IDRA_Current_Folio_10Q

Table of Contents

 

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 March 31, 2019

OR

 

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

 

For transition period from                      to                     .  

 

Commission File Number: 001-31918

 


Picture 1

IDERA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 


 

 

 

 

Delaware

    

04-3072298

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

505 Eagleview Blvd., Suite 212

Exton, Pennsylvania

(Address of principal executive offices)

 

19341

(Zip code)

 

(484) 348-1600

(Registrant’s telephone number, including area code)

 


 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

IDRA

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, 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. (Check one):

 

 

 

 

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  

 

 

 

 

Common Stock, par value $.001 per share

    

28,021,756

Class

 

Outstanding as of April 30, 2019

 

 

 


 

Table of Contents

IDERA PHARMACEUTICALS, INC.

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

    

Page

PART I — FINANCIAL INFORMATION 

 

 

 

 

Item 1.

Financial Statements

 

1

 

Condensed Balance Sheets as of March 31, 2019 and December 31, 2018

 

1

 

Condensed Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018

 

2

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

 

3

 

Condensed Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018 

 

4

 

Notes to Condensed Financial Statements

 

5

Item 2.

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

 

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4.

Controls and Procedures

 

30

 

 

 

 

PART II — OTHER INFORMATION 

 

 

 

 

Item 1A.

Risk Factors

 

31

Item 6.

Exhibits

 

32

 

 

 

 

 

Signatures

 

33

 

IMO® and Idera® are our trademarks. All other trademarks and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

 


 

Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical fact, included or incorporated in this report regarding our strategy, future operations, clinical trials, collaborations, intellectual property, cash resources, financial position, future revenues, projected costs, prospects, plans, and objectives of management are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” “could,” “should,” “potential,” “likely,” “projects,” “continue,” “will,” and “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.

 

There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. These important factors include those set forth under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was filed with the Securities and Exchange Commission, or the SEC, on March 6, 2019. These factors and the other cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all related forward-looking statements whenever they appear in this Quarterly Report on Form 10-Q.

 

In addition, any forward-looking statements, including any statements about the proposed transaction, represent our estimates only as of the date that this Quarterly Report on Form 10-Q is filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. We do not assume any obligation to update any forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

 

 

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Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

IDERA PHARMACEUTICALS, INC.

 

CONDENSED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

(In thousands, except per share amounts)

 

2019

 

2018*

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,198

 

$

71,431

 

Short-term investments

 

 

35,666

 

 

 —

 

Prepaid expenses and other current assets

 

 

1,736

 

 

1,376

 

Total current assets

 

 

61,600

 

 

72,807

 

Property and equipment, net

 

 

176

 

 

207

 

Operating lease right-of-use asset

 

 

216

 

 

 —

 

Other assets

 

 

 9

 

 

 9

 

Total assets

 

$

62,001

 

$

73,023

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

895

 

$

1,134

 

Accrued expenses

 

 

5,179

 

 

7,884

 

Operating lease liability

 

 

202

 

 

 —

 

Total current liabilities

 

 

6,276

 

 

9,018

 

Operating lease liability, net of current portion

 

 

35

 

 

 —

 

Other liabilities

 

 

18

 

 

11

 

Total liabilities

 

 

6,329

 

 

9,029

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, Authorized — 5,000 shares:

 

 

 

 

 

 

 

Series A convertible preferred stock; Designated — 1,500 shares, Issued and outstanding — 1 share

 

 

 —

 

 

 —

 

Common stock, $0.001 par value, Authorized — 70,000 shares; Issued and outstanding — 28,008 and 27,188 shares at March 31, 2019 and December 31, 2018, respectively

 

 

28

 

 

27

 

Additional paid-in capital

 

 

730,991

 

 

728,342

 

Accumulated deficit

 

 

(675,349)

 

 

(664,375)

 

Accumulated other comprehensive income

 

 

 2

 

 

 —

 

Total stockholders’ equity

 

 

55,672

 

 

63,994

 

Total liabilities and stockholders’ equity

 

$

62,001

 

$

73,023

 


* The condensed balance sheet at December 31, 2018 has been derived from the audited financial statements at that date.

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

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IDERA PHARMACEUTICALS, INC.

