Notes to Unaudited, Condensed Consolidated Financial Statements
1.
Organization
OvaScience, Inc., incorporated on April 5, 2011 as a Delaware corporation, is a global fertility company developing proprietary potential treatments for female fertility based on scientific discoveries about the existence of egg precursor, or EggPC
SM
, cells. As used in these condensed consolidated financial statements, the terms “OvaScience,” “the Company,” “we,” “us,” and “our” refer to the business of OvaScience, Inc. and its wholly owned subsidiaries. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying potential fertility treatments, developing the AUGMENT
SM
treatment, preparing for the launch of the AUGMENT treatment in select international
in vitro
fertilization ("IVF") clinics, researching and developing the OvaTure
SM
treatment and the OvaPrime
SM
treatment, and determining the regulatory and development path for our fertility treatments. We have generated limited revenues to date, and do not anticipate significant revenues in the near term. On June 21, 2017, we announced that we continue to be focused on advancing OvaTure
SM
in preclinical development and OvaPrime
SM
in clinical development, will discontinue ongoing efforts related to the AUGMENT
SM
treatment outside of North America, and will restructure our organization to better align with these strategic priorities, including reducing our workforce by approximately 50%.
We are subject to a number of risks similar to other life science companies, including, but not limited to, the need to obtain adequate additional funding, possible failure to provide our treatments to IVF clinics to gain clinical experience in select countries outside of the United States, the need to obtain marketing approval for certain of our fertility treatments, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of our fertility treatments and protection of proprietary technology. If we do not successfully commercialize any of our fertility treatments, we will be unable to generate treatment revenue or achieve profitability. As of
June 30, 2017
, we had an accumulated deficit of approximately
$283.6 million
.
Liquidity
We have incurred annual net operating losses in each year since our inception. We have generated limited treatment revenues related to our primary business purpose and have financed our operations primarily through public sales of our common stock and private placements of our preferred stock, which was subsequently converted to common stock.
We have devoted substantially all of our financial resources and efforts to the research and development of our OvaTure and OvaPrime fertility treatments and the introduction of the AUGMENT treatment in select international IVF clinics. We expect to continue to incur significant expenses related to the research and development of OvaTure and OvaPrime and incur operating losses for at least the next several years.
We expect that our existing cash, cash equivalents and short-term investments of
$86.6 million
at
June 30, 2017
, will be sufficient to fund our current operating plan for at least the next 12 months from the date of filing this Form 10-Q. There can be no assurances, however, that the current operating plan will be achieved or that additional funding, if needed, will be available on terms acceptable to us, or at all.
2.
Basis of presentation and significant accounting policies
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared by OvaScience in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These condensed consolidated financial statements include the accounts of OvaScience and the accounts of our wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation. Certain reclassifications have been made to previously reported amounts to conform to the current presentation.
Certain information and footnote disclosures normally included in our annual financial statements have been omitted. In the opinion of management, the unaudited interim financial statements reflect all adjustments, which with the exception of restructuring accruals described in Note 9, consisted of normal and recurring adjustments, necessary for the fair presentation of our financial position at
June 30, 2017
, results of our operations for the three and six months ended June 30, 2017 and 2016 and our cash flows for the six months ended
June 30, 2017
and
2016
.
The results for the three and six months ended June 30, 2017 are not necessarily indicative of future results. These condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2016, which are contained in our Annual Report on Form 10-K for the year ended December 31, 2016
(“2016 Annual Report on Form 10-K”) that was filed with the Securities and Exchange Commission (“SEC”) on March 2, 2017.
Use of estimates and summary of significant accounting policies
These condensed consolidated financial statements are presented in conformity with GAAP, which requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Our significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in our 2016 Annual Report on Form 10-K.
In the first quarter of 2017, we adopted Accounting Standard Update (ASU) ASU 2016-09 Compensation - Stock Based Compensation and have changed our accounting policy regarding the accounting for forfeitures and have elected to account for forfeitures as they occur. We adopted ASU 2016-09, using a modified retrospective approach and recorded a cumulative catch-up to retained earnings of approximately
$0.3 million
.
