NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company
Business Overview
Momenta Pharmaceuticals, Inc., referred to as Momenta or the Company, was incorporated in the state of Delaware in May 2001 and began operations in early 2002. Its facilities are located in Cambridge, Massachusetts. Momenta is a biotechnology company focused on developing generic versions of complex drugs, biosimilars and novel therapeutics for autoimmune diseases. The Company presently derives all of its revenue from its collaborations.
2. Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements reflect the operations of the Company and the Company's wholly-owned subsidiaries, Momenta Pharmaceuticals Securities Corporation and Momenta Ireland Limited. Intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States, or U.S. GAAP, requires management to make estimates, judgments and assumptions that may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, and share-based payments. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.
Collaboration and License Arrangements
The Company recognizes revenue when persuasive evidence of an arrangement exists; services have been performed or products have been delivered; the fee is fixed or determinable; and collection is reasonably assured.
The Company has entered into collaboration and license agreements with pharmaceutical companies for the development and commercialization of certain of its product candidates. The Company’s performance obligations under the terms of these agreements may include (i) transfer of intellectual property rights (licenses), (ii) providing research and development services, and (iii) participation on joint steering committees with the collaborators. Non-refundable payments to the Company under these agreements may include up-front license fees, payments for research and development activities, payments based upon the achievement of defined collaboration objectives and profit share or royalties on product sales.
The Company evaluates its arrangements pursuant to Accounting Standards Codification, or ASC, on Collaborative Arrangements, or ASC 808, and the Financial Accounting Standards Board’s, or FASB, Accounting Standards Update, or ASU, No. 2009-13, Multiple-Deliverable Revenue Arrangements, or ASU 2009-13. The Company considers the nature and contractual terms of the arrangement and assesses whether the arrangement involves a joint operating activity pursuant to which the Company is an active participant and is exposed to significant risks and rewards with respect to the arrangement. If the Company is an active participant and is exposed to significant risks and rewards with respect to the arrangement, the Company accounts for the arrangement as a collaboration, otherwise the arrangement is accounted for as a multiple element arrangement under ASU 2009-13, and the Company identifies the deliverables included within the agreement and determines whether the deliverables under the arrangement represent separate units of accounting. Deliverables under the arrangement are a separate unit of accounting if (i) the delivered item has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of return relative to the delivered item and delivery or performance of the undelivered items are considered probable and substantially within the Company’s control. This evaluation requires subjective determinations and requires management to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. In determining the units of accounting, management evaluates certain criteria, including whether the deliverables have standalone value, based on the consideration of the relevant facts and circumstances for each arrangement. The Company considers whether the collaborator can use the license or other deliverables for their intended purpose without the receipt of the remaining elements, and whether the value of the deliverable is dependent on the undelivered items and whether there are other vendors that can provide the undelivered items.
Arrangement consideration may include up-front license fees and non-substantive options to purchase additional products or services. The Company determines how to allocate arrangement consideration to identified units of accounting based on the selling price hierarchy provided under the relevant guidance. The Company determines the estimated selling price for deliverables using vendor-specific objective evidence, or VSOE, of selling price, if available, third-party evidence, or TPE, of selling price if VSOE is not available, or best estimate of selling price, or BESP, if neither VSOE nor TPE is available. Determining the BESP for a deliverable requires significant judgment. The Company uses BESP to estimate the selling price for licenses to the Company’s proprietary technology, since the Company often does not have VSOE or TPE of selling price for these deliverables. In those circumstances where the Company utilizes BESP to determine the estimated selling price of a license to the Company’s proprietary technology, the Company considers entity specific factors, including those factors contemplated in negotiating the agreements as well as the license fees negotiated in similar license arrangements. Management may be required to exercise considerable judgment in estimating the selling prices of identified units of accounting under its agreements. In validating the Company’s BESP, the Company evaluates whether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation of arrangement consideration between multiple deliverables.
Up-Front License Fees
Up-front payments received in connection with licenses of the Company’s technology rights are deferred if facts and circumstances dictate that the license is not the only deliverable and the license does not have stand-alone value apart from the other deliverable(s). When management believes the license to its intellectual property does not have stand-alone value from the other deliverables to be provided in the arrangement, it is combined with other deliverables and the revenue of the combined unit of accounting is recorded based on the method appropriate for the last delivered item. The Company recognizes revenue from non-refundable, up-front license fees either when the final deliverable is delivered to the customer or on a straight-line basis over the estimated period of performance if there are multiple deliverables that are satisfied over time. Accordingly, for arrangements with multiple deliverables that are satisfied over time, the Company is required to make estimates regarding the development timelines for product candidates being developed pursuant to any applicable agreement. The determination of the length of the period over which to recognize the revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period. Quarterly, the Company reassesses its period of substantial involvement over which the Company amortizes its up-front license fees and makes adjustments as appropriate. The Company’s estimates regarding the period of performance under its collaborative research and development and licensing agreements have changed in the past and may change in the future. Any change in the Company’s estimates could result in changes to the Company’s results for the period over which the revenues from an up-front license fee are recognized.
Milestones
At the inception of each arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive, in accordance with ASU No. 2010-17, Revenue Recognition—Milestone Method. A milestone is defined as an event that can only be achieved based on the Company’s performance, and there is substantive uncertainty about whether the event will be achieved at the inception of the arrangement. Events that are contingent only on the passage of time or only on counterparty performance are not considered milestones under accounting guidance. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the Company’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the Company’s performance to achieve the milestone, (b) the
consideration relates solely to past performance, (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement and (d) the milestone fee is refundable or adjusts based on future performance or non-performance. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment. Payments that are contingent upon the achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved, assuming all other revenue recognition criteria are met.
Sales-based and commercial milestones are accounted for as royalties and are recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met.
Profit Share
Profit share revenue is reported as product revenue and is recognized based upon contractual profit of licensed products in licensed territories in the period the sales occur as provided by the collaboration agreement. The amount of net sales and contractual profit is determined based on amounts provided by the collaborator and involves the use of estimates and judgments, such as product sales allowances and accruals related to prompt payment discounts, chargebacks, governmental and other rebates, distributor, wholesaler and group purchasing organizations fees, product returns, and co-payment assistance costs, which could be adjusted based on actual results in the future. The Company is highly dependent on Sandoz for timely
and accurate information regarding any net revenues realized from sales of Enoxaparin Sodium Injection and GLATOPA in order to accurately report its results of operations.
Reimbursement for Services
Under its collaborations, the Company incurs employee expenses as well as external costs for development and commercial activities presented as operating expenses. Reimbursement of those costs under the Company's collaboration arrangements may be presented as revenue or a reduction of operating expenses, depending on the nature of the responsibilities of each party under the collaboration.
Cash, Cash Equivalents and Marketable Securities
The Company invests its cash in bank deposits, money market accounts, corporate debt securities, United States treasury obligations, commercial paper, asset-backed securities, overnight repurchase agreements and United States government-sponsored enterprise securities in accordance with its investment policy. The Company has established guidelines relating to diversification and maturities that allow the Company to manage risk.
The Company invests its excess cash balances in short-term and long-term marketable debt securities. The Company classifies its investments in marketable debt securities as available-for-sale based on facts and circumstances present at the time it purchased the securities. Purchased premiums or discounts on marketable debt securities are amortized to interest income through the stated maturities of the debt securities. The Company reports available-for-sale investments at fair value at each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive income (loss), a component of stockholders' equity. Realized gains and losses are determined using the specific identification method and are included in interest income. To determine whether an other-than-temporary impairment exists, the Company considers whether it intends to sell the debt security and, if it does not intend to sell the debt security, it considers available evidence to assess whether it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. The Company reviewed its investments with unrealized losses and concluded that
no
other-than-temporary impairment existed at
December 31, 2017
as it has the ability and intent to hold these investments to maturity and it is not more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. The Company did not record any impairment charges related to its marketable securities during the years ended
December 31, 2017
,
2016
and
2015
. Realized gains or losses on marketable securities for each of the years ended
December 31, 2017
,
2016
, and
2015
were immaterial. The Company's marketable securities are classified as cash equivalents if the original maturity, from the date of purchase, is 90 days or less, and as marketable securities if the original maturity, from the date of purchase, is in excess of 90 days. The Company's cash equivalents are primarily composed of money market funds and repurchase agreements carried at fair value, which approximates cost at
December 31, 2017
and
2016
.
Fair Value Measurements
The Company measures certain financial assets including cash equivalents and marketable securities at fair value on a recurring basis. These financial assets are generally classified as Level 1 or 2 within the fair value hierarchy. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices (adjusted), interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The fair value hierarchy level is determined by the lowest level of significant input.
The Company's financial assets have been initially valued at the transaction price and subsequently valued at the end of each reporting period, typically utilizing third-party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market based approaches, and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices provided by its third-party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. The Company did not adjust or override any fair value measurements provided by its pricing services as of
December 31, 2017
and
December 31, 2016
.
Concentration of Credit Risk
The Company's primary exposure to credit risk derives from its cash, cash equivalents, marketable securities and collaboration receivable.
Collaboration Receivable
Collaboration receivable includes:
|
|
•
|
Amounts due to the Company for its contractual profit share on Sandoz’ sales of Enoxaparin Sodium Injection and GLATOPA 20 mg/mL;
|
|
|
•
|
Amounts due to the Company for reimbursement of research and development services and certain external costs under the collaborations with Sandoz and CSL, and, in periods prior to January 1, 2017, the former collaboration with Baxalta;
|
|
|
•
|
Amounts due from Mylan for its
50%
share of certain collaboration expenses under the cost-sharing provisions of the Mylan Collaboration Agreement that are not funded through the continuation payments; and
|
|
|
•
|
As of
December 31, 2016
, the
$51.2 million
asset return payment due from Baxalta, as discussed in Note 9,
Collaborations and License Agreements
. In January 2017, the Company received the
$51.2 million
payment from Baxalta.
|
The Company has not recorded any allowance for uncollectible accounts or bad debt write-offs and it monitors its receivables to facilitate timely payment.
Collaboration Liability
Collaboration liability includes:
|
|
•
|
Advance payments received from Mylan that will be applied to amounts due from Mylan in future periods for the funding of Mylan's
50%
share of certain collaboration expenses under the cost-sharing provisions of the Mylan Collaboration Agreement; and
|
|
|
•
|
Net payable to CSL for the Company's
50%
share of collaboration expenses under the cost-sharing provisions of the CSL License and Option Agreement that became effective upon the Company's exercise of its
50%
Co-funding Option in August 2017.
|
Deferred Revenue
Deferred revenue represents consideration received from collaborators in advance of achieving certain criteria that must be met for revenue to be recognized in conformity with GAAP.
Property and Equipment
Property and equipment are stated at cost. Costs of major additions and betterments are capitalized; maintenance and repairs which do not improve or extend the life of the respective assets are charged to expense. Upon disposal, the related cost and accumulated depreciation or amortization is removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations and comprehensive loss. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from
three
to
seven years
. Leased assets meeting certain capital lease criteria are capitalized and the present value of the related lease payments is recorded as a liability. Assets under capital lease arrangements are depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the estimated useful lives of the assets or related lease terms, whichever is shorter. When the Company disposes of property and equipment, it removes the associated cost and accumulated depreciation from the related accounts on its consolidated balance sheet and includes any resulting gain or loss in its consolidated statements of operations and comprehensive loss.
Long-Lived Assets
The Company evaluates the recoverability of its property, equipment and intangible assets when circumstances indicate that an event of impairment may have occurred. The Company recognizes an impairment loss only if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows. Impairment is measured based on the difference between the carrying value of the related assets or businesses and the fair value of such assets or businesses.
No
impairment charges have been recognized through
December 31, 2017
.
Research and Development
Research and development expenses consist of costs incurred to conduct research, such as the discovery and development of the Company's product candidates. Research and development costs are expensed as incurred. These expenses consist
primarily of salaries and related expenses for personnel, license fees, consulting fees, nonclinical and clinical trial costs, contract research and manufacturing costs, and the costs of laboratory equipment and facilities.
Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are received.
Accounting for Share-Based Compensation
The Company grants awards under its share-based compensation programs, which awards have included stock options, time-based restricted stock awards, performance-based restricted stock awards, time-based restricted stock units and shares issued under its employee stock purchase plan (ESPP). The Company charges the estimated fair value of such awards to operating expense in its consolidated statements of operations and comprehensive loss over the requisite service period, which is generally the vesting period.
The fair values of stock option grants are estimated as of the date of grant using the Black-Scholes Merton option pricing model. The estimated fair values of the stock options are then expensed over the requisite service period. The Company uses its own historical data to estimate volatility and expected term, which includes an assessment of option exercise patterns and post-vesting employee termination behavior to arrive at the estimated expected life of an option. The Company reviews and evaluates these assumptions regularly to reflect recent historical data. The risk-free interest rate for periods within the expected term of the option is based on the United States Treasury yield curve in effect at the time of grant.
