NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business
Agenus Inc. (including its subsidiaries, collectively referred to as “Agenus,” the “Company,” “we,” “us,” and “our”) is a clinical-stage immuno-oncology (“I-O”) company with a pipeline of immune modulating antibodies, cancer vaccines, adjuvants and adoptive cell therapies dedicated to becoming a leader in the discovery and development of innovative combination therapies and committed to bringing effective medicines to patients with cancer. Our business is designed to drive success in I-O through speed, innovation, and effective combination therapies. In addition to a diverse pipeline we have assembled fully integrated capabilities including novel target discovery, antibody generation, cell line development, and good manufacturing practice (“GMP”) manufacturing We believe that these fully integrated capabilities enable us to produce novel candidates on timelines that are shorter than the industry standard. Leveraging from our science and capabilities we have forged important partnerships to advance our innovation.
We are developing a comprehensive I-O portfolio driven by the following platforms and programs, which we intend to utilize individually and in combination:
|
•
|
our antibody discovery platforms, including our Retrocyte Display™, SECANT
®
yeast display, and phage display technologies designed to drive the discovery of future CPM antibody candidates;
|
|
•
|
our antibody candidate programs, including our CPM programs;
|
|
•
|
our vaccine programs, including Prophage™, AutoSynVax™ and PhosphoSynVax
™;
|
|
•
|
our saponin-based vaccine adjuvants, principally our QS-21 Stimulon
®
adjuvant, or QS-21 Stimulon; and
|
|
•
|
our cell therapy subsidiary, AgenTus Therapeutics, which is designed to drive the discovery of future adoptive cell therapy, or “living drugs” (CAR-T and TCR) programs.
|
Our business activities include product research and development, intellectual property prosecution, manufacturing, regulatory and clinical affairs, corporate finance and development activities, and support of our collaborations. Our product candidates require clinical trials and approvals from regulatory agencies, as well as acceptance in the marketplace. Part of our strategy is to develop and commercialize some of our product candidates by continuing our existing arrangements with academic and corporate collaborators and licensees and by entering into new collaborations.
Our cash, cash equivalents, and short-term investments at December 31, 2018 were $53.1 million, a decrease of $7.1 million from December 31, 2017.
|
|
(Unaudited)
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
2018
|
|
|
June 30,
2018
|
|
|
September 30,
2018
|
|
|
December 31,
2018
|
|
Cash and cash equivalents
|
|
$
|
52.3
|
|
|
$
|
43.2
|
|
|
$
|
46.2
|
|
|
$
|
53.1
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(7.8
|
)
|
|
$
|
(9.2
|
)
|
|
$
|
3.0
|
|
|
$
|
6.9
|
|
Cash used in operating activities
|
|
$
|
(40.2
|
)
|
|
$
|
(30.5
|
)
|
|
$
|
(24.6
|
)
|
|
$
|
(35.8
|
)
|
Reported net loss
|
|
$
|
(54.3
|
)
|
|
$
|
(25.2
|
)
|
|
$
|
(33.7
|
)
|
|
$
|
(48.8
|
)
|
We have incurred significant losses since our inception. As of December 31, 2018, we had an accumulated deficit of $1.18 billion. Since our inception, we have successfully financed our operations through the sale of equity, notes, corporate partnerships, and interest income. We believe that, based on our current plans and activities, including additional funding we received in connection with our transactions with Gilead subsequent to December 31, 2018,
our cash on-hand will be sufficient to satisfy our liquidity requirements for more than one year from when these financial statements were issued. We continue to monitor the likelihood of success of our key initiatives and are prepared to discontinue funding of such activities if they do not prove to be feasible, restrict capital expenditures and/or reduce the scale of our operations.
Our future liquidity needs will be determined primarily by the success of our operations with respect to the progression of our product candidates and key development and regulatory events in the future. Potential sources of additional funding include: (1) pursuing collaboration, out-licensing and/or partnering opportunities for our portfolio programs and product candidates with one or more third parties, (2) renegotiating third party agreements, (3) selling assets, (4) securing additional debt financing and/or (5) selling equity securities. Our ability to address our future liquidity needs will largely be determined by the success of our product candidates and key development and regulatory events and our decisions in the future.
64
Research and development program costs include compensation and other direct costs plus an allocation of indirect costs, based on certain assumptions, and our revi
ew of the status of each program. Our product candidates are in various stages of development and significant additional expenditures will be required if we start new trials, encounter delays in our programs, apply for regulatory approvals, continue develo
pment of our technologies, expand our operations, and/or bring our product candidates to market. The eventual total cost of each clinical trial is dependent on a number of factors such as trial design, length of the trial, number of clinical sites, and num
ber of patients. The process of obtaining and maintaining regulatory approvals for new therapeutic products is lengthy, expensive, and uncertain.
Because our antibody
and neoantigen vaccine
programs are early stage, and because
any
further development of H
SP-based vaccines is dependent on clinical trial results, among other factors, we are unable to reliably estimate the cost of completing our research and development programs or the timing for bringing such programs to various markets or substantial partne
ring or out-licensing arrangements, and, therefore, when, if ever, material cash inflows are likely to commence.
We will continue to adjust our spending as needed in order to preserve liquidity.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation and Principles of Consolidation
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of Agenus and our subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. Non-controlling interest in the consolidated financial statements represents the portion of AgenTus Therapeutics not owned by Agenus.
(b) Segment Information
We are managed and currently operate as two segments. However, we have concluded that our two operating segments meet all three criteria required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280,
Segment Reporting
to be aggregated into one reportable segment. The aggregation of our two operating segments into one reportable segment is consistent with the objectives and basic principles of ASC 280. Our two operating segments have similar economic characteristics and are both similar with respect to the five qualitative characteristics specified in ASC 280. Accordingly, we do not have separately reportable segments as defined by ASC 280
.
(c) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base those estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
(d) Cash and Cash Equivalents
We consider all highly liquid investments purchased with maturities at acquisition of three months or less to be cash equivalents. Cash equivalents consist primarily of money market funds.
(e) Investments
We classify investments in marketable securities at the time of purchase. Gains and losses on the sale of marketable securities are recognized in operations based on the specific identification method. At both December 31, 2018 and 2017 we had no holdings classified as investments.
(f) Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk are primarily cash equivalents, investments, and accounts receivable. We invest our cash, cash equivalents and short-term investments in accordance with our investment policy, which specifies high credit quality standards and limits the amount of credit exposure from any single issue, issuer, or type of investment. We carry balances in excess of federally insured levels, however, we have not experienced any losses to date from this practice.
(g) Inventories
Inventories are stated at the lower of cost or net realizable value. Cost has been determined using standard costs that approximate the first-in, first-out method. Inventory as of December 31, 2018 and 2017 consisted solely of finished goods.
65
(h) Accounts Receivable
Accounts receivable are amounts due from our collaboration partner as a result of research and development services provided and reimbursements under co-funded research and development programs. We considered the need for an allowance for doubtful accounts and have concluded that no allowance was needed as of December 31, 2018 and 2017, as the estimated risk of loss on our accounts receivable was determined to be minimal.
(i) Property, Plant and Equipment
Property, plant and equipment, including software developed for internal use, are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed over the shorter of the lease term or estimated useful life of the asset. Additions and improvements are capitalized, while repairs and maintenance are charged to expense as incurred. Amortization and depreciation of plant and equipment was $4.3 million, $3.8 million, and $2.7 million, for the years ended December 31, 2018, 2017, and 2016, respectively.
(j) Fair Value of Financial Instruments
The estimated fair values of all our financial instruments, excluding our outstanding debt as of December 31, 2017, approximate their carrying amounts in the consolidated balance sheets. The fair value of our outstanding debt is based on a present value methodology. The outstanding principal amount of our debt, including the current portion, was $14.1 million and $129.1 million at December 31, 2018 and 2017, respectively.
(k) Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes existing revenue recognition guidance. We adopted ASU 2014-09 and its related amendments (collectively known as “ASC 606”) on January 1, 2018 using the modified retrospective method- i.e., by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of equity at January 1, 2018. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”). The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of our goods and services and will provide financial statement readers with enhanced disclosures. The details of the significant changes and quantitative impact of the changes are disclosed in Note 14.
For the years ended December 31, 2018, 2017 and 2016, 43%, 87% and 87%, respectively, of our revenue was earned from one collaboration partner.
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. To achieve this core principle, we apply the following five steps:
1) Identify the contract with the customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance, and (iii) the Company determines that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s intent and ability to pay, which is based on a variety of factors including the customer’s historical payment experience, or in the case of a new customer, published credit and financial information pertaining to the customer.
2) Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, the Company must apply judgment to determine whether promised goods and services are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.
66
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment, which is discussed in further detail for each of the Company’s contracts with customers in Note 14.
4) Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative stand-alone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative stand-alone selling prices. Determining the amount of the transaction price to allocate to each separate performance obligation requires significant judgement, which is discussed in further detail for each of the Company’s contracts with customers in Note 14.
5) Recognize revenue when or as the Company satisfies a performance obligation
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized over time if either 1) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, 2) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or 3) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer. Examples of control are using the asset to produce goods or services, enhance the value of other assets, settle liabilities, and holding or selling the asset. ASC 606 requires the Company to select a single revenue recognition method for the performance obligation that faithfully depicts the Company’s performance in transferring control of the goods and services. The guidance allows entities to choose between two methods to measure progress toward complete satisfaction of a performance obligation:
|
1.
|
Output methods - recognize revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract (e.g. surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed, and units of produced or units delivered); and
|
|
2.
|
Input methods - recognize revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation.
|
Licenses of intellectual property:
If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Milestone payments:
At the inception of each arrangement that includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. ASC 606 suggests two alternatives to use when estimating the amount of variable consideration: the expected value method and the most likely amount method. Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. Whichever method is used, it should be consistently applied throughout the life of the contract; however, it is not necessary for the Company to use the same approach for all contracts. The Company uses the most likely amount method for development and regulatory milestone payments. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. The transaction price
67
is then allocated to each performance obligation on a relative stand-alone selling price basis. The Company recognizes revenue as o
r when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its es
timates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties:
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Up-front Fees:
Depending on the nature of the agreement, up-front payments and fees may be recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.
Impact of Adopting ASC 606 on the Consolidated Financial Statements
We adopted ASC 606 using the modified retrospective method. The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit as of the adoption date. We elected to apply a practical expedient to reflect the aggregate effect of all modifications that occurred before January 1, 2018 when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations. The estimated effect of applying this practical expedient results in a slower recognition of the transaction price, as more consideration is allocated to performance obligations originally identified as a material right at contract inception. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to the consolidated balance sheet as of January 1, 2018 (in thousands):
|
|
As Reported December 31, 2017
|
|
|
ASC 606 Adjustment
|
|
|
Adjusted January 1, 2018
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion, deferred revenue
|
|
$
|
4,485
|
|
|
$
|
(2,986
|
)
|
|
$
|
1,499
|
|
Deferred revenue, net of current portion
|
|
|
7,748
|
|
|
|
(5,870
|
)
|
|
|
1,878
|
|
Accumulated deficit
|
|
$
|
(1,026,476
|
)
|
|
$
|
8,856
|
|
|
$
|
(1,017,620
|
)
|
Impact of ASC 606 on the Consolidated Financial Statements
In accordance with Topic 606, the disclosure of the impact of adoption to our consolidated statements of income and balance sheets was as follows (in thousands):
|
|
Year ended December 31, 2018
|
|
|
|
As Reported Under ASC 606
|
|
|
Adjustments
|
|
|
Notes
|
|
|
Balances without Adoption of ASC 606
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion, deferred revenue
|
|
|
1,814
|
|
|
|
1,001
|
|
|
|
(1
|
)
|
|
|
2,815
|
|
Deferred revenue, net of current portion
|
|
|
1,165
|
|
|
|
4,695
|
|
|
|
(1
|
)
|
|
|
5,860
|
|
Accumulated deficit
|
|
|
(1,177,311
|
)
|
|
|
(5,696
|
)
|
|
|
(2
|
)
|
|
|
(1,183,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development revenue
|
|
$
|
19,475
|
|
|
$
|
3,160
|
|
|
|
(3
|
)
|
|
$
|
22,635
|
|
|
(1)
|
Adjustment to deferred revenue to reflect recognition of revenue under ASC 605 primarily attributable to the change in the timing of revenue recognition for amounts received under the Incyte Collaboration Agreement, see Note 14.
|
|
(2)
|
Adjustment to accumulated deficit to reflect the reversal of the cumulative transition adjustment and the difference in revenue from ASC 606 to ASC 605, see Note 14.
|
|
(3)
|
Adjustment to reflect the difference in revenue recognition from ASC 606 to ASC 605 primarily attributable to the change in recognition of an upfront fee related to the GSK License and Amended Supply Agreements, see Note 14.
|
68
(l) Foreign Currency Transactions
Gains and losses from our foreign currency based accounts and transactions, such as those resulting from the translation and settlement of receivables and payables denominated in foreign currencies, are included in the consolidated statements of operations within other (expense) income. We do not currently use derivative financial instruments to manage the risks associated with foreign currency fluctuations. We recorded a foreign currency loss of $2.2 million for the year ended December 31, 2018, a foreign currency gain of $1.9 million for the year ended December 31, 2017, and a foreign currency loss of $2.1 million for the year ended December 31, 2016.
(m) Research and Development
Research and development expenses include the costs associated with our internal research and development activities, including salaries and benefits, share-based compensation, occupancy costs, clinical manufacturing costs, related administrative costs, and research and development conducted for us by outside advisors, such as sponsored university-based research partners and clinical study partners. We account for our clinical study costs by estimating the total cost to treat a patient in each clinical trial and recognizing this cost based on estimates of when the patient receives treatment, beginning when the patient enrolls in the trial. Research and development expenses also include the cost of clinical trial materials shipped to our research partners. Research and development costs are expensed as incurred.
(n) Share-Based Compensation
We account for share-based compensation in accordance with the provisions of ASC 718,
Compensation—Stock Compensation
and ASC 505-50,
Equity-Based Payments to Non-Employees.
Share-based compensation expense is recognized based on the estimated grant date fair value. Compensation cost is recognized on a straight-line basis over the requisite service period of the award. Forfeitures are recognized as they occur. The non-cash charge to operations for non-employee awards with vesting or other performance criteria is affected each reporting period by changes in the fair value of our common stock. See Note 12 for a further discussion on share-based compensation.
