Quarterly Report (10-q)

Date : 05/09/2018 @ 5:04PM
Source : Edgar (US Regulatory)
Stock : Immunomedics, Inc. (IMMU)
Quote : 23.95  1.25 (5.51%) @ 8:00PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2018

or

 

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number:  0-12104

Immunomedics, Inc.

(Exact name of Registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

61-1009366

(I.R.S. Employer Identification No.)

 

300 The American Road, Morris Plains, New Jersey 07950

(Address of principal executive offices) (Zip Code)

 

(973) 605-8200

(Registrant’s Telephone Number, Including Area Code)

 

Former Name, Former Address and Former Fiscal Year,

If Changed Since Last Report:  Not Applicable

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☑  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period the registrant was required to submit and post such files).  ☑  Yes  ☐  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer ☐ Accelerated Filer ☑

Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ◻

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☑

 

The number of shares of the registrant’s common stock outstanding as of May 7, 2018 was 167,346,526.

 

 

 


 

IMMUNOMEDICS, INC.

 

T ABLE OF CONTENTS

 

PART I:

FINANCIAL INFORMATION

   

 

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS:

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2018 and June 30, 2017

 

1

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended March 31, 2018 and 2017

 

2

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2018 and 2017

 

3

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

4

 

 

 

 

ITEM 2.  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

31

 

 

 

 

ITEM 3.  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

48

 

 

 

 

ITEM 4.  

CONTROLS AND PROCEDURES

 

48

 

 

 

 

PART II :

OTHER INFORMATION

 

 

 

 

 

 

ITEM 1.  

LEGAL PROCEEDINGS

 

48

 

 

 

 

ITEM 1A.  

RISK FACTORS

 

53

 

 

 

 

ITEM 6.  

EXHIBITS

 

70

 

 

 

 

EXHIBIT INDEX  

 

71

 

 

 

 

SIGNATURES  

 

72

 

 

 

 

 

 

 

 

 

 

 


 

IMMUNOMEDICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET S

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

June 30, 

 

 

    

2018

    

2017

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

306,746,267

 

$

43,393,570

 

Marketable securities

 

 

52,046,411

 

 

111,508,225

 

Accounts receivable, net of allowance for doubtful accounts of $1,941 at March 31, 2018 and $9,371 at June 30, 2017

 

 

195,046

 

 

488,723

 

Inventory

 

 

 —

 

 

580,016

 

Prepaid expenses

 

 

4,276,134

 

 

891,284

 

Other current assets

 

 

5,894,556

 

 

436,344

 

Total current assets

 

 

369,158,414

 

 

157,298,162

 

Property and equipment, net of accumulated depreciation of $30,501,227 and $29,560,955 at March 31, 2018 and June 30, 2017, respectively

 

 

10,669,146

 

 

5,245,230

 

Other long-term assets

 

 

60,000

 

 

30,000

 

Total Assets

 

$

379,887,560

 

$

162,573,392

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

23,196,457

 

$

31,366,976

 

Warrant liabilities

 

 

70,331,191

 

 

90,706,206

 

Deferred revenues

 

 

93,669

 

 

170,967

 

Total current liabilities

 

 

93,621,317

 

 

122,244,149

 

Convertible senior notes – net of unamortized debt issuance costs of  $273,683 at March 31, 2018 and $1,915,781 at June 30, 2017

 

 

19,726,317

 

 

98,084,219

 

Non-recourse debt

 

 

182,216,000

 

 

 —

 

Accrued interest expense on non-recourse debt

 

 

10,626,390

 

 

 —

 

Other long-term liabilities

 

 

1,878,100

 

 

1,708,272

 

Total Liabilities  

 

 

308,068,124

 

 

222,036,640

 

Commitments and Contingencies (Note 13)

 

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

 

 

 

 

Convertible preferred stock, $.01 par value; authorized 10,000,000 shares; no shares issued and outstanding at March 31, 2018 and 1,000,000 shares issued and outstanding at June 30, 2017

 

 

 

 

10,000

 

Common stock, $.01 par value; authorized 250,000,000 shares; issued 167,255,886 shares and outstanding 167,221,161 shares at March 31, 2018; issued 110,344,643 shares and outstanding 110,309,918 shares at June 30, 2017

 

 

1,672,558

 

 

1,103,446

 

Capital contributed in excess of par

 

 

750,391,976

 

 

462,666,366

 

Treasury stock, at cost: 34,725 shares at March 31, 2018 and at June 30, 2017

 

 

(458,370)

 

 

(458,370)

 

Accumulated deficit

 

 

(678,519,376)

 

 

(521,710,899)

 

Accumulated other comprehensive loss

 

 

(457,183)

 

 

(302,710)

 

Total Immunomedics, Inc. stockholders’ equity (deficit)

 

 

72,629,605

 

 

(58,692,167)

 

Noncontrolling interest in subsidiary

 

 

(810,169)

 

 

(771,081)

 

Total stockholders’ equity (deficit)

 

 

71,819,436

 

 

(59,463,248)

 

Total Liabilities and Stockholders' Equity (Deficit)

 

$

379,887,560

 

$

162,573,392

 

 

See accompanying notes to unaudited condensed consolidated financial statements

1


 

IMMUNOMEDICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS  

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Nine months ended

 

 

 

March 31, 

 

March 31, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

450,353

 

$

921,675

 

$

1,500,625

 

$

1,836,157

 

License fee and other revenues

    

 

14,886

    

 

257,442

 

 

79,956

    

 

282,556

 

Research and development

 

 

16,987

 

 

144,322

 

 

189,419

 

 

330,702

 

Total revenues

 

 

482,226

 

 

1,323,439

 

 

1,770,000

 

 

2,449,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of goods sold

 

 

46,801

 

 

135,585

 

 

613,591

 

 

437,452

 

Research and development

 

 

28,843,102

 

 

12,491,290

 

 

71,680,166

 

 

39,765,180

 

Sales and marketing

 

 

2,365,975

 

 

302,509

 

 

3,781,959

 

 

703,440

 

General and administrative

 

 

6,853,767

 

 

10,514,243

 

 

14,346,449

 

 

13,969,783

 

Total costs and expenses

 

 

38,109,645

 

 

23,443,627

 

 

90,422,165

 

 

54,875,855

 

Operating loss

 

 

(37,627,419)

 

 

(22,120,188)

 

 

(88,652,165)

 

 

(52,426,440)

 

Changes in fair market value of warrant liabilities

 

 

9,835,441

 