The fair values of restricted stock and restricted stock units are based on the market value of our stock on the date of grant. Compensation expense for time-based restricted stock and restricted stock units is recognized on a straight-line basis over the applicable service period.
For performance-based restricted stock, at each reporting period the Company assesses the probability that the performance condition(s) will be achieved. The Company uses the accelerated attribution method to expense the awards over the implicit service period based on the probability of achieving the performance conditions. The Company estimates the implicit service period based on its best estimate of the period over which an award's vesting condition(s) will be achieved. The Company reviews and evaluates these estimates on a quarterly basis and will recognize any remaining unrecognized compensation expense as of the date of an estimate revision over the revised remaining implicit service period.
Prior to 2017, the Company applied an estimated forfeiture rate to period expense to recognize share-based compensation expense only for those stock and option awards expected to vest. The Company estimated forfeitures based upon historical data, adjusted for known trends, and adjusted its estimate of forfeitures if actual forfeitures differed. Subsequent changes in estimated forfeitures were recognized through a cumulative adjustment in the period of change. In 2017, the Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting and made an entity-wide accounting policy election to account for award forfeitures as they occur. As a result, the Company recorded a cumulative opening adjustment to accumulated deficit and additional paid-in capital of
$0.8 million
.
Net Loss Per Common Share
Basic net loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period, which includes common stock issued and outstanding and excludes unvested shares of restricted stock awards and restricted stock units. Diluted net loss per common share is calculated by dividing net loss by the weighted average number of common shares and potential shares from outstanding stock options and unvested restricted stock awards and restricted stock units determined by applying the treasury stock method.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company must then assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company was profitable and generated taxable income in 2010 and 2011. Since 2011, the Company has generated operating losses and expects to continue to incur future losses, therefore the net deferred tax assets have been fully offset by a valuation allowance.
The Company recognizes uncertain income tax positions that are more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a
50%
likelihood of being sustained. The Company's policy is to recognize interest and/or penalties related to income tax matters in income tax expense.
The Company had accrued
no
amounts for interest and penalties in the Company's consolidated balance sheets at
December 31, 2017
and
2016
.
The Company files income tax returns in the United States federal jurisdiction and multiple state jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination for years before
2014
, except to the extent that in the future it utilizes net operating losses or tax credit carry forwards that originated before
2014
. As of
December 31, 2017
, the Company was not under examination by the Internal Revenue Service or other jurisdictions for any tax years.
Comprehensive Loss
Comprehensive income (loss) is the change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. Comprehensive income (loss) includes net income (loss) and the change in accumulated other comprehensive income (loss) for the period. Accumulated other comprehensive income (loss) consists entirely of unrealized gains and losses on available-for-sale marketable securities for all periods presented.
Segment Reporting
Operating segments are determined based on the way management organizes its business for making operating decisions and assessing performance.
Momenta is a biotechnology company focused on discovering and developing medicines in
three
product areas: complex generics, biosimilars and novel therapeutics for autoimmune disease. The three product areas correspond with their respective regulatory pathways. However, the Company's portfolio of complex generics, biosimilars, and novel therapeutics have similar development risk and market characteristics. The Company does not operate separate lines of business with respect to any of its products or product candidates and the Company does not prepare discrete financial information with respect to the
three
product areas. Accordingly, the Company views its business as
one
reportable operating segment—the discovery, development and commercialization of pharmaceutical products.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB has subsequently issued several amendments to ASU No. 2014-09 that have the same effective date and transition date of January 1, 2018.
The Company adopted these standards using the modified retrospective method as permissible for all contracts not yet completed as of the effective date. The modified retrospective method applies the guidance retrospectively only to the most current period presented in the financial statements, recognizing the cumulative effect of initially applying the standard as an adjustment to the opening balance of accumulated deficit at the date of initial application. The Company completed its analysis of the impact of Topic 606 on its contracts with collaborators and expects to record a cumulative increase to deferred revenue between
$3.0 million
to
$8.0 million
with a corresponding adjustment to the opening balance of accumulated deficit on January 1, 2018 to reflect the use of a proportional performance model to measure progress in satisfying performance obligations under the Mylan Collaboration (based upon FTE actuals and external costs during those same years). The Company expects the pattern of revenue recognition will change such that a greater proportion of allocated consideration would be recognized in the latter portion of the period of performance as compared to methods applied under the previous accounting policy.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is currently evaluating the impact of adopting this new accounting standard on its financial position and results of operations.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), which simplifies certain elements of cash flow classification. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance will be effective for annual periods beginning after December
15, 2017. The Company is currently evaluating the impact the adoption of the ASU will have on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, or ASU 2016-18. The amendments in ASU 2016-18 require an entity to reconcile and explain the period-over-period change in total cash, cash equivalents and restricted cash within its statements of cash flows. ASU 2016-18 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. A reporting entity must apply the amendments in ASU 2016-18 using a full retrospective approach. The Company is currently evaluating the impact the adoption of the ASU will have on its consolidated financial statements.
On July 1, 2017, the Company adopted Accounting Standards Update, or ASU, No. 2016-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting and applied the new guidance prospectively to any modifications to share-based payment awards. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU No. 2016-09 introduces guidance that an entity should account for the effects of a modification unless all the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified and if the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The adoption of the ASU did not have a material impact on the Company's results of operations.
3. Fair Value Measurements
The tables below present information about the Company's assets that are regularly measured and carried at fair value on a recurring basis at
December 31, 2017
and
2016
, and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value, which is described further within Note 2,
Summary of Significant Accounting Policies
.
Financial assets measured at fair value on a recurring basis at
December 31, 2017
and
2016
are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Balance as of December 31, 2017
|
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Other Unobservable Inputs (Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
49,204
|
|
|
$
|
49,204
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Overnight repurchase agreements
|
11,250
|
|
|
—
|
|
|
11,250
|
|
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
U.S. government-sponsored enterprise securities
|
18,181
|
|
|
—
|
|
|
18,181
|
|
|
—
|
|
Corporate debt securities
|
148,874
|
|
|
—
|
|
|
148,874
|
|
|
—
|
|
Certificates of deposit
|
7,794
|
|
|
—
|
|
|
7,794
|
|
|
—
|
|
Commercial paper obligations
|
108,630
|
|
|
—
|
|
|
108,630
|
|
|
—
|
|
Asset-backed securities
|
22,760
|
|
|
—
|
|
|
22,760
|
|
|
—
|
|
Total
|
$
|
366,693
|
|
|
$
|
49,204
|
|
|
$
|
317,489
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Balance as of December 31, 2016
|
|
Quoted Prices in Active Markets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Other Unobservable Inputs (Level 3)
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
121,510
|
|
|
$
|
121,510
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Overnight repurchase agreements
|
24,000
|
|
|
—
|
|
|
24,000
|
|
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
Corporate debt securities
|
47,906
|
|
|
—
|
|
|
47,906
|
|
|
—
|
|
Commercial paper obligations
|
84,436
|
|
|
—
|
|
|
84,436
|
|
|
—
|
|
Asset-backed securities
|
70,071
|
|
|
—
|
|
|
70,071
|
|
|
—
|
|
Total
|
$
|
347,923
|
|
|
$
|
121,510
|
|
|
$
|
226,413
|
|
|
$
|
—
|
|
As of
December 31, 2017
, the Company held
$11.3 million
in overnight repurchase agreements. Overnight purchase agreements yields are comparable to money market funds. Principal and interest on the instruments is due the next day. The instruments are classified as Level 2 due to the collateral including both U.S. government-sponsored enterprise securities and treasury instruments.
There have been no impairments of the Company’s assets measured and carried at fair value during the years ended
December 31, 2017
and
2016
. In addition, there were no changes in valuation techniques or transfers between Level 1 and Level 2 financial assets during the years ended
December 31, 2017
and
2016
. The fair value of Level 2 instruments classified as marketable securities was determined through third party pricing services. The carrying amounts reflected in the Company’s consolidated balance sheets for cash, collaboration receivable, other current assets, accounts payable and accrued expenses approximate fair value due to their short-term maturities. The Company did not have any non-recurring fair value measurements on any assets or liabilities at
December 31, 2017
and
2016
.
4. Cash, Cash Equivalents and Marketable Securities
The following tables summarize the Company's cash, cash equivalents and marketable securities as of
December 31, 2017
and
2016
(in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Cash, money market funds and overnight repurchase agreements
|
$
|
73,651
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73,651
|
|
U.S. government-sponsored enterprise securities due in one year or less
|
18,186
|
|
|
—
|
|
|
(5
|
)
|
|
18,181
|
|
Corporate debt securities due in one year or less
|
118,541
|
|
|
3
|
|
|
(115
|
)
|
|
118,429
|
|
Corporate debt securities due in more than one year
|
30,487
|
|
|
1
|
|
|
(43
|
)
|
|
30,445
|
|
Certificates of deposit due in one year or less
|
6,501
|
|
|
—
|
|
|
—
|
|
|
6,501
|
|
Certificates of deposit due in more than one year
|
1,297
|
|
|
—
|
|
|
(4
|
)
|
|
1,293
|
|
Commercial paper obligations due in one year or less
|
108,573
|
|
|
65
|
|
|
(8
|
)
|
|
108,630
|
|
Asset-backed securities due in one year or less
|
17,307
|
|
|
—
|
|
|
(30
|
)
|
|
17,277
|
|
Asset-backed securities due in more than one year
|
5,487
|
|
|
—
|
|
|
(4
|
)
|
|
5,483
|
|
Total
|
$
|
380,030
|
|
|
$
|
69
|
|
|
$
|
(209
|
)
|
|
$
|
379,890
|
|
Reported as:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
73,651
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
73,651
|
|
Marketable securities
|
306,379
|
|
|
69
|
|
|
(209
|
)
|
|
306,239
|
|
Total
|
$
|
380,030
|
|
|
$
|
69
|
|
|
$
|
(209
|
)
|
|
$
|
379,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
Cash, money market funds and overnight repurchase agreements
|
$
|
150,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150,738
|
|
Corporate debt securities due in one year or less
|
47,942
|
|
|
—
|
|
|
(36
|
)
|
|
47,906
|
|
Commercial paper obligations due in one year or less
|
84,301
|
|
|
135
|
|
|
—
|
|
|
84,436
|
|
Asset-backed securities due in one year or less
|
70,084
|
|
|
1
|
|
|
(14
|
)
|
|
70,071
|
|
Total
|
$
|
353,065
|
|
|
$
|
136
|
|
|
$
|
(50
|
)
|
|
$
|
353,151
|
|
Reported as:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
150,738
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150,738
|
|
Marketable securities
|
202,327
|
|
|
136
|
|
|
(50
|
)
|
|
202,413
|
|
Total
|
$
|
353,065
|
|
|
$
|
136
|
|
|
$
|
(50
|
)
|
|
$
|
353,151
|
|
5. Property and Equipment
As of
December 31, 2017
and
2016
, property and equipment, net consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Depreciable Lives
|
Computer equipment
|
$
|
3,061
|
|
|
$
|
2,991
|
|
|
3 years
|
Software
|
11,062
|
|
|
10,508
|
|
|
3 years
|
Office furniture and equipment
|
2,530
|
|
|
2,645
|
|
|
5 to 6 years
|
Laboratory equipment
|
51,315
|
|
|
47,938
|
|
|
7 years
|
Leasehold improvements
|
25,356
|
|
|
13,333
|
|
|
Shorter of asset life or lease term
|
Less: accumulated depreciation
|
(63,408
|
)
|
|
(56,568
|
)
|
|
|
|
$
|
29,916
|
|
|
$
|
20,847
|
|
|
|
During
2017
, the Company disposed of property and equipment with a gross carrying amount of
$1.5 million
and accumulated depreciation of
$1.2 million
. The Company did not dispose of any property and equipment during 2016. Depreciation and amortization expense amounted to
$8.0 million
,
$7.6 million
, and
$7.6 million
in the years ended
December 31, 2017
,
2016
and
2015
, respectively.
6. Intangible Assets
In April 2007, the Company entered into an asset purchase agreement with Parivid, LLC, or Parivid, a provider of data integration and analysis services, and S. Raguram, the principal owner of Parivid. Pursuant to the asset purchase agreement, the Company acquired certain of the assets and assumed certain of the liabilities of Parivid related to the acquired assets in exchange for
$2.5 million
in cash paid at closing and certain contingent milestone payments in a combination of cash and/or stock in the manner and on the terms and conditions set forth in the asset purchase agreement if certain milestones were achieved within
fifteen years
of the date of the asset purchase agreement. The asset purchase agreement was amended in August 2009 and in July 2011. Between 2009 and 2011, the Company made cash payments to Parivid of
$7.3 million
and issued
91,576
shares of its common stock valued at
$10.92
per share to Parivid in satisfaction of certain Enoxaparin Sodium Injection-related milestones under the amended asset purchase agreement. As of June 18, 2016, the one-year anniversary of the commercial launch of GLATOPA 20 mg/mL, GLATOPA 20 mg/mL remained the sole generic COPAXONE 20 mg/mL product on the U.S. market, triggering the final milestone payment under the amended asset purchase agreement. In connection with the final milestone, on August 10, 2016, the Company issued
265,605
shares of its common stock to Parivid to satisfy the GLATOPA 20 mg/mL milestone. The Company recorded
$3.2 million
as an intangible asset based on the number of shares issued and the closing price of the Company’s common stock on the date the shares were issued to Parivid.
