Quarterly Report (10-q)

Date : 08/01/2019 @ 9:03PM
Source : Edgar (US Regulatory)
Stock : Iovance Biotherapeutics Inc (IOVA)
Quote : 22.74  0.54 (2.43%) @ 4:59AM
After Hours
Last Trade
Last $ 22.74 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM  10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to .

Commission File Number 001-36860

IOVANCE BIOTHERAPEUTICS, INC.

(Exact name of issuer as specified in its charter)

Delaware

75-3254381

(State or other jurisdiction of

(I.R.S. employer

incorporation or organization)

identification number)

999 Skyway Road, Suite 150 , San Carlos , CA 94070

(Address of principal executive offices and zip code)

( 650 ) 260-7120

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No

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

Large accelerated filer   þ

Accelerated filer

Non-accelerated filer   

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

   

Trading Symbol(s)

   

Name of each exchange on which registered

Common stock, par value $0.000041666 per value

 

IOVA

 

The Nasdaq Stock Market, LLC

At July 25, 2019, the issuer had 123,830,506 shares of common stock, par value $0.000041666 per share, outstanding.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share information)

June 30, 

December 31, 

    

2019

    

2018

(unaudited)

ASSETS

 

  

 

  

 

  

 

  

Current Assets

 

  

 

  

Cash and cash equivalents

$

76,912

$

82,152

Short-term investments

 

327,241

 

386,371

Prepaid expenses and other current assets

 

6,785

 

6,640

Total Current Assets

 

410,938

 

475,163

 

 

Operating lease right-of-use assets

 

11,719

 

Property and equipment, net

 

4,472

 

2,683

Restricted cash

5,450

Long-term assets

 

3,345

 

2,975

Total Assets

$

435,924

$

480,821

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current Liabilities

 

 

Accounts payable

$

12,782

$

2,739

Accrued expenses

 

13,570

 

11,659

Operating lease liabilities

 

7,484

 

Total Current Liabilities

 

33,836

 

14,398

 

 

Non-Current Liabilities

 

 

Operating lease liabilities

 

4,613

 

Other liabilities

 

53

 

230

Total Non-Current Liabilities

 

4,666

 

230

Total Liabilities

 

38,502

 

14,628

 

 

Commitments and contingencies (Note 9)

 

 

 

 

Stockholders’ Equity

 

 

Series A Convertible Preferred Stock, $0.001 par value; 17,000 shares authorized, 194 shares issued and outstanding as of June 30, 2019 and December 31, 2018 (aggregate liquidation value of $194)

 

 

Series B Convertible Preferred Stock, $0.001 par value; 50,000,000 shares authorized; 5,854,845 shares issued and outstanding as of June 30, 2019 and December 31, 2018 (aggregate liquidation value of $27,811)

 

6

 

6

Common stock, $0.000041666 par value; 300,000,000 and 150,000,000 shares authorized, 123,820,508 and 123,415,576 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively

 

5

 

5

Additional paid-in capital

 

854,596

 

838,984

Accumulated other comprehensive income (loss)

 

372

 

(42)

Accumulated deficit

 

(457,557)

 

(372,760)

Total Stockholders’ Equity

 

397,422

 

466,193

Total Liabilities and Stockholders’ Equity

$

435,924

$

480,821

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(unaudited; in thousands, except per share information)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

Revenues

$

$

$

$

 

 

 

 

Costs and expenses

 

 

 

 

Research and development expenses

 

39,298

 

24,551

 

70,203

 

44,463

General and administrative expenses

 

10,867

 

6,827

 

19,948

 

13,792

Total costs and expenses

 

50,165

 

31,378

 

90,151

 

58,255

 

 

 

 

Loss from operations

 

(50,165)

 

(31,378)

 

(90,151)

 

(58,255)

Other income

 

 

 

 

Interest income, net

 

2,614

 

718

 

5,650

 

1,080

Net Loss

$

(47,551)

$

(30,660)

$

(84,501)

$

(57,175)

Net Loss Per Common Share, Basic and Diluted

$

(0.38)

$

(0.34)

$

(0.68)

$

(0.65)

 

 

 

 

Weighted Average Common Shares Outstanding, Basic and Diluted

 

123,567

 

90,236

 

123,491

 

87,310

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited; in thousands)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

Net Loss

$

(47,551)

$

(30,660)

$

(84,501)

$

(57,175)

Other comprehensive loss:

 

 

 

 

Unrealized gain / (loss) on short-term investments

 

234

 

(3)

 

414

 

(3)

Comprehensive Loss

$

(47,317)

$

(30,663)

$

(84,087)

$

(57,178)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited; in thousands, except share information)

Series A Convertible

Series B Convertible

Additional

Accumulated other

Total

Preferred Sock

Preferred Stock

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balance - December 31, 2018

 

194

$

 

5,854,845

$

6

 

123,415,576

$

5

$

838,984

$

(42)

$

(372,760)

$

466,193

Adoption of ASU 2018-07

 

 

296

 

(296)

 

Stock-based compensation expense

 

12,272

 

12,272

Vesting of restricted shares issued for services

 

14,532

 

1

 

(1)

 

Tax payments related to shares withheld for vested restricted stock units

 

(94)

 

(94)

Common stock issued upon exercise of stock options

 

422,900

 

 

3,474

 

3,474

Unrealized gain on short-term investments

 

414

 

414

Cancellation of common shares from settlement of dispute

 

(32,500)

 

(1)

 

(335)

 

(336)

Net loss

 