 

(28,336,865)

 

 

(49,774,638)

 

 

(35,567,205)

 

Warrant related expenses

 

 

 —

 

 

(7,649,395)

 

 

 —

 

 

(7,649,395)

 

Interest expense

 

 

(10,900,381)

 

 

(1,369,955)

 

 

(13,821,273)

 

 

(4,109,866)

 

Interest and other income, net

 

 

1,129,489

 

 

64,574

 

 

1,927,811

 

 

219,536

 

Other financing expenses

 

 

 —

 

 

 —

 

 

(13,005,329)

 

 

(346,568)

 

Insurance reimbursement

 

 

1,930,233

 

 

 —

 

 

6,296,370

 

 

 

Foreign currency transaction gain, net

 

 

74,514

 

 

91,471

 

 

181,659

 

 

(117,476)

 

Loss before income tax benefit

 

 

(35,558,123)

 

 

(59,320,358)

 

 

(156,847,565)

 

 

(99,997,414)

 

Income tax expense

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Net loss

 

 

(35,558,123)

 

 

(59,320,358)

 

 

(156,847,565)

 

 

(99,997,414)

 

Less: Net loss attributable to noncontrolling interest

 

 

(11,895)

 

 

(14,340)

 

 

(39,088)

 

 

(46,164)

 

Net loss attributable to Immunomedics, Inc. stockholders

 

$

(35,546,228)

 

$

(59,306,018)

 

$

(156,808,477)

 

$

(99,951,250)

 

Loss per common share attributable to Immunomedics, Inc. stockholders (basic and diluted):

 

$

(0.21)

 

$

(0.55)

 

$

(1.08)

 

$

(0.97)

 

Weighted average shares used to calculate loss per common share (basic and diluted)

 

 

166,054,266

 

 

107,839,947

 

 

145,119,409

 

 

102,756,818

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(66,419)

 

 

(52,247)

 

 

(155,058)

 

 

58,569

 

Unrealized gain (loss) on securities available for sale

 

 

10,321

 

 

5,467

 

 

585

 

 

(52,489)

 

Other comprehensive (loss) income, net of tax:

 

 

(56,098)

 

 

(46,780)

 

 

(154,473)

 

 

6,080

 

Comprehensive loss

 

 

(35,614,221)

 

 

(59,367,138)

 

 

(157,002,038)

 

 

(99,991,334)

 

Less comprehensive loss attributable to noncontrolling interest

 

 

(11,895)

 

 

(14,340)

 

 

(39,088)

 

 

(46,164)

 

Comprehensive loss attributable to Immunomedics, Inc. stockholders

 

$

(35,602,326)

 

$

(59,352,798)

 

$

(156,962,950)

 

$

(99,945,170)

 

 

See accompanying notes to unaudited condensed consolidated financial statements

2


 

IMMUNOMEDICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

March 31, 

 

 

    

2018

    

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

    

$

(156,847,565)

    

$

(99,997,414)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Changes in fair value of warrant liabilities

 

 

49,774,638

 

 

35,567,205

 

Warrant related expense

 

 

 —

 

 

7,649,395

 

Depreciation and amortization

 

 

940,272

 

 

633,079

 

Loss on induced exchanges of debt

 

 

13,005,329

 

 

 —

 

Amortization of deferred revenue

 

 

(77,298)

 

 

(43,230)

 

Amortization of bond premiums

 

 

 —

 

 

205,071

 

Amortization of debt issuance costs

 

 

1,552,785

 

 

547,366

 

Amortization of deferred rent

 

 

169,828

 

 

18,062

 

(Gain) loss on sale of marketable securities

 

 

 —

 

 

15,682

 

Increase (decrease) in allowance for doubtful accounts

 

 

(7,430)

 

 

(52,561)

 

Other

 

 

(296,096)

 

 

467,340

 

Non-cash expense related to stock compensation

 

 

2,673,184

 

 

2,593,085

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable – net of reserve

 

 

293,677

 

 

(306,795)

 

Other receivables

 

 

(30,000)

 

 

125,578

 

Inventories – net of reserve

 

 

580,016

 

 

(335,091)

 

Other current assets

 

 

(5,458,212)

 

 

43,467

 

Prepaid expenses

 

 

(3,384,850)

 

 

274,515

 

Accounts payable and accrued expenses

 

 

(9,467,734)

 

 

4,409,509

 

Accrued interest on non-recourse debt

 

 

10,626,390

 

 

 —

 

Net cash used in operating activities

 

 

(95,953,066)

 

 

(48,185,737)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(10,380,182)

 

 

(29,160,546)

 

Proceeds from sales/maturities of marketable securities

 

 

69,841,996

 

 

42,240,521

 

Purchases of property and equipment

 

 

(4,929,765)

 

 

(829,325)

 

Net cash provided by investing activities

 

 

54,532,049

 

 

12,250,650

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock and warrants, net of related expenses

 

 

123,508,937

 

 

43,278,473

 

Exercise of stock options and warrants

 

 

997,208

 

 

1,812,780

 

Proceeds from the issuance of non-recourse debt

 

 

182,217,000

 

 

 —

 

Debt conversion fees

 

 

(530,064)

 

 

 —

 

Tax withholding payments for stock compensation

 

 

(1,523,183)

 

 

(448,625)

 

Net cash provided by financing activities

 

 

304,669,898

 

 

44,642,628

 

Effect of changes in exchange rates on cash and cash equivalents

 

 

103,816

 

 

(12,698)

 

Net increase in cash and cash equivalents

 

 

263,352,697

 

 

8,694,843

 

Cash and cash equivalents beginning of period

 

 

43,393,570

 

 

13,203,625

 

Cash and cash equivalents end of period

 

$

306,746,267

 

$

21,898,468

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

2,850,000

 

$

4,750,000

 

Schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

Convertible Senior Notes converted to common stock

 

$

80,000,000

 

$

 —

 

Accrued capital expenditures

 

$

1,439,090

 

$

 —

 

Reclass of warrant liability to capital contributed in excess of par

 

$

70,149,633

 

$

 —

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

IMMUNOMEDICS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATE D

FINANCIAL STATEMENTS

Reference is made to the Annual Report on Form 10-K, as amended on Form 10-K/A of Immunomedics, Inc., a Delaware corporation (“Immunomedics,” the “Company,” “we,” “our” or “us”), for the fiscal year ended June 30, 2017, which contains our audited consolidated financial statements and the notes thereto.

