IDRA_Current_Folio_10Q3

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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 September 30, 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.

 

 

 

 

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

    

28,872,026

Class

 

Outstanding as of October 31, 2019

 

 

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IDERA PHARMACEUTICALS, INC.

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

    

Page

PART I — FINANCIAL INFORMATION 

 

 

 

 

Item 1.

Financial Statements

 

1

 

Condensed Balance Sheets as of September 30, 2019 and December 31, 2018

 

1

 

Condensed Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018

 

2

 

Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

 

3

 

Condensed Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2019 and 2018

 

4

 

Notes to Condensed Financial Statements

 

6

Item 2.

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

 

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

36

Item 4.

Controls and Procedures

 

36

 

 

 

 

PART II — OTHER INFORMATION 

 

 

 

 

Item 1A.

Risk Factors

 

37

Item 6.

Exhibits

 

38

 

 

 

 

 

Signatures

 

39

 

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.

 

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995 and the Federal Securities laws. 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 (the “SEC”) on March 6, 2019 and in our other filings with the SEC. 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 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.

 

 

 

 

iii

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PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

IDERA PHARMACEUTICALS, INC.

 

CONDENSED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

(In thousands, except per share amounts)

 

2019

 

2018*

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,611

 

$

71,431

 

Short-term investments

 

 

8,975

 

 

 —

 

Prepaid expenses and other current assets

 

 

3,488

 

 

1,376

 

Total current assets

 

 

45,074

 

 

72,807

 

Property and equipment, net

 

 

123

 

 

207

 

Operating lease right-of-use asset

 

 

125

 

 

 —

 

Other assets

 

 

70

 

 

 9

 

Total assets

 

$

45,392

 

$

73,023

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

321

 

$

1,134

 

Accrued expenses

 

 

7,307

 

 

7,884

 

Operating lease liability

 

 

138

 

 

 —

 

Total current liabilities

 

 

7,766

 

 

9,018

 

Other liabilities

 

 

 —

 

 

11

 

Total liabilities

 

 

7,766

 

 

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 — 28,858 and 27,188 shares at September 30, 2019 and December 31, 2018, respectively

 

 

29

 

 

27

 

Additional paid-in capital

 

 

735,254

 

 

728,342

 

Accumulated deficit

 

 

(697,658)

 

 

(664,375)

 

Accumulated other comprehensive income

 

 

 1

 

 

 —

 

Total stockholders’ equity

 

 

37,626

 

 

63,994

 

Total liabilities and stockholders’ equity

 

$

45,392

 

$

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.

1

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IDERA PHARMACEUTICALS, INC.

 

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

(In thousands, except per share amounts)

    

2019

    

2018

    

2019

    

2018

Alliance revenue

 

$

 —

 

$

145

 

$

1,448

 

$

563

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

8,359

 

 

8,860

 

 

26,485

 

 

32,912

General and administrative

 

 

3,023

 

 

3,984

 

 

9,061

 

 

11,849

Merger-related costs, net

 

 

 —

 

 

(3,836)

 

 

 —

 

 

1,245

Restructuring costs

 

 

 5

 

 

3,017

 

 

181

 

 

3,017

Total operating expenses

 

 

11,387

 

 

12,025

 

 

35,727

 

 

49,023

Loss from operations

 

 

(11,387)

 

 

(11,880)

 

 

(34,279)

 

 

(48,460)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

249

 

 

277

 

 

992

 

 

759

Interest expense

 

 

 —

 

 

 —

 

 

 —

 

 

(11)

Foreign currency exchange gain (loss)

 

 

 5

 

 

(2)

 

 

 4

 

 

(19)

Net loss

 

$

(11,133)

 

$

(11,605)

 

$

(33,283)

 

$

(47,731)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share applicable to common stockholders - basic and diluted (Note 13)

 

$

(0.39)

 

$

(0.43)

 

$

(1.17)

 

$

(1.81)

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

 

 

28,847

 

 

27,175

 

 

28,332

 

 

26,404

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(11,133)

 

$

(11,605)

 

$

(33,283)

 

$

(47,731)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on available-for-sale securities

 

 

(1)

 

 

 —

 

 

 1

 

 

 —

Total other comprehensive (loss) income

 

 

(1)

 

 

 —

 

 

 1

 

 

 —

Comprehensive loss

 

$

(11,134)

 

$

(11,605)

 

$

(33,282)

 

$

(47,731)

 

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

 

2

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IDERA PHARMACEUTICALS, INC.