(84,501)

 

(84,501)

Balance - June 30, 2019

 

194

$

 

5,854,845

$

6

 

123,820,508

$

5

$

854,596

$

372

$

(457,557)

$

397,422

Balance - December 31, 2017

 

1,694

$

 

7,378,241

$

7

 

73,164,914

$

3

$

394,651

$

$

(249,180)

$

145,481

Stock-based compensation expense

 

9,326

 

9,326

Vesting of restricted shares issued for services

 

14,546

 

Tax payments related to shares withheld for vested restricted stock awards

 

(122)

 

(122)

Common stock issued upon exercise of warrants

1,656,510

 

 

4,141

 

4,141

Common stock issued upon exercise of stock options

 

905,153

 

6,828

 

6,828

Common stock sold in public offering, net of offering costs

 

15,000,000

 

 

162,093

 

162,093

Conversion of convertible preferred stock into common stock

(1,500)

(1,250,548)

(1)

 

2,000,549

1

 

 

Unrealized loss on short-term investments

(3)

 

 

(3)

Net loss

(57,175)

(57,175)

Balance - June 30, 2018

 

194

$

 

6,127,692

$

6

 

92,741,672

$

4

$

576,917

$

(3)

$

(306,355)

$

270,569

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited; in thousands, except share information)

Series A Convertible

Series B Convertible

Additional

Accumulated other

Total

Preferred Sock

Preferred Stock

Common Stock

Paid-In

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balance – March 31, 2019

 

194

$

 

5,854,845

$

6

 

123,395,113

$

5

$

844,789

$

138

$

(410,006)

$

434,932

Stock-based compensation expense

 

6,426

 

6,426

Vesting of restricted shares issued for services

 

7,495

 

 

(1)

 

(1)

Tax payments related to shares withheld for vested restricted stock units

 

(23)

 

(23)

Common stock issued upon exercise of stock options

 

417,900

 

 

3,405

 

3,405

Unrealized gain on short-term investments

 

234

 

234

Net loss

 

(47,551)

 

(47,551)

Balance – June 30, 2019

 

194

$

 

5,854,845

$

6

 

123,820,508

$

5

$

854,596

$

372

$

(457,557)

$

397,422

Balance – March 31, 2018

 

1,694

$

 

7,378,241

$

7

 

89,605,417

$

3

$

568,243

$

$

(275,695)

$

292,558

Stock-based compensation expense

 

5,222

 

5,222

Vesting of restricted shares issued for services

 

7,495

Tax payments related to shares withheld for vested restricted stock awards

 

(62)

 

(62)

Common stock issued upon exercise of warrants

 

926,129

 

2,315

 

2,315

Common stock issued upon exercise of stock options

 

202,082

 

 

1,198

 

1,198

Conversion of convertible preferred stock into common stock

 

(1,500)

 

(1,250,549)

 

(1)

 

2,000,549

 

1

 

1

 

1

Unrealized loss on short-term investments

 

(3)

 

(3)

Net loss

 

(30,660)

 

(30,660)

Balance – June 30, 2018

 

194

$

 

6,127,692

$

6

 

92,741,672

$

4

$

576,917

$

(3)

$

(306,355)

$

270,569

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited; in thousands)

Six Months Ended

June 30, 

    

2019

    

2018

Cash Flows from Operating Activities

 

  

 

  

Net loss

$

(84,501)

$

(57,175)

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

 

 

Depreciation and amortization

 

560

 

453

Noncash lease expense

 

3,031

 

Loss on disposal of assets

 

 

9

Gain on settlement of dispute

 

(336)

 

Accretion of discounts on investments

 

(2,430)

 

(1)

Stock-based compensation expense

 

12,272

 

9,326

Changes in assets and liabilities:

 

  

 

  

Prepaid expenses, other assets, and long-term assets

 

(515)

 

1,604

Operating lease liabilities (Right-of-use assets)

 

(2,651)

 

Accounts payable

 

9,951

 

3,686

Accrued expenses and other liabilities

 

1,734

 

326

Net cash used in operating activities

 

(62,885)

 

(41,772)

 

  

 

  

Cash Flows from Investing Activities

 

  

 

  

Maturities of short-term investments

 

263,102

 

Purchase of short-term investments

 

(201,129)

 

(30,084)

Purchase of property and equipment

 

(2,257)

 

(440)

Net cash provided by (used in) investing activities

 

59,716

 

(30,524)

 

  

 

  

Cash Flows from Financing Activities

 

  

 

  

Tax payments related to shares withheld for vested restricted stock awards

 

(95)

 

(122)

Proceeds from the issuance of common stock upon exercise of warrants

 

 

4,141

Proceeds from the issuance of common stock upon exercise of options

 

3,474

 

6,828

Proceeds from the issuance of common stock, net

 

 

162,093

Net cash provided by financing activities

 

3,379

 

172,940

Net increase in cash, cash equivalents, and restricted cash

 

210

 

100,644

Cash, Cash Equivalents, and Restricted Cash Beginning of Period

 

82,152

 

145,373

Cash, Cash Equivalents, and Restricted Cash End of Period

$

82,362

$

246,017

 

  

 

Supplemental disclosure of non-cash investing and financing activities:

 

  

 

Unrealized gain (loss) on short-term investments

$

414

$

(3)

Acquisitions of property and equipment included in accounts payable

 

(92)

 

(278)

Conversion of convertible preferred stock to common stock

 

 

