NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
Business
Momenta Pharmaceuticals, Inc. (the "Company" or "Momenta") was incorporated in the state of Delaware in May 2001 and began operations in early 2002. Its facilities are located in Cambridge, Massachusetts. Momenta is a biotechnology company focused on developing generic versions of complex drugs, biosimilars and novel therapeutics for autoimmune diseases. The Company presently derives all of its revenue from its collaborations.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements reflect the operations of the Company and the Company's wholly-owned subsidiary Momenta Pharmaceuticals Securities Corporation. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, and share-based payments. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists; services have been performed or products have been delivered; the fee is fixed or determinable; and collection is reasonably assured.
The Company has entered into collaboration and license agreements with pharmaceutical companies for the development and commercialization of certain of its product candidates. The Company's performance obligations under the terms of these agreements may include (i) transfer of intellectual property rights (licenses), (ii) providing research and development services, and (iii) participation on joint steering committees with the collaborators. Non-refundable payments to the Company under these agreements may include up-front license fees, payments for research and development activities, payments based upon the achievement of defined collaboration objectives and profit share or royalties on product sales.
At
December 31, 2016
, the Company had collaboration and license agreements with Sandoz AG (formerly Sandoz N.V. and Biochemie West Indies, N.V.), an affiliate of Novartis Pharma AG, and Sandoz Inc. (formerly Geneva Pharmaceuticals, Inc.), collectively referred to as Sandoz; Sandoz AG; and Mylan Ireland Limited, a wholly-owned, indirect subsidiary of Mylan N.V., or Mylan.
The Company evaluates multiple element agreements under the Financial Accounting Standards Board's, or FASB, Accounting Standards Codification, or ASC, Revenue Recognition (Topic 605). When evaluating multiple element arrangements under Topic 605, the Company identifies the deliverables included within the agreement and determines whether the deliverables under the arrangement represent separate units of accounting. Deliverables under the arrangement are a separate unit of accounting if (i) the delivered item has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item and delivery or performance of the undelivered items are considered probable and substantially within the Company's control. This evaluation requires subjective determinations and requires management to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. In determining the units of accounting, management evaluates certain criteria, including whether the deliverables have standalone value, based on the consideration of the relevant facts and circumstances for each arrangement. The Company considers whether the collaborator can use the license or other deliverables for their intended purpose without the receipt of the remaining elements, and whether the value of the deliverable is dependent on the undelivered items and whether there are other vendors that can provide the undelivered items.
Arrangement consideration generally includes up-front license fees and non-substantive options to purchase additional products or services. The Company determines how to allocate arrangement consideration to identified units of accounting based on the selling price hierarchy provided under the relevant guidance. The Company determines the estimated selling price for deliverables using vendor-specific objective evidence, or VSOE, of selling price, if available, third-party evidence, or TPE, if VSOE is not available, or best estimate of selling price, or BESP, if neither VSOE nor TPE is available. Determining the BESP for a deliverable requires significant judgment. The Company uses BESP to estimate the selling price for licenses to the Company’s proprietary technology, since the Company often does not have VSOE or TPE of selling price for these deliverables. In those circumstances where the Company utilizes BESP to determine the estimated selling price of a license to the Company’s proprietary technology, the Company considers entity specific factors, including those factors contemplated in negotiating the agreements as well as the license fees negotiated in similar license arrangements. Management may be required to exercise considerable judgment in estimating the selling prices of identified units of accounting under its agreements. In validating the Company’s BESP, the Company evaluates whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple deliverables.
Up-Front License Fees
Up-front payments received in connection with licenses of the Company’s technology rights are deferred if facts and circumstances dictate that the license does not have stand-alone value. When management believes the license to its intellectual property does not have stand-alone value from the other deliverables to be provided in the arrangement, it is combined with other deliverables and the revenue of the combined unit of accounting is recorded based on the method appropriate for the last delivered item. The Company recognizes revenue from non-refundable, up-front license fees on a straight-line basis over the contracted or estimated period of performance, which is typically the period over which the research and development services are expected to occur. Accordingly, the Company is required to make estimates regarding the development timelines for product candidates being developed pursuant to any applicable agreement. The determination of the length of the period over which to recognize the revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period. Quarterly, the Company reassesses its period of substantial involvement over which the Company amortizes its up-front license fees and makes adjustments as appropriate. The Company’s estimates regarding the period of performance under its collaborative research and development and licensing agreements have changed in the past and may change in the future. Any change in the Company’s estimates could result in changes to the Company’s results for the period over which the revenues from an up-front license fee are recognized.
Milestones
At the inception of each arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive, in accordance with ASU No. 2010-17, Revenue Recognition—Milestone Method. A milestone is defined as an event that can only be achieved based on the Company's performance and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement. Events that are contingent only on the passage of time or only on counterparty performance are not considered milestones under accounting guidance. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the Company's performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the Company's performance to achieve the milestone, (b) the consideration relates solely to past performance (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement and (d) the milestone fee is refundable or adjusts based on future performance or non-performance. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment. Payments that are contingent upon the achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved, assuming all other revenue recognition criteria are met.
Sales-based and commercial milestones are accounted for as royalties and are recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.
Profit Share and Royalties on Sandoz’ Sales of Enoxaparin Sodium Injection® and GLATOPA® 20 mg/mL
Profit share or royalty revenue is reported as product revenue and is recognized based upon net sales or contractual profit of licensed products in licensed territories in the period the sales occur as provided by the collaboration agreement. The amount of net sales or contractual profit is determined based on amounts provided by the collaborator and involve the use of estimates and judgments, such as product sales allowances and accruals related to prompt payment discounts, chargebacks, governmental and other rebates, distributor, wholesaler and group purchasing organization fees, product returns, and co-payment assistance costs, which could be adjusted based on actual results in the future. The Company is highly dependent on its collaborators for
timely and accurate information regarding any net sales or contractual profit realized from sales of Enoxaparin Sodium Injection and GLATOPA 20 mg/mL in order to accurately report its results of operations.
Research and Development Revenue under Collaborations with Sandoz and Baxalta
Under its collaborations with Sandoz and Baxalta, the Company is reimbursed at a contractual full-time equivalent, or FTE, rate for any FTE employee expenses as well as any external costs incurred for commercial and related activities. The Company recognizes research and development revenue from FTE services and external costs upon completion of the performance requirements (i.e. as the services are performed and the reimbursable costs are incurred). Revenues are recorded on a gross basis as the Company contracts directly with, manages the work of and is responsible for payments to third-party vendors for such commercial and related services.
Cash, Cash Equivalents and Marketable Securities
The Company invests its cash in bank deposits, money market accounts, corporate debt securities, United States treasury obligations, commercial paper, asset-backed securities, overnight repurchase agreements and United States government-sponsored enterprise securities in accordance with its investment policy. The Company has established guidelines relating to diversification and maturities that allow the Company to manage risk.
The Company invests its excess cash balances in short-term and long-term marketable debt securities. The Company classifies its investments in marketable debt securities as available-for-sale based on facts and circumstances present at the time it purchased the securities. Purchased premiums or discounts on marketable debt securities are amortized to interest income through the stated maturities of the debt securities. The Company reports available-for-sale investments at fair value at each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive income (loss), a component of stockholders' equity. Realized gains and losses are determined using the specific identification method and are included in interest income. To determine whether an other-than-temporary impairment exists, the Company considers whether it intends to sell the debt security and, if it does not intend to sell the debt security, it considers available evidence to assess whether it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. The Company reviewed its investments with unrealized losses and concluded that no other-than-temporary impairment existed at
December 31, 2016
as it has the ability and intent to hold these investments to maturity and it is not more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. The Company did not record any impairment charges related to its marketable securities during the years ended
December 31, 2016
,
2015
and
2014
. Realized gains or losses on marketable securities for each of the years ended
December 31, 2016
,
2015
, and
2014
were immaterial. The Company's marketable securities are classified as cash equivalents if the original maturity, from the date of purchase, is 90 days or less, and as marketable securities if the original maturity, from the date of purchase, is in excess of 90 days. The Company's cash equivalents are primarily composed of money market funds and repurchase agreements carried at fair value, which approximates cost at
December 31, 2016
and
2015
.
Fair Value Measurements
The Company measures certain financial assets including cash equivalents and marketable securities at fair value on a recurring basis. These financial assets are generally classified as Level 1 or 2 within the fair value hierarchy. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices (adjusted), interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The fair value hierarchy level is determined by the lowest level of significant input.
The Company's financial assets have been initially valued at the transaction price and subsequently valued at the end of each reporting period, typically utilizing third-party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market based approaches, and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices provided by its third-party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. The Company did not adjust or override any fair value measurements provided by its pricing services as of
December 31, 2016
and
December 31, 2015
.
Concentration of Credit Risk
The Company's primary exposure to credit risk derives from its cash, cash equivalents, marketable securities and collaboration receivable.
Collaboration Receivable
Collaboration receivable includes:
|
|
•
|
Amounts due to the Company for its contractual profit share on Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA 20 mg/mL;
|
|
|
•
|
Amounts due to the Company for reimbursement of research and development services and external costs under the collaborations with Sandoz and Baxalta;
|
|
|
•
|
Amounts due from Mylan for its
50%
share of certain collaboration expenses under the cost-sharing provisions of the the Mylan Collaboration Agreement that are not funded through the continuation payments; and
|
|
|
•
|
As of
December 31, 2016
, the
$51.2 million
asset return payment due from Baxalta, as discussed in Note 9,
Collaborations and License Agreements
. In January 2017, the Company received the
$51.2 million
payment from Baxalta.
|
The Company has not recorded any allowance for uncollectible accounts or bad debt write-offs and it monitors its receivables to facilitate timely payment.
Collaboration Advance
Collaboration advance represents payments received from Mylan that will be applied to amounts due from Mylan in future periods for the funding of Mylan's
50%
share of certain collaboration expenses under the cost-sharing provisions of the Mylan Collaboration Agreement.
Deferred Revenue
Deferred revenue represents consideration received from collaborators in advance of achieving certain criteria that must be met for revenue to be recognized in conformity with GAAP.
Property and Equipment
Property and equipment are stated at cost. Costs of major additions and betterments are capitalized; maintenance and repairs which do not improve or extend the life of the respective assets are charged to expense. Upon disposal, the related cost and accumulated depreciation or amortization is removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations and comprehensive loss. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from
three
to
seven years
. Leased assets meeting certain capital lease criteria are capitalized and the present value of the related lease payments is recorded as a liability. Assets under capital lease arrangements are depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the estimated useful lives of the assets or related lease terms, whichever is shorter. When the Company disposes of property and equipment, it removes the associated cost and accumulated depreciation from the related accounts on its consolidated balance sheet and includes any resulting gain or loss in its consolidated statements of operations and comprehensive loss.
Long-Lived Assets
The Company evaluates the recoverability of its property, equipment and intangible assets when circumstances indicate that an event of impairment may have occurred. The Company recognizes an impairment loss only if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows. Impairment is measured based on the difference between the carrying value of the related assets or businesses and the fair value of such assets or businesses.
No
impairment charges have been recognized through
December 31, 2016
.
Research and Development
Research and development expenses consist of costs incurred to conduct research, such as the discovery and development of the Company's product candidates. Research and development costs are expensed as incurred. These expenses consist primarily of salaries and related expenses for personnel, license fees, consulting fees, nonclinical and clinical trial costs, contract research and manufacturing costs, and the costs of laboratory equipment and facilities.
Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are received.
Share-Based Compensation Expense
The Company recognizes the fair value of share-based compensation in its consolidated statements of operations and comprehensive loss. Share-based compensation expense primarily relates to stock options, restricted stock and stock issued under its stock option plans and the employee stock purchase plan ("ESPP"). For stock options, the Company recognizes share-based compensation expense equal to the fair value of the stock options on a straight-line basis over the requisite service period. For time-based restricted stock awards, the Company records share-based compensation expense equal to the market value on the date of the grant on a straight-line basis over each award's explicit service period. For performance-based restricted stock, at each reporting period the Company assesses the probability that the performance condition(s) will be achieved. The Company then expenses the awards over the implicit service period based on the probability of achieving the performance conditions. The Company estimates an award's implicit service period based on its best estimate of the period over which an award's vesting condition(s) will be achieved. The Company reviews and evaluates these estimates on a quarterly basis and will recognize any remaining unrecognized compensation as of the date of an estimate revision over the revised remaining implicit service period. The Company issues new shares upon stock option exercises, upon the grant of restricted stock awards and under its ESPP.
