commission (“SEC”) rules. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The condensed consolidated balance sheet at December 31, 2020 has been derived from Arvinas’ audited consolidated financial statements at that date. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020, forming part of Arvinas’ 2020 Annual Report on Form 10-K filed with the SEC on March 1, 2021.

 

Impact of the coronavirus (“COVID-19”) pandemic

 

As a result of the COVID-19 pandemic, many companies have experienced disruptions in their operations and in markets served. 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 March 31, 2021. 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. Accounting Pronouncements and Significant Accounting Policies

The Company reviews new accounting standards as issued. As of March 31, 2021 the Company has not identified any new standards that it believes will have a significant impact on the Company’s financial statements.

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

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. 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 each of the first quarters of 2020 and 2021. These payments are being recognized over the total estimated period of performance.

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. 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 and added such amount to the total transaction price.

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. Pfizer has exercised options on certain targets for $4.9 million as of March 31, 2021. Pfizer also paid the Company $1.2 million in 2019 and $3.0 million in 2020 relating to adding additional targets into the collaboration. The option and target payments are being recognized over the estimated period of performance.

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 a previous Genentech agreement. Under the Genentech Modification, the Company received additional upfront non-refundable payments of $34.5 million (in addition to $11.0 million received under the previous agreement) to fund Genentech-related research and Genentech has the right to designate up to ten targets.

Information about contract liabilities included as deferred revenue in the condensed consolidated balance sheets, is as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Contract liabilities

 

$

42,551,379

 

 

$

45,089,094

 

Revenues recognized in the period from:

 

 

 

 

 

 

 

 

     Amounts included in deferred revenue in previous periods

 

$

5,538,540

 

 

$

18,651,649

 

 

Changes in deferred revenue as of March 31, 2021 from December 31, 2020 were due to additions to deferred revenue of $3.0 million related to the Bayer Collaboration Agreement and $5.5 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, 2021 was $42.5 million, which is expected to be recognized in the following periods (in millions):

 

Remainder of 2021

 

$

16.6

 

2022

 

 

19.4

 

2023

 

 

6.5

 

Total

 

$

42.5

 

 

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 (unadjusted) for identical instruments traded in active markets.

7


 

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 which are adjusted to fair value at each balance sheet date, based on quoted prices, which are considered Level 2 inputs.

The following is a summary of the Company’s available-for-sale securities as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

Description

 

Effective

Maturity

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Corporate bonds

 

2021-2022

 

$

165,459,419

 

 

$

252,653

 

 

$

(95,273

)

 

$

165,616,799

 

Corporate bonds

 

2022

 

 

139,986,422

 

 

 

 

 

 

(400,135

)

 

 

139,586,287

 

Total

 

 

 

$

305,445,841

 

 

$

252,653

 

 

$

(495,408

)

 

$

305,203,086

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

Description

 

Effective

Maturity

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Value

 

Corporate bonds

 

2021

 

$

99,596,821

 

 

$

560,797

 

 

$

 

 

$

100,157,618

 

Total

 

 

 

$

99,596,821

 

 

$

560,797

 

 

$

 

 

$

100,157,618

 

 

The following table sets forth, by level, the Company’s assets that were accounted for at fair value on a recurring basis.

 

 

 

March 31, 2021

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 

 

$

305,203,086

 

 

$

 

 

$

305,203,086

 

 

 

 

December 31, 2020

 

Description

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 

 

$

100,157,618

 

 

$

 

 

$

100,157,618

 

 

8


 

 

5. Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements consist of the following at:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Laboratory equipment

 

$

11,811,503

 

 

$

11,100,116

 

Office equipment

 

 

1,231,906

 

 

 

1,233,823

 

Leasehold improvements

 

 

6,440,685

 

 

 

6,058,400

 

Total

 

 

19,484,094

 

 

 

18,392,339

 

Less: accumulated depreciation and amortization

 

 

(7,273,770

)

 

 

(6,132,824

)

Property, equipment and leasehold improvements, net

 

$

12,210,324

 

 

$

12,259,515

 

 

Depreciation and amortization expense totaled $1,148,010 and $617,469 for the three months ended March 31, 2021 and 2020, respectively.

 

 

6. Right to Use Assets and Liabilities

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets and operating lease liabilities in the condensed consolidated balance sheets.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate ranges from 3.0-5.1%. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Some of the Company’s leases include options to extend or terminate the lease. The Company includes these options in the recognition of the Company’s ROU assets and lease liabilities when it is reasonably certain that the Company will exercise the option.