1

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

IOVANCE BIOTHERAPEUTICS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. GENERAL ORGANIZATION AND BUSINESS

Iovance Biotherapeutics, Inc. (the “Company”, “we”, “us” or “our”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient’s own immune system to eradicate cancer cells. Tumor infiltrating lymphocyte (TIL) therapy is a platform technology that has been licensed from National Cancer Institute (NCI) primarily based on data in metastatic melanoma and advanced cervical cancer. The Company has developed its own proprietary and scalable manufacturing method which is being further investigated in multiple indications. The Company’s lead product candidates include, lifileucel for metastatic melanoma, and LN-145 for advanced cervical cancer. Both product candidates are autologous adoptive cell therapy utilizing TIL, which are T cells derived from patients’ tumors. In addition to metastatic melanoma and advanced cervical cancer, the Company is investigating the effectiveness and safety of TIL therapy for the treatment of squamous cell carcinoma of the head and neck and metastatic non-small cell lung cancer through company sponsored trials, as well as other oncology indications through collaborations. The Company is currently conducting the pivotal cohort of its C-144-01 clinical trial of lifileucel in patients with metastatic melanoma. The Company is also conducting a pivotal trial of LN-145, C-145-04, in patients with advanced cervical cancer. On June 1, 2017, the Company reincorporated to become a company governed by Delaware corporation laws.

Basis of Presentation of Unaudited Condensed Consolidated Financial Information

The unaudited condensed consolidated financial statements of the Company for the three and six months ended June 30, 2019 and 2018 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2018 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2019. These financial statements should be read in conjunction with that report.

Liquidity

The Company is currently engaged in the development of therapeutics to treat cancer, specifically solid tumors. The Company currently does not have any commercial products and has not yet generated any revenues from its business. The Company currently does not anticipate that it will generate any revenues from the sale or licensing of any of its product candidates during the 12 months from the date these financial statements are issued. The Company has incurred a net loss of $84.5 million for the six months ended June 30, 2019 and used $62.9 million of cash in its operating activities during the six months ended June 30, 2019. In January 2018, the Company closed an underwritten public offering of 15,000,000 shares of the Company’s common stock at a public offering price of $11.50 per share, before underwriting discounts. The net proceeds from the offering, after deducting the underwriting discounts and commissions and other offering expenses payable by the Company, were $162.0 million. In October 2018, the Company completed an underwritten public offering of 25,300,000 shares of the Company’s common stock at a public offering price of $9.97 per share, before underwriting discounts. The net proceeds from the offering, after deducting the underwriting discounts and commissions and other offering expenses payable by the Company, were $236.7 million. As of June 30, 2019, the Company had $404.1 in cash, cash equivalents and short-term investments ($76.9 million of cash and cash equivalents and $327.2 million in short-term investments).

The Company expects to further increase its research and development activities, which will increase the amount of cash used during 2019 and beyond. Specifically, the Company expects continued spending on its current and planned clinical trials, continued expansion of manufacturing activities, including construction of a manufacturing facility, higher payroll expenses as the Company increases its professional and scientific staff, increased research and development activities and initiation of pre-commercial activities. However, the extent and the timing of these expenditures are under the control of the Company. Based on the funds the Company has available as of the date these financial statements are

9

issued, the Company believes that it has sufficient capital to fund its anticipated operating expenses for at least next twelve months from the date these financial statements are issued

Concentrations of Risk

The Company is subject to credit risk from our portfolio of cash equivalents and short-term investments. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. The Company does not believe it is exposed to any significant concentrations of credit risk from these financial instruments. The goals of its investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash, Cash Equivalents, Restricted Cash, and Short-term Investments

The Company’s cash and cash equivalents include short-term investments with original maturities of three months or less when purchased. The Company's short-term investments are classified as “available-for-sale”. The Company includes these investments in current assets and carries them at fair value. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive loss. The cost of debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in net interest income in the consolidated statements operations. Gains and losses on securities sold are recorded based on the specific identification method and are included in net interest income in the consolidated statement of operations. The Company has not incurred any realized gains or losses from sales of securities to date. The Company’s investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer.

The Company maintains a certain minimum balance, currently $5.5 million in a segregated bank account in connection with a letter of credit for the benefit of the landlord for its commercial manufacturing facility used as a security deposit for the lease (See Note 9 - Leases). This amount is classified as Restricted Cash on the Balance Sheet. The letter of credit will expire on May 28, 2020, however, it will be automatically extended, without written agreement, for one-year periods to May 28 in each succeeding calendar year, through at least 60 days after the lease expiration rate. Further, on the expiration of the seventh year of the lease, and each anniversary date thereafter, the letter of credit may be decreased by $1,000,000, with a minimum security deposit of $1,450,000 maintained through the end of the lease term. As of June 30, 2019, restricted cash consisted of $5.5 million and this amount has been classified as non-current asset on the Company’s consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash, reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows:

    

June 30,

    

June 30,

2019

2018

Cash

$

76,912

$

246,017

Restricted cash (included in non-current assets on the consolidated balance sheets)

 

5,450

 

Total cash, cash equivalents and restricted cash

$

82,362

$

246,017

Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.

Diluted net loss per share is computed by dividing the net loss by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company’s potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants (ii) vesting of restricted stock units and restricted stock

10

awards, and (iii) conversion of preferred stock, are only included in the calculation of diluted net loss per share when their effect is dilutive.

At June 30, 2019 and 2018, the following outstanding common stock equivalents have been excluded from the calculation of net loss per share because their impact would be anti-dilutive.

