The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
The accompanying notes are an integral part of the unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Business and Basis of Presentation
Nature of Business
Altimmune, Inc., headquartered in Gaithersburg, Maryland, together with its subsidiaries (collectively, the “Company” or “Altimmune”) is a clinical stage biopharmaceutical company incorporated under the laws of the State of Delaware.
The Company is focused on developing intranasal vaccines, immune modulating therapies and treatments for liver disease. The Company’s diverse pipeline includes proprietary intranasal vaccines for COVID-19 (AdCOVID), anthrax (NasoShield) and influenza (NasoVAX); an intranasal immune modulating therapeutic for COVID-19 (T-COVID); and next generation peptide therapeutics for NASH (ALT-801) and chronic hepatitis B (HepTcell). Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of common and preferred stock, long-term debt, and proceeds from research grants and government contracts. The Company has not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales.
Basis of Presentation
The accompanying unaudited consolidated financial statements are prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 included in the annual report on Form 10-K which was filed with the SEC on March 27, 2020. In the opinion of management, the Company has prepared the accompanying unaudited consolidated financial statements on the same basis as the audited consolidated financial statements, and these consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2020 or any future years or periods.
The unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be unable to continue as a going concern.
2. Summary of Significant Accounting Policies
During the six months ended June 30, 2020, there have been no significant changes to the Company’s summary of significant accounting policies contained in the Company’s Annual report on Form 10-K for the year ended December 31, 2019 as filed with the SEC, except for the recently adopted accounting standard for investments.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The extent to which the COVID-19 pandemic may directly or indirectly impact the Company’s business, financial condition, and results of operations is highly uncertain and subject to change. The Company considered the potential impact of the COVID-19 pandemic on the Company’s estimates and assumptions and determined that there was not a material impact to the Company’s consolidated financial statements as of and for the three and six months ended June 30, 2020. However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.
Recently Issued Accounting Pronouncements - Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 20218-13”). ASU No. 2018-13 was issued to modify and enhance the disclosure requirements for fair value measurements and eliminates certain disclosure requirements, such as the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy. This ASU adds new disclosure requirements for Level 3 measurements and is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2020 which resulted in expanded disclosures in Note 15 regarding the Company’s recurring Level 3 fair value measurements.
3. Contingent Consideration
5
ALTIMMUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company entered into a definitive agreement to acquire all of the equity interests of Spitfire Pharma, Inc. (“Spitfire”) on July 8, 2019. Spitfire was a privately held, preclinical pharmaceutical company developing a novel dual GLP-1/glucagon receptor agonist for the treatment of non-alcoholic steatohepatitis.
The transaction closed on July 12, 2019. The Company issued 1,887,250 unregistered shares of its common stock (the “shares”) as upfront consideration to certain former securityholders of Spitfire (collectively, the “Spitfire Equityholders”), representing an amount equal to $5.0 million less working capital and transaction expense adjustment amounts as defined in the agreement.
The Merger Agreement also includes future contingent payments up to $88.0 million in cash and shares of the Company’s common stock as follows (each, a “Milestone Event”):
|
•
|
a one-time payment of $5.0 million (the “IND Milestone Consideration Amount”) within sixty days of the submission of an Investigational New Drug Application (“IND”) to the United States Food and Drug Administration (the “FDA”) or other applicable governmental authority in a foreign jurisdiction, which IND has not been rejected or placed on clinical hold by the FDA or such applicable foreign governmental authority within time specified in the Merger Agreement;
|
|
•
|
a one-time payment of $3.0 million (the “Phase 2 Milestone Consideration Amount” and together with the IND Milestone Consideration Amount, the “Regulatory Milestones”) within sixty days of the initiation of a Phase 2 clinical trial of a product candidate anywhere in the world; and
|
|
•
|
payments of up to $80.0 million upon the achievement of specified worldwide net sales (the “Sales Milestones”) of all products developed using the technology acquired in the License Agreement within ten years following the approval of a new drug application filed with the FDA.