1. Business Overview and Basis of Presentatio n

Immunomedics is a clinical-stage biopharmaceutical company that develops monoclonal antibody-based products for the targeted treatment of cancer and other serious diseases. Our corporate objective is to become a fully-integrated biopharmaceutical company and a leader in the field of antibody-drug conjugates (“ADCs”). To that end, our immediate priority is to commercialize our most advanced ADC product candidate, sacituzumab govitecan (“IMMU-132”), beginning in the U.S., with metastatic triple-negative breast cancer (“mTNBC”) as the first indication.  W e plan to submit a Biologics License Application (“BLA”) to the United States Food and Drug Administration (“FDA”) by the end of May 2018 for accelerated approval of sacituzumab govitecan   for the treatment of patients with mTNBC who have received at least two prior therapies for metastatic disease.

The Company has two foreign subsidiaries, Immunomedics B.V. in the Netherlands and Immunomedics GmbH in Rodermark, Germany, that assist the Company in clinical trials in Europe.  The accompanying condensed financial statements include results for its two foreign subsidiaries and its majority-owned U.S. subsidiary, IBC Pharmaceuticals, Inc. (“IBC”).

The accompanying unaudited condensed consolidated financial statements of Immunomedics, which incorporate our subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), for interim financial information and the instructions to the Quarterly Report on Form 10‑Q and Regulation S‑X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete annual financial statements. With respect to the financial information for the interim periods included in this Quarterly Report on Form 10-Q, which is unaudited, management believes that all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation of the results for such interim periods have been included. Operating results for the three-month period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2018, or any other period.

Immunomedics is subject to significant risks and uncertainties, including, without limitation, the Company’s inability to further identify, develop and achieve commercial success for new products and technologies; the possibility of delays in the research and development necessary to select drug development candidates and delays in clinical trials; the risk that clinical trials may not result in marketable products; the risk that the Company may be unable to secure regulatory approval of and market its drug candidates; the development or regulatory approval of competing products; the Company’s ability to protect its proprietary technologies; patent-infringement claims; and risks of new, changing and competitive technologies and regulations in the United States and internationally.

Since its inception in 1982, Immunomedics’ principal sources of funds have been the private and public sale of equity and debt securities, and revenues from licensing agreements, including up-front and milestone payments, funding of development programs, and other forms of funding from collaborations. Historically, sources of revenue have included sales of LeukoScan ® , grants, and license fees and other

4


 

revenue, however, in order to focus on its ADC business, the Company discontinued the sale of LeukoScan ® during February 2018.

As of March 31, 2018 the Company had $358.8 million in cash, cash equivalents and marketable securities. On January 8, 2018, the Company announced that it had agreed to sell tiered, sales-based royalty rights on global net sales of sacituzumab govitecan to RPI Finance Trust (“RPI”) for $175.0 million. RPI also purchased $75.0 million in common stock of Immunomedics, at $17.15 per share, which represented a more than 15% premium over the stock’s 15-day trailing average closing price at that time. The total $250.0 million funding included in its cash balance as of March 31, 2018, provided Immunomedics with the resources required to support the Company’s next phase of growth as it focuses on developing sacituzumab govitecan in mTNBC, advanced urothelial cancer and other indications of high medical need and on further building its clinical, medical affairs, commercial and manufacturing infrastructure and to fund operations into 2020. During that time the Company plans to file a BLA with the FDA for accelerated approval of sacituzumab govitecan for patients with mTNBC in the U.S., to continue manufacturing sacituzumab govitecan at a large scale to prepare for and supply commercial operations in the U.S., to continue the Phase 3 ASCENT trial of sacituzumab govitecan for mTNBC patients, to invest in further clinical development of sacituzumab govitecan and other pipeline assets, and to launch sacituzumab govitecan as a commercial product in the U.S. initially as a treatment for patients with mTNBC who have received at least two prior therapies for metastatic disease.

 

The Company will require additional funding in 2020 to complete its clinical trials currently underway or planned, to continue research and new development programs, to expand commercial applications for sacituzumab govitecan into earlier lines of therapy for mTNBC patients and for patients with other types of cancer indications, such as advanced urothelial cancer and other indications with high, unmet medical need, as a mono and combination therapy, and to continue operations. Potential sources of funding include the exercise of outstanding warrants, the entrance into various potential strategic partnerships towards advancing and maximizing the Company’s full pipeline for mTNBC and beyond, the sales and marketing of sacituzumab govitecan as a third-line therapy for mTNBC in the U.S. (pending the submission of the BLA and FDA’s approval), and potential equity and debt financing.

The Company expects to continue to fund its operations with its current financial resources. In order to meet its cash needs, the Company may also enter into various potential strategic partnerships towards advancing and maximizing the Company’s full pipeline for mTNBC and beyond, or the sales and marketing of sacituzumab govitecan as a third-line therapy for mTNBC in the U.S. (pending the submission of the BLA and FDA’s approval). In 2020, if the Company cannot obtain sufficient funding, it could be required to finance future cash needs through the sale of additional equity and/or debt securities in capital markets. However, there can be no assurance that the Company will be able to raise the additional capital needed to complete its pipeline of research and development programs on commercially acceptable terms, if at all. The capital markets have experienced volatility in recent years, which has resulted in uncertainty with respect to availability of capital and hence the timing to meet an entity’s liquidity needs. The Company’s existing debt may also negatively impact the Company’s ability to raise additional capital. If the Company is unable to raise capital on acceptable terms, its ability to continue its business would be materially and adversely affected.

2. Summary of Significant Accounting Policies

These unaudited condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K, as amended on Form 10-K/A for the year ended June 30, 2017. The Company adheres to the same accounting policies in preparation of its interim financial statements.

5


 

Principles of Consolidation and Presentation

The condensed consolidated financial statements include the accounts of Immunomedics and its subsidiaries. Noncontrolling interests in consolidated subsidiaries in the condensed consolidated balance sheets represent minority stockholders’ proportionate share of the deficit in such subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain amounts presented on the Company’s prior year consolidated balance sheet have been reclassified to conform to current period classification.

Financial Instruments

The carrying amounts of cash and cash equivalents, other current assets and current liabilities approximate fair value due to the short-term maturity of these instruments. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Marketable Securities

Marketable securities, all of which are available-for-sale, consist of corporate debt securities, U.S. bonds, U.S. sponsored agencies and municipal bonds. Corporate debt securities include Eurodollar issues of U.S. corporations, and U.S. dollar denominated issues of foreign corporations. Marketable securities are carried at fair value, with unrealized gains and losses, net of related income taxes, reported as accumulated other comprehensive loss, except for losses from impairments which are determined to be other-than-temporary. Realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in the determination of net loss and are included in interest and other income (net), at which time the average cost basis of these securities are adjusted to fair value. Fair values are based on quoted market prices at the reporting date. Interest and dividends on available-for-sale securities are included in interest and other income (net).