(o) Income Taxes
Income taxes are accounted for under the asset and liability method with deferred tax assets and liabilities recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which such items are expected to be reversed or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations in the period that includes the enactment date. Deferred tax assets are recognized when they are more likely than not expected to be realized.
The Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 34% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. On December 22, 2017, the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law.
As of December 31, 2018, we have completed our accounting for the tax effects of enactment of the Act, including the impacts described below.
The impacts of the Act relate to the reduction in the U.S. corporate income tax rate to 21 percent, which resulted in re-measuring our deferred tax assets and liabilities using the new 21 percent federal tax rate. This did not result in any net tax expense or benefit as there were corresponding and offsetting impacts to our deferred tax asset valuation allowance. For the years ended December 31, 2018 and 2017, we recognized no transition tax as a result of our accumulated losses since inception of our foreign subsidiaries, beginning in 2002. We have elected to account for global intangible low-taxed income (“GILTI”) as a period expense. During the year ended December 31, 2018 we recognized no changes to the 2017 enactment-date provisional amounts.
69
(p) Net Loss Per Share
Basic income and loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our Directors’ Deferred Compensation Plan). Diluted income per common share is calculated by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our Directors’ Deferred Compensation Plan) plus the dilutive effect of outstanding instruments such as warrants, stock options, non-vested shares, convertible preferred stock, and convertible notes. Because we reported a net loss attributable to common stockholders for all periods presented, diluted loss per common share is the same as basic loss per common share, as the effect of utilizing the fully diluted share count would have reduced the net loss per common share. Therefore, the following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as of December 31, 2018, 2017, and 2016, as they would be anti-dilutive:
|
|
Year Ended
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Warrants
|
|
|
2,900,000
|
|
|
|
4,351,450
|
|
|
|
4,351,450
|
|
Stock options
|
|
|
18,613,822
|
|
|
|
14,366,787
|
|
|
|
11,693,400
|
|
Nonvested shares
|
|
|
2,213,967
|
|
|
|
1,313,550
|
|
|
|
1,942,476
|
|
Series A-1 convertible preferred stock
|
|
|
333,333
|
|
|
|
333,333
|
|
|
|
333,333
|
|
Series C-1 convertible preferred stock
|
|
|
18,459,000
|
|
|
|
-
|
|
|
|
-
|
|
(q) Goodwill
Goodwill represents the excess of cost over the fair value of net assets of businesses acquired. Goodwill is not amortized, but instead tested for impairment at least annually. Annually we assess whether there is an indication that goodwill is impaired, or more frequently if events and circumstances indicate that the asset might be impaired during the year. We perform our annual impairment test as of October 31 of each year. The first step of our impairment analysis compares the fair value of our reporting units to their net book value to determine if there is an indicator of impairment. We operate as two reporting units. ASC 350,
Intangibles, Goodwill and Other
states that if the carrying value of a reporting unit is negative, the second step of the impairment test shall be performed to measure the amount of impairment loss, if any, if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. No goodwill impairment has been recognized for the periods presented.
(r) In-process Research and Development
Acquired in-process research and development (“IPR&D”) represents the fair value assigned to research and development assets that have not reached technological feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flows to present value. The revenue and cost projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success of developing a new drug. Additionally, the projections consider the relevant market sizes and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by us and our competitors. The rates utilized to discount the net cash flows to their present value are commensurate with the stage of development of the projects and uncertainties in the economic estimates used in the projections. Upon the acquisition of IPR&D, we complete an assessment of whether our acquisition constitutes the purchase of a single asset or a group of assets. We consider multiple factors in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and stage of completion, quantitative significance and our rationale for entering into the transaction.
If we acquire an asset or group of assets that do not meet the definition of a business under applicable accounting standards, then the acquired IPR&D is expensed on its acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred.
We review amounts capitalized as acquired IPR&D for impairment at least annually, as of October 31, or whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable. When performing our impairment assessment, we have the option to first assess qualitative factors to determine whether it is necessary to estimate the fair value of our acquired IPR&D. If we elect this option and believe, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of our acquired IPR&D is less than its carrying amount, we estimate the fair value using the same methodology as described above. If the carrying value of our acquired IPR&D exceeds its fair value, then the intangible asset is written-down to its fair value. Alternatively, we may elect to not first assess qualitative factors and immediately estimate the fair value of our acquired IPR&D. No IPR&D impairments were recognized for the years presented.
70
(s) Accounting for Asset Retirement Obligations
We record the fair value of an asset retirement obligation as a liability in the period in which we incur a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. A legal obligation is a liability that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or contract. We are also required to record a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time (accretion) and changes in the estimated future cash flows underlying the obligation. Changes in the liability due to accretion are charged to the consolidated statement of operations, whereas changes due to the timing or amount of cash flows are an adjustment to the carrying amount of the related asset. Our asset retirement obligations primarily relate to the expiration of our facility lease and anticipated costs to be incurred based on our lease terms.
(t) Long-lived Assets
If required based on certain events and circumstances, recoverability of assets to be held and used, other than goodwill and intangible assets not being amortized, is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Authoritative guidance requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(u) Recent Accounting Pronouncements
Recently Issued and Adopted
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, (Topic 606) ("ASU 2014-09"). ASU 2014-09 amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services. The FASB subsequently issued additional, clarifying standards to address issues arising from the implementation of the new revenue recognition standard. The new revenue recognition standard and clarifying standards require an entity to recognize revenue when control of promised goods or services is transferred to the customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted this new standard on January 1, 2018, by using the modified-retrospective method. See Note 2 (k) and Note 14.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), which provides guidance regarding the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We adopted ASU 2017-01 on January 1, 2018 and will apply it prospectively. The impact on our consolidated financial statements in future periods will depend on the specific facts and circumstances of future transactions.
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting (“ASU 2017-09”). The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. We adopted ASU 2017-09 on January 1, 2018. The guidance will be applied prospectively to awards modified on or after the adoption date. The adoption of ASU 2017-09 did not have any impact on our consolidated financial statements.
Recently Issued, Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) which supersedes Topic 840, Leases. ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability on their balance sheets for all leases with terms greater than twelve months. Based on certain criteria, leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for us on January 1, 2019, and requires a modified retrospective transition approach. The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced before the effective date of Topic 842, including continuing to account for leases that commence before the effective date in accordance with previous guidance, unless the lease is modified.
71
In July 2018, the FASB issued ASU 2018-11, which provides companies an additional, optional, transition method. This optional method allows companies to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment t
o the opening balance of retained earnings in the period of adoption. We have elected this transition approach, using a cumulative-effect adjustment on the effective date of the standard, with comparative periods presented in accordance with the existing g
uidance in ASC 840.
We adopted the standard on January 1, 2019 and have used the effective date as our date of initial application. We expect to take advantage of certain available expedients by electing the transition package of practical expedients permi
tted within ASU 2016-02, which allows us to not reassess previous accounting conclusions around whether arrangements are, or contain, leases, the classification of leases, and the treatment of initial direct costs.
We are still assessing the impact of adopting Topic 842, and currently expect to recognize additional lease liabilities and right-of-use assets as of January 1, 2019, related to our operating leases. Refer to Note 16 for details on our current lease arrangements. We further expect to provide enhanced new disclosures about our leasing arrangements in our financial statements for future periods. We do not expect that the new standard will have a material impact on our consolidated statement of operations or cash flows.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) (“ASU 2017-04”) that will eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit’s carrying amount over its fair value. The guidance is effective for the Company in the first quarter of fiscal 2020. Early adoption is permitted. We do not anticipate the adoption of this guidance to have a material impact on our consolidated financial statements, absent any goodwill impairment.
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The amendments in ASU 2018-07 simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The standard will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We are currently evaluating the impact of adoption of ASU 2018-07 on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). The amendments in ASU 2018-13 modify the disclosure requirements of fair value measurements. The standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. We are currently evaluating the impact of adoption of ASU 2018-13 on our financial statement disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract ("ASU 2018-15"). The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. ASU 2018-15 is required to be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the impact of adoption of ASU 2018-07 on our consolidated financial statements.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”). ASU 2018-18 (1) clarifies that certain transactions between collaborative arrangement participants should be accounted for under ASC 606, when the collaborative arrangement participant is a customer in the context of a unit of account, (2) adds unit-of-account guidance in ASC 808 to align with ASC 606 when an entity is assessing whether the collaborative arrangement, or a part of the arrangement, is within the scope of ASC 606, (3) precludes presenting transactions together with revenue when those transactions involve collaborative arrangement participants that are not directly related to third parties and are not customers. The standard will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of adoption of ASU 2018-18 on our consolidated financial statements.
No other new accounting pronouncement issued or effective during the year ended December 31, 2018 had or is expected to have a material impact on our consolidated financial statements or disclosures.
72
(3) Business Acquisitions
4-Antibody
On January 10, 2014, we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) providing for our acquisition of all of the outstanding capital stock of Agenus Switzerland Inc. (formerly known as 4-Antibody AG) (“4-AB”), from the shareholders of 4-AB (the “4-AB Shareholders”). The transaction closed on February 12, 2014 (the “Closing Date”). In exchange for their shares, the 4-AB Shareholders received an aggregate of 3,334,079 shares of our common stock paid upon closing and valued at $10.1 million. Contingent milestone payments of up to $40.0 million (the “contingent purchase price consideration”), payable in cash or shares of our common stock at our option, are due to the 4-AB Shareholders as follows: (i) $20.0 million upon our market capitalization exceeding $300.0 million for 10 consecutive trading days prior to the earliest of (a) the fifth anniversary of the Closing Date (b) the sale of the 4-AB or (c) the sale of Agenus; (ii) $10.0 million upon our market capitalization exceeding $750.0 million for 30 consecutive trading days prior to the earliest of (a) the tenth anniversary of the Closing Date (b) the sale of 4-AB, or (c) the sale of Agenus, and (iii) $10.0 million upon our market capitalization exceeding $1.0 billion for 30 consecutive trading days prior to the earliest of (a) the tenth anniversary of the Closing Date, (b) the sale of 4-AB, or (c) the sale of Agenus. We assigned an acquisition date fair value of $9.7 million to the contingent purchase price consideration. During January 2015, the first milestone noted above was achieved. This acquisition provided us with the Retrocyte Display technology platform for the rapid discovery and optimization of fully-human and humanized monoclonal antibodies against a wide array of molecular targets and a portfolio of CPM antibodies.
PhosImmune Inc.
On December 23, 2015 (the “PhosImmune Closing Date”), we entered into a Purchase Agreement with PhosImmune Inc., a privately-held Virginia corporation (“PhosImmune”), the securityholders of PhosImmune (the “PhosImmune Securityholders”) and Fanelli Haag PLLC, as representative of the PhosImmune Securityholders providing for the acquisition of all outstanding securities of PhosImmune. On the PhosImmune Closing Date, in exchange for their shares, the PhosImmune Securityholders received $2.5 million in cash and an aggregate of 1,631,521 of our common stock paid upon closing and valued at $7.4 million. Contingent milestone payments up to $35.0 million payable in cash and/or stock at our option are due as follows: (i) $5.0 million upon the closing trading price of our common stock equals or exceeds $8.00 for 60 consecutive trading days prior to the earlier of (a) the fifth anniversary of the PhosImmune Closing Date or (b) the sale of Agenus; (ii) $15.0 million if the closing trading price of our common stock equals or exceeds $13.00 for 60 consecutive trading days prior to the earlier of (a) the tenth anniversary of the PhosImmune Closing Date or (b) the sale of Agenus; and (iii) $15.0 million if the closing trading price of our common stock equals or exceeds $19.00 for 60 consecutive trading days prior to the earlier of (a) the tenth anniversary of the PhosImmune Closing Date or (b) the sale of Agenus. We assigned an acquisition date fair value of $2.5 million to the contingent purchase price consideration. This acquisition expands our I-O pipeline and strengthens our neoantigen capabilities to enable the development of best-in-class cancer vaccines and other novel therapies.
(4) Asset Purchase Agreements
Celexion, LLC
On April 7, 2015 (the “Celexion Closing Date”), we entered into an Asset Purchase Agreement (the “Celexion Purchase Agreement”) with Celexion, LLC (“Celexion”) and each of the members of Celexion, pursuant to which, we acquired Celexion’s SECANT yeast display antibody discovery platform, its full-length IgG antibody library, its technology for the discovery of molecules targeting cell membrane-associated antigens, and certain other related intellectual property assets (collectively, the “Purchased Assets”). As consideration for the Purchased Assets, on the Celexion Closing Date we paid Celexion $1.0 million in cash and issued Celexion 574,140 shares of our common stock valued at approximately $5.23 per share. As additional consideration for the Purchased Assets, we agreed under the Celexion Purchase Agreement to pay to Celexion (i) $1.0 million in cash payable on each of the 9-month and 18-month anniversaries of the Celexion Closing Date and (ii) $4.0 million on each of the 12-month and 24-month anniversaries of the Celexion Closing Date payable at our discretion in cash, shares of our common stock, or any combination thereof. If we elect to pay any of the additional consideration in shares of our common stock, such shares will be issued at a price per share equal to the simple average of the daily closing volume weighted average price over the 20 trading days preceding the date of issuance. We agreed to file one or more registration statements under the Securities Act to cover the resale of all shares issued as consideration under the Celexion Purchase Agreement. In May 2015, we filed a registration statement covering the resale of the 574,140 shares issued to Celexion on the Celexion Closing Date, and the SEC declared the registration statement effective in June 2015. This transaction was accounted for as an asset acquisition in accordance with ASC 805
Business Combinations
. In accordance with ASC 730
Research and Development
, the purchase price of approximately $13.2 million was recorded as research and development expense in our consolidated statement of operations and comprehensive loss for the year December 31, 2015 as the IPR&D was deemed to have no future alternative use.
73
On November 9, 2017
we made the final
payment
under the Celexion
Purchase Agreement. W
e issued
to
Celexion 999,317 shares of our common stock
based on the pr
e
ceding 20 trading day average of approximately
$4.10 per share.
The closing price of our common stock on November 9, 2017 was $3.55
per share. As such, we recorded a gain of approximately $550,000 at issuance. Also on November 9, 2017, we filed a registration statement covering the sale of the 999,317 shares issued to Celexion. The SEC declared the registration statement effective in
January 2018.