 

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

(In thousands)

    

2019

    

2018

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net loss

 

$

(33,283)

 

$

(47,731)

 

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

 

 

 

 

 

 

 

Stock-based compensation

 

 

2,868

 

 

4,454

 

Issuance of common stock for services rendered

 

 

92

 

 

77

 

Accretion of discounts on short-term investments

 

 

(377)

 

 

 —

 

Depreciation and amortization expense

 

 

94

 

 

395

 

Loss on disposal of property and equipment

 

 

(10)

 

 

497

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(2,298)

 

 

1,881

 

Accounts payable, accrued expenses, and other liabilities

 

 

(1,257)

 

 

455

 

Deferred revenue

 

 

 —

 

 

(472)

 

Net cash used in operating activities

 

 

(34,171)

 

 

(40,444)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(44,447)

 

 

 —

 

Proceeds from maturity of available-for-sale securities

 

 

35,850

 

 

 —

 

Proceeds from the sale of property and equipment

 

 

11

 

 

193

 

Purchases of property and equipment

 

 

(11)

 

 

(71)

 

Net cash (used in) provided by investing activities

 

 

(8,597)

 

 

122

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from equity financings, net of issuance costs

 

 

3,857

 

 

 —

 

Proceeds from employee stock purchases

 

 

97

 

 

205

 

Proceeds from exercise of common stock options and warrants

 

 

 —

 

 

10,166

 

Payments on note payable

 

 

 —

 

 

(209)

 

Other

 

 

(6)

 

 

(7)

 

Net cash provided by financing activities

 

 

3,948

 

 

10,155

 

Net decrease in cash and cash equivalents

 

 

(38,820)

 

 

(30,167)

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

71,431

 

 

112,940

 

Cash, cash equivalents and restricted cash, end of period

 

$

32,611

 

$

82,773

 

 

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

3

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IDERA PHARMACEUTICALS, INC.

 

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 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

 

Sale of common stock, net of issuance costs

 

786

 

 

 1

 

 

2,271

 

 

 —

 

 

 —

 

 

2,272

 

Issuance of common stock under employee stock purchase plan

 

19

 

 

 —

 

 

42

 

 

 —

 

 

 —

 

 

42

 

Issuance of common stock for services rendered

 

14

 

 

 —

 

 

36

 

 

 —

 

 

 —

 

 

36

 

Stock-based compensation

 

 —

 

 

 —

 

 

889

 

 

 —

 

 

 —

 

 

889

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(11,176)

 

 

 —

 

 

(11,176)

 

Balance, June 30, 2019

 

28,827

 

$

29

 

$

734,229

 

$

(686,525)

 

$

 2

 

$

47,735

 

Issuance of common stock under employee stock purchase plan

 

15

 

 

 —

 

 

29

 

 

 —

 

 

 —

 

 

29

 

Issuance of common stock upon exercise of warrants

 

 4

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Issuance of common stock for services rendered

 

12

 

 

 —

 

 

33

 

 

 —

 

 

 —

 

 

33

 

Stock-based compensation

 

 —

 

 

 —

 

 

963

 

 

 —

 

 

 —

 

 

963

 

Unrealized gain on marketable securities

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

(1)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(11,133)

 

 

 —

 

 

(11,133)

 

Balance, September 30, 2019

 

28,858

 

$

29

 

$

735,254

 

$

(697,658)

 

$

 1

 

$

37,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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IDERA PHARMACEUTICALS, INC.