Inventory

Inventory, which consists of the raw materials, work-in-process and finished product of LeukoScan ® , is stated at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company will capitalize inventory costs associated with the Company’s product candidate, sacituzumab govitecan, after regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. In addition, the Company’s product is subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specification or become obsolete due to expiration, the Company records a charge to cost of sales sold to write down such unmarketable inventory to zero. 

In order to focus on its ADC business, the Company discontinued the sale of LeukoScan ® during February 2018. All inventory was sold through as of March 31, 2018.

6


 

Revenue Recognition

            The Company has accounted for revenue arrangements that include multiple deliverables as a separate unit of accounting if both of the following criteria are met: a) the delivered item has value to the customer on a standalone basis, and b) if the right of return exists, delivery of the undelivered items is considered probable and substantially in the control of the vendor. If these criteria are not met, the revenue elements must be considered a single unit of accounting for purposes of revenue recognition. The Company allocates revenue consideration, excluding contingent consideration, based on the relative selling prices of the separate units of accounting contained within an arrangement containing multiple deliverables. Relative selling prices are determined using vendor specific objective evidence, if it exists; otherwise third-party evidence or the Company’s best estimate of selling price is used for each deliverable. 

            Payments received under contracts to fund certain research activities are recognized as revenue in the period in which the research activities are performed. Payments received in advance that are related to future performance are deferred and recognized as revenue when the research projects are performed. Upfront nonrefundable fees associated with license and development agreements where the Company has continuing involvement in the agreement are recorded as deferred revenue and recognized over the estimated service period. The Company estimates the period of continuing involvement based on the best evidential matter available at each reporting period. If the estimated service period is subsequently modified, the period over which the upfront fee is recognized is modified accordingly on a prospective basis.

            In order to determine the revenue recognition for contingent milestones, the Company evaluates the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards (“FASB”) guidance on the milestone method of revenue recognition, as explained in ASU 2010-17, “ Milestone Method of Revenue Recognition, ” at the inception of a collaboration agreement. The criteria requires that (i) the Company determines if the milestone is commensurate with either its performance to achieve the milestone or the enhancement of value resulting from the Company’s activities to achieve the milestone, (ii) the milestone be related to past performance, and (iii) the milestone be reasonable relative to all deliverable and payment terms of the collaboration arrangement. If these criteria are met then the contingent milestones can be considered as substantive milestones and will be recognized as revenue in the period that the milestone is achieved. Royalties are recognized as earned in accordance with the terms of various research and collaboration agreements.

            Revenue from the sale of diagnostic products is recorded when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable or collectability is reasonably assured. Allowances, if any, are established for uncollectible amounts, estimated product returns and discounts. Since allowances are recorded based on management’s estimates, actual amounts may be different in the future.

Research and Development Costs

            Research and development costs are expensed as incurred. Costs incurred for clinical trials for patients and investigators are expensed as services are performed in accordance with the agreements in place with the institutions. Research and development costs include salaries and benefits, costs associated with producing biopharmaceutical compounds, laboratory supplies, the costs of conducting clinical trials, and facilities costs. In addition, the Company uses clinical research organizations (CRO) and contract manufacturing operations (CMO) to outsource portions of our research and development activities.

            Advances paid to CROs are capitalized as prepaids until services are performed and total $3.2 million and $25 thousand at March 31, 2018 and June 30, 2017, respectively.  Similarly, advances paid to CMOs for

7


 

purchases of raw materials are capitalized to other current assets and are expensed as research and development expenses.  Amounts capitalized to other current assets related to CMOs at March 31, 2018 and June 30, 2017 were $5.1 million and $0, respectively.

Reimbursement of Research & Development Costs

            Research and development costs that are reimbursable under collaboration agreements are included as a reduction of research and development expenses. The Company records these reimbursements as a reduction of research and development expenses as the Company’s partner in the collaboration agreement has the financial risks and responsibility for conducting these research and development activities.

Stock-Based Compensation

            The Company utilizes stock-based compensation in the form of stock options, stock appreciation rights, stock awards, stock unit awards, performance shares, cash-based performance units and other stock-based awards, each of which may be granted separately or in tandem with other awards.

             The grant-date fair value of stock awards is based upon the underlying price of the stock on the date of grant. The grant-date fair value of stock option awards must be determined using an option pricing model. Option pricing models require the use of estimates and assumptions as to (a) the expected term of the option, (b) the expected volatility of the price of the underlying stock and (c) the risk-free interest rate for the expected term of the option. The Company uses the Black-Scholes option pricing formula for determining the grant-date fair value of such awards. The fair value of option awards that vest based on achievement of certain market conditions are determined using a Monte Carlo simulation technique.

             The expected term of the option is based upon the contractual term and expected employee exercise and expected post-vesting employment termination behavior. The expected volatility of the price of the underlying stock is based upon the historical volatility of the Company’s stock computed over a period of time equal to the expected term of the option. The risk free interest rate is based upon the implied yields currently available from the U.S. Treasury yield curve in effect at the time of the grant. Pre-vesting forfeiture rates are estimated based upon past voluntary termination behavior and past option forfeitures.

             The following table sets forth the weighted-average assumptions used to calculate the fair value of options granted for the nine-month periods ended March 31, 2018 and 2017:

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

March 31, 

 

 

    

2018

    

2017

 

Expected dividend yield

 

0%

 

0%

 

Expected option term (years)

 

3.46 years

 

5.05 years

 

Expected stock price volatility

 

50%

 

63%

 

Risk-free interest rate

 

1.72% - 2.63%

 

1.16% - 2.15%

 

 

The following table sets forth weighted average assumptions used to calculate the fair value of options that vest based upon achievement of certain market conditions for the nine-month period ended March 31, 2018. There were no awards that vest based upon achievement of certain market conditions for the nine-month period ended March 31, 2017.

8


 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

March 31, 

 

 

    

2018

    

2017

 

Expected option term (years)

 

2.10

 

0

 

Expected stock price volatility

 

74%

 

0%

 

Risk-free interest rate

 

1.93%

 

0.00%

 

 

The expected term of options granted represents the period of time that options granted are expected to be outstanding. Expected stock price volatility was calculated based on the Company’s daily stock trading history. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

            Changes in any of these assumptions could impact, potentially materially, the amount of expense recorded in future periods related to stock-based awards.

