NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. The Company
We are an oncology company focused on the clinical development of novel therapies for cancer. Our common stock is listed on the NASDAQ Capital
Market under the symbol MEIP.
Our business purpose is the development of drugs for the treatment of cancer. Our portfolio of
clinical drug candidates includes pracinostat, an oral histone deacetylase (HDAC) inhibitor that is being developed in combination with azacitidine for the treatment of adults with newly diagnosed acute myeloid leukemia (AML)
who are unfit for intensive chemotherapy, and patients with high or very high-risk myelodysplastic syndrome (MDS). In August 2016, we entered into an exclusive worldwide license, development and commercialization agreement with Helsinn
Healthcare SA, a Swiss pharmaceutical corporation (Helsinn), for pracinostat in AML, MDS and other potential indications (the Helsinn License Agreement). Our clinical development portfolio also includes
ME-401,
an oral inhibitor of phosphatidylinositide
3-kinase
(PI3K) delta being developed for
B-cell
malignancies, and
voruciclib, an oral and selective cyclin-dependent kinase (CDK) inhibitor. In September 2017, we entered into an exclusive worldwide license, development, manufacturing and commercialization agreement with Presage Biosciences, Inc.
(Presage) to acquire rights to voruciclib. We are also developing
ME-344,
a mitochondrial inhibitor that has shown preliminary evidence of clinical activity in a Phase I study in refractory solid
tumors and which is currently being studied in combination with bevacizumab (marketed as Avastin
®
) in patients with human epidermal growth factor receptor 2 (HER2) negative breast
cancer. We own exclusive worldwide rights to
ME-401,
voruciclib and
ME-344.
Basis of Presentation
The accompanying
unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and in accordance with the instructions to Form
10-Q
and Article 10 of Regulation
S-X.
Accordingly, the accompanying financial statements do not include all of the information and notes required by U.S. GAAP for complete
financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the financial position, results of operations
and cash flows for the periods presented. We have evaluated subsequent events through the date the financial statements were issued.
The
accompanying unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto as of and for the fiscal year ended June 30, 2017, included in our Annual Report on Form
10-K
(2017 Annual Report) filed with the Securities and Exchange Commission (SEC) on September 5, 2017. Interim results are not necessarily indicative of results for a full year.
Use of Estimates
The preparation of
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. We use
estimates that affect the reported amounts (including assets, liabilities, revenues and expenses) and related disclosures. Actual results could materially differ from those estimates.
Revenue Recognition
Payments received
under commercial arrangements, such as licensing technology rights, may include
non-refundable
fees at the inception of the arrangements, milestone payments for specific achievements designated in the
agreements, and royalties on the sale of products. We consider a variety of factors in determining the appropriate method of accounting under our license agreements, including whether the various elements can be separated and accounted for
individually as separate units of accounting.
Multiple Element Arrangements
Deliverables under an arrangement will be separate units of accounting, provided (i) a delivered item has value to the customer on a
standalone basis; and (ii) the arrangement includes a general right of return relative to the delivered item, and delivery or performance of the undelivered item is considered probable and substantially in our control.
We account for revenue arrangements with multiple elements by separating and allocating consideration according to the relative selling price
of each deliverable. If an element can be separated, an amount is allocated based upon the relative selling price of each element. We determine the relative selling price of a separate deliverable using the price we charge other customers when we
sell that element separately. If the element is not sold separately and third party pricing evidence is not available, we will use our best estimate of selling price.
License Revenue
Non-refundable,
up-front
fees that are not contingent on any future performance by us and require no consequential continuing involvement on our part are recognized as revenue
when the license term commences and the licensed data, technology or
6
product is delivered. We defer recognition of
non-refundable
upfront license fees if it has continuing performance obligations, without which the licensed
data, technology, or product has no utility to the licensee separate and independent of our performance under the other elements of the applicable arrangement. The specific methodology for the recognition of the revenue is determined on a
case-by-case
basis according to the facts and circumstances of the applicable agreement.
Research and Development Revenue
Research and development revenue represents ratable recognition of fees allocated to research and development activities. We defer recognition
of research and development revenue until the performance of the related research and development activities has occurred. Research and development revenue for the three and six months ended December 31, 2017 and 2016 related to services
provided by third-party vendors related to research and development activities performed under the Helsinn License Agreement (Note 2).
Cost of Research and Development Revenue
Cost of research and development revenue primarily includes external costs paid to third-party contractors to perform research, conduct
clinical trials and develop and manufacture drug materials, and internal compensation and related personnel expenses to support our research and development revenue. All cost of research and development revenue related to expenses incurred in
connection with our development activities in accordance with the Helsinn License Agreement.