Intangible assets consist solely of the core developed technology assets acquired from Parivid. The intangible assets are being amortized using the straight-line method over the estimated useful life of GLATOPA 20 mg/mL of approximately
six years
through June 2021. As of
December 31, 2017
and
2016
, intangible assets, net of accumulated amortization, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
Total intangible assets for core and developed technology
|
|
$
|
13,617
|
|
|
$
|
(9,581
|
)
|
|
$
|
13,617
|
|
|
$
|
(8,428
|
)
|
Amortization expense was approximately
$1.2 million
,
$1.5 million
and
$1.1 million
in the years ended
December 31, 2017
,
2016
and
2015
, respectively.
The Company expects to incur amortization expense of approximately
$1.2 million
per year from
2018
to
2020
and
$0.6 million
in the final year (
2021
).
7. Restricted Cash
The Company designated
$17.5 million
as collateral for a security bond posted in the litigation against Amphastar and International Medical Systems, Ltd., a wholly owned subsidiary of Amphastar Pharmaceuticals, Inc. Additional information regarding the litigation is discussed within Note 14,
Commitments and Contingencies
. The
$17.5 million
is held in an escrow account by Hanover Insurance. The Company classified this restricted cash as long-term as the timing of a final decision in the Enoxaparin Sodium Injection patent litigation is not known.
The following table summarizes the amounts designated as collateral for letters of credit related to the lease of office and laboratory space in Cambridge, Massachusetts (collateral amounts are presented in thousands).
|
|
|
|
|
|
|
|
|
Property Location
|
Approximate Square Footage
|
Lease Expiration Date
|
Letter of Credit Amount
|
Balance Sheet Classification
|
675 West Kendall Street
|
78,500
|
|
4/30/2018
|
$
|
2,412
|
|
Current Asset
|
320 Bent Street
|
105,000
|
|
2/28/2027
|
748
|
|
Non-Current Asset
|
301 Binney Street, Fifth Floor
|
80,000
|
|
6/29/2025
|
1,101
|
|
Non-Current Asset
|
301 Binney Street, Fourth Floor
|
52,000
|
|
3/31/2028
|
1,271
|
|
Non-Current Asset
|
Total
|
|
|
$
|
5,532
|
|
|
8. Accrued Expenses
As of
December 31, 2017
and
2016
, accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Accrued contract research and manufacturing costs
|
$
|
8,843
|
|
|
$
|
12,338
|
|
Accrued compensation
|
8,743
|
|
|
9,414
|
|
Accrued professional fees
|
2,429
|
|
|
3,979
|
|
Other
|
513
|
|
|
1,135
|
|
Total accrued expenses
|
$
|
20,528
|
|
|
$
|
26,866
|
|
9. Collaboration and License Agreements
At
December 31, 2017
, the Company had collaboration and license agreements with Sandoz AG (formerly Sandoz N.V. and Biochemie West Indies, N.V.), an affiliate of Novartis Pharma AG, and Sandoz Inc. (formerly Geneva Pharmaceuticals, Inc.), collectively referred to as Sandoz; Mylan Ireland Limited, a wholly-owned, indirect subsidiary of Mylan N.V., or Mylan; and CSL Behring Recombinant Facility AG, or CSL, a wholly-owned indirect subsidiary of CSL Limited.
M923, the Company's biosimilar HUMIRA® (adalimumab) candidate, was previously developed in collaboration with Baxalta under the Baxalta Collaboration Agreement, as defined below. The Baxalta Collaboration Agreement was terminated effective December 31, 2016.
The following tables provide amounts by year indicated and by line item included in the Company's accompanying consolidated statements of operations and comprehensive loss attributable to transactions arising from its significant collaborative arrangements, as defined in the FASB's ASC Topic 808,
Collaborative Arrangements,
and all other arrangements. The amounts in operating expenses generally represent external expenditures, including amortization of an intangible asset, and exclude salaries and benefits, share-based compensation, facilities, depreciation and laboratory supplies, as the majority of such costs are not directly charged to programs. The dollar amounts in the tables below are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
|
2003 Sandoz Collaboration Agreement
|
|
2006 Sandoz Collaboration Agreement
|
|
Mylan Collaboration Agreement
|
|
CSL License Agreement
|
|
Total Collaborations
|
Collaboration revenues:
|
|
|
|
|
|
|
|
|
|
Product revenue
|
$
|
313
|
|
|
$
|
66,490
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66,803
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
Commercial milestone (2)
|
—
|
|
|
10,000
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
Recognition of upfront payments
|
—
|
|
|
—
|
|
|
5,015
|
|
|
50,000
|
|
|
55,015
|
|
Research and development services and external costs
|
2,856
|
|
|
2,142
|
|
|
—
|
|
|
2,066
|
|
|
7,064
|
|
Total research and development revenue
|
$
|
2,856
|
|
|
$
|
12,142
|
|
|
$
|
5,015
|
|
|
$
|
52,066
|
|
|
$
|
72,079
|
|
Total collaboration revenues
|
$
|
3,169
|
|
|
$
|
78,632
|
|
|
$
|
5,015
|
|
|
$
|
52,066
|
|
|
$
|
138,882
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development expense
|
$
|
1,958
|
|
|
$
|
1,766
|
|
|
$
|
62,049
|
|
|
$
|
8,179
|
|
|
$
|
73,952
|
|
General and administrative expense
|
15,426
|
|
|
494
|
|
|
3,617
|
|
|
124
|
|
|
19,661
|
|
Less: net amount recovered from collaborators
|
—
|
|
|
—
|
|
|
(25,835
|
)
|
|
(3,320
|
)
|
|
(29,155
|
)
|
Total operating expenses
|
$
|
17,384
|
|
|
$
|
2,260
|
|
|
$
|
39,831
|
|
|
$
|
4,983
|
|
|
$
|
64,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
2003 Sandoz Collaboration Agreement
|
|
2006 Sandoz Collaboration Agreement
|
|
Mylan Collaboration Agreement
|
|
Baxalta Collaboration Agreement (1)
|
|
Total Collaborations
|
Collaboration revenues:
|
|
|
|
|
|
|
|
|
|
Product revenue
|
$
|
—
|
|
|
$
|
74,648
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
74,648
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
|
|
Recognition of upfront payments and license fee
|
—
|
|
|
—
|
|
|
6,368
|
|
|
21,983
|
|
|
28,351
|
|
Research and development services and external costs
|
345
|
|
|
2,545
|
|
|
—
|
|
|
3,730
|
|
|
6,620
|
|
Total research and development revenue
|
$
|
345
|
|
|
$
|
2,545
|
|
|
$
|
6,368
|
|
|
$
|
25,713
|
|
|
$
|
34,971
|
|
Total collaboration revenues
|
$
|
345
|
|
|
$
|
77,193
|
|
|
$
|
6,368
|
|
|
$
|
25,713
|
|
|
$
|
109,619
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development expense
|
$
|
692
|
|
|
$
|
1,911
|
|
|
$
|
55,147
|
|
|
$
|
1,196
|
|
|
$
|
58,946
|
|
General and administrative expense
|
7
|
|
|
470
|
|
|
3,009
|
|
|
187
|
|
|
3,673
|
|
Less: net amount recovered from collaborator
|
—
|
|
|
—
|
|
|
(27,770
|
)
|
|
—
|
|
|
(27,770
|
)
|
Total operating expenses
|
$
|
699
|
|
|
$
|
2,381
|
|
|
$
|
30,386
|
|
|
$
|
1,383
|
|
|
$
|
34,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2015
|
|
2003 Sandoz Collaboration Agreement
|
|
2006 Sandoz Collaboration Agreement
|
|
Baxalta Collaboration Agreement (1)
|
|
Total Collaborations
|
Collaboration revenues:
|
|
|
|
|
|
|
|
Product revenue
|
$
|
5,063
|
|
|
$
|
43,440
|
|
|
$
|
—
|
|
|
$
|
48,503
|
|
Research and development revenue:
|
|
|
|
|
|
|
|
Milestones
|
—
|
|
|
20,000
|
|
|
—
|
|
|
20,000
|
|
Recognition of upfront payment and license fee
|
—
|
|
|
—
|
|
|
9,014
|
|
|
9,014
|
|
Research and development services and external costs
|
789
|
|
|
2,861
|
|
|
8,483
|
|
|
12,133
|
|
Total research and development revenue
|
$
|
789
|
|
|
$
|
22,861
|
|
|
$
|
17,497
|
|
|
$
|
41,147
|
|
Total collaboration revenues
|
$
|
5,852
|
|
|
$
|
66,301
|
|
|
$
|
17,497
|
|
|
$
|
89,650
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Research and development expense
|
$
|
324
|
|
|
$
|
856
|
|
|
$
|
1,851
|
|
|
$
|
3,031
|
|
General and administrative expense
|
344
|
|
|
206
|
|
|
963
|
|
|
1,513
|
|
Total operating expenses
|
$
|
668
|
|
|
$
|
1,062
|
|
|
$
|
2,814
|
|
|
$
|
4,544
|
|
_______________________________________
|
|
(1)
|
The Baxalta Collaboration Agreement was terminated effective December 31, 2016.
|
|
|
(2)
|
On July 1, 2017, the Company earned a
$10.0 million
commercial milestone for which Sandoz was entitled to reduce contractual net profit in a corresponding amount under the terms of the 2006 Sandoz Collaboration Agreement.
|
2003 Sandoz Collaboration Agreement
In 2003, the Company entered into a collaboration and license agreement, or the 2003 Sandoz Collaboration Agreement, with Sandoz to jointly develop, manufacture and commercialize Enoxaparin Sodium Injection, a generic version of LOVENOX® (enoxaparin), in the United States. Under the terms of the 2003 Sandoz Collaboration Agreement, the Company and Sandoz agreed to exclusively work with each other to develop and commercialize Enoxaparin Sodium Injection for any and all medical indications within the United States. In addition, the Company granted Sandoz an exclusive license under its intellectual property rights to develop and commercialize injectable enoxaparin for all medical indications within the United States. A portion of Enoxaparin Sodium Injection development expenses and certain legal expenses, which in the aggregate have exceeded a specified amount, are offset against profit-sharing amounts, royalties and milestone payments. The Company's contractual share of such development and legal expenses was subject to an annual claw-back adjustment at the end of each of the first five product years, with the product year beginning on July 1 and ending on June 30, and the final adjustment occurred in
June 2015
. Annual adjustments were recorded as a reduction in product revenue.
Sandoz began selling Enoxaparin Sodium Injection in July 2010. Under the original payment terms of the 2003 Sandoz Collaboration Agreement, Sandoz was obligated to pay the Company either contractually defined profit share or royalty on net sales depending on the kind and number of other marketed generic versions of LOVENOX. In June 2015, the Company and Sandoz amended the 2003 Sandoz Collaboration Agreement, effective April 1, 2015, to provide that Sandoz would pay the Company
50%
of contractually defined profits on sales, if any. For the year ended
December 31, 2015
, the Company earned
$5.1 million
in product revenue consisting of
$6.9 million
in a combination of profit share and royalties, net of an annual claw-back adjustment of
$1.8 million
for the product year ended June 30, 2015, on Sandoz' sales of Enoxaparin Sodium Injection. Sandoz did not record any profit on sales of Enoxaparin Sodium Injection for the year ended
December 31, 2016
, and therefore the Company did not record product revenue for Enoxaparin Sodium Injection in the period. For the year ended
December 31, 2017
, the Company earned
$0.3 million
in product revenue on Sandoz' sales of Enoxaparin Sodium Injection.
Under the Company’s collaboration with Sandoz, since the Company contracts directly with, manages the work of and is responsible for payments to third-party vendors for services the Company is obligated to provide to Sandoz, the reimbursements for such services are recorded as revenues on a gross basis. Revenues are recognized upon completion of the services. The Company recognized research and development revenue from FTE services and external costs of
$2.9 million
,
$0.3 million
, and
$0.8 million
in the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
2006 Sandoz Collaboration Agreement
In 2006 and 2007, the Company entered into a series of agreements, including a collaboration and license agreement, as amended, or the 2006 Sandoz Collaboration Agreement, with Sandoz. Under the 2006 Sandoz Collaboration Agreement, the
Company and Sandoz agreed to exclusively collaborate on the development and commercialization of GLATOPA 20 mg/mL and 40 mg/mL, collectively GLATOPA, a generic version of COPAXONE, among other products. Costs, including development costs and the costs of clinical studies, will be borne by the parties in varying proportions depending on the type of expense. For GLATOPA, the Company is generally responsible for all of the development costs in the United States. For GLATOPA outside of the United States, the Company shares development costs in proportion to its profit sharing interest. The Company is reimbursed at a contractual FTE rate for any FTE employee expenses as well as any external costs incurred in the development of products to the extent development costs are borne by Sandoz. All Commercialization Costs, as that term is defined in the 2006 Sandoz Collaboration Agreement, are borne by Sandoz. With respect to GLATOPA, Sandoz is responsible for funding Legal Expenses, as that term is defined in the 2006 Sandoz Collaboration Agreement, except for FTE costs with respect to certain legal activities for GLATOPA; however
50%
of Legal Expenses, including any patent infringement damages, can be offset against the profit-sharing amounts.