 

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

(In thousands, except per share amounts)

    

2019

    

2018

Alliance revenue

 

$

 —

 

$

255

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

8,102

 

 

13,556

General and administrative

 

 

3,143

 

 

3,481

Merger-related costs, net

 

 

 —

 

 

3,498

Restructuring costs

 

 

131

 

 

 —

Total operating expenses

 

 

11,376

 

 

20,535

Loss from operations

 

 

(11,376)

 

 

(20,280)

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

404

 

 

211

Interest expense

 

 

 —

 

 

(7)

Foreign currency exchange loss

 

 

(2)

 

 

(19)

Net loss

 

$

(10,974)

 

$

(20,095)

 

 

 

 

 

 

 

Net loss per share applicable to common stockholders - basic and diluted (Note 12)

 

$

(0.40)

 

$

(0.81)

Weighted-average number of common shares used in computing net loss per share applicable to common stockholders - basic and diluted

 

 

27,676

 

 

24,879

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(10,974)

 

$

(20,095)

Other comprehensive income (loss):

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

 2

 

 

 —

Total other comprehensive income

 

 

 2

 

 

 —

Comprehensive loss

 

$

(10,972)

 

$

(20,095)

 

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

 

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IDERA PHARMACEUTICALS, INC.

 

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

(In thousands)

    

2019

    

2018

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net loss

 

$

(10,974)

 

$

(20,095)

 

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

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,016

 

 

1,589

 

Issuance of common stock for services rendered

 

 

23

 

 

23

 

Accretion of discounts on short-term investments

 

 

(181)

 

 

 —

 

Unrealized gain on available-for-sale securities

 

 

 2

 

 

 —

 

Depreciation and amortization expense

 

 

35

 

 

169

 

Gain on disposal of property and equipment

 

 

(8)

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(576)

 

 

1,341

 

Accounts payable, accrued expenses, and other liabilities

 

 

(2,694)

 

 

2,416

 

Deferred revenue

 

 

 —

 

 

(190)

 

Net cash used in operating activities

 

 

(13,357)

 

 

(14,747)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(35,485)

 

 

 —

 

Proceeds from the sale of property and equipment

 

 

 8

 

 

 —

 

Purchases of property and equipment

 

 

(4)

 

 

(14)

 

Net cash used in investing activities

 

 

(35,481)

 

 

(14)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from equity financings, net of issuance costs

 

 

1,585

 

 

 —

 

Proceeds from employee stock purchases

 

 

26

 

 

81

 

Proceeds from exercise of common stock options and warrants

 

 

 —

 

 

9,591

 

Payments on note payable

 

 

 —

 

 

(78)

 

Other

 

 

(6)

 

 

(3)

 

Net cash provided by financing activities

 

 

1,605

 

 

9,591

 

Net decrease in cash and cash equivalents

 

 

(47,233)

 

 

(5,170)

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

71,431

 

 

112,940

 

Cash, cash equivalents and restricted cash, end of period

 

$

24,198

 

$

107,770

 

 

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

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IDERA PHARMACEUTICALS, INC.

 

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

 

Additional

 

 

 

 

Other

 

Total

 

 

 

Number of

 

$0.001 Par

 

Paid-In

 

Accumulated

 

Comprehensive

 

Stockholders’

 

(In thousands, except per share amounts)

 

Shares

 

Value

 

Capital

 

Deficit

 

Income

 

Equity

 

Balance, December 31, 2017

 

24,453

 

$

24

 

$

712,165

 

$

(604,494)

 

$

 —

 

$

107,695

 

Issuance of common stock under stock purchase plan

 

 7

 

 

 —

 

 

81

 

 

 —

 

 

 —

 

 

81

 

Issuance of common stock upon exercise of common stock warrants

 

2,551

 

 

 3

 

 

9,588

 

 

 —

 

 

 —

 

 

9,591

 

Issuance of common stock for services rendered

 

 1

 

 

 —

 

 

23

 

 

 —

 

 

 —

 

 

23

 

Stock-based compensation

 

 —

 

 

 —

 

 

1,589

 

 

 —

 

 

 —

 

 

1,589

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(20,095)

 

 

 —

 

 

(20,095)

 

Balance, March 31, 2018

 

27,012

 

$

27

 

$

723,446

 

$

(624,589)

 

$

 —

 

$

98,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

 

Additional

 

 

 

 

Other

 

Total

 

 

 

Number of

 

$0.001 Par

 