Research and Development Costs
Research and development costs are expensed as incurred and include costs paid to third-party contractors to perform research, conduct clinical
trials and develop and manufacture drug materials. Clinical trial costs, including costs associated with third-party contractors, are a significant component of research and development expenses. We accrue research and development costs based on
work performed. In determining the amount to accrue, management relies on estimates of total costs based on contract components completed, the enrollment of subjects, the completion of trials, and other events. Costs incurred related to the purchase
of
in-process
research and development for early-stage products or products that are not commercially viable and ready for use, or have no alternative future use, are charged to expense in the period incurred.
Costs incurred related to the licensing of products that have not yet received regulatory approval to be marketed, or that are not commercially viable and ready for use, or have no alternative future use, are charged to expense in the period
incurred.
Share-Based Compensation
Share-based compensation expense for employees and directors is recognized in the statement of operations based on estimated amounts, including
the grant date fair value and the expected service period. For stock options, we estimate the grant date fair value using a Black-Scholes valuation model, which requires the use of multiple subjective inputs including estimated future volatility,
expected forfeitures and the expected term of the awards. We estimate the expected future volatility based on the stocks historical price volatility. The stocks future volatility may differ from the estimated volatility at the grant
date. For restricted stock unit (RSU) equity awards, we estimate the grant date fair value using our closing stock price on the date of grant. We recognize the effect of forfeitures in compensation expense when the forfeitures occur. The
estimated forfeiture rates may differ from actual forfeiture rates which would affect the amount of expense recognized during the period. We recognize the value of the awards over the awards requisite service or performance periods. The
requisite service period is generally the time over which our share-based awards vest.
Income Taxes
Our income tax expense consists of current and deferred income tax expense or benefit. Current income tax expense or benefit is the amount of
income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for the future tax consequences attributable to tax credits and loss carryforwards and to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. As of December 31, 2017 and June 30, 2017, we have established a valuation allowance to fully reserve our net deferred tax assets.
Tax rate changes are reflected in income during the period such changes are enacted. In the second quarter, we revised our estimated annual
effective rate to reflect a change in the federal statutory rate from 35% to 21%, resulting from legislation that was enacted on December 22, 2017. The rate change is administratively effective at the beginning of our fiscal year, using a
blended rate for the annual period. As a result, the blended statutory tax rate for the year is 28.1%. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is
generally 21%. However, we are still analyzing certain aspects of the legislation and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional
amount recorded related to the remeasurement of our deferred tax balance was $13.6 million with a corresponding change to our valuation allowance.
7
Changes in our ownership may limit the amount of net operating loss carry-forwards that can be
utilized in the future to offset taxable income.
The FASB Topic on Income Taxes prescribes a recognition threshold and measurement
attribute criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be
more-likely-than-not
to be sustained upon examination by taxing authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. There were no
unrecognized tax benefits as of December 31, 2017 or June 30, 2017.
There have been no material changes in our unrecognized tax
benefits since June 30, 2017, and, as such, the disclosures included in our 2017 Annual Report on Form
10-K
for the year ended June 30, 2017 continue to be relevant for the six-month period ended
December 31, 2017.
Recent Accounting Pronouncements
Adopted Accounting Standards
In
January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2017-01
(ASU
2017-01),
Business Combinations (Topic 804): Clarifying the Definition of a Business
. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. We adopted ASU
2017-01
as of July 1, 2017, and this guidance was used in our assessment
of the Presage License Agreement (Note 3).
In March 2016, the FASB issued ASU
2016-09
Improvements to Employee Share-Based Payment Accounting
, which simplifies several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. We adopted this ASU as of July 1, 2017 and it did not have a material impact on our financial statements.
In May 2017, the FASB issued
ASU 2017-09,
Compensation-Stock Compensation: Scope of
Modification Accounting,
which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies
that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered
non-substantive.
We adopted this ASU as of July 1, 2017 and it did not have a material impact on our financial statements.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts with Customers
. The
standard provides companies with a single model for accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to
recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. The guidance permits companies to either
apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment. The following ASUs were subsequently issued by the FASB to clarify the implementation guidance
in some areas and add practical expedients: In March 2016, ASU
2016-08,
Revenue from Contracts with Customers, Principal versus Agent Considerations
; in April 2016, ASU
2016-10,
Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing
; in May 2016, ASU
2016-11,
Revenue from Contracts with
Customers and Derivatives and Hedging - Rescission of SEC Guidance
; and ASU
2016-12,
Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients
. ASU
2014-09
will be effective for us in our first quarter of fiscal 2019 and we are in the process of evaluating the transition method that will be elected and the impact of adoption on our financial statements.