|
The Regulatory Milestones will be payable in shares of the Company’s Common Stock, with the number of shares of the Company’s Common Stock to be issued in connection with each milestone amount, if any, are dependent on the share price at the time of achievement. The number of any shares issued in consideration for the IND Milestone Consideration Amount will be determined based on lower of (A) the average of the closing prices of our Common Stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days prior to the IND Reference Date or (B) $2.95. The value of any shares issued in consideration for the Phase 2 Milestone Consideration Amount shall be determined based the lower of (A) on the average of the closing trading prices of our Common Stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days immediately preceding the date of the occurrence of the Phase 2 Milestone Event or (B) $3.54.
The acquisition of Spitfire was accounted for as an asset acquisition instead of a business combination because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset or group of similar identifiable assets, and therefore, the asset was not considered a business. The Company expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses. The Company recorded an in-process research and development expense for the up-front consideration during the third quarter of 2019. Transaction costs of $0.6 million were recorded within research and development expense on the Company’s consolidated statements of operations and comprehensive loss during the three and six months ended June 30, 2019.
The future contingent payments related to the Regulatory Milestones are stock-based payments accounted for under FASB Accounting Standards Codification Topic 480, Distinguishing Liabilities From Equity. Such stock-based payments are subject to a lock-up whereby 50% of the shares are released at 3 months and 50% are released at 6 months. As of the acquisition date, the Company estimated future contingent consideration of $2.8 million based upon a Monte Carlo simulation that was risk adjusted based on the probability of achieving the milestones and a discount for lack of marketability, which was expensed to in-process research and development expenses during the third quarter of 2019. The Company remeasured the fair value of the contingent consideration as of June 30, 2020, and increased the liability from March 31, 2020 to $16.4 million primarily due to an increase in the share price during the six months ended June 30, 2020 and an increase in the probability of milestone achievement. The increased change in the liability of $11.9 million and $13.6 million was expensed to research and development expense during the three and six months ended June 30, 2020, respectively.
The future contingent payments related to the Sales Milestones are predominately cash-based payments accounted for under FASB Accounting Standards Codification Topic 450, Contingencies. Accordingly, the Company will recognize the Sales Milestones when the contingency is resolved and the amount is paid or payable.
4. Net Loss Per Share
Because the Company has reported a net loss attributable to common stockholders for all periods presented, basic and diluted net loss per share attributable to common stockholders are the same for all periods presented. For periods presented, all unvested restricted stock, common stock warrants, and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact.
6
ALTIMMUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Potential common shares issuable upon conversion, vesting or exercise of unvested restricted stock, common stock warrants, and stock options that are excluded from the computation of diluted weighted-average shares outstanding, as they are anti-dilutive, are as follows:
|
|
For the Three and Six Months Ended
|
|
|
For the Three and Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
Common stock warrants
|
|
|
2,150,285
|
|
|
|
10,386,256
|
|
Common stock options
|
|
|
1,527,978
|
|
|
|
873,066
|
|
Restricted stock
|
|
|
304,686
|
|
|
|
323,262
|
|
5. Intangible Assets
The Company’s intangible assets consisted of the following:
|
|
June 30, 2020
|
|
|
|
Estimated
Useful
Lives
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Internally developed patents
|
|
6-10 years
|
|
$
|
825,659
|
|
|
$
|
(466,866
|
)
|
|
$
|
358,793
|
|
Acquired licenses
|
|
16-20 years
|
|
|
285,000
|
|
|
|
(277,105
|
)
|
|
|
7,895
|
|
Total intangible assets subject to amortization
|
|
|
|
|
1,110,659
|
|
|
|
(743,971
|
)
|
|
|
366,688
|
|
IPR&D assets
|
|
Indefinite
|
|
|
12,418,967
|
|
|
|
—
|
|
|
|
12,418,967
|
|
Total
|
|
|
|
$
|
13,529,626
|
|
|
$
|
(743,971
|
)
|
|
$
|
12,785,655
|
|
|
|
December 31, 2019
|
|
|
|
Estimated
Useful
Lives
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Internally developed patents
|
|
6-10 years
|
|
$
|
746,323
|
|
|
$
|
(448,874
|
)
|
|
$
|
297,449
|
|
Acquired licenses
|
|
16-20 years
|
|
|
285,000
|
|
|
|
(269,221
|
)
|
|
|
15,779
|
|
Total intangible assets subject to amortization
|
|
|
|
|
1,031,323
|
|
|
|
(718,095
|
)
|
|
|
313,228
|
|
IPR&D assets
|
|
Indefinite
|
|
|
12,418,967
|
|
|
|
—
|
|
|
|
12,418,967
|
|
Total
|
|
|
|
$
|
13,450,290
|
|
|
$
|
(718,095
|
)
|
|
$
|
12,732,195
|
|
Amortization expense of intangible assets was $12,025 and $14,836 for the three months ended June 30, 2020 and 2019, and $25,876 and $107,580 for the six months ended June 30, 2020 and 2019, respectively. Amortization expense was classified as research and development expenses in the accompanying unaudited consolidated statements of operations and comprehensive loss.