Net loss per share
Basic and diluted net loss per common share is calculated by dividing net loss by the weighted average number of shares outstanding during the relevant period. Potentially dilutive shares, including outstanding stock options and unvested restricted stock units, are only included in the calculation of diluted net loss per share when their effect is dilutive.
The amounts in the table below were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect (in thousands):
|
|
|
|
|
|
|
|
As of June 30,
|
|
2017
|
|
2016
|
Outstanding stock options and restricted stock units
|
7,469
|
|
|
5,598
|
|
Recent accounting pronouncements
In May 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) - Scope of Modification Accounting. ASU 2017-09 clarifies the term modification and provides guidance on when to apply modification accounting, specifically when changes to the terms or conditions of a share-based payment occur. Entities should account for the effects of a modification unless all of the following conditions are met: (1) there is no change in the fair value of the award, (2) there is no change in the vesting conditions, and (3) there is no change in classification of the award as liability or equity. This update is for entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and requires prospective application. Early adoption is permitted for public entities for reporting periods for which financial statements have not yet been issued. We early adopted ASU 2017-09 for the period ending June 30, 2017 and the adoption of ASU 2017-09 did not have a material impact on our financial statements and the footnotes thereto.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years using a retrospective transition method to each period presented. Early adoption is permitted. We do not believe the adoption of ASU 2016-18 will have a material impact on our consolidated financial statements and footnote disclosures thereto.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 requires changes in the presentation of debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. This update is effective for annual and interim periods beginning after December 15, 2017 using a retrospective transition method to each period presented. Early adoption is permitted. We do not believe the adoption of ASU 2016-15 will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for both operating and financing leases with lease terms of more than 12 months. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. The amendment is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. We are currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements and footnote disclosures thereto.
In August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09 by one year. ASU 2014-09 amends the guidance for accounting for revenue from contracts with customers. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and creates a new Topic 606, Revenue from Contracts with Customers. This guidance is now effective for fiscal years beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. Two adoption methods are permitted: retrospectively to all prior reporting periods presented, with certain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU 2014-09 recognized at the date of initial application. We currently plan to adopt ASU 2015-14 as of January 1, 2018 using the modified retrospective approach and to apply the standard only to contracts that have not yet been completed as of the adoption date. Due to the limited revenues we have generated for the periods presented, we do not believe the adoption of ASU 2015-14 will have a material impact on our consolidated financial statements and footnotes disclosures thereto.
3.
OvaXon Joint Venture
In December 2013, we entered into a joint venture with Intrexon Corporation (“Intrexon”) to leverage Intrexon’s synthetic biology technology platform and our technology relating to EggPC cells to focus on developing significant improvements in human and animal health. We and Intrexon formed OvaXon, LLC (“OvaXon”) to conduct the joint venture. Each party initially contributed
$1.5 million
of cash to OvaXon in December 2013, each has a
50%
equity interest and all costs and profits will be split accordingly. Each party will also have
50%
control over OvaXon and any disputes between us and Intrexon will be resolved through arbitration, if necessary.
We consider OvaXon a variable interest entity. OvaXon does not have a primary beneficiary as both we and Intrexon have equal ability to direct the activities of OvaXon through membership in a Joint Steering Committee and an Intellectual Property Committee and
50%
voting rights. OvaXon is accounted for under the equity method and is not consolidated. This analysis and conclusion is updated annually or as changes occur to reflect any changes in ownership or control over OvaXon.
We recorded losses from equity method investments related to OvaXon of
$0.5 million
and
$0.9 million
for the
three and six
months ended
June 30, 2017
, respectively. We recorded losses from equity method investments related to OvaXon of
$0.4 million
and
$0.8 million
for the
three and six
months ended June 30, 2016, respectively. Neither we nor Intrexon made additional contributions for the six months ended
June 30, 2017
. Each party contributed an additional
$0.8 million
during the
six
months ended
June 30, 2016
. As of
June 30, 2017
, OvaXon incurred expenses of
$0.8 million
in excess of our cumulative investment to-date, which is included within accrued expenses on our condensed consolidated balance sheet as we committed to provide additional funding in 2017. As of December 31, 2016, our investment in OvaXon was approximately
$0.1 million
.