The term of the 2006 Sandoz Collaboration Agreement extends throughout the development and commercialization of the products until the last sale of the products, unless earlier terminated by either party pursuant to the provisions of the 2006 Sandoz Collaboration Agreement. The 2006 Sandoz Collaboration Agreement may be terminated if either party breaches the 2006 Sandoz Collaboration Agreement or files for bankruptcy. Sandoz AG has agreed to indemnify the Company for various claims, and a certain portion of such costs may be offset against certain future payments received by the Company.
Sandoz commenced sales of GLATOPA 20 mg/mL in the United States in June 2015 and of GLATOPA 40 mg/mL in the United States in February 2018. Under the 2006 Sandoz Collaboration Agreement, the Company earns
50%
of contractually defined profits on Sandoz' worldwide net sales of GLATOPA 20 mg/mL and GLATOPA 40 mg/mL. Profits on net sales of GLATOPA are calculated by deducting from net sales the costs of goods sold and an allowance for selling, general and administrative costs, which is a contractual percentage of GLATOPA net sales and post-launch commercial milestones achieved.
On July 1, 2017, the Company earned a
$10 million
commercial milestone payment in connection with GLATOPA 20 mg/mL's being the sole FDA-approved generic of COPAXONE when earned and achieving a certain level of contractually defined profits in the United States, for which Sandoz was entitled to reduce contractual net profit under the terms of the 2006 Sandoz Collaboration Agreement. Following FDA approval of Mylan N.V.'s generic equivalents of COPAXONE 20 mg/mL and 40 mg/mL, which Mylan N.V. announced in October 2017, the Company is no longer eligible to earn
$80 million
in future post-launch commercial milestones; however, the Company is still eligible to receive up to
$30 million
in sales-based milestones for GLATOPA in the United States. None of these payments, once received, is refundable and there are no general rights of return in the arrangement.
On October 4, 2017, the Company and Sandoz entered into a letter agreement, pursuant to which the Company agreed to reduce its
50%
share of contractually defined profits on worldwide net sales of GLATOPA by up to an aggregate of approximately
$9.8 million
, commencing in the first quarter of 2018, representing
50%
of potential GLATOPA 40 mg/mL pre-launch inventory costs, which could decrease the Company's contractual profit share revenue on sales of GLATOPA 40 mg/mL. The letter agreement did not have an impact on the Company's consolidated financial statements for the year ended December 31, 2017 as it represents an expected loss on an executory contract that would not be recognized until the loss occurs.
Product revenue on Sandoz' sales of GLATOPA 20 mg/mL was
$66.5 million
,
$74.6 million
and
$43.4 million
in the years ended
December 31, 2017
,
December 31, 2016
and
December 31, 2015
, respectively.
Under the Company’s collaboration with Sandoz, since the Company contracts directly with, manages the work of and is responsible for payments to third-party vendors for services the Company is obligated to provide to Sandoz, the reimbursements for such services are recorded as revenues on a gross basis. Revenues are recognized upon completion of the services. The Company recognized research and development revenue from FTE services and external costs of
$2.1 million
,
$2.5 million
, and
$2.9 million
in the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
Baxalta Collaboration Agreement
The Company and Baxter International, Inc., Baxter Healthcare Corporation and Baxter Healthcare SA (or collectively referred to as Baxter) entered into a global collaboration and license agreement, or the Baxter Collaboration Agreement, effective February 2012, to develop and commercialize biosimilars, including M923, the Company's biosimilar HUMIRA
®
(adalimumab) candidate. In connection with Baxter's internal corporate restructuring in July 2015, Baxter assigned the Baxter Collaboration Agreement to Baxalta U.S. Inc., Baxalta GmbH and Baxalta Incorporated, collectively referred to as Baxalta. Subsequent to the assignment, the Company refers to "Baxter" as "Baxalta" and the "Baxter Collaboration Agreement" as the "Baxalta Collaboration Agreement." On September 27, 2016, Baxalta gave the Company
twelve months
’ prior written notice of the exercise of its right to terminate for its convenience the Baxalta Collaboration Agreement. On
December 31, 2016
, the
Company and Baxalta entered into an asset return and termination agreement, or the Baxalta Termination Agreement, which made the termination of the Baxalta Collaboration Agreement effective as of
December 31, 2016
.
Under the Baxalta Collaboration Agreement, the Company and Baxalta agreed to collaborate, on a world-wide basis, on the development and commercialization of M923 and M834, the Company's biosimilar ORENCIA® (abatacept) candidate, and Baxalta had the right to select
four
additional reference products to target for biosimilar development under the collaboration. In July 2012, Baxalta selected an additional product candidate and in December 2013, following an internal portfolio review, terminated its option to license the product candidate. In February 2015, Baxalta's right to select additional programs expired without further exercise. Also, in February 2015, Baxalta terminated in part the Baxalta Collaboration Agreement as it related to M834 and all worldwide development and commercialization rights for M834 reverted to the Company.
Under the Baxalta Collaboration Agreement, each party granted the other an exclusive license under its intellectual property rights to develop and commercialize M923 for all therapeutic indications. The Company agreed to provide development and related services on a commercially reasonable basis through the filing of an Investigational New Drug application, or IND, or equivalent application in the European Union for M923. Development and related services included high-resolution analytics, characterization, and product and process development. Baxalta was responsible for clinical development, manufacturing and commercialization activities for M923. The Company had the right to participate in a joint steering committee, consisting of an equal number of members from the Company and Baxalta, to oversee and manage the development and commercialization of M923 under the collaboration. Costs, including development costs, payments to third parties for intellectual property licenses, and expenses for legal proceedings, including the patent exchange process pursuant to the Biologics Price Competition and Innovation Act of 2009, was to be borne by the parties in varying proportions, depending on the type of expense and the stage of development. The Company was generally responsible for research and process development costs prior to filing an IND or equivalent application in the European Union, and the cost of in-human clinical trials, manufacturing in accordance with current good manufacturing practices and commercialization was borne by Baxalta.
Under the terms of the Baxalta Collaboration Agreement, the Company received an upfront payment of
$33 million
, a
$7 million
license payment for achieving pre-defined "minimum development criteria" for M834, and
$12 million
in technical and development milestone payments in connection with the UK Medicines and Healthcare Products Regulatory Agency's acceptance of Baxalta's clinical trial application to initiate a pharmacokinetic clinical trial for M923. The Company was reimbursed at a contractual FTE rate for any FTE employee expenses and external development costs for reimbursable activities related to M923. Had M923 been successfully developed and launched under the Baxalta Collaboration Agreement, Baxalta would have been required to pay the Company royalties on net sales of licensed products worldwide, with a base royalty rate in the high single digits with the potential for significant tiered increases based on the number of competitors, the interchangeability of the product, and the sales tier for the product. The maximum royalty with all potential increases would have been slightly more than double the base royalty.
On June 3, 2016, Baxalta Incorporated and Shire plc, or Shire, announced the completion of the combination of Baxalta Incorporated and Shire. As a result of the combination, Baxalta Incorporated, of which Baxalta US Inc. and Baxalta GmbH are wholly-owned subsidiaries, is a wholly-owned subsidiary of Shire. On September 27, 2016, Baxalta gave the Company
twelve months
’ prior written notice of the exercise of its right to terminate for its convenience the Baxalta Collaboration Agreement. Under the terms of the Baxalta Collaboration Agreement, the effective date of the termination was
twelve months
following the date Baxalta gave the termination notice, as more particularly set forth in the Baxalta Collaboration Agreement. As of the termination effective date, (i) Baxalta was obligated to transfer to the Company all ongoing regulatory, development, manufacturing and commercialization activities and related records for M923 and, at the Company's request, assign to the Company any third party agreements reasonably necessary for and primarily related to the development, manufacture, and commercialization of M923 to the extent permitted by the agreements' terms, (ii) the licenses granted pursuant to the Baxalta Collaboration Agreement by the Company to Baxalta under the Company's intellectual property rights relating to M923 would terminate, the licenses granted pursuant to the Baxalta Collaboration Agreement by Baxalta to the Company under Baxalta’s intellectual property rights relating to M923 would survive, and Baxalta was obligated to grant to the Company additional licenses under Baxalta’s intellectual property rights relating to M923 existing as of the termination effective date, and (iii) the Company was obligated to pay to Baxalta a royalty of
5%
of net sales, as such term is defined in the Baxalta Collaboration Agreement, until Baxalta’s development expenses and commercialization costs, as such terms are defined in the Baxalta Collaboration Agreement, occurring through the termination effective date were reimbursed. Following receipt of the termination notice, the Company is no longer eligible to receive any regulatory milestone payments under the Baxalta Collaboration Agreement. Prior to the termination effective date, Baxalta was obligated to continue to perform development and manufacturing activities for M923.
On December 31, 2016, the Company and Baxalta entered into the Baxalta Termination Agreement, amending certain termination provisions of the Baxalta Collaboration Agreement. Under the terms of the Baxalta Termination Agreement, the termination of the Baxalta Collaboration Agreement was made effective December 31, 2016. Baxalta was relieved of its
obligations to continue to perform activities for M923 after December 31, 2016, except for certain on-going clinical and regulatory activities that were completed in 2017, and in January 2017, Baxalta paid the Company a one-time cash payment of
$51.2 million
representing the costs Baxalta would have incurred in performing the activities it would have performed under Baxalta Collaboration Agreement through the original termination date.
In accordance with FASB's ASU No. 2009-13: Multiple-Deliverable Revenue Arrangements (Topic 615), the Company identified all of the deliverables at the inception of the Baxalta Collaboration Agreement. The deliverables were determined to include (i)
six
development and product licenses for each of M923, M834 and the
four
additional collaboration products, (ii) research and development services related to each of M923, M834 and the
four
additional collaboration products and (iii) the Company's participation in a joint steering committee. The Company determined that each of the license deliverables do not have stand-alone value apart from the related research and development services deliverables because (1) there are no other vendors selling similar, competing products on a stand-alone basis, (2) Baxalta does not have the contractual right to resell the license, and (3) Baxalta is unable to use the license for its intended purpose without the Company's performance of research and development services. As such, the Company determined that with respect to this arrangement separate units of accounting did exist for each of the
six
licenses together with the related research and development services, as well as the one unit of accounting for the joint steering committee. The estimated selling price for these units of accounting was determined based on similar license arrangements and the nature of the research and development services to be performed for Baxalta and market rates for similar services. At the inception of the Baxalta Collaboration Agreement, arrangement consideration of
$61.0 million
, which included the
$33.0 million
upfront payment and aggregate option payments for the four additional collaboration products of
$28.0 million
, was allocated to the units of accounting based on the relative selling price method. Of the
$61.0 million
,
$10.3 million
was allocated to the M923 product license together with the related research and development services,
$10.3 million
to each of the
four
additional collaboration product licenses with the related research and development services,
$9.4 million
was allocated to the M834 product license together with the related research and development services due to that product's stage of development at the time the license was delivered, and
$114,000
was allocated to the joint steering committee unit of accounting.
At the inception of the Baxalta Collaboration Agreement, the Company delivered development and product licenses for M923 and M834 and commenced revenue recognition of the arrangement consideration allocated to those products. In addition, the Company began revenue recognition for the arrangement consideration allocated to the joint steering committee unit of accounting. Following Baxalta's termination of M834 and the lapse of its right to select additional products the number of deliverables were reduced from
seven
to
two
and the total consideration consideration decreased from
$61 million
to
$40 million
. The Company recognized the resulting change in revenue as a result of the decrease in deliverables and expected consideration on a prospective basis through the expected FDA approval of the remaining products.
As a result of termination of the Baxalta Collaboration Agreement, the Company's performance period for M923 and the joint steering committee ended on December 31, 2016; therefore, the Company recognized the remaining balance of deferred revenue of
$22.0 million
as research and development revenue in the year ended
December 31, 2016
. The total impact of the change in performance period was
$11.0 million
, or
$0.16
per share. In addition, the Company recorded the
$51.2 million
asset return payment in other income in the fourth quarter of
2016
as a result of Baxalta's accelerated termination and funding of anticipated development costs pursuant to the Baxalta Collaboration Agreement.
Mylan Collaboration Agreement
The Company and Mylan entered into a collaboration agreement, or the Mylan Collaboration Agreement, effective February 9, 2016, pursuant to which the Company and Mylan agreed to collaborate exclusively, on a worldwide basis, to develop, manufacture and commercialize
six
of the Company’s biosimilar candidates, including M834.