(5) Goodwill and Acquired Intangible Assets
The following table sets forth the changes in the carrying amount of goodwill for year ended December 31, 2018 (in thousands):
Balance, December 31, 2017
|
|
$
|
23,049
|
|
Effect of foreign currency
|
|
|
(124
|
)
|
Balance, December 31, 2018
|
|
$
|
22,925
|
|
Acquired intangible assets consisted of the following at December 31, 2018 and 2017 (in thousands):
|
|
As of December 31, 2018
|
|
|
|
Amortization
period
(years)
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
amount
|
|
Intellectual Property
|
|
7-15 years
|
|
$
|
16,509
|
|
|
$
|
(6,147
|
)
|
|
$
|
10,362
|
|
Trademarks
|
|
4.5 years
|
|
|
820
|
|
|
|
(820
|
)
|
|
|
-
|
|
Other
|
|
2-6 years
|
|
|
569
|
|
|
|
(505
|
)
|
|
|
64
|
|
In-process research and development
|
|
Indefinite
|
|
|
1,912
|
|
|
|
—
|
|
|
|
1,912
|
|
Total
|
|
|
|
$
|
19,810
|
|
|
$
|
(7,472
|
)
|
|
$
|
12,338
|
|
|
|
As of December 31, 2017
|
|
|
|
Amortization
period
(years)
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
amount
|
|
Intellectual Property
|
|
7-15 years
|
|
$
|
16,545
|
|
|
$
|
(4,290
|
)
|
|
$
|
12,255
|
|
Trademarks
|
|
4.5 years
|
|
|
826
|
|
|
|
(711
|
)
|
|
|
115
|
|
Other
|
|
2-6 years
|
|
|
570
|
|
|
|
(461
|
)
|
|
|
109
|
|
In-process research and development
|
|
Indefinite
|
|
|
1,928
|
|
|
|
—
|
|
|
|
1,928
|
|
Total
|
|
|
|
$
|
19,869
|
|
|
$
|
(5,462
|
)
|
|
$
|
14,407
|
|
The weighted average amortization period of our finite-lived intangible assets is approximately 9 years. Amortization expense for the years ended December 31, 2018, 2017, and 2015 was $2.0 million, $2.3 million and $2.2 million, respectively. Amortization expense related to acquired intangibles is estimated at $1.9 million for 2019, $1.9 million for each of 2020, 2021, and 2022 and $1.4 million for 2023.
The acquired IPR&D asset relates to the six pre-clinical antibody programs acquired in the Agenus Switzerland transaction. IPR&D acquired in a business combination is capitalized at fair value until the underlying project is completed and is subject to impairment testing. Once the project is completed, the carrying value of IPR&D is amortized over the estimated useful life of the asset. Post-acquisition research and development expenses related to the acquired IPR&D are expensed as incurred.
(6) Investments
Cash Equivalents and Short-term Investments
Cash equivalents and short-term investments consisted of the following as of December 31, 2018 and 2017 (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Cost
|
|
|
Estimated
Fair Value
|
|
|
Cost
|
|
|
Estimated
Fair Value
|
|
Institutional Money Market Funds
|
|
$
|
29,948
|
|
|
$
|
29,948
|
|
|
$
|
57,036
|
|
|
$
|
57,036
|
|
As a result of the short-term nature of our investments, there were minimal unrealized holding gains or losses as of December 31, 2018, 2017 and 2016.
74
All
the investments listed above have
been classified as cash equivalents on our consolidated balance sheet as of
December 31, 2018
and
2017
, respectively
.
(7) Property, Plant and Equipment
Property, plant and equipment, net as of December 31, 2018 and 2017 consist of the following (in thousands):
|
|
2018
|
|
|
2017
|
|
|
Estimated
Depreciable
Lives
|
Land
|
|
$
|
2,230
|
|
|
$
|
2,230
|
|
|
Indefinite
|
Building and building improvements
|
|
|
5,451
|
|
|
|
4,682
|
|
|
35 years
|
Furniture, Fixtures, and other
|
|
|
3,984
|
|
|
|
5,409
|
|
|
3 to 10 years
|
Laboratory and manufacturing equipment
|
|
|
18,993
|
|
|
|
17,438
|
|
|
4 to 10 years
|
Leasehold improvements
|
|
|
24,525
|
|
|
|
23,415
|
|
|
2 to 12 years
|
Software and computer equipment
|
|
|
8,001
|
|
|
|
7,034
|
|
|
3 years
|
|
|
|
63,184
|
|
|
|
60,208
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
(38,068
|
)
|
|
|
(34,029
|
)
|
|
|
Total
|
|
$
|
25,116
|
|
|
$
|
26,179
|
|
|
|
(8) Income Taxes
We are subject to taxation in the U.S. and in various state, local, and foreign jurisdictions. We remain subject to examination by U.S. Federal, state, local, and foreign tax authorities for tax years 2015 through 2018. With a few exceptions, we are no longer subject to U.S. Federal, state, local, and foreign examinations by tax authorities for the tax year 2014 and prior. However, net operating losses from the tax year 2014 and prior would be subject to examination if and when used in a future tax return to offset taxable income. Our policy is to recognize income tax related penalties and interest, if any, in our provision for income taxes and, to the extent applicable, in the corresponding income tax assets and liabilities, including any amounts for uncertain tax positions.
As of December 31, 2018, we had available net operating loss carryforwards of $795.7 million and $300.4 million for Federal and state income tax purposes, respectively, which are available to offset future Federal and state taxable income, if any, $85.3 million of these Federal net operating loss carryforwards do not expire, while the remaining net operating loss carryforwards expire between 2019 and 2038. Our ability to use these net operating losses is limited by change of control provisions under Internal Revenue Code Section 382 and may expire unused. In addition, we have $8.9 million and $11.9 million of Federal and state research and development credits, respectively, available to offset future taxable income. These Federal and state research and development credits expire between 2019 and 2038 and 2019 and 2029, respectively. Additionally, we have $0.2 million of state investment tax credits, available to offset future taxable income and expire between 2019 and 2021. We also have foreign income tax net operating loss carryforwards of approximately $1.8 million which are available to offset future foreign taxable income, if any, and expire between 2019 and 2024. The potential impacts of such provisions are among the items considered and reflected in management’s assessment of our valuation allowance requirements.
75
The tax effect of temporary differences and net operating loss and tax credit carryforwards that give rise to significant portions of the deferred tax assets and deferred tax
liabilities as of
December 31, 2018
and
2017
are presented below (in thousands).
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
U.S. Federal and State net operating loss carryforwards
|
|
$
|
182,557
|
|
|
$
|
185,535
|
|
Foreign net operating loss carryforwards
|
|
|
1,524
|
|
|
|
16,209
|
|
Research and development tax credits
|
|
|
18,507
|
|
|
|
19,597
|
|
Share-based compensation
|
|
|
4,824
|
|
|
|
8,249
|
|
Intangible Assets
|
|
|
36,217
|
|
|
|
—
|
|
Interest expense carryforward
|
|
|
6,555
|
|
|
|
—
|
|
Other
|
|
|
4,882
|
|
|
|
6,221
|
|
Total deferred tax assets
|
|
|
255,066
|
|
|
|
235,811
|
|
Less: valuation allowance
|
|
|
(254,315
|
)
|
|
|
(232,443
|
)
|
Net deferred tax assets
|
|
|
751
|
|
|
|
3,368
|
|
Foreign intangible assets
|
|
|
(1,063
|
)
|
|
|
(1,178
|
)
|
Other
|
|
|
(406
|
)
|
|
|
(2,782
|
)
|
Deferred tax liabilities
|
|
|
(1,469
|
)
|
|
|
(3,960
|
)
|
Net deferred tax liability
|
|
$
|
(718
|
)
|
|
$
|
(592
|
)
|
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating loss and tax credit carryforwards can be utilized or the temporary differences become deductible. We consider projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, we will need to generate future taxable income sufficient to utilize net operating losses prior to their expiration. Based upon our history of not generating taxable income due to our business activities focused on product development, we believe that it is more likely than not that deferred tax assets will not be realized through future earnings. Accordingly, a valuation allowance has been established for deferred tax assets which will not be offset by the reversal of deferred tax liabilities. The valuation allowance on the deferred tax assets increased by $21.9 million during the year ended December 31, 2018, while the valuation allowance decreased by $63.1 during the year ended December 31, 2017, which was primarily related to the “Tax Cuts and Jobs Act”, which reduced the federal tax rate from 34% to 21%.
Income tax benefit was nil for the years ended December 31, 2018, 2017 and 2016. Income taxes recorded differed from the amounts computed by applying the U.S. Federal income tax rate of 21% in 2018 and 34% in 2017 and 2016 to loss before income taxes as a result of the following (in thousands).
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Computed “expected” Federal tax benefit
|
|
$
|
(34,029
|
)
|
|
$
|
(41,035
|
)
|
|
$
|
(42,781
|
)
|
(Increase) reduction in income taxes benefit resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
24,233
|
|
|
|
(63,868
|
)
|
|
|
35,471
|
|
(Decrease) increase due to uncertain tax positions
|
|
|
7
|
|
|
|
—
|
|
|
|
(203
|
)
|
Foreign income inclusion
|
|
|
11,089
|
|
|
|
—
|
|
|
|
—
|
|
State and local income benefit, net of Federal income tax
benefit
|
|
|
(11,708
|
)
|
|
|
(4,561
|
)
|
|
|
(3,452
|
)
|
Change in federal tax rate
|
|
|
—
|
|
|
|
104,764
|
|
|
|
—
|
|
Foreign rate differential
|
|
|
956
|
|
|
|
2,084
|
|
|
|
4,398
|
|
Other, net
|
|
|
9,452
|
|
|
|
2,616
|
|
|
|
6,567
|
|
Income tax benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
76
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Balance, January 1
|
|
$
|
4,349
|
|
|
$
|
5,278
|
|
|
$
|
5,481
|
|
Increase related to current year positions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Increase (decrease) related to previously recognized positions
|
|
|
7
|
|
|
|
—
|
|
|
|
(203
|
)
|
Decrease related to change in federal tax rate
|
|
|
—
|
|
|
|
(929
|
)
|
|
|
—
|
|
Balance, December 31
|
|
$
|
4,356
|
|
|
$
|
4,349
|
|
|
$
|
5,278
|
|
These unrecognized tax benefits would all impact the effective tax rate if recognized. There are no positions which we anticipate could change within the next twelve months.
(9) Accrued and Other Current Liabilities
Accrued liabilities consist of the following as of December 31, 2018 and 2017 (in thousands):
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Payroll
|
|
$
|
8,770
|
|
|
$
|
7,790
|
|
Professional fees
|
|
|
3,528
|
|
|
|
2,021
|
|
Contract manufacturing costs
|
|
|
5,947
|
|
|
|
5,528
|
|
Research services
|
|
|
5,348
|
|
|
|
4,663
|
|
Other
|
|
|
958
|
|
|
|
1,567
|
|
Total
|
|
$
|
24,551
|
|
|
$
|
21,569
|
|
(10) Equity
Effective June 14, 2016, our certificate of incorporation was amended to increase the number of authorized shares of common stock from 140,000,000 to 240,000,000.
Under the terms and conditions of the Certificate of Designation creating the Series A-1 Preferred Stock, this stock is convertible by the holder at any time into our common stock, is non-voting, has an initial conversion price of $94.86 per common share, subject to adjustment, and is redeemable by us at its face amount ($31.6 million), plus any accrued and unpaid dividends. The Certificate of Designation does not contemplate a sinking fund. The Series A-1 Preferred Stock ranks senior to both our Series C-1 Convertible Preferred Stock and our common stock. In a liquidation, dissolution, or winding up of the Company, the Series A-1 Preferred Stock’s liquidation preference must be fully satisfied before any distribution could be made to the holders of the common stock. Other than in such a liquidation, no terms of the Series A-1 Preferred Stock affect our ability to declare or pay dividends on our common stock as long as the Series A-1 Preferred Stock’s dividends are accruing. The liquidation value of this Series A-1 Preferred stock is equal to $1,000 per share outstanding plus any accrued unpaid dividends. Dividends in arrears with respect to the Series A-1 Preferred Stock were approximately $1.2 million or $38.33 per share, and $1.0 million, or $31.79 per share, at December 31, 2018 and 2017, respectively.
In January 2008, we entered into a private placement agreement (the “January 2008 private placement”) pursuant to which we sold 1,451,450 shares of common stock for $18.00 for each share sold. Investors also received (i) 10-year warrants to purchase, at an exercise price of $18.00 per share, up to 1,451,450 shares of common stock and (ii) unit warrants to purchase, at an exercise price of $18.00 per unit, contingent upon a triggering event as defined in the January 2008 private placement documents, (a) up to 1,451,450 shares of common stock and (b) additional 10-year warrants to purchase, at an exercise price of $18.00 per share, up to 1,451,450 additional shares of common stock. In accordance with the terms of the January 2008 private placement, the 10-year warrants became exercisable for a period of 9.5 years as of July 9, 2008. Our private placement in April 2008 qualified as a triggering event, and therefore the unit warrants became exercisable for a period of eighteen months as of July 9, 2008. The unit warrants expired unexercised in January 2010. In February 2008, we filed, and the Securities and Exchange Commission (the “SEC”) declared effective, the required registration statement covering the resale of the 1,451,450 shares of common stock issued and the 1,451,450 shares issuable upon the exercise of the 10-year warrants issued in the January 2008 private placement. In connection with the January 2008 private placement, of the 1,451,450 warrants issued, 284,785 of the warrants were issued to Garo Armen, our CEO. These 10-year warrants expired unexercised in January 2018.
77
During September 2013, we sold approximately 3,333,000 shares of our common stock and warrants to purchase 1,000,000 shares of our common stock in a registered direct public
offering raising net proceeds of approximately $9.5 million, after deducting offering expenses. The common stock and warrants were sold in units, with each unit consisting of one share of common stock and a warrant to purchase 0.3 of a share of common stoc
k. Subject to certain ownership limitations, the warrants became exercisable beginning 6 months following issuance and will expire five years from the date they become exercisable, at an exercise price of $3.75 per share. The number of shares issuable upon
exercise of the warrants and the exercise price of the warrants are adjustable in the event of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.
As of the year ended December 31,
2018
all warrants remain unex
ercised.
