mtem-10q_20190630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2019

or

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

For the transition period from               to             

Commission File Number: 001-32979

 

Molecular Templates, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

94-3409596

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

9301 Amberglen Blvd

Suite 100

Austin, TX 78729

(Address of principal executive offices)

 

 

78729

(Zip Code)

(512) 869-1555

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 Par Value Per Share

 

MTEM

 

The Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

On August 5, 2019, there were 36,936,581 shares of common stock, par value $0.001 per share, of Molecular Templates, Inc. outstanding.

 

 


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements, other than statements of historical facts contained herein, regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these identifying words. These forward-looking statements include, but are not limited to, statements about:

 

 

the implementation of our business strategies, including our ability to pursue development pathways and regulatory strategies for MT-3724 and other engineered toxin body, or ETB, product candidates;

 

the timing and our ability to advance the development of our product candidates;

 

our plans to pursue discussions with regulatory authorities, and the anticipated timing, scope and outcome of related regulatory actions or guidance;

 

our ability to establish and maintain potential new partnering or collaboration arrangements for the development and commercialization of ETB product candidates;

 

our financial condition, including our ability to obtain the funding necessary to advance the development of our product candidates;

 

the anticipated progress of our product candidate development programs, including whether our ongoing and potential future clinical trials will achieve clinically relevant results;

 

our ability to generate data and conduct analyses to support the regulatory approval of our product candidates;

 

our ability to establish and maintain intellectual property rights for our product candidates;

 

whether any product candidates that we are able to commercialize are safer or more effective than other marketed products, treatments or therapies;

 

our ability to discover and develop additional product candidates suitable for clinical testing;

 

our ability to identify, in-license or otherwise acquire additional product candidates and development programs;

 

our anticipated research and development activities and projected expenditures;

 

our ability to complete preclinical and clinical testing successfully for new product candidates that we may develop or license;

 

our ability to have manufactured active pharmaceutical ingredient, or API, and drug product that meet required release and stability specifications;

 

our ability to have manufactured sufficient supplies of drug product for clinical testing and commercialization;

 

our ability to obtain licenses to any necessary third-party intellectual property;

 

our ability to retain and hire necessary employees and appropriately staff our development programs; and

 

the sufficiency of our cash resources; and other risks and uncertainties, including those listed under Part II, Item 1A, “Risk Factors”.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

 


 

Molecular Templates, Inc.

TABLE OF CONTENTS

 

 

  

 

Page

PART I.

  

FINANCIAL INFORMATION

 

4

Item 1.

  

Financial Statements

 

4

 

  

Condensed Consolidated Balance Sheets (Unaudited)

 

4

 

  

Condensed Consolidated Statements of Operations (Unaudited)

 

5

 

 

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

 

6

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

 

7

 

  

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

8

 

  

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

 

34

Item 4.

  

Controls and Procedures

 

35

PART II.

  

OTHER INFORMATION

 

36

Item 1

  

Legal Proceedings

 

36

Item 1A.

  

Risk Factors

 

36

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

 

70

Item 3.

  

Defaults Upon Senior Securities

 

70

Item 4.

  

Mine Safety Disclosures

 

70

Item 5.

  

Other Information

 

70

Item 6.

  

Exhibits

 

71

SIGNATURES

 

72

 

 

 

3


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Molecular Templates, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

June 30,

2019 (unaudited)

 

 

December 31,

2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

16,795

 

 

$

87,721

 

Marketable securities, current

 

55,529

 

 

 

10,234

 

Prepaid expenses

 

2,258

 

 

 

2,244

 

Grants revenue receivable

 

5,160

 

 

 

4,329

 

Accounts receivable from related party

 

 

 

 

240

 

Other current assets

 

98

 

 

 

95

 

Total current assets

 

79,840

 

 

 

104,863

 

Operating lease right-of-use assets, non-current

 

10,796

 

 

 

 

Property and equipment, net

 

9,151

 

 

 

6,851

 

In-process research and development

 

26,623

 

 

 

26,623

 

Other assets

 

4,737

 

 

 

1,821

 

Total assets

$

131,147

 

 

$

140,158

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

2,577

 

 

$

780

 

Accrued liabilities

 

7,120

 

 

 

5,357

 

Deferred revenue, current

 

14,561

 

 

 

26,231

 

Other current liabilities

 

1,435

 

 

 

141

 

Total current liabilities

 

25,693

 

 

 

32,509

 

Deferred revenue, non-current

 

1,664

 

 

 

2,670

 

Long-term debt, non-current, net

 

3,075

 

 

 

3,254

 

Operating lease liabilities, non-current

 

10,707

 

 

 

 

Other liabilities

 

748

 

 

 

819

 

Total liabilities

 

41,887

 

 

 

39,252

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, $0.001 par value:

 

 

 

 