Paid-In

 

Accumulated

 

Comprehensive

 

Stockholders’

 

(In thousands, except per share amounts)

 

Shares

 

Value

 

Capital

 

Deficit

 

Income

 

Equity

 

Balance, December 31, 2018

 

27,188

 

$

27

 

$

728,342

 

$

(664,375)

 

$

 —

 

$

63,994

 

Sale of common stock, net of issuance costs

 

533

 

 

 1

 

 

1,584

 

 

 —

 

 

 —

 

 

1,585

 

Issuance of commitment shares

 

270

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Issuance of common stock under employee stock purchase plan

 

11

 

 

 —

 

 

26

 

 

 —

 

 

 —

 

 

26

 

Issuance of common stock for services rendered

 

 6

 

 

 —

 

 

23

 

 

 —

 

 

 —

 

 

23

 

Stock-based compensation

 

 —

 

 

 —

 

 

1,016

 

 

 —

 

 

 —

 

 

1,016

 

Unrealized gain on marketable securities

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

 

 2

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(10,974)

 

 

 —

 

 

(10,974)

 

Balance, March 31, 2019

 

28,008

 

$

28

 

$

730,991

 

$

(675,349)

 

$

 2

 

$

55,672

 

 

The accompanying notes are an integral part of these financial statements

 

 

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IDERA PHARMACEUTICALS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 2019

 

(UNAUDITED)

 

Note 1.  Business and Organization

 

Business Overview

 

Idera Pharmaceuticals, Inc. (“Idera” or the “Company”), a Delaware corporation, is a clinical-stage biopharmaceutical company with a business strategy focused on the clinical development, and ultimately the commercialization, of drug candidates for both oncology and rare disease indications characterized by small, well-defined patient populations with serious unmet medical needs. The Company’s current focus is on its Toll-like receptor, or TLR, agonist, tilsotolimod (IMO-2125), for oncology. The Company believes it can develop and commercialize targeted therapies on its own.  To the extent the Company seeks to develop drug candidates for broader disease indications, it has entered into and may explore additional collaborative alliances to support development and commercialization. 

 

Liquidity and Financial Condition

 

As of March 31, 2019, the Company had an accumulated deficit of $675.3 million and a cash, cash equivalents and investments balance of $59.9 million. The Company expects to incur substantial operating losses in future periods and will require additional capital as it seeks to advance tilsotolimod and any future drug candidates through development to commercialization. The Company does not expect to generate product revenue, sales-based milestones or royalties until the Company successfully completes development of and obtains marketing approval for tilsotolimod or other future drug candidates, either alone or in collaboration with third parties, which the Company expects will take a number of years. In order to commercialize tilsotolimod and any future drug candidates, the Company needs to complete clinical development and comply with comprehensive regulatory requirements. The Company is subject to a number of risks and uncertainties similar to those of other companies of the same size within the biotechnology industry, such as uncertainty of clinical trial outcomes, uncertainty of additional funding and history of operating losses.

 

The Company believes, based on management’s current operating plan, that its existing balance of cash, cash equivalents and investments on hand as of March 31, 2019 is sufficient to enable the Company to continue as a going concern through the one-year period subsequent to the filing date of this Quarterly Report on Form 10-Q. Further, management has concluded that it is probable that management’s plans can be effectively implemented and will mitigate the relevant conditions that raise substantial doubt about the Company’s ability to continue as a going concern while not impeding the advancement of its drug development. These plans may also include the possible deferral of certain operating expenses unless additional capital is received. The Company has and will continue to evaluate available alternatives to extend its operations beyond this date.

 

Reverse Stock Split

 

On July 27, 2018, the Company effected a 1-for-8 reverse stock split of the Company's outstanding shares of common stock, as authorized at a special meeting of stockholders on June 20, 2018. All share and per share amounts of common stock, options and warrants in the accompanying financial statements and notes thereto have been retroactively adjusted for all periods presented to reflect the reverse stock split.

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Note 2.  Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited financial statements included herein have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring adjustments, and disclosures considered necessary for a fair presentation of interim period results have been included. Interim results for the three months ended March 31, 2019 are not necessarily indicative of results that may be expected for the year ending December 31, 2019. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (“2018 Form 10-K”), which was filed with the SEC on March 6, 2019.