The Company has operating leases for its corporate office and certain equipment, which expire no later than December 31, 2024. The leases have a weighted average remaining term of 3.7 years.

The components of lease expense were as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

2020

 

Operating lease cost

 

$

341,452

 

$

207,107

 

 

Supplemental cash flow information related to leases was as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

2020

 

Cash paid for amounts included in the measurement of lease

   liabilities:

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

310,411

 

$

186,824

 

Supplemental non-cash information:

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new lease

   obligations

 

$

3,189,055

 

$

541,371

 

 

9


 

 

Maturities of lease liabilities for operating leases as of March 31, 2021, are as follows:

 

Remainder of 2021

 

$

1,012,283

 

2022

 

 

1,333,080

 

2023

 

 

1,487,239

 

2024

 

 

1,485,519

 

Total lease payments

 

 

5,318,121

 

Less: imputed interest

 

 

(399,216

)

Total

 

$

4,918,905

 

 

 

7. Accrued Expenses

Accrued expenses consisted of the following:

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Employee expenses

 

$

2,866,269

 

 

$

8,967,126

 

Research and development expenses

 

 

4,097,326

 

 

 

8,113,043

 

Professional fees and other

 

 

1,037,606

 

 

 

1,779,671

 

 

 

$

8,001,201

 

 

$

18,859,840

 

 

8. Long-Term Debt

 

In connection with an Assistance Agreement with the State of Connecticut entered into in 2014 (2014 Assistant Agreement) under which all the borrowings by the Company were forgiven in accordance with the 2014 Assistance Agreement, the Company is required to be located in the State of Connecticut through January 2024, with a default penalty of repayment of the full original funding amount of $2.5 million plus liquidated damages of 7.5%.

In June 2018, the Company entered into an Assistance Agreement with the State of Connecticut (2018 Assistance Agreement) to provide funding for the expansion and renovation of laboratory and office space (Project). Under the terms of the 2018 Assistance Agreement, the Company was entitled to borrow from the State of Connecticut a maximum of $2.0 million, provided that the funding does not exceed more than 50% of the total Project costs. In September 2018, the Company borrowed $2.0 million under the 2018 Assistance Agreement, bearing interest at 3.25% per annum and interest payments will be required for the first 60 months from the funding date. Thereafter, the loan begins to fully amortize through month 120, maturing in September 2028. According to the terms of the 2018 Assistance Agreement, up to $1.0 million of the funding thereunder can be forgiven if the Company meets certain employment conditions, as defined therein (See Note 13). The 2018 Assistance Agreement requires that the Company be located in the State of Connecticut through September 2028 with a default penalty of repayment of the full original funding amount of $2.0 million plus liquidated damages of 7.5% of the total amount of funding received.

Anticipated future minimum payments on long-term debt for the years ending December 31 are:

 

2023

 

$

92,480

 

2024

 

 

377,516

 

Beyond

 

 

1,530,004

 

Total

 

$

2,000,000

 

 

 

During each of the three months ended March 31, 2021 and 2020, interest expense was $16,250.

9. Equity

 

Common Stock

10


 

During December 2020, the Company completed a public offering in which the Company issued and sold 6,571,428 shares of common stock at a public offering price of $70.00 per share, which resulted in aggregate net proceeds of $431.9 million, net of underwriter discounts, commissions and offering costs of $28.1 million.

In October 2019, the Company entered into an Equity Distribution Agreement (Distribution Agreement) with Piper Sandler Companies, formerly Piper Jaffray & Co. (Piper Sandler), pursuant to which the Company may offer and sell from time-to-time in an “at-the-market offering,” at its option, up to an aggregate of $100.0 million of shares of the Company’s common stock through Piper Sandler, as sales agent. During year ended December 31, 2020, the Company sold 2,593,637 shares of its common stock resulting in proceeds to the Company of $64.1 million, net of offering costs of $1.6 million.