Under the terms of the Mylan Collaboration Agreement, Mylan paid the Company a non-refundable upfront payment of
$45 million
. In addition, the Company and Mylan equally share costs (including development, manufacturing, commercialization and certain legal expenses) and profits (losses) with respect to such product candidates, with Mylan funding its share of collaboration expenses incurred by the Company, in part, through up to
six
contingent milestone payments, totaling up to
$200 million
across the
six
product candidates, two of which, totaling
$60 million
, the Company received in 2016.
For each product candidate other than M834, at a specified stage of early development, the Company and Mylan will each decide, based on the product candidate’s development progress and commercial considerations, whether to continue the development, manufacture and commercialization of such product candidate under the collaboration or to terminate the collaboration with respect to such product candidate.
Under the Mylan Collaboration Agreement, the Company granted Mylan an exclusive license under the Company’s intellectual property rights to develop, manufacture and commercialize the product candidates for all therapeutic indications,
and Mylan granted the Company a co-exclusive license under Mylan’s intellectual property rights for the Company to perform its development and manufacturing activities under the product work plans agreed by the parties, and to perform certain commercialization activities to be agreed by the joint steering committee for such product candidates if the Company exercises its co-commercialization option described below. The Company and Mylan established a joint steering committee consisting of an equal number of members from the Company and Mylan to oversee and manage the development, manufacture and commercialization of product candidates under the collaboration. Unless otherwise determined by the joint steering committee, it is anticipated that, in collaboration with the other party, (a) the Company will be primarily responsible for nonclinical development activities and initial clinical development activities for product candidates; additional (pivotal or Phase 3 equivalent) clinical development activities for M834; and regulatory activities for product candidates in the United States through regulatory approval; and (b) Mylan will be primarily responsible for additional (pivotal or Phase 3 equivalent) clinical development activities for product candidates other than M834; regulatory activities for the product candidates outside the United States; and regulatory activities for products in the United States after regulatory approval, when all marketing authorizations for the products in the United States will be transferred to Mylan. Mylan will commercialize any approved products, with the Company having an option to co-commercialize, in a supporting commercial role, any approved products in the United States. The joint steering committee is responsible for allocating responsibilities for other activities under the collaboration.
The term of the collaboration will continue throughout the development and commercialization of the product candidates, on a product-by-product and country-by-country basis, until development and commercialization by or on behalf of the Company and Mylan pursuant to the Mylan Collaboration Agreement has ceased for a continuous period of
two years
for a given product candidate in a given country, unless earlier terminated by either party pursuant to the terms of the Mylan Collaboration Agreement.
The Mylan Collaboration Agreement may be terminated by either party for breach by, or bankruptcy of, the other party; for its convenience; or for certain activities involving competing products or the challenge of certain patents. Other than in the case of a termination for convenience, the terminating party will have the right to continue the development, manufacture and commercialization of the terminated products in the terminated countries. In the case of a termination for convenience, the other party will have the right to continue. If a termination occurs, the licenses granted to the non-continuing party for the applicable product will terminate for the terminated country. Subject to certain terms and conditions, the party that has the right to continue the development or commercialization of a given product candidate may retain royalty-bearing licenses to certain intellectual property rights, and rights to certain data, for the continued development and sale of the applicable product in the country or countries for which termination applies.
The Company accounts for the Mylan Collaboration Agreement as a collaboration pursuant to ASC 808. Consistent with its accounting policy, the Company has considered the provisions of ASC 605-25 by analogy to determine the appropriate recognition of the
$45 million
upfront payment from Mylan. In connection therewith, the deliverables in the arrangement were determined to include (i)
six
development and product licenses, for each of M834 and the
five
additional collaboration products, (ii) research and development services related to each of M834 and the
five
additional collaboration products and (iii) the Company’s participation in the joint steering committee. The Company has determined that each of the license deliverables does not have stand-alone value apart from the related research and development services deliverables because (1) there are no other vendors selling similar, competing products on a stand-alone basis, (2) Mylan does not have the contractual right to resell the license, and (3) Mylan is unable to use the license for its intended purpose without the Company’s performance of research and development services. As such, the Company determined that with respect to this arrangement, separate units of accounting exist for each of the
six
licenses together with the related research and development services, or the combined units of accounting, as well as a separate unit of accounting for participation in the joint steering committee. VSOE and TPE were not available for the combined units of accounting. As such, the Company determined BESP for the combined units of accounting based on an analysis of its existing license arrangements and other available data and the nature and extent of the research and development services to be performed. BESP for the joint steering committee unit of accounting was based on market rates for similar services. At the inception of the Mylan Collaboration Agreement, total arrangement consideration of
$45 million
was allocated to each of the units of accounting based on the relative selling price method by analogy to ASC 605-25. Of the
$45 million
,
$8.2 million
was allocated to the M834 combined unit of accounting, between
$5.7 million
and
$9.0 million
to the
five
additional combined units of accounting, considering the products’ stage of development at the time the licenses were delivered, and
$51,000
was allocated to the joint steering committee unit of accounting. Changes in the key assumptions used to determine BESP for the units of accounting would not have a significant effect on the allocation of arrangement consideration.
At the inception of the Mylan Collaboration Agreement, the Company delivered development and product licenses for all
six
collaboration products and commenced revenue recognition of the arrangement consideration that was allocated to the respective units of accounting. In addition, the Company began revenue recognition for the arrangement consideration allocated to the joint steering committee unit of accounting. The Company determined it would be appropriate to recognize the upfront
payment on a straight-line basis over the applicable performance period during which the research and development services are expected to be delivered, which begins upon delivery of the development and product license and ends upon FDA approval of the product. The Company currently estimates that the performance periods for the units of accounting range from
five years
to
eight years
. The Company concluded that presenting the amount as revenue was appropriate based on the provisions of ASC 808 and the fact that the upfront payment was attributed to the issuance of the license. During the year ended
December 31, 2017
, the Company recognized
$5.0 million
of the
$45.0 million
upfront payment as revenue. As of
December 31, 2017
,
$33.6 million
was deferred under this agreement, of which
$2.9 million
was included in current liabilities and
$30.7 million
was included in non-current liabilities in the consolidated balance sheet.
The collaboration with Mylan is a cost-sharing arrangement. Collaboration costs incurred by the parties are subject to quarterly reconciliation such that the final amount of expense included in the Company's statement of operations is equal to its
50%
share of the total collaboration costs. The Company classifies the payments received or made under the cost sharing provisions of the arrangement as a component of research and development or general and administrative expense, accordingly to reflect the joint risk sharing nature of the arrangement, Mylan funds its
50%
share of development-related collaboration costs through contingent milestone payments of up to
$200 million
across the
six
product candidates, while other shared collaboration costs are reconciled by the parties with the owing party reimbursing the other party by making quarterly payments. In the year ended
December 31, 2016
, the Company received
two
milestone payments totaling
$60 million
, of which
$27.1 million
funded Mylan's
50%
share of 2016 development-related collaboration costs and
$24.7 million
funded Mylan's
50%
share of 2017 development-related collaboration costs, leaving
$8.2 million
to be applied towards Mylan
50%
share of future development-related collaboration costs. During the year ended
December 31, 2017
, the Company recovered
$1.2 million
of other shared collaboration costs from Mylan.
CSL License and Option Agreement
The Company and CSL Behring Recombinant Facility AG, or CSL, a wholly-owned indirect subsidiary of CSL Limited, entered into a License and Option Agreement, or the CSL License Agreement, effective February 17, 2017, pursuant to which the Company granted CSL an exclusive worldwide license to research, develop, manufacture and commercialize the M230 pre-clinical product candidate, an Fc multimer protein that is a selective immunomodulator of the Fc receptor. The CSL License Agreement also provides, on an exclusive basis, for the Company and CSL to conduct research on other Fc multimer proteins, and provides CSL the right to develop, manufacture and commercialize these additional research products globally.
Pursuant to the terms of the CSL License Agreement, CSL paid the Company a non-refundable upfront payment of
$50 million
. For the development and commercialization of M230, the Company is eligible to receive up to
$550 million
in contingent clinical, regulatory and sales milestone payments, and additional negotiated milestone payments for a named research stage product should that enter development. The Company is also entitled to sales-based royalty payments in percentages ranging from a mid-single digit to low-double digits for M230 and a named research stage product should that enter development and be commercialized, and royalties and development milestone payments to be negotiated for any other products developed under the CSL License Agreement. Sales milestones are based on aggregated sales across M230 and any other products developed under the CSL License Agreement. The Company also has the option to participate in a cost-and-profit sharing arrangement, under which the Company would fund
50%
of global research and development costs and
50%
of U.S. commercialization costs for all products developed pursuant to the CSL License Agreement, or the Co-Funded Products, in exchange for either a
50%
share of U.S. profits, or the
50%
Co-funding Option, or
30%
share of U.S. profits, determined by the stage of development at which the Company makes such election. On August 28, 2017, the Company exercised its
50%
Co-funding Option. As a result, for Co-Funded Products, royalties remain payable for territories outside of the United States, and the milestone payments for which the Company is eligible are reduced from up to
$550 million
to up to
$297.5 million
. The Company also has the right to opt-out of such arrangement at its sole discretion, which would result in milestone payments and royalties reverting to their pre-arrangement amounts. The Company also has the option to participate in the promotion of Co-Funded Products in the United States, subject to a co-promotion agreement to be negotiated with CSL.
Under the CSL License Agreement, the Company granted CSL an exclusive license under the Company’s intellectual property to research, develop, manufacture and commercialize product candidates for all therapeutic indications. CSL has granted the Company a non-exclusive, royalty-free license under CSL’s intellectual property for the Company’s research and development activities pursuant to the CSL License Agreement and its commercialization activities under any co-promotion agreement with CSL.
The Company and CSL formed a joint steering committee consisting of an equal number of members from the Company and CSL, to facilitate the research, development, and commercialization of product candidates.
Unless earlier terminated, the term of the CSL License Agreement commences on the Effective Date and continues until the later of (i) the expiration of all payment obligations with respect to products under the CSL License Agreement, (ii) the
Company is no longer co-funding development or commercialization of any products and (iii) the Company and CSL are not otherwise collaborating on the development and commercialization of products or product candidates. CSL may terminate the CSL License Agreement on a product-by-product basis subject to notice periods and certain circumstances related to clinical development. The Company may terminate the CSL License Agreement under certain circumstances related to the development of M230 and if no activities are being conducted under the CSL License Agreement. Either party may terminate the CSL License Agreement (i) on a product-by-product basis if certain patent challenges are made, (ii) on a product-by-product basis for material breaches, or (iii) due to the other party’s bankruptcy. Upon termination of the CSL License Agreement, subject to certain exceptions, the licenses granted under the CSL License Agreement terminate. In addition, dependent upon the circumstances under which the CSL License Agreement is terminated, the Company or CSL has the right to continue the research, development, and commercialization of terminated products, including rights to certain data, for the continued development and sale of terminated products and, subject to certain limitations, obligations to make sales-based royalty payments to the other party.
CSL's obligations under the CSL License Agreement are guaranteed by its parent company, CSL Limited.
The Company applied ASC 605-25 at the inception of the arrangement. The deliverables in the arrangement were determined to include (i) the M230 research, development, manufacturing and commercialization license, (ii) the research license for other Fc multimer proteins and (iii) the Company's responsibility to transfer the technology package relating to M230 to CSL. The best estimate of the selling price associated with the Company's participation on the joint steering committee was deemed to be de minimis, and therefore was not evaluated further. The Company determined that the M230 research, development, manufacturing and commercialization license does not have stand-alone value separate and apart from the Company's responsibility to transfer the M230 technology package to CSL because (1) there are no other vendors selling similar licenses on a stand-alone basis, (2) CSL does not have the contractual right to resell the license or the transferred technology, and (3) CSL is unable to use the license for its intended purpose without the technology transfer. In addition, the Company determined that the research license does not have stand-alone value. As such, the Company determined that there was one unit of accounting. The total arrangement consideration of
$50 million
was allocated to the single unit of accounting and the Company determined it would recognize the amount as revenue once the technology transfer is completed, which is the final item to be delivered in the unit of accounting. The technology transfer occurred in the fourth quarter of 2017, therefore the Company recognized
$50 million
as revenue in the year ended
December 31, 2017
.
As discussed above, on August 28, 2017 the Company exercised its
50%
Co-funding Option. Prior to the Company's exercise of its
50%
Co-funding Option, the Company was reimbursed for certain costs under the arrangement, and such amounts were recorded as revenue or reductions to research and development expense depending on the nature of the activities. When the Company contracted directly with, managed the work of and was responsible for payments to third-party vendors for services the Company was obligated to provide to CSL, reimbursement of such costs were recorded as revenues on a gross basis. Reimbursable material costs incurred on CSL's behalf were netted against research and development expense. After the Company's exercise of its
50%
Co-funding Option, the Company determined the arrangement became a collaboration pursuant to ASC 808. Reimbursement by CSL for its share of the development effort is presented as a reduction of operating expenses, and reimbursement by the Company for its share of the development effort is recorded as an incremental operating expense, consistent with the Company’s accounting policy for collaboration arrangements.