The Company estimates the fair value of each option award on the date of grant using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model requires the Company to develop certain subjective assumptions including the expected volatility of its stock, the expected term of the award and the expected forfeiture rate associated with the Company's stock option plan. The Company considers, among other factors, the implied volatilities of its currently traded options to provide an estimate of volatility based upon current trading activity. The Company uses a blended volatility rate based upon its historical performance, as well as the implied volatilities of its currently traded options, as it believes this appropriately reflects the expected volatility of its stock. Changes in market price directly affect volatility and could cause share-based compensation expense to vary significantly in future reporting periods.
The expected term of awards represents the period of time that the awards are expected to be outstanding. The Company uses a blend of its own historical data and peer data to estimate option exercise and employee termination behavior, adjusted for known trends, to arrive at the estimated expected life of an option. For purposes of identifying peer entities, the Company considers characteristics such as industry, stage of life cycle and financial leverage. The Company reviews and evaluates these assumptions regularly to reflect recent historical data. The risk-free interest rate for periods within the expected term of the option is based on the United States Treasury yield curve in effect at the time of grant.
The Company applies an estimated forfeiture rate to current period expense to recognize share-based compensation expense only for those stock and option awards expected to vest. The Company estimates forfeitures based upon historical data, adjusted for known trends, and will adjust its estimate of forfeitures if actual forfeitures differ, or are expected to differ from such estimates. Subsequent changes in estimated forfeitures will be recognized through a cumulative adjustment in the period of change and will also impact the amount of share-based compensation expense in future periods.
Unvested stock options held by consultants are revalued at each reporting period until vesting occurs using the Company's estimate of fair value.
Net Loss Per Common Share
The Company computes basic net loss per common share by dividing net loss by the weighted average number of common shares outstanding, which includes common stock issued and outstanding and excludes unvested shares of restricted common stock. The Company computes diluted net loss per common share by dividing net loss by the weighted average number of common shares and potential shares from outstanding stock options and unvested restricted stock determined by applying the treasury stock method.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company was profitable and generated taxable income in 2010 and 2011. Since 2011, the Company has generated operating losses and expects to continue to incur future losses, therefore the net deferred tax assets have been fully offset by a valuation allowance.
The Company recognizes uncertain income tax positions that are more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a
50%
likelihood of being sustained. The Company's policy is to recognize interest and/or penalties related to income tax matters in income tax expense.
The Company had accrued
no
amounts for interest and penalties in the Company's consolidated balance sheets at
December 31, 2016
and
2015
.
The Company files income tax returns in the United States federal jurisdiction and multiple state jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination for years before
2013
, except to the extent that in the future it utilizes net operating losses or tax credit carry forwards that originated before
2013
. As of
December 31, 2016
, the Company was not under examination by the Internal Revenue Service or other jurisdictions for any tax years.
Comprehensive Loss
Comprehensive income (loss) is the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. Comprehensive income (loss) includes net income (loss) and the change in accumulated other comprehensive income (loss) for the period. Accumulated other comprehensive income (loss) consists entirely of unrealized gains and losses on available-for-sale marketable securities for all periods presented.
Segment Reporting
Operating segments are determined based on the way management organizes its business for making operating decisions and assessing performance.
Momenta is a biotechnology company focused on discovering and developing medicines in
three
product areas: complex generics, biosimilars and novel therapeutics for autoimmune disease. The three product areas correspond with their respective regulatory pathways. However, the Company's portfolio of complex generics, biosimilars, and novel therapeutics have similar development risk and market characteristics. The Company does not operate separate lines of business with respect to any of its products or product candidates and the Company does not prepare discrete financial information with respect to the
three
product areas. Accordingly, the Company views its business as
one
reportable operating segment—the discovery, development and commercialization of pharmaceutical products.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB has subsequently issued the following amendments to ASU 2014-09 which have the same effective date and transition date of January 1, 2018:
|
|
•
|
In August 2015 the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date of the new standard from January 1, 2017 to January 1, 2018. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date.
|
|
|
•
|
In March 2016 the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations.
|
|
|
•
|
In April 2016 the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performance obligations and licensing implementation guidance.
|
|
|
•
|
In May 2016 the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes collected from customers.
|
|
|
•
|
In December 2016 the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance issued in ASU No. 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period
|
performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.
The Company expects to adopt the new standard using the modified retrospective method as permissible under the transitional provisions of Topic 606 for all contracts not yet completed as of the effective date. The modified retrospective method applies the guidance retrospectively only to the most current period presented in the financial statements, recognizing the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings (or deficit) at the date of initial application. The Company is continuing to evaluate the potential impact that these standards will have on its financial position and results of operations.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40). The ASU requires all entities to evaluate for the existence of conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the issuance date of its financial statements. The accounting standard is effective for the Company as of
December 31, 2016
and did not have a material impact on the consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes, Balance Sheet Classification of Deferred Taxes (Topic 740). The new standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The adoption of this standard in the first quarter of
2016
did not have a material impact on the Company’s financial position or results of operations as its net deferred tax assets have been fully offset by a valuation allowance.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is currently evaluating the impact of adopting this new accounting standard on its financial position and results of operations.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Under the new standard all excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. The new standard also provides for companies to make an entity-wide accounting policy election on how to account for award forfeitures. Entities can either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. The accounting standard is effective for interim and annual periods after December 15, 2016. Early adoption is permitted for any entity in any interim or annual period. The Company adopted the new standard on January 1, 2017. The Company adopted a policy to account for forfeitures as they occur. Adoption of this standard is not expected to have a material impact on the Company's financial position and results of operations.
3. Fair Value Measurements
The tables below present information about the Company's assets that are measured at fair value on a recurring basis at
December 31, 2016
and
2015
, and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value, which is described further within Note 2,
Summary of Significant Accounting Policies
.
Financial assets measured at fair value on a recurring basis at
December 31, 2016
and
2015
are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Balance as of December 31, 2016
|
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Other Unobservable Inputs (Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds and overnight repurchase agreements
|
$
|
145,510
|
|
|
$
|
121,510
|
|
|
$
|
24,000
|
|
|
$
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
Corporate debt securities
|
47,906
|
|
|
—
|
|
|
47,906
|
|
|
—
|
|
Commercial paper obligations
|
84,436
|
|
|
—
|
|
|
84,436
|
|
|
—
|
|
Asset-backed securities
|
70,071
|
|
|
—
|
|
|
70,071
|
|
|
—
|
|
Total
|
$
|
347,923
|
|
|
$
|
121,510
|
|
|
$
|
226,413
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Balance as of December 31, 2015
|
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Other Unobservable Inputs (Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds and overnight repurchase agreements
|
$
|
54,077
|
|
|
$
|
30,077
|
|
|
$
|
24,000
|
|
|
$
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
U.S. government-sponsored enterprise securities
|
24,290
|
|
|
—
|
|
|
24,290
|
|
|
—
|
|
Corporate debt securities
|
73,651
|
|
|
—
|
|
|
73,651
|
|
|
—
|
|
Commercial paper obligations
|
125,805
|
|
|
—
|
|
|
125,805
|
|
|
—
|
|
Asset-backed securities
|
64,837
|
|
|
—
|
|
|
64,837
|
|
|
—
|
|
Total
|
$
|
342,660
|
|
|
$
|
30,077
|
|
|
$
|
312,583
|
|
|
$
|
—
|
|
As of
December 31, 2016
, the Company held
$24 million
in overnight repurchase agreements. Overnight purchase agreements yields are comparable to money market funds. Principal and interest on the instruments is due the next day. The instruments are classified as Level 2 due to the collateral including both U.S. government-sponsored enterprise securities and treasury instruments.
There have been no impairments of the Company’s assets measured and carried at fair value, no changes in valuation techniques and
no
transfers between Level 1 and Level 2 financial assets during the years ended
December 31, 2016
and
2015
. The Company did not have any non-recurring fair value measurements on any assets or liabilities at
December 31, 2016
and
2015
. The fair value of Level 2 instruments classified as marketable securities was determined through third party pricing services. The carrying amounts reflected in the Company’s consolidated balance sheets for cash, collaboration receivable, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term maturities.
4. Cash, Cash Equivalents and Marketable Securities
The following tables summarize the Company's cash, cash equivalents and marketable securities as of
December 31, 2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Cash, money market funds and overnight repurchase agreements
|
$
|
150,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150,738
|
|
Corporate debt securities due in one year or less
|
47,942
|
|
|
—
|
|
|
(36
|
)
|
|
47,906
|
|
Commercial paper obligations due in one year or less
|
84,301
|
|
|
135
|
|
|
—
|
|
|
84,436
|
|
Asset-backed securities due in one year or less
|
70,084
|
|
|
1
|
|
|
(14
|
)
|
|
70,071
|
|
Total
|
$
|
353,065
|
|
|
$
|
136
|
|
|
$
|
(50
|
)
|
|
$
|
353,151
|
|
Reported as:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
150,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150,738
|
|
Marketable securities
|
202,327
|
|
|
136
|
|
|
(50
|
)
|
|
202,413
|
|
Total
|
$
|
353,065
|
|
|
$
|
136
|
|
|
$
|
(50
|
)
|
|
$
|
353,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Cash, money market funds and overnight repurchase agreements
|
$
|
61,461
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61,461
|
|
U.S. government-sponsored enterprise securities due in one year or less
|
24,285
|
|
|
5
|
|
|
—
|
|
|
24,290
|
|
Corporate debt securities due in one year or less
|
73,735
|
|
|
1
|
|
|
(84
|
)
|
|
73,652
|
|
Commercial paper obligations due in one year or less
|
125,693
|
|
|
120
|
|
|
(8
|
)
|
|
125,805
|
|
Asset-backed securities due in one year or less
|
64,866
|
|
|
—
|
|
|
(30
|
)
|
|
64,836
|
|
Total
|
$
|
350,040
|
|
|
$
|
126
|
|
|
$
|
(122
|
)
|
|
$
|
350,044
|
|
Reported as:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
61,461
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61,461
|
|
Marketable securities
|
288,579
|
|
|
126
|
|
|
(122
|
)
|
|
288,583
|
|
Total
|
$
|
350,040
|
|
|
$
|
126
|
|
|
$
|
(122
|
)
|
|
$
|
350,044
|
|
At
December 31, 2016
and
2015
, the Company held
31
and
66
marketable securities, respectively, which were in a continuous unrealized loss position for less than one year. As the unrealized losses on these securities were caused by fluctuations in interest rates, the Company concluded that no other-than-temporary impairment exists with respect to these securities. At
December 31, 2016
and
2015
, there were
no
marketable securities in a continuous unrealized loss position for greater than one year.
The following table summarizes the aggregate fair value of these securities at
December 31, 2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
As of December 31, 2015
|
|
Aggregate Fair Value
|
|
Unrealized Losses
|
|
Aggregate Fair Value
|
|
Unrealized Losses
|
Corporate debt securities due in one year or less
|
$
|
47,906
|
|
|
$
|
(36
|
)
|
|
$
|
70,657
|
|
|
$
|
(84
|
)
|
Commercial paper obligations due in one year or less
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33,734
|
|
|
$
|
(8
|
)
|
Asset-backed securities due in one year or less
|
$
|
60,787
|
|
|
$
|
(14
|
)
|
|
$
|
61,337
|
|
|
$
|
(30
|
)
|
5. Property and Equipment
As of
December 31, 2016
and
2015
, property and equipment, net consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Depreciable Lives
|
Computer equipment
|
$
|
2,991
|
|
|
$
|
2,426
|
|
|
3 years
|
Software
|
10,508
|
|
|
9,900
|
|
|
3 years
|
Office furniture and equipment
|
2,645
|
|
|
2,524
|
|
|
5 to 6 years
|
Laboratory equipment
|
47,938
|
|
|
43,286
|
|
|
7 years
|
Leasehold improvements
|
13,333
|
|
|
12,735
|
|
|
Shorter of asset life or lease term
|
Less: accumulated depreciation
|
(56,568
|
)
|
|
(48,975
|
)
|
|
|
|
$
|
20,847
|
|
|
$
|
21,896
|
|
|
|
During
2015
, the Company disposed of laboratory equipment with a gross carrying amount of
$0.3 million
and accumulated depreciation of
$0.3 million
. The Company did not dispose of any property and equipment during
2016
. Depreciation and amortization expense amounted to
$7.6 million
in each of the years ended
December 31, 2016
,
2015
and
2014
.