As of June 30, 2020, future estimated amortization expense are as follows:
Years ending December 31,
|
|
|
|
|
The remainder of 2020
|
|
$
|
20,596
|
|
2021
|
|
|
27,687
|
|
2022
|
|
|
27,687
|
|
2023
|
|
|
27,687
|
|
2024
|
|
|
23,781
|
|
2025 and thereafter
|
|
|
239,250
|
|
Total
|
|
$
|
366,688
|
|
7
ALTIMMUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. Accrued Expenses
Accrued expenses and other current liabilities consist of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Accrued professional services
|
|
$
|
472,329
|
|
|
$
|
429,467
|
|
Accrued payroll and employee benefits
|
|
|
956,584
|
|
|
|
1,183,130
|
|
Accrued interest
|
|
|
10,240
|
|
|
|
5,047
|
|
Accrued research and development
|
|
|
2,343,629
|
|
|
|
1,966,111
|
|
Lease obligation, current portion (see Note 12)
|
|
|
273,276
|
|
|
|
259,449
|
|
Deferred revenue
|
|
|
33,691
|
|
|
|
61,563
|
|
Total accrued expenses
|
|
$
|
4,089,749
|
|
|
$
|
3,904,767
|
|
7. Notes Payable
Paycheck Protection Program
On April 7, 2020, the Company applied for a loan from ServisFirst Bank, as lender, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S. Small Business Administration (the "SBA"). On April 13, 2020, the Loan was approved and the Company received the proceeds from a loan in the amount of $632,000 (the “PPP Loan”).
The PPP Loan, which took the form of a promissory note (the “Promissory Note”), was set to mature on April 7, 2022 and bore interest at a rate of 1% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), was to commence on November 7, 2020. The Company did not provide any collateral or guarantees for the PPP Loan, nor did the Company pay any facility charge to obtain the PPP Loan. The Promissory Note provided for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company could prepay the principal of the PPP Loan at any time without incurring any prepayment charges.
All or a portion of the Loan may be forgiven by the SBA and lender upon application by the Company upon documentation of expenditures in accordance with the SBA requirements. Subsequent to the quarter ended June 30, 2020, the Company received approximately $136.2 million in net proceeds from warrant exercises, ATM usage, and the public offering of its common stock and decided to voluntarily extinguish the Promissory Note on July 21, 2020 by paying the outstanding principal and accrued interest in cash.