June 30, 

    

2019

    

2018

Stock options

 

9,205,672

 

6,837,817

Warrants

 

 

4,644,706

Series A Convertible Preferred Stock*

 

97,000

 

97,000

Series B Convertible Preferred Stock*

 

5,854,845

 

6,127,692

Restricted stock units

 

45,828

 

91,665

 

15,203,345

 

17,798,880

* on an as-converted basis

The dilutive effect of potentially dilutive securities would be reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company's common stock could result in a greater dilutive effect from potentially dilutive securities.

Fair Value Measurements

Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, fair value is defined as the price at which an asset could be exchanged, or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.

Assets and liabilities recorded at fair value in the Company’s financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2—Are inputs, other than quoted prices included in Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the reporting date and for the duration of the instrument’s anticipated life.

The fair valued assets the Company holds that are generally assessed under Level 2 are corporate bonds and commercial paper. The Company utilizes third party pricing services in developing fair value measurements where fair value is based on valuation methodologies such as models using observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. The Company uses quotes from external pricing service providers and other on-line quotation systems to verify the fair value of investments provided by its third-party pricing service providers. The Company reviews independent service auditor’s reports from its third-party pricing service providers particularly regarding the controls over pricing and valuation of financial instruments and ensure that its internal controls address certain control deficiencies, if any, and complementary user entity controls are in place.

The Company does not have fair valued assets classified under Level 2 as of June 30, 2019 and December 31, 2018.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the reporting date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

11

The Company’s financial instruments consist of cash and cash equivalents, short-term investments, and accounts payable, all of which are reported at their respective fair value on its consolidated balance sheets.

The Company does not have fair valued assets classified under Level 3 as of June 30, 2019 and December 31, 2018.

As of June 30, 2019 and December 31, 2018, financial assets measured at fair value on a recurring basis are categorized in the table below based upon the lowest level of significant input to the valuations (in thousands):

Assets at Fair Value as of June 30, 2019

    

Level 1

    

Level 2

    

Level 3

    

Total

U.S. treasury securities

$

187,695

$

$

$

187,695

U.S. government agency securities

 

139,546

 

 

 

139,546

Total

$

327,241

$

$

$

327,241

Assets at Fair Value as of December 31, 2018

    

Level 1

    

Level 2

    

Level 3

    

Total

U.S. treasury securities

$

265,393

$

$

$

265,393

U.S. government agency securities

 

120,978

 

 

 

120,978

Total

$

386,371

$

$

$

386,371

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include valuation of short-term investments, accounting for potential liabilities, the valuation allowance associated with the Company’s deferred tax assets, the assumptions made in valuing stock instruments issued for services and used in measuring operating lease right-of-use assets and operating lease liabilities.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Iovance Biotherapeutics, Inc. and its wholly-owned subsidiary, Iovance Biotherapeutics GmbH. All intercompany accounts and transactions have been eliminated. The U.S. dollar is the functional currency for all the Company's consolidated operations.

Leases

The Company determines if an arrangement includes a lease at inception. Operating leases are included in its condensed consolidated balance sheet as Operating lease right-of-use assets and Operating lease liabilities as of June 30, 2019. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses an estimated incremental borrowing rate that is applicable to the Company based on the information available at later of the lease commencement date or the date of adoption of Accounting Standard Update (ASU) No. 2016-02 and ASU No. 2018-10, Leases (together “Topic 842”). The operating lease right-of-use assets also include any lease payments made less lease incentives. The Company’s leases may include options to extend or terminate the lease, which is considered in the lease term when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has elected not to apply the recognition requirements of Topic 842 for short-term leases.

For lease agreements entered into after the adoption of Topic 842 that include lease and non-lease components, such components are generally accounted for separately.

12

Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance, Topic 840. See “Recently Adopted Accounting Pronouncements - Leases” below, for more information about the impact of the adoption on Topic 842.

Stock-Based Compensation

The Company periodically grants stock options to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option grants to employees based on the authoritative guidance provided by the FASB where the value of the award is measured on the date of grant and recognized over the vesting period. Upon the adoption of ASU No. 2018-07, Compensation-Stock Compensation (“Topic 718”), the Company accounts for stock option grants to non-employees in the similar manner as stock option grants to employees, therefore no longer requiring a remeasurement at the then-current fair values at each reporting date until the share options have vested. The nonemployee awards that contain a performance condition that affects the quantity or other terms of the award are measured based on the outcome that is probable.

The fair value of the Company's common stock option grants is estimated using a Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. For non-employee stock option awards, an option term is used in the Black-Scholes option pricing model in lieu of expected life of the common stock options. The stock-based compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.

The Company has in the past issued restricted stock units (RSU) and restricted stock awards (RSA) as part of its share-based compensation programs. The Company measures the compensation cost with respect to RSU and RSA issued to employees based upon the estimated fair value of the equity instruments at the date of the grant, which is recognized as an expense over the period during which an employee is required to provide services in exchange for the award.

The fair value of restricted stock units is based on the closing price of the Company’s common stock on the grant date.

Total stock-based compensation expense related to all of the Company’s stock-based awards was recorded on the statements of operations as follows (in thousands):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

Research and development

$

2,720

$

2,381

$

5,421

$

4,381

General and administrative

 

3,706

 

2,841

 

6,851

 

4,945

Total stock-based compensation expenses

$

6,426

$

5,222

$

12,272

$

9,326

Total stock-based compensation expenses broken down based on each individual instrument were as follows (in thousands):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

Stock option expenses

$

6,359

$

5,155

$

12,138

$

9,192

Restricted stock award expenses

 

 

 

 

Restricted stock unit expenses

 

67

 

67

 

134

 

134

Total stock-based compensation expenses

$

6,426

$

5,222

$

12,272

$

9,326

Preferred Stock

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the

13

occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity.