4.
Fair value
The fair value of our financial assets reflects our estimate of amounts that we would have received in connection with the sale of such asset in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of our assets, we seek to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (our assumptions about how market participants would price assets). We use the following fair value hierarchy to classify assets based on the observable inputs and unobservable inputs we used to value our assets:
|
|
•
|
Level 1—quoted prices (unadjusted) in active markets for identical assets.
|
|
|
•
|
Level 2—quoted prices for similar assets in active markets or inputs that are observable for the asset, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3—unobservable inputs based on our assumptions used to measure assets at fair value.
|
For fixed income securities, we reference pricing data supplied by our custodial agent and nationally known pricing vendors, using a variety of daily data sources, largely readily-available market data and broker quotes. The prices provided by third-party pricing services are validated by reviewing their pricing methods and obtaining market values from other pricing sources.
The following tables provide our assets that are measured at fair value on a recurring basis as of
June 30, 2017
and
December 31, 2016
(in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance as of June 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market funds
|
|
$
|
22,937
|
|
|
$
|
22,937
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities (including commercial paper)
|
|
63,622
|
|
|
—
|
|
|
63,622
|
|
|
—
|
|
Total
|
|
$
|
86,559
|
|
|
$
|
22,937
|
|
|
$
|
63,622
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance as of
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market funds
|
|
$
|
43,930
|
|
|
$
|
43,930
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities (including commercial paper)
|
|
70,458
|
|
|
—
|
|
|
70,458
|
|
|
—
|
|
Total
|
|
$
|
114,388
|
|
|
$
|
43,930
|
|
|
$
|
70,458
|
|
|
$
|
—
|
|
5.
Cash, cash equivalents and short-term investments
The following tables summarize our cash, cash equivalents and short-term investments at
June 30, 2017
and
December 31, 2016
(in thousands):
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|
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|
|
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|
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|
June 30, 2017
|
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Fair Value
|
Cash and money market funds
|
|
$
|
22,937
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,937
|
|
Corporate debt and U.S government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
63,671
|
|
|
—
|
|
|
(49
|
)
|
|
63,622
|
|
Total
|
|
$
|
86,608
|
|
|
$
|
—
|
|
|
$
|
(49
|
)
|
|
$
|
86,559
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,937
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,937
|
|
Short-term investments
|
|
63,671
|
|
|
—
|
|
|
(49
|
)
|
|
63,622
|
|
Total
|
|
$
|
86,608
|
|
|
$
|
—
|
|
|
$
|
(49
|
)
|
|
$
|
86,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized
Losses
|
|
Fair Value
|
Cash and money market funds
|
|
$
|
43,930
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,930
|
|
Corporate debt and U.S government securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
62,505
|
|
|
3
|
|
|
(45
|
)
|
|
62,463
|
|
Due in two years or less
|
|
8,013
|
|
|
—
|
|
|
(18
|
)
|
|
7,995
|
|
Total
|
|
$
|
114,448
|
|
|
$
|
3
|
|
|
$
|
(63
|
)
|
|
$
|
114,388
|
|
Reported as:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,930
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,930
|
|
Short-term investments
|
|
70,518
|
|
|
3
|
|
|
(63
|
)
|
|
70,458
|
|
Total
|
|
$
|
114,448
|
|
|
$
|
3
|
|
|
$
|
(63
|
)
|
|
$
|
114,388
|
|
At
June 30, 2017
and
December 31, 2016
, we held
seventeen
and
twenty-one
debt securities that had been in an unrealized loss position for less than
12 months
, respectively. At
June 30, 2017
and
December 31, 2016
, the aggregate fair value of the securities in an unrealized loss position for less than 12 months was
$46.4 million
and
$46.6 million
, respectively. We evaluate our securities for other-than-temporary impairments based on quantitative and qualitative factors, and we considered the decline in market value for the
seventeen
debt securities in an unrealized loss position as of
June 30, 2017
to be primarily attributable to the then current economic and market conditions. We will likely not be required to sell these securities, and do not intend to sell these securities before the recovery of their amortized cost bases, which recovery is expected within the next 12 months. Based on our analysis, we do not consider these investments to be other-than-temporarily impaired as of
June 30, 2017
.