6. Intangible Assets
In April 2007, the Company entered into an asset purchase agreement with Parivid, LLC, or Parivid, a provider of data integration and analysis services, and S. Raguram, the principal owner of Parivid. Pursuant to the asset purchase agreement, the Company acquired certain of the assets and assumed certain of the liabilities of Parivid related to the acquired assets in exchange for
$2.5 million
in cash paid at closing and certain contingent milestone payments in a combination of cash and/or stock in the manner and on the terms and conditions set forth in the asset purchase agreement if certain milestones were achieved within
fifteen years
of the date of the asset purchase agreement. The asset purchase agreement was amended in August 2009 and in July 2011. Between 2009 and 2011, the Company made cash payments to Parivid of
$7.3 million
and issued
91,576
shares of its common stock valued at
$10.92
per share to Parivid in satisfaction of certain Enoxaparin Sodium Injection-related milestones under the amended asset purchase agreement. As of June 18, 2016, the one-year anniversary of the commercial launch of GLATOPA 20 mg/mL, GLATOPA 20 mg/mL remained the sole generic COPAXONE 20 mg/mL product on the U.S. market, triggering the final milestone payment under the amended asset purchase agreement. In connection with the final milestone, on August 10, 2016, the Company issued
265,605
shares of its common stock to Parivid to satisfy the GLATOPA 20 mg/mL milestone. The Company recorded
$3.2 million
as an intangible asset based on the number of shares issued and the closing price of the Company’s common stock on the date the shares were issued to Parivid.
Intangible assets consist solely of the core developed technology assets acquired from Parivid. The intangible assets are being amortized using the straight-line method over the estimated useful life of GLATOPA 20 mg/mL of approximately
six years
through June 2021. As of
December 31, 2016
and
2015
, intangible assets, net of accumulated amortization, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
Total intangible assets for core and developed technology
|
|
$
|
13,617
|
|
|
$
|
(8,428
|
)
|
|
$
|
10,427
|
|
|
$
|
(6,899
|
)
|
Amortization expense was approximately
$1.5 million
,
$1.1 million
and
$1.1 million
in the years ended
December 31, 2016
,
2015
and
2014
, respectively.
The Company expects to incur amortization expense of approximately
$1.2 million
per year from
2017
to
2020
and
$0.6 million
in the final year (
2021
).
7. Restricted Cash
The Company designated
$17.5 million
as collateral for a security bond posted in the litigation against Amphastar, International Medical Systems, Ltd., a wholly owned subsidiary of Amphastar Pharmaceuticals, Inc. and Actavis, Inc. (formerly Watson Pharmaceuticals, Inc.), as discussed within Note 14,
Commitments and Contingencies
. The
$17.5 million
is held in an
escrow account by Hanover Insurance. The Company classified this restricted cash as long-term as the timing of a final decision in the Enoxaparin Sodium Injection patent litigation is not known.
The Company designated
$2.4 million
as collateral for a letter of credit related to the lease of office and laboratory space located at 675 West Kendall Street in Cambridge, Massachusetts. This balance will remain restricted through April 2018 and therefore classified as non-current in the Company's consolidated balance sheet. The Company will earn interest on the balance.
The Company designated
$0.7 million
as collateral for a letter of credit related to the lease of office and laboratory space located at 320 Bent Street in Cambridge, Massachusetts. This balance will remain restricted through February 2027 and is therefore classified as non-current in the Company's consolidated balance sheet. The Company will earn interest on the balance.
The Company designated
$1.1 million
as collateral for a letter of credit related to the lease of office and laboratory space located at 301 Binney Street in Cambridge, Massachusetts. This balance will remain restricted through June 2025 and is therefore classified as non-current in the Company’s consolidated balance sheet. The Company will earn interest on the balance.
8. Accrued Expenses
As of
December 31, 2016
and
2015
, accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Accrued compensation
|
$
|
9,414
|
|
|
$
|
7,848
|
|
Accrued contract research costs
|
12,338
|
|
|
14,710
|
|
Accrued professional fees
|
3,979
|
|
|
1,354
|
|
Other
|
1,135
|
|
|
587
|
|
|
$
|
26,866
|
|
|
$
|
24,499
|
|
9. Collaboration and License Agreements
At
December 31, 2016
, the Company had collaboration and license agreements with Sandoz, Sandoz AG and Mylan. M923, the Company's biosimilar HUMIRA® (adalimumab) candidate, was previously developed in collaboration with Baxalta under the Baxalta Collaboration Agreement, as defined below. The Baxalta Collaboration Agreement was terminated effective
December 31, 2016
.
The Company records product revenue based on Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA 20 mg/mL.
Research and development revenue generally consists of amounts earned by us under our collaborations for technical development, regulatory and commercial milestones; reimbursement of research and development services and reimbursement of development costs; and recognition of the arrangement consideration.
The collaboration with Mylan is a cost-sharing arrangement pursuant to which reimbursement for Mylan’s
50%
share of collaboration expenses is recorded as a reduction to research and development expense and general and administrative expense depending on the nature of the activities.
The following tables provide amounts by year and by line item included in the Company's consolidated statements of operations and comprehensive loss attributable to transactions arising from its significant collaborative arrangements and all other arrangements, as defined in the Financial Accounting Standards Board's Accounting Standards Codification Topic 808,
Collaborative Arrangements
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016 (in thousands)
|
|
2003 Sandoz Collaboration Agreement
|
|
2006 Sandoz Collaboration Agreement
|
|
Baxalta Collaboration Agreement (1)
|
|
Mylan Collaboration Agreement (2)
|
|
Total Collaborations
|
Collaboration revenues:
|
|
|
|
|
|
|
|
|
|
Product revenue
|
$
|
—
|
|
|
$
|
74,648
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
74,648
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
Recognition of upfront payments and license payments
|
—
|
|
|
—
|
|
|
21,983
|
|
|
6,368
|
|
|
28,351
|
|
Research and development services and external costs
|
345
|
|
|
2,545
|
|
|
3,730
|
|
|
—
|
|
|
6,620
|
|
Total research and development revenue
|
$
|
345
|
|
|
$
|
2,545
|
|
|
$
|
25,713
|
|
|
$
|
6,368
|
|
|
$
|
34,971
|
|
Total collaboration revenues
|
$
|
345
|
|
|
$
|
77,193
|
|
|
$
|
25,713
|
|
|
$
|
6,368
|
|
|
$
|
109,619
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development expense (3, 4)
|
$
|
692
|
|
|
$
|
1,911
|
|
|
$
|
1,196
|
|
|
$
|
28,623
|
|
|
$
|
32,422
|
|
General and administrative expense (3, 4)
|
7
|
|
|
470
|
|
|
187
|
|
|
1,763
|
|
|
2,427
|
|
Total operating expenses
|
$
|
699
|
|
|
$
|
2,381
|
|
|
$
|
1,383
|
|
|
$
|
30,386
|
|
|
$
|
34,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015 (in thousands)
|
|
2003 Sandoz Collaboration Agreement
|
|
2006 Sandoz Collaboration Agreement
|
|
Baxalta Collaboration Agreement (1)
|
|
Total Collaborations
|
Collaboration revenues:
|
|
|
|
|
|
|
|
Product revenue
|
$
|
5,063
|
|
|
$
|
43,440
|
|
|
$
|
—
|
|
|
$
|
48,503
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
Milestone payments
|
—
|
|
|
20,000
|
|
|
—
|
|
|
20,000
|
|
Recognition of upfront payments and license payments
|
—
|
|
|
—
|
|
|
9,014
|
|
|
9,014
|
|
Research and development services and external costs
|
789
|
|
|
2,861
|
|
|
8,483
|
|
|
12,133
|
|
Total research and development revenue
|
$
|
789
|
|
|
$
|
22,861
|
|
|
$
|
17,497
|
|
|
$
|
41,147
|
|
Total collaboration revenues
|
$
|
5,852
|
|
|
$
|
66,301
|
|
|
$
|
17,497
|
|
|
$
|
89,650
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development expense (3)
|
$
|
324
|
|
|
$
|
856
|
|
|
$
|
1,851
|
|
|
$
|
3,031
|
|
General and administrative expense (3)
|
344
|
|
|
206
|
|
|
963
|
|
|
1,513
|
|
Total operating expenses
|
$
|
668
|
|
|
$
|
1,062
|
|
|
$
|
2,814
|
|
|
$
|
4,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2014 (in thousands)
|
|
2003 Sandoz Collaboration Agreement
|
|
2006 Sandoz Collaboration Agreement
|
|
Baxalta Collaboration Agreement (1)
|
|
Total Collaborations
|
Collaboration revenues:
|
|
|
|
|
|
|
|
Product revenue
|
$
|
19,963
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,963
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
Milestone payments
|
—
|
|
|
—
|
|
|
12,000
|
|
|
12,000
|
|
Recognition of upfront payments and license payments
|
—
|
|
|
480
|
|
|
3,239
|
|
|
3,719
|
|
Research and development services and external costs
|
1,043
|
|
|
2,452
|
|
|
13,073
|
|
|
16,568
|
|
Total research and development revenue
|
$
|
1,043
|
|
|
$
|
2,932
|
|
|
$
|
28,312
|
|
|
$
|
32,287
|
|
Total collaboration revenues
|
$
|
21,006
|
|
|
$
|
2,932
|
|
|
$
|
28,312
|
|
|
$
|
52,250
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development expense (3)
|
$
|
341
|
|
|
$
|
920
|
|
|
$
|
16,637
|
|
|
$
|
17,898
|
|
General and administrative expense (3)
|
125
|
|
|
299
|
|
|
527
|
|
|
951
|
|
Total operating expenses
|
$
|
466
|
|
|
$
|
1,219
|
|
|
$
|
17,164
|
|
|
$
|
18,849
|
|
_______________________________________
|
|
(1)
|
The Baxalta Collaboration Agreement, as defined below, was terminated effective
December 31, 2016
.
|
|
|
(2)
|
The Mylan Collaboration Agreement, as defined below, became effective on February 9, 2016.
|
|
|
(3)
|
The amounts represent external expenditures, including amortization of an intangible asset, and exclude salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies, as these costs are not directly charged to programs.
|
|
|
(4)
|
As a result of the cost-sharing provisions of the Mylan Collaboration Agreement, the Company offset approximately
$26.5 million
against research and development costs and
$1.3 million
against general and administrative costs during the year ended
December 31, 2016
.
|
2003 Sandoz Collaboration Agreement
In 2003, the Company entered into a collaboration and license agreement, or the 2003 Sandoz Collaboration Agreement, with Sandoz to jointly develop, manufacture and commercialize Enoxaparin Sodium Injection, a generic version of LOVENOX®, in the United States.
Under the terms of the 2003 Sandoz Collaboration Agreement, the Company and Sandoz agreed to exclusively work with each other to develop and commercialize Enoxaparin Sodium Injection for any and all medical indications within the United States. In addition, the Company granted Sandoz an exclusive license under its intellectual property rights to develop and commercialize injectable enoxaparin for all medical indications within the United States.
Sandoz began selling Enoxaparin Sodium Injection in July 2010. Under the original payment terms of the 2003 Sandoz Collaboration Agreement, Sandoz was obligated to pay the Company either a contractually-defined profit-share or royalty on net sales depending on the kind and number of other marketed generic versions of LOVENOX. The Company received
45%
of profits from July 2010 through September 2011, a royalty on net sales from October 2011 through December 2011 and a share of profits in January 2012. From February 2012 to March 2015, the Company received a
10%
royalty on net sales (
12%
on net sales above a certain threshold). In June 2015, the Company and Sandoz amended the 2003 Sandoz Collaboration Agreement, effective April 1, 2015, to provide that Sandoz would pay the Company
50%
of contractually-defined profits on sales. Sandoz did not record any profit on sales of Enoxaparin Sodium Injection for the year ended
December 31, 2016
, and therefore the Company did not record product revenue for Enoxaparin Sodium Injection in the period. For the year ended
December 31, 2015
, the Company earned
$5.1 million
in product revenue consisting of
$6.9 million
in a combination of profit share and royalties, net of an annual claw-back adjustment of
$1.8 million
for the product year ended June 30, 2015, on Sandoz' sales of Enoxaparin Sodium Injection. For the year ended
December 31, 2014
, the Company earned
$19.9 million
in product revenue, which consisted of
$20 million
in royalties on Sandoz' sales of Enoxaparin Sodium Injection, offset by
$2.2 million
of its contractual share of development and other expenses for the product year ended June 30, 2014, and increased by
$2.1 million
to reflect an adjustment to royalties earned in the product year ended June 30, 2012.