Convertible Instruments

The Company applies the accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

The Company also records, when necessary, deemed dividends for the intrinsic value of the conversion options embedded in preferred stock based upon the difference between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred stock.

Recent Accounting Pronouncements

Leases

On January 1, 2019, the Company adopted Topic 842, which establishes a new lease accounting method for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The Company elected the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or initial direct costs for any existing leases. The standard had a material impact on its consolidated balance sheets by recognizing Operating lease right-of-use assets and Operating lease liabilities for operating leases but did not have an impact on our consolidated statement of operations or cash flows. The adoption of the Topic 842 resulted in recognition of Operating lease right-of-use assets of $10.4 million, $4.9 million of Operating lease liabilities – current, and $5.8 million of Operating lease liabilities – noncurrent as of January 1, 2019, the date of adoption.

Improvements to Nonemployee Share-Based Payment Accounting

On January 1, 2019, the Company adopted Topic 718, which eliminates the separate accounting method for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same manner as share-based payment transactions with employees. Under the new guidance, nonemployee share-based payment transactions are measured at the grant-date fair value and are no longer remeasured at the then-current fair values at each reporting date until the share options have vested. The guidance requires a modified-retrospective approach in transition. The Company compared the cumulative amounts that were recorded for its nonemployee share-based payments through December 31, 2018 immediately preceding the date of adoption to the cumulative amounts that should be recognized at the adoption date and recognized a cumulative effect of the transition adjustment of $0.3 million to retained earnings as of the date of adoption, January 1, 2019.

Presentation of Stockholders’ Equity

In August 2018, the Security Exchange Commission (SEC) adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The

14

Company has included its presentation of changes in stockholders’ equity in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2019 and 2018.

Fair Value Measurements Disclosure

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, which eliminates disclosure requirement regarding transfers between level 1 and level 2 of the fair value of hierarchy, however, adds disclosure requirements on the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements. The Company adopted the guidance on January 1, 2019, however, there was no adjustment required to its disclosures as it did not have fair value assets classified under level 2 or 3 as of June 30, 2019 and December 31, 2018.

Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, and also issued subsequent amendments to the initial guidance, ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, Topic 326), to introduce a new impairment model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (CECL). Under Topic 326, an entity is required to estimate CECL on available-for-sale (AFS) debt securities only when the fair value is below the amortized cost of the asset and is no longer based on an impairment being “other-than-temporary”. Topic 326 also requires the impairment calculation on an individual security level and requires an entity use present value of cash flows when estimating the CECL. The credit-related losses are required to be recognized through earnings and non-credit related losses are reported in other comprehensive income. In April 2019, the FASB further clarified the scope of Topic 326 and addressed issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayment. Topic 326 will be effective for public entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The new guidance will require modified retrospective application to all outstanding instruments, with a cumulative effect adjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. The Company does not believe the adoption of this new guidance will have any material impact on its consolidated financial statements.

Cloud Computing Arrangements

In August 2018, the FASB issued ASU 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), to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The guidance provided generally means that an intangible asset is recognized for the software license and, to the extent that the payments attributable to the software license are made over time, a liability also is recognized. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. This generally means that the fees associated with the hosting element (service) of the arrangement are expensed as incurred. ASU 2018-15 is effective for fiscal years beginning subsequent to December 15, 2019. The Company is currently assessing the potential impact of adopting ASU 2018-15 on its consolidated financial statements and related disclosures.

Reclassifications

Certain amounts within the balance sheets for the prior period have been reclassified to conform with the current period presentation. These reclassifications had no impact on the Company's previously reported financial position or cash flows for any of the periods presented.

15

NOTE 3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash equivalents and short-term investments consist of the following (in thousands):

    

June 30, 

    

December 31, 

2019

2018

Cash equivalents - Money market funds

$

33,250

$

25,968

Cash equivalents - U.S government securities

9,979

Cash equivalents total

$

43,229

$

25,968

Cash equivalents in the tables above exclude cash demand deposits of $33.7 million and $56.2 million as of June 30, 2019 and December 31, 2018, respectively.

    

June 30, 

    

December 31, 

Short-term Investments

2019

2018

U.S. treasury securities

$

187,695

$

265,393

U.S. government agency securities

 

139,546

 

120,978

Short-term investments total

$

327,241

$

386,371

The cost and fair value of cash equivalents and short-term investments at June 30, 2019 and December 31, 2018 were as follows (in thousands):

Gross

Gross

Unrealized

Unrealized

As of June 30, 2019

    

Cost

    

Accretion

    

Gains

    

Losses

    

Fair Value

U.S. treasury securities

$

186,540

$

923

$

232

$

$

187,695

U.S. government agency securities

 

138,499

 

907

 

140

 

139,546

Total

$

325,039

$

1,830

$

372

$

$

327,241

Gross

Gross

Unrealized

Unrealized

As of December 31, 2018

    

Cost

    

Accretion

    

Gains

    

Losses

    

Fair Value

U.S. treasury securities

$

264,619

$

813

$

19

$

(58)

$

265,393

U.S. government agency securities

 

120,653

 

328

 

21

 

(24)

 

120,978

Total

$

385,272

$

1,141

$

40

$

(82)

$

386,371

Unrealized gains and losses are included in accumulated other comprehensive loss. All short-term investments held by the Company as of June 30, 2019 and December 31, 2018 have a maturity of less than one year.