 

Reclassifications

 

The prior year financial statements contain certain reclassifications to the results of operations for the three months ended March 31, 2018 to conform to the current year presentation and presentation for the year ended December 31, 2018 included in the Company’s 2018 Form 10-K. Merger-related costs of approximately $3.5 million were reclassified from general and administrative expenses to merger-related costs, net for the three months ended March 31, 2018.  

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of 90 days or less when purchased to be “cash equivalents.” Cash and cash equivalents at March 31, 2019 and December 31, 2018 consisted of cash, commercial paper and money market funds.

 

 Financial Instruments

 

The fair value of the Company’s financial instruments is determined and disclosed in accordance with the three-tier fair value hierarchy specified in Note 3. The Company is required to disclose the estimated fair values of its financial instruments. As of March 31, 2019 and December 31, 2018, the Company’s financial instruments consisted of cash, cash equivalents, investments and receivables and the estimated fair values of such financial instruments approximated their carrying values. As of March 31, 2019, the Company did not have any derivatives, hedging instruments or other similar financial instruments.

 

Revenue Recognition

 

In accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

 

The Company’s revenues have primarily been generated through collaborative research, development and/or commercialization agreements.  The terms of these agreements may include payment to the Company of one or more of the following: nonrefundable, up-front license fees; research, development and commercial milestone payments; and other contingent payments due based on the activities of the counterparty or the reimbursement by licensees of costs associated with patent maintenance.  Each of these types of revenue are recorded as Alliance revenues in the Company’s statement of operations.

 

See Note 8, “Collaboration and License Agreements” for additional details surrounding the Company’s collaboration arrangements.

 

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Note 2.  Summary of Significant Accounting Policies (Continued)

 

Income Taxes

 

In accordance with ASC 270, Interim Reporting, and ASC 740, Income Taxes, the Company is required at the end of each interim period to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis.  For the three months ended March 31, 2019 and 2018, the Company recorded no tax expense or benefit due to the expected current year loss and its historical losses.  The Company has not recorded its net deferred tax asset as of either March 31, 2019 or December 31, 2018 because it maintained a full valuation allowance against all deferred tax assets as of these dates as management has determined that it is not more likely than not that the Company will realize these future tax benefits. As of March 31, 2019 and December 31, 2018, the Company had no uncertain tax positions.

 

New Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB and rules are issued by the SEC that the Company has or will adopt as of a specified date. Unless otherwise noted, management does not believe that any other recently issued accounting pronouncements issued by the FASB or guidance issued by the SEC had, or is expected to have, a material impact on the Company’s present or future financial statements.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”).  ASU 2016-02 requires organizations that lease assets, with lease terms of more than 12 months, to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Consistent with GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will depend primarily on its classification as a finance or operating lease. However, unlike current GAAP which requires only capital leases to be recognized on the balance sheet, ASU No. 2016-02 requires both types of leases to be recognized on the balance sheet. This guidance was applicable to the Company's fiscal year beginning January 1, 2019, and the Company adopted ASU 2016-02 in the first quarter of 2019 using the alternative modified retrospective transition method, which allowed the Company to apply the new lease standard to the beginning of the 2019 period and did not require adjusting comparative period financial information.  Additionally, the Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. As a result of adopting ASU 2016-02, the primary impact on the Company’s financial statements was the recognition of a right-of-use asset and corresponding liability of approximately $0.3 million on its balance sheet as of January 1, 2019 related to its existing Exton, PA facility operating lease.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) (“ASU 2018-07”).  ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions and was adopted by the Company in the first quarter of 2019.  The adoption of this ASU did not have a material impact on the Company’s financial statements.

 

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Note 3.  Fair Value Measurements

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The Company applies the guidance in ASC 820, Fair Value Measurement, to account for financial assets and liabilities measured on a recurring basis.  Fair value is measured at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

 

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value measurements be classified and disclosed in one of the following three categories:

·

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

·

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

·

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

 

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. There were no transfers between Level 1, 2 and 3 during the three months ended March 31, 2019. 