Share-based Compensation

In September 2018, the Company adopted the 2018 Employee Stock Purchase Plan (the 2018 ESPP) initially providing participating employees with the opportunity to purchase an aggregate of 311,850 shares of the Company’s common stock. The number of shares of the Company’s common stock reserved for issuance under the 2018 ESPP increased, pursuant to the terms of the 2018 ESPP, by additional shares equal to 1% of the Company’s then-outstanding common stock, effective as of January 1 of each year. The number of shares of the Company’s common stock reserved for issuance under the 2018 ESPP increased by 486,657 and 390,371 shares in 2021 and 2020, respectively. The first offering period under the 2018 ESPP commenced on January 1, 2020. During the three months ended March 31, 2021, the Company issued 12,050 shares of common stock under the 2018 ESPP. As of March 31, 2021, 1,489,159 shares remained available for purchase.

All of the Company’s employees are eligible to participate in the 2018 ESPP, provided they meet certain employment requirements. On each offering commencement date, each participant will be granted the right to purchase, on the last business day of the offering period, a number of shares of the Company’s common stock determined by multiplying $2,083 by the number of full months in the offering period and dividing that product by the closing price of the Company’s common stock on the first day of the offering period. On the commencement date of each offering period, each eligible employee may authorize up to a maximum of 15% of the compensation he or she receives during the offering period to be deducted by the Company during the offering period. Under the terms of the 2018 ESPP, the purchase price shall be determined by the Company’s board of directors for each offering period and will be at least 85% of the applicable closing price of the Company’s common stock. If the Company’s board of directors does not make a determination of the purchase price, the purchase price will be 85% of the lesser of the closing price of the Company’s common stock on the first business day of the offering period or the last business day of the offering period.

In the Fourth Amendment to the Company’s Incentive Share Plan (the Incentive Plan) adopted in March 2018, the Company was authorized to issue up to an aggregate of 6,199,477 incentive units pursuant to the Incentive Plan. Generally, incentive units were granted at no less than fair value as determined by the board of managers and had vesting periods ranging from one to four years. The Incentive Plan was terminated in September 2018. In September 2018, the Company’s board of directors adopted and the Company’s stockholders approved the 2018 Stock Incentive Plan (the 2018 Plan), which became effective upon the effectiveness of the registration statement on Form S-1 for the Company’s initial public offering. The number of common shares initially available for issuance under the 2018 Plan equaled the sum of (1) 4,067,007 shares of common stock; plus (2) the number of shares of common stock (up to 1,277,181) issued in respect of incentive units granted under the Incentive Plan that are subject to vesting immediately prior to the effectiveness of the registration statement that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right; plus (3) an annual increase on the first day of each fiscal year beginning with the fiscal year ended December 31, 2019 and continuing to, and including, the fiscal year ending December 31, 2028, equal to the lowest of 4,989,593 shares of the Company’s common stock, 4% of the number of shares of the Company’s common stock outstanding on the first day of the fiscal year and an amount determined by the Company’s board of directors. The increase in the number of authorized shares for the fiscal years ending December 31, 2021 and 2020 was 1,946,628 and 1,561,485, respectively. Common shares subject to outstanding equity awards that expire or are terminated, surrendered, or canceled without having been fully exercised or are forfeited in whole or in part shall be available for future grants of awards.

11


 

 

During the three months ended March 31, 2021, the Company recognized compensation expense of $10,327,658 relating to the issuance of incentive awards, and at March 31, 2021, there was $72,812,116 of compensation expense that is expected to be amortized over a weighted average period of approximately two years.

The fair value of the stock options granted during the three months ended March 31, 2021 was determined using the Black-Scholes option pricing model with the following assumptions:

 

 

March 31,

2021

 

March 31,

2020

Expected volatility

77.4%-78.0%

 

70.3%-71.4%

Expected term (years)

5.6-7.0

 

5.6-7.0

Risk free interest rate

0.5%-1.1%

 

0.8%-1.6%

Expected dividend yield

0%

 

0%

Exercise price

$77.51-$82.21

 

$41.62-$49.97

 

Given the Company’s common stock has not been trading for a sufficient period of time, the Company utilizes a collection of volatilities of peer companies to estimate the expected volatility of its common stock. The expected term is calculated utilizing the simplified method.

 

The following table provides a summary of the stock option activity under the 2018 Plan during the three months ended March 31, 2021. These amounts include stock options granted to employees, directors and consultants.

 

Stock options

 

Options

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Remaining Contractual Term (Years)

 

 

Aggregate Intrinsic Value

 

Outstanding at December 31, 2020

 

 

4,321,882

 

 

$

26.35

 

 

 

 

 

 

 

 

 

Granted

 

 

1,299,350

 

 

$

78.37

 

 

 

 

 

 

 

 

 

Exercised