NOTE 4. BALANCE SHEET COMPONENTS

Accrued expenses consist of the following (in thousands):

June 30, 

December 31, 

    

2019

    

2018

Accrued payroll and employee related expenses

$

3,944

$

4,113

Legal and related services

 

790

 

825

Clinical related

 

4,446

 

3,424

Manufacturing related

 

3,410

 

2,684

Accrued other

 

980

 

489

Deferred rent - current

 

 

124

$

13,570

$

11,659

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NOTE 5. STOCKHOLDERS’ EQUITY

Public Offerings and Common Stock

In September 2017, the Company closed an underwritten public offering of 8,846,154 shares of the Company’s common stock at a public offering price of $6.50 per share, before underwriting discounts, which included 1,153,846 shares issued upon the exercise in full by the underwriters of their option to purchase additional shares at the public offering price less the underwriting discounts. The gross proceeds from the offering, before deducting the underwriting discounts and commissions and other offering expenses payable by the Company, were $57.5 million, with net proceeds to the Company of $53.7 million.

In January 2018, the Company closed an underwritten public offering of 15,000,000 shares of the Company’s common stock at a public offering price of $11.50 per share, before underwriting discounts, which included 1,956,521 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount. The gross proceeds from the offering, before deducting the underwriting discounts and commissions and other offering expenses payable by the Company, were $172.5 million, with net proceeds to the Company of $162.0 million.

On October 17, 2018, the Company completed an underwritten public offering of 25,300,000 shares of the Company’s common stock at a public offering price of $9.97 per share, before underwriting discounts, which included 3,300,000 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount. The gross proceeds from the offering, before deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company, were $252.2 million, with net proceeds to the Company of $236.7 million.

On June 10, 2019, the certificate of incorporation of the Company was amended to increase the number of authorized shares of the Company’s common stock, par value $0.000041666, from 150,000,000 shares to 300,000,000 shares (the “Certificate of Amendment”). The Certificate of Amendment was approved by the Company’s stockholders at the Company’s 2019 Annual Meeting of Stockholders held on June 10, 2019.

Preferred Stock

The Company’s certificate of incorporation authorizes the issuance of up to 50,000,000 shares of “blank check” preferred stock. At June 30, 2019, 17,000 shares were designated as Series A Convertible Preferred Stock (“Series A Convertible Preferred Stock”) and 11,500,000 shares were designated as Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”).

Series A Convertible Preferred Stock

A total of 17,000 shares of Series A Convertible Preferred Stock have been authorized for issuance under the Company’s Certificate of Designation of Preferences and Rights of Series A Convertible Preferred Stock. The shares of Series A Convertible Preferred Stock have a stated value of $1,000 per share and are initially convertible into shares of common stock at a price of $2.00 per share, subject to adjustment.

The Series A Convertible Preferred Stock may, at the option of each investor, be converted into fully paid and non-assessable shares of common stock. The holders of shares of Series A Convertible Preferred Stock do not have the right to vote on matters that come before the Company’s stockholders. In the event of any dissolution or winding up of the Company, proceeds shall be paid pari passu among the holders of common stock and preferred stock, pro rata based on the number of shares held by each holder. The Company may not declare, pay or set aside any dividends on shares of capital stock of the Company (other than dividends on shares of common stock payable in shares of common stock) unless the holders of the Series A Convertible Preferred Stock shall first receive an equal dividend on each outstanding share of Series A Convertible Preferred Stock. The common shares issued were determined on a formula basis of 500 common shares for each share of Series A Convertible Preferred Stock converted.

No Shares of Series A Convertible Preferred Stock were converted during the six months ended June 30, 2019. 1,500 shares of Series A Convertible Preferred Stock were converted into 750,000 shares of common stock during the six months ended June 30, 2018. At June 30, 2019 and 2018, 194 shares of Series A Convertible Preferred Stock (that are convertible into 97,000 shares of common stock) remained outstanding.

17

Series B Convertible Preferred Stock

A total of 11,500,000 shares of Series B Convertible Preferred Stock are authorized for issuance under the Company’s Series B Certificate of Designation of Rights, Preferences and Privileges of Series B Convertible Preferred Stock. The shares of Series B Convertible Preferred Stock have a stated value of $4.75 per share and are convertible into shares of the Company’s common stock at an initial conversion price of $4.75 per share.

Holders of Series B Convertible Preferred Stock are entitled to dividends on an as-if-converted basis in the same form as any dividends actually paid on shares of the Series A Convertible Preferred Stock or the Company’s common stock. So long as any Series B Convertible Preferred Stock remains outstanding, the Company may not redeem, purchase or otherwise acquire any material amount of the Series A Convertible Preferred Stock or any securities junior to the Series B Convertible Preferred Stock.

No shares of Series B Convertible Preferred Stock were converted during the six months ended June 30, 2019. 1,250,549 shares of Series B Convertible Preferred Stock were converted into 1,250,549 shares of common stock during the six months ended June 30, 2018. At June 30, 2019 and 2018, 5,854,845 and 6,127,692 shares of Series B Preferred Stock (that are convertible into 5,854,845 and 6,127,692 shares of common stock) remained outstanding, respectively.