 

The table below presents the assets and liabilities measured and recorded in the financial statements at fair value on a recurring basis at March 31, 2019 and December 31, 2018 categorized by the level of inputs used in the valuation of each asset and liability:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

221

 

$

221

 

$

 —

 

$

 —

 

Money market funds

 

 

18,580

 

 

18,580

 

 

 —

 

 

 —

 

Other cash equivalents – commercial paper

 

 

5,397

 

 

 —

 

 

5,397

 

 

 —

 

Short-term investments – commercial paper

 

 

17,772

 

 

 —

 

 

17,772

 

 

 —

 

Short-term investments – U.S. treasury bills

 

 

17,894

 

 

17,894

 

 

 —

 

 

 —

 

Total assets

 

$

59,864

 

$

36,695

 

$

23,169

 

$

 —

 

Total liabilities

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

8,446

 

$

8,446

 

$

 —

 

$

 —

 

Money market funds

 

 

61,177

 

 

61,177

 

 

 —

 

 

 —

 

Other cash equivalents – commercial paper

 

 

1,808

 

 

 —

 

 

1,808

 

 

 —

 

Total assets

 

$

71,431

 

$

69,623

 

$

1,808

 

$

 —

 

Total liabilities

 

$

 

$

 

$

 

$

 

The Level 1 assets include money market funds, which are actively traded daily.

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Note 4.  Investments

 

The Company’s available-for-sale investments at fair value consisted of the following at March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

    

 

    

Gross

    

Gross

    

Estimated

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

(In thousands)

 

Cost

 

(Losses)

 

Gains

 

Value

 

Short-term investments – commercial paper

 

$

17,772

 

$

 —

 

$

 —

 

$

17,772

 

Short-term investments – U.S. treasury bills

 

 

17,892

 

 

 —

 

 

 2

 

 

17,894

 

Total short-term investments

 

$

35,664

 

$

 —

 

$

 2

 

$

35,666

 

Total investments

 

$

35,664

 

$

 —

 

$

 2

 

$

35,666

 

 

The Company had no realized gains or losses from the sale of investments in available-for-sale securities in each of the three months ended March 31, 2019 and 2018. There were no losses or other-than-temporary declines in value included in “Interest income” on the Company’s condensed statements of operations and comprehensive loss for any securities for each of the three months ended March 31, 2019 and 2018.

 

Note 5.  Property and Equipment

 

At March 31, 2019 and December 31, 2018, property and equipment, net, consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

(In thousands)

    

2019

    

2018

 

Leasehold improvements

 

$

107

 

$

104

 

Laboratory equipment and other

 

 

762

 

 

767

 

Total property and equipment, at cost

 

 

869

 

 

871

 

Less: Accumulated depreciation and amortization

 

 

693

 

 

664

 

Property and equipment, net

 

$

176

 

$

207

 

 

Depreciation and amortization expense on property and equipment was less than $0.1 million during the three months ended March 31, 2019 and approximately $0.2 million during the three months ended March 31, 2018. There were no non-cash property additions during each of the three months ended March 31, 2019 and 2018.

 

Note 6.  Accrued Expenses 

 

At March 31, 2019 and December 31, 2018, accrued expenses consisted of the following:

 

 

 

 

 

 

 

 

 

 

    

March 31, 

 

December 31, 

 

(In thousands)

 

2019

    

2018

 

Payroll and related costs

 

$

982

 

$

1,962

 

Clinical and nonclinical trial expenses

 

 

2,908

 

 

3,958

 

Professional and consulting fees

 

 

329

 

 

605

 

Restructuring expenses

 

 

823

 

 

1,147

 

Other

 

 

137

 

 

212

 

Total accrued expenses

 

$

5,179

 

$

7,884

 

 

Included in accrued Payroll and related costs as of March 31, 2019 and December 31, 2018 is $0.4 million and $0.7 million, respectively, of salary continuation severance benefits to be paid in equal installments through October 31, 2019 to former executives.

 

 

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Note 7.  Stockholders’ Equity

 

Equity Financings

 

Common Stock Purchase Agreement

 

On March 4, 2019, the Company entered into a Purchase Agreement with Lincoln Park Capital Fund, LLC (“Investor”), pursuant to which, upon the terms and subject to the conditions and limitations set forth therein, Investor has committed to purchase an aggregate of $35.0 million of shares of Company common stock from time to time at the Company’s sole discretion (the “Purchase Agreement”). As consideration for entering into the Purchase Agreement, the Company issued 269,749 shares of Company common stock to Investor as a commitment fee (the “Commitment Shares”). The closing price of the Company’s common stock on March 4, 2019  was $2.84 and the Company did not receive any cash proceeds from the issuance of the Commitment Shares. Accordingly, there was no net impact to total stockholders’ equity as a result of the issuance. Additionally, no shares were sold to Investor under the Purchase Agreement through March 31, 2019.