On January 9, 2015, in connection with the execution of the Collaboration Agreement, we also entered into the Stock Purchase Agreement (the “Stock Purchase Agreement”) with Incyte Corporation, pursuant to which Incyte purchased approximately 7.76 million shares of our common stock (the “Shares”) in February 2015 for an aggregate purchase price of $35.0 million, or approximately $4.51 per share. Under the Stock Purchase Agreement, we agreed to register the Shares for resale under the Securities Act of 1933, as amended (the "Securities Act"). Subsequently, we filed, and the SEC declared effective, a registration statement covering the resale of the 7,760,000 shares of our common stock issued. On February 14, 2017, we entered into an additional Stock Purchase Agreement (the “Additional Stock Purchase Agreement”) with Incyte, pursuant to which Incyte purchased 10 million shares of our common stock (the “Additional Shares”) at a purchase price of $6.00 per share. Immediately following the transaction, Incyte owned approximately 18.1% of our outstanding shares. Under the Additional Stock Purchase Agreement, Incyte agreed not to dispose of any of the Additional Shares for a period of 12 months and to vote the Additional Shares in accordance with the recommendations of the Company’s board of directors in connection with certain equity incentive plan or compensation matters for a period of 18 months, and we agreed to certain registration rights with respect to the Additional Shares. The parties also revised the existing standstill provision to permit Incyte’s acquisition of the Additional Shares, but Incyte is precluded from acquiring any additional shares of our voting stock until December 31, 2019.
In September 2016, in accordance with the terms of the Technology Transfer and License Agreement with Iontas Limited (“Iontas”), we issued 157,513 shares of our common stock to Iontas valued at approximately $887,000. In March 2017, we issued an additional 373,351 shares of our common stock, valued at approximately $1.5 million, to Iontas in accordance with the terms of the Technology Transfer and License Agreement. Subsequently, we filed, and the SEC declared effective, a registration statement covering the resale of the 530,864 shares of our common stock issued.
In October 2017, we filed, and the SEC declared effective, a Registration Statement on Form S-3 (the “2017 Registration Statement”), covering the offering of up to $250 million of common stock, preferred stock, warrants, debt securities and units. The 2017 Registration Statement included a prospectus covering the offering, issuance and sale of up to 15 million shares of our common stock from time to time in “at-the-market offerings” pursuant to a Controlled Equity Offering
SM
sales agreement (the “Sales Agreement”) entered into with Cantor Fitzgerald & Co. (the “Sales Agent”) on October 30, 2017. Pursuant to the Sales Agreement, sales will be made only upon instructions by us to the Sales Agent, and we cannot provide any assurances that it will issue any shares pursuant to the Sales Agreement. On October 18, 2017, we exercised our right under that certain At Market Issuance Sales Agreement by and between us and MLV & Co. LLC, dated as of October 10, 2014 (the “2014 ATM Program”) to terminate the 2014 ATM Program, which termination took effect upon the effectiveness of the 2017 Registration Statement. During the year ended December 31, 2018, we sold 1,920,368 shares of our common stock in at-the-market offerings under the Sales Agreement. We terminated the Sales Agreement with Cantor Fitzgerald & Co. in May 2018.
In May 2018 we entered into an At Market Issuance Sales Agreement (the “Agreement”) with B. Riley FBR, Inc. (“BRFBR”) with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, up to 20 million shares of our common stock through BRFBR as our sales agent. The issuance and sale of the shares under the Agreement are made pursuant to our 2017 Registration Statement. In December 2018, we filed a prospectus supplement with the SEC in connection with the offer and sale of up to an additional 30 million shares from time to time pursuant to the Agreement. During the year ended December 31, 2018, we sold 15,878,320 shares of our common stock in at-the-market offerings under the Agreement.
(11) Series C-1 Convertible Preferred Stock
In October 2018, we entered into a Stock Purchase Agreement with certain institutional investors (the “Purchasers”), pursuant to which we issued and sold an aggregate of 18,459 shares of Series C-1 Convertible Preferred Stock (the “C-1 Preferred Shares”), at a purchase price of $2,167 per share. Each C-1 Preferred Share is convertible into 1,000 shares of our common stock at an initial conversion price of $2.167 per share of common stock, which represents a 10% premium over the prior day’s closing price on Nasdaq. The aggregate purchase price paid by the Purchasers C-1 Preferred Shares was approximately $40,000,000. We received net proceeds of $39.9 million after offering expenses.
78
The Stock Purchase Agreement requires us to register the resale of the Common Stock underlying the C-1 Preferred Shares (the “Conversion Shares”)
,
which occurred in the fourth quarter of 2018
.
The C-1 Preferred Shares have been classified as temporary or mezzanine equity on our Consolidated Balance Sheets in accordance with U.S. GAAP as the C-1 Convertible Preferred Shares contain deemed liquidation rights that are a contingent redemption feature not solely in the Company’s control.
Conversion
The C-1 Preferred Shares are convertible at the option of the stockholder into the number of shares of Common Stock determined by dividing the stated value of the C-1 Preferred Shares being converted by the conversion price of $2.167, subject to adjustment for stock splits, reverse stock splits and similar recapitalization events. We will not effect any conversion of the C-1 Preferred Shares, and a stockholder shall not have the right to convert any portion of the C-1 Preferred Shares, to the extent that, after giving effect to the conversion such stockholder would beneficially own in excess of 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock pursuant to a notice of conversion (the “Beneficial Ownership Limitation”). By written notice to us, a Purchaser may from time to time increase or decrease the Beneficial Ownership Limitation percentage not in excess of 19.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of the shares of Common Stock pursuant to a notice of conversion; provided that any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the us.
Voting
The C-1 Preferred Shares do not have voting rights. However, as long as any Preferred Shares are outstanding, we may not, without the affirmative vote of the holders of a majority of the then-outstanding C-1 Preferred Shares, (i) alter or change adversely the powers, preferences or rights given to the C-1 Preferred Shares or alter or amend the Certificate of Designation, amend or repeal any provision of, or add any provision to, our Certificate of Incorporation or bylaws, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the C-1 Preferred Shares, regardless of whether any of the foregoing actions shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise, (ii) issue further C-1 Preferred Shares or increase or decrease (other than by conversion) the number of authorized C-1 Preferred Shares, or (iii) enter into any agreement with respect to any of the foregoing.
Dividends
The C-1 Preferred Shares are entitled to receive dividends equal (on an as-if-converted-to-Common-Stock-basis, without regard to the Beneficial Ownership Limitation) to and in the same form, and in the same manner, as dividends (other than dividends in the form of Common Stock) actually paid on shares of Common Stock when, and if paid.
Liquidation
In any liquidation or dissolution of the Company, the C-1 Preferred Shares are entitled to participate in the distribution of assets, to the extent legally available for distribution, on a pari passu basis with the Common Stock.
Redemption
If at any time while the C-1 Preferred Shares are outstanding, a) the Company effects any merger, consolidation, stock sale or other business combination (other than such a transaction in which the Company is the surviving or continuing entity and its common stock is not exchanged for or converted into other securities, cash or property), b) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, c) any tender offer or exchange offer (whether by the Company or another person) is completed pursuant to which more than 50% of the common stock not held by the Company or is exchanged for or converted into other securities, cash or property, or d) the Company effects any reclassification of the common stock or any compulsory share exchange pursuant (other than as a result of a dividend, subdivision or combination covered above) to which the common stock is effectively converted into or exchanged for other securities, cash or property, (in any such case, a “Fundamental Transaction”) then, upon any subsequent conversion of the C-1 Preferred Shares, the holder shall have the right to receive, in lieu of the right to receive shares of common stock, for each share of common stock that would have been issued upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the equivalent amount of common stock.
Registration Payment Arrangement
We were required to file a registration statement covering the resale of the full number of shares no later than 30 days after the closing of the agreement and must use commercially reasonable efforts to cause the registration statement to be declared effective no later than 90 days after the closing date (no review by the SEC) or in the event of a review by the SEC, 120 days after the closing date. We filed, and the SEC declared effective this registration statement during 2018. If the registration statement is not maintained we
79
must pay to each holder 1.0% of the holder’s ratable interest in the aggregate purchase price on the day of the filing/maintenance failure and on every thirtieth day thereafter until the filing/mainten
ance failure is cured, up to a maximum of 6% (six months).
We currently deem the likelihood that we will ever be required to make payments under this arrangement to be remote, and as such no contingent liability has been recorded in our Consolidated Balanc
e Sheets.
(12) Share-based Compensation Plans
Our 1999 Equity Incentive Plan, as amended (the “1999 EIP”) authorized awards of incentive stock options within the meaning of Section 422 of the Internal Revenue Code (the “Code”), non-qualified stock options, non-vested (restricted) stock, and unrestricted stock for up to 2.0 million shares of common stock (subject to adjustment for stock splits and similar capital changes and exclusive of options exchanged at the consummation of mergers) to employees and, in the case of non-qualified stock options, non-vested (restricted) stock, and unrestricted stock, to consultants and directors as defined in the 1999 EIP. The plan terminated on November 15, 2009. On March 12, 2009, our Board of Directors adopted, and on June 10, 2009, our stockholders approved, our 2009 Equity Incentive Plan (the “2009 EIP”). The 2009 EIP provides for the grant of incentive stock options intended to qualify under Section 422 of the Code, nonstatutory stock options, restricted stock, unrestricted stock and other equity-based awards, such as stock appreciation rights, phantom stock awards, and restricted stock units, which we refer to collectively as Awards, for up to 29.2 million shares of our common stock (subject to adjustment in the event of stock splits and other similar events). The Board of Directors appointed the Compensation Committee to administer the 1999 EIP and the 2009 EIP. No awards will be granted under the 2009 EIP after June 14, 2026.
On March 12, 2009, our Board of Directors adopted, and on June 10, 2009, our stockholders approved, the 2009 Employee Stock Purchase Plan (the “2009 ESPP”) to provide eligible employees the opportunity to acquire our common stock in a program designed to comply with Section 423 of the Code. There are currently 166,666 shares of common stock reserved for issuance under the 2009 ESPP. Rights to purchase common stock under the 2009 ESPP are granted at the discretion of the Compensation Committee, which determines the frequency and duration of individual offerings under the plan and the dates when stock may be purchased. Eligible employees participate voluntarily and may withdraw from any offering at any time before the stock is purchased. Participation terminates automatically upon termination of employment. The purchase price per share of common stock in an offering is 85% of the lesser of its fair value at the beginning of the offering period or on the applicable exercise date and may be paid through payroll deductions, periodic lump sum payments, the delivery of our common stock, or a combination thereof. Unless otherwise permitted by the Board of Directors, no participant may acquire more than 3,333 shares of stock in any offering period. No participant is allowed to purchase shares under the 2009 ESPP if such employee would own or would be deemed to own stock possessing 5% or more of the total combined voting power or value of the Company. No offerings will be made under the 2009 ESPP after June 10, 2019, unless amended.
Our Director’s Deferred Compensation Plan, as amended, permits each outside director to defer all, or a portion of, their cash compensation until their service as a director ends or until a specified date into a cash account or a stock account. There are 425,000 shares of our common stock reserved for issuance under this plan. As of December 31, 2018, 72,081 shares had been issued. Amounts deferred to a cash account will earn interest at the rate paid on one-year Treasury bills with interest added to the account annually. Amounts deferred to a stock account will be converted on a quarterly basis into a number of units representing shares of our common stock equal to the amount of compensation which the participant has elected to defer to the stock account di
vided by the applicable price for our common stock. The applicable price for our common stock has been defined as the average of the closing price of our common stock for all trading days during the calendar quarter preceding the conversion date as reported by The Nasdaq Capital Market. Pursuant to this plan, a total of 349,442 units, each representing a share of our common stock at a weighted average common stock price of $4.79, had been credited to participants’ stock accounts as of December 31, 2018. The compensation charges for this plan were immaterial for all periods presented.
On November 4, 2015, our Board of Directors adopted and approved our 2015 Inducement Equity Plan (the “2015 IEP”) in compliance with and in reliance on NASDAQ Listing Rule 5635(c)(4), which exempts inducement grants from the general requirement of the NASDAQ Listing Rules that equity-based compensation plans and arrangements be approved by stockholders. There are 1,500,000 shares of our common stock reserved for issuance under the 2015 IEP.
We primarily use the Black-Scholes option pricing model to value options granted to employees and non-employees, as well as options granted to members of our Board of Directors. All stock option grants have 10-year terms and generally vest ratably over a 3 or 4-year period. The non-cash charge to operations for the non-employee options with vesting or other performance criteria is affected each reporting period, until the non-employee options vest, by changes in the fair value of our common stock.
80
The fair value of each option granted during the periods was estimated on the date of grant using the following weighted average assumptions:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Expected volatility
|
|
|
64
|
%
|
|
|
65
|
%
|
|
|
65
|
%
|
Expected term in years
|
|
|
6
|
|
|
|
4
|
|
|
|
4
|
|
Risk-free interest rate
|
|
|
2.8
|
%
|
|
|
1.7
|
%
|
|
|
1.0
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility is based exclusively on historical volatility data of our common stock. The expected term of stock options granted is based on historical data and other factors and represents the period of time that stock options are expected to be outstanding prior to exercise. The risk-free interest rate is based on U.S. Treasury strips with maturities that match the expected term on the date of grant.
A summary of option activity for 2018 is presented below:
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2017
|
|
|
14,366,787
|
|
|
$
|
4.22
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6,195,082
|
|
|
|
4.06
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(272,493
|
)
|
|
|
3.41
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(912,514
|
)
|
|
|
4.04
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(763,040
|
)
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
18,613,822
|
|
|
$
|
4.15
|
|
|
|
7.31
|
|
|
$
|
1,320,643
|
|
Vested or expected to vest at December 31, 2018
|
|
|
18,613,822
|
|
|
$
|
4.15
|
|
|
|
7.31
|
|
|
$
|
1,320,643
|
|
Exercisable at December 31, 2018
|
|
|
10,083,270
|
|
|
$
|
4.24
|
|
|
|
5.94
|
|
|
$
|
2,577
|
|
The weighted average grant-date fair values of options granted during the years ended December 31, 2018, 2017, and 2016, was $1.23, $1.97, and $4.65, respectively.
The aggregate intrinsic value in the table above represents the difference between our closing stock price on the last trading day of fiscal 2018 and the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders had all option holders exercised their options on December 31, 2018 (the intrinsic value is considered to be zero if the exercise price is greater than the closing stock price). This amount changes based on the fair market value of our stock. The total intrinsic value of options exercised during the years ended December 31, 2018, 2017, and 2016, determined on the dates of exercise, was $399,000, $132,000, and $445,000, respectively.