10. Preferred, Common and Treasury Stock
Preferred Stock
The Company is authorized to issue
5 million
shares of preferred stock in
one
or more series and to fix the powers, designations, preferences and relative participating, option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and the number of shares constituting any series, without any further vote or action by the Company's stockholders. As of
December 31, 2017
and
2016
, the Company had
no
shares of preferred stock issued or outstanding.
Common Stock
Holders of common stock are entitled to receive dividends, if and when declared by the Board of Directors, and to share ratably in the Company's assets legally available for distribution to the Company's stockholders in the event of liquidation. Holders of common stock have no preemptive, subscription, redemption, or conversion rights. The holders of common stock do not have cumulative voting rights. The holders of a majority of the shares of common stock can elect all of the directors and can control the Company's management and affairs. Holders of common stock are entitled to
one vote per share
on all matters to be voted upon by the stockholders of the Company.
Treasury Stock
Treasury stock represents common stock currently owned by the Company as a result of shares withheld from the vesting of performance-based restricted common stock to satisfy minimum tax withholding requirements.
11. Share-Based Payments
Incentive Award Plans
The 2013 Incentive Award Plan, or the 2013 Plan, initially became effective on June 11, 2013, the date the Company received stockholder approval for the plan. Also on June 11, 2013, the 2004 Stock Incentive Plan terminated except with respect to awards previously granted under that plan.
No
further awards will be granted under the 2004 Stock Incentive Plan.
The 2013 Plan allows for the granting of stock options (both incentive stock options and nonstatutory stock options), restricted stock, stock appreciation rights, performance awards, dividend equivalents, stock payments and restricted stock units to employees, consultants and members of the Company's board of directors.
Incentive stock options are granted only to employees of the Company. Incentive stock options granted to employees who own more than
10%
of the total combined voting power of all classes of stock are granted with exercise prices no less than
110%
of the fair market value of the Company's common stock on the date of grant. Incentive stock options generally vest ratably over
four years
. Non-statutory stock options, restricted stock and restricted stock units may be granted to employees, consultants, and members of the Company's board of directors. Non-statutory stock options granted have varying vesting schedules. Time-based restricted stock awards and restricted stock units have been granted to employees and generally vest ratably over
four years
. Time-based restricted stock and restricted stock units have been granted to board members and generally vest on the one year anniversary of the grant date. Performance-based restricted stock awards are granted to employees and vest in connection with the attainment of certain company milestones as described in more detail below under “Restricted Stock and Restricted Stock Units”. Incentive and non-statutory stock options generally expire
ten years
after the date of grant. As of
December 31, 2017
, there were
8,271,767
shares available for issuance under the 2013 Plan.
Equity Award Retirement Policy
In December 2016, the Company's board of directors adopted the Momenta Pharmaceuticals, Inc. Equity Award Retirement Policy, or the Retirement Policy, to provide for the treatment of time-based options and restricted stock units upon a participant’s qualifying retirement from the Company, allowing employees until January 11, 2017 to opt-out of a modification to certain of their outstanding grants of incentive stock options. Under the Retirement Policy, following the qualifying retirement of any employee of the Company or non-employee member of the board of directors, the participant’s then-outstanding time-based options and restricted stock units will continue to vest during the
one year
period following the retirement date. In addition, the participant will have until the first anniversary of the retirement date (or
90 days
following the date an option becomes first exercisable if such date is within the
90 days
preceding the first anniversary of the retirement date) to exercise any vested options, except that no option may be exercised following the date upon which it would have expired under the applicable option award agreement if the participant had remained in service with the Company.
For those employees who did not opt out, the Retirement Policy amended the terms of existing grants of time-based options effective January 11, 2017; therefore, in the consolidated statement of operations for the year ended
December 31, 2017
, the Company recorded incremental compensation expense of
$0.4 million
related to the modification of those options, of which
$0.3 million
was included in the general administrative expense and
$0.1 million
was included in research and development expense.
Share-Based Compensation
The Company records compensation cost for all share-based payment arrangements, including employee, director and consultant stock options, restricted stock, and restricted stock units and the employee stock purchase plan.
The table below presents share-based compensation expense for research and development as well as general and administrative expense, both of which are included in operating expenses, in the years ended
December 31, 2017
,
2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Research and development
|
$
|
5,699
|
|
|
$
|
7,558
|
|
|
$
|
5,145
|
|
General and administrative
|
10,428
|
|
|
10,764
|
|
|
6,295
|
|
Total share-based compensation expense
|
$
|
16,127
|
|
|
$
|
18,322
|
|
|
$
|
11,440
|
|
The following table summarizes share-based compensation expense recorded in each of the years ended
December 31, 2017
,
2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Stock options
|
$
|
10,036
|
|
|
$
|
9,831
|
|
|
$
|
10,548
|
|
Restricted stock awards and restricted stock units
|
5,608
|
|
|
8,064
|
|
|
504
|
|
Employee stock purchase plan
|
483
|
|
|
427
|
|
|
388
|
|
Total share-based compensation expense
|
$
|
16,127
|
|
|
$
|
18,322
|
|
|
$
|
11,440
|
|
During the year ended
December 31, 2017
, the Company granted
1,530,805
stock options to its employees and board members. The average grant date fair value of options granted was calculated using the Black-Scholes-Merton option-pricing model and the weighted average assumptions are noted in the table below.
The following table summarizes the weighted average assumptions the Company used in its fair value calculations at the date of grant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions
|
|
Stock Options
|
|
Employee Stock Purchase Plan
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Expected volatility
|
53
|
%
|
|
58
|
%
|
|
59
|
%
|
|
55
|
%
|
|
57
|
%
|
|
59
|
%
|
Expected dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expected life (years)
|
5.9
|
|
|
6.1
|
|
|
6.1
|
|
|
0.5
|
|
|
0.5
|
|
|
0.5
|
|
Risk-free interest rate
|
2.1
|
%
|
|
1.6
|
%
|
|
1.9
|
%
|
|
0.7
|
%
|
|
0.4
|
%
|
|
0.1
|
%
|
The following table presents stock option activity of the 2013 Plan and Prior Plans for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options (in thousands)
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Outstanding at December 31, 2016
|
7,009
|
|
|
$
|
13.68
|
|
|
|
|
|
Granted
|
1,531
|
|
|
17.88
|
|
|
|
|
|
Exercised
|
(803
|
)
|
|
11.46
|
|
|
|
|
|
Forfeited
|
(369
|
)
|
|
14.10
|
|
|
|
|
|
Expired
|
(251
|
)
|
|
16.55
|
|
|
|
|
|
Outstanding at December 31, 2017
|
7,117
|
|
|
$
|
14.71
|
|
|
5.84
|
|
$
|
6,751
|
|
Exercisable at December 31, 2017
|
4,575
|
|
|
$
|
14.23
|
|
|
4.55
|
|
$
|
4,593
|
|
Vested or expected to vest at December 31, 2017
|
6,854
|
|
|
$
|
14.65
|
|
|
5.74
|
|
$
|
6,594
|
|
The weighted average grant date fair value of option awards granted during
2017
,
2016
and
2015
was
$9.05
,
$6.04
and
$8.11
per option, respectively. The total intrinsic value of options exercised during
2017
,
2016
and
2015
was
$4.6 million
,
$0.2 million
and
$11.4 million
, respectively. At
December 31, 2017
, the total remaining unrecognized compensation cost related to nonvested stock option awards amounted to
$15.9 million
, which will be recognized over the weighted average remaining requisite service period of
2.5 years
. The total fair value of options vested during
2017
,
2016
and
2015
was
$9.3 million
,
$9.9 million
and
$9.9 million
, respectively.
Cash received from option exercises for
2017
,
2016
and
2015
was
$9.2 million
,
$1.4 million
and
$23.6 million
, respectively.
Restricted Stock and Restricted Stock Units
The Company has also made awards of time-based restricted stock and restricted stock units and performance-based restricted stock to its employees and time-based restricted stock and restricted stock units to board members.
During the year ended
December 31, 2017
, the Company awarded
519,753
shares of time-based restricted stock units to its employees and board members. The time-based restricted stock units awarded to employees vest as to
25%
on the
one year
anniversary of the grant date and as to
6.25%
quarterly over
three years
that follow the grant date while the restricted stock units awarded to board members vest as to
100%
on the
one year
anniversary of the grant date. Time-based awards are generally forfeited if the employment or service relationship terminates with the Company prior to vesting, except as provided in the Retirement Policy.
Between 2011 and early 2013, the Company awarded
949,620
shares of performance-based restricted stock to its employees. The performance-based restricted stock was scheduled to vest upon FDA approval of the GLATOPA 20 mg/mL Abbreviated New Drug Application, or ANDA, on or before the performance deadline date of March 28, 2015 according to the following schedule:
50%
of the shares vest upon FDA approval and
50%
vest upon the
one year
anniversary of FDA approval. The Company had historically determined that the performance condition was probable of being achieved by March 28, 2015 and, as a result, had recognized approximately
$10.5 million
of stock compensation costs related to the awards. On March 11, 2015, the Board of Directors approved an amendment to the awards that extended the performance deadline date to September 1, 2015 and provided for the forfeiture of
15%
of the number of shares originally subject to each award on the 29th of each month, beginning March 29, 2015 until the shares vested or were forfeited in full. On March 29, 2015,
117,898
shares of performance-based restricted common stock were forfeited pursuant to the modified awards. As a result, in accordance with ASC 718, the Company reversed the cumulative compensation cost related to the original awards of
$10.5 million
in the first quarter of
2015
and recognized the compensation cost attributed to the modified awards of
$9.8 million
as follows: the first
50%
of the awards was expensed over the period beginning on March 11, 2015 and ending on April 16, 2015, the date of FDA approval, and the remaining
50%
of the awards was expensed over the period beginning on March 11, 2015 and ending on April 16, 2016, the
one year
anniversary of FDA approval.
Since April 2016, the Company awarded
1,785,600
shares of performance-based restricted stock to its employees. The vesting of the shares is subject to the Company achieving up to
two
of
three
possible performance milestones on or before April 13, 2019. Upon achieving each of the first and second milestones,
25%
of the shares will vest on the later of the milestone achievement date and the first anniversary of the grant date, and an additional
25%
of the shares will vest on the
one year
anniversary of such achievement date, subject to a requirement that recipients remain employees through each applicable vesting date. Each quarter, the Company evaluates the probability of achieving the milestones on or before April 13, 2019, and its estimate of the implicit service period over which the fair value of the awards will be recognized and expensed. Upon issuance of the shares of restricted stock the Company had determined that the milestones were probable of achievement and re-assessed the probability at each reporting period including December 31, 2017. At December 31, 2017, the Company concluded that
one
of the performance milestones was no longer probable of achievement by April 13, 2019. As such, the Company reversed
$3.8 million
in compensation cost representing previously recognized compensation cost for the portion of the awards not likely to vest by April 13, 2019 in the fourth quarter of 2017. For the year ended
December 31, 2017
, the Company recognized approximately
$0.8 million
of stock compensation costs related to these awards
.
As of
December 31, 2017
, the total remaining unrecognized compensation cost related to all nonvested restricted stock and restricted stock unit awards amounted to
$11.0 million
, which is expected to be recognized over the weighted average remaining requisite service period of approximately
2.0 years
.
A summary of the status of nonvested shares of restricted stock and restricted stock units as of
December 31, 2017
and the changes during the year then ended are presented below (in thousands, except fair values):
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value
|
Nonvested at January 1, 2017
|
1,992
|
|
|
$
|
10.64
|
|
Granted
|
659
|
|
|
18.12
|
|
Vested
|
(286
|
)
|
|
12.64
|
|
Forfeited
|
(370
|
)
|
|
11.85
|
|
Nonvested at December 31, 2017
|
1,995
|
|
|
$
|
12.60
|
|
Nonvested shares of restricted stock and restricted stock units that have time-based vesting schedules and restricted stock that have performance-based vesting schedules as of
December 31, 2017
are summarized below (in thousands):
|
|
|
|
Vesting Schedule
|
Nonvested Shares
|
Time-based
|
692
|
|
Performance-based
|
1,303
|
|
Nonvested at December 31, 2017
|
1,995
|
|
The total fair value of shares of restricted stock and restricted stock units vested during
2017
,
2016
and
2015
was
$3.7 million
,
$7.6 million
and
$7.9 million
, respectively.
Employee Stock Purchase Plan
In 2004, the Company's Board of Directors adopted the 2004 Employee Stock Purchase Plan, or ESPP. An aggregate of
2,424,652
shares of common stock have been reserved for issuance under the ESPP.