 

"At-The-Market" Equity Program

 

In November 2018, the Company entered into an Equity Distribution Agreement (the “ATM Agreement”) with JMP Securities LLC (“JMP”) pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $50.0 million (the “Shares”) through JMP as its agent. Subject to the terms and conditions of the Agreement, JMP will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions, by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, or if specified by the Company, by any other method permitted by law, including but not limited to in negotiated transactions. The Company has no obligation to sell any of the Shares, and the Company or JMP may at any time suspend sales under the ATM Agreement or terminate the ATM Agreement. JMP is entitled to a fixed commission of 3.0% of the gross proceeds from Shares sold. During the three months ended March 31, 2019, the Company sold 532,700 Shares pursuant to the ATM Agreement resulting in net proceeds, after deduction of commissions and other offering expenses, of $1.6 million.

 

Common Stock Warrants

 

In connection with various financing transactions, the Company has issued warrants to purchase shares of the Company’s common stock. The Company accounts for common stock warrants as equity instruments, derivative liabilities or liabilities, depending on the specific terms of the warrant agreement. As of March 31, 2019 and December 31, 2018, all of the Company’s outstanding common stock warrants were equity-classified.

 

The following table summarizes outstanding warrants to purchase shares of the Company’s common stock as of March 31, 2019 and December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

 

 

 

 

 

March 31,

December 31,

 

Weighted-Average

 

 

 

Description

 

2019

2018

 

Exercise Price

 

Expiration Date

 

Issued in May 2013 financing (pre-funded)

 

1,977,041

1,977,041

 

 

$ 0.08

 

May 2020

 

Issued in September 2013 financing (pre-funded)

 

521,997

521,997

 

 

$ 0.08

 

Sep 2020

 

Issued in February 2014 financing (pre-funded)

 

269,844

269,844

 

 

$ 0.08

 

Feb 2021

 

Total

 

2,768,882

2,768,882

 

 

 

 

 

 

 

The table below is a summary of the Company's warrant activity for the three months ended March 31, 2019:

 

 

 

 

 

 

 

 

Number of

 

Weighted-Average

 

 

Warrants

 

Exercise Price

Outstanding at December 31, 2018

 

2,768,882

 

$

0.08

Issued

 

 —

 

 

 —

Exercised

 

 —

 

 

 —

Expired

 

 —

 

 

 —

Outstanding at March 31, 2019

 

2,768,882

 

$

0.08

 

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Note 8.  Collaboration and License Agreements 

 

Collaboration with Vivelix

 

In November 2016, the Company entered into an exclusive license and collaboration agreement with Vivelix pursuant to which the Company granted Vivelix worldwide rights to develop and market IMO-9200, an antagonist of TLR7, TLR8, and TLR9, for non-malignant gastrointestinal disorders, and certain back-up compounds to IMO-9200 (the “Vivelix Agreement”). The Company was previously developing IMO-9200 for potential use in selected autoimmune disease indications. However, the Company determined not to proceed with internal development of IMO-9200 because the large autoimmune disease indications for which IMO-9200 had been developed did not fit within the strategic focus of the Company. Under the terms of the Vivelix Agreement, Vivelix was solely responsible for the development and commercialization of IMO-9200 and any designated back-up compounds. In connection with the Vivelix Agreement, Idera also transferred certain drug material to Vivelix for Vivelix’s use in its development activities.

 

Under the terms of the Vivelix Agreement, the Company received an upfront, non-refundable fee of $15 million and was eligible for future IMO-9200 related development, regulatory and sales milestone payments and sales-based royalties. However, on March 4, 2019, the Company and Vivelix mutually agreed to terminate the Vivelix Agreement.  Accordingly, the Company is no longer eligible to receive any future milestone or royalty-based payments and all rights previously granted to Vivelix with respect to IMO-9200 and certain back-up compounds to IMO-9200 reverted back to the Company.

 

For the three months ended March 31, 2018, the Company recognized Alliance revenues of less than $0.1 million related to certain research activities performed by the Company at Vivelix’s request, pursuant to the Vivelix Agreement. No such services were performed during the three months ended March 31, 2019.