 

 

 

Authorized: 150,000,000 shares; issued and outstanding: 36,882,163 shares at June 30, 2019 and 36,736,012 shares at December 31, 2018

 

37

 

 

 

37

 

Additional paid-in capital

 

199,223

 

 

 

195,573

 

Accumulated other comprehensive income

 

25

 

 

 

 

Accumulated deficit

 

(110,025

)

 

 

(94,704

)

Total stockholders’ equity

 

89,260

 

 

 

100,906

 

Total liabilities and stockholders’ equity

$

131,147

 

 

$

140,158

 

 

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

4


 

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Research and development revenue - from related party

$

5,211

 

 

$

932

 

 

$

11,624

 

 

$

1,095

 

Research and development revenue - other

 

 

 

 

12

 

 

 

 

 

 

80

 

Grant revenue

 

236

 

 

 

423

 

 

 

831

 

 

 

674

 

Total revenue

 

5,447

 

 

 

1,367

 

 

 

12,455

 

 

 

1,849

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

10,243

 

 

 

7,662

 

 

 

18,697

 

 

 

14,350

 

General and administrative

 

4,605

 

 

 

3,718

 

 

 

9,540

 

 

 

6,627

 

Total operating expenses

 

14,848

 

 

 

11,380

 

 

 

28,237

 

 

 

20,977

 

Loss from operations

 

9,401

 

 

 

10,013

 

 

 

15,782

 

 

 

19,128

 

Interest and other income, net

 

543

 

 

 

118

 

 

 

1,053

 

 

 

200

 

Interest and other expense, net

 

(301

)

 

 

(98

)

 

 

(594

)

 

 

(393

)

Change in fair value of warrant liabilities

 

6

 

 

 

298

 

 

 

2

 

 

 

912

 

Net loss attributable to common shareholders

$

9,153

 

 

$

9,695

 

 

$

15,321

 

 

$

18,409

 

Net loss per share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

$

0.25

 

 

$

0.36

 

 

$

0.42

 

 

$

0.68

 

Weighted average number of shares used in net loss per share calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

36,819,846

 

 

 

27,062,440

 

 

 

36,779,638

 

 

 

27,026,263

 

 

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

5


 

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

$

9,153

 

 

$

9,695

 

 

$

15,321

 

 

$

18,409

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

25

 

 

 

 

 

 

25

 

 

 

 

Comprehensive loss

$

9,128

 

 

$

9,695

 

 

$

15,296

 

 

$

18,409

 

 

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

6


 

MOLECULAR TEMPLATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stockholders’

 

Three months ended June 30, 2018

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

(Deficit)

 

Balances, March 31, 2018

 

 

27,060,035

 

 

$

28

 

 

$

144,044

 

 

$

 

 

$

(73,131

)

 

$

70,941

 

Issuance of common stock pursuant to stock plans

 

 

5,163

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

Stock-based compensation

 

 

 

 

 

 

 

 

922

 

 

 

 

 

 

 

 

 

922

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,695

)

 

 

(9,695

)

Balances, June 30, 2018

 

 

27,065,198

 

 

$

28

 

 

$

144,975

 

 

$

 

 

$

(82,826

)

 

$

62,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stockholders’

 

Six months ended June 30, 2018

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

(Deficit)

 

Balances, December 31, 2017

 

 

26,898,330

 

 

$

27

 

 

$

141,733

 

 

$

 

 

$

(64,471

)

 

$

77,289

 

Issuance of common stock pursuant to stock plans

 

 

166,868

 

 

 

1

 

 

 

155

 

 

 

 

 

 

 

 

 

156

 

Issuance of warrant to purchase common stock in relation to term loan facility

 

 

 

 

 

 

 

 

1,522

 

 

 

 

 

 

 

 

 

1,522

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,565

 

 

 

 

 

 

 

 

 

1,565

 

Cumulative-effect adjustment upon adoption of new accounting standards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

54

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,409

)

 

 

(18,409

)

Balances, June 30, 2018

 

 

27,065,198

 

 

$

28

 

 

$

144,975

 

 

$

 

 

$

(82,826

)

 

$

62,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stockholders’

 

Three months ended June 30, 2019

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

(Deficit)

 

Balances, March 31, 2019

 

 

36,756,651

 

 

$

37

 

 

$

196,972

 

 

$

 

 

$

(100,872

)

 

$

96,137

 

Issuance of common stock pursuant to stock plans

 

 

125,512

 

 

 

 

 

 

809

 

 

 

 

 

 

 

 

 

809

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,442

 

 

 

 

 

 

 

 

 

1,442

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

25

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,153

)

 

 

(9,153

)

Balances, June 30, 2019

 

 

36,882,163

 

 

$

37

 

 

$

199,223

 

 

$

25

 

 

$

(110,025

)

 