As of
June 30, 2017
, we held
$4.7 million
in financial institution debt securities and other corporate debt securities located in Australia and Japan. As of
December 31, 2016
, we held
$11.5 million
in financial institution debt securities and other corporate debt securities located in Canada, the United Kingdom, New Zealand, Norway and Sweden.
We had
no
realized gains and
no
realized losses on our short-term investments for the
three and six
months ended
June 30, 2017
. We had immaterial realized gains and no realized losses on our short-term investments for the
three and six
months ended
June 30, 2016
.
6.
Property and equipment
Property and equipment and related accumulated depreciation and amortization are as follows (in thousands):
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|
|
|
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|
|
As of June 30,
|
|
As of December 31,
|
|
2017
|
|
2016
|
Laboratory equipment
|
$
|
4,136
|
|
|
$
|
5,184
|
|
Furniture
|
775
|
|
|
793
|
|
Computer equipment
|
208
|
|
|
208
|
|
Leasehold improvements
|
2,754
|
|
|
2,815
|
|
Total property and equipment, gross
|
7,873
|
|
|
9,000
|
|
Less: accumulated depreciation and amortization
|
(3,917
|
)
|
|
(3,428
|
)
|
Total property and equipment, net
|
$
|
3,956
|
|
|
$
|
5,572
|
|
We recorded depreciation and amortization expense of
$0.5 million
and
$1.0 million
for the
three and six
months ended
June 30, 2017
, respectively. We recorded depreciation and amortization expense of
$0.6 million
and
$1.1 million
for the three and six months ended June 30, 2016, respectively.
In December 2016, we initiated a corporate restructuring and in January 2017, we commenced a search to find a buyer for certain excess fixed assets, primarily comprised of laboratory equipment. As of January 31, 2017, we met the criteria to classify such assets as held-for-sale and estimated the fair value less costs to sell these assets at
$0.5 million
. In June 2017, we initiated the first part of our plan to sell a portion of the fixed assets classified as held-for-sale consisting primarily of fixed assets located domestically. We anticipate completing the sale of these assets in July 2017. We anticipate completing the sale of the remaining assets, primarily those located internationally, by the end of the third quarter of 2017. The
$0.5 million
of fixed assets are classified as held-for-sale and included within other current assets on our condensed consolidated balance sheets for the period ending
June 30, 2017
.
In June 2017, we expanded our restructuring efforts and announced we will discontinue ongoing efforts related to the AUGMENT treatment outside of North America (refer to Note 9 for additional details on our restructuring activities). As a result, we evaluated our fixed assets for impairment as of June 2017, the time in which the decision was made to execute the additional restructuring. In performing the recoverability test, we concluded that a portion of the carrying value of our assets was not recoverable. We recorded an impairment charge of
$0.3 million
related to these assets after comparing the fair value of the fixed assets to their carrying values. We determined the fair value of the assets subject to impairment based on expected future cash flows using Level 2 inputs under ASC 820.
7. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following as of
June 30, 2017
and
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
As of December 31,
|
|
2017
|
|
2016
|
Compensation and related benefits
|
$
|
4,655
|
|
|
$
|
5,869
|
|
Development, site costs and contract manufacturing
|
277
|
|
|
524
|
|
Legal, audit and tax services
|
889
|
|
|
1,280
|
|
Consulting
|
150
|
|
|
888
|
|
Other accrued expenses and other current liabilities
|
2,574
|
|
|
2,465
|
|
|
$
|
8,545
|
|
|
$
|
11,026
|
|
8.