A portion of Enoxaparin Sodium Injection development expenses and certain legal expenses, which in the aggregate have exceeded a specified amount, are offset against profit-sharing amounts, royalties and milestone payments. The Company's
contractual share of such development and legal expenses is subject to an annual claw-back adjustment at the end of each of the first five product years, with the product year beginning on July 1 and ending on June 30. The annual adjustment can only reduce the Company's profits, royalties and milestones by up to
50%
in a given calendar quarter and any excess amount due will be carried forward into future quarters and reduce any profits in those future periods until it is paid in full. Annual adjustments, including amounts carried forward into future periods, are recorded as a reduction in product revenue.
The Company recognized research and development revenue from FTE services and external costs of
$0.3 million
,
$0.8 million
, and
$1.0 million
in the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
2006 Sandoz Collaboration Agreement
In 2006 and 2007, the Company entered into a series of agreements, including a collaboration and license agreement, as amended, or the 2006 Sandoz Collaboration Agreement, with Sandoz AG; and a stock purchase agreement and an investor rights agreement, with Novartis Pharma AG. Under the 2006 Sandoz Collaboration Agreement, the Company and Sandoz agreed to exclusively collaborate on the development and commercialization of GLATOPA, among other products. Costs, including development costs and the costs of clinical studies, will be borne by the parties in varying proportions depending on the type of expense. For GLATOPA, the Company is generally responsible for all of the development costs in the United States. For GLATOPA outside of the United States, the Company shares development costs in proportion to its profit sharing interest. The Company is reimbursed at a contractual FTE rate for any FTE employee expenses as well as any external costs incurred in the development of products to the extent development costs are borne by Sandoz. All commercialization costs are borne by Sandoz.
The term of the 2006 Sandoz Collaboration Agreement extends throughout the development and commercialization of the products until the last sale of the products, unless earlier terminated by either party pursuant to the provisions of the 2006 Sandoz Collaboration Agreement. The 2006 Sandoz Collaboration Agreement may be terminated if either party breaches the 2006 Sandoz Collaboration Agreement or files for bankruptcy. In addition, either the Company or Sandoz may terminate the 2006 Sandoz Collaboration Agreement with respect to GLATOPA 40 mg/mL, if clinical trials are required for regulatory approval of GLATOPA 40 mg/mL.
Sandoz commenced sales of GLATOPA 20 mg/mL in the United States on June 18, 2015. Under the 2006 Sandoz Collaboration Agreement, the Company earns
50%
of contractually-defined profits on Sandoz' worldwide net sales of GLATOPA 20 mg/mL. The Company is entitled to earn
50%
of contractually-defined profits on Sandoz' worldwide net sales of GLATOPA 40 mg/mL, if and when GLATOPA 40 mg/mL is commercialized. Profits on net sales of GLATOPA are calculated by deducting from net sales the costs of goods sold and an allowance for selling, general and administrative costs, which is a contractual percentage of net sales. With respect to GLATOPA, Sandoz is responsible for funding all of the legal expenses incurred under the 2006 Sandoz Collaboration Agreement, except for FTE costs with respect to certain legal activities for GLATOPA; however a portion of certain legal expenses, including any patent infringement damages, can be offset against the profit-sharing amounts in proportion to the Company's
50%
profit sharing interest.
For the year ended
December 31, 2016
, the Company recorded
$74.6 million
in product revenues from Sandoz' sales of GLATOPA 20 mg/mL, reflecting
$78.2 million
in profit share net of a deduction of
$3.6 million
for reimbursement to Sandoz of
50%
of GLATOPA-related legal expenses incurred by Sandoz. For the year ended
December 31, 2015
, the Company recorded
$43.4 million
in product revenues from Sandoz' sales of GLATOPA 20 mg/mL, reflecting
$52.5 million
in profit share net of a deduction of
$9.1 million
for reimbursement to Sandoz of
50%
of GLATOPA-related legal expenses incurred by Sandoz since 2008. The Company is eligible to receive in the aggregate up to
$120 million
in additional milestone payments upon the achievement of certain commercial and sales-based milestones for GLATOPA in the United States. None of these payments, once received, is refundable and there are no general rights of return in the arrangement. Sandoz has agreed to indemnify the Company for various claims, and a certain portion of such costs may be offset against certain future payments received by the Company.
The Company recognized research and development revenue from FTE services and external costs of
$2.5 million
,
$2.9 million
, and
$2.5 million
in the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
Baxalta Collaboration Agreement
The Company and Baxter International, Inc., Baxter Healthcare Corporation and Baxter Healthcare SA (or collectively referred to as Baxter) entered into a global collaboration and license agreement, or the Baxter Collaboration Agreement, effective February 2012, to develop and commercialize biosimilars, including M923. In connection with Baxter's internal corporate restructuring in July 2015, Baxter assigned the Baxter Collaboration Agreement to Baxalta U.S. Inc., Baxalta GmbH and Baxalta Incorporated (or collectively referred to as Baxalta). Subsequent to the assignment, the Company refers to "Baxter" as "Baxalta" and the "Baxter Collaboration Agreement" as the "Baxalta Collaboration Agreement." On September 27, 2016, Baxalta gave the Company
twelve months
’ prior written notice of the exercise of its right to terminate for its convenience the
Baxalta Collaboration Agreement. On
December 31, 2016
, the Company and Baxalta entered into an asset return and termination agreement, or the Baxalta Termination Agreement, which made the termination of the Baxalta Collaboration Agreement effective as of
December 31, 2016
.
Under the Baxalta Collaboration Agreement, the Company and Baxalta agreed to collaborate, on a world-wide basis, on the development and commercialization of M923 and M834, the Company's biosimilar ORENCIA® (abatacept) candidate, and Baxalta had the right to select
four
additional reference products to target for biosimilar development under the collaboration. In July 2012, Baxalta selected an additional product candidate and in December 2013, following an internal portfolio review, terminated its option to license the product candidate. In February 2015, Baxalta's right to select additional programs expired without further exercise. Also, in February 2015, Baxalta terminated in part the Baxalta Collaboration Agreement as it related to M834 and all worldwide development and commercialization rights for M834 reverted to the Company.
Under the Baxalta Collaboration Agreement, each party granted the other an exclusive license under its intellectual property rights to develop and commercialize M923 for all therapeutic indications. The Company agreed to provide development and related services on a commercially reasonable basis through the filing of an IND or equivalent application in the European Union for M923. Development and related services included high-resolution analytics, characterization, and product and process development. Baxalta was responsible for clinical development, manufacturing and commercialization activities for M923. The Company had the right to participate in a joint steering committee, consisting of an equal number of members from the Company and Baxalta, to oversee and manage the development and commercialization of M923 under the collaboration. Costs, including development costs, payments to third parties for intellectual property licenses, and expenses for legal proceedings, including the patent exchange process pursuant to the Biologics Price Competition and Innovation Act of 2009, was to be borne by the parties in varying proportions, depending on the type of expense and the stage of development. The Company was generally responsible for research and process development costs prior to filing an IND or equivalent application in the European Union, and the cost of in-human clinical trials, manufacturing in accordance with current good manufacturing practices and commercialization was borne by Baxalta.
Under the terms of the Baxalta Collaboration Agreement, the Company received an upfront payment of
$33 million
, a
$7 million
license payment for achieving pre-defined "minimum development criteria" for M834, and
$12 million
in technical and development milestone payments in connection with the UK Medicines and Healthcare Products Regulatory Agency's acceptance of Baxalta's clinical trial application to initiate a pharmacokinetic clinical trial for M923. The Company was reimbursed at a contractual FTE rate for any FTE employee expenses and external development costs for reimbursable activities related to M923. Had M923 been successfully developed and launched under the Baxalta Collaboration Agreement, Baxalta would have been required to pay the Company royalties on net sales of licensed products worldwide, with a base royalty rate in the high single digits with the potential for significant tiered increases based on the number of competitors, the interchangeability of the product, and the sales tier for the product. The maximum royalty with all potential increases would have been slightly more than double the base royalty.
On June 3, 2016, Baxalta Incorporated and Shire plc, or Shire, announced the completion of the combination of Baxalta Incorporated and Shire. As a result of the combination, Baxalta Incorporated, of which Baxalta US Inc. and Baxalta GmbH are wholly-owned subsidiaries, is a wholly-owned subsidiary of Shire. On September 27, 2016, Baxalta gave the Company
twelve months
’ prior written notice of the exercise of its right to terminate for its convenience the Baxalta Collaboration Agreement. Under the terms of the Baxalta Collaboration Agreement, the effective date of the termination was
twelve months
following the date Baxalta gave the termination notice, as more particularly set forth in the Baxalta Collaboration Agreement. As of the termination effective date, (i) Baxalta was obligated to transfer to the Company all ongoing regulatory, development, manufacturing and commercialization activities and related records for M923 and, at the Company's request, assign to the Company any third party agreements reasonably necessary for and primarily related to the development, manufacture, and commercialization of M923 to the extent permitted by the agreements' terms, (ii) the licenses granted pursuant to the Baxalta Collaboration Agreement by the Company to Baxalta under the Company's intellectual property rights relating to M923 would terminate, the licenses granted pursuant to the Baxalta Collaboration Agreement by Baxalta to the Company under Baxalta’s intellectual property rights relating to M923 would survive, and Baxalta was obligated to grant to the Company additional licenses under Baxalta’s intellectual property rights relating to M923 existing as of the termination effective date, and (iii) the Company was obligated to pay to Baxalta a royalty of
5%
of net sales, as such term is defined in the Baxalta Collaboration Agreement, until Baxalta’s development expenses and commercialization costs, as such terms are defined in the Baxalta Collaboration Agreement, occurring through the termination effective date were reimbursed. Following receipt of the termination notice, the Company is no longer eligible to receive any regulatory milestone payments under the Baxalta Collaboration Agreement. Prior to the termination effective date, Baxalta was obligated to continue to perform development and manufacturing activities for M923.
On
December 31, 2016
, the Company and Baxalta entered into the Baxalta Termination Agreement, amending certain termination provisions of the Baxalta Collaboration Agreement. Under the terms of the Baxalta Termination Agreement, the
termination of the Baxalta Collaboration Agreement was made effective
December 31, 2016
. Baxalta was relieved of its obligations to continue to perform activities for M923 after
December 31, 2016
, except for certain on-going clinical and regulatory activities that are expected to be completed by April 2017, and in January 2017, Baxalta paid the Company a one-time cash payment of
$51.2 million
representing the costs Baxalta would have incurred in performing the activities it would have performed under Baxalta Collaboration Agreement through the original termination date.
In accordance with FASB's ASU No. 2009-13: Multiple-Deliverable Revenue Arrangements (Topic 615), the Company identified all of the deliverables at the inception of the Baxalta Collaboration Agreement. The deliverables were determined to include (i)
six
development and product licenses for each of M923, M834 and the
four
additional collaboration products, (ii) research and development services related to each of M923, M834 and the
four
additional collaboration products and (iii) the Company's participation in a joint steering committee. The Company determined that each of the license deliverables do not have stand-alone value apart from the related research and development services deliverables because (1) there are no other vendors selling similar, competing products on a stand-alone basis, (2) Baxalta does not have the contractual right to resell the license, and (3) Baxalta is unable to use the license for its intended purpose without the Company's performance of research and development services. As such, the Company determined that with respect to this arrangement separate units of accounting exist for each of the
six
licenses together with the related research and development services, as well as the one unit of accounting for the joint steering committee. The estimated selling price for these units of accounting was determined based on similar license arrangements and the nature of the research and development services to be performed for Baxalta and market rates for similar services. At the inception of the Baxalta Collaboration Agreement, arrangement consideration of
$61.0 million
, which included the
$33.0 million
upfront payment and aggregate option payments for the four additional collaboration products of
$28.0 million
, was allocated to the units of accounting based on the relative selling price method. Of the
$61.0 million
,
$10.3 million
was allocated to the M923 product license together with the related research and development services,
$10.3 million
to each of the
four
additional collaboration product licenses with the related research and development services,
$9.4 million
was allocated to the M834 product license together with the related research and development services due to that product's stage of development at the time the license was delivered, and
$114,000
was allocated to the joint steering committee unit of accounting.
At the inception of the Baxalta Collaboration Agreement, the Company delivered development and product licenses for M923 and M834 and commenced revenue recognition of the arrangement consideration allocated to those products. In addition, the Company began revenue recognition for the arrangement consideration allocated to the joint steering committee unit of accounting. Baxalta's termination of its option to license M511 in December 2013 as well as its termination of M834 and the lapse of its right to select additional products in February 2015 reduced the number of deliverables from
seven
to
two
and decreased the total consideration from
$61 million
to
$40 million
. The Company determined that the change in total consideration received and total deliverables under the arrangement represented a change in estimate and, as a result, the Company reallocated the revised total consideration of
$40 million
, less the amount recognized as revenue to date, to the remaining deliverables under the agreement using the original best estimate of selling price. The remaining deliverables were the combined unit of account for the M923 license and the related research and development services and the Company's participation on the joint steering committee. The Company recognized the resulting change in revenue as a result of the decrease in deliverables and expected consideration on a prospective basis. The Company recorded this revenue on a straight-line basis over the applicable performance period, which began with delivery of the development and product license and ends upon FDA approval of the product.