8. Other Long-Term Liabilities
The Company’s other long-term liabilities are summarized as follows:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Lease obligation, long-term portion (see Note 12)
|
|
$
|
1,344,779
|
|
|
$
|
1,484,679
|
|
Common stock warrant liability (see Note 10)
|
|
|
10,000
|
|
|
|
10,000
|
|
Economic conditional grants
|
|
|
250,000
|
|
|
|
250,000
|
|
Other
|
|
|
110,245
|
|
|
|
120,196
|
|
Total other long-term liabilities
|
|
$
|
1,715,024
|
|
|
$
|
1,864,875
|
|
9. At-the-Market Offering
On March 27, 2020, the Company entered into an Equity Distribution Agreement (the “Agreement”) with JMP Securities LLC, serving as placement agent (the “Placement Agent”) with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $50.0 million (the “Shares”) through the Placement Agent (the “Offering”).
Any Shares offered and sold in the Offering will be issued pursuant to the Company’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission (the “SEC”) on April 4, 2019, which was declared effective on April 12, 2019, the prospectus supplement relating to the Offering filed with the SEC on March 27, 2020 and any applicable additional prospectus supplements related to the Offering that
8
ALTIMMUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
form a part of the Registration Statement. The aggregate market value of Shares eligible for sale in the Offering and under the Equity Distribution Agreement will be subject to the limitations of General Instruction I.B.6 of Form S-3, to the extent required under such instruction. The Company offered Shares having an aggregate offering price of $18.9 million pursuant to the prospectus supplement filed with the SEC on March 27, 2020.
On June 1, 2020, the Company filed an amendment to the Agreement which amended the prospectus supplement dated March 27, 2020 to increase the aggregate offering price to $50.0 million.
As of June 30, 2020, the Company has sold 2,965,144 shares of Common Stock under the Agreement resulting in $22.8 million in net proceeds, leaving $26.3 million available to be sold under the amended Agreement. As of June 30, 2020, the Company recorded approximately $0.3 million of offering costs which offset the proceeds received from the shares sold through June 30, 2020 and recognized approximately $0.2 million of deferred offering costs which will offset future proceeds received under the Agreement.
Subsequent to the quarter ended June 30, 2020, the Company sold 234,856 shares of Common Stock under the Equity Distribution Agreement, that resulted in $2.5 million in net proceeds, leaving $23.7 million available to be sold under the amended Agreement.
10. Warrants
A summary of warrant activity during the six months ended June 30, 2020 is as follows:
|
|
|
|
|
|
|
|
|
Warrants outstanding, December 31, 2019
|
|
|
10,384,706
|
|
|
Warrants issued due to anti-dilution features triggered from Registered Direct Offering
|
|
|
1,358
|
|
|
Exercises
|
|
|
(8,235,779
|
)
|
|
Warrants outstanding, June 30, 2020
|
|
|
2,150,285
|
|
|
During the six months ended June 30, 2020, the Company received net proceeds of $31.3 million from warrant exercises.
For warrants classified as a liability, the following is a summary of the periodic changes in their fair value during the six months ended June 30, 2020:
Balance, December 31, 2019
|
|
$
|
10,000
|
|
Changes in fair value
|
|
|
—
|
|
Balance, June 30, 2020
|
|
$
|
10,000
|
|
Subsequent to the quarter ended June 30, 2020, there were additionally 1,983,110 warrants exercised resulting in net proceeds of $9.6 million and 1,630,436 pre-funded warrants issued in connection with a Public Offering (see Note 16).
11. Stock-Based Compensation
Stock Options
The Company’s stock option awards generally vest over four years and typically have a contractual life of ten years. At June 30, 2020, there was $1.9 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 3.06 years. During the six months ended June 30, 2020, the Company granted 520,500 stock options with a weighted average exercise price of $2.31 and per share weighted average grant date fair value of $1.83.
Information related to stock options outstanding at June 30, 2020 is as follows:
|
|
Number
of Stock
Options
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
|
|
|
1,477,153
|
|
|
$
|
3.65
|
|
|
|
5.96
|
|
|
$
|
12,804,940
|
|
Exercisable
|
|
|
416,022
|
|
|
$
|
5.97
|
|
|
|
5.69
|
|
|
$
|
3,097,502
|
|
Unvested
|
|
|
1,061,131
|
|
|
$
|
2.74
|
|
|
|
6.07
|
|
|
$
|
9,707,438
|
|
9
ALTIMMUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Restricted Stock
At June 30, 2020, the Company had unvested restricted stock of 195,161 shares with total unrecognized compensation expense of $0.7 million, which the Company expects to recognize over a weighted average period of approximately 2.42 years. During the six months ended June 30, 2020, the Company released 40,505 shares of common stock from restriction as a result of the vesting of restricted stock.