 

Collaboration with GSK

 

In November 2015, the Company entered into a collaboration and license agreement with GSK to license, research, develop and commercialize pharmaceutical compounds from the Company’s nucleic acid chemistry technology for the treatment of selected targets in renal disease (the “GSK Agreement”). In connection with the GSK Agreement, GSK identified an initial target for the Company to attempt to identify a potential population of development candidates to address such target under a mutually agreed upon research plan. From the population of identified development candidates, GSK may designate one development candidate in its sole discretion to move forward into clinical development. Once GSK designates a development candidate, GSK would be solely responsible for the development and commercialization activities for that designated development candidate.

 

The GSK Agreement also provided GSK with the option to select up to two additional targets at any time during the first two years of the GSK Agreement for further research under mutually agreed upon research plans. Upon selecting additional targets, GSK then had the option to designate one development candidate for each additional target, at which time GSK would have sole responsibility to develop and commercialize each such designated development candidate. GSK did not select any additional targets for research through expiry of the option period.

 

Under the terms of the GSK Agreement, the Company received a $2.5 million upfront, non-refundable, non-creditable cash payment upon the execution of the GSK Agreement.  Additionally, as of March 31, 2019, the Company is eligible to receive an additional $18 million in license, research, clinical development and commercialization milestone payments, of which $1 million would be payable by GSK upon the designation of a development candidate from the initial target and $17 million would be payable by GSK upon the achievement of clinical milestones and commercial milestones. In addition, the Company is eligible to receive royalty payments on sales of licensed products following commercialization at varying rates of up to 5% on annual net sales, as defined in the GSK Agreement.

 

For the three months ended March 31, 2018, the Company recognized Alliance revenues of less than $0.1 million related to the amortization of the deferred up-front payment received at inception of the GSK Agreement, over the 36-month anticipated performance period, which concluded in the fourth quarter of 2018. Accordingly, no such revenues were recognized during the three months ended March 31, 2019.

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Note 9.  Restructuring Costs

 

In July 2018, the Company determined to wind-down its discovery operations, reduce the workforce in Cambridge, Massachusetts that supports such operations, and close its Cambridge facility. In connection with the reduction-in-workforce, 18 positions are being eliminated, primarily in the area of discovery, representing approximately 40% of the Company’s employees. Of the 18 positions being eliminated, 15 were effective July 31, 2018 with the remaining expected to be eliminated by the end of the second quarter of 2019.

 

Restructuring-related charges to date are comprised of (i) one-time termination costs in connection with the reduction in workforce, including severance, benefits and related costs, of approximately $3.2 million; (ii) contract termination costs of approximately $0.2 million in connection with the early lease termination for the Cambridge facility; and (iii) non-cash asset impairments of approximately $0.7 million, which includes $0.5 million of fixed asset impairments and $0.2 million in write-offs of facility-related prepaid expenses; offset by (iv) a non-cash gain of approximately $0.4 million related to the write-off of the remaining deferred rent liability associated with the Cambridge facility lease.

 

The following summarizes restructuring-related activity for the three months ended March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Employee Severance
and Benefits

 

Contract Termination Costs

 

Asset Impairments

 

Total

Accrued restructuring balance as of December 31, 2018

 

$

1,147

 

$

 —

 

$

 —

 

$

1,147

Charges incurred

 

 

131

 

 

 —

 

 

 —

 

 

131

Cash payments

 

 

(437)

 

 

 —

 

 

 —

 

 

(437)

Accrued restructuring balance as of March 31, 2019

 

$

841

 

$

 —

 

$

 —

 

$

841

 

As of March 31, 2019, the short-term portion of the accrued restructuring balance, or $0.8 million, is included in “Accrued expenses” in the accompanying condensed balance sheets. See Note 6. The long-term portion of less than $0.1 million is included within “Other liabilities” in the accompanying condensed balance sheets.

 

Note 10.  Stock-Based Compensation

 

As of March 31, 2019, the only equity compensation plans from which the Company may currently issue new awards are the Company’s 2013 Stock Incentive Plan (as amended to date, the “2013 Plan”) and 2017 Employee Stock Purchase Plan (the “2017 ESPP”), each as more fully described below.