Cancellation of Common Shares

On September 30, 2013, the Company and a third party entered into an agreement under which the Company issued 50,000 shares of unregistered stock in the Company to the third party. On January 16, 2019, the two parties entered into a confidential settlement agreement in connection with a dispute related to their prior relationship and activities. As part of the settlement, the third party returned 32,500 shares of common stock to the Company for cancellation and retained the remaining 17,500 shares. The Company included a gain of $335,000 on cancellation of 32,500 shares in Other income in its condensed consolidated statement of operations.

NOTE 6. STOCK BASED COMPENSATION

Stock Plans

On October 14, 2011, the Company adopted the 2011 Equity Incentive Plan (the “2011 Plan”). Employees, directors, consultants and advisors of the Company are eligible to participate in the 2011 Plan. The 2011 Plan initially had 180,000 shares of common stock reserved for issuance in the form of incentive stock options, non-qualified options, common stock, and grant appreciation rights. The 2011 Plan was not approved by the Company’s stockholders within the required one-year period following its adoption and, accordingly, no incentive stock options can be granted under the 2011 plan, but non-qualified options, common stock and grant appreciation rights can still be granted. In August 2013, the Company’s Board of Directors and a majority of the Company’s stockholders approved an amendment to increase the number of shares available under the 2011 Plan from 180,000 shares to 1,700,000 shares, and an amendment to increase the number of options or other awards that can be granted to any one person during a twelve (12) month period from 50,000 shares to 300,000 shares. The foregoing amendment to the 2011 Plan became effective in September 2013. On August 20, 2014, the Company’s Board of Directors amended the 2011 Plan to increase the number of shares available for issuance upon the exercise of stock options under the 2011 Plan from 1,700,000 to 1,900,000 shares, effective immediately. As of June 30, 2019, 151,240 shares were available for future grant under the 2011 Plan.

On September 19, 2014, the Company’s Board of Directors adopted the Iovance Biotherapeutics, Inc. 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the Company’s stockholders at the Company’s 2014 Annual Meeting of Stockholders held in November 2014. The 2014 Plan, as approved by the stockholders, authorized the issuance up to an aggregate of 2,350,000 shares of the Company’s common stock. On April 10, 2015, the Board of Directors amended the 2014 Plan to increase the total number of shares that can be issued under the 2014 Plan to 4,000,000 shares of the Company’s common stock. The increase in shares available for issuance under the 2014 Plan was approved by the Company’s stockholders at the Company’s 2015 Annual Meeting of Stockholders in June 2015.

On August 16, 2016, the Company’s stockholders approved an increase in the total number of shares that can be issued under the 2014 Plan to 9,000,000 shares of the Company’s common stock. As of June 30, 2019, 36,024 shares were available for grant under the Company’s 2014 Plan.

On April 22, 2018, the Board of Directors adopted the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan was approved by the Company’s stockholders at the Annual Meeting of Stockholders

18

held in June 2018. The 2018 Plan as approved by the stockholders authorized the issuance up to an aggregate of 6,000,000 shares of common stock reserved for issuance in the form of incentive (qualified) stock options, non-qualified options, common stock, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, other cash-based awards or any combination of the foregoing. As of June 30, 2019, 4,029,500 shares were available for grant under the 2018 Plan.

Restricted Stock Units

On June 1, 2016, the Company entered into a restricted stock unit agreement with the Company’s new Chief Executive Officer, Maria Fardis, Ph.D., pursuant to which the Company granted Dr. Fardis 550,000 non-transferrable restricted stock units at fair market value of $5.87 per share as an inducement for employment pursuant to Nasdaq Listing Rule 5635(c)(4). The 550,000 restricted stock units vest in installments as follows: (i) 137,500 restricted stock units vested upon the first anniversary of the effective date of Dr. Fardis’ employment agreement; (ii) 275,000 restricted stock units vest upon the satisfaction of certain clinical trial milestones; and (iii) 137,500 restricted stock units vest in equal monthly installments over the 36 -month period following the first anniversary of the effective date of Dr. Fardis’ employment, provided that Dr. Fardis has been continuously employed with the Company as of such vesting dates. As of June 30, 2019, 45,828 restricted stock units remained unvested.

Stock-based compensation expense for restricted stock units are measured based on the closing fair market value of the Company’s common stock on the date of grant. The stock-based compensation expenses relating to restricted stock units were $0.1 million and $0.1 million for the three months ended June 30, 2019 and 2018, respectively, and $0.1 million and $0.1 million for the six months ended June 30, 2019 and 2018, respectively, recorded as part of general and administrative expenses.

As of June 30, 2019, $0.3 million of total unrecognized compensation costs related to non-vested restricted stock units to be recognized over a weighted average period of  0.92 years.

Stock Options

A summary of the status of stock options at June 30, 2019, and the changes during the six months then ended, is presented in the following table:

    

    

    

Weighted

    

Weighted

    

Aggregate

Number

Average

Average

Intrinsic

of

Exercise

Remaining

Value (in

Options

Price

Contract Life

thousands)

Outstanding at January 1, 2019

 

6,889,287

$

10.25

 

 

Granted

 

3,066,300

 

12.09

 

 

Exercised

 

(422,900)

 

8.22

 

 

Expired/Forfeited

 

(327,015)

 

12.01

 

 

Outstanding at June 30, 2019

 

9,205,672

$

10.89

 

8.31

126,117

 

 

 

 

Options exercisable at June 30, 2019

 

3,965,687

$

9.25

 

7.33

$

61,231

The Company recorded stock-based compensation expenses related to options of $6.4 million and $5.2 million for the three months ended June 30, 2019 and 2018, respectively, and $12.1 million and $9.2 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, there was $43.8 million of total unrecognized compensation expense related to the options to be recognized over a weighted average period of  2.09 years.