Restricted Stock Units
During the three months ended June 30, 2020, the Company granted 109,525 shares of restricted stock units which vest during the third quarter of 2020. At June 30, 2020, the Company had unvested restricted stock units of 109,525 shares with total unrecognized compensation expense of $0.9 million, which the Company expects to recognize over a weighted average period of approximately 0.25 years.
2019 Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (“ESPP”), employees purchased 38,809 shares for $56,739 during the six months ended June 30, 2020. During the three and six months ended June 30, 2020, the Company recognized compensation expense of $20,372 and $35,084, respectively.
Stock-based Compensation Expense
Stock-based compensation expense is classified in the unaudited consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020 and 2019 as follows:
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
77,939
|
|
|
$
|
92,060
|
|
|
$
|
106,939
|
|
|
$
|
168,684
|
|
General and administrative
|
|
|
252,571
|
|
|
|
197,712
|
|
|
|
438,492
|
|
|
|
528,802
|
|
Total
|
|
$
|
330,510
|
|
|
$
|
289,772
|
|
|
$
|
545,431
|
|
|
$
|
697,486
|
|
12. Operating Leases
The Company rents office and laboratory space in the United States. The Company also leases office equipment under a non-cancellable equipment lease through December 2022. Rent expense during the three and six months ended June 30, 2020 under all of the Company’s operating leases was $86,295 and $173,894, respectively. Rent expense during the three and six months ended June 30, 2019 was $83,903 and $174,079, respectively. Rent expense includes short-term leases and variable lease costs that are not included in the lease obligation.
Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.
The office space lease provides for increases in future minimum annual rental payments as defined in the lease agreements. The Company has determined the lease renewal option is not reasonably certain.
The cash paid for operating lease liabilities for the three and six months ended June 30, 2020 was $64,193 and $126,073, respectively.
Supplemental other information related to the operating leases balance sheet information is as follows:
|
|
June 30, 2020
|
|
Operating lease obligations
|
|
$
|
1,618,055
|
|
Operating lease right-of-use assets
|
|
$
|
662,074
|
|
Weighted-average remaining lease term
|
|
|
4.83
|
|
Weighted-average discount rate
|
|
|
8.0
|
%
|
Maturities of lease liabilities is as follows:
10
ALTIMMUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Year ending December 31,
|
|
|
|
|
The remainder of 2020
|
|
$
|
194,596
|
|
2021
|
|
|
393,542
|
|
2022
|
|
|
400,198
|
|
2023
|
|
|
407,054
|
|
2024
|
|
|
414,116
|
|
2025 and thereafter
|
|
|
138,831
|
|
Total lease payments
|
|
|
1,948,337
|
|
Less imputed interest
|
|
|
(330,282
|
)
|
Total
|
|
$
|
1,618,055
|
|
13. Income Taxes
In response to global pandemic associated with COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act provided both stimulus measures and a number of tax provisions, including: temporary changes regarding the utilization and carry back of net operating losses, temporary changes to the prior and future limitations on interest deductions, technical corrections from prior tax legislation for tax depreciation of qualified improvement property, and certain refundable employee retention credits. The CARES Act enables the Company to file a refund claim to reflect a refund of its 2016 tax liability by carrying back its 2018, 2019 and 2020 losses to fully offset this liability. The refund claim attributable to the 2018 and 2019 tax years has been recorded as a discrete item in the income tax benefit for the three months ended March 31, 2020 of $2.9 million. In addition, the Company is currently estimating it will be able to carry back a portion of its current and forecasted 2020 net operating losses as of the end of the year and has included an estimate in its annual effective tax rate calculation as of June 30, 2020, which resulted in an additional income tax benefit of $1.0 million recorded during the six months ended June 30, 2020.