Stock-based compensation
Stock options
A summary of our stock option activity and related information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
average
exercise
price per
share
|
|
Weighted
average
remaining
contractual
term
(years)
|
|
Aggregate
intrinsic
value
(in thousands)
|
Outstanding at December 31, 2016
|
4,611,392
|
|
|
$
|
14.42
|
|
|
8.23
|
|
$
|
45
|
|
Granted
|
4,165,356
|
|
|
1.52
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|
Forfeited/Canceled
|
(1,357,539
|
)
|
|
10.87
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
7,419,209
|
|
|
7.82
|
|
|
8.7
|
|
318
|
|
Exercisable at June 30, 2017
|
2,290,901
|
|
|
15.56
|
|
|
7.1
|
|
47
|
|
Vested and expected to vest at June 30, 2017
|
7,419,209
|
|
|
7.82
|
|
|
8.7
|
|
318
|
|
No stock options were exercised during the
three and six
months ended
June 30, 2017
. The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised was
$0.1 million
for the
three and six
months ended
June 30, 2016
.
The fair value of each stock-based option award is estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Risk-free interest rate
|
1.3% - 2.0%
|
|
1.4% - 1.5%
|
|
1.3% - 2.2%
|
|
1.4% - 2.0%
|
Dividend yield
|
—
|
|
—
|
|
—
|
|
—
|
Volatility
|
89%-109%
|
|
86%-89%
|
|
89%-109%
|
|
78%-89%
|
Expected term (years)
|
1.8-6.9
|
|
5.3-9.9
|
|
1.8-6.9
|
|
5.3-9.9
|
As of
June 30, 2017
, we had approximately
$11.6 million
of total unrecognized compensation cost, related to unvested stock options, which we expect to recognize over a weighted-average period of
2.6
years.
During the
three and six
months ended
June 30, 2017
, we granted options to purchase
2,183,106
and
4,015,356
shares of our common stock to employees at weighted average grant date fair values of $
1.11
and
$1.15
per share, respectively, and with weighted average exercise prices of
$1.46
and
$1.51
per share, respectively. During the
three and six
months ended
June 30, 2016
, we granted options to purchase
446,450
and
1,487,100
shares of our common stock at weighted average grant date fair values of
$5.28
and
$5.27
per share, respectively, and with weighted average exercise prices of
$7.32
and
$7.48
per share, respectively.
We granted
150,000
options to purchase common stock with a weighted average exercise price of
$1.60
per share to non-employees for both the
three and six
months ended
June 30, 2017
. We granted
10,000
options to purchase common stock with a weighted average exercise price of
$9.69
per share to non-employees for both the
three and six
months ended
June 30, 2016
. Stock-based awards issued to non-employees are revalued at each reporting date until vested.
On June 21, 2017, we executed an advisory agreement (the, "Advisory Agreement") with Dr. Dipp, our Executive Chair which provides for Dr. Dipp to transition to an advisory role with us effective September 1, 2017 and to provide advisory services to us through December 31, 2018. Under terms of the Advisory Agreement, as in effect on June 30, 2017, in the event Dr. Dipp's engagement with us terminates or a change of control occurs, all of Dr. Dipp's unvested awards will vest and remain exercisable for a period of
two
years.
The Advisory Agreement resulted in a modification to Dr. Dipp's outstanding equity based awards. We reviewed Dr. Dipp's vested and unvested awards as of June 21, 2017 (the "Modification Date") and recognized share-based compensation expense of
$0.1 million
for the three and six months ended June 30, 2017 as a result of the modification, for the incremental fair value of the awards immediately after modification when compared to the fair value of the awards immediately prior to modification.
The service period for Dr. Dipp to earn any unvested awards as of the Modification Date is not considered substantive and resulted in recognizing share-based compensation expense of
$2.7 million
. This expense represented the unrecognized compensation expense for Dr. Dipp's unvested awards as of the Modification Date for awards that were granted in June 2014, December 2014 and March 2017, and the fair value of the stock options awards granted in conjunction with the execution of the Advisory Agreement. All but $0.3 million of the $2.7 million in share-based compensation expense related to the June 2014 and December 2014 option grants. The Advisory Agreement has subsequently been amended to permit the accelerated vesting of the June 2014 and December 2014 option grants prior to December 31, 2018 only in the event of a future termination "without cause" or resignation for "good reason."
For the three and six months ended June 30, 2017, we recorded share-based compensation expense of
$2.8 million
as a result of the Advisory Agreement within selling, general and administrative expenses on our condensed consolidated statements of operations and comprehensive loss.