In February 2016, the FASB issued ASU
2016-02
Leases
, which introduces the recognition of lease
assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a
right-of-use
(ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for fiscal years beginning after December 15, 2018
and interim periods within those fiscal years with early adoption permitted. We are evaluating the impact that the adoption of this standard will have on our financial statements.
Note 2. Helsinn License Agreement
In August 2016, we entered into the Helsinn License Agreement. Under the terms of the agreement, Helsinn was granted a worldwide exclusive
license to develop, manufacture and commercialize pracinostat, and is primarily responsible for funding its global development and commercialization. As compensation for such grant of rights, we received payments of $20.0 million, including a
$15.0 million payment in August 2016 and a $5.0 million payment in March 2017. In addition, we are eligible to receive up to $444 million in potential regulatory and sales-based milestones, along with royalty payments on the net sales
of pracinostat, which, in the U.S., are tiered and begin in the
mid-teens.
8
We determined that the exclusive license, development and commercialization agreement represents
a multiple-element arrangement for purposes of revenue recognition. We identified the following elements, based upon deliverables under the agreement: (i) worldwide license and transfer of technology and data; (ii) completion of the
conduct of certain identified clinical trials related to pracinostat; (iii) coordination of services provided by third-party vendors related to research and development activities, for which Helsinn has agreed to reimburse such third-party
expenses; and (iv) the conduct of the Phase II dose-optimization study of pracinostat in combination with azacitidine in patients with high and very high risk MDS who are previously untreated with hypomethylating agents (the POC
study), for which Helsinn has agreed to share third-party expenses. The license was determined to represent a separate element as it has stand-alone value and is not dependent upon the performance of the research and development activities.
The research and development elements, related to the conduct of clinical trials and services provided by third-party vendors, were determined to represent separate elements as they primarily represent pass through of services performed by third
parties and therefore are sold separately by other vendors. We allocated the proceeds related to the agreement to the units of accounting using the relative selling price method. We determined the estimated selling price for the license using an
income approach. We determined the estimated selling price for the research and development elements based on estimated fulfillment costs plus a normal profit margin. Revenues related to the research and development elements of the arrangement are
recognized based on the proportional performance of each research and development activity. Research and development revenues are recognized on a gross basis as we are the primary obligor and have discretion in supplier selection.
Note 3. Presage License Agreement
In
September 2017, we entered into a license agreement with Presage (Presage License Agreement). Under the terms of the Presage License Agreement, Presage granted to us exclusive worldwide rights to develop, manufacture and commercialize
voruciclib, a clinical-stage, oral and selective CDK inhibitor, and related compounds. In exchange, we paid Presage an
up-front
payment of $1.9 million and will make an additional near-term payment of
$1.0 million, which is included in accrued liabilities as of December 31, 2017. With respect to the first indication, an incremental $2.0 million payment, due upon dosing of the first subject in the first registration trial will be
owed to Presage, for total payments of $4.9 million prior to receipt of marketing approval of the first indication in the U.S., E.U. or Japan. Additional potential payments of up to $179 million will be due upon the achievement of certain
development, regulatory and commercial milestones. We will also pay
mid-single-digit
tiered royalties on the net sales of any product successfully developed. As an alternative to milestone and royalty payments
related to countries in which we sublicense product rights, we will pay to Presage a tiered percent (which decreases as product development progresses) of amounts received from such sublicensees. The
up-front
and near term payments totaling $2.9 million are included in research and development expenses for the six months ended December 31, 2017.
Note 4. Net (Loss) Income Per Share
Basic and diluted net (loss) income per share are computed using the weighted-average number of shares of common stock outstanding during the
period, less any shares subject to repurchase or forfeiture. There were no shares of common stock subject to repurchase or forfeiture for the three and six months ended December 31, 2017 and 2016. Diluted net (loss) income per share is computed
based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period.