Common Stock Warrants

In connection with certain financing transactions in October 2016 and February 2017, the Company issued warrants and recorded them as liabilities due to certain net cash settlement provisions. The warrants were recorded at fair value using the Black-Scholes valuation model. The Black-Scholes valuation model takes into account, as of the valuation date, factors including the current exercise price, the term of the warrant, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the term of the warrant. These warrants are subject to re-measurement at each balance sheet date until the warrants are exercised or expired, and any change in fair value is recognized as “change in the fair value of warrant liability” in the consolidated statements of operations.

Income Taxes 

            The Company uses the asset and liability method to account for income taxes, including the recognition of deferred tax assets and deferred tax liabilities for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases. The Company reviews its deferred tax assets for recovery. A valuation allowance is established when the Company believes that it is more likely than not that its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change. The Company has recorded a full valuation allowance against its net deferred tax assets as of March 31, 2018.

            At June 30, 2017, the Company has available net operating loss carry forwards for federal income tax reporting purposes of approximately $371.1 million and for state income tax reporting purposes of approximately $186.0 million, which expire at various dates between fiscal 2018 and 2037. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of a company’s net operating loss and research credit carry forwards may be limited if the Company experiences a change in ownership as defined in Section 382 of the Internal Revenue Code. The Company’s net operating loss carry forwards available to offset future federal taxable income arising before such ownership changes may be limited. Similarly, the Company may be restricted in using its research credit carry forwards arising before such ownership changes to offset future federal income tax expense.

            The Company’s U.S. operations and foreign jurisdictions reported a net loss for the three-month periods ended March 31, 2018 and 2017, resulting in a tax benefit that was fully offset by a valuation allowance.

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             The Company has no liability for uncertain tax positions as of March 31, 2018.

The Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017.  Among its numerous changes to the Internal Revenue Code, the Act reduces U.S. corporate rates from 35% to 21%.  Additionally, the Act limits the use of net operating loss carry backs, however any future net operating losses will instead be carried forward indefinitely. Only 80% of current income will be able to be offset with a net operating loss carryforward, with the remainder of the net operating loss continuing to carry forward. Based on an initial assessment of the Act, the Company believes that the most significant impact on the Company’s consolidated financial statements will be reduction of deferred tax assets related to net operating losses and research and development tax credits.  Such reduction is expected to be largely offset by changes to the Company’s valuation allowance.

Net Loss Per Share Allocable to Common Stockholders

            Net loss per basic and diluted common share allocable to common stockholders is based on the net loss for the relevant period, divided by the weighted-average number of common shares outstanding during the period. For purposes of the diluted net loss per common share calculations, the exercise or exchange of all potential common shares is not included because their effect would have been anti-dilutive, due to the net loss recorded for the three and nine-month periods ended March 31, 2018 and 2017.

Net Comprehensive Loss

            Net comprehensive loss consists of net loss, unrealized loss on available for sale securities and foreign exchange translation adjustments and is presented in the condensed consolidated statements of comprehensive loss.

Recently Issued Accounting Pronouncements

In March 2018, the FASB issued ASU 2018-05, “ Income Taxes ”, guidance which addresses the recognition of taxes payable or refundable for the current year and the recognition of deferred tax liabilities and deferred tax assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns, the accounting for income taxes upon a change in tax laws or tax rates, and the income tax accounting effect of a change in tax laws or tax rates. The Company is currently assessing ASU 2018-05’s impact.

In May 2017, the FASB issued ASU 2017-09, “ Stock Compensation - Scope of Modification Accounting ”, guidance that clarifies that all changes to share-based payment awards are not necessarily accounted for as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. The amendments in this guidance should be applied prospectively in annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. This guidance will apply to any future modifications. The Company is assessing ASU 2017-09’s impact and if applicable, will adopt it when effective.

In August 2016, the FASB issued ASU 2016-15, “ Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments ”, which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. ASU 2016-15 provides for retrospective application for all periods presented. The Company is assessing the impact of ASU 2016-15 and will adopt it when effective.

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In March 2016, the FASB issued ASU 2016-09, “ Improvements to Employee Share-Based Payment Accounting ” which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Public companies are required to adopt this standard in annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The Company implemented ASU 2016-09 effective July 1, 2017, which did not have a material impact on the consolidated financial statement presentation.

In February 2016, the FASB issued ASU 2016-02, “ Leases ” and issued subsequent amendments to the initial guidance contained within ASU 2017-13. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early application is permitted. The Company is assessing ASU 2016-02’s impact and will adopt it when effective.  

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09) and has subsequently issued a number of amendments to ASU 2014-09. The new standard, as amended, provides a single comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance. The standard’s stated core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, ASU 2014-09 includes provisions within a five step model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing revenue when, or as, an entity satisfies a performance obligation. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

 

The new standard will be effective for us beginning July 1, 2018 and permits two methods of adoption: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. We will adopt the standard using the modified retrospective method.

 

We have made substantial progress in completing our review of the impact of this guidance across our various business arrangements and revenue-related activities, and do not expect the adoption of this standard to have a material quantitative impact on our consolidated financial statements.  In limited instances, we may recognize revenue earlier than under the current standard. We will continue to assess new customer contracts through 2018. The new standard will result in additional revenue-related disclosures in the footnotes to our consolidated financial statements. Adoption of this standard will require changes to our business processes, systems and controls to support the additional required disclosures. We are in the process of identifying and designing such changes to ensure our readiness.    