As a result of termination of the Baxalta Collaboration Agreement, the Company's performance period for M923 and the joint steering committee ended on
December 31, 2016
; therefore, the Company recognized the remaining balance of deferred revenue of
$22.0 million
as research and development revenue in the year ended
December 31, 2016
. The total impact of the change in performance period was
$11.0 million
, or
$0.16
per share. In addition, the Company recorded the
$51.2 million
asset return payment in other income in the fourth quarter of
2016
as a result of Baxalta's accelerated termination and funding of anticipated development costs pursuant to the Baxalta Collaboration Agreement.
Mylan Collaboration Agreement
On January 8, 2016, the Company and Mylan entered into a collaboration agreement, or the Mylan Collaboration Agreement, which became effective on February 9, 2016, pursuant to which the Company and Mylan agreed to collaborate exclusively, on a worldwide basis, to develop, manufacture and commercialize
six
of the Company’s biosimilar candidates, including M834.
Under the terms of the Mylan Collaboration Agreement, Mylan paid the Company a non-refundable upfront payment of
$45 million
. In addition, the Company and Mylan equally share costs (including development, manufacturing, commercialization and certain legal expenses) and profits (losses) with respect to such product candidates, with Mylan funding
its share of collaboration expenses incurred by the Company, in part, through up to
six
contingent milestone payments, totaling up to
$200 million
across the
six
product candidates.
For each product candidate other than M834, at a specified stage of early development, the Company and Mylan will each decide, based on the product candidate’s development progress and commercial considerations, whether to continue the development, manufacture and commercialization of such product candidate under the collaboration or to terminate the collaboration with respect to such product candidate.
Under the Mylan Collaboration Agreement, the Company granted Mylan an exclusive license under the Company’s intellectual property rights to develop, manufacture and commercialize the product candidates for all therapeutic indications, and Mylan granted the Company a co-exclusive license under Mylan’s intellectual property rights for the Company to perform its development and manufacturing activities under the product work plans agreed by the parties, and to perform certain commercialization activities to be agreed by the joint steering committee for such product candidates if the Company exercises its co-commercialization option described below. The Company and Mylan established a joint steering committee consisting of an equal number of members from the Company and Mylan to oversee and manage the development, manufacture and commercialization of product candidates under the collaboration. Unless otherwise determined by the joint steering committee, it is anticipated that, in collaboration with the other party, (a) the Company will be primarily responsible for nonclinical development activities and initial clinical development activities for product candidates; additional (pivotal or Phase 3 equivalent) clinical development activities for M834; and regulatory activities for product candidates in the United States through regulatory approval; and (b) Mylan will be primarily responsible for additional (pivotal or Phase 3 equivalent) clinical development activities for product candidates other than M834; regulatory activities for the product candidates outside the United States; and regulatory activities for products in the United States after regulatory approval, when all marketing authorizations for the products in the United States will be transferred to Mylan. Mylan will commercialize any approved products, with the Company having an option to co-commercialize, in a supporting commercial role, any approved products in the United States. The joint steering committee is responsible for allocating responsibilities for other activities under the collaboration.
The term of the collaboration will continue throughout the development and commercialization of the product candidates, on a product-by-product and country-by-country basis, until development and commercialization by or on behalf of the Company and Mylan pursuant to the Mylan Collaboration Agreement has ceased for a continuous period of
two years
for a given product candidate in a given country, unless earlier terminated by either party pursuant to the terms of the Mylan Collaboration Agreement.
The Mylan Collaboration Agreement may be terminated by either party for breach by, or bankruptcy of, the other party; for its convenience; or for certain activities involving competing products or the challenge of certain patents. Other than in the case of a termination for convenience, the terminating party will have the right to continue the development, manufacture and commercialization of the terminated products in the terminated countries. In the case of a termination for convenience, the other party will have the right to continue. If a termination occurs, the licenses granted to the non-continuing party for the applicable product will terminate for the terminated country. Subject to certain terms and conditions, the party that has the right to continue the development or commercialization of a given product candidate may retain royalty-bearing licenses to certain intellectual property rights, and rights to certain data, for the continued development and sale of the applicable product in the country or countries for which termination applies.
In accordance with Topic 605, the Company identified the deliverables at the inception of the Mylan Collaboration Agreement. The deliverables were determined to include (i)
six
development and product licenses, for each of M834 and the
five
additional collaboration products, (ii) research and development services related to each of M834 and the
five
additional collaboration products and (iii) the Company’s participation in the joint steering committee. The Company has determined that each of the license deliverables does not have stand-alone value apart from the related research and development services deliverables because (1) there are no other vendors selling similar, competing products on a stand-alone basis, (2) Mylan does not have the contractual right to resell the license, and (3) Mylan is unable to use the license for its intended purpose without the Company’s performance of research and development services. As such, the Company determined that with respect to this arrangement, separate units of accounting exist for each of the
six
licenses together with the related research and development services, or the combined units of accounting, as well as a separate unit of accounting for participation in the joint steering committee. VSOE and TPE were not available for the combined units of accounting. As such, the Company determined BESP for the combined units of accounting based on an analysis of its existing license arrangements and other available data and the nature and extent of the research and development services to be performed. BESP for the joint steering committee unit of accounting was based on market rates for similar services. At the inception of the Mylan Collaboration Agreement, total arrangement consideration of
$45 million
was allocated to each of the units of accounting based on the relative selling price method. Of the
$45 million
,
$8.2 million
was allocated to the M834 combined unit of accounting, between
$5.7 million
and
$9.0 million
to the
five
additional combined units of accounting, considering the products’ stage of development at the time the licenses were delivered, and
$51,000
was allocated to the joint steering committee unit of accounting. Changes in the key assumptions used to determine BESP for the units of accounting would not have a significant effect on the allocation of arrangement consideration.
At the inception of the Mylan Collaboration Agreement, the Company delivered development and product licenses for all
six
collaboration products and commenced revenue recognition of the arrangement consideration allocated the respective units of accounting. In addition, the Company began revenue recognition for the arrangement consideration allocated to the joint steering committee unit of accounting. The Company is recording revenue on a straight-line basis over the applicable performance period during which the research and development services are expected to be delivered, which begins upon delivery of the development and product license and ends upon FDA approval of the product. The Company currently estimates that the performance period for the M834 unit of accounting is approximately
five years
, an average of approximately
seven years
for the additional
five
combined units of accounting and approximately
eight years
for the joint steering committee unit of accounting. As of
December 31, 2016
,
$38.7 million
was deferred under this agreement, of which
$7.3 million
was included in current liabilities and
$31.4 million
was included in non-current liabilities in the consolidated balance sheet.
As the Mylan Collaboration Agreement became effective on February 9, 2016, beginning on February 9, 2016, the Company and Mylan share collaboration expenses. Collaboration costs incurred by the Company are recorded as research and development expense and/or general and administrative expense, depending on the nature of the activities, as incurred. Mylan's share of collaboration expenses is recorded as a reduction in research and development and/or general and administrative expenses in the consolidated statements of operations and comprehensive loss, in accordance with the Company’s policy, which is consistent with the nature of the cost reimbursement.
Mylan will initially fund a portion of its
50%
share of collaboration expenses through contingent milestone payments of up to
$200 million
across the
six
product candidates and any unused portion of the contingent payment(s) will be available to offset Mylan’s
50%
share of future collaboration costs. If in a given year a contingent payment is not expected to be made by Mylan and there is no balance available from a prior contingent payment balance as of the beginning of the collaboration year, the parties will reconcile total collaboration expenses on a semi-annual basis and Mylan will make a payment to the Company. For the year ended
December 31, 2016
, the Company reduced research and development expenses by
$26.5 million
and general and administrative expenses by
$1.3 million
, representing Mylan’s
50%
share of collaboration expenses. In the year ended
December 31, 2016
, the Company received
two
milestone payments totaling
$60 million
, of which
$32.9 million
will be applied toward the funding of Mylan's
50%
share of certain collaboration expenses yet to be incurred and is included in collaboration advance in the Company's consolidated balance sheet.
10. Preferred, Common and Treasury Stock
Preferred Stock
The Company is authorized to issue
5 million
shares of preferred stock in
one
or more series and to fix the powers, designations, preferences and relative participating, option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and the number of shares constituting any series, without any further vote or action by the Company's stockholders. As of
December 31, 2016
and
2015
, the Company had
no
shares of preferred stock issued or outstanding.
Common Stock
Holders of common stock are entitled to receive dividends, if and when declared by the Board of Directors, and to share ratably in the Company's assets legally available for distribution to the Company's stockholders in the event of liquidation. Holders of common stock have no preemptive, subscription, redemption, or conversion rights. The holders of common stock do not have cumulative voting rights. The holders of a majority of the shares of common stock can elect all of the directors and can control the Company's management and affairs. Holders of common stock are entitled to
one vote per share
on all matters to be voted upon by the stockholders of the Company.
Treasury Stock
Treasury stock represents common stock currently owned by the Company as a result of shares withheld from the vesting of performance-based restricted common stock to satisfy minimum tax withholding requirements.
11. Share-Based Payments
Incentive Award Plans
The 2013 Incentive Award Plan, or the 2013 Plan, initially became effective on June 11, 2013, the date the Company received stockholder approval for the plan. Also on June 11, 2013, the 2004 Stock Incentive Plan terminated except with respect to awards previously granted under that plan.
No
further awards will be granted under the 2004 Stock Incentive Plan.
The 2013 Plan allows for the granting of stock options (both incentive stock options and nonstatutory stock options), restricted stock, stock appreciation rights, performance awards, dividend equivalents, stock payments and restricted stock units to employees, consultants and members of the Company's board of directors.
Incentive stock options are granted only to employees of the Company. Incentive stock options granted to employees who own more than
10%
of the total combined voting power of all classes of stock are granted with exercise prices no less than
110%
of the fair market value of the Company's common stock on the date of grant. Incentive stock options generally vest ratably over
four years
. Non-statutory stock options and restricted stock awards may be granted to employees, consultants and members of the Company's board of directors. Non-statutory stock options granted have varying vesting schedules. Time-based restricted stock awards are granted to employees and board members and generally vest ratably over
four years
. Performance-based restricted stock awards are granted to employees and vest in connection with the attainment of certain company milestones as described in more detail below under “Restricted Stock Awards”. Incentive and non-statutory stock options generally expire
ten years
after the date of grant.
The total number of shares reserved for issuance under the 2013 Plan equals the sum of: (a)
11,900,000
, (b)
one
share for each share subject to a stock option that was granted through December 31, 2012 under the 2004 Stock Incentive Plan and the Amended and Restated 2002 Stock Incentive Plan (together, the "Prior Plans") that subsequently expires, is forfeited or is settled in cash (up to a maximum of
4,337,882
shares) and (c)
1.67
shares for each share subject to an award other than a stock option that was granted through December 31, 2012 under the Prior Plans and that subsequently expires, is forfeited, is settled in cash or repurchased (up to a maximum of
950,954
shares). As of
December 31, 2016
, there were
5,372,297
shares available for issuance under the 2013 Plan.
Share-Based Compensation
The Company records compensation cost for all share-based payment arrangements, including employee, director and consultant stock options, restricted stock and the employee stock purchase plan.
The table below presents share-based compensation expense for research and development as well as general and administration included in operating expenses in the years ended
December 31, 2016
,
2015
and
2014
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Research and development
|
$
|
7,558
|
|
|
$
|
5,145
|
|
|
$
|
6,204
|
|
General and administrative
|
10,764
|
|
|
6,295
|
|
|
7,390
|
|
Total compensation cost
|
$
|
18,322
|
|
|
$
|
11,440
|
|
|
$
|
13,594
|
|
The following table summarizes share-based compensation expense recorded in the years ended
December 31, 2016
,
2015
and
2014
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Outstanding employee and non-employee stock option grants
|
$
|
9,831
|
|
|
$
|
10,548
|
|
|
$
|
9,617
|
|
Outstanding restricted stock awards
|
8,064
|
|
|
504
|
|
|
3,549
|
|
Employee stock purchase plan
|
427
|
|
|
388
|
|
|
428
|
|
Total compensation cost
|
$
|
18,322
|
|
|
$
|
11,440
|
|
|
$
|
13,594
|
|
During the year ended
December 31, 2016
, the Company granted
1,521,327
stock options, of which
812,302
were granted in connection with annual merit awards,
181,000
were granted to the Company's board of directors, and
528,025
were primarily granted to new hires. The average grant date fair value of options granted was calculated using the Black-Scholes-Merton option-pricing model and the weighted average assumptions noted in the table below.