During 2018, 2017, and 2016, all options were granted with exercise prices equal to the market value of the underlying shares of common stock on the grant date other than certain awards dated March 31, 2016, March 2, 2018 and August 6, 2018. In March 2016 and March 2018, our Board of Directors approved certain awards subject to forfeiture in the event shareholder approval was not obtained to increase the shares available under our 2009 EIP. This approval was obtained in June 2016 and June 2018, respectively. Accordingly, these awards have a grant date of June 2016 and June 2018, respectively, with an exercise price as of the date the Board of Director's approved the awards in March 2016 and March 2018, respectively. In August 2018, our Board of Directors approved certain awards. However, the awards were not communicated until October 2018. Accordingly, these awards have a grant date of October 2018 with an exercise price as of the date the Board of Director's approved the awards in August 2018.
As of December 31, 2018, there was $9.4 million of unrecognized share-based compensation expense related to stock options granted to employees and directors for which, if all milestones are achieved, will be recognized over a weighted average period of 2.4 years.
As of December 31, 2018, unrecognized expense for options granted to outside advisors for which performance (vesting) has not yet been completed but the exercise price of the option was known was approximately $1.0 million. Such amount is subject to change each reporting period based upon changes in the fair value of our common stock, expected volatility, and the risk-free interest rate, until the outside advisor completes his or her performance under the option agreement.
81
Certain employees and consultants have been granted non-vested stock. The fair value of no
n-vested
market-based
awards is calculated based on a Monte Carlo simulation as of the date of issuance. The fair value of other non-vested stock is calculated based on the closing sale price of our common stock on the date of issuance.
A summary of non-vested stock activity for 2018 is presented below:
|
|
Nonvested
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Outstanding at December 31, 2017
|
|
|
1,313,550
|
|
|
$
|
2.91
|
|
Granted
|
|
|
1,043,432
|
|
|
|
3.70
|
|
Vested
|
|
|
(53,050
|
)
|
|
|
3.77
|
|
Forfeited
|
|
|
(89,965
|
)
|
|
|
4.21
|
|
Outstanding at December 31, 2018
|
|
|
2,213,967
|
|
|
$
|
3.20
|
|
As of December 31, 2018, there was $3.2 million of unrecognized share-based compensation expense related to these non-vested shares for which, if all milestones are achieved, will be recognized over a period of 2.4 years. The total intrinsic value of shares vested during the years ended December 31, 2018, 2017, and 2016, was $242,000, $3.8 million, and $2.4 million, respectively.
Cash received from option exercises and purchases under our 2009 ESPP for the years ended December 31, 2018, 2017, and 2016, was $1.2 million, $1.0 million, and $1.2 million, respectively. We issue new shares upon option exercises, purchases under our 2009 ESPP, vesting of non-vested stock, and under the Director’s Deferred Compensation Plan. During the years ended December 31, 2018, 2017, and 2016, 140,313 shares, 121,183 shares, and 121,228 shares, were issued under the 2009 ESPP, respectively. During the years ended December 31, 2018, 2017, and 2016, 53,050 shares, 1.1 million shares, and 570,037 shares, respectively, were issued as a result of the vesting of non-vested stock.
The impact on our results of operations from share-based compensation for the years ended December 31, 2018, 2017, and 2016, was as follows (in thousands).
|
|
Year Ended
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
3,498
|
|
|
$
|
6,159
|
|
|
$
|
6,507
|
|
General and administrative
|
|
|
4,127
|
|
|
|
6,270
|
|
|
|
6,681
|
|
Total share-based compensation expense
|
|
$
|
7,625
|
|
|
$
|
12,429
|
|
|
$
|
13,188
|
|
(13) License, Research, and Other Agreements
In May 2001, we entered into a license agreement with the University of Connecticut Health Center (“UConn”), which was amended in March 2003 and June 2009. Through the license agreement, we obtained an exclusive license to patent rights resulting from inventions discovered under a research agreement that was effective from February 1998 until December 2006. The term of the license agreement ends when the last of the licensed patents expires (2024) or becomes no longer valid. UConn may terminate the agreement: (1) if, after 30 days written notice for breach, we continue to fail to make any payments due under the license agreement, or (2) we cease to carry on our business related to the patent rights or if we initiate or conduct actions in order to declare bankruptcy. We may terminate the agreement upon 90 days written notice. We are still required to make royalty payments on any obligations created prior to the effective date of termination of the license agreement. Upon expiration or termination of the license agreement due to breach, we have the right to continue to manufacture and sell products covered under the license agreement which are considered to be works in progress for a period of 6 months. The license agreement contains aggregate milestone payments of $1.2 million for each product we develop covered by the licensed patent rights. These milestone payments are contingent upon regulatory filings, regulatory approvals and commercial sales of products. We have also agreed to pay UConn a royalty on the net sales of products covered by the license agreement as well as annual license maintenance fees beginning in May 2006. Royalties otherwise due on the net sales of products covered by the license agreement may be credited against the annual license maintenance fee obligations. As of December 31, 2018, we had paid approximately $1.0 million to UConn under the license agreement. The license agreement gives us complete discretion over the commercialization of products covered by the licensed patent rights, but also requires us to use commercially reasonable diligent efforts to introduce commercial products within and outside the United States. If we fail to meet these diligence requirements, UConn may be able to terminate the license agreement.
In March 2003, we entered into an amendment agreement that amended certain provisions of the license agreement with UConn. The amendment agreement granted us a license to additional patent rights. In consideration for execution of the amendment
82
agreement, we agreed to pay UConn an upfront payment and to make future payments for licensed patents or patent applications. Through
December 31, 2018
, we have paid approximately $100,000 to UConn under the license agreement, as amended.
On December 5, 2014, Agenus Switzerland, entered into a license agreement with the Ludwig Institute for Cancer Research Ltd., or Ludwig, which replaced and superseded a prior agreement entered into between the parties in May 2011. Pursuant to the terms of the license agreement, Ludwig granted Agenus Switzerland an exclusive, worldwide license under certain intellectual property rights of Ludwig and Memorial Sloan Kettering Cancer Center arising from the prior agreement to further develop and commercialize GITR, OX40 and TIM-3 antibodies. On January 25, 2016, we and Agenus Switzerland entered into a second license agreement with Ludwig, on substantially similar terms, to develop CTLA-4 and PD-1 antibodies. Pursuant to the December 2014 license agreement, Agenus Switzerland made an upfront payment of $1.0 million to Ludwig. The December 2014 license agreement also obligates Agenus Switzerland to make potential milestone payments of up to $20.0 million for events prior to regulatory approval of licensed GITR, OX40 and TIM-3 products, and potential milestone payments in excess of $80.0 million if such licensed products are approved in multiple jurisdictions, in more than one indication, and certain sales milestones are achieved. Under the January 2016 license agreement, we are obligated to make potential milestone payments of up to $12.0 million for events prior to regulatory approval of CTLA-4 and PD-1 licensed products, and potential milestone payments of up to $32.0 million if certain sales milestones are achieved. Under each of these license agreements, we and/or Agenus Switzerland will also be obligated to pay low to mid-single digit royalties on all net sales of licensed products during the royalty period, and to pay Ludwig a percentage of any sublicensing income, ranging from a low to mid-double digit percentage depending on various factors. During the year ended December 31, 2017, we paid a percentage of sublicensing income totaling $2.0 million to Ludwig under the license agreements. The license agreements may each be terminated as follows: (i) by either party if the other party commits a material, uncured breach; (ii) by either party if the other party initiates bankruptcy, liquidation or similar proceedings; or (iii) by Agenus Switzerland or us (as applicable) for convenience upon 90 days’ prior written notice. The license agreements also contain customary representations and warranties, mutual indemnification, confidentiality and arbitration provisions.
In connection with the December 2015 acquisition of PhosImmune, we obtained exclusive rights to a portfolio of patent applications and one issued patent relating to phosphopeptide tumor targets (PTTs) under a patent license agreement with the University of Virginia (“UVA”). The UVA license gives us exclusive rights to develop and commercialize the PTT technology and an exclusive option to license any further PTT technology arising from ongoing research at UVA until December 2018. Under the license agreement, we will pay low to mid-single digit running royalties on net sales of PTT products, and a modest flat percentage of sublicensing income. In addition, we may be obligated to make milestone payments of up to $2.7 million for each indication of a licensed PTT product to complete clinical trials and achieve certain sales thresholds. If we fail to meet certain diligence milestones, we may also be required to pay penalties in excess of $150,000. The term of the UVA license agreement ends when the last of the licensed patents expires or becomes no longer valid. The term of the UVA license agreement ends when the last of the licensed patents expires or becomes no longer valid. The UVA license agreement may be terminated as follows: (i) by UVA in connection with our bankruptcy or cessation of business relating to the licensed technology, (ii) by UVA if we commit a material, uncured breach or (iii) by us for our convenience on 180 days written notice.
We have entered into various agreements with contract manufacturers, institutions, and clinical research organizations (collectively "third party providers") to perform pre-clinical activities and to conduct and monitor our clinical studies. Under these agreements, subject to the enrollment of patients and performance by the applicable third-party provider, we have estimated our total payments to be $232.1 million over the term of the studies. For the years ended December 31, 2018, 2017, and 2016, $41.5 million, $35.8 million, and $23.1 million, respectively, have been expensed in the accompanying consolidated statements of operations related to these third-party providers. Through December 31, 2018, we have expensed $171.7 million as research and development expenses and $173.8 million of this amount has been paid. The timing of expense recognition and future payments related to these agreements is subject to the enrollment of patients and performance by the applicable third-party provider.
(14) Revenue from Contracts with Customers
GSK License and Amended GSK Supply Agreements
In July 2006, we entered into a license agreement and a supply agreement with GSK for the use of QS-21 Stimulon (the “GSK License Agreement” and the “GSK Supply Agreement”, respectively). In January 2009, we entered into an Amended and Restated Manufacturing Technology Transfer and Supply Agreement (the “Amended GSK Supply Agreement”) under which GSK has the right to manufacture all of its requirements of commercial grade QS-21 Stimulon. GSK is obligated to supply us (or our affiliates, licensees, or customers) certain quantities of commercial grade QS-21 Stimulon for a stated period of time. Under these agreements, GSK paid an upfront license fee of $3.0 million and agreed to pay aggregate milestones of $5.0 million. In July 2007, the Amended GSK Supply Agreement was further amended, and we were paid an additional fixed fee of $7.3 million. In March 2012 we entered into a First Right to Negotiate and Amendment Agreement amending the GSK License Agreement and the Amended GSK Supply Agreement to clarify and include additional rights for the use of our QS-21 Stimulon (the “GSK First Right to Negotiate Agreement”). In addition,
83
we granted GSK the first right to negotiate for the purchase of the Company
or certain of our assets, which such rights expired in March 2017. As consideration for entering into the GSK First Right to Negotiate Agreement, GSK paid us an upfront, non-refundable payment of $9.0 million, $2.5 million of which is creditable toward fu
ture royalty payments. As of December 31, 2017, we had received all of the potential $24.3 million in upfront and milestone payments related to the GSK Agreements. We were also generally entitled to receive 2% royalties on net sales of prophylactic vaccine
s for a period of 10 years after the first commercial sale of a resulting GSK product, but we sold these royalty rights to HCR in January 2018 pursuant to the HCR Royalty Purchase Agreement (See Note
1
8
). The GSK License and Amended GSK Supply Agreements m
ay be terminated by either party upon a material breach if the breach is not cured within the time specified in the respective agreement. The termination or expiration of the GSK License Agreement does not relieve either party from any obligation which acc
rued prior to the termination or expiration. Among other provisions, the license rights granted to GSK survive expiration of the GSK License Agreement. The license rights and payment obligations of GSK under the Amended GSK Supply Agreement survive termina
tion or expiration, except that GSK's license rights and future royalty obligations do not survive if we terminate due to GSK's material breach unless we elect otherwise.
We assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, GSK, is a customer. We identified the following performance obligations under the contract: (1) an exclusive license to QS-21 in the specified field and related technology transfer; and (2) and exclusive license to QS-21 in an additional field.
We determined that the fixed payments of $19.3 million constituted all of the consideration to be included in the transaction price and to be allocated to the performance obligations based on their relative stand-alone selling prices. The fixed upfront consideration is recognized under ASC 606 based on when control of the combined performance obligation is transferred to the customer, which corresponds with the service period (through December 2014). At contract inception, the milestones of $5.0 million had been excluded from the transaction price, as we could not conclude that it was probable a significant reversal would not occur. Event driven milestones are a form of variable consideration as the payments are variable based on the occurrence of future events. As part of its estimation of the amount, we considered numerous factors, including that receipt of the milestones is outside of our control and contingent upon success in future clinical trials and the licensee’s efforts. Recognition of event driven milestones should be recognized when the variable consideration is able to be estimated. As of December 31, 2017, all milestones had been received, and therefore recognized.
Any consideration related to royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to GSK and therefore have also been excluded from the transaction price. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
For the year ended December 31, 2018, we recognized $17.3 million in non-cash royalty revenue from GSK. For the year ended December 31, 2017, we recognized $1.0 million in research and development revenue related to the achievement of a milestone and for the year ended December 31, 2016, we did not recognize any revenue from GSK.
The cumulative impact of changing the timing of revenue recognition for the GSK License and Amended GSK Supply Agreements as of January 1, 2018 was a decrease to stockholders' deficit of approximately $2.5 million and a corresponding decrease in deferred revenue of $2.5 million for the portion of the upfront fee creditable toward future royalties, as described above. This amount was included in the transition adjustment, as under ASC 606 it would have been recognized as revenue in March 2012, at the time of the amendment.
Merck Collaboration and License Agreement
During the quarter ended June 30, 2014, we entered into a collaboration and license agreement with Merck to discover and optimize fully-human antibodies against two undisclosed cancer targets using the Retrocyte Display
®
. Under this agreement, Merck is responsible for the clinical development and commercialization of antibodies generated under the collaboration. There are no unsatisfied performance obligations relating to this contract. Pursuant to the XOMA Royalty Purchase Agreement (see Note 18), we sold to XOMA 33% of the future royalties and 10% of the future milestones that we are entitled to receive from Merck, and we remain eligible to receive from Merck approximately $85.5 million in potential payments associated with the completion of certain clinical, regulatory and commercial milestones, as well as 67% of all future royalties on worldwide product sales.