$

89,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stockholders’

 

Six months ended June 30, 2019

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

(Deficit)

 

Balances, December 31, 2018

 

 

36,736,012

 

 

$

37

 

 

$

195,573

 

 

$

 

 

$

(94,704

)

 

$

100,906

 

Issuance of common stock pursuant to stock plans

 

 

146,151

 

 

 

 

 

 

847

 

 

 

 

 

 

 

 

 

847

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,803

 

 

 

 

 

 

 

 

 

2,803

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

25

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,321

)

 

 

(15,321

)

Balances, June 30, 2019

 

 

36,882,163

 

 

$

37

 

 

$

199,223

 

 

$

25

 

 

$

(110,025

)

 

$

89,260

 

 

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

7


 

Molecular Templates, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

15,321

 

 

$

18,409

 

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

 

 

 

 

 

 

 

Depreciation, amortization and other

 

301

 

 

 

187

 

Stock-based compensation expense

 

2,803

 

 

 

1,565

 

Amortization of debt discount and accretion related to debt

 

221

 

 

 

127

 

Change in common stock warrant fair value

 

(2

)

 

 

(912

)

Accretion of asset retirement obligations

 

25

 

 

 

18

 

Capitalized interest

 

 

 

 

(125

)

Loss on extinguishment of debt

 

 

 

 

115

 

Loss on disposal of equipment

 

 

 

 

2

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses

 

(14

)

 

 

(236

)

Accounts receivable from related party

 

240

 

 

 

(663

)

Other assets

 

(763

)

 

 

(120

)

Operating lease right-of-use assets, non-current

 

678

 

 

 

 

Accounts payable

 

862

 

 

 

(1,935

)

Accrued liabilities

 

1,098

 

 

 

3,128

 

Other liabilities

 

(330

)

 

 

229

 

Deferred revenue

 

(12,676

)

 

 

2,893

 

Net cash used in operating activities

 

(22,878

)

 

 

(14,136

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(1,121

)

 

 

(4,190

)

Purchase of marketable securities

 

(55,659

)

 

 

 

Sales of marketable securities

 

10,893

 

 

 

 

Net cash used in investing activities

 

(45,887

)

 

 

(4,190

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments of capital and finance lease obligations

 

(8

)

 

 

(25

)

Proceeds from issuance of long-term debt and warrants, net

 

 

 

 

4,537

 

Repayment of long-term debt

 

 

 

 

(3,605

)

Proceeds from stock option exercises

 

847

 

 

 

156

 

Net cash provided by financing activities

 

839

 

 

 

1,063

 

Net decrease in cash, cash equivalents, and restricted cash

 

(67,926

)

 

 

(17,263

)

Cash, cash equivalents and restricted cash, beginning of period

 

87,721

 

 

 

58,910

 

Cash, cash equivalents and restricted cash, end of period

$

19,795

 

 

$

41,647

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

Cash paid for interest

$

344

 

 

$

284

 

Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

Fixed asset additions in accounts payable

$

935

 

 

$

701

 

Fixed asset additions in accrued expenses

$

665

 

 

$

413

 

 

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

 

 

8


 

Molecular Templates, Inc.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

Molecular Templates, Inc. (the “Company”) is a clinical stage biopharmaceutical company formed in 2001, with a biologic therapeutic platform for the development of novel targeted therapeutics for cancer and other diseases, headquartered in Austin, Texas. The Company’s focus is on the research and development of therapeutic compounds for a variety of cancers. The Company operates its business as a single segment, as defined by U.S. generally accepted accounting principles (“U.S. GAAP”).

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP pursuant to the requirements of the Securities and Exchange Commission (“SEC”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for the fair presentation of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date, but includes a reclassification of $4.3 million from Other current assets to Grants revenue receivable in order to conform to current period presentation.

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimates could result in a change to estimates and impact future operating results.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2019.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and reflect the elimination of intercompany accounts and transactions.

Recently Adopted Accounting Pronouncements 

 

Leases

 

In February 2016, the Financial Accounting Standards Board ("FASB") established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which supersedes ASC 840, Leases, and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. Topic 842, as amended, (the "new lease standard") establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the consolidated balance sheets for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statements of operation.

The Company adopted the new lease standard on January 1, 2019 and used the effective date as the date of initial adoption. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for earlier periods.

 

The Company has completed a qualitative and quantitative assessment of its lease portfolio, in which the standard had a material impact on the condensed consolidated balance sheets but did not have an impact on the condensed consolidated statement of operations. Upon adoption, the Company recognized lease liabilities of approximately $4.7 million based on the present value of the remaining minimum rental payments under current leasing standards for our existing operating leases. The corresponding ROU assets of $4.2 million recognized upon adoption are net of deferred rent.