The following table summarizes the weighted average assumptions the Company used in its fair value calculations at the date of grant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions
|
|
Stock Options
|
|
Employee Stock Purchase Plan
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Expected volatility
|
58
|
%
|
|
59
|
%
|
|
66
|
%
|
|
57
|
%
|
|
59
|
%
|
|
63
|
%
|
Expected dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expected life (years)
|
6.1
|
|
|
6.1
|
|
|
6.1
|
|
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
Risk-free interest rate
|
1.6
|
%
|
|
1.9
|
%
|
|
2.2
|
%
|
|
0.4
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
The following table presents stock option activity of the 2013 Plan and Prior Plans for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options (in thousands)
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding at December 31, 2015
|
6,611
|
|
|
$
|
14.54
|
|
|
|
|
|
Granted
|
1,521
|
|
|
11.11
|
|
|
|
|
|
Exercised
|
(106
|
)
|
|
12.73
|
|
|
|
|
|
Forfeited
|
(362
|
)
|
|
13.51
|
|
|
|
|
|
Expired
|
(655
|
)
|
|
16.63
|
|
|
|
|
|
Outstanding at December 31, 2016
|
7,009
|
|
|
$
|
13.68
|
|
|
6.04
|
|
$
|
14,288
|
|
Exercisable at December 31, 2016
|
4,475
|
|
|
$
|
14.13
|
|
|
4.68
|
|
$
|
7,459
|
|
Vested or expected to vest at December 31, 2016
|
6,738
|
|
|
$
|
13.74
|
|
|
5.93
|
|
$
|
13,459
|
|
The weighted average grant date fair value of option awards granted during
2016
,
2015
and
2014
was
$6.04
,
$8.11
and
$10.51
per option, respectively. The total intrinsic value of options exercised during
2016
,
2015
and
2014
was
$0.2 million
,
$11.4 million
and
$1.3 million
, respectively. At
December 31, 2016
, the total remaining unrecognized compensation cost related to nonvested stock option awards amounted to
$13.0 million
, including estimated forfeitures, which will be recognized over the weighted average remaining requisite service period of
2.5 years
. The total fair value of options vested during
2016
,
2015
and
2014
was
$9.9 million
,
$9.9 million
and
$10.1 million
, respectively.
Cash received from option exercises for
2016
,
2015
and
2014
was
$1.4 million
,
$23.6 million
and
$2.2 million
, respectively.
Restricted Stock Awards
The Company has also made awards of time-based and performance-based restricted common stock to employees and officers and time-based restricted common stock to board members.
During the year ended
December 31, 2016
, the Company awarded
407,321
shares of time-based restricted common stock to its employees and officers in connection with its annual merit grant. The time-based restricted common stock vest as to
25%
on the
one year
anniversary of the grant date and as to
6.25%
quarterly over
three years
that follow the grant date. The time-based awards are generally forfeited if the employment relationship terminates with the Company prior to vesting.
During the year ended
December 31, 2016
, the Company awarded
27,500
shares of time-based restricted common stock to its board members. The time-based restricted common stock vest as to
100%
on the
one year
anniversary of the grant date.
Between 2011 and early 2013, the Company awarded
949,620
shares of performance-based restricted common stock to employees and officers. The performance-based restricted common stock was scheduled to vest upon FDA approval of the GLATOPA 20 mg/mL Abbreviated New Drug Application, or ANDA, on or before the performance deadline date of March 28, 2015 according to the following schedule:
50%
of the shares vest upon FDA approval and
50%
vest upon the
one year
anniversary of FDA approval. The Company had historically determined that the performance condition was probable of being achieved by March 28, 2015 and, as a result, had recognized approximately
$10.5 million
of stock compensation costs related to the awards. On March 11, 2015, the Board of Directors approved an amendment to the awards that extended the performance
deadline date to September 1, 2015 and provided for the forfeiture of
15%
of the number of shares originally subject to each award on the 29th of each month, beginning March 29, 2015 until the shares vested or were forfeited in full. On March 29, 2015,
117,898
shares of performance-based restricted common stock were forfeited pursuant to the modified awards. The Company evaluated the modification and determined it was a Type III modification or "Improbable to Probable" pursuant to ASC 718 as the awards, on the date of modification, were no longer deemed to be probable of being earned by March 28, 2015. As a result, the Company reversed the cumulative compensation cost related to the original awards of
$10.5 million
in the first quarter of
2015
. Also, in accordance with ASC 718, the Company re-measured the modified awards with a measurement date of March 11, 2015, and determined the aggregate compensation was
$9.8 million
. The FDA approved the GLATOPA 20 mg/mL ANDA on April 16, 2015. The Company recognized the compensation cost attributed to the modified awards as follows: the first
50%
of the awards was expensed over the period beginning on March 11, 2015 and ending on April 16, 2015, the date of FDA approval, and the remaining
50%
of the awards was expensed over the period beginning on March 11, 2015 and ending on April 16, 2016, the
one year
anniversary of FDA approval.
Between April 13, 2016 and
December 31, 2016
, the Company awarded
1,646,580
shares of performance-based restricted common stock to employees and officers. The vesting of the shares is subject to the Company achieving up to
two
of
three
possible performance milestones on or before April 13, 2019. Upon achieving each of the first and second milestones,
25%
of the shares will vest on the later of the milestone achievement date and the first anniversary of the grant date, and an additional
25%
of the shares will vest on the
one year
anniversary of such achievement date, subject to a requirement that recipients remain employees through each applicable vesting date. Each quarter, the Company evaluates the probability of achieving the milestones on or before April 13, 2019, and its estimate of the implicit service period over which the fair value of the awards will be recognized and expensed. As a result of discontinuing its necuparanib program in the third quarter of
2016
, the Company determined that only
two
of the
three
performance milestones are possible to achieve prior to April 13, 2019. However, the Company has determined that attainment of the remaining performance conditions is probable and is expensing the fair value of the shares over the implicit service period using the accelerated attribution method. For the year ended
December 31, 2016
, the Company recognized approximately
$3.7 million
of stock compensation costs related to these awards.
As of
December 31, 2016
, the total remaining unrecognized compensation cost related to all nonvested restricted stock awards amounted to
$14.6 million
, which is expected to be recognized over the weighted average remaining requisite service period of approximately
2 years
.
A summary of the status of nonvested shares of restricted stock as of
December 31, 2016
and the changes during the year then ended are presented below (in thousands, except fair values):
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value
|
Nonvested at January 1, 2016
|
761
|
|
|
$
|
14.61
|
|
Granted
|
2,081
|
|
|
10.16
|
|
Vested
|
(519
|
)
|
|
14.55
|
|
Forfeited
|
(331
|
)
|
|
10.65
|
|
Nonvested at December 31, 2016
|
1,992
|
|
|
$
|
10.63
|
|
Nonvested shares of restricted stock that have time-based or performance-based vesting schedules as of
December 31, 2016
are summarized below (in thousands):
|
|
|
|
Vesting Schedule
|
Nonvested Shares
|
Time-based
|
575
|
|
Performance-based
|
1,417
|
|
Nonvested at December 31, 2016
|
1,992
|
|
The total fair value of shares of restricted stock vested during
2016
,
2015
and
2014
was
$7.6 million
,
$7.9 million
and
$2.0 million
, respectively.
Employee Stock Purchase Plan
In 2004, the Company's Board of Directors adopted the 2004 Employee Stock Purchase Plan, or ESPP. An aggregate of
1,024,652
shares of common stock have been reserved for issuance under the ESPP.
The ESPP is generally available to all employees who work more than
20
hours per week and
five
months per year. Under the ESPP, eligible participants purchase shares of the Company's common stock at a price equal to
85%
of the lesser of the closing price of the Company's common stock on the first business day and the final business day of the applicable plan purchase period. Plan purchase periods begin on February 1 and August 1 of each year, with purchase dates occurring on the final business day of the given purchase period. To pay for the shares, each participant authorizes periodic payroll deductions of up to
15%
of his or her eligible cash compensation. All payroll deductions collected from the participant during a purchase period are automatically applied to the purchase of common stock on that period's purchase date provided the participant remains an eligible employee and has not withdrawn from the ESPP prior to that date and subject to certain limitations imposed by the ESPP and the Internal Revenue Code. The Company issued
104,892
shares of common stock to employees under the ESPP during the year ended
December 31, 2016
. As of
December 31, 2016
,
742,366
shares of common stock have been issued to the Company's employees under the ESPP, and
282,286
shares remain available for future issuance. The fair value of each ESPP award is estimated on the first day of the offering period using the Black-Scholes-Merton option-pricing model. The weighted average assumptions the Company used in its fair value calculations and the expense recorded are noted in the table above under the heading
Share-Based Compensation
. The Company recognizes share-based compensation expense equal to the fair value of the ESPP awards on a straight-line basis over the offering period. At
December 31, 2016
, subscriptions were outstanding for an estimated
64,138
shares at a fair value of approximately
$3.61
per share. The weighted average grant date fair value of the offerings during
2016
,
2015
and
2014
was
$4.32
,
$4.05
and
$4.51
per share, respectively. Cash received from the ESPP for
2016
,
2015
and
2014
was approximately
$1.1 million
,
$1.0 million
and
$1.1 million
, respectively.
12. Net Loss Per Common Share
Since the Company had a net loss for all periods presented, the effect of all potentially dilutive securities is anti-dilutive. Accordingly, basic and diluted net loss per share is the same in those periods. The weighted-average anti-dilutive shares shown in the foregoing table were not included in the computation of diluted net loss per share. Anti-dilutive shares comprise the impact of the number of shares that would have been dilutive had the Company had net income plus the number of common stock equivalents that would be anti-dilutive had the Company had net income. Furthermore,
1,417,230
performance-based restricted common stock awards that were granted between April 13, 2016 and
December 31, 2016
had not vested as of
December 31, 2016
, and were excluded from diluted shares outstanding as the vesting conditions for the awards, discussed further in Note 11 “
Share-Based Payments - Restricted Stock Awards
,” had not been met as of
December 31, 2016
.
The following table presents anti-dilutive shares for the years ended
December 31, 2016
,
2015
and
2014
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Weighted-average anti-dilutive shares related to:
|
|
|
|
|
|
Outstanding stock options
|
6,569
|
|
|
4,148
|
|
|
5,941
|
|
Restricted stock awards
|
1,202
|
|
|
519
|
|
|
847
|
|
13. Income Taxes
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The Company establishes a valuation allowance when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized. Components of the net deferred tax (liability) asset at
December 31, 2016
and
2015
are as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
Federal and state net operating losses
|
$
|
94,793
|
|
|
$
|
115,606
|
|
Research credits
|
30,007
|
|
|
23,088
|
|
Deferred compensation
|
9,701
|
|
|
10,031
|
|
Deferred revenue
|
28,096
|
|
|
8,635
|
|
Accrued expenses
|
5,053
|
|
|
3,023
|
|
Intangibles
|
3,220
|
|
|
3,300
|
|
Depreciation
|
475
|
|
|
686
|
|
Unrealized loss on marketable securities
|
—
|
|
|
1
|
|
Total deferred tax assets
|
171,345
|
|
|
164,370
|
|
Deferred tax liabilities:
|
|
|
|
Unrealized gain on marketable securities
|
(30
|
)
|
|
—
|
|
Total deferred tax liabilities
|
(30
|
)
|
|
—
|
|
Valuation allowance
|
(171,315
|
)
|
|
(164,370
|
)
|
Net deferred tax assets
|
$
|
—
|
|
|
$
|
—
|
|
A reconciliation of the federal statutory income tax benefit to the Company's actual provision for the years ended
December 31, 2016
,
2015
and
2014
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Benefit at federal statutory tax rate
|
$
|
(7,137
|
)
|
|
$
|
(28,323
|
)
|
|
$
|
(33,521
|
)
|
State taxes, net of federal benefit
|
(1,108
|
)
|
|
(4,398
|
)
|
|
(5,206
|
)
|
Share-based compensation
|
5,148
|
|
|
3,634
|
|
|
2,411
|
|
Tax credits
|
(4,120
|
)
|
|
(2,652
|
)
|
|
(5,529
|
)
|
Other
|
272
|
|
|
42
|
|
|
23
|
|
Change in valuation allowance
|
6,945
|
|
|
31,697
|
|
|
41,822
|
|
Income tax provision
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company generated U.S. taxable income during the years ended December 31, 2011 and 2010, and as a result, utilized
$190.9 million
and
$26.3 million
, respectively, of its historical available federal net operating loss carryforwards that were generated from 2001 to 2009 to offset this income.