For each of the years ended December 31, 2018 and 2017, we recognized $4.0 million in research and development revenue related to the achievement of milestones. For the year ended December 31, 2016, we recognized $2.2 million in research and development revenue.
The adoption of ASC 606 did not have an impact on the Merck collaboration and license agreement.
Incyte Collaboration Agreement
84
On January 9, 2015 and effective February 19, 2015, we entered into a global license, development and commercialization agreement (the “Collaboration Agreement”) with Incyte pursuant to which the parties plan to develop and commercialize novel immuno-thera
peutics using our antibody discovery platforms. The Collaboration Agreement was initially focused on four checkpoint modulator programs directed at GITR, OX40, LAG-3 and TIM-3. In addition to the four identified antibody programs, the parties have an optio
n to jointly nominate and pursue the development and commercialization of antibodies against additional targets during a five-year discovery period which, upon mutual agreement of the parties for no additional consideration, can be extended for an addition
al three years. In November 2015, we and Incyte jointly nominated and agreed to pursue the development and commercialization of three additional CPM targets. In February 2017, we amended the Collaboration Agreement by entering into a First Amendment to Lic
ense, Development and Commercialization Agreement (the “Amendment”). See “Amendment” section below.
On January 9, 2015, we also entered into the Stock Purchase Agreement with Incyte Corporation whereby, for an aggregate purchase price of $35.0 million, Incyte purchased approximately 7.76 million shares of our common stock.
Agreement Structure
Under the terms of the Collaboration Agreement, we received non-creditable, nonrefundable upfront payments totaling $25.0 million. In addition, until the Amendment, the parties shared all costs and profits for the GITR, OX40 and two of the additional antibody programs on a 50:50 basis (profit-share products), and we were eligible to receive up to $20.0 million in future contingent development milestones under these programs. Incyte is obligated to reimburse us for all development costs that we incur in connection with the TIM-3, LAG-3 and one of the additional antibody programs (royalty-bearing products) and we are eligible to receive (i) up to $155.0 million in future contingent development, regulatory, and commercialization milestone payments and (ii) tiered royalties on global net sales at rates generally ranging from 6% to 12%. For each royalty-bearing product, we will also have the right to elect to co-fund 30% of development costs incurred following initiation of pivotal clinical trials in return for an increase in royalty rates. Additionally, we had the option to retain co-promotion participation rights in the United States on any profit-share product. Through the direction of a joint steering committee, until the Amendment, the parties anticipated that, for each program, we would serve as the lead for pre-clinical development activities through investigational new drug (“IND”) application filing, and Incyte would serve as the lead for clinical development activities. The parties initiated the first clinical trials of antibodies arising from these programs in 2016. For each additional program beyond GITR, OX40, TIM-3 and LAG-3 that the parties elect to bring into the collaboration, we will have the option to designate it as a profit-share product or a royalty-bearing product.
The Collaboration Agreement will continue as long as (i) any product is being developed or commercialized or (ii) the discovery period remains in effect. Incyte may terminate the Collaboration Agreement or any individual program for convenience upon 12 months’ notice. The Collaboration Agreement may also be terminated by either party upon the occurrence of an uncured material breach of the other party or by us if Incyte challenges patent rights controlled by us. In addition, either party may terminate the Collaboration Agreement as to any program if the other party is acquired and the acquiring party controls a competing program.
Amendment
Pursuant to the terms of the Amendment, the GITR and OX40 programs immediately converted from profit-share programs to royalty-bearing programs and we became eligible to receive a flat 15% royalty on global net sales should any candidates from either of these two programs be approved. Incyte is now responsible for global development and commercialization and all associated costs for these programs. In addition, the profit-share programs relating to TIGIT and one undisclosed target were removed from the collaboration, with the undisclosed target reverting to Incyte and TIGIT to Agenus. Should any of those programs be successfully developed by a party, the other party will be eligible to receive the same milestone payments as the royalty-bearing programs and royalties at a 15% rate on global net sales. The terms for the remaining three royalty-bearing programs targeting TIM-3, LAG-3 and one undisclosed target remain unchanged, with Incyte being responsible for global development and commercialization and all associated costs. The Amendment gives Incyte exclusive rights and all decision-making authority for manufacturing, development, and commercialization with respect to all royalty-bearing programs.
In connection with the Amendment, Incyte paid us $20.0 million in accelerated milestones related to the clinical development of the antibody candidates targeting GITR and OX40.
In February 2017, we also entered into a Stock Purchase Agreement with Incyte, pursuant to which Incyte purchased 10 million shares of our common stock at a purchase price of $6.00 per share.
Pursuant to the XOMA Royalty Purchase Agreement, we sold to XOMA 33% of the future royalties and 10% of the future milestones that we were entitled to receive from Incyte, excluding the $5.0 million milestone that we recognized in the three months ended September 30, 2018. As of December 31, 2018, we remain eligible to receive up to $450.0 million in future potential
85
development, regulatory and commercial milestones across all programs in the collaboration, as we
ll as 67% of all future royalties on worldwide product sales.
Collaboration Revenue
We identified the following performance obligations under the Incyte Collaboration Agreement, as amended: (1) combined license and related research and development (“R&D”) services to a GITR antibody, (2) combined license and related R&D services to an OX40 antibody, (3) combined license and related R&D services to a TIM-3 antibody, (4) combined license and related R&D services to a LAG-3 antibody, (5) combined license and related R&D services to a TIGIT antibody, (6) combined license and related R&D services to a first undisclosed target, (7) combined license and related R&D services to a second undisclosed target, and (8) the option to license certain other mutually agreed-upon antibodies combined with related R&D Services (“Assumed Project Options Development”). Each of these performance obligations consists of a license or option to a license and related R&D services through the filing of an IND for each antibody candidate.
We concluded that the licenses could be used with other readily available resources if the know-how was also transferred with the license; however, our knowledge and experience is necessary for further development of the licensed antibodies. Therefore, we determined that each of the licensed antibodies and the related developmental R&D services should be treated as a combined performance obligation. We also evaluated whether the Assumed Project Options Development was a material right. At contract inception Incyte paid us a nonrefundable access fee for the ability to exercise the option and bring additional targets into the program. Both we and Incyte have the ability to explore targets and, if mutually agreed upon, convert those targets into assumed projects for no additional license fee. We concluded that Assumed Project Options Development represents a material right and is therefore a performance obligation.
We determined that there were no significant financing components, noncash consideration, or amounts that may be refunded to the customer, and as such the total upfront fixed consideration of the $10.0 million license fee and $15.0 million project access fee would be included in the total transaction price of $25.0 million. This amount was then allocated to the performance obligations on a relative stand-alone selling price basis.
The estimated variable consideration to be recognized for developmental R&D services and related reimbursable expenses (“Development Costs”) was determined based on the forecasted amounts in the research plan that had been approved by the both parties via the joint steering committee (“JSC”). Under the Agreement, Development Costs related to Profit-Sharing products are split equally between us and Incyte. Therefore, our expected revenue is 50% of the costs of these programs. Based on review of the budgets presented at the JSC meetings, as well as costs of previous R&D projects, we expected the total development costs over the term of the contract would be $43.4 million. This amount was allocated entirely to the distinct R&D services that forms part of each performance obligation.
We determined that the transaction price of the Collaboration Agreement was $78.6 million as of December 31, 2018, an increase of $10.2 million from the transaction price of $68.4 million as of December 31, 2017. In order to determine the transaction price, we evaluated all the payments to be received during the duration of the contract. We determined that the fixed upfront license fee and project access fee of $10.0 million and $15.0 million, respectively, and the $53.6 million of actual and estimated variable consideration for development costs (including R&D services) and milestones constituted consideration to be included in the transaction price, which is allocated among the performance obligations.
For payments made to Incyte related to their work performed on profit-sharing programs, we considered that we will receive a benefit through the performance of a series of distinct R&D services by Incyte. Additionally, the R&D services are being provided by Incyte at fair value. Therefore, the amount paid to Incyte represents the fair value of the services performed, and no excess will be allocated as a reduction of the transaction price. We will record the consideration paid to Incyte in the same manner that we would purchases for other vendors, classified as R&D expense.
In summary, each of the performance obligations includes a license or option to a license, and respective R&D services that will be performed over time from program initiation through the filing of an IND with respect to each antibody candidate. We have determined that the combined performance obligation is satisfied over time, and that the input method should be applied for all performance obligations that have consideration allocated to them. The cost-cost measure will be applied based on the percentage of completion of R&D services provided during the period compared to the respective budget. We believe this is the best measure of progress because other measures do not reflect how we transfer our performance obligation to Incyte. We will recognize the fixed consideration allocated to each performance obligation over time as the related R&D services are being performed using the input of R&D costs incurred over total R&D costs expected to be incurred through IND filing, beginning on the date a license is granted. A cost-based input method of revenue recognition requires management to make estimates of costs to complete our performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete our performance obligations will be recorded in the period in which
86
changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.
We considered the nature of the arrangement between Incyte and us in evaluating the classification of the payments to be received under the cost-sharing arrangement. We do not currently have any commercial products available for sale. Our primary operations to date have included research and development activities, licensing intellectual property and performing R&D services for external parties. Accordingly, arrangements such as this Collaboration Agreement represent our ongoing business operations. Therefore, we have concluded that payments received from Incyte under the cost-sharing arrangement represent payments made to us as part of our on-going operations and should be classified as revenue as such amounts are earned.
For the year ended December 31, 2018, we recognized approximately $15.5 million of license and collaboration revenue. This amount included $1.3 million of the transaction price for the Collaboration Agreement recognized based on proportional performance, $10.0 million for the achievement of milestones and $4.2 million for research and development services. For years ended December 31, 2017 and 2016, we recognized approximately $37.3 million and $19.7 million, respectively, of research and development revenue.
We expect to recognize deferred research and development revenue of $0.9 million and $1.2 million for 2019 and 2020, respectively, related to performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2018. These amounts exclude amounts (milestones, R&D services and royalties) where we have a right to invoice the customer in the amount that corresponds directly with the value of the performance completed to date.
The cumulative impact of the adoption of ASC 606 for the Incyte Collaboration Agreement as of January 1, 2018 was a decrease to stockholders' deficit of approximately $6.4 million and a corresponding decrease in deferred revenue of $6.4 million.
Disaggregation of Revenue
The following table presents revenue (in thousands) for years ended December 31, 2018, 2017 and 2016, disaggregated by geographic region and revenue type. Revenue by geographic region is allocated based on the domicile of our respective business operations.
|
|
Year ended December 31, 2018
|
|
|
|
United States
|
|
|
Europe
|
|
|
Total
|
|
Revenue Type
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development services
|
|
$
|
4,150
|
|
|
$
|
—
|
|
|
$
|
4,150
|
|
License and collaboration milestones
|
|
|
10,000
|
|
|
|
4,000
|
|
|
|
14,000
|
|
Recognition of deferred revenue
|
|
|
1,325
|
|
|
|
—
|
|
|
|
1,325
|
|
Non-cash royalty revenue
|
|
|
17,309
|
|
|
|
—
|
|
|
|
17,309
|
|
|
|
$
|
32,784
|
|
|
$
|
4,000
|
|
|
$
|
36,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
Revenue Type
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development services
|
|
$
|
14,615
|
|
|
$
|
—
|
|
|
$
|
14,615
|
|
License and collaboration milestones
|
|
|
21,000
|
|
|
|
3,994
|
|
|
|
24,994
|
|
Recognition of deferred revenue
|
|
|
3,100
|
|
|
|
—
|
|
|
|
3,100
|
|
Grant revenue
|
|
|
168
|
|
|
|
—
|
|
|
|
168
|
|
|
|
$
|
38,883
|
|
|
$
|
3,994
|
|
|
$
|
42,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
Revenue Type
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development services
|
|
$
|
16,631
|
|
|
$
|
234
|
|
|
$
|
16,865
|
|
License and collaboration milestones
|
|
|
—
|
|
|
|
2,000
|
|
|
|
2,000
|
|
Recognition of deferred revenue
|
|
|
3,522
|
|
|
|
—
|
|
|
|
3,522
|
|
Grant revenue
|
|
|
32
|
|
|
|
7
|
|
|
|
39
|
|
Service Revenue
|
|
|
147
|
|
|
|
—
|
|
|
|
147
|
|
|
|
$
|
20,332
|
|
|
$
|
2,241
|
|
|
$
|
22,573
|
|
Contract Balances
87
Contract assets primarily relate to our rights to consideration for work completed in relation to our R&
D services performed but not billed at the reporting date. The contract assets are transferred to the receivables when the rights become unconditional. Currently, we do not have any contract assets which have not transferred to a receivable. We had no asse
t impairment charges related to contract assets in the period. The contract liabilities primarily relate to contracts where we received payments but have not yet satisfied the related performance obligations. The advance consideration received from custome
rs for R&D services or licenses bundled with other promises is a contract liability until the underlying performance obligations are transferred to the customer.
The following table provides information about contract assets and contract liabilities from contracts with customers (in thousands):
Year ended December 31, 2018
|
|
Balance at beginning of period
|
|
|
Additions
|
|
|
Deductions
|
|
|
Balance at end of period
|
|
Contract assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled receivables from collaboration partners
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
3,377
|
|
|
$
|
-
|
|
|
$
|
(1,325
|
)
|
|
$
|
2,052
|
|
The change in contract liabilities is primarily related to the recognition of $1.3 million of revenue in the year ended December 31, 2018. Deferred revenue related to our Collaboration Agreement with Incyte of $2.0 million as of December 31, 2018, which was comprised of the $25.0 million upfront payment, less $23.0 million of license and collaboration revenue recognized from the effective date of the contract, will be recognized as the combined performance obligation is satisfied.
We also recorded a $0.9 million receivable as of December 31, 2018 for R&D services provided.
In the year ended December 31, 2018, we did not recognize any revenue from amounts included in the contract asset or the contract liability balances from performance obligations satisfied in previous periods. None of the costs to obtain or fulfill a contract were capitalized.