9


 

The new standard provides a number of optional practical expedients in transition. The Company elected the practical expedients, which permits lessees not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company. The new standard also provides practical expedients for an entity's ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, ROU assets or lease liabilities will not be recognized, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for office leases.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2019, as compared to the significant accounting policies disclosed in Note 1, Summary of significant accounting policies, to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, other than lease accounting as noted below.

 

Lease Accounting

At inception of a contract, the Company determines whether an arrangement is or contains a lease. For all leases, the Company determines the classification as either operating leases or finance leases. Operating leases are included in Operating lease right-of-use assets and Operating lease liabilities in our condensed consolidated balance sheets.

Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. If a lease does not provide information to determine an implicit interest rate, the Company uses our incremental borrowing rate in determining the present value of lease payments. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments under the lease. ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received. Operating lease expense is recognized on a straight-line basis over the lease term. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease agreements with both lease and non-lease components, are generally accounted for together as a single lease component.

 

Cash and Cash Equivalents

The Company considers temporary investments with original maturities of three months or less from date of purchase to be cash equivalents. Restricted cash is recorded in other assets, based on when the restrictions expire.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash and cash equivalents, investments, long term debt and accounts receivable.

The Company’s cash and cash equivalents are with two major financial institutions in the United States.

The Company performs an ongoing credit evaluation of its strategic partners’ financial conditions and generally does not require collateral to secure accounts receivable from its strategic partners. The Company’s exposure to credit risk associated with non-payment will be affected principally by conditions or occurrences within Takeda Pharmaceutical Company Ltd. (“Takeda”). Approximately 96% and 68% of total revenues for the three months ended June 30, 2019 and 2018, respectively, and approximately 93% and 59% of total revenues for the six months ended June 30, 2019 and 2018, respectively, were derived from Takeda. There were no accounts receivable due from Takeda at June 30, 2019. See also Note 3, Research and Development Agreements, regarding the collaboration agreements with Takeda.

Drug candidates developed by the Company may require approvals or clearances from the U.S. Food and Drug Administration (“FDA”) or international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s drug candidates will receive any of the required approvals or clearances. If the Company were to be denied approval or clearance or any such approval or clearance were to be delayed, it would have a material adverse impact on the Company.

10


 

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than by reducing the carrying amount under the current, other-than-temporary-impairment model. The new standard is effective for interim and annual periods beginning on January 1, 2020, but may be adopted earlier. With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC Topic 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

NOTE 2 — NET LOSS PER COMMON SHARE

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including outstanding options and warrants.  The following is the calculation of basic and diluted net loss per share (in thousands, except share and per share data):

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss attributable to common shareholders:

$

9,153

 

 

$

9,695

 

 

$

15,321

 

 

$

18,409

 

Weighted average common shares outstanding - basic and diluted

 

36,819,846

 

 

 

27,062,440

 

 

 

36,779,638

 

 

 

27,026,263

 

Net loss per share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

$

0.25

 

 

$

0.36

 

 

$

0.42

 

 

$

0.68

 

 

The following outstanding warrants and options were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an antidilutive effect (in thousands):

 

 

June 30,

 

 

2019

 

 

2018

 

Shares issuable upon exercise of warrants

 

3,522

 

 

 

3,522

 

Shares issuable upon exercise of stock options

 

5,106

 

 

 

4,347

 

 

NOTE 3 — RESEARCH AND DEVELOPMENT AGREEMENTS

Disaggregated Research and Development Revenue

Research and development revenue is attributable to regions based on the location of our collaboration partner's parent company headquarters.  Research and development revenues disaggregated by location were as follows (in thousands):

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Japan

 

$

5,211

 

 

$

932

 

 

$

11,624

 

 

$

1,095

 

United States

 

 

 

 

 

12

 

 

 

 

 

 

80

 

Total research and development revenue

 

$

5,211

 

 

$

944

 

 

$

11,624

 

 

$

1,175

 

 

 

11


 

Related Party Collaboration Agreement - Takeda Pharmaceuticals, Inc.

Research and development revenue from related party relates to revenue from research and development agreements with Takeda Pharmaceuticals, Inc (“Takeda”) and were as follows (in thousands):

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Takeda Collaboration Agreement

$

 

 

$

81

 

 

$

 

 

$

92

 

Takeda Individual Project Agreement

 

 

 

 

663

 

 

 

54

 

 

 

663

 

Takeda Development and License Agreement

 

5,012

 

 

 

 

 

 

11,126

 

 

 

 

Takeda Multi-Target Agreement

 

199

 

 

 

188

 

 

 

444

 

 

 

340

 

Total research and development revenue

$

5,211

 

 

$

932

 

 

$

11,624

 

 

$

1,095

 

 

Deferred revenue and accounts receivable balances from the research and development agreements with Takeda were as follows (in thousands):

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Unbilled revenue

 

$

 

 

$