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company has concluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company may not realize the benefit of all of its deferred tax assets. Accordingly, the Company has recorded a full valuation allowance against the deferred tax assets as management believes the assets may not be realized. The Company reevaluates the positive and negative evidence on an annual basis. The valuation allowance increased by
$6.9 million
for the year ended
December 31, 2016
due primarily to the current period net loss.
At
December 31, 2016
, the Company had federal and state net operating loss carryforwards of
$260.7 million
and
$233.8 million
, respectively, available to reduce future taxable income that will expire at various dates through
2036
. Of this amount, approximately
$15.8 million
of federal and state net operating loss carryforwards relate to stock option deductions for which the related tax benefit will be recognized in equity when realized. At
December 31, 2016
, the Company had federal and state research and development and other credit carryforwards, including the orphan drug credit, of
$29.1 million
and
$11.0 million
, respectively, available to reduce future tax liabilities that expire at various dates through
2036
. Ownership changes, as defined in the Internal Revenue Code, may limit the amount of net operating loss that can be utilized to offset future taxable income or tax liability.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended
December 31, 2016
and
2015
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Balance, beginning of year
|
$
|
5,116
|
|
|
$
|
4,064
|
|
|
$
|
4,465
|
|
Additions for tax positions related to the current year
|
1,602
|
|
|
1,395
|
|
|
940
|
|
Reductions of tax positions of prior years
|
(40
|
)
|
|
(343
|
)
|
|
(1,341
|
)
|
Balance, end of year
|
$
|
6,678
|
|
|
$
|
5,116
|
|
|
$
|
4,064
|
|
As of
December 31, 2016
and
2015
, the Company had
$6.7 million
and
$5.1 million
of gross unrecognized tax benefits, respectively, of which
$6.4 million
and
$4.9 million
, respectively, if recognized, would not impact the Company's effective tax rate as there is a full valuation allowance on these credits.
The Company's policy is to recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not recognized any interest and penalties.
The Company does not anticipate that it is reasonably possible that the uncertain tax positions will significantly increase or decrease within the next
twelve months
.
The Company files income tax returns in the United States federal jurisdiction and in the Massachusetts jurisdiction. The Company is no longer subject to any tax assessment from an income tax examination for years before
2013
, except to the extent that in the future it utilizes net operating losses or tax credit carryforwards that originated before
2013
.
In March 2012, the Company entered into a Tax Incentive Agreement with the Massachusetts Life Sciences Center, or MLSC, under the MLSC's Life Sciences Tax Incentive Program, or the Program, to expand life sciences-related employment opportunities, promote health-related innovations and stimulate research and development, manufacturing and commercialization in the life sciences in the Commonwealth of Massachusetts. The Program was established in 2008 in order to incentivize life sciences companies to create new sustained jobs in Massachusetts. Under the Tax Incentive Agreement, companies receive an award from the MLSC upon attaining job creation commitment. Jobs had to be maintained for at least
five years
,
2012
-
2016
, during which time a portion of the grant proceeds can be recovered by the Massachusetts Department of Revenue if the Company did not maintain its job creation commitments. As the Company maintained its job creation commitment for
five years
, it recorded one-fifth of the
$1.1 million
job creation tax award, or
$0.2 million
, on a straight-line basis over the
five
year period as other income.
14. Commitments and Contingencies
Operating Leases
The Company leases office space and equipment under various operating lease agreements. Rent expense for office space under operating leases amounted to
$18.5 million
,
$16.4 million
and
$16.3 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
In September 2004, the Company entered into an agreement with Vertex Pharmaceuticals, or Vertex, to lease
53,323
square feet of office and laboratory space located on the fourth and fifth floors at 675 West Kendall Street, Cambridge, Massachusetts, for an initial term of
80 months
, or the West Kendall Sublease. In November 2005, the Company amended the West Kendall Sublease to lease an additional
25,131
square feet through April 2011. In April 2010, the Company exercised its right to extend the West Kendall Sublease for
one
additional term of
48 months
. During the extension term, which commenced on May 1, 2011, annual rental payments increased by approximately
$1.2 million
over the previous annual rental rate. In July 2014, the Company and Vertex entered into an agreement to extend the term of the West Kendall Sublease from May 1, 2015 through April 30, 2018, or such other earlier date as provided in accordance with the West Kendall Sublease. During the extension term, annual rental payments are approximately
$4.8 million
.
On February 5, 2013, the Company and BMR-Rogers Street LLC, or BMR, entered into a lease agreement, or the Bent Street Lease, to lease
104,678
square feet of office and laboratory space located in the basement and first and second floors at 320 Bent Street, Cambridge, Massachusetts, beginning on September 1, 2013 and ending on August 31, 2016. Annual rental payments due under the lease were approximately
$6.1 million
during the first lease year,
$6.2 million
during the second lease year and
$6.3 million
during the third lease year. BMR agreed to pay the Company a tenant improvement allowance of
$0.7 million
for reimbursement of laboratory and office improvements made by the Company (and subsequently reimbursed by BMR). The Company has recorded short and long-term liabilities for the construction allowance in its consolidated balance sheet, which is being amortized on a straight-line basis through a reduction to rental expense over the term of the lease. The
Company had
two
consecutive options to extend the term of the lease for
one year
each at the then-current fair market value. In addition, the Company has
two
additional consecutive options to extend the term of the lease for
five years
each for the office and laboratory space located in the basement portion of the leased space at the then-current fair market value. In October 2015, the Company exercised its option to extend the term of the lease for
one year
to August 31, 2017.
On December 30, 2015, the Company and BMR entered into an amendment ("the Amendment") to the Bent Street Lease. The Amendment voids the October 2015 option exercise and extends the expiration date of the lease term from August 31, 2016 to February 28, 2027. Under the Amendment, the Company is not required to pay BMR any base rent from September 1, 2016 through February 28, 2017, however the Company is required to pay BMR certain operating expenses. Beginning on March 1, 2017 and ending on August 31, 2017, the Company is obligated to pay BMR an initial monthly base rent of approximately
$0.6 million
, or
$68.00
per square foot. The Company's monthly base rent will increase by
three
percent of the then-current base rent on September 1 of each year during the extended term of the lease, beginning on September 1, 2017. During the period from September 1, 2016 through June 30, 2018, BMR has agreed to pay the Company a tenant improvement allowance not to exceed
$4.7 million
for reimbursement of certain laboratory and office improvements.
On September 14, 2016, the Company entered into a sublease with Biogen MA Inc., or Biogen, pursuant to which the Company will sublease approximately
79,683
square feet of office and laboratory space on the fifth floor of 301 Binney Street, Cambridge, Massachusetts. Biogen leases the premises from BMR pursuant to a lease agreement dated as of March 31, 2015, as amended. The term of the sublease will commence on January 1, 2018, and will expire on June 29, 2025, unless terminated earlier in accordance with the terms of the sublease. Over the term of the sublease, the Company is obligated to pay monthly base rent of
$504,659
, or
$76
per square foot, increasing by approximately
3%
of the then-current monthly base rent on each of January 1, 2019, and January 1, 2020, and approximately
1.85%
thereafter on January 1 of each of the remaining years of the term. In addition, the Company is obligated to pay certain costs and expenses otherwise payable by Biogen under their lease. Simultaneous with the execution of the sublease, the Company delivered a security deposit to Biogen in the form of an irrevocable standby letter of credit in the amount of approximately
two
months of the monthly base rent at the average rate per square foot.
Total operating lease commitments as of
December 31, 2016
are as follows (in thousands):
|
|
|
|
|
|
Operating Leases
|
2017
|
$
|
11,144
|
|
2018
|
15,369
|
|
2019
|
14,165
|
|
2020
|
14,581
|
|
2021
|
14,935
|
|
2022 and beyond
|
70,004
|
|
Total future minimum lease payments
|
$
|
140,198
|
|
Legal Contingencies
The Company is involved in various litigation matters that arise from time to time in the ordinary course of business. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect the Company, its results of operations, financial condition and cash flows. The Company's general practice is to expense legal fees as services are rendered in connection with legal matters, and to accrue for liabilities when losses are probable and reasonably estimable. The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of any accrual on its consolidated balance sheets.
GLATOPA 40 mg/mL-Related Litigation
On September 10, 2014, Teva Pharmaceuticals Industries Ltd. and related entities, or Teva, and Yeda Research and Development Co., Ltd., or Yeda, filed a suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware in response to the filing by Sandoz Inc. of the ANDA with a Paragraph IV certification for GLATOPA 40 mg/mL. The suit initially alleged infringement related to
two
Orange Book-listed patents for COPAXONE 40 mg/mL, each expiring in 2030, and sought declaratory and injunctive relief prohibiting the launch of the Company's product until the last to expire of these patents. In April 2015, Teva and Yeda filed an additional suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware alleging infringement related to a third Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in March 2015 and expires in 2030. In May 2015, this suit was consolidated with the
initial suit that was filed in September 2014. In November 2015, Teva and Yeda filed a suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware alleging infringement related to a fourth Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in October 2015 and expires in 2030. In December 2015, this suit was also consolidated with the initial suit that was filed in September 2014. Teva and Yeda seek declaratory and injunctive relief prohibiting the launch of GLATOPA 40 mg/mL until the expiration of these patents. On January 30, 2017, the District Court found the
four
patents to be invalid due to obviousness. On February 2, 2017, Teva and Yeda filed a notice of appeal of the District Court's January 30, 2017, decision to the Court of Appeals for the Federal Circuit.
On December 19, 2016, Teva and Yeda filed suit against the Company and Sandoz Inc. in the United States District Court for the District of Delaware again in response to the filing by Sandoz Inc. of the ANDA with a Paragraph IV certification for GLATOPA 40 mg/mL for alleged infringement of an Orange Book-listed patent for COPAXONE 40 mg/mL, U.S. Patent No. 9,402,874. On January 31, 2017, Teva filed a suit against the Company and Sandoz Inc. in the United States District Court for the District of New Jersey alleging infringement related to an additional patent for COPAXONE 40 mg/mL, U.S. Patent No. 9,155,775, which issued in October 2015 and expires in October 2035. The Company and Sandoz Inc. filed a motion to dismiss and a motion to transfer the suit to the United States District Court for the District of Delaware. On January 31, 2017, Teva voluntarily dismissed the Company from the New Jersey suit, maintaining the suit against Sandoz Inc. On February 2, 2017, the Company filed a complaint in the United States District Court for the District of Delaware seeking a declaration that U.S. Patent No. 9,155,775 is invalid, not infringed or not enforceable against the Company. On February 17, 2017, Teva filed a motion for preliminary injunction against Sandoz Inc. in the New Jersey suit for U.S. Patent No. 9,155,775.
Enoxaparin Sodium Injection-related Litigation
On September 21, 2011, the Company and Sandoz Inc. sued Amphastar and Actavis in the United States District Court for the District of Massachusetts for infringement of
two
of the Company's patents. Also in September 2011, the Company filed a request for a temporary restraining order and preliminary injunction to prevent Amphastar and Actavis from selling their Enoxaparin product in the United States. In October 2011, the District Court granted the Company's motion for a preliminary injunction and entered an order enjoining Amphastar and Actavis from advertising, offering for sale or selling their Enoxaparin product in the United States until the conclusion of a trial on the merits and required the Company and Sandoz Inc. to post a security bond of
$100 million
in connection with the litigation. Amphastar and Actavis appealed the decision to the Court of Appeals for the Federal Circuit, or CAFC, and in January 2012, the CAFC stayed the preliminary injunction. In August 2012, the CAFC vacated the preliminary injunction and remanded the case to the District Court. In September 2012, the Company filed a petition with the CAFC for a rehearing by the full court
en banc
, which was denied. In February 2013, the Company filed a petition for a writ of certiorari for review of the CAFC decision by the United States Supreme Court which was denied in June 2013.