The following table presents the calculation of weighted average shares used to calculate basic and diluted (loss) income per share (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Weighted average shares outstanding
|
|
|
37,014
|
|
|
|
36,772
|
|
|
|
36,990
|
|
|
|
36,104
|
|
Effect of vested restricted stock units
|
|
|
400
|
|
|
|
400
|
|
|
|
400
|
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in calculating basic net (loss) income per share
|
|
|
37,414
|
|
|
|
37,172
|
|
|
|
37,390
|
|
|
|
36,460
|
|
Effect of potentially dilutive common shares from equity awards
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in calculating diluted net (loss) income per share
|
|
|
37,414
|
|
|
|
37,217
|
|
|
|
37,390
|
|
|
|
36,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive shares shares excluded from calculation due to anti-dilutive effect
|
|
|
8,644
|
|
|
|
7,915
|
|
|
|
8,912
|
|
|
|
7,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Note 5. Commitments and Contingencies
We have contracted with various consultants and third parties to assist us in
pre-clinical
research and
development and clinical trials work for our leading drug compounds. The contracts are terminable at any time, but obligate us to reimburse the providers for any time or costs incurred through the date of termination. We also have employment
agreements with certain of our current employees that provide for severance payments and accelerated vesting for share-based awards if their employment is terminated under specified circumstances.
We have leased approximately 13,700 square feet of office space, located at 3611 Valley Centre Drive, San Diego, California 92130. The
location houses our executive and administrative offices. The lease commenced in June 2017 and expires in May 2020. The monthly rental rate is approximately $45,000 over the remaining lease term, plus a pro rata share of certain building expenses.
As of December 31, 2017, the remaining contractual obligation is $1.3 million.
Presage License Agreement
As discussed in Note 3, we are party to a license agreement with Presage under which we may be required to make future payments upon the
achievement of certain development, regulatory and commercial milestones, as well as potential future royalties based upon net sales.
S*Bio Purchase Agreement
We are party to a definitive asset purchase agreement with S*Bio, pursuant to which we acquired certain assets comprised of intellectual
property and technology including rights to pracinostat. We agreed to make certain milestone payments to S*Bio based on the achievement of certain clinical, regulatory and net sales-based milestones, as well as to make certain contingent earnout
payments to S*Bio. Milestone payments will be made to S*Bio up to an aggregate amount of $75.2 million if certain U.S., E.U. and Japanese regulatory approvals are obtained and if certain net sales thresholds are met in North America, the E.U.
and Japan. The first milestone payment of $200,000 plus 166,527 shares of our common stock having a value of $500,000 was paid in August 2017 upon the first dosing of a patient in a Phase III clinical trial. Subsequent milestone payments will be due
upon certain regulatory approvals and sales-based events. As of December 31, 2017, we have not accrued any amounts for potential future milestone payments.
CyDex License Agreement
We are party to a license agreement with CyDex Pharmaceuticals, Inc. (CyDex). Under the license agreement, CyDex granted to us an
exclusive, nontransferable license to intellectual property rights relating to Captisol
®
for use with our isoflavone-based drug compounds (currently
ME-344).
We agreed to pay to CyDex a
non-refundable
license issuance fee, future milestone payments, and royalties at a low, single-digit percentage rate on future sales
of our approved drugs utilizing Captisol. Contemporaneously with the license agreement, CyDex and us entered into a commercial supply agreement pursuant to which we agreed to purchase 100% of our requirements for Captisol from CyDex. We may
terminate both the license agreement and the supply agreement at any time upon 90 days prior written notice. As of December 31, 2017, we have not accrued any amounts for potential future payments.
Note 6. Short-Term Investments
As of
December 31, 2017 and June 30, 2017, our short-term investments consisted of $35.1 million and $45.1 million, respectively, in U.S. government securities. The short-term investments held as of December 31, 2017 and
June 30, 2017 had maturity dates of less than one year, are considered to be held to maturity and are carried at amortized cost. Due to the short-term maturities of these instruments, the amortized cost approximates the related fair
values. As of December 31, 2017 and June 30, 2017, the gross holding gains and losses were immaterial.
Note 7. Stockholders Equity
Equity Transactions
Shelf
Registration Statement
In May 2017, we filed a shelf registration statement on Form
S-3
with
the SEC (the shelf registration statement). The shelf registration statement was declared effective by the SEC in May 2017. The shelf registration statement permits us to sell, from time to time, up to $150.0 million of common
stock, preferred stock and warrants. In November 2017, we entered into an
At-The-Market
Equity Offering Sales Agreement (the ATM Sales Agreement), pursuant
to which we may sell an aggregate of up to $30.0 million of our common stock pursuant to the shelf registration statement. As of December 31, 2017, we have not sold any shares under the ATM Sales Agreement, and there is $150.0 million
aggregate value of securities available under the shelf registration statement.
Helsinn Equity Investment
In August 2016, contemporaneously with the Helsinn License Agreement, we entered into a Common Stock Purchase Agreement with Helsinn
(Helsinn Equity Agreement). Pursuant to the terms of the Helsinn Equity Agreement, we issued 2,616,431 shares of common stock in exchange for $5.0 million in August 2016. The transaction was exempt from registration pursuant to
Section 4(a)(2) of the Securities Act of 1933, as amended.