The ESPP is generally available to all employees who work more than
20
hours per week and
five
months per year. Under the ESPP, eligible participants purchase shares of the Company's common stock at a price equal to
85%
of the lesser of the closing price of the Company's common stock on the first business day and the final business day of the applicable plan purchase period. Plan purchase periods begin on February 1 and August 1 of each year, with purchase dates occurring on the final business day of the given purchase period. To pay for the shares, each participant authorizes periodic payroll deductions of up to
15%
of his or her eligible cash compensation. All payroll deductions collected from the participant during a purchase period are automatically applied to the purchase of common stock on that period's purchase date provided the participant remains an eligible employee and has not withdrawn from the ESPP prior to that date and subject to certain limitations imposed by the ESPP and the Internal Revenue Code. The Company issued
99,872
shares of common stock to employees under the ESPP during the year ended
December 31, 2017
. As of
December 31, 2017
,
842,238
shares of common stock have been issued to the Company's employees under the ESPP, and
1,582,414
shares remain available for future issuance. The fair value of each ESPP award is estimated on the first day of the offering period using the Black-Scholes-Merton option-pricing model. The weighted average assumptions the Company used in its fair value calculations and the expense recorded are noted in the table above under the heading
Share-Based Compensation
. The Company recognizes share-based compensation expense equal to the fair value of the ESPP awards on a straight-line basis over the offering period. At
December 31, 2017
, subscriptions were outstanding for an estimated
53,855
shares at a fair value of approximately
$4.83
per share. The weighted average grant date fair value of the offerings during
2017
,
2016
and
2015
was
$4.62
,
$4.32
and
$4.05
per share, respectively. Cash received from the ESPP for
2017
,
2016
and
2015
was approximately
$1.2 million
,
$1.1 million
and
$1.0 million
, respectively.
12. Net Loss Per Common Share
Since the Company had a net loss for all periods presented, the effect of all potentially dilutive securities is anti-dilutive. Accordingly, basic and diluted net loss per share is the same in those periods. The weighted-average anti-dilutive shares shown in the foregoing table were not included in the computation of diluted net loss per share. Anti-dilutive shares comprise the impact of the number of shares that would have been dilutive had the Company had net income plus the number of common stock equivalents that would be anti-dilutive had the Company had net income.
The following table presents anti-dilutive shares for the years ended
December 31, 2017
,
2016
and
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Weighted-average anti-dilutive shares related to:
|
|
|
|
|
|
Outstanding stock options
|
5,671
|
|
|
6,569
|
|
|
4,148
|
|
Restricted stock awards
|
1,064
|
|
|
1,202
|
|
|
519
|
|
13. Income Taxes
In 2017, the Company adopted ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which eliminates the requirement that excess tax benefits be realized as a reduction in current taxes payable before the associated tax benefit can be recognized in additional paid-in capital. This created approximately
$6.2 million
of deferred tax assets relating to federal and state net operating losses that are fully offset by a corresponding increase in the valuation allowance. As a result, there was no cumulative effect adjustment to accumulated
deficit.
The Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act), which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory tax rate reduction from 35% to 21%, which reduced the Company's deferred tax assets and corresponding valuation allowance. The Company reevaluates the positive and negative evidence bearing upon the realizability of its deferred tax assets on an annual basis. Since the Company has generated operating losses and expects to continue to incur future losses, the Company has concluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company may not realize the benefit of all of its deferred tax assets. Accordingly, the Company has recorded a full valuation allowance against its deferred tax assets. The
$11.6 million
decrease in the valuation allowance for the year ended
December 31, 2017
was driven by
$53.3 million
reduction in the federal statutory tax rate partially offset by the current period net loss.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, or SAB 118, to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the provisional tax impacts related to the revaluation of the deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended
December 31, 2017
. The ultimate impact may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The Company establishes a valuation allowance when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized. Components of the net deferred tax assets at
December 31, 2017
and
2016
are as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
Federal and state net operating losses
|
$
|
99,252
|
|
|
$
|
94,793
|
|
Research credits
|
36,819
|
|
|
30,007
|
|
Deferred compensation
|
8,274
|
|
|
9,701
|
|
Deferred revenue
|
9,184
|
|
|
28,096
|
|
Accrued expenses
|
4,977
|
|
|
5,053
|
|
Intangibles
|
2,020
|
|
|
3,220
|
|
Depreciation
|
—
|
|
|
475
|
|
Unrealized loss on marketable securities
|
13
|
|
|
—
|
|
Total deferred tax assets
|
160,539
|
|
|
171,345
|
|
Deferred tax liabilities:
|
|
|
|
Depreciation
|
(802
|
)
|
|
—
|
|
Unrealized gain on marketable securities
|
—
|
|
|
(30
|
)
|
Total deferred tax liabilities
|
(802
|
)
|
|
(30
|
)
|
Valuation allowance
|
(159,737
|
)
|
|
(171,315
|
)
|
Net deferred tax assets
|
$
|
—
|
|
|
$
|
—
|
|
A reconciliation of the federal statutory income tax benefit to the Company's actual provision for the years ended
December 31, 2017
,
2016
and
2015
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Benefit at federal statutory tax rate
|
$
|
(29,941
|
)
|
|
$
|
(7,137
|
)
|
|
$
|
(28,323
|
)
|
State taxes, net of federal benefit
|
(4,713
|
)
|
|
(1,108
|
)
|
|
(4,398
|
)
|
Share-based compensation
|
1,370
|
|
|
5,148
|
|
|
3,634
|
|
Tax credits
|
(2,733
|
)
|
|
(4,120
|
)
|
|
(2,652
|
)
|
Other
|
492
|
|
|
272
|
|
|
42
|
|
Change in valuation allowance
|
(17,817
|
)
|
|
6,945
|
|
|
31,697
|
|
Federal statutory rate change
|
53,342
|
|
|
—
|
|
|
—
|
|
Income tax provision
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company generated U.S. taxable income during the years ended December 31, 2011 and 2010, and as a result, utilized
$190.9 million
and
$26.3 million
, respectively, of its historical available federal net operating loss carryforwards that were generated from 2001 to 2009 to offset this income.
At
December 31, 2017
, the Company had federal and state net operating loss carryforwards of
$369.3 million
and
$343.5 million
, respectively, available to reduce future taxable income that will expire at various dates through
2037
. At
December 31, 2017
, the Company had federal and state research and development and other credit carryforwards, including the orphan drug credit, of
$35.0 million
and
$12.0 million
, respectively, available to reduce future tax liabilities. Federal and state research and development and other credit carryforwards expire at various dates through
2037
, while the orphan drug credit does not expire. Ownership changes, as defined in the Internal Revenue Code, may limit the amount of net operating loss that can be utilized to offset future taxable income or tax liability.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended
December 31, 2017
and
2016
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Balance, beginning of year
|
$
|
6,678
|
|
|
$
|
5,116
|
|
|
$
|
4,064
|
|
Additions for tax positions related to the current year
|
1,262
|
|
|
1,602
|
|
|
1,395
|
|
Reductions of tax positions of prior years
|
—
|
|
|
(40
|
)
|
|
(343
|
)
|
Balance, end of year
|
$
|
7,940
|
|
|
$
|
6,678
|
|
|
$
|
5,116
|
|
As of
December 31, 2017
and
2016
, the Company had
$7.9 million
and
$6.7 million
of gross unrecognized tax benefits, respectively, of which
$7.8 million
and
$6.6 million
, respectively, if recognized, would not impact the Company's effective tax rate as there is a full valuation allowance on these credits.
The Company's policy is to recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not recognized any interest and penalties.
The Company does not anticipate that it is reasonably possible that the uncertain tax positions will significantly increase or decrease within the next
twelve months
.
The Company files income tax returns in the United States federal jurisdiction and in the Massachusetts jurisdiction. The Company is no longer subject to any tax assessment from an income tax examination for years before
2014
, except to the extent that in the future it utilizes net operating losses or tax credit carryforwards that originated before
2014
.
In March 2012, the Company entered into a Tax Incentive Agreement with the Massachusetts Life Sciences Center, or MLSC, under the MLSC's Life Sciences Tax Incentive Program, or the Program, to expand life sciences-related employment opportunities, promote health-related innovations and stimulate research and development, manufacturing and commercialization in the life sciences in the Commonwealth of Massachusetts. The Program was established in 2008 in order to incentivize life sciences companies to create new sustained jobs in Massachusetts. Under the Tax Incentive Agreement, companies receive an award from the MLSC upon attaining job creation commitment. The Company maintained its job creation commitment for
five years
and recorded one-fifth of the
$1.1 million
job creation tax award, or
$0.2 million
, on a straight-line basis as other income beginning in 2012 and ending in 2016.
14. Commitments and Contingencies
Operating Leases
The Company leases office space and equipment under various operating lease agreements. Rent expense for office space under operating leases amounted to
$19.3 million
,
$18.5 million
and
$16.4 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
The Company leases approximately
78,500
square feet of office and laboratory space at 675 West Kendall Street in Cambridge, Massachusetts from Vertex Pharmaceuticals. Annual rental payments are approximately
$4.8 million
. The lease expires on
April 30, 2018
.
In February 2013, the Company and BMR-Rogers Street LLC, or BMR, entered into a lease agreement to lease approximately
105,000
square feet of office and laboratory space at 320 Bent Street in Cambridge, Massachusetts, or the Bent Premises. Annual rental payments are approximately
$8.1 million
and are subject to annual rent escalation. The lease expires on
February 28, 2027
. Pursuant to the lease agreement with BMR, the Company also leases approximately
52,000
square feet of office and laboratory space on the fourth floor of 301 Binney Street in Cambridge, Massachusetts, or the Fourth Floor Binney Premises. Annual rental payments for the Fourth Floor Binney Premises are approximately
$3.8 million
and are subject to annual rent escalation. The lease expires on
March 31, 2028
. The lease agreement contains various provisions for renewal at the Company’s option as well as free rent periods for both premises.
In September 2016, the Company and Biogen MA Inc., or Biogen, entered into to a sublease agreement to lease approximately
80,000
square feet of office and laboratory space on the fifth floor of 301 Binney Street in Cambridge, Massachusetts, or the Fifth Floor Binney Premises. Annual rental payments are approximately
$6.1 million
and are subject to various annual rent escalations over the lease term, which began on January 1, 2018 and expires on
June 29, 2025
.
Pursuant to the lease with BMR, the Company was provided allowances from the landlord totaling approximately
$14.9 million
as reimbursement of certain laboratory and office improvements at both the Fourth and Fifth Floor Binney Premises as well as the Bent Premises.
The Company records rent expense, inclusive of the escalating rent payments and free rent periods, on a straight-line basis over the terms of the lease. Tenant reimbursement amounts are recorded upon payment as deferred rent on the consolidated balance sheets and are amortized as a reduction to rent expense over the lease term. The Company capitalizes the cost of normal tenant improvements as leasehold improvements as the costs are incurred.
Total operating lease commitments as of
December 31, 2017
are as follows (in thousands):
|
|
|
|
|
Operating lease commitments
|
Total
|
2018
|
$
|
19,013
|
|
2019
|
18,848
|
|
2020
|
19,380
|
|
2021
|
19,856
|
|
2022
|
20,319
|
|
2023 and beyond
|
82,541
|
|
Total future minimum lease payments
|
$
|
179,957
|
|
Legal Contingencies
The Company is involved in various litigation matters that arise from time to time in the ordinary course of business. The process of resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these matters will adversely affect the Company, its results of operations, financial condition and cash flows. The Company's general practice is to expense legal fees as services are rendered in connection with legal matters, and to accrue for liabilities when losses are probable and reasonably estimable. The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of any accrual on its consolidated balance sheets.
GLATOPA 40 mg/mL-Related Litigation
On September 10, 2014, Teva Pharmaceuticals Industries Ltd. and related entities, or Teva, and Yeda Research and Development Co., Ltd., or Yeda, filed a suit against the Company and Sandoz in the United States District Court for the District
of Delaware in response to the filing by Sandoz of the ANDA with a Paragraph IV certification for GLATOPA 40 mg/mL. The suit initially alleged infringement related to
two
Orange Book-listed patents for COPAXONE 40 mg/mL, each expiring in 2030, and sought declaratory and injunctive relief prohibiting the launch of the Company's product until the last to expire of these patents. In April 2015, Teva and Yeda filed an additional suit against the Company and Sandoz in the United States District Court for the District of Delaware alleging infringement related to a third Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in March 2015 and expires in 2030. In May 2015, this suit was consolidated with the initial suit that was filed in September 2014. In November 2015, Teva and Yeda filed a suit against the Company and Sandoz in the United States District Court for the District of Delaware alleging infringement related to a fourth Orange Book-listed patent for COPAXONE 40 mg/mL, which issued in October 2015 and expires in 2030. In December 2015, this suit was also consolidated with the initial suit that was filed in September 2014. Teva and Yeda seek declaratory and injunctive relief prohibiting the launch of GLATOPA 40 mg/mL until the expiration of the patents at issue. On January 30, 2017, the District Court found the
four
patents to be invalid due to obviousness. In February 2017, Teva and Yeda appealed the District Court's January 30, 2017, decision to the U.S. Court of Appeals for the Federal Circuit. Briefing was completed in the third quarter of 2017, and a decision is pending oral argument.