 

Equity Incentive and Employee Stock Purchase Plans

 

2013 Stock Incentive Plan

 

The Company's board of directors adopted the 2013 Plan, which was approved by the Company’s stockholders effective July 26, 2013. The 2013 Plan is intended to further align the interests of the Company and its stockholders with its employees, including its officers, non-employee directors, consultants and advisers by providing equity-based incentives. The 2013 Plan allows for the issuance of up to such number of shares of the Company’s common stock as equal to (i) 3,153,057 shares of common stock; plus (ii) such additional number of shares of common stock (up to 868,372 shares) as is equal to the sum of the number of shares of common stock subject to awards granted under the Company’s 2005 Stock Incentive Plan (the “2005 Plan”) or the Company’s 2008 Stock Incentive Plan (the “2008 Plan” and, together with the 2005 Plan, the “Existing Plans”) which awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (subject, however, in the case of incentive stock options to any limitations of the Internal Revenue Code). 

 

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Note 10.  Stock-Based Compensation (Continued)

 

As of March 31, 2019, options to purchase a total of 2,880,400 shares of common stock and 193,625 restricted stock units were outstanding and up to 323,418 shares of common stock remained available for grant under the 2013 Plan. The Company has not made any awards pursuant to other equity incentive plans, including the Existing Plans, since the Company’s stockholders approved the 2013 Plan. As of March 31, 2019, options to purchase a total of 464,247 shares of common stock were outstanding under the 2008 Plan. 

 

In addition, as of March 31, 2019, non-statutory stock options to purchase an aggregate of 393,750 shares of common stock were outstanding that were issued outside of the 2013 Plan to certain employees in 2017, 2015 and 2014 pursuant to the Nasdaq inducement grant exception as a material component of new hires’ employment compensation.

 

2017 Employee Stock Purchase Plan

 

The Company’s board of directors adopted the 2017 ESPP, which was approved by the Company’s stockholders and became effective on June 7, 2017. The 2017 ESPP provides for the issuance of up to 62,500 shares of common stock to participating employees of the Company or its subsidiaries. Participation is limited to employees that would not own 5% or more of the total combined voting power or value of the stock of the Company after the grant. As of March 31, 2019, 21,198 shares remained available for issuance under the 2017 ESPP.

 

For the three months ended March 31, 2019 and 2018, the Company issued 11,096 and 6,702 shares of common stock, respectively, under the 2017 ESPP and received proceeds of less than $0.1 million during each period, as a result of employee stock purchases.

 

Accounting for Stock-based Compensation

 

The Company recognizes non-cash compensation expense for stock-based awards under the Company’s equity incentive plans over an award’s requisite service period, or vesting period, using the straight-line attribution method, based on their grant date fair value determined using the Black-Scholes option-pricing model. The Company also recognizes non-cash compensation for stock purchases made under the 2017 ESPP.  The fair value of the discounted purchases made under the Company’s 2017 ESPP is calculated using the Black-Scholes option-pricing model. The fair value of the look-back provision plus the 15% discount is recognized as compensation expense over each plan period.

 

Total stock-based compensation expense attributable to stock-based payments made to employees and directors and employee stock purchases included in operating expenses in the Company's statements of operations for the three months March 31, 2019 and 2018 was as follows:

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2019

    

2018

 

Stock-based compensation:

 

 

 

    

 

 

 

Research and development

 

 

 

 

 

 

 

Employee Stock Purchase Plans

 

$

 6

    

$

22

 

Equity Incentive Plans

 

 

330

    

 

556

 

 

 

$

336

    

$

578

 

General and administrative

 

 

 

 

 

 

 

Employee Stock Purchase Plans

 

$

 6

    

$

14

 

Equity Incentive Plans

 

 

674

    

 

997

 

 

 

$

680

    

$

1,011

 

Total stock-based compensation expense

 

$

1,016

    

$

1,589

 

 

During the three months ended March 31, 2019 and 2018, the weighted average fair market value of stock options granted was $1.83 and $9.92, respectively.

 

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Note 10.  Stock-Based Compensation (Continued)

 

The following weighted average assumptions apply to the options to purchase 480,502 and 514,600 shares of common stock granted to employees and directors during the three months ended March 31, 2019 and 2018, respectively:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Average risk-free interest rate

 

 

2.4%

 

 

2.1%

 

Expected dividend yield

 

 

 

 

 

Expected lives (years)

 

 

3.6