 

 

11


 

3.          Marketable Securities

Immunomedics considers all of its current investments to be available-for-sale. Marketable securities at March 31, 2018 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

 

 

Cost

 

Gain

 

(Loss)

 

Fair Value

 

U.S. Treasury Bonds

 

$

14,109

 

$

 —

 

$

(26)

 

$

14,083

 

Certificate of Deposits

 

 

8,371

 

 

 —

 

 

 —

 

 

8,371

 

U.S. Government Sponsored Agencies

 

 

10,882

 

 

 —

 

 

(10)

 

 

10,872

 

Corporate Debt Securities

 

 

8,380

 

 

 —

 

 

(20)

 

 

8,360

 

Commercial Paper

 

 

10,368

 

 

 —

 

 

(8)

 

 

10,360

 

 

 

$

52,110

 

$

 —

 

$

(64)

 

$

52,046

 

 

Maturities of debt securities classified as available-for-sale were as follows at March 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Carrying

 

 

    

Fair Value

    

Amount

 

Due within one year

 

$

47,046

 

$

47,286

 

Due after one year through five years

 

 

5,000

 

 

5,000

 

 

 

$

52,046

 

$

52,286

 

 

Marketable securities at June 30, 2017 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

 

 

Cost

 

Gain

 

(Loss)

 

Fair Value

 

U.S. Treasury Bonds

 

$

35,086

 

$

 —

 

$

(24)

 

$

35,062

 

Certificate of Deposits

 

 

15,298

 

 

 —

 

 

 —

 

 

15,298

 

U.S. Government Sponsored Agencies

 

 

18,357

 

 

 —

 

 

(13)

 

 

18,344

 

Corporate Debt Securities

 

 

32,692

 

 

 —

 

 

(33)

 

 

32,659

 

Commercial Paper

 

 

10,144

 

 

 1

 

 

 —

 

 

10,145

 

 

 

$

111,577

 

$

 1

 

$

(70)

 

$

111,508

 

 

Maturities of debt securities classified as available-for-sale were as follows at June 30, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Carrying

 

 

    

Fair Value

    

Amount

 

Due within one year

 

$

89,477

 

$

89,728

 

Due after one year through five years

 

 

22,031

 

 

22,149

 

 

 

$

111,508

 

$

111,877

 

 

 

4. Debt

Non-Recourse Debt:

On January 7, 2018, the Company, entered into a funding agreement (the “Funding Agreement”) with RPI Finance Trust, a Delaware statutory trust (“RPI”). Pursuant to the Funding Agreement, the Company issued to RPI the right to receive certain royalty amounts, subject to certain reductions, based on the net sales of the antibody-drug conjugate IMMU-132 (sacituzumab govitecan) (the “Products”), for each calendar quarter during the term of the Funding Agreement (“Revenue Participation Right”), in exchange for $175.0 million in cash (the “Purchase Price”). Specifically, the royalty rate commences at 4.15 percent on net annual

12


 

sales of up to $2 billion, declining step-wise based on sales tiers to 1.75 percent on net global annual sales exceeding $6 billion.

In addition, after the seventh anniversary of the First Commercial Sale (as defined in the Funding Agreement) in the United States and following a change of control of the Company, the Company shall have the option (“Call Option”) to repurchase fifty percent (50%) of the Revenue Participation Right from RPI, at the net present value (calculated using a 5% discount rate) of the projected royalty payments based upon the then projected sales of the Product.

On January 7, 2018, in connection with the Funding Agreement, the Company entered into a common stock purchase agreement (the “Purchase Agreement”) with RPI, pursuant to which the Company, in a private placement, issued and sold to RPI 4,373,178 shares (the “Shares”) of the Company’s Common Stock, at a price of $17.15 per share for gross proceeds to the Company of $75.0 million before deducting fees and expenses (the “Financing”).

The Shares were offered, issued and sold in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), set forth under Section 4(a)(2) of the Securities Act relating to sales by an issuer not involving any public offering and in reliance on similar exemptions under applicable state laws. RPI represented that it is an accredited investor and that it acquired the Shares for investment purposes only and not with a view to any resale, distribution or other disposition of such securities in violation of the United States federal securities laws.

The Company concluded that there were two units of value to account for in the transaction.  The Company allocated approximately $67.8 million to the value of the common stock and additional paid-in-capital and $182.2 million to the non-recourse debt in accordance with ASC 470-10.  Interest will be recognized using the effective interest method over a period of 20 years.  The effective interest rate under the Funding Agreement, including issuance costs, is approximately 25.646%. During the three-month period ended March 31, 2018, the Company recorded $10.6 million in non-cash interest expense.

Convertible Senior Notes:

In February 2015, the Company issued $100.0 million of Convertible Senior Notes (the “Convertible Senior Notes”) (net proceeds of approximately $96.3 million after deducting the initial purchasers’ fees and offering expenses) in a private offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Rule 144A under the Securities Act (the “Convertible Senior Notes”). The Convertible Senior Notes will mature on February 15, 2020, unless earlier purchased or converted. The debt issuance costs of approximately $3.7 million, primarily consisting of underwriting, legal and other professional fees, are amortized over the term of the Convertible Senior Notes. The Convertible Senior Notes are senior unsecured obligations of the Company. Interest at 4.75% is payable semiannually on February 15 and August 15 of each year. The effective interest rate on the Convertible Senior Note was 5.48% for the period from the date of issuance through March 31, 2018.  

The Convertible Senior Notes are convertible at the option of holders into approximately 19.6 million shares of common stock at any time prior to the close of business on the day immediately preceding the maturity date. The exchange rate will initially be 195.8336 shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an initial exchange price of approximately $5.11 per share of common stock).

If the Company undergoes a fundamental change (as defined in the indenture governing the Convertible Senior Notes), holders may require Immunomedics to purchase for cash all or part of the

13


 

Convertible Senior Notes at a purchase price equal to 100% of the principal amount of the Convertible Senior Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date, subject to certain exceptions. In addition, if certain make-whole fundamental changes (as defined in the indenture governing the Convertible Senior Notes) occur, Immunomedics will, in certain circumstances, increase the exchange rate for any Convertible Note converted in connection with such make-whole fundamental change.

The indenture does not limit the amount of debt which may be issued by the Company under the indenture or otherwise, does not contain any financial covenants or restrict the Company from paying dividends, selling or disposing of assets, or issuing or repurchasing its other securities, provided that such event is not deemed to be a fundamental change (as defined in the indenture governing the Convertible Senior Notes). The indenture contains customary terms and covenants and events of default.

If an event of default with respect to the Convertible Senior Notes occurs, holders may, upon satisfaction of certain conditions, accelerate the principal amount of the Convertible Senior Notes plus premium, if any, and accrued and unpaid interest, if any. In addition, the principal amount of the Convertible Senior Notes plus premium, if any, and accrued and unpaid interest, if any, will automatically become due and payable in the case of certain types of bankruptcy or insolvency events of default involving the Company.