10
Note 8. Share-based Compensation
We use equity-based compensation programs to provide long-term performance incentives for our employees. These incentives consist primarily of
stock options and RSUs.
MEI Pharmas 2008 Stock Omnibus Equity Compensation Plan (the 2008 Equity Plan) provides for the
grant of options and/or other share-based or share-denominated awards to our
non-employee
directors, officers, employees and advisors. The 2008 Equity Plan was initially adopted in 2008 and was amended and
restated in 2011, 2013, 2014, and 2015. Effective December 1, 2016, our stockholders voted to further amend and restate the 2008 Equity Plan to increase the number of shares of common stock authorized for issuance under the plan to 10,186,000
shares, among other changes. As of December 31, 2017, there were 3,908,012 shares available for future grant under the 2008 Equity Plan.
Total share-based compensation expense for all stock awards consists of the following, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
257
|
|
|
$
|
243
|
|
|
$
|
541
|
|
|
$
|
482
|
|
General and administrative
|
|
|
445
|
|
|
|
431
|
|
|
|
1,157
|
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
$
|
702
|
|
|
$
|
674
|
|
|
$
|
1,698
|
|
|
$
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
Stock option activity for the six months ended December 31, 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-Average
Remaining Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at June 30, 2017
|
|
|
4,259,083
|
|
|
$
|
3.21
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,692,000
|
|
|
|
2.82
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(113,391
|
)
|
|
|
1.66
|
|
|
|
|
|
|
|
|
|
Forfeited / Cancelled
|
|
|
(252,603
|
)
|
|
|
2.44
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(122,343
|
)
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
5,462,746
|
|
|
|
3.11
|
|
|
|
7.1
|
|
|
$
|
1,680,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at December 31, 2017
|
|
|
2,758,956
|
|
|
$
|
3.84
|
|
|
|
5.3
|
|
|
$
|
946,930
|
|
The fair value of each stock option granted during the six months ended December 31, 2017 is estimated on
the grant date under the fair value method using a Black-Scholes valuation model. Stock options granted to employees during the six months ended December 31, 2017 vest 25% one year from the date of grant and ratably each month thereafter for a
period of 36 months and expire ten years from the date of grant. Stock options granted to directors during the six months ended December 31, 2017 vest ratably each month for a period of 12 months from the date of grant and expire ten years from
the date of grant. The RSU equity awards are measured using the grant date fair value of our common stock. The estimated fair values of the stock options and RSUs, including the effect of estimated forfeitures, are expensed over the service period.
The following weighted-average assumptions were used to determine the fair value of options granted during the period:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Risk-free interest rate
|
|
|
2.1
|
%
|
|
|
1.2
|
%
|
Expected life (years)
|
|
|
6.0
|
|
|
|
5.9
|
|
Expected volatility
|
|
|
97.1
|
%
|
|
|
108.2
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Weighted-average grant date fair value
|
|
$
|
2.19
|
|
|
$
|
1.12
|
|
As of December 31, 2017, there was $2.8 million of unrecognized compensation expense related to the
unvested portion of stock options. Such compensation expense is expected to be recognized over a weighted-average period of 1.7 years.
11
Restricted Stock Units
In March 2013, the Compensation Committee of the Board of Directors granted 400,000 RSUs to our Chief Executive Officer,
Dr. Daniel P. Gold. Each RSU represents the contingent right to receive one share of our common stock.
One-third
of the RSUs vested on August 30, 2014,
one-third
vested on August 30, 2015, and the remaining
one-third
vested on August 30, 2016. The shares underlying the RSUs will be delivered to Dr. Gold
on the earliest to occur of (i) March 29, 2018, (ii) Dr. Golds death, disability or separation from service from us for any reason, or (iii) a change in control involving us. The fair value of the RSUs on the date of grant
was $3.5 million. The grant date fair value per unit was $8.63.
In June 2016, we granted 364,726 RSUs to employees. Each RSU
represents the contingent right to receive one share of our common stock. The RSUs were subject to performance criteria that were met in August 2016. The RSUs will vest in August 2018. The fair value of the RSUs was measured at $1.61 per unit on the
date the performance criteria were met. Under the terms of the 2008 Plan, each of these RSUs is calculated as 1.25 shares of common stock for purposes of determining the number of shares available for future grant. There were 332,193 unvested RSUs
outstanding as of December 31, 2017.
As of December 31, 2017, unrecognized compensation expense related to the unvested portion
of our RSUs was approximately $0.2 million and is expected to be recognized over approximately 0.6 years.
12