(15) Related Party Transactions
Our Audit and Finance Committee approved a charitable contribution to the Children of Armenia Fund (“COAF”) totaling $125,000 for 2018. Dr. Garo H. Armen, our CEO, is the founder and chairman of COAF. The 2018 charitable contribution was comprised of a cash component and a non-cash component. The cash component was $75,000, which we paid in quarterly installments. The non-cash component was $50,000, which was the estimated value of a portion of office space made available to COAF employees.
We also consider our transactions with Incyte, as disclosed in Note 14, to be related party transactions.
(16) Leases
We lease manufacturing, research and development, and office facilities under various lease arrangements. Rent expense (before sublease income) was $2.4 million, $2.6 million, and $3.3 million, for the years ended December 31, 2018, 2017, and 2016, respectively.
We lease a facility in Lexington, Massachusetts for our manufacturing, research and development, and corporate offices, approximately 5,600 square feet of office space in New York, New York for use as corporate offices, a facility in Berkeley, California, for manufacturing and corporate offices and facilities in Charlottesville, Virginia and Cambridge, United Kingdom for research and development and corporate offices.
We previously leased facilities in Basel, Switzerland for manufacturing, research and development and corporate offices. During the year ended December 31, 2017 we terminated the lease for these facilities.
88
The future minimum ren
tal payments under our facility lease agreements, which expire at various times between
20
20
and 2025, are as follows
(in thousands):
Year ending December 31,
|
|
|
|
|
2019
|
|
$
|
2,499
|
|
2020
|
|
|
2,279
|
|
2021
|
|
|
1,874
|
|
2022
|
|
|
1,915
|
|
2023
|
|
|
1,457
|
|
Thereafter
|
|
|
928
|
|
Total
|
|
$
|
10,952
|
|
In connection with the Lexington facility, we maintain a fully collateralized letter of credit of $1.0 million. No amounts had been drawn on the letter of credit as of December 31, 2018. In addition, for our properties, we are required to have an aggregate deposit of approximately $200,000 with the landlords as interest-bearing security deposits pursuant to our obligation under the leases.
We sublet a portion of our facilities and received rental payments of $541,000, $562,000, and $733,000 for the years ended December 31, 2018, 2017, and 2016, respectively.
We are contractually entitled to receive rental payments of $561,000 and 578,000 in 2019 and 2020, respectively.
During 2016 and 2018, we entered into agreements which are classified as capital leases for a pieces of laboratory equipment. Both are included in our property and equipment as follows (in thousands):
|
|
2018
|
|
|
2017
|
|
|
Estimated
Depreciable
Lives
|
Laboratory and manufacturing equipment
|
|
$
|
1,180
|
|
|
$
|
1,021
|
|
|
4 years
|
Less accumulated depreciation and amortization
|
|
|
(266
|
)
|
|
|
(153
|
)
|
|
|
Total
|
|
$
|
914
|
|
|
$
|
868
|
|
|
|
Under the terms of the capital lease agreements, we will remit payments to the lessors of $374,000 and $166,000 for the years ending December 31, 2019 and 2020, respectively.
(17) Debt
Debt obligations consisted of the following as of December 31, 2018 and 2017 (in thousands):
Debt instrument
|
|
Principal at
December 31,
2018
|
|
|
Non-cash
Interest
|
|
|
Unamortized
Debt Issuance
Costs
|
|
|
Unamortized
Debt Discount
|
|
|
Balance at
December 31,
2018
|
|
Current Portion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures
|
|
$
|
146
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
146
|
|
Long-term Portion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Subordinated Notes
|
|
|
14,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(788
|
)
|
|
|
13,212
|
|
Total
|
|
$
|
14,146
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(788
|
)
|
|
$
|
13,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instrument
|
|
Principal at
December 31,
2017
|
|
|
Non-cash
Interest
|
|
|
Unamortized
Debt Issuance
Costs
|
|
|
Unamortized
Debt Discount
|
|
|
Balance at
December 31,
2017
|
|
Current Portion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures
|
|
$
|
146
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
146
|
|
Note Purchase Agreement
|
|
|
15,000
|
|
|
|
5,494
|
|
|
|
|
|
|
|
|
|
|
|
20,494
|
|
Total current
|
|
|
15,146
|
|
|
|
5,494
|
|
|
|
—
|
|
|
|
-
|
|
|
|
20,640
|
|
Long-term Portion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Subordinated Notes
|
|
|
14,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,375
|
)
|
|
|
12,625
|
|
Note Purchase Agreement
|
|
|
100,000
|
|
|
|
31,323
|
|
|
|
(1,362
|
)
|
|
|
(201
|
)
|
|
|
129,760
|
|
Total long-term
|
|
|
114,000
|
|
|
|
31,323
|
|
|
|
(1,362
|
)
|
|
|
(1,576
|
)
|
|
|
142,385
|
|
Total
|
|
$
|
129,146
|
|
|
$
|
36,816
|
|
|
$
|
(1,362
|
)
|
|
$
|
(1,576
|
)
|
|
$
|
163,025
|
|
89
Subordinated Notes
On February 20, 2015, we, certain existing investors and certain additional investors entered into an Amended and Restated Note Purchase Agreement, pursuant to which we (i) canceled our senior subordinated promissory notes issued in April 2013 (the “2013 Notes”) in exchange for new senior subordinated promissory notes (the “2015 Subordinated Notes”) in the aggregate principal amount of $5.0 million, (ii) issued additional 2015 Subordinated Notes in the aggregate principal amount of $9.0 million and (iii) issued five year warrants (the “2013 Warrants”) to purchase 1,400,000 shares of our common stock at an exercise price of $5.10 per share.
The 2015 Subordinated Notes bear interest at a rate of 8% per annum, payable in cash on the first day of each month in arrears. Among other default and acceleration terms customary for indebtedness of this type, the 2015 Subordinated Notes include default provisions which allow for the noteholders to accelerate the principal payment of the 2015 Subordinated Notes in the event we become involved in certain bankruptcy proceedings, become insolvent, fail to make a payment of principal or (after a grace period) interest on the 2015 Subordinated Notes, default on other indebtedness with an aggregate principal balance of $13.5 million or more if such default has the effect of accelerating the maturity of such indebtedness, or become subject to a legal judgment or similar order for the payment of money in an amount greater than $13.5 million if such amount will not be covered by third-party insurance. The 2015 Subordinated Notes are not convertible into shares of our common stock and will mature on February 20, 2020, at which point we must repay the outstanding balance in cash. The Company may prepay the 2015 Subordinated Notes at any time, in part or in full, without premium or penalty.
The exchange of the 2013 Notes for the 2015 Subordinated Notes was accounted for as a debt extinguishment under the guidance of ASC 470
Debt
. For the year ended December 31, 2015, we recorded a loss on debt extinguishment of approximately $154,000 in non-operating (expense) income in our consolidated statements of operations and comprehensive loss. The debt discount of approximately $3.0 million, which relates to the warrants issued in connection with the 2015 Subordinated Notes, is being amortized using the effective interest method over three years, the expected life of the 2015 Subordinated Notes.
The warrants to purchase 500,000 shares of the Company’s common stock issued in connection with the 2013 Notes (the “2013 Warrants”) have an exercise price of $4.41 per share; and are scheduled to expire on April 15, 2019.
In March 2017, we and the holders of the 2015 Subordinated Notes entered into an Amendment to Notes and Warrants, pursuant to which we (i) extended the term of the 2013 Warrants by two years from April 15, 2017 to April 15, 2019 and (ii) extended the maturity date of the 2015 Notes by two years from February 20, 2018 to February 20, 2020. This resulted in an additional debt discount of $0.7 million, which will be amortized using the effective interest method over three years, the expected life of the 2015 Subordinated Notes. The 2013 Warrants and 2015 Notes are otherwise unchanged. The Amendment to Notes and Warrants was accounted for as a debt modification.
Note Purchase Agreement Related to Future Royalties
On September 4, 2015, we and our wholly-owned subsidiaries, Antigenics and Aronex Pharmaceuticals, Inc. (“Aronex”), entered into a NPA with Oberland Capital SA Zermatt LLC, as collateral agent (“Oberland”), an affiliate of Oberland as the lead purchaser and other purchasers. Pursuant to the terms of the NPA, on September 8, 2015 (the “Closing Date”), Antigenics issued $100.0 million aggregate principal amount of limited recourse notes (the “Notes”) to the purchasers. On November 2, 2017, following the October 20, 2017 approval of GSK’s shingles vaccine by the FDA, we exercised our option to issue an additional $15.0 million aggregate principal amount of Notes to the purchasers. On December 31, 2017 the outstanding aggregate principal amount of the Notes was $115.0 million.
In January 2018, we through our wholly-owned subsidiary, Antigenics, entered into a Royalty Purchase Agreement (the “HCR Royalty Purchase Agreement”) with Healthcare Royalty Partners III, L.P., and certain of its affiliates (collectively “HCR”), and we used $161.9 million of the upfront proceeds from HCR to redeem all of the notes issued pursuant to the NPA, accordingly, the NPA and the Notes issued thereunder were redeemed in full and terminated. In connection with this redemption, we recorded a $10.8 million loss on early extinguishment of debt which primarily reflects the payment of premiums to fully redeem the notes and the write-off of unamortized debt issuance costs and discounts. See Note 18 for additional information on the Royalty Purchase Agreement.
The Notes accrued interest at a rate of 13.5% per annum, compounded quarterly, from and after the Closing Date computed on the basis of a 360-day year and the actual number of days elapsed. The Notes had limited recourse and were secured solely by a first priority security interest in the royalties and accounts and payment intangibles relating thereto plus various rights of Antigenics related to the royalties under its contracts with GSK.
90
The redemp
tion price
was
equal to the outstanding principal amount of the Notes, plus all accrued and unpaid interest thereon, plus a premium payment that would yield an aggregate internal rate of return (“IRR”) for the purchasers
of 17.5%
in accordance with the ter
ms of the NPA
.
In accordance with the guidance of ASC 470
Debt
, we determined the NPA represents a debt transaction and does not purport to be a sale.
We recorded $849,000, $17.4 million, and $15.1 million in non-cash interest expense related to the Notes for the years ended December 31, 2018, 2017 and 2016, respectively, within our consolidated statement of operations and comprehensive loss.
In connection with the execution of the NPA, we reimbursed the purchasers for legal fees of $250,000 and incurred debt issuance costs of approximately $1.5 million. Under the relevant accounting guidance, legal fees and debt issuance costs have been recorded as a reduction to the gross proceeds. These amounts were being amortized over 12 years, the expected term of the Notes, using the effective interest rate method. In connection with the issuance of the Additional Notes, we incurred debt issuance cost of approximately $150,000. As with the costs incurred in connection with the execution of the NPA, these additional debt issuance costs have been recorded as a reduction to the gross proceeds and were being amortized over the remaining expected term of the Notes using the effective interest rate method.
Other
We have capital lease agreements that expire in June 2020 for equipment with a carrying value of approximately $0.9 million, which is included in property, plant and equipment, net on our consolidated balance sheets as of December 31, 2018. As of December 31, 2018, our remaining obligations under the capital lease agreement are approximately $468,000, of which $364,000 and $104,000 are classified as other current and other long-term liabilities, respectively, on our consolidated balance sheets.
At December 31, 2018, approximately $146,000 of debentures we assumed in our merger with Aquila Biopharmaceuticals are outstanding. These debentures carry interest at 7% and are callable by the holders. Accordingly, they are classified as short-term debt.
(18) Liability Related to the Sale of Future Royalties and Milestones
The following table shows the activity within the liability account in the year ended December 31, 2018 (in thousands):
|
|
Year ended December 31, 2018
|
|
Liability related to sale of future royalties and milestones - beginning balance
|
|
$
|
—
|
|
Proceeds from sale of future royalties and milestones
|
|
|
205,000
|
|
Non-cash royalty revenue
|
|
|
(17,309
|
)
|
Non-cash interest expense recognized
|
|
|
23,104
|
|
Liability related to sale of future royalties and milestones - ending balance
|
|
|
210,795
|
|
Less: unamortized transaction costs
|
|
|
(535
|
)
|
Liability related to sale of future royalties and milestones, net
|
|
$
|
210,260
|
|
Healthcare Royalty Partners
On January 6, 2018, we, through Antigenics, entered into the HCR Royalty Purchase Agreement with HCR, which closed on January 19, 2018. Pursuant to the terms of the HCR Royalty Purchase Agreement, we sold to HCR 100% of Antigenics’ worldwide rights to receive royalties GSK on sales of GSK’s vaccines containing our QS-21 Stimulon adjuvant. At closing, we received gross proceeds of $190.0 million from HCR. As part of the transaction, we reimbursed HCR for transaction costs of $100,000 and incurred approximately $500,000 in transaction costs of our own, which are presented net of the liability in the consolidated balance sheet and will be amortized to interest expense over the estimated life of the HCR Royalty Purchase Agreement. Although we sold all of our rights to receive royalties on sales of GSK’s vaccines containing QS-21, as a result of our obligation to HCR, we are required to account for these royalties as revenue when earned, and we recorded the $190.0 million in proceeds from this transaction as a liability on our consolidated balance sheet that will be amortized using the interest method over the estimated life of the HCR Royalty Purchase Agreement. The liability is classified between the current and non-current portion of liability related to sale of future royalties and milestones in the consolidated balance sheets based on the estimated recognition of the royalty payments to be received by HCR in the next 12 months from the financial statement reporting date.
91
In the year ended December 31, 2018, we recognized $
17.3
million of non-cash royal
ty revenue, and we recorded $
23.1
million of related non-cash interest expense related to the HCR Royalty Purchase Agreement.
As royalties are remitted to HCR from GSK, the balance of the recorded liability will be effectively repaid over the life of the HCR Royalty Purchase Agreement. To determine the amortization of the recorded liability, we are required to estimate the total amount of future royalty payments to be received by HCR. The sum of these amounts less the $190.0 million proceeds we received will be recorded as interest expense over the life of the HCR Royalty Purchase Agreement. Periodically, we assess the estimated royalty payments to be paid to HCR from GSK, and to the extent the amount or timing of the payments is materially different from our original estimates, we will prospectively adjust the amortization of the liability. Since the inception of the HCR Royalty Purchase Agreement our estimate of the effective annual interest rate over the life of the agreement increased to 16.9%, which results in a prospective interest rate of 16.0%.