On September 21, 2017, the Company entered into separate, privately negotiated exchange agreements, (the “Exchange Agreements”) with certain holders of the Convertible Senior Notes. Under the Exchange Agreements, such holders agreed to convert an aggregate $80.0 million of Convertible Senior Notes held by them. The Company initially settled each $1,000 principal amount of Convertible Senior Notes surrendered for exchange by delivering 176.2502 shares of common stock in three tranches occurring on September 19, 2017 through September 21, 2017. In total, the Company issued an aggregate 16,799,861 in the Exchange Agreements. The shares represent an aggregate of 1,133,173 shares more than the number of shares into which the exchanged Convertible Senior Notes were convertible under their original terms. As a result of the Exchange Agreements, the Company recognized a loss on induced exchanges of debt of $13.0 million representing the fair value of the incremental consideration paid to induce the holders to exchange their Convertible Senior Notes for equity (i.e., 1,133,173 Common Shares), based on the closing market price of the Company’s Common Stock on the date of the Exchange Agreements.

As a result of the Exchange Agreements, the outstanding aggregate principal amount of the Convertible Senior Notes was reduced to $20.0 million. 

Total interest expense for the Convertible Senior Notes for the three and nine-month periods ended March 31, 2018 was $0.2 million and $1.6 million, respectively, compared to interest expense of $1.4 million and $4.1 million for the three and nine-month periods ended March 31, 2017. Included in interest expense is the amortization of debt issuance costs of $1.6 million ($1.4 million of which related to the accelerated amortization of debt issuance costs associated with the $80.0 million exchange of Convertible Senior Notes in September 2017) for the nine-months ended March 31, 2018 and less than $0.1 million for three-month periods ended March 31, 2018. Included in interest expense is the amortization of debt issuance costs of $0.2 million and $0.5 million for the three and nine-month periods ended March 31, 2017, respectively.

5. Warrant Liabilities

In connection with a public offering conducted during October 2016, the Company issued warrants that contain net cash settlement provisions. Additionally, in connection with a stock purchase agreement entered into with Seattle Genetics, Inc. during February 2017 (the “SGEN Warrant”), the Company issued warrants that also have similar net cash settlement provisions. Accordingly, both warrants do not meet the

14


 

criteria for classifications as equity and are recorded as liabilities on the Company’s balance sheet. The Company recorded these warrants as liabilities at their fair values as calculated at their respective dates of inception. The change in the fair value of each warrant is measured, and booked as an income or expense to adjust the warrant liability on a periodic basis at the end of each fiscal quarter or upon exercise of the warrants.

On July 18, 2017, and September 1, 2017, warrants to purchase   900,000 and 675,000 shares of the Company’s common stock, issued in to the October 2016 public offering were exercised, respectively. The fair value of the warrants exercised increased $2.6 million from June 30, 2017 to the respective dates of exercise, which has been recognized in the accompanying condensed consolidated statements of comprehensive loss. The $11.2 million fair value of the warrants as of the exercise dates was reclassified to Capital Contributed in Excess of Par.

On December 5, 2017, and December 14, 2017,   warrants to purchase 575,000 shares of the Company’s common stock issued in the October 2016 public offering and the SGEN Warrant to purchase 8,655,804 shares of the Company’s common stock issued to Seattle Genetics in the February 2017 Stock Purchase Agreement were exercised, respectively. The fair value of the aggregate warrants exercised increased $2.2 million from June 30, 2017 to the dates of exercise, which has been recognized in the accompanying condensed consolidated statements of comprehensive loss. The $41.1 million fair value of the warrants as of the exercise dates was reclassified to Capital Contributed in Excess of Par.

On February 22, 2018, warrants to purchase 1,400,000 shares of the Company’s common stock issued in the October 2016 public offering were exercised. The fair value of the aggregate warrants exercised increased $10.1 million from June 30, 2017 to the date of exercise, which has been recognized in the accompanying condensed consolidated statements of comprehensive loss. The $17.8 million fair value of the warrants as of the exercise dates was reclassified to Capital Contributed in Excess of Par.

The Company uses Level 2 inputs for its valuation methodology for the warrant liabilities. The estimated fair value was determined using a Black-Scholes valuation model based on various assumptions. The warrant liabilities are adjusted to reflect estimated fair value at each period end, with any changes in the fair value being recorded in changes in fair value of warrant liabilities.

The estimated fair value of the warrant liabilities was approximately $70.3 million and $90.7 million, as of March 31, 2018 and June 30, 2017, respectively. The change in fair value of the warrant liabilities for the three and nine-month periods ended March 31, 2018 resulted in a gain of approximately $9.8 million and a loss of approximately $49.8 million, respectively.

6. Estimated Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses, warrant liability and Convertible Senior Notes. The carrying amount of accounts receivable, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments as of March 31, 2018 and June 30, 2017.

The Company has categorized its other financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

15


 

Financial instruments recorded on the condensed consolidated balance sheets as of March 31, 2018 and June 30, 2017 are categorized based on the inputs to the valuation techniques as follows (in thousands):

·

Level 1 – Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which the company has the ability to access at the measurement date (examples include active exchange-traded equity securities and most U.S. Government and agency securities).

·

Level 2 – Financial instruments whose value are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.

·

Level 3 – Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset.

Cash equivalents and marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

March 31, 2018

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Money Market Funds Note (a)

 

$

304,589

 

$

 —

 

$

 —

 

$

304,589

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bonds

 

 

14,083

 

 

 

 

 

 

14,083

 

Certificate of Deposits

 

 

8,371

 

 

 

 

 

 

8,371

 

U.S. Government Sponsored Agencies

 

 

10,872

 

 

 

 

 

 

10,872

 

Corporate Debt Securities

 

 

8,360

 

 

 

 

 

 

8,360

 

Commercial Paper

 

 

10,360

 

 

 

 

 

 

10,360

 

Total

 

$

356,635

 

$

 —

 

$

 —

 

$

356,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

June 30, 2017

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Money Market Funds Note (a)

 

$

36,776

 

$

 —

 

$

 —

 

$

36,776

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bonds

 

 

35,062

 

 

 

 

 

 

35,062

 

Certificate of Deposits

 

 

15,298

 

 

 

 

 

 

15,298

 

U.S. Government Sponsored Agencies

 

 

18,344

 

 

 

 

 

 

18,344

 

Corporate Debt Securities

 

 

32,659

 

 

 

 

 

 

32,659

 

Commercial Paper

 

 

10,145

 

 

 

 

 

 

10,145

 

Total

 

$

148,284

 

$

 —

 

$

 —

 

$

148,284

 


(a)

The money market funds noted above are included in cash and cash equivalents.