Restricted stock units
A summary of our unvested restricted stock unit activity and related information is as follows:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted average grant date fair value
|
Outstanding at December 31, 2016
|
50,000
|
|
|
$
|
7.15
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
|
Outstanding at June 30, 2017
|
50,000
|
|
|
$
|
7.15
|
|
As of
June 30, 2017
, we had approximately
$0.3 million
of total unrecognized compensation cost related to
50,000
non-vested service-based RSUs granted under our 2012 Stock Incentive Plan. We expect to cancel these awards during the third quarter of 2017.
9.
Restructuring
In December, 2016, we initiated a reduction in workforce of approximately
30%
in connection with our change in corporate strategy, primarily related to the commercialization strategy associated with our AUGMENT treatment. As of June 30, 2017, we have recognized substantially all restructuring charges related to our December 2016 restructuring activities, approximately
$6.9 million
comprised of
$2.4 million
recorded as one-time termination benefits,
$1.7 million
as a benefit under an ongoing benefit plan,
$2.0 million
of fixed asset impairment charges and
$0.8 million
of other restructuring related charges including legal fees and contract cancellation fees.
On June 21, 2017, we initiated a reduction in workforce of approximately
50%
in connection with our decision to focus on the development and advancing of OvaTure and OvaPrime and no longer offer the AUGMENT treatment on a commercial basis outside of North America. We anticipate incurring total restructuring costs of approximately
$2.4
million to
$2.9 million
related to our June 2017 restructuring and anticipate completing substantially all activities associated with our June 2017 restructuring by the third quarter of 2017.
For the three months ended
June 30, 2017
, we recognized restructuring charges of
$2.0 million
including
$1.3 million
of one-time termination benefits,
$0.3 million
of benefits under an ongoing benefit plan,
$0.3 million
of fixed asset impairment charges and
$0.1 million
of legal fees. For the six months ended
June 30, 2017
, we recognized restructuring charges of
$3.5 million
, including
$2.3 million
of one-time termination benefits,
$0.3 million
recorded of benefits under an ongoing benefit plan and
$0.3 million
of fixed asset impairment charges. Our restructuring charges for the
three and six
months ended
June 30, 2017
, are included in our condensed consolidated statements of operations and comprehensive loss. For the six months ended
June 30, 2017
, we made cash payments of
$4.1 million
primarily related to severance benefits, all of which relate to our December 2016 restructuring. As of
June 30, 2017
, our restructuring accrual was
$2.5 million
and was recorded in accrued expenses and other current liabilities in our condensed consolidated balance sheet. Since the execution of our restructuring activities, we have incurred a total of
$8.9 million
of restructuring charges, of which
$6.9 million
relates to our December 2016 restructuring activities and
$2.0 million
relates to our June 2017 restructuring activities.
We did not record any restructuring expenses during the
three and six
months ended
June 30, 2016
.
The following table outlines our restructuring activities for the
six
months ended
June 30, 2017
(in thousands):
|
|
|
|
|
|
Accrued Restructuring Balance as of December 31, 2016
|
|
$
|
3,406
|
|
Plus:
|
|
|
Severance
|
|
2,671
|
|
Other
|
|
500
|
|
Less:
|
|
|
Payments
|
|
(4,110
|
)
|
Accrued Restructuring Balance as of June 30, 2017
|
|
$
|
2,467
|
|
Other restructuring costs consist primarily of professional fees including legal fees and contract termination fees.
In June 2017, the Compensation Committee of the Board of Directors approved cash and stock option retention incentive awards for certain remaining eligible employees who will continue employment with us in order to execute our strategic priorities. Cash awards totaling
$0.8 million
will be payable to these employees over the subsequent
one year
and six months based on continued employment and services performed during these periods. Stock option awards for
390,000
shares were also granted to these employees and will vest quarterly over
two
years from the date of grant.
10.