On January 31, 2017, Teva filed a suit against the Company and Sandoz in the United States District Court for the District of New Jersey alleging infringement related to an additional patent for COPAXONE 40 mg/mL, U.S. Patent No. 9,155,775, which issued in October 2015 and expires in October 2035. The Company and Sandoz filed a motion to dismiss and a motion to transfer the suit to the United States District Court for the District of Delaware. On January 31, 2017, Teva voluntarily dismissed the Company from the New Jersey suit for U.S. Patent No. 9,155,775, maintaining the suit against Sandoz. On May 23, 2017, the United States District Court for the District of New Jersey granted the motion to transfer the suit to the United States District Court for the District of Delaware. A claim construction hearing was held on November 2, 2017, and a claim construction opinion issued on December 1, 2017. A seven day trial is scheduled to commence before the United States District Court for the District of Delaware on October 9, 2018.
On February 2, 2017, the Company filed a complaint in the United States District Court for the District of Delaware seeking a declaration that U.S. Patent No. 9,155,775 is invalid, not infringed or not enforceable against the Company. In March 2017, Teva filed a motion, which is currently pending, to stay further proceedings in the Delaware action.
Enoxaparin Sodium Injection-related Litigation
On September 21, 2011, the Company and Sandoz sued Amphastar and Actavis in the United States District Court for the District of Massachusetts for patent infringement. Also in September 2011, the Company filed a request for a temporary restraining order and preliminary injunction to prevent Amphastar and Actavis from selling their Enoxaparin product in the United States. In October 2011, the District Court granted the Company's motion for a preliminary injunction and entered an order enjoining Amphastar and Actavis from advertising, offering for sale or selling their Enoxaparin product in the United States until the conclusion of a trial on the merits and required the Company and Sandoz to post a security bond of
$100 million
in connection with the litigation. Amphastar and Actavis appealed the decision to the Court of Appeals for the Federal Circuit, or CAFC, and in January 2012, the CAFC stayed the preliminary injunction. In August 2012, the CAFC vacated the preliminary injunction and remanded the case to the District Court. In September 2012, the Company filed a petition with the CAFC for a rehearing by the full court
en banc
, which was denied. In February 2013, the Company filed a petition for a writ of certiorari for review of the CAFC decision by the United States Supreme Court which was denied in June 2013.
In July 2013, the District Court granted a motion by Amphastar and Actavis for summary judgment. The Company filed a notice of appeal of that decision to the CAFC. In February 2014, Amphastar filed a motion to the CAFC for summary affirmance of the District Court ruling, which the CAFC denied in May 2014. On November 10, 2015, the CAFC affirmed the District Court summary judgment decision with respect to Actavis, reversed the District Court summary judgment decision with respect to Amphastar, and remanded the case against Amphastar to the District Court. On January 11, 2016, Amphastar filed a petition for rehearing by the CAFC, which was denied on February 17, 2016. On May 17, 2016, Amphastar filed a petition for writ of certiorari for review of the CAFC decision by the United States Supreme Court, which was denied on October 3, 2016. In April 2017, the Company, Sandoz and Actavis, or the Settling Parties, settled and signed reciprocal releases of all claims, and filed a voluntary stipulation with the District Court, pursuant to which the Settling Parties stipulated and agreed to dismiss with prejudice all claims and counterclaims among the Settling Parties, without fees or costs to any party, and with the Settling Parties waiving any and all right of appeal. The District Court trial was held in July 2017, and the jury verdict found the Company's patent to be infringed, but invalid and unenforceable. In February 2018, the District Court confirmed the jury’s opinion that the patent was infringed but invalid, and narrowed the jury’s recommendation on unenforceability by finding the patent to be unenforceable against only one of the two infringing methods used by Amphastar. The Company and Sandoz are considering all other available legal options to overturn the portions of the verdict finding the Company's patent to be invalid and partially unenforceable, including a potential appeal to the CAFC. In the event that the Company is not successful in further appeal or prosecution or settlement of this action against Amphastar, and Amphastar is able to prove they suffered
damages as a result of the preliminary injunction, the Company could be liable for damages for up to
$35 million
of the security bond. The Company posted
$17.5 million
as collateral for the security bond and classified the collateral as restricted cash in its consolidated balance sheet. Litigation involves many risks and uncertainties, and there is no assurance that the Company or Sandoz will prevail in this patent enforcement suit.
On September 17, 2015, Amphastar filed a complaint against the Company and Sandoz in the United States District Court for the Central District of California. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, the Company and Sandoz sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal and California anti-trust laws and California unfair business laws. Amphastar is seeking unspecified damages and fees. In December 2015, the Company and Sandoz filed a motion to dismiss and a motion to transfer the case. In January 2016, the case was transferred to the United States District Court for the District of Massachusetts. In February 2016, Amphastar filed a writ of mandamus with the United States Court of Appeals for the Ninth Circuit requesting that the court reverse and review the District Court's grant of transfer and in May 2016, the writ requested by Amphastar was denied. On July 27, 2016, the Company's and Sandoz' motion to dismiss was granted by the District Court, and the case was dismissed. On August 25, 2016, Amphastar filed a notice of appeal from the dismissal with the United States Court of Appeals for the First Circuit. Briefing was completed in December 2016, and oral argument was held on February 9, 2017. On March 6, 2017, the United States Court of Appeals for the First Circuit reversed the District Court’s dismissal and remanded the case to the District Court for further proceedings. On April 6, 2017, the District Court held a scheduling conference to provide dates for the remanded case, and on April 20, 2017, the Company and Sandoz filed their renewed motion to dismiss. Trial is scheduled for April 2019, however, the parties have filed a joint motion seeking to reschedule the proceedings pending a ruling on the motion to dismiss.
On October 14, 2015, The Hospital Authority of Metropolitan Government of Nashville and Davidson County, Tennessee, d/b/a Nashville General Hospital, or NGH, filed a class action suit against the Company and Sandoz in the United States District Court for the Middle District of Tennessee on behalf of certain purchasers of LOVENOX or generic Enoxaparin Sodium Injection. The complaint alleges that, in connection with filing the September 2011 patent infringement suit against Amphastar and Actavis, the Company and Sandoz sought to prevent Amphastar from selling generic Enoxaparin Sodium Injection and thereby exclude competition for generic Enoxaparin Sodium Injection in violation of federal anti-trust laws. NGH is seeking injunctive relief, disgorgement of profits and unspecified damages and fees. In December 2015, the Company and Sandoz filed a motion to dismiss and a motion to transfer the case to the United States District Court for the District of Massachusetts. On March 21, 2017, the United States District Court for the Middle District of Tennessee dismissed NGH’s claim for damages against the Company and Sandoz, but allowed the case to move forward, in part, for NGH’s claims for injunctive and declaratory relief. In the same opinion, the United States District Court for the Middle District of Tennessee denied our motion to transfer. On June 9, 2017, NGH filed a motion to amend its complaint to add a new named plaintiff, the American Federation of State, County and Municipal Employees District Council 37 Health & Security Plan, or DC37. NGH and DC37 seek to assert claims for damages under the laws of more than 30 different states, on behalf of a putative class of indirect purchasers of Lovenox or generic enoxaparin. On June 30, 2017, the Company and Sandoz filed a brief opposing the motion to amend the complaint. On December 14, 2017, the Court granted NGH's motion to amend. In January 2018, the Company and Sandoz filed three motions to dismiss the amended complaint. While the outcome of litigation is inherently uncertain, the Company believes this suit is without merit, and intend to vigorously defend itself in this litigation.
15. 401(k) Plan
The Company has a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited by the maximum amounts allowable under federal tax regulations. The Company has discretion to make contributions to the plan. In March 2005, the Company's Board of Directors approved a match of
50%
of the first
6%
contributed by employees, effective for the 2004 plan year and thereafter. The Company recorded
$1.1 million
,
$1.0 million
and
$0.9 million
of such match expense in the years ended
December 31, 2017
,
2016
and
2015
, respectively.
16. Equity Financings
In May 2015, the Company sold an aggregate of
8,337,500
shares of its common stock through an underwritten public offering at a price to the public of
$19.00
per share. As a result of the offering, which included the full exercise of the underwriters' option to purchase additional shares, the Company received aggregate net proceeds of approximately
$148.4 million
, after deducting underwriting discounts and commissions and other offering expenses.
In May 2014, the Company entered into an At-the-Market Equity Offering Sales Agreement, or the 2014 ATM Agreement, with Stifel, Nicolaus & Company, Incorporated, or Stifel, under which the Company was authorized to issue and sell shares of its common stock having aggregate sales proceeds of up to
$75 million
from time to time through Stifel, acting as
sales agent and/or principal. The Company paid Stifel a commission of
2.0%
of the gross proceeds from the sale of shares of its common stock under this facility. The Company concluded sales under the 2014 ATM Agreement in April 2015. In the year ended
December 31, 2015
, the Company sold approximately
3.8 million
shares of common stock under the 2014 ATM Agreement, raising aggregate net proceeds of approximately
$55.2 million
. In total, the Company sold approximately
5.4 million
shares of common stock, raising aggregate net proceeds of approximately
$73.5 million
.
In April 2015, the Company entered into an ATM Agreement, or the 2015 ATM Agreement, with Stifel, under which the Company was authorized to issue and sell shares of its common stock having aggregate sales proceeds of up to
$75 million
from time to time through Stifel, acting as sales agent and/or principal. The Company paid Stifel a commission of
2.0%
of the gross proceeds from the sale of shares of its common stock under the 2015 ATM Agreement. The Company concluded sales under the 2015 ATM Agreement in May 2017. In the year ended
December 31, 2015
, the Company sold approximately
0.5 million
shares of common stock under the 2015 ATM Agreement, raising net proceeds of approximately
$9.3 million
. In the year ended
December 31, 2017
, the Company sold approximately
4.5 million
shares of common stock pursuant to an effective shelf registration statement filed with the SEC (Reg. No. 333-209813) and a related prospectus supplement, raising net proceeds of
$64.1 million
, and concluded sales under the 2015 ATM Agreement.
17. Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
(in thousands, except per share data)
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
2017
|
|
|
|
|
|
|
|
Product revenue
|
$
|
23,404
|
|
|
$
|
19,140
|
|
|
$
|
10,890
|
|
|
$
|
13,369
|
|
Research and development revenue
|
$
|
3,210
|
|
|
$
|
4,430
|
|
|
$
|
13,200
|
|
|
$
|
51,239
|
|
Total collaboration revenue
|
$
|
26,614
|
|
|
$
|
23,570
|
|
|
$
|
24,090
|
|
|
$
|
64,608
|
|
Operating (loss) income
|
$
|
(32,592
|
)
|
|
$
|
(38,065
|
)
|
|
$
|
(34,527
|
)
|
|
$
|
12,633
|
|
Net (loss) income
|
$
|
(31,759
|
)
|
|
$
|
(36,908
|
)
|
|
$
|
(33,188
|
)
|
|
$
|
13,759
|
|
Comprehensive (loss) income
|
$
|
(31,825
|
)
|
|
$
|
(36,933
|
)
|
|
$
|
(33,136
|
)
|
|
$
|
13,572
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.46
|
)
|
|
$
|
(0.50
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.18
|
|
Diluted
|
$
|
(0.46
|
)
|
|
$
|
(0.50
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.18
|
|
Shares used in calculating net (loss) income per share:
|
|
|
|
|
|
|
|
Basic
|
69,711
|
|
|
73,379
|
|
|
74,611
|
|
|
74,770
|
|
Diluted
|
69,711
|
|
|
73,379
|
|
|
74,611
|
|
|
75,033
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
Product revenue
|
$
|
14,800
|
|
|
$
|
20,692
|
|
|
$
|
23,339
|
|
|
$
|
15,817
|
|
Research and development revenue
|
$
|
5,050
|
|
|
$
|
5,738
|
|
|
$
|
5,805
|
|
|
$
|
18,378
|
|
Total collaboration revenue
|
$
|
19,850
|
|
|
$
|
26,430
|
|
|
$
|
29,144
|
|
|
$
|
34,195
|
|
Operating loss
|
$
|
(24,554
|
)
|
|
$
|
(21,639
|
)
|
|
$
|
(18,182
|
)
|
|
$
|
(10,352
|
)
|
Net (loss) income
|
$
|
(24,012
|
)
|
|
$
|
(20,986
|
)
|
|
$
|
(17,544
|
)
|
|
$
|
41,539
|
|
Comprehensive (loss) income
|
$
|
(23,879
|
)
|
|
$
|
(20,837
|
)
|
|
$
|
(17,580
|
)
|
|
$
|
41,375
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.35
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.60
|
|
Diluted
|
$
|
(0.35
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
0.60
|
|
Shares used in calculating net (loss) income per share:
|
|
|
|
|
|
|
|
Basic
|
68,285
|
|
|
68,532
|
|
|
68,799
|
|
|
69,003
|
|
Diluted
|
68,285
|
|
|
68,532
|
|
|
68,799
|
|
|
69,362
|
|
Basic and diluted net loss per common share amounts for the quarters and full years have been calculated separately. Accordingly, quarterly amounts may not add to the annual amount because of differences in the weighted-average common
shares outstanding during each period principally due to the effect of the Company issuing shares of its common stock during the year.