In July 2013, the District Court granted a motion by Amphastar and Actavis for summary judgment. The Company filed a notice of appeal of that decision to the CAFC. In February 2014, Amphastar filed a motion to the CAFC for summary affirmance of the District Court ruling, which the CAFC denied in May 2014. On November 10, 2015, the CAFC affirmed the District Court summary judgment decision with respect to Actavis, reversed the District Court summary judgment decision with respect to Amphastar, and remanded the case against Amphastar to the District Court. On January 11, 2016, Amphastar filed a petition for rehearing by the CAFC, which was denied on February 17, 2016. On May 17, 2016, Amphastar filed a petition for writ of certiorari for review of the CAFC decision by the United States Supreme Court, which was denied on October 3, 2016. The District Court trial is scheduled to begin on July 10, 2017. The collateral for the security bond posted in the litigation remains outstanding. In the event that the Company is not successful in further prosecution or settlement of this action against Amphastar, and Amphastar is able to prove they suffered damages as a result of the preliminary injunction, the Company could be liable for damages for up to
$35 million
of the security bond. Litigation involves many risks and uncertainties, and there is no assurance that the Company or Sandoz Inc. will prevail in this patent enforcement suit.
On September 17, 2015, Amphastar filed a complaint against the Company and Sandoz Inc. in the United States District Court for the Central District of California. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, the Company and Sandoz Inc. sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal and California anti-trust laws and California unfair business laws. Amphastar is seeking unspecified damages and fees. In December 2015, the Company and Sandoz Inc. filed a motion to dismiss and a motion to transfer the case. In January 2016, the case was transferred to the United States District Court for the District of Massachusetts. In February 2016, Amphastar filed a writ of mandamus with the United States Court of Appeals for the Ninth Circuit requesting that the court reverse and review the District Court's grant of transfer and in May 2016, the writ requested by Amphastar was denied. On July 27, 2016, the Company's and Sandoz Inc.'s motion to dismiss was granted by the District Court, and the case was dismissed. On August 25, 2016, Amphastar filed a notice of appeal from the dismissal with the United States Court of Appeals for the First Circuit. Briefing was completed in December 2016, and oral argument was held on February 9, 2017.
On October 14, 2015, The Hospital Authority of Metropolitan Government of Nashville and Davidson County, Tennessee, d/b/a Nashville General Hospital, or NGH, filed a class action suit against the Company and Sandoz Inc. in the United States District Court for the Middle District of Tennessee on behalf of certain purchasers of LOVENOX or generic Enoxaparin Sodium Injection. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, the Company and Sandoz Inc. sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal anti-trust laws. NGH is seeking injunctive relief, disgorgement of profits and unspecified damages and fees. In December 2015, the Company and Sandoz filed a motion to dismiss and a motion to transfer the case to the United States District Court for the District of Massachusetts. Hearings on the motions were held before a US magistrate in April 2016 and February 2016, respectively. On September 29, 2016, the magistrate judge filed a Report and Recommendation to the District Court to deny the motions to dismiss and to transfer. These motions are subject to briefing and review by the District Court. While the outcome of litigation is inherently uncertain, the Company believes this suit is without merit, and it intends to vigorously defend itself in this litigation.
15. 401(k) Plan
The Company has a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited by the maximum amounts allowable under federal tax regulations. The Company has discretion to make contributions to the plan. In March 2005, the Company's Board of Directors approved a match of
50%
of the first
6%
contributed by employees, effective for the 2004 plan year and thereafter. The Company recorded
$1.0 million
,
$0.9 million
and
$0.9 million
of such match expense in the years ended
December 31, 2016
,
2015
and
2014
, respectively.
16. Equity Financings
In May 2015, the Company sold an aggregate of
8,337,500
shares of its common stock through an underwritten public offering at a price to the public of
$19.00
per share. As a result of the offering, which included the full exercise of the underwriters' option to purchase additional shares, the Company received aggregate net proceeds of approximately
$148.4 million
, after deducting underwriting discounts and commissions and other offering expenses.
In May 2014, the Company entered into an At-the-Market Equity Offering Sales Agreement, or the 2014 ATM Agreement, with Stifel, Nicolaus & Company, Incorporated, or Stifel, under which the Company was authorized to issue and sell shares of its common stock having aggregate sales proceeds of up to
$75 million
from time to time through Stifel, acting as sales agent and/or principal. The Company paid Stifel a commission of
2.0%
of the gross proceeds from the sale of shares of its common stock under this facility. The offering was conducted by the Company pursuant to an effective shelf registration statement previously filed with the Securities and Exchange Commission (Reg. No. 333-188227) and a related prospectus supplement. The Company concluded sales under the 2014 ATM Agreement in April 2015. In the year ended
December 31, 2014
, the Company sold approximately
1.6 million
shares of common stock under the 2014 ATM Agreement, raising aggregate net proceeds of approximately
$18.3 million
. In the year ended
December 31, 2015
, the Company sold approximately
3.8 million
shares of common stock under the 2014 ATM Agreement, raising aggregate net proceeds of approximately
$55.2 million
.
In April 2015, the Company entered into a new ATM Agreement, or the 2015 ATM Agreement, with Stifel, under which the Company is authorized to issue and sell shares of its common stock having aggregate sales proceeds of up to
$75 million
from time to time through Stifel, acting as sales agent and/or principal. The Company is required to pay Stifel a commission of
2.0%
of the gross proceeds from the sale of shares of its common stock under the 2015 ATM Agreement. Sales of common stock under this facility are made pursuant to an effective shelf registration statement previously filed with the Securities and Exchange Commission (Reg. No. 333-188227) and a related prospectus supplement. In the year
December 31, 2015
, the Company sold approximately
0.5 million
shares of common stock under the 2015 ATM Agreement, raising aggregate net proceeds of approximately
$9.3 million
.
No
shares were sold under the 2015 ATM Agreement for the year ended
December 31, 2016
.
17. Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
(in thousands, except per share data)
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
2016
|
|
|
|
|
|
|
|
Product revenue
|
$
|
14,800
|
|
|
$
|
20,692
|
|
|
$
|
23,339
|
|
|
$
|
15,817
|
|
Research and development revenue
|
$
|
5,050
|
|
|
$
|
5,738
|
|
|
$
|
5,805
|
|
|
$
|
18,378
|
|
Total collaboration revenue
|
$
|
19,850
|
|
|
$
|
26,430
|
|
|
$
|
29,144
|
|
|
$
|
34,195
|
|
Net (loss) income
|
$
|
(24,012
|
)
|
|
$
|
(20,986
|
)
|
|
$
|
(17,544
|
)
|
|
$
|
41,539
|
|
Comprehensive (loss) income
|
$
|
(23,879
|
)
|
|
$
|
(20,837
|
)
|
|
$
|
(17,580
|
)
|
|
$
|
41,375
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.35
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.60
|
|
Diluted
|
$
|
(0.35
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.60
|
|
Shares used in calculating net (loss) income per share:
|
|
|
|
|
|
|
|
Basic
|
68,285
|
|
|
68,532
|
|
|
68,799
|
|
|
69,003
|
|
Diluted
|
68,285
|
|
|
68,532
|
|
|
68,799
|
|
|
69,362
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
Product revenue
|
$
|
2,722
|
|
|
$
|
19,305
|
|
|
$
|
8,666
|
|
|
$
|
17,810
|
|
Research and development revenue
|
$
|
5,840
|
|
|
$
|
25,595
|
|
|
$
|
5,129
|
|
|
$
|
4,583
|
|
Total collaboration revenue
|
$
|
8,562
|
|
|
$
|
44,900
|
|
|
$
|
13,795
|
|
|
$
|
22,393
|
|
Net loss
|
$
|
(21,877
|
)
|
|
$
|
(2,222
|
)
|
|
$
|
(30,050
|
)
|
|
$
|
(29,164
|
)
|
Comprehensive loss
|
$
|
(21,859
|
)
|
|
$
|
(2,204
|
)
|
|
$
|
(30,054
|
)
|
|
$
|
(29,176
|
)
|
Basic and diluted net loss per common share
|
$
|
(0.40
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.43
|
)
|
Shares used in computing basic and diluted net loss per common share
|
54,492
|
|
|
61,680
|
|
|
68,004
|
|
|
68,138
|
|
Basic and diluted net loss per common share amounts for the quarters and full years have been calculated separately. Accordingly, quarterly amounts may not add to the annual amount because of differences in the weighted-average common shares outstanding during each period principally due to the effect of the Company issuing shares of its common stock during the year.
18. Subsequent Events
Pfizer FDA Warning Letter
On February 17, 2017, the Company announced that Sandoz’ third party fill/finish manufacturing partner for GLATOPA, Pfizer Inc., received an FDA warning letter. The FDA warning letter does not restrict the production or shipment of the GLATOPA 20 mg/mL product that is currently marketed by Sandoz in the United States; however, the FDA may withhold approval of pending drug applications listing the facility, including the ANDA for GLATOPA 40 mg/mL, until satisfactory resolution of the compliance observations in the FDA warning letter. The Company therefore believes that an approval of the GLATOPA 40 mg/mL ANDA in the first quarter of 2017 is unlikely.
CSL License and Option Agreement
On January 5, 2017, the Company and CSL Behring Recombinant Facility AG, or CSL, a wholly-owned indirect subsidiary of CSL Limited, entered into a License and Option Agreement, or the CSL License Agreement, which became effective on February 17, 2017, pursuant to which the Company has granted CSL an exclusive worldwide license to research, develop, and commercialize the Company’s M230 pre-clinical product candidate, an Fc multimer protein that is a selective immunomodulator of the Fc receptor. The CSL License Agreement also provides, on an exclusive basis, for the Company and CSL to conduct research on other Fc multimer proteins, and provides CSL the right to develop and commercialize these additional research products globally.
Pursuant to the terms of the CSL License Agreement, CSL has agreed to pay the Company a non-refundable upfront payment of
$50 million
. For the development and commercialization of M230, the Company is eligible to receive up to
$550
million
in contingent clinical, regulatory and sales milestone payments, and additional negotiated milestone payments for a named research stage product should that enter development. The Company is also entitled to sales-based royalty payments in percentages ranging from a mid-single digit to low-double digits for M230 and a named research stage product should that enter development and be commercialized, and royalties and development milestone payments to be negotiated for any other products developed under the CSL License Agreement. Sales milestones are based on aggregated sales across M230 and any other products developed under the CSL License Agreement. The Company also has the option to participate in a cost-and-profit sharing arrangement, under which the Company would fund
50%
of global research and development costs and 50% of U.S. commercialization costs for all products developed pursuant to the CSL License Agreement, or the Co-Funded Products, in exchange for either a
50%
share of U.S. profits or
30%
share of U.S. profits, determined by the stage of development at which the Company makes such election. For Co-Funded Products, royalties remain payable for territories outside of the United States and milestone payments are reduced. The Company also has the right to opt-out of such arrangement at its sole discretion, which would result in milestone payments and royalties reverting to their pre-arrangement amounts. The Company also has the option to participate in the promotion of Co-Funded Products in the United States, subject to a co-promotion agreement to be negotiated with CSL.
Under the CSL License Agreement, the Company has granted CSL an exclusive license under the Company’s intellectual property to research, develop, manufacture and commercialize product candidates for all therapeutic indications. CSL has granted the Company a non-exclusive, royalty-free license under CSL’s intellectual property for the Company’s research and development activities pursuant to the CSL License Agreement and its commercialization activities under any co-promotion agreement with CSL.
The Company and CSL will form a joint steering committee consisting of an equal number of members from the Company and CSL, to facilitate the research, development, and commercialization of product candidates.
Unless earlier terminated, the term of the CSL License Agreement commences on the Effective Date and continues until the later of (i) the expiration of all payment obligations with respect to products under the CSL License Agreement, (ii) the Company is no longer co-funding development or commercialization of any products and (iii) the Company and CSL are not otherwise collaborating on the development and commercialization of products or product candidates. CSL may terminate the CSL License Agreement on a product-by-product basis subject to notice periods and certain circumstances related to clinical development. The Company may terminate the CSL License Agreement under certain circumstances related to the development of M230 and if no activities are being conducted under the CSL License Agreement. Either party may terminate the CSL License Agreement (i) on a product-by-product basis if certain patent challenges are made, (ii) on a product-by-product or country-by-country basis for material breaches, or (iii) due to the other party’s bankruptcy. Upon termination of the CSL License Agreement, subject to certain exceptions, the licenses granted under the CSL License Agreement terminate. In addition, dependent upon the circumstances under which the CSL License Agreement is terminated, the Company or CSL has the right to continue the research, development, and commercialization of terminated products, including rights to certain data, for the continued development and sale of terminated products and, subject to certain limitations, obligations to make sales-based royalty payments to the other party.
CSL's obligations under the CSL License Agreement are guaranteed by its parent company, CSL Limited.