 

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 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 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

 

Issuance of common stock under stock purchase plan

 

 6

 

 

 —

 

 

78

 

 

 —

 

 

 —

 

 

78

 

Issuance of common stock upon exercise of options and warrants

 

151

 

 

 —

 

 

575

 

 

 —

 

 

 —

 

 

575

 

Issuance of common stock for services rendered

 

 2

 

 

 —

 

 

22

 

 

 —

 

 

 —

 

 

22

 

Stock-based compensation

 

 —

 

 

 —

 

 

1,538

 

 

 —

 

 

 —

 

 

1,538

 

Net loss

 

 —

 

 

 —

 

 

 

 

 

(16,031)

 

 

 —

 

 

(16,031)

 

Balance, June 30, 2018

 

27,171

 

 

27

 

 

725,659

 

 

(640,620)

 

 

 —

 

 

85,066

 

Issuance of common stock under stock purchase plan

 

 5

 

 

 —

 

 

46

 

 

 —

 

 

 —

 

 

46

 

Issuance of common stock for services rendered

 

 3

 

 

 —

 

 

32

 

 

 —

 

 

 —

 

 

32

 

Stock-based compensation

 

 —

 

 

 —

 

 

1,327

 

 

 —

 

 

 —

 

 

1,327

 

Net loss

 

 —

 

 

 —

 

 

 

 

 

(11,605)

 

 

 —

 

 

(11,605)

 

Balance, September 30, 2018

 

27,179

 

$

27

 

$

727,064

 

$

(652,225)

 

$

 —

 

$

74,866

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

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IDERA PHARMACEUTICALS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 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 September 30, 2019, the Company had an accumulated deficit of $697.7 million and a cash, cash equivalents and short-term investments balance of $41.6 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 balance of cash, cash equivalents and short-term investments on hand as of September 30, 2019 will be sufficient to fund operations into the third quarter of 2020.  The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires management to assess the Company’s ability to continue as a going concern for one year after the date the financial statements are issued. The Company’s balance of cash, cash equivalents and short-term investments on hand as of September 30, 2019 is not sufficient to fund operations past the third quarter of 2020. While there is substantial doubt about the Company’s ability to continue as a going concern through the one-year period from the date these financial statements are issued, management’s plans to mitigate this risk include raising additional capital through the Company’s Common Stock Purchase Agreement (Note 7), “At-The-Market” Equity Program (Note 7), or additional financing or strategic transactions.  Management’s plans may also include the possible deferral of certain operating expenses unless additional capital is received.

 

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 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 and nine months ended September 30, 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 (the “2018 Form 10-K”), which was filed with the SEC on March 6, 2019.

 

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 September 30, 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 September 30, 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 September 30, 2019, the Company did not have any derivatives, hedging instruments or other similar financial instruments.

 

Revenue Recognition

 

In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), 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 and other out-licensing arrangements.  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 9, “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 and nine months ended September 30, 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 September 30, 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 September 30, 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 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 the previous standard, which required only capital leases to be recognized on the balance sheet, ASU 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 nine months ended September 30, 2019. 

 

The table below presents the assets and liabilities measured and recorded in the financial statements at fair value on a recurring basis at September 30, 2019 and December 31, 2018 categorized by the level of inputs used in the valuation of each asset and liability:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

(In thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

250

 

$

250

 

$

 —

 

$

 —

 

Money market funds

 

 

25,635

 

 

25,635

 

 

 —

 

 

 —

 

Other cash equivalents – commercial paper

 

 

6,726

 

 

 —

 

 

6,726

 

 

 —

 

Short-term investments – commercial paper

 

 

4,257

 

 

 —

 

 

4,257

 

 

 —

 

Short-term investments – U.S. treasury bills

 

 

4,718

 

 

4,718

 

 

 —

 

 

 —

 

Total assets

 

$

41,586

 

$

30,603

 

$

10,983

 

$

 —

 

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 September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

    

 

    

Gross

    

Gross

    

Estimated

 

 

 

 

 

Unrealized

 

Unrealized

 

Fair

 

(In thousands)

 

Cost

 

(Losses)

 

Gains

 

Value

 

Short-term investments – commercial paper

 

$

4,256

 

$

 —

 

$

 1

 

$

4,257

 

Short-term investments – U.S. treasury bills