Commitments and contingencies
On October 9, 2015, a purported class action lawsuit was filed in the Suffolk County Superior Court in the Commonwealth of Massachusetts against the Company, several of the Company’s officers and directors and certain of the underwriters from the Company’s January 2015 follow-on public offering of the Company’s common stock. The plaintiffs purport to represent those persons who purchased shares of the Company’s common stock pursuant or traceable to the Company’s January 2015 follow-on public offering. The plaintiffs allege, among other things, that the Company made false and misleading statements and failed to disclose material information in the Company’s January 2015 Registration Statement and incorporated offering materials. Plaintiffs allege violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and seek, among other relief, unspecified compensatory damages, rescission, pre-and post-judgment interest and fees, costs and disbursements. On December 7, 2015, the OvaScience, Inc. defendants filed a notice of removal with the Federal District Court for the District of Massachusetts. On December 30, 2015, plaintiffs filed a motion to remand the action to the Superior Court. Oral argument on the motion to remand was held on February 19, 2016. On February 23, 2016, the District Court granted plaintiffs' motion to remand the action to the Superior Court. On February 26, 2016, a second putative class action suit was filed in the Suffolk County Superior Court in the Commonwealth of Massachusetts against the Company, several of the Company’s officers and directors and certain of the underwriters from the Company’s January 2015 follow-on public offering of the Company’s common stock. The complaint is substantially similar to the complaint filed in October 2015. The two actions subsequently were consolidated and plaintiffs filed a First Amended Class Action Complaint on June 17, 2016. Defendants filed motions to dismiss the complaint. Those motions were denied by order dated December 22, 2016. The parties currently are engaged in discovery and are briefing a class certification motion. The Company believes that the complaint is without merit and intends to defend against the litigation. There can be no assurance, however, that the Company will be successful. A resolution of this lawsuit adverse to the Company or the other defendants could have a material effect on the Company’s consolidated financial position and results of operations in the period in which the lawsuit is resolved. At present, we are unable to estimate potential losses, if any, related to the lawsuit.
On November 9, 2016, a purported shareholder derivative action was filed against certain present and former officers and directors of the company alleging breaches of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and corporate waste for purported actions related to the Company’s January 2015 follow-on public offering. On February 23, 2017, the court approved the parties’ joint stipulation to stay all proceedings in the action until further notice. The Court has calendared a status conference for December 2017. The Company believes that the complaint is without merit and intends to defend against the litigation. There can be no assurance, however, that the Company will be successful. At present, we are unable to estimate potential losses, if any, related to the lawsuit.
On March 24, 2017, a purported shareholder class action lawsuit was filed in federal district court for the District of Massachusetts against the Company and certain of our present and former officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. On June 5, 2017, the Court appointed Freedman Family Investments, LLC as lead plaintiff, the firm of Robins Geller Rudman & Dowd LLP as lead counsel and the Law Office of Alan L. Kovacs as local counsel. Plaintiff is scheduled to file an amended complaint on august 21, 2017. We believe that the complaint is without merit and intend to defend against the litigation. There can be no assurance, however, that we will be successful. A resolution of this lawsuit adverse to the Company or the other defendants could have a material effect on our consolidated financial position
and results of operations in the period in which the lawsuit is resolved. At present, we are unable to estimate potential losses, if any, related to the lawsuit.
On June 30, 2017, a purported shareholder derivative complaint was filed in federal district court for the District of Delaware against certain of our present and former directors and the Company as a nominal defendant alleging breach of fiduciary duty, corporate waste, unjust enrichment and violation of Section 14(a) of the Securities Exchange Act of 1934 alleging that compensation awarded to the director defendants was excessive. We believe that the complaint is without merit and intend to defend against the litigation. There can be no assurance, however, that we will be successful. At present, we are unable to estimate potential losses, if any, related to the lawsuit.
On July 27, 2017, a purported shareholder derivative complaint was filed in federal district court for the District of Massachusetts against certain of our present and former directors and the Company as a nominal defendant alleging breach of fiduciary duty, unjust enrichment and violation of Section 14(a) of the Securities Exchange Act of 1934 alleging that compensation awarded to the director defendants was excessive and seeking redress for purported actions related to the Company’s January 2015 follow-on public offering. We believe that the complaint is without merit and intend to defend against the litigation. There can be no assurance, however, that we will be successful. At present, we are unable to estimate potential losses, if any, related to the lawsuit.
We are not party to any other material litigation in any court and management is not aware of any contemplated proceeding by any governmental authority against the Company.