 

16


 

Convertible Senior Notes

The carrying amounts and estimated fair values (Level 2) of debt instruments are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2018

 

As of June 30, 2017

 

 

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

 

    

 

    

    

 

    

    

 

    

    

 

    

 

Convertible Senior Notes

 

$

19,726

 

$

57,087

 

$

98,084

 

$

180,950

 

 

The fair value of the Convertible Senior Notes, which differs from their carrying values, is influenced by interest rates, the Company’s stock price and stock price volatility and is determined by prices for the Convertible Senior Notes observed in market trading which are Level 2 inputs.

Warrant Liabilities

 

The Company has determined its warrant liabilities to be a Level 2 fair value measurement and used the Black Scholes valuation model to calculate the fair value as of March 31, 2018 and June 30, 2017:

At the measurement dates, the Company estimated the fair value for the warrants based on Black-Scholes valuation model and using the following assumptions:

 

 

 

 

 

 

 

 

 

    

March 31,

    

June 30,

    

June 30,

 

 

 2018

 

 2017 (1)

 

 2017 (2)

Risk-free interest rate

 

1.93%

 

1.14%

 

1.38%

Expected remaining term

 

0.54 years

 

0.51 years

 

1.28 years

Expected volatility

 

71.43%

 

69.34%

 

73.85%

Dividend yield

 

0%

 

0%

 

0%


(1)

Represents the fair value assumptions for the warrants issued in connection with February 10, 2017 stock purchase agreement.

(2)

Represents the fair value assumptions for the warrants issued in connection with October 11, 2016 on public offering.

 

The following table sets forth the changes in the fair value for the warrant liability during the nine-month period ended March 31, 2018 ($ in thousands):

 

 

 

 

 

 

 

Warrants

    

Level 2

Fair value – June 30, 2017

18,655,804

 

$

90,706

Reclass of warrant liability to capital contributed in excess of par due to exercise

(12,205,804)

 

 

(70,150)

Change in fair value

 —

 

 

49,775

Fair value – March 31, 2018

6,450,000

 

$

70,331

 

 

7.          Stockholders’ Equity (Deficit)

At the June 29, 2017 Special Meeting, the Company’s stockholders approved the amendment and restatement of the Company’s Certificate of Incorporation to increase the maximum number of shares of the Company’s stock authorized up to 260,000,000 shares of stock consisting of 250,000,000 shares of common stock and 10,000,000 shares of preferred stock, (the “Charter Amendment”). Previously the Company’s

17


 

Certificate of Incorporation authorized up to 165,000,000 shares of capital stock, consisting of 155,000,000 shares of common stock and 10,000,000 shares of preferred stock.

 

Preferred Stock

The Certificate of Incorporation of the Company authorizes 10,000,000 shares of preferred stock, $.01 par value per share. The preferred stock may be issued from time to time in one or more series, with such distinctive serial designations, rights and preferences as shall be determined by the Board of Directors.

On May 10, 2017, the Company issued in a private placement 1,000,000 shares (the “Preferred Shares”) of the Company’s Series A-1 Convertible Preferred Stock at a price of $125 per share for gross proceeds to the Company of $125.0 million, before deducting fees and expenses. Each Preferred Share was exchanged into 23.10536 shares of common stock (or an aggregate of 23,105,348 shares of common stock). The exchange price per share of common stock was $5.41.  

Following the June 29, 2017 Special Meeting and filing the Charter Amendment with the State of Delaware, the Company had authorized a sufficient number of unreserved shares of common stock to permit the exchange of the Preferred Shares. On July 31, 2017, the Company filed a registration statement on Form S-3 to register for resale the 23,105,348 shares of the Company’s common stock issuable upon the exchange of the Series A-1 Convertible Preferred Stock. The Preferred Shares converted to shares of common stock on August 24, 2017. The registration statement was declared effective on September 19, 2017.

 

Common stock

On January 8, 2018, the Company announced that it had agreed to sell tiered, sales-based royalty rights on global net sales of sacituzumab govitecan to RPI Finance Trust, a Delaware statutory trust (“RPI”) for $175.0 million. Simultaneously, the Company also entered into a common stock purchase agreement with RPI pursuant to which the Company, in a private placement, issued and sold to RPI 4,373,178 shares (the “Shares”) of the Company’s Common Stock, at a price of $17.15 per share for gross proceeds to the Company of $75.0 million before deducting fees and expenses.

The Shares were offered, issued and sold in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), set forth under Section 4(a)(2) of the Securities Act relating to sales by an issuer not involving any public offering and in reliance on similar exemptions under applicable state laws. RPI represented that it is an accredited investor and that it acquired the Shares for investment purposes only and not with a view to any resale, distribution or other disposition of such securities in violation of the United States federal securities laws.

On December 5, 2017, Seattle Genetics exercised the Warrants they held in full to acquire 8,655,804 shares of Common Stock for an aggregate purchase price of $42.4 million.

 

On October 11, 2016, the Company completed an underwritten public offering of 10 million shares of its common stock and accompanying warrants to purchase 10 million shares of common stock at a purchase price of $3.00 per unit, comprised of one share of common stock and one warrant. The Company received gross and net proceeds of $30.0 million and approximately $28.6 million, respectively after deducting the underwriting discounts and commissions and estimated expenses related to the offering payable. The warrants became exercisable nine months following the date of issuance, and will expire on the second anniversary of the date of issuance and have an exercise price of $3.75. On the date of issuance, the fair value of these warrants was determined to be $7.3 million and recognized as a liability.  The warrants under certain situations require cash settlement by the Company. On July 18, 2017, September 1, 2017, December 14,

18


 

2017, and February 22, 2018, 900,000 ,   675,000,  575,000, and 1,400,00 warrants were exercised, respectively. The fair value of the 3,550,000 exercised warrants increased $14.6 million from June 30, 2017 to the dates of exercise which has been recognized in the accompanying condensed consolidated statements of comprehensive loss. 

 

8. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

    

Currency

    

Net Unrealized Gains

    

Accumulated Other

 

 

 

Translation

 

 (Losses) on Available-

 

Comprehensive

 

 

 

Adjustments

 

for-Sale Securities

 

(Loss) Income

 

Balance, July 1, 2017

 

$

(234)

 

$

(69)

 

$

(303)

 

Other comprehensive income before reclassifications

 

 

(155)

 

 

 —

 

 

(155)

 

Amounts reclassified from accumulated other comprehensive  income (loss)

 

 

 —

 

 

 1

 

 

 1

 

Net current-period other comprehensive income

 

 

(155)

 

 

 1

 

 

(154)

 

Balance, March 31, 2018

 

$