On June 12, 2020, the Comptroller of Maryland issued a report announcing that the state decoupled from the CARES Act loss carryback provisions for the 2020 year only, but indicated uncertainty as to whether the General Assembly would pass a measure to decouple from all years in the CARES Act and not process amended filings in the interim. As a result, an additional discrete item in the income tax benefit of $1.0 million was recognized for the three months ended June 30, 2020 related to the release of valuation allowance related to losses that could potentially be carried back to the 2016 tax year under current law.
Accordingly, the Company has recognized a total tax benefit of $4.8 million for the six months ended June 30, 2020.
14. Commitments and Contingencies
Spitfire Acquisition
As disclosed in Note 3, the Company is obligated to make payments of up to $80.0 million upon the achievement of specified worldwide net sales of all products developed using the technology acquired from Spitfire Pharma Inc. within ten years following the approval of a new drug application filed with the FDA.
PER.C6 License Agreement Expansion
On April 2, 2020, the Company entered into Amendment No. 3 to the Second Restated License Agreement (the “Amendment”), by and between the Company and Janssen Vaccines & Prevention B.V. (formerly known as Crucell Holland B.V.) (as amended by Amendment No. 1 to Second Restated License Agreement and Amendment No. 2 to Second Restated License Agreement, together with the Amendment, the “License Agreement”). Pursuant to the Amendment, the field of licenses granted to the Company for the use of the PER.C6 cell line under the License Agreement is expanded to cover COVID-19 caused by SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), in addition to the existing licenses related to Bacillus anthracis and influenza virus. All capitalized terms not defined herein shall have the meanings assigned to them in the Amendment or the License Agreement, as applicable.
Pursuant to the Amendment, the Company agreed to pay certain additional development-based milestone payments through approval of licensed products by the FDA for the treatment or prevention of COVID-19, up to an aggregate amount of $1.2 million. The Company also agreed to pay royalty payments as a percentage of net sales of products to a royalty stacking reduction and minimum annual royalty payments, until the expiration of the term of the License Agreement, as amended. As of June 30, 2020, payments made under the License Agreement were de minimis.
Litigation
11
ALTIMMUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In December 2019, a complaint was filed by Dr. De-Chu Christopher Tang (“Plaintiff”) against the Company in U.S. District Court for the Eastern District of Texas. The Plaintiff amended the complaint in February 2020 to include Vipin K. Garg and David J. Drutz as defendants, in addition to the Company (Dr. Garg, Dr. Drutz, and the Company are collectively referred to as “Defendants”). In March 2020 the Defendants’ filed a motion to dismiss the complaint. The Court denied the motion without prejudice and allowed Plaintiff an opportunity to file an amended complaint. Plaintiff’s second amended complaint was filed on April 17, 2020, and Defendants filed a motion to dismiss that complaint on May 1, 2020. Plaintiff, who is representing himself, alleges five causes of action as follows: (1) Defendants’ alleged retention of Plaintiff’s lab notebooks; (2) alleged plagiarism based on publishing an article without naming Plaintiff as an author; (3) use of the Adhigh System, which Plaintiff alleges he developed; (4) allegations that Defendants manipulated the Company’s stock and caused a decrease in value; and (5) allegations that the Defendants “wast[ed] government grant money and poison[ed] science by leaving data to rot.” A hearing on Defendants’ motion to dismiss was held on May 20, 2020, and the motion is currently pending. The Company believes the allegations in the complaint are without merit and intends to vigorously defend the litigation. However, the outcome of this legal proceeding is uncertain at this time and the Company cannot reasonably estimate a range of loss, if any. Accordingly, the Company has not accrued any liability associated with this action. The Company is a party in various other contractual disputes, litigation, and potential claims arising in the ordinary course of business none of which are currently reasonably possible or probable of material loss.