The weighted average grant date fair value for employee options granted under the Company’s stock option plans during the six months ended June 30, 2019 and 2018 was $7.98 and $15.26 per option respectively.

The aggregate intrinsic value in the table above reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the quarter ended June 30, 2019 and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on June 30, 2019. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s common stock.

19

The following table summarizes the assumptions relating to options granted pursuant to the Company’s equity incentive plans for the six months ended June 30, 2019 and 2018:

Six Months Ended June 30, 

Assumptions:

    

2019

    

2018

Expected term (years)

 

6.06

 

5.13 – 6.50

Expected volatility

 

70.78%

167.54% – 200.28%

Risk-free interest rate

 

2.59%

2.27% – 2.97%

Expected dividend yield

 

0%

0%

Expected Dividend Yield —The Company has never paid dividends and does not expect to pay dividends in the foreseeable future.

Risk-Free Interest Rate —The risk-free interest rate was based on the market yield currently available on United States Treasury securities with maturities approximately equal to the option’s expected term.

Expected Term —The expected term of the stock option grants was calculated based on historical exercises, cancellations, and forfeitures of stock options and outstanding option shares.

Expected Volatility —The expected volatility is based on the historical volatility for the Company’s stock over a period equal to the expected terms of the options.

Forfeiture Rate —The Company recognizes forfeitures as they occur.

Each of the inputs discussed above is subjective and generally requires significant management judgment.

NOTE 7. LICENSES AND AGREEMENTS

National Institutes of Health (“NIH”) and the National Cancer Institute (“NCI”)

Cooperative Research and Development Agreement (“CRADA”)

In August 2011, the Company signed a five-year CRADA with the NCI to work with Dr. Steven Rosenberg on developing adoptive cell immunotherapies that are designed to destroy metastatic melanoma cells using a patient’s tumor infiltrating lymphocytes.

In January 2015, the Company executed an amendment to the CRADA to include four new indications. As amended, in addition to metastatic melanoma, the CRADA included the development of TIL therapy for the treatment of patients with bladder, lung, triple-negative breast, and Human Papilloma Virus (“HPV”)-associated cancers.

In August 2016, the NCI and the Company entered into a second amendment to the CRADA. The principal changes effected by the second amendment included (i) extending the term of the CRADA by another five years to August 2021, and (ii) modifying the focus on the development of unmodified TIL as a stand-alone therapy or in combination with FDA licensed products and commercially available reagents routinely used for adoptive cell therapy. The parties will continue the development of improved methods for the generation and selection of TIL with anti-tumor reactivity in metastatic melanoma, bladder, lung, breast, and HPV-associated cancers.

Pursuant to the terms of the CRADA, the Company is currently required to make quarterly payments of $0.5 million to the NCI for support of research activities. To the extent the Company licenses patent rights relating to a TIL-based product candidate, the Company will be responsible for all patent-related expenses and fees, past and future, relating to the TIL-based product candidate. In addition, the Company may be required to supply certain test articles, including TIL, grown and processed under cGMP conditions, suitable for use in clinical trials, where the Company holds the investigational new drug application for such clinical trial. The extended CRADA has a five-year term expiring in August 2021. The Company or the NCI may unilaterally terminate the CRADA for any reason or for no reason at any time by providing written notice at least 60 days before the desired termination date. The Company recorded costs associated with the CRADA of $0.5 million for the three months ended June 30, 2019 and 2018, and $1.0 million for the six months ended June 30, 2019 and 2018 as research and development expenses.

20

Patent License Agreement Related to the Development and Manufacture of TIL

Effective October 5, 2011, the Company entered into an Exclusive Patent License Agreement (the “Patent License Agreement”) with the NIH, an agency of the United States Public Health Service within the Department of Health and Human Services, which was subsequently amended on February 9, 2015 and October 2, 2015. Pursuant to the Patent License Agreement, as amended, the NIH granted the Company licenses, including exclusive, co-exclusive, and non-exclusive licenses, to certain technologies relating to autologous tumor infiltrating lymphocyte adoptive cell therapy products for the treatment of metastatic melanoma, lung, breast, bladder and HPV-positive cancers. The Patent License Agreement requires the Company to pay royalties based on a percentage of net sales (which percentage is in the mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark royalty payments on the achievement of certain clinical and regulatory milestones for each of the various indications and other direct costs incurred by the NIH pursuant to the agreement.

Exclusive Patent License Agreement Related to TIL Selection

On February 10, 2015, the Company entered into an exclusive patent license agreement (the “Exclusive Patent License Agreement”) with the NIH under which the Company received an exclusive license to the NIH’s rights to patent-pending technologies related to methods for improving adoptive cell therapy through more potent and efficient production of TIL from melanoma tumors by selecting for T-cell populations that express various inhibitory receptors. Unless terminated sooner, the license shall remain in effect until the last licensed patent right expires.

Under the Exclusive Patent License Agreement, the Company agreed to pay customary royalties based on a percentage of net sales of a licensed product (which percentage is in the mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark payments upon the successful completion of clinical studies involving licensed technologies, the receipt of the first FDA approval or foreign equivalent for a licensed product or process resulting from the licensed technologies, the first commercial sale of a licensed product or process in the United States, and the first commercial sale of a licensed product or process in any foreign country.