There are a number of factors that could materially affect the amount and timing of royalty payments from GSK, all of which are not within our control. Such factors include, but are not limited to, changing standards of care, the introduction of competing products, manufacturing or other delays, biosimilar competition, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates, and other events or circumstances that could result in reduced royalty payments from GSK, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the HCR Royalty Purchase Agreement. Conversely, if sales of GSK’s vaccines containing QS-21 are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by us would be greater over the life of the HCR Royalty Purchase Agreement.
Pursuant to the HCR Royalty Purchase Agreement, we will also be entitled to receive up to $40.4 million in milestone payments from HCR based on sales of GSK’s vaccines as follows: (i) $15.1 million upon reaching $2.0 billion last-twelve-months net sales any time prior to 2024 and (ii) $25.3 million upon reaching $2.75 billion last-twelve-months net sales any time prior to 2026.
Additionally, pursuant to the HCR Royalty Purchase Agreement, we would owe approximately $25.9 million to HCR in 2021 (the “Rebate Payment”) if neither of the following sales milestones are achieved: (i) 2019 sales exceed $1.0 billion or (ii) 2020 sales exceed $1.75 billion. As part of the transaction, we provided a guaranty for the potential Rebate Payment and secured the obligation with substantially all of our assets pursuant to a security agreement, subject to certain customary exceptions and excluding all assets necessary for AgenTus Therapeutics.
XOMA
On September 20, 2018, we, through our wholly-owned subsidiary, Agenus Royalty Fund, LLC, entered into a Royalty Purchase Agreement (the “XOMA Royalty Purchase Agreement”) with XOMA (US) LLC (“XOMA”). Pursuant to the terms of the XOMA Royalty Purchase Agreement, XOMA paid us $15.0 million at closing in exchange for the right to receive 33% of the future royalties and 10% of the future milestones that we are entitled to receive from Incyte Corporation (“Incyte”) and Merck Sharpe & Dohme (“Merck”) under our agreements with each party (see Note 14), net of certain of our obligations to a third party and excluding the $5.0 million milestone from Incyte that we recognized in the quarter ended September 30, 2018. We retained 90% of the future milestones and 67% of the future royalties under our agreements with Incyte and Merck. Although we sold our rights to receive 33% of future royalties and 10% of future milestones, as a result of our significant continued involvement in the generation of the potential royalties and milestones, we are required to account for the full amount of these royalties and milestones as revenue when earned, and we recorded the $15.0 million in proceeds from this transaction as a liability on our consolidated balance sheet. Under the terms of the XOMA Royalty Purchase Agreement, should the percentage of milestones and royalties ultimately received by XOMA fail to repay the amount received by us at closing we would have no further obligation to XOMA.
92
(1
9
) Fair Value Measurements
We measure our contingent purchase price consideration at fair value. The fair values of our Agenus Switzerland and PhosImmune contingent purchase price consideration, $2.1 million and $0.9 million, respectively, are based on significant inputs not observable in the market, which require them to be reported as Level 3 liabilities within the fair value hierarchy. The valuation of the liabilities uses assumptions we believe would be made by a market participant. The fair value of our Agenus Switzerland and PhosImmune contingent purchase price consideration is based on estimates from a Monte Carlo simulation of our market capitalization and share price, respectively, and other factors impacting the probability of triggering the milestone payments. Market capitalization and share price were evolved using a geometric brownian motion, calculated daily for the life of the contingent purchase price consideration.
Assets and liabilities measured at fair value are summarized below (in thousands):
Description
|
|
December 31, 2018
|
|
|
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price consideration
|
|
|
3,038
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,038
|
|
Total
|
|
$
|
3,038
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
December 31, 2017
|
|
|
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price consideration
|
|
|
4,373
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,373
|
|
Total
|
|
$
|
4,373
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,373
|
|
The following table presents our liabilities measured at fair value using significant unobservable inputs (Level 3), as of December 31, 2018 (amounts in thousands):
Balance, December 31, 2017
|
|
$
|
4,373
|
|
Change in fair value of contingent purchase price consideration
during the period
|
|
|
(1,335
|
)
|
Balance, December 31, 2018
|
|
$
|
3,038
|
|
There were no changes in the valuation techniques during the period and there were no transfers into or out of Levels 1 and 2.
The fair value of our outstanding debt balance at December 31, 2018 and 2017 was $14.2 million and $205.9 million, respectively, based on the Level 2 valuation hierarchy of the fair value measurements standard using a present value methodology which was derived by evaluating the nature and terms of each note and considering the prevailing economic and market conditions at the balance sheet date. The principal amount of our outstanding debt balance at December 31, 2018 and 2017 was $14.1 million and $129.1, respectively.
(20) Contingencies
We may currently be, or may become, a party to legal proceedings. While we currently believe that the ultimate outcome of any of these proceedings will not have a material adverse effect on our financial position, results of operations, or liquidity, litigation is subject to inherent uncertainty. Furthermore, litigation consumes both cash and management attention.
(21) Benefit Plans
We sponsor a defined contribution 401(k) Savings Plan in the US and a defined contribution Group Personal Pension Plan in the UK (the “Plans”) for all eligible employees, as defined in the Plans. Participants may contribute a portion of their compensation, subject to a maximum annual amount, as established by the applicable taxing authority. Each participant is fully vested in his or her
93
contributions and related earnings and losses. During t
he years ended
December 31, 2018
,
2017
,
and
2016
we made discretionary contributions
to the Plans
of $
617
,000
,
$
487
,000
,
and $
334
,000,
respectively
.
For the years ended
December 31, 2018
,
2017
,
and
2016
,
we expensed $
617
,000
,
$
487
,000
,
and $
334
,000,
respectively, related to the discretionary contribution
to the Plans
.
We also participated in a multiple employer benefit plan that covers certain international employees. During the year ended December 31, 2017, in connection with the closure of our facility in Basel, Switzerland, we ended our participation in the plan. When an employee terminates employment prior to retirement, the amounts invested in the plan are withdrawn and invested in the plan of the employee’s new employer.
The annual measurement date for our multiple employer benefit plan was December 31. Benefits were based upon years of service and compensation. We were required to recognize the funded status (the difference between the fair value of plan assets and the projected benefit obligations) of our multiple employer plan in our consolidated balance sheets which, for the years ended December 31, 2018, and 2017 amounted to an adjustment to accumulated other comprehensive loss of nil and $25,000, respectively. During the year ended December 31, 2018, we made no contributions to the plan. During the year ended December 31, 2017, we contributed approximately $127,000 to our multiple employer benefit plan. In connection with the termination of our multiple employer benefit plan we recognized a settlement gain of approximately $1.5 million within operating expense for the year ended December 31, 2017. As our participation in the multiple employer benefit plan has ended, no future contributions are expected, and no future benefits are expected to be paid.
(22) Geographic Information
The following is geographical information regarding our revenues for the years ended December 31, 2018, 2017 and 2016 and our long-lived assets as of December 31, 2018 and 2017 (in thousands):
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
32,784
|
|
|
$
|
38,883
|
|
|
$
|
20,332
|
|
Europe
|
|
|
4,000
|
|
|
|
3,994
|
|
|
|
2,241
|
|
|
|
$
|
36,784
|
|
|
$
|
42,877
|
|
|
$
|
22,573
|
|
Revenue by geographic region is allocated based on the domicile of our respective business operations.
|
|
2018
|
|
|
2017
|
|
Long-lived Assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
22,681
|
|
|
$
|
22,993
|
|
Europe
|
|
|
3,649
|
|
|
|
4,400
|
|
Total
|
|
$
|
26,330
|
|
|
$
|
27,393
|
|
Long-lived assets include “Property, plant and equipment, net” and “Other long-term assets” from the consolidated balance sheets, by the geographic location where the asset resides.
94
(
2
3
) Quarterly Financial
Data (Unaudited)
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,636
|
|
|
$
|
15,895
|
|
|
$
|
12,802
|
|
|
$
|
6,451
|
|
Net loss
|
|
|
(54,261
|
)
|
|
|
(25,204
|
)
|
|
|
(33,731
|
)
|
|
|
(48,848
|
)
|
Net loss attributable to Agenus Inc. common shareholders
|
|
|
(54,192
|
)
|
|
|
(24,723
|
)
|
|
|
(33,177
|
)
|
|
|
(47,807
|
)
|
Per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss attributable to Agenus Inc.
common stockholders
|
|
|
(0.53
|
)
|
|
|
(0.24
|
)
|
|
|
(0.37
|
)
|
|
|
(0.40
|
)
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
26,956
|
|
|
$
|
4,208
|
|
|
$
|
3,359
|
|
|
$
|
8,354
|
|
Net loss
|
|
|
(17,103
|
)
|
|
|
(31,713
|
)
|
|
|
(36,842
|
)
|
|
|
(35,035
|
)
|
Net loss attributable to Agenus Inc. common shareholders
|
|
|
(17,154
|
)
|
|
|
(31,764
|
)
|
|
|
(36,893
|
)
|
|
|
(35,087
|
)
|
Per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss attributable to Agenus Inc.
common stockholders
|
|
|
(0.18
|
)
|
|
|
(0.32
|
)
|
|
|
(0.37
|
)
|
|
|
(0.35
|
)
|
Net loss attributable to common stockholders per share is calculated independently for each of the quarters presented. Therefore, the sum of the quarterly net loss per share amounts will not necessarily equal the total for the full fiscal year.
(24) Subsequent Events
Gilead Transaction
On December 20, 2018, we and Gilead Sciences, Inc. (“Gilead”) entered into a series of agreements, which became effective on January 23, 2019, to collaborate on the development and commercialization of up to five novel immuno-oncology therapies. Pursuant to the terms of the Transaction Agreements (as defined below), we received an upfront cash payment from Gilead of $120.0 million and Gilead made a $30.0 million equity investment in Agenus. We will also be eligible to receive up to $1.7 billion in aggregate potential milestones.
License Agreement
Pursuant to the terms of a license agreement between the parties (the “License Agreement”), we granted Gilead an exclusive, worldwide license under certain of our intellectual property rights to develop, manufacture and commercialize our preclinical bispecific antibody, AGEN1423, in all fields of use. Pursuant to the terms of the License Agreement, Gilead will be responsible for all of the development, manufacture and commercialization costs for any products that Gilead may develop under the License Agreement. In addition, Gilead will also receive the right of first negotiation for two of our undisclosed, preclinical antibody programs. The License Agreement will continue until all of Gilead’s applicable payment obligations under the License Agreement have been performed or have expired, or the agreement is earlier terminated. Under the terms of the License Agreement, we and Gilead each have the right to terminate the agreement for material breach by, or insolvency of, the other party. Gilead may also terminate the License Agreement in its entirety, or on a product-by-product or country-by-country basis, for convenience upon ninety (90) days’ notice. Pursuant to the terms of the License Agreement, we are eligible to receive potential development and commercial milestones of up to $552.5 million in the aggregate, as well as tiered royalty payments on aggregate net sales ranging from the high single digit to mid-teen percent, subject to certain reductions under certain circumstances as described in the License Agreement.
Option and License Agreements
Pursuant to the terms of two separate option and license agreements between the parties (each, an “Option and License Agreement” and together, the “Option and License Agreements”), we granted Gilead exclusive options to license exclusively (“License Option”) our preclinical bispecific antibody, AGEN1223, and our preclinical monospecific antibody, AGEN2373 (together, the “Option Programs”), during the respective Option Periods (defined below). Pursuant to the terms of the Option and License Agreements, we have agreed to grant Gilead an exclusive, worldwide license under certain of our intellectual property rights to develop, manufacture and commercialize AGEN1223 or AGEN2373, as applicable, in all fields of use upon Gilead’s exercise of the applicable License Option. Gilead is entitled to exercise its License Option for either or both Option Programs at any time up until ninety (90) days following Gilead’s receipt of a data package with respect to the first complete Phase 1b clinical trial for each Option Program (the “Option Period”). During the Option Period, we will be responsible for its costs and expenses related to the development
95
of the Option Programs. After Gilead’s exercise of a License Option, if at all, Gilead would be responsible for all development, manufacture and commercialization activities relating to the relevant Option Program at Gilead’s co
st and expense.
During the Option Period, we are eligible to receive milestones of up to $30.0 million in the aggregate. If Gilead exercises a License Option, it would be required to pay an upfront license exercise fee of $50.0 million for each License Option that is exercised. Following any exercise of a License Option, we would be eligible to receive additional development and commercial milestones of up to $520.0 million in the aggregate for each such Option Program, as well as tiered royalty payments on aggregate net sales ranging from the high single digit to mid-teen percent, subject to certain reductions under certain circumstances as described in each License and Option Agreement. For either, but not both, of the Option Programs, we will have the right to opt-in to share Gilead’s development and commercialization costs in the United State for such Option Program in exchange for a profit (loss) share on a 50:50 basis and revised milestone payments. If we opt-in under one Option and License Agreement, our right to opt-in under the other Option and License Agreement automatically terminates.
Unless earlier terminated, each Option and License Agreement will continue until the earlier of (i) the expiration of the Option Period, without Gilead’s exercise of the License Option; and (ii) the date all of Gilead’s applicable payment obligations under the Option and License Agreement have been performed or have expired. Under the terms of each Option and License Agreement, we and Gilead each have the right to terminate the agreement for material breach by, or insolvency of, the other party. Gilead may also terminate an Option License Agreement in its entirety, or on a product-by-product or country-by-country basis for convenience upon ninety (90) days’ notice.
Stock Purchase Agreement
Pursuant to the terms of a stock purchase agreement between the parties (the “Stock Purchase Agreement”), Gilead purchased 11,111,111 shares of Agenus common stock (the “Shares”) for an aggregate purchase price of $30.0 million, or $2.70 per share. Gilead owned approximately 8.5% of the outstanding shares of Agenus common stock after such purchase. Under the Stock Purchase Agreement, Gilead has agreed (i) not to dispose of any of the Shares for a period of 12 months, (ii) to certain standstill provisions that generally preclude it from acquiring more than 15% of Agenus’ outstanding voting stock after taking into account the purchase of the Shares and (iii) to vote the Shares in accordance with the recommendations of our board of directors in connection with certain equity incentive plan or compensation matters for a period of 12 months. We have agreed to register the Shares for resale under the Securities Act of 1933.
Conversion of a portion of the C-1 preferred shares
In February 2019, holders of shares of Series C-1 Convertible Preferred Stock converted a portion of such shares into 3,000,000 shares of our common stock. As of March 15, 2019, 15,459 shares of Series C-1 Convertible Preferred Stock remained outstanding.
96