15. Fair Value Measurement
The Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2020 consisted of the following:
|
|
Fair Value Measurement at June 30, 2020
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - money market funds
|
|
$
|
38,011,208
|
|
|
$
|
38,011,208
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments
|
|
|
15,484,402
|
|
|
|
—
|
|
|
|
15,484,402
|
|
|
|
—
|
|
Contingent consideration
|
|
|
16,390,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,390,000
|
|
Warrant liability
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2019 consisted of the following:
|
|
Fair Value Measurement at December 31, 2019
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - money market funds
|
|
$
|
8,034,640
|
|
|
$
|
8,034,640
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investments
|
|
|
28,277,386
|
|
|
|
—
|
|
|
|
28,277,386
|
|
|
|
—
|
|
Contingent consideration
|
|
|
2,750,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,750,000
|
|
Warrant liability
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
Assets recorded at fair value on a nonrecurring basis, such as property and equipment and intangible assets are recognized at fair value when they are impaired.
Cash equivalents and short-term investments have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, 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. Short-term investments had quoted prices at June 30, 2020 as shown below:
|
|
June 30, 2020
|
|
|
|
Amortized Cost
|
|
|
Unrealized Gain (Loss)
|
|
|
Market Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificate of deposit
|
|
$
|
5,000,000
|
|
|
$
|
—
|
|
|
$
|
5,000,000
|
|
Financial and corporate debt securities
|
|
|
10,475,942
|
|
|
|
8,460
|
|
|
|
10,484,402
|
|
Total
|
|
$
|
15,475,942
|
|
|
$
|
8,460
|
|
|
$
|
15,484,402
|
|
The fair value of contingent payments classified as a liability was based on the regulatory milestones described in Note 3 and estimated using the Monte Carlo simulation valuation model with Level 3 inputs. The following table is a reconciliation of the beginning and ending balance of contingent consideration liability:
12
ALTIMMUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Balance at December 31, 2019
|
$
|
2,750,000
|
|
Change in fair value
|
|
13,640,000
|
|
Balance at June 30, 2020
|
$
|
16,390,000
|
|
The assumptions used to estimate the fair value of contingent payments that are classified as a liability at June 30, 2020 include the following significant unobservable inputs:
Unobservable input
|
|
Value or Range
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
112.9%
|
|
|
112.9%
|
|
Risk-free interest rate
|
|
0.16%
|
|
|
0.16%
|
|
Cost of capital
|
|
30.0%
|
|
|
30.0%
|
|
Discount for lack of marketability
|
|
14%-22%
|
|
|
18.0%
|
|
Probability of payment
|
|
52%-83%
|
|
|
76%
|
|
Projected year of payment
|
|
2020-2022
|
|
|
2020
|
|
The Company’s warrant liability is valued using the Monte Carlo simulation valuation model. If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs.
There were no transfers into and out of any of the levels of the fair value hierarchy as of June 30, 2020 and December 31, 2019.
16. Subsequent Events
Public Offering
On July 16, 2020, the Company offered and sold (i) 3,369,564 shares of common stock, at a price to the public of $23.00 per share, and (ii) pre-funded warrants of the Company to purchase 1,630,436 shares of common stock at an exercise price equal to $0.0001 per share (the “Pre-Funded Warrants”), at a price to the public of $22.9999 per share of common stock underlying the Pre-Funded Warrants (equal to the public offering price per share of Common Stock, minus the exercise price of each Pre-Funded Warrant). The Pre-Funded Warrants are exercisable at any time, provided that each Pre-Funded Warrant holder will be prohibited from exercising such Pre-Funded Warrants into shares of the Company’s common stock if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of the Company’s common stock then issued and outstanding, which percentage may change at the holders’ election to any other number less than or equal to 19.99% upon 61 days’ notice to the Company. The gross proceeds of this offering were approximately $132.2 million, which includes the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock, before deducting underwriting discounts and commissions and offering expenses. The net proceeds of this offering were